Investment Adviser Settles SEC Case for $575K
John W. Rafal, a Connecticut-based investment adviser, has agreed to settle US Securities and Exchange Commission charges for $575K. As part of the settlement, Rafal is admitting wrongdoing in a civil case that accuses him of bilking a client and then trying to mislead the SEC while lying to other clients about the regulator’s probe.
The SEC said that Rafal paid attorney Peter D. Hershman in secret for referring one of his client’s to Essex Financial Services, which is the firm that Rafal founded. He is no longer affiliated with Essex. Rather than disclose the referral deal to the older widow who was that client, Rafal and Hershman concealed the payments as “legal fees.” Even after Essex officers found out about and stopped the referral arrangement, the deal between the two men continued in secret. The SEC also said that Rafal responded to rumors that he had violated a securities law by emailing his clients and falsely stating that the regulator’s probe had been resolved. He also purportedly tried persuading the Commission that his arrangement with Hershing was over.
Essex Financial Services will pay $180K in disgorgement and interest to resolve charges connected to Rafal’s wrongful behavior. Herhsman will pay over $90K to resolve the civil charges accusing him of aiding and abetting the violations committed by Rafal. The two men agreed to a securities industry bar and from serving in the roles of director or officer for any publicly traded company. They also are no longer allowed to represent clients regarding