Saturday, July 27, 2013

SEC Charges Houston-Based Investor Relations Executive With Insider Trading in Stocks of Clients


Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539732190#.UfRwaY21FG0

Washington D.C., July 26, 2013 —
The Securities and Exchange Commission today charged the former CEO of a Houston-based investor relations firm with insider trading in the securities of multiple firm clients.

The SEC alleges that Stephen B. Gray obtained confidential information about the companies while the firm assisted them with drafting and publishing press releases to announce quarterly and annual earnings, mergers and acquisitions, and other major events. Gray then traded on the basis of that material, non-public information for profits and avoided losses of more than $313,000 during a 13-month period. Gray disregarded the firm’s standard agreements with clients to protect confidential information and use it solely for business purposes, and he also flouted the firm’s “statement of policy regarding securities trades” that prohibited trading by firm personnel when in possession of non-public information about clients. Gray was fired last October after the firm learned about the SEC’s investigation.

“As head of an investor relations firm that helped clients prepare announcements of material events, Gray had unique access to extremely sensitive and confidential information before the rest of the world received it,” said David Woodcock, Director of the SEC’s Fort Worth Regional Office. “Gray boldly abused his position for the sake of illegal insider trading profits.”

David L. Peavler, Associate Director of the Fort Worth Regional Office, added, “Gray not only knew the firm’s policies that prohibited employees from trading on confidential information gleaned from clients – he authored them. While Gray was personally requiring firm employees to sign copies of the policies he wrote, he was insider trading himself.”

According to the SEC’s complaint filed in federal court in Houston, Gray illegally traded in the securities of at least six firm clients. Employees often asked Gray for advice on press releases based on his status as the firm’s CEO as well as his experience as a former CEO of a public company. Gray asked employees about forthcoming material transactions or announcements before they became public, and he sometimes met directly with clients to discuss confidential information with them. Gray also helped maintain the firm’s shared computer network drive, which included drafts and final versions of all relevant press releases.

According to the SEC’s complaint, Gray opened his only trading account in September 2009 and borrowed funds from his life insurance policy to fund his trading activity. Despite the firm’s policies, the overwhelming majority of Gray’s trades involved securities of the firm clients, and he did not disclose his trades or his intention to trade to the firm or clients. At first, Gray primarily traded in the common stock of firm clients, sometimes holding the securities for months at a time but on other occasions compiling shares immediately before a major announcement. For example, on May 5, 2011, The Men’s Wearhouse issued a press release announcing higher than expected earnings per share for its quarter ending April 30. Its stock price increased 16 percent upon this news. While in possession of material non-public information about Men’s Warehouse about the impending announcement, Gray made an electronic calendar appointment for himself on April 29 with the subject: “Buy MW stock ahead of early June earnings release.” On April 30, Gray created another appointment with the subject: “Buy MW stock??” On May 3 and 4, he purchased 4,323 shares of Men’s Warehouse stock. Gray sold his shares on May 5 after the announcement for an illegal profit of $17,397.

According to the SEC’s complaint, later that same year Gray began engaging in more risky and lucrative short-term options trades in which profits were facilitated by his knowledge of inside information. In several instances, Gray purchased very short-term call and put options contracts. For instance, Gray’s firm worked with Powell Industries on drafting a press release in late 2011 to announce that its financial statements for the second and third quarters would be restated. Based on this material, non-public information, Gray purchased 15,000 Powell put options between October 18 and November 3. All of these options had the shortest term available. Powell issued the press release on November 8, and its stock price declined by 22 percent. Gray immediately sold his options for a profit of $82,570.

The SEC’s complaint charges Gray with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and seeks a final judgment ordering him to disgorge all of his ill-gotten gains with prejudgment interest and pay financial penalties. The complaint also seeks permanent injunctive relief.


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Friday, July 26, 2013

SEC Charges Former Portfolio Manager at S.A.C. Capital With Insider Trading


Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539732673#.UfRwbY21FG0

Washington D.C., July 25, 2013 —
The Securities and Exchange Commission today charged a former portfolio manager at S.A.C. Capital Advisors with insider trading ahead of major announcements by technology companies.

