Private Equity Firm, Former Executive, and Consultant Charged for Improperly Soliciting Investments

Source- http://www.sec.gov/news/press/2013/2013-36.htm

Washington, D.C., March 11, 2013 — The Securities and Exchange Commission today announced charges against New York-based private equity firm Ranieri Partners, a former senior executive, and an unregistered broker who violated securities laws when soliciting more than $500 million in capital commitments for private funds managed by the firm.

The federal securities laws require that an individual who solicits investments in return for transaction-based compensation be registered as a broker. An SEC investigation found that William M. Stephens of Hinsdale, Ill., solicited investors as a hired consultant for Ranieri Partners and was paid fees by the firm, but never registered as a broker. Stephens’ longtime friend Donald W. Phillips, a senior managing director who headed up capital raising efforts for Ranieri Partners, was responsible for overseeing Stephens’ activities as a purported “finder” who would merely make initial introductions to potential investors. But Stephens’ role went far beyond that of a finder. He consistently communicated with prospective investors and their advisors and provided them with key investment documentation that he received from Ranieri Partners.

Ranieri Partners, Phillips, and Stephens agreed to settle the SEC’s charges.

“Registered brokers are subject to SEC oversight and examinations in order to monitor their conduct and protect the interests of investors,” said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. “Investors in Ranieri Partners’ funds were denied these protections because Stephens acted outside the boundaries of the law, and Phillips and the firm ignored the essence of his activities.”

According to the SEC’s orders instituting settled administrative and cease-and-desist proceedings, Stephens engaged in the business of effecting transactions in securities in several ways despite not being registered as a broker or affiliated with a registered broker-dealer. Stephens sent private placement memoranda, subscription documents, and due diligence materials to potential investors, and urged at least one investor to consider adjusting portfolio allocations to accommodate an investment with Ranieri Partners. Stephens provided potential investors with his analysis of the strategy and performance track record for Ranieri Partners’ funds, and also provided confidential information identifying other investors and their capital commitments. The SEC charged Stephens with violating Section 15(a) of the Securities Exchange Act, which requires people acting as brokers to be registered with the SEC.

The SEC’s order against Phillips and Ranieri Partners found that Phillips, who lives in Barrington, Ill., aided and abetted Stephens’ violations by providing Stephens with key fund documents and information while ignoring red flags indicating that Stephens had gone well beyond the limited role of a finder and was actively soliciting investments. The order found that Ranieri Partners caused Stephens’ violations.

In settling the SEC’s charges, Ranieri Partners agreed to pay a penalty of $375,000, Phillips agreed to pay a penalty of $75,000, and Stephens agreed to be barred from the securities industry. The SEC’s orders require each of them to cease-and-desist from further violations of Section 15(a). The SEC also suspended Phillips from acting in a supervisory capacity at an investment adviser or broker-dealer for nine months. Ranieri Partners, Phillips and Stephens consented to the entry of the SEC’s orders without admitting or denying the findings.

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SEC Charges Scott London and Bryan Shaw with Insider Trading

Source- http://www.sec.gov/news/press/2013/2013-58.htm

Washington, D.C., April 11, 2013 — The Securities and Exchange Commission today charged the former partner in charge of KPMG's Pacific Southwest audit practice and his friend with insider trading on nonpublic information about firm clients.

The SEC alleges that Scott London tipped Bryan Shaw with confidential details about five KPMG audit clients and enabled Shaw to make more than $1.2 million in illicit profits trading ahead of earnings or merger announcements. The two men had met at a country club several years earlier and became close friends and golfing partners. London has said that he provided the inside information about his clients to help Shaw overcome financial struggles after his family-run jewelry business began faltering in the economic downturn. In exchange for the illegal trading tips, Shaw paid London at least $50,000 in cash that was usually delivered in bags outside of his Encino, Calif. jewelry store. Shaw also gave London an expensive Rolex watch as well as other jewelry, meals, and tickets to entertainment events.

London, who lives in Agoura Hills, Calif., and worked at KPMG for nearly 30 years, recently informed the firm that he was under investigation by the SEC and criminal authorities for insider trading in the securities of several KPMG clients. The firm immediately terminated him.

"London was honored with the highest trust of public companies, and he crassly betrayed that trust for bags of cash and a Rolex," said George S. Canellos, Acting Director of the Division of Enforcement.

Michele Wein Layne, Director of the SEC's Los Angeles Regional Office, added, "As a leader at a major accounting firm, London's conduct was an egregious violation of his ethical and professional duties."

In a parallel action, the U.S. Attorney's Office for the Central District of California today announced criminal charges against London.

According to the SEC's complaint filed in federal court in Los Angeles, London began providing Shaw with nonpublic information in October 2010 and the misconduct continued for the next 18 months. Shaw and London communicated almost exclusively using their cell phones, although on at least one occasion London disclosed nonpublic information in the presence of others during a golf outing.

According to the SEC's complaint, London was the lead partner on several KPMG audits including Herbalife and Skechers USA, and he was the firm's account executive for Deckers Outdoor Corp. Therefore, London was able to obtain material, nonpublic information about these companies prior to their earnings announcements or release of financial results. Shaw, who lives in Lake Sherwood, Calif., routinely traded at least a dozen times on the inside information he received from London. He grossed profits of more than $714,000 from trading based on confidential financial data about Herbalife, Skechers, and Deckers.

The SEC alleges that London also gained access to inside information about impending mergers involving two former KPMG clients - RSC Holdings and Pacific Capital. London tipped Shaw with the confidential details. Shaw made nearly $192,000 by purchasing RSC Holdings stock the day before its Dec. 15, 2011, merger announcement. He made more than $365,000 in illicit profits from his well-timed purchase of Pacific Capital securities prior to a merger announcement on March 9, 2012.

