Articles Posted in SEC Enforcement Actions 2012

SEC Bans Arizona-Based Investment Adviser From Securities Industry For Fraudulent Actions In Mutual Fund Collapse

The Securities and Exchange Commission recently barred an Arizona-based mutual fund manager from the securities industry for failing to follow the investment objectives of a stock mutual fund managed by his firm, leading to the fund’s collapse.

An SEC investigation found that the prospectus of Z Seven Fund (ZSF) stated that it sought long-term capital appreciation and restricted the use of options. Nonetheless, beginning in September 2009, Barry C. Ziskin and his firm Top Fund Management (TFM) invested ZSF in put options for speculative purposes contrary to the fund’s stated investment policy. The losses from options trading and the ensuing investor redemptions ultimately resulted in ZSF’s liquidation in December 2010.

Securities and Exchange Commission v. Rajat K. Gupta and Raj Rajaratnam, Civil Action No. 11-CV-7566 (SDNY) (JSR)

SEC Obtains Final Judgment on Consent as to Raj Rajaratnam

The Securities and Exchange Commission recently announced that, on December 26, 2012, the Honorable Jed S. Rakoff, United States District Judge, United States District Court for the Southern District of New York, entered a Final Judgment, on consent, as to former hedge fund manager Raj Rajaratnam in the SEC’s insider trading case, SEC v. Rajat K. Gupta and Raj Rajaratnam, Civil Action No. 11-CV-7566 (SDNY) (JSR). The final judgment orders Rajaratnam to pay $1,299,120 in disgorgement and $147,738, in prejudgment interest, for a total of $1,446,858.

SECURITIES AND EXCHANGE COMMISSION v. ERIC TODD SEIDEN AND KAMAL ABDALLAH, Civil Action No. CV 09-3116 (KAM) (EDNY)

COURT ENTERS FINAL JUDGMENTS BY CONSENT AGAINST SEC DEFENDANTS ERIC TODD SEIDEN AND KAMAL ABDALLAH

The Securities and Exchange Commission recently announced that on March 30, 2012, the Honorable Kiyo A. Matsumoto, United States District Court Judge for the Eastern District of New York, entered a final judgment by consent against Defendant Kamal Abdallah. The final judgment permanently enjoins Abdallah from future violations of Sections 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, prohibits Abdallah from acting as an officer or director of a public company, and bars him from participating in an offering of penny stock. The final judgment also orders Abdallah liable for disgorgement and prejudgment interest totaling $214,963.02, deemed satisfied by the restitution order entered against Abdallah in the parallel criminal action, United States v. Abdallah, 09-cr-717 (JFB) (E.D.N.Y.).

Securities and Exchange Commission v. Steven B. Hart, Civil Action No. 12-CV-8986 (S.D.N.Y.)

SEC CHARGES NEW YORK-BASED FUND MANAGER WITH TWO WIDESPREAD FRAUDULENT TRADING SCHEMES SPANNING NEARLY FOUR YEARS

The Securities and Exchange Commission recently charged New York-based fund manager Steven B. Hart (Hart) with repeated violations of the federal securities laws related to two distinct multi-year trading schemes, involving illegal matched trading and insider trading. In addition, the Commission charged Hart with making fraudulent representations in two securities purchase agreements.

Securities and Exchange Commission v. Danny Garber, Michael Manis, Kenneth Yellin, Jordan Feinstein, Aluma Holdings LLC, Azure Trading LLC, Coastal Group Holdings, Inc., Greyhawk Equities LLC, Leonidas Group Holdings LLC, The Leonidas Group LLC, Nismic Sales Corp., The OGP Group, Perlinda Enterprises LLC, Rio Sterling Holding LLC, Slow Train Holding LLC, and Spartan Group Holdings LLC, Civil Action No. 12 Civ. 9339 (SAS) (S.D.N.Y.)

SEC CHARGES FOUR PENNY STOCK PURCHASERS WITH FRAUD

The Securities and Exchange Commission recently charged four securities industry professionals with conducting a fraudulent penny stock scheme in which they illegally acquired over a billion unregistered shares in microcap companies at deep discounts and then dumped them on the market while claiming bogus exemptions from the registration provisions of the federal securities laws.