The SEC alleges that Richard Lee’s illegal trading based on nonpublic information he received from sources with connections to insiders at the technology companies enabled the S.A.C. Capital hedge fund that he managed to generate more than $1.5 million in illegal profits. Lee also made trades in his personal account. The insider trading occurred ahead of public announcements about a Microsoft-Yahoo partnership and the acquisition of 3Com Corporation by Hewlett-Packard.

“Lee’s illegal trading is yet another byproduct of a pervasive, win-at-all-cost culture that will not be tolerated,” said George S. Canellos, Co-Director of the SEC’s Division of Enforcement. “Lee cultivated and used sources in the U.S. and China to gain an unfair trading edge that landed him in law enforcement’s crosshairs.”

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, added, “We continue to relentlessly pursue and expose insider trading by hedge fund managers who are under the misguided belief that they won’t be apprehended and held accountable for their unlawful conduct.”

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Lee received inside information in July 2009 from a sell-side analyst familiar with nonpublic negotiations between Microsoft and Yahoo to enter into an Internet search engine partnership. Lee learned that the negotiations, previously the subject of market rumors, were moving forward and a deal could be finalized in the next two weeks. The analyst told Lee that the confidential information came from a close personal friend who worked at Microsoft. Lee thanked the analyst for the “very specific information” and promptly purchased hundreds of thousands of shares of Yahoo stock in a portfolio that he managed on behalf of S.A.C. Capital. Lee also purchased shares of Yahoo stock in his personal trading account. When the imminent deal was reported in the press almost a week later, Yahoo’s stock price rose approximately four percent on the news and S.A.C. Capital and Lee reaped substantial profits.

The SEC further alleges that Lee received highly confidential information about 3Com from a Beijing-based consultant who he knew had close personal ties with executives at the company. When his source tipped him on Nov. 11, 2009, that 3Com was on the verge of being acquired by Hewlett-Packard, Lee quickly purchased several hundred thousand shares of 3Com stock for the S.A.C. Capital hedge fund. On the basis of the nonpublic information, Lee amassed the sizeable 3Com position just minutes before Hewlett-Packard announced it agreed to acquire 3Com for $2.7 billion. The price of 3Com stock jumped more than 30 percent the next day, and the S.A.C. Capital hedge fund reaped substantial illicit profits as a result of Lee’s illegal trades.

The SEC's complaint charges Lee, who lives in Chicago, with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks a final judgment ordering Lee to pay disgorgement of his ill-gotten gains plus prejudgment interest and financial penalties, and permanently enjoining him from future violations of these provisions of the federal securities laws.


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Thursday, July 25, 2013

SEC Charges Texas Man With Running Bitcoin-Denominated Ponzi Scheme


Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539730583#.UfRwcI21FG0

Washington D.C., July 23, 2013 —
The Securities and Exchange Commission today charged a Texas man and his company with defrauding investors in a Ponzi scheme involving Bitcoin, a virtual currency traded on online exchanges for conventional currencies like the U.S. dollar or used to purchase goods or services online.

The SEC alleges that Trendon T. Shavers, who is the founder and operator of Bitcoin Savings and Trust (BTCST), offered and sold Bitcoin-denominated investments through the Internet using the monikers “Pirate” and “pirateat40.” Shavers raised at least 700,000 Bitcoin in BTCST investments, which amounted to more than $4.5 million based on the average price of Bitcoin in 2011 and 2012 when the investments were offered and sold. Today the value of 700,000 Bitcoin exceeds $60 million.

The SEC alleges that Shavers promised investors up to 7 percent weekly interest based on BTCST’s Bitcoin market arbitrage activity, which supposedly included selling to individuals who wished to buy Bitcoin “off the radar” in quick fashion or large quantities. In reality, BTCST was a sham and a Ponzi scheme in which Shavers used Bitcoin from new investors to make purported interest payments and cover investor withdrawals on outstanding BTCST investments. Shavers also diverted investors’ Bitcoin for day trading in his account on a Bitcoin currency exchange, and exchanged investors’ Bitcoin for U.S. dollars to pay his personal expenses.

The SEC issued an investor alert today warning investors about the dangers of potential investment scams involving virtual currencies promoted through the Internet.

“Fraudsters are not beyond the reach of the SEC just because they use Bitcoin or another virtual currency to mislead investors and violate the federal securities laws,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “Shavers preyed on investors in an online forum by claiming his investments carried no risk and huge profits for them while his true intentions were rooted in nothing more than personal greed.”