According to the SEC's complaint, in addition to the bags of cash and the Rolex watch valued at $12,000, Shaw gave London several pieces of expensive jewelry for his wife and routinely covered the costs of dinners and concerts the two men shared along with their families.

The SEC's complaint charges London and Shaw with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks a final judgment permanently ordering them to disgorge ill-gotten gains plus pay prejudgment interest and financial penalties, and enjoining them from future violations of these provisions of the federal securities laws.

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SEC Charges Former Medical Device Company Employee for Illegally Tipping Brother with Quarterly Earnings Data

Source- http://www.sec.gov/news/press/2013/2013-54.htm

Washington, D.C., April 8, 2013 — The Securities and Exchange Commission today charged a former employee at a California-based medical device manufacturer with illegally tipping confidential financial data to her brother, who illegally traded in the company's stock and enabled his hedge fund clients to do the same.

The SEC alleges that ThanhHa Bao, who worked in the finance department at Abaxis Inc., regularly provided material nonpublic information to Tai Nguyen, whose insider trading in advance of the company's quarterly earnings announcements generated $144,910 in illicit profits. Nguyen, who was charged by the SEC last year, also passed confidential information to clients of his equity research firm Insight Research, including hedge fund managers.

To settle the SEC's charges, Bao has agreed to pay $144,910 and be barred from serving as an officer or director of a public company for five years.

"When corporate insiders leak confidential information to a select few, the integrity of our markets is undermined," said Sanjay Wadhwa, Senior Associate Director of the SEC's New York Regional Office. "Abaxis entrusted ThanhHa Bao with market-moving information, and she violated that trust to financially benefit her family."

The SEC's charges stem from its ongoing investigations into expert networks that have uncovered widespread insider trading at several hedge funds and other investment advisory firms. The investigations have so far resulted in enforcement actions against 40 entities or individuals who have reaped more than $430 million in alleged insider trading gains.

According to the SEC's amended complaint filed in federal court in Manhattan, Bao regularly passed Abaxis quarterly earnings data to Nguyen from 2006 to 2009. Besides illegally trading in his own account, Nguyen passed the inside information to hedge fund managers Barai Capital Management and Sonar Capital Management, which were paying Insight Research tens of thousands of dollars per month as clients. These hedge fund managers traded Abaxis securities based on the inside information provided by Nguyen for more than $7.2 million in illicit gains for the hedge funds. Those who caused the trading at these hedge funds were later charged by the SEC with insider trading.

In a parallel criminal proceeding, Nguyen pleaded guilty and has been sentenced to a year and a day in prison. He also agreed to a criminal forfeiture of $400,000.

The SEC's amended complaint charges Bao with violations of 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 settlement, which is subject to court approval, requires Bao to pay $144,910 in penalties and be barred from serving as an officer or director of a public company for a period of five years. She also would be permanently enjoined from future violations of the federal securities laws.

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Peter Heckmann Pleads Guilty to Operating Ponzi Scheme

Source- http://www.fbi.gov/honolulu/press-releases/2013/peter-heckmann-pleads-guilty-to-operating-ponzi-scheme 

This morning in Honolulu U.S. District Court, defendant and former fugitive Peter Heckmann pleaded guilty to wire fraud for his operation of a Ponzi scheme on the Hawaiian Island of Kauai. Wire fraud has a statutory maximum penalty of 20 years in prison and a potential fine of $250,000. Heckmann acknowledged in court that the victim losses in this case exceeded $1 million and that his scheme involved paying older investors with money from new investors in a scheme to defraud the victims.

Heckmann will remain in U.S. Bureau of Prisons custody at the Honolulu Federal Detention Center, awaiting his sentencing on July 25, 2013, at 2:15 p.m.

Ren Feng and his Wife Zeng Huiyu Agree to pay $3.3 Million to Settle Charges in Nexen Insider Trading Case

Source- http://www.sec.gov/news/press/2013/2013-50.htm

Washington, D.C., March 29, 2013 — The Securities and Exchange Commission today announced that a Chinese businessman and his wife whose trading accounts were frozen last year as part of a major insider trading case have agreed to settle charges that they loaded up on the securities of Nexen Inc. while in possession of nonpublic information about an impending announcement that the company was being acquired by China-based CNOOC Ltd.

The SEC obtained an emergency court order in July 2012 to freeze multiple Hong Kong and Singapore-based trading accounts just days after the Nexen acquisition was announced and suspicious trading in Nexen stock was detected. The SEC’s complaint alleged that in the days leading up to the announcement, Hong Kong-based firm Well Advantage Limited and other unknown traders purchased Nexen stock based on confidential details about the acquisition.

The SEC’s investigation has identified Ren Feng and his wife Zeng Huiyu as previously unknown traders charged in the complaint as well as Ren’s private investment company CT Prime Assets Limited and four of Zeng’s brokerage customers on whose behalf she traded. They made a combined $2.3 million in illegal profits from Nexen stock trades made by Ren and Zeng.

The settlement, which is subject to court approval, requires the traders to pay more than $3.3 million combined.

“This settlement requires full disgorgement of the insider trading profits of this group of foreign traders, and Ren and Zeng must additionally pay sizeable penalties,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office. “This should send a stern warning to anyone contemplating insider trading in U.S. markets from abroad that the SEC uncovers such misconduct and the end result is a severe financial setback rather than a windfall.”

In October 2012, the SEC announced a settlement with Well Advantage, which agreed to pay more than $14.2 million to settle the insider trading charges. U.S. District Court Judge Richard J. Sullivan of the Southern District of New York approved that settlement.

This proposed settlement with Ren, Zeng, and the others also must be approved by Judge Sullivan.