Securities and Exchange Commission v. GLR Capital Management, LLC, GLR Advisors, LLC, John A. Geringer, and Relief Defendant GLR Growth Fund, L.P., Civil Action No. 12-02663

SEC FILES CHARGES AGAINST TWO OTHERS IN NORTHERN CALIFORNIA FUND MANAGER’S $60 MILLION SCHEME

Recently the Securities and Exchange Commission filed additional charges in its case against a Northern California fund manager accused of running a $60 million Ponzi-like scheme.

SEC Charges Research Analyst with Trading and Tipping Ahead of IBM-SPSS Merger

The Securities and Exchange Commission recently announced additional charges in an insider trading case against two brokers who traded on nonpublic information ahead of IBM Corporation’s acquisition of SPSS Inc.

In an amended complaint filed in federal court in Manhattan, the SEC is now charging research analyst Trent Martin, who was the brokers’ source of confidential information in an insider trading scheme that yielded more than $1 million in illicit profits. Martin worked at a brokerage firm in Connecticut and specialized in Australian equity investments, and he learned nonpublic information about the impending IBM-SPSS transaction from an attorney friend who was working on the deal. Rather than maintaining the confidence of the information, Martin used the information for his own benefit, purchasing SPSS securities and subsequently tipping his roommate Thomas C. Conradt, who traded and tipped his friend and fellow retail broker David J. Weishaus. Martin was specifically named as their source in instant messages between Conradt and Weishaus about their illegal trading.

Securities and Exchange Commission v. Spencer Pharmaceutical Inc., Jean-François Amyot, Maximilien Arella, Ian Morrice, IAB Media Inc., and Hilbroy Advisory Inc., Civil Action No. 1:12-cv-12334 (D. Mass.)

SEC Charges Company based in Massachusetts and Canada and Other Parties in Stock Pump-and-Dump Scheme Involving Fictitious Buyout Offer

The Securities and Exchange Commission filed an enforcement action on December 17, 2012, in federal court in Boston charging Spencer Pharmaceutical Inc., its officers, and several other parties for their roles in a “pump-and-dump” scheme involving Spencer’s stock. The Commission’s complaint alleges that Jean-François Amyot, a Canadian resident who controlled Spencer, orchestrated the scheme and worked with Maximilien Arella and Ian Morrice, Spencer’s officers and directors, as well as IAB Media Inc. and Hilbroy Advisory Inc., two other companies controlled by Amyot, to create and disseminate false press releases, including press releases about a fictitious buyout offer for Spencer, and to otherwise promote Spencer’s stock. The Commission alleges that the promotional campaign pumped up the price of Spencer’s stock, and Amyot benefited by dumping his own Spencer stock at artificially inflated prices.

SEC Charges Connecticut-Based Adviser for “Skin in the Game” Misstatements About CDOs

The Securities and Exchange Commission recently charged a Connecticut-based investment adviser with falsely stating to clients that it was co-investing alongside them in two collateralized debt obligations (CDO).

The SEC’s investigation found that Aladdin Capital Management’s co-investment representation was a key feature and selling point for its Multiple Asset Securitized Tranche (MAST) advisory program involving CDOs and collateralized loan obligations (CLOs). For example, Aladdin Capital Management asked in one marketing piece, “Why is an investor better off just investing in Aladdin sponsored CLOs and CDOs?” It then emphasized that the “most powerful response I can give to your question is that Aladdin co-invests alongside MAST investors in every program. Putting meaningful ‘skin in the game’ as we do means our financial interests are aligned with those of our MAST investors.” Aladdin Capital Management in fact made no such investments in either CDO, and its affiliated broker-dealer Aladdin Capital collected placement fees from the CDO underwriters.

Securities and Exchange Commission v. Aletheia Research and Management, Inc. and Peter J. Eichler, Jr., United States District Court for the Central District of California, Civil Action No. 12-cv-10692-JFW-(RZx)

SEC CHARGES SANTA MONICA-BASED HEDGE FUND MANAGER IN CHERRY-PICKING SCHEME

The Securities and Exchange Commission recently charged a Santa Monica-based hedge fund manager and his investment advisory firm with conducting a “cherry-picking” scheme by steering winning trades to their own trading accounts and favored clients to the detriment of certain hedge fund investors. They are also charged with failing to disclose the firm’s precarious financial condition to clients in a timely manner.

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