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of Texas, Shavers sold BTCST investments over the Internet to investors in such states as Connecticut, Hawaii, Illinois, Louisiana, Massachusetts, North Carolina, and Pennsylvania. Shavers posted general solicitations on a website dedicated to Bitcoin discussions, and he misled investors with such false assurances about his investment opportunity as “It’s growing, it’s growing!” and “I have yet to come close to taking a loss on any deal,” and “risk is almost 0.” Contrary to the representations made to investors, BTCST was not in the business of buying and selling Bitcoin at all.

The SEC alleges that Shavers, who lives in McKinney, Texas, paid 507,148 Bitcoin in investor withdrawals and purported interest payments. He transferred at least 150,649 Bitcoin to his personal account at an online Bitcoin currency exchange. Shavers suffered a net loss from his day trading, but realized net proceeds of $164,758 from his sales of 86,202 Bitcoin. Shavers transferred $147,102 from his personal account at the online Bitcoin currency exchange to accounts he controlled at an online payment processor as well as his personal checking account. He used this money to pay his rent, utilities, and car-related expenses as well as for food and retail purchases and gambling.

The SEC’s complaint charges Shavers and BTCST with offering and selling investments in violation of the anti-fraud and registration provisions of the securities laws, specifically Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. The SEC is seeking a court order to freeze the assets of Shavers and BTCST in addition to other relief, including permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

The SEC’s investor alert, prepared by the agency’s Office of Investor Education and Advocacy, recommends that investors be wary of so-called investment opportunities that promise high rates of return with little or no risk, especially when dealing with unregistered, Internet-based investments sold by unlicensed promoters.


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Saturday, July 20, 2013

SEC Charges Steven A. Cohen With Failing to Supervise Portfolio Managers and Prevent Insider Trading


Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539726923#.UeswNY21FG0

The Securities and Exchange Commission today announced charges against hedge fund adviser Steven A. Cohen for failing to supervise two senior employees and prevent them from insider trading under his watch.

The SEC’s Division of Enforcement alleges that Cohen received highly suspicious information that should have caused any reasonable hedge fund manager to investigate the basis for trades made by two portfolio managers who reported to him – Mathew Martoma and Michael Steinberg. Cohen ignored the red flags and allowed Martoma and Steinberg to execute the trades. Instead of scrutinizing their conduct, Cohen praised Steinberg for his role in the suspicious trading and rewarded Martoma with a $9 million bonus for his work. Cohen’s hedge funds earned profits and avoided losses of more than $275 million as a result of the illegal trades.

“Hedge fund managers are responsible for exercising appropriate supervision over their employees to ensure that their firms comply with the securities laws,” said Andrew J. Ceresney, Co-Director of the SEC’s Division of Enforcement. “After learning about red flags indicating potential insider trading by his employees, Steven Cohen allegedly failed to follow up to prevent violations of the law. In addition to the more than $615 million his firm has already agreed to pay for the alleged insider trading, the Enforcement Division is seeking to bar Cohen from overseeing investor funds.”

According to the SEC’s order instituting administrative proceedings against Cohen, portfolio managers Martoma and Steinberg obtained material non-public information about publicly traded companies in 2008, and they traded on the basis of that information. The SEC charged Martoma and his tipper with insider trading in an enforcement action last year, and charged Steinberg with insider trading in a complaint filed earlier this year. In connection with those cases, CR Intrinsic, an affiliate of Cohen’s firm S.A.C. Capital Advisors, agreed to pay more than $600 millionin the largest-ever insider trading settlement. Another Cohen affiliate, Sigma Capital,agreed to pay nearly $14 million to settle insider trading charges.

The SEC’s investigation found that in his supervisory role, Cohen oversaw trading by Martoma and Steinberg and required them to update him on their stock trading and convey the reasons for their trades. On at least two separate occasions in 2008, they provided information to Cohen indicating their potential access to inside information to support their trading. However, Cohen stood by on both occasions instead of ascertaining whether insider trading was taking place.