Ren and CT Prime agreed to the entry of a final judgment requiring them to jointly pay disgorgement of their ill-gotten gains of $839,714.57 plus a penalty of $839,714.57, and permanently enjoining them from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

Zeng agreed to the entry of a final judgment requiring her to pay disgorgement of her ill-gotten gains of $202,030.22 plus a penalty of $202,030.22, and permanently enjoining her from future violations of Section 10(b) of the Exchange Act and Rule 10b-5.

Zeng also traded on behalf of four of her brokerage customers, who have agreed to disgorgement of the ill-gotten gains. Wong Chi Yu and her company Giant East Investments Limited agreed to jointly pay disgorgement of $641,057.94. Wang Wei agreed to pay disgorgement of $137,369.56. Wang Zhi Hua agreed to pay disgorgement of $466,169.15.

The defendants neither admit nor deny the SEC’s allegations.

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SEC Charges Sigma Capital Portfolio Manager with Insider Trading

Source- http://www.sec.gov/news/press/2013/2013-49.htm

Washington, D.C., March 29, 2013 —The Securities and Exchange Commission today charged Michael Steinberg, a portfolio manager at New York-based hedge fund advisory firm Sigma Capital Management, with trading on inside information ahead of quarterly earnings announcements by Dell and Nvidia Corporation.

The SEC alleges that Steinberg's illegal conduct enabled hedge funds managed by Sigma Capital and its affiliate S.A.C. Capital Advisors to generate more than $6 million in profits and avoided losses. Steinberg received illegal tips from Jon Horvath, an analyst who reported to him at Sigma Capital. Horvath was charged last year among several hedge fund managers and analysts as part of the SEC's broader investigation into expert networks and the trading activities of hedge funds. Earlier this month, Sigma Capital and two affiliated hedge funds agreed to a $14 million settlementwith the SEC for insider trading charges.

"Steinberg essentially got an advance copy of Dell and Nvidia's quarterly earnings announcements, allowing him to trade on tomorrow's news today," said George S. Canellos, Acting Director of the SEC's Division of Enforcement.

Sanjay Wadhwa, Senior Associate Director of the SEC's New York Regional Office, added, "The SEC's aggressive pursuit of hedge fund insider trading, including this enforcement action against Steinberg, underscores its steadfast commitment to leveling the playing field for all investors by rooting out illicit conduct by well-capitalized traders."

In a separate action, the U.S. Attorney's Office for the Southern District of New York today announced criminal charges against Steinberg.

According to the SEC's complaint filed in federal court in Manhattan, Steinberg traded Dell and Nvidia securities based on nonpublic information in advance of at least four quarterly earnings announcements in 2008 and 2009. Horvath provided Steinberg with nonpublic details that he had obtained through a group of hedge fund analysts with whom he regularly communicated. Steinberg used the inside information to obtain more than $3 million in profits and losses avoided for a Sigma Capital hedge fund.

The SEC's complaint further alleges that Steinberg also illegally tipped inside information about Dell's quarterly earnings to another portfolio manager at Sigma Capital. Horvath sent an e-mail to the other portfolio manager and copied Steinberg on the message. The e-mail stated:
"I have a 2nd hand read from someone at the company - this is 3rd quarter I have gotten this read from them and it has been very good in the last quarters. They are seeing GMs miss by 50-80 [basis points] due to poor mix, [operating expenses] in-line and a little revenue upside netting out to an [earnings per share] miss. . . . Please keep to yourself as obviously not well known."

The SEC alleges that two minutes later, Steinberg chimed in, "Yes, normally we would never divulge data like this, so please be discreet." Only 24 minutes after Horvath's e-mail, the other portfolio manager began to sell shares of Dell stock on behalf of the Sigma Capital hedge fund and reduced the hedge fund's Dell holdings by 600,000 shares ahead of Dell's quarterly earnings announcement. In the days following the negative announcement, Steinberg closed out a short position in Dell stock and multiple options positions for a $1 million illicit profit to the Sigma Capital hedge fund. The other portfolio manager's sales of Dell stock enabled the Sigma Capital hedge fund and a hedge fund managed by S.A.C. Capital Advisors to avoid more than $3 million in losses.

The SEC's complaint charges Steinberg with violating 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 complaint seeks a final judgment ordering Steinberg 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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SEC Charges Matthew Teeple of San Clemente, CA with Insider Trading

Source- http://www.sec.gov/news/press/2013/2013-47.htm

Washington, D.C., March 26, 2013 — The Securities and Exchange Commission today charged a California-based hedge fund analyst with insider trading in advance of a merger of two technology companies based on nonpublic information he received from his friend who was an executive at one of the companies.

The SEC also charged the executive and another trader in the $29 million insider trading scheme.

The SEC alleges that Matthew Teeple of San Clemente, Calif., was tipped in advance of a July 2008 announcement that Foundry Networks Inc. had agreed to be acquired by Brocade Communication Systems Inc. for approximately $3 billion. Teeple’s source was Foundry’s chief information officer David Riley, a friend who he had previously given investment advice. Teeple then caused the San Francisco-based hedge fund advisory firm where he works to buy Foundry shares in large quantities in the days leading up to the public announcement, and the hedge funds managed by the firm reaped millions of dollars in profits when Foundry’s stock value increased upon the news. Teeple also tipped a Denver-based investment professional John Johnson who he befriended through a previous working relationship, and Johnson made illegal trades based on the nonpublic information. Riley also tipped Teeple in advance of at least two other major announcements by Foundry, and Teeple’s firm traded on the nonpublic information to make profits or avoid losses.

“David Riley was entrusted with Foundry’s most valuable secrets, but betrayed his company and set off an explosive chain reaction of illegal tips from friend to friend for illicit profits,” said George S. Canellos, Acting Director of the SEC’s Division of Enforcement.

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, added, “Company insiders who reveal confidential information and the traders who trade on it can expect robust scrutiny from the SEC. The charges against Riley and Teeple are a cautionary tale for those considering insider trading that should make them think twice.”

In a separate action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Teeple, Riley, and Johnson.

According to the SEC’s complaint filed in federal court in Manhattan, Riley tipped Teeple on the morning of July 16 about Brocade’s impending acquisition of Foundry. Teeple immediately shared this information with colleagues at his firm as well as Johnson and several others who purchased Foundry stock, often within minutes of communicating with Teeple. Foundry stock climbed approximately 32 percent after the public announcement of the merger on July 21.

The SEC alleges that Riley, who lives in San Jose, Calif., continued to provide material nonpublic information to Teeple about key events throughout the process of Foundry’s acquisition by Brocade, which was not fully completed until Dec. 18, 2008. Teeple’s firm continued to profitably trade Foundry securities based on this inside information. For example, Riley tipped Teeple in advance of an October 24 announcement that Foundry’s shareholder vote to approve the acquisition would be delayed “given recent developments related to the transaction.” Earlier in 2008, Riley tipped Teeple in advance of Foundry’s April 11 earnings forecast so Teeple’s firm could profitably trade in advance of the announcement.

The SEC’s complaint charges Teeple, Riley, and Johnson with violating 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 complaint seeks a final judgment ordering them to disgorge their ill-gotten gains plus prejudgment interest, ordering them to pay financial penalties, and permanently enjoining them from future violations of these provisions of the federal securities laws. The complaint also seeks to permanently prohibit Riley from serving as an officer or director of a public company.

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SEC Charges Rengan Rajaratnam with Insider Trading

Source- http://www.sec.gov/news/press/2013/2013-45.htm

Washington, D.C., March 21, 2013 — The Securities and Exchange Commission today charged Rajarengan “Rengan” Rajaratnam for his role in the massive insider trading scheme spearheaded by his older brother Raj Rajaratnam and hedge fund advisory firm Galleon Management.

The SEC alleges that from 2006 to 2008, Rengan Rajaratnam repeatedly received inside information from his brother and reaped more than $3 million in illicit gains for himself and hedge funds that he managed at Galleon and Sedna Capital Management, a hedge fund advisory firm that he co-founded. In addition to illegally trading on inside tips, Rengan Rajaratnam was an active participant in his brother’s scheme to cultivate highly placed sources and extract confidential information for an unfair advantage over other traders.

“Our complaint against Rengan Rajaratnam tells a sad tale of a man who followed his brother down an illegal path of greed to its inevitable conclusion,” said George S. Canellos, Acting Director of the SEC’s Division of Enforcement.

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, added, “Rengan Rajaratnam profited handsomely from his brother’s insider trading activities, and he may have believed he wouldn’t have to pay a price for his involvement. But now he is learning the true cost of his participation in the most expansive insider trading scheme ever perpetrated.”

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Rengan Rajaratnam.

According to the SEC’s complaint filed in federal court in Manhattan, Rengan Rajaratnam repeatedly received valuable insider tips from his brother that he used for illegal trading in the securities of Polycom, Hilton Hotels, Clearwire Corporation, Akamai Technologies, and AMD. For example, in July 2007, he made substantial profits trading Hilton stock in his personal account based on a timely insider trading tip from Raj Rajaratnam that Hilton was about to be taken private. Rengan Rajaratnam quickly loaded up on Hilton stock, and the price of Hilton shares jumped more than 25 percent after the news became public. Rengan Rajaratnam cashed in his recently acquired position for an illicit profit of more than $675,000.

According to the SEC’s complaint, after Raj Rajaratnam tipped him about an upcoming transaction involving Clearwire Corporation in March 2008, Rengan Rajaratnam complained to his brother that certain nonpublic information they had used to begin accumulating a position in Clearwire stock was about to be reported by the media before they could establish a larger position. Rengan Rajaratnam nevertheless profited by more than $100,000 in his personal brokerage account and more than $230,000 for Galleon hedge funds based on trades in Clearwire securities.

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

The SEC’s investigation, which is continuing, has been conducted by John Henderson and Joseph Sansone — members of the SEC’s Market Abuse Unit in New York — and Matthew Watkins, Diego Brucculeri, and James D’Avino of the New York Regional Office. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.

The SEC has now charged 33 defendants in its Galleon-related enforcement actions, which have exposed widespread and repeated insider trading at numerous hedge funds and by other traders, investment professionals, and corporate insiders located throughout the country. The insider trading occurred in the securities of more than 15 companies for illicit gains totaling more than $96 million.

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SEC Charges George R. Jarkesy Jr. and Thomas Belesis With Fraud

Source- http://www.sec.gov/news/press/2013/2013-46.htm

Washington, D.C., March 22, 2013 — The Securities and Exchange Commission today announced charges against a Houston-based hedge fund manager and his firm accused of defrauding investors in two hedge funds and steering bloated fees to a brokerage firm CEO who also is charged in the SEC’s case.

An investigation by the SEC’s Enforcement Division found that George R. Jarkesy Jr., worked closely with Thomas Belesis to launch two hedge funds that raised $30 million from investors. Jarkesy and his firm John Thomas Capital Management (since renamed Patriot28 LLC) inflated valuations of the funds’ assets, causing the value of investors’ shares to be overstated and his management and incentive fees to be increased. Jarkesy, a frequent media commentator and radio talk show host, also lied to investors about the identity of the funds’ auditor and prime broker. Meanwhile, although they shared the same “John Thomas” brand name, Jarkesy’s firm and Belesis’ firm John Thomas Financial were portrayed as wholly independent. Jarkesy led investors to believe that as manager of the funds, he was solely responsible for all investment decisions. However, Belesis sometimes supplanted Jarkesy as the decision maker and directed some investments from the hedge funds into a company in which his firm was heavily invested. Belesis also bullied Jarkesy into showering excessive fees on John Thomas Financial even in instances where the firm had done virtually nothing to earn them.