According to the SEC’s order, Cohen watched Martoma build a massive long position in the stock of two pharmaceutical companies – Elan and Wyeth – based on their joint clinical trial of a drug with the potential to treat Alzheimer’s disease. Cohen allowed this despite repeated e-mails and instant messages to Cohen from other analysts at CR Intrinsic advocating against it. The analysts questioned whether Martoma possessed undisclosed data on the results of the trial. Cohen responded by saying it was “tough” to know whether Martoma knew something, but that he would follow Martoma’s advice because he was “closer to it than you.” In later exchanges of instant messages, Cohen further remarked that it “seems like mat [Martoma] has a lot of good relationships in this arena.” Cohen also was told about a doctor who had provided his portfolio managers with potentially non-public information about the clinical trial, but failed to express any concern about the use of that information. During his e-mail exchanges, Cohen displayed no concern that Martoma might possess non-public information or about his use of such information to inform investment decisions at his firm. Instead, Cohen encouraged Martoma to talk further with a doctor familiar with the clinical trial.

The SEC’s Enforcement Division alleges that after months of building up the massive position and being bullish on both Elan and Wyeth, Martoma had a 20-minute phone conversation with Cohen on July 20, 2008. According to Cohen, Martoma said that he was no longer comfortable with the Elan investments that CR Intrinsic and SAC held. Despite Martoma’s abrupt change in view and red flags that he likely received confidential information about the clinical trials from a tipper, Cohen failed to take prompt action to determine whether an employee under his supervision was violating insider trading laws. Starting the next morning, Cohen oversaw the liquidation of his and Martoma’s positions in Elan and Wyeth and the accumulation of a short position instead.

According to the SEC’s order, Cohen also supervised Steinberg while he was involved in insider trading of Dell securities in August 2008. After being looped into a highly suspicious e-mail between Steinberg and other firm employees reflecting the clear possibility that they possessed material non-public information about an upcoming earnings announcement at Dell, Cohen again failed to take prompt action to determine whether Steinberg was engaged in unlawful insider trading. Instead, Cohen liquidated his Dell shares based on the recommendation of Steinberg, who continued short selling Dell shares in his Sigma Capital portfolio based on the confidential information. Dell’s stock price dropped sharply after its August 28 earnings announcement, and funds managed by Cohen’s firms profited or avoided losses totaling at least $1.7 million. Three hours after the earnings announcement, Cohen e-mailed Steinberg: “Nice job on Dell.”

The SEC’s Division of Enforcement alleges that by engaging in the conduct described in the SEC’s order, Cohen failed reasonably to supervise Martoma and Steinberg with a view to preventing their violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The administrative proceedings will determine what relief is in the public interest against Cohen, including financial penalties, a supervisory and financial services industry bar, and other relief.


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Friday, July 12, 2013

SEC Halts Texas-Based Forex Trading Scheme


Source- http://www.sec.gov/news/press/2013/2013-125.htm

Washington, D.C., July 12, 2013 — The Securities and Exchange Commission today announced an emergency asset freeze against an unregistered money manager and his companies in Plano, Texas, who are charged with defrauding investors in a foreign currency exchange trading scheme

The forex market is a large and generally liquid financial market in which the risk of loss for individual investors can be substantial. The SEC has previously warned individual investors about the risks involved with forex trading.

The SEC alleges that Kevin G. White raised more than $7.1 million from investors by touting a sophisticated low-risk forex trading strategy yielding astronomical returns. He advertised his purported "25-year Wall Street career." In reality, the forex trading has incurred losses of investor funds, and White actually spent only six years as a licensed securities professional in Houston before being barred by the New York Stock Exchange two decades ago. White also lied about his education. Meanwhile, White has siphoned away more than $1.7 million of investor money to pay personal expenses, finance expensive trips, and fund other unrelated and undisclosed businesses and investments.

"White and his companies brandished phony credentials and a can't-miss trading strategy to lure investors into a web of deceit," said David Woodcock, Director of the SEC's Fort Worth Regional Office. "In reality, White was suffering forex trading losses and putting investor money to other uses."

The Commodity Futures Trading Commission (CFTC) today announced parallel charges against White and his companies.

According to the SEC's complaint that was unsealed late yesterday in U.S. District Court of the Eastern District of Texas, White raised investor money through two entities that he owns and controls: KGW Capital Management and Revelation Forex Fund. KGW Capital purports to be "one of the world's leading private investment firms."