“Jarkesy disregarded the basic standards to which all fund managers are held,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “Not only did he falsify valuations and deceive investors about the value of their holdings, but he bent over backwards to enrich Belesis at the funds’ expense. Belesis in turn exploited the supposed independence of the funds to surreptitiously pull the strings on key decisions.”

According to the SEC’s order instituting administrative proceedings against Jarkesy, Belesis, and their firms, Jarkesy launched the two hedge funds in 2007 and 2009, and they were called John Thomas Bridge and Opportunity Fund LP I and John Thomas Bridge and Opportunity Fund LP II. The funds invested in three asset classes: bridge loans to start-up companies, equity investments principally in microcap companies, and life settlement policies. Jarkesy mispriced certain holdings to increase the net asset values of the funds, which were the basis for calculating the management and incentive fees that Jarkesy deducted from the funds for himself. Jarkesy also falsely claimed that prominent service providers such as KPMG and Deutsche Bank worked with the funds.

According to the SEC’s order, Jarkesy used fund assets to hire multiple stock promoters in 2010 and 2011 to create an artificial and unsustainable spike in the price of two microcap stocks in which the funds were heavily invested. As a result of these efforts, the funds recorded temporary gains in the value of the microcap stocks that Jarkesy used to mask the write-down of other more illiquid holdings of the funds.

According to the SEC’s order, Jarkesy violated his fiduciary duties to the funds in multiple instances by providing excessive compensation to Belesis and John Thomas Financial. This only incited further demands by Belesis. For example, in February 2009, Belesis angrily complained via e-mail that Jarkesy was not steering enough money to John Thomas Financial, and Jarkesy responded that “we will always try to get you as much as possible, Everytime [sic] without exception!” On another occasion, Jarkesy reassured Belesis that “[n]obody gets access to Tommy until they make us money!!!!!”

The SEC’s order charges that Jarkesy and John Thomas Capital Management violated and aided and abetted violations of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5, and violated Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act and Rule 206(4)-8. The SEC’s order further charges that Belesis and John Thomas Financial aided and abetted and caused Jarkesy’s and John Thomas Capital Management’s violations of Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8. The administrative proceedings will determine what, if any, remedial action is appropriate in the public interest against Jarkesy, John Thomas Capital Management, Belesis, and John Thomas Financial including disgorgement and financial penalties.

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Craig Berkman Accused for Stealing Investor Funds in Purported Offerings of Pre-IPO Facebook Shares

Source- http://www.sec.gov/news/press/2013/2013-44.htm

Washington, D.C., March 19, 2013 — The Securities and Exchange Commission today announced charges against a financier masquerading as a sophisticated fund manager who defrauded investors seeking to acquire highly coveted pre-IPO shares of Facebook and other social media companies.

An investigation by the SEC’s Enforcement Division found that Craig Berkman, a former Oregon gubernatorial candidate who now lives in Florida, touted to investors that he had special access to scarce sources of pre-IPO stock in Facebook, LinkedIn, Groupon, and Zynga. Instead of purchasing shares on investors’ behalf as promised, Berkman misused their investments to make Ponzi-like payments to earlier investors, fund personal expenses, and pay off claims against him in a bankruptcy case.

The SEC’s Enforcement Division also charged John B. Kern of Charleston, S.C., for his participation in the fraud as legal counsel to some of Berkman’s companies. When investors in Berkman’s phony Facebook fund began questioning what happened to their money after Facebook’s IPO occurred, Kern falsely assured them that their money was used to purchase pre-IPO Facebook stock being held for them by unnamed counterparties.

“Berkman blatantly capitalized on the market fervor preceding highly anticipated IPOs of Facebook and other social media companies to fleece investors whose cash flow he treated like an ATM to fund his own living expenses and pay court-ordered claims to victims of his past misdeeds,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, added, “Lawyers and others who help shady operators commit fraud in the securities markets will be held accountable for their supporting roles. Kern was duty-bound to look out for investors’ best interests, but instead he was actively colluding with Berkman to prevent investors from discovering the fraud.”

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Berkman.

According to the SEC’s order instituting administrative proceedings, Berkman raised at least $13.2 million from 120 investors by selling membership interests in limited liability companies that he controlled. Berkman defrauded investors in three different sets of offerings. He falsely told the first set of investors he would use their money to acquire pre-IPO shares of several social media companies. He misled the second set of investors into believing that their money would be used to purchase pre-IPO shares of Facebook or acquire a company that held pre-IPO Facebook shares. In the third offering, Berkman falsely told investors that he would use their money to fund various new large-scale technology ventures.

The SEC’s Enforcement Division alleges that Berkman misappropriated virtually all investor funds that he raised. He did use $600,000 to purchase a small interest in an unrelated fund that had acquired pre-IPO Facebook stock, however that purchase did not provide any company affiliated with Berkman with ownership of Facebook shares. One of Berkman’s companies nevertheless used a forged letter about that investment to falsely represent to investors that it owned nearly a half-million shares of Facebook stock. Upon discovering the forgery, the fund informed Berkman that it was immediately terminating and liquidating his company’s interest, leaving it without even an indirect interest in Facebook shares.

The SEC’s order details a recidivist history for Berkman. The Oregon Division of Finance and Securities issued a cease-and-desist order and $50,000 fine against Berkman in 2001 for offering and selling convertible promissory notes without a brokerage license to Oregon residents. In June 2008, an Oregon jury found Berkman liable in a private action for breach of fiduciary duty, conversion of investor funds, and misrepresentation to investors arising from Berkman’s involvement with a series of purported venture capital funds known as Synectic Ventures. The court entered a $28 million judgment against Berkman. In March 2009, Synectic filed an involuntary Chapter 7 bankruptcy petition against Berkman in Florida for his unpaid debts arising from the 2008 court judgment. The parties to the bankruptcy proceeding reached a settlement with Berkman.

According to the SEC’s order, instead of using his own money to satisfy these past claims, Berkman spent more than $5.4 million in funds from investors in his pre-IPO offerings to make the payments in the bankruptcy settlement. Berkman also made $4.8 million in Ponzi-like payments to earlier investors in the pre-IPO scheme, falsely telling some of them that they had made money on their investment when in reality he never purchased shares for them. Berkman used approximately $1.6 million of investor money to make large cash withdrawals and pay his own dining and travel expenses.

According to the SEC’s order, three months after Facebook’s IPO transpired, Kern wrote and signed a memorandum addressed to concerned investors in Berkman’s purported Facebook fund. Kern’s memorandum stated that a counterparty has “repeatedly affirmed that it has the requisite [Facebook] shares and reconfirmed to us that we have the securities interests to which we subscribed.” Kern knew this statement was false because the “counterparty” had told Kern that it was terminating Berkman’s company’s interest in the fund because of the forged letter. Kern received nearly $300,000 out of the offering proceeds.

The SEC’s order alleges that Berkman and his affiliated entities committed and caused violations of the antifraud provisions of the federal securities laws, and that Kern caused and aided and abetted the violations. The administrative proceedings will determine whether a cease-and-desist order should be issued and what, if any, remedial action or financial sanctions are appropriate and in the public interest.

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SEC Obtains Asset Freeze Against Massachusetts-Based Investment Adviser Stealing Money from Clients

Source- http://www.sec.gov/news/press/2013/2013-43.htm

Washington, D.C., March 18, 2013 — The Securities and Exchange Commission today announced an asset freeze against a Massachusetts-based investment adviser charged with stealing money from clients who were given the false impression they were investing in a hedge fund.

In a complaint unsealed today in federal court in Boston, the SEC alleges that Gregg D. Caplitz and Insight Onsite Strategic Management in Wilmington, Mass., raised at least $1.1 million from clients that was used for purposes other than investing in the hedge fund they purported to manage. Investor money was merely transferred to the firm’s chief investment officer and other members of her family who spent it on personal expenses. The firm reported in SEC filings that it has $100 million in assets under management, however the purported hedge fund actually has no assets.

U.S. District Judge Mark L. Wolf granted the SEC’s request for an emergency court order to freeze the assets of Caplitz and his firm as well as others who received investor money and have been named as relief defendants for the purposes of recovering investor funds in their possession.

According to the SEC’s complaint, Caplitz’s scheme began around 2009. While soliciting funds, Caplitz convinced one client and his wife to invest $275,000 in the hedge fund that Caplitz claimed would generate them about $1,000 per month in returns. Caplitz also solicited a 20-year client who after considering his sales pitch decided not to invest in the hedge fund because she considered it too risky of an investment for someone her age. But Caplitz apparently took action to obtain funds from the client’s IRA account and wire thousands of dollars to an Insight Onsite Strategic Management bank account. The client was not aware of the transfers and did not authorize them.

The SEC alleges that instead of using investor funds to purchase shares in a hedge fund or to manage or develop a hedge fund, Caplitz transferred control of client money to Rosalind Herman, his friend who works at the firm. Investor funds also were transferred to her sons Brad and Brian Herman, daughter-in-law Charlene Herman, and a company called The Knew Finance Experts. The Hermans, who all live in Las Vegas, own that company. The Hermans used investor money to pay legal bills and other personal expenses at gas stations, drugstores, and restaurants.

The SEC alleges that as part of his scheme, Caplitz obtained funds from a real estate investment trust (REIT) by falsely representing that a hedge fund he operated was interested in making an investment in that trust. The public, non-traded REIT gave $135,000 to Caplitz so he could conduct due diligence on the REIT as a precursor to making a $5 million investment that never materialized.

The SEC alleges that Caplitz and Insight Onsite Strategic Management violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, Section 17(a) of the Securities Act of 1933, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The complaint seeks a permanent injunction plus disgorgement, prejudgment interest, and a penalty against Caplitz and his firm. The complaint also names the four Hermans and The Knew Finance Experts as relief defendants and seeks disgorgement plus prejudgment interest.

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Hedge Fund Firm Sigma Capital Charged With Insider Trading

Source- http://www.sec.gov/news/press/2013/2013-42.htm

Washington, D.C., March 15, 2013 — The Securities and Exchange Commission today announced that New York-based hedge fund advisory firm Sigma Capital Management has agreed to pay nearly $14 million to settle charges that the firm engaged in insider trading based on nonpublic information obtained through one of its analysts about the quarterly earnings of Dell and Nvidia Corporation.

The SEC’s case, borne out of its ongoing investigation into expert networks and the trading activities of hedge funds, began last year with charges against several hedge fund managers and analysts including Jon Horvath, a former analyst at Sigma Capital. Horvath agreed to a settlement earlier this month in which he admitted liability.

In a complaint filed today along with the proposed settlement in federal court in Manhattan, the SEC additionally charged Sigma Capital in the insider trading scheme and named two affiliated hedge funds – Sigma Capital Associates and S.A.C. Select Fund – as relief defendants that unjustly benefited from Sigma Capital’s violations. S.A.C. Select Fund is an affiliate of S.A.C. Capital.

The SEC’s complaint alleges that Horvath provided Sigma Capital portfolio managers with nonpublic details about quarterly earnings at Dell and Nvidia after he learned them through a group of hedge fund analysts with whom he regularly communicated. Based on the confidential information, Sigma Capital traded Dell and Nvidia securities in advance of earnings announcements in 2008 and 2009 for $6.425 million in gains for its hedge fund affiliates.

Sigma Capital agreed to pay disgorgement of $6.425 million plus prejudgment interest of $1,094,161.92 and a penalty of $6.425 million.