The SEC alleges that White and his companies used websites, press releases, and presentations to prospective investors to solicit funds. White and his companies told investors that Revelation Forex was a $1 billion hedge fund that had achieved total returns of more than 393 percent since its January 2009 inception, and earned a compound annual rate of return of more than 36 percent. Marketing materials provided to prospective investors boasted that an initial investment of $250,000 in Revelation Forex in January 2009 would have grown to $983,111 by May 2013.

The SEC alleges that these claims were false. While White and KGW Capital tout a track record for the fund that began in January 2009, Revelation Forex did not actually receive investor funds or begin forex trading until September 2011. The fund has since incurred realized trading losses of more than $550,000 plus approximately $1,419,600 in unrealized losses through May 31, 2013. Meanwhile, bank records reveal that White has taken more than $1.7 million for himself, KGW Capital, and two of his other businesses, including approximately $248,600 in investor funds from Revelation Forex to fund an unrelated and undisclosed propane business and $97,000 on another business entitled KGW Real Estate. The SEC's complaint names both of these companies as relief defendants for the purpose of seeking disgorgement of investor funds in their possession.

The court has granted the SEC's request for an asset freeze and temporary restraining order against White, KGW Capital, Revelation Forex, and RFF GP LLC, which is the general partner of Revelation Forex. The court appointed Kelly Crawford as the receiver over these entities. A hearing has been scheduled for July 18, 2013, on the SEC's motion for a preliminary injunction.

The SEC's complaint alleges that White, KGW Capital, Revelation Forex, and RFF violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC is seeking disgorgement of ill-gotten gains with prejudgment interest and financial penalties as well as preliminary and permanent injunctions.


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Thursday, July 11, 2013

SEC Freezes Assets Of Insider Traders in Onyx Pharmaceuticals


Source- http://www.sec.gov/news/press/2013/2013-123.htm

Washington, D.C., July 3, 2013 — The Securities and Exchange Commission today obtained an emergency court order to freeze the assets of traders using foreign accounts to reap approximately $4.6 million in potentially illegal profits by trading in advance of the Sunday, June 30, 2013 announcement that Onyx Pharmaceuticals, Inc. had received, but rejected an acquisition offer from Amgen, Inc.

The SEC alleges that unknown traders took risky bets that Onyx's stock price would increase by purchasing call options on June 26, 27 and 28, the three trading days before the announcement. Through quick, cross country coordination between the agency's Los Angeles and New York offices, the SEC took emergency action to freeze the traders' assets before courts closed for the holiday.

"This action demonstrates that the SEC will not hesitate to freeze the assets of suspicious foreign traders when the timing and size of their trades indicate that they were misusing inside information, and use of foreign accounts will not dissuade us," said Michele Wein Layne, Director of the SEC's Los Angeles Regional Office.

According to the SEC's complaint filed in federal court in Manhattan, on June 30, 2013 Onyx announced that it had received, but rejected, an unsolicited proposal from Amgen to acquire all of Onyx's outstanding shares and share equivalents for $120 per share in cash. The Announcement also stated that Onyx's board of directors rejected Amgen's proposal and that Onyx had authorized its financial advisors to contact potential acquirers who may have an interest in a transaction with Onyx. Amgen's $120 per share price offer represented a 38% premium to Onyx's closing share price on Friday June 28, 2013. The complaint further alleges that as a result of the announcement, Onyx's share price increased from a close of $86.82 on over 51% on Monday July 1 compared with the prior trading day's closing price, and that the trading volume of its stock increased by over 900% that day. The complaint alleges that the traders, as a result of these well-timed trades, collectively earned a profit of approximately $4.6 million in just three days.

The SEC alleges that certain unknown traders were in possession of material nonpublic information about the offer to acquire Onyx at a substantial premium over the stock price at the time they made thy purchased Onyx call options, many of which were out-of-the-money, in the three trading days before the announcement. According to the complaint, the timing and size of the trades were highly suspicious because they constituted large increases over the historical volume for those call options purchased.

The emergency court order obtained by the SEC freezes the traders' assets related to the Onyx call options transactions and prohibits the traders from destroying any evidence. The SEC's complaint charges the unknown traders with violating Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. In addition to the emergency relief, the Commission is seeking a final judgment ordering the traders to disgorge their ill-gotten gains with interest, pay financial penalties, and permanently bar them from future violations


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