“Quarterly revenues and profit margins are fundamental drivers of stock prices. By illegally obtaining these vital financial measures in advance of their public announcement, Sigma Capital secured a crystal ball revealing where the stock would likely be trading in the near future,” said George S. Canellos, Acting Director of the SEC’s Division of Enforcement. “However, the crystal ball failed to predict a costly settlement with the SEC.”

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, added, “Sigma Capital’s violations of the securities laws were blatant and recurring. The firm obtained key quarterly earnings information before it was public and exploited an unfair edge over the rest of the market to reap millions of dollars in unlawful gains.”

According to the SEC’s complaint, the key inside information that Horvath obtained about upcoming earnings announcements by Dell and Nvidia often differed significantly from the predictions of market analysts, who only had access to publicly available information. Based on this inside information, Sigma Capital traded Dell and Nvidia securities in advance of four quarterly earnings announcements and reaped more than $5.2 million for its hedge fund Sigma Capital Associates. Horvath’s inside information also enabled S.A.C. Select Fund to execute trades and avoid losses of more than $1 million.

The SEC’s complaint charges Sigma Capital with violating Section 17(a) of the Securities Act, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Sigma Capital is neither admitting nor denying the charges. The settlement, subject to court approval, also would permanently enjoin Sigma Capital from future violations of the antifraud provisions of the federal securities laws.

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CR Intrinsic Agrees to Pay More Than $600 Million in Largest-Ever Settlement for Insider Trading Case

Source- http://www.sec.gov/news/press/2013/2013-41.htm

Washington, D.C., March 15, 2013 — The Securities and Exchange Commission today announced that Stamford, Conn.-based hedge fund advisory firm CR Intrinsic Investors has agreed to pay more than $600 million to settle SEC charges that it participated in an insider trading scheme involving a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies.

The SEC charged CR Intrinsic with insider trading in November 2012, alleging that one of the firm’s portfolio managers Mathew Martoma illegally obtained confidential details about the clinical trial from Dr. Sidney Gilman, who was selected by the pharmaceutical companies — Elan Corporation and Wyeth — to present the final drug trial results to the public.

The settlement filed today in federal court in Manhattan is the largest ever in an insider trading case, requiring CR Intrinsic — an affiliate of S.A.C. Capital Advisors — to pay $274,972,541 in disgorgement, $51,802,381.22 in prejudgment interest, and a $274,972,541 penalty.

“The historic monetary sanctions against CR Intrinsic and its affiliates are sharp warning that the SEC will hold hedge fund advisory firms and their funds accountable when employees break the law to benefit the firm,” said George S. Canellos, Acting Director of the SEC’s Division of Enforcement.

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, added, “A robust culture of compliance and zero tolerance toward employee misconduct can help other firms avoid the severe financial consequences that CR Intrinsic is facing for its misconduct.”

The SEC’s complaint against CR Intrinsic, Martoma, and Dr. Gilman alleged that during phone calls arranged by a New York-based expert network firm for which Dr. Gilman moonlighted as a medical consultant, he tipped Martoma with safety data and eventually details about negative results in the trial about two weeks before they were made public in July 2008. Martoma and CR Intrinsic then caused several hedge funds to sell more than $960 million in Elan and Wyeth securities in a little more than a week.

In an amended complaint filed today, the SEC added S.A.C. Capital Advisors and four hedge funds managed by CR Intrinsic and S.A.C. Capital as relief defendants because they each received ill-gotten gains from the insider trading scheme. These ill-gotten gains are comprised of profits and avoided losses resulting from trades placed in the hedge fund portfolios that CR Intrinsic and S.A.C. Capital managed, and include fees that S.A.C. Capital received as a result of these ill-gotten gains.

The settlement is subject to the approval of Judge Victor Marrero of the U.S. District Court for the Southern District of New York. The settlement would resolve the SEC’s charges against CR Intrinsic and the relief defendants relating to the trades in the securities of Elan and Wyeth between July 21 and July 30, 2008. The settling parties neither admit nor deny the charges. The settlement does not resolve the charges against Martoma, whose case continues in litigation. The court previously entered a consent judgment against Dr. Gilman requiring him to pay disgorgement and prejudgment interest, and permanently enjoining him from further violations of the anti-fraud provisions of the federal securities laws.

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Canadian Stock Promoters John Kirk, Benjamin Kirk, Dylan Boyle, James Hinton, and Their Associates Charged in an International Market Manipulation Scheme

Source- http://www.sec.gov/news/press/2013/2013-39.htm

Washington, D.C., March 15, 2013 — The Securities and Exchange Commission today charged a group of Canadian stock promoters, two San Diego attorneys, a Bahamas-based broker-dealer, and other participants in an international “pump-and-dump” scheme involving two publicly traded U.S. companies, Pacific Blue Energy Corporation and Tradeshow Marketing Company Ltd.

According to the SEC’s complaint, Canadian stock promoters John Kirk, Benjamin Kirk, Dylan Boyle, James Hinton, and their associates, used false and misleading promotions to pump up trading in the stock of the two microcap companies and made millions when they secretly dumped their own shares. Microcap companies typically have limited assets and low-priced stock that trades in low volumes. The SEC alleges that the promoters sent investors false and misleading emails about the companies through two websites they controlled, Skymark Research and Emerging Stock Report, and used “boiler room” sales calls to tout the stocks, falsely claiming that the recommendations were based on independent research by Skymark and Emerging Stock Report.

The SEC alleges that San Diego-based attorneys Luis Carrillo and Wade Huettel were central participants in the scheme who helped the promoters conceal their ownership interests in the companies, drafted misleading public filings, and provided misleading legal opinions. As part of the scheme, their law firm, Carrillo Huettel LLP, secretly received proceeds of stock sales in the form of a sham “loan.”

The SEC’s complaint, filed in federal court in Manhattan, alleges that Gibraltar Global Securities, a Bahamian broker-dealer, provided false affidavits and misleading statements that allowed Benjamin Kirk to secretly sell shares of the companies he was promoting. The SEC also charged Gibraltar’s president, Warren Davis, who signed misleading representations on behalf of Gibraltar.

“Microcap fraud is a scourge on our markets and we will continue to aggressively pursue individuals who engage in it, whether they are unscrupulous stock promoters who prey on investors or unethical attorneys who enable these pernicious schemes. Moreover, as this action demonstrates, the SEC is working closely with foreign authorities to root out this conduct in the international arena,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

According to the SEC, Tradeshow president Luniel de Beer, who served as chairman of Pacific Blue, received more than $330,000 in secret kickbacks for his part in the scheme. In addition, the SEC alleged that de Beer and Pacific Blue president Joel Franklin made misleading representations and facilitated the promoters’ stock sales. Without admitting or denying the SEC’s allegations, Franklin agreed to settle the SEC’s charges and consented to certain injunctive relief.

The SEC’s complaint charges Carrillo Huettel LLP, Carrillo, Huettel, Gibraltar Global Securities, John Kirk, Benjamin Kirk, Boyle, Hinton, de Beer, Franklin, Pacific Blue, and Tradeshow with violations of U.S. anti-fraud laws and rules, and charges these defendants, along with Warren Davis and Carrillo’s father, Dr. Luis Carrillo, with distributing unregistered shares, in violation of U.S. securities laws.

The SEC is seeking to have the defendants return their allegedly ill-gotten gains, with interest, and to bar Carrillo, Huettel, de Beer, John Kirk, Benjamin Kirk, Boyle, and Hinton from participating in penny stock offerings and from serving as public company officers or directors. The SEC is seeking civil monetary penalties from the attorneys, their law firm, and from de Beer.

Joshua Newville, Katherine Bromberg, Michael Paley, and Michael Osnato of the New York Regional Office conducted the SEC’s investigation. Mr. Newville, Ms. Bromberg and Todd Brody will lead the SEC’s litigation effort.

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New York-Based Private Equity Fund Advisers Charged With Misleading Investors about Valuation and Performance

Source- http://www.sec.gov/news/press/2013/2013-38.htm

Washington, D.C., March 11, 2013 — The Securities and Exchange Commission today charged two investment advisers at Oppenheimer & Co. with misleading investors about the valuation policies and performance of a private equity fund they manage.

An SEC investigation found that Oppenheimer Asset Management and Oppenheimer Alternative Investment Management disseminated misleading quarterly reports and marketing materials stating that the fund’s holdings of other private equity funds were valued “based on the underlying managers’ estimated values.” However, the portfolio manager of the Oppenheimer fund actually valued the fund’s largest investment at a significant markup to the underlying manager’s estimated value, a change that made the fund’s performance appear significantly better as measured by its internal rate of return.

Oppenheimer agreed to pay more than $2.8 million to settle the SEC’s charges. The Massachusetts Attorney General’s office today announced a related action and additional financial penalty against Oppenheimer.

“Honest disclosure about how investments are valued and how performance is measured is vital to private equity investors,” said George S. Canellos, Acting Director of the SEC’s Division of Enforcement. “This action against Oppenheimer for misleadingly writing up the value of illiquid investments is clear warning that the SEC will not tolerate lax disclosure practices in the marketing of private equity funds.”

According to the SEC’s order instituting settled administrative proceedings, the Oppenheimer advisers marketed Oppenheimer Global Resource Private Equity Fund I L.P. (OGR) to investors from around October 2009 to June 2010. OGR is a fund that invests in other private equity funds, and it was marketed primarily to pensions, foundations, and endowments as well as high net worth individuals and families.

According to the SEC’s order, OGR’s largest investment — Cartesian Investors-A LLC — was not valued based on the underlying managers’ estimated values. OGR’s portfolio manager himself valued Cartesian at a significant markup to the underlying manager’s estimated value. OAM’s change in valuation methodology resulted in a material increase in OGR’s performance as measured by its internal rate of return, which is a metric commonly used to compare the profitability of various investments. For the quarter ended June 30, 2009, the portfolio manager’s markup of OGR’s Cartesian investment increased the internal rate of return from approximately 3.8 to 38.3 percent.

“Particularly in the current difficult fundraising environment that can incentivize private equity managers to artificially inflate portfolio valuations, firms must implement policies and procedures to ensure that investors receive performance data derived from the disclosed valuation methodology,” said Julie M. Riewe, Deputy Chief of the SEC Enforcement Division’s Asset Management Unit. “Oppenheimer failed to implement such procedures and provided investors with misleading information about its valuation policies and performance numbers.”

The SEC’s order found that former OAM employees made the following misrepresentations to potential investors:
The increase in Cartesian’s value was due to an increase in Cartesian’s performance when, in fact, the increase was attributable to the portfolio manager’s new valuation method.

A third-party valuation firm used by Cartesian’s underlying manager wrote up the value of Cartesian, which was untrue.

OGR’s underlying funds were audited by independent third-party auditors when, in fact, Cartesian was unaudited.

The SEC’s order also found that Oppenheimer Asset Management’s written policies and procedures were not reasonably designed to ensure that valuations provided to prospective and existing investors were presented in a manner consistent with written representations to investors and prospective investors.

Oppenheimer Asset Management’s conduct violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Section 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-7 and 206(4)-8. Without admitting or denying the findings, Oppenheimer agreed to pay a $617,579 penalty and return $2,269,098 to those who invested in OGR during the time period when the misrepresentations were made. Oppenheimer consented to a censure and agreed to cease and desist from committing or causing any future violations of the securities laws. The firm is required to retain an independent consultant to conduct a review of its valuation policies and procedures.

Oppenheimer will pay an additional penalty of $132,421 to the Commonwealth of Massachusetts in the related action taken by the Massachusetts Attorney General.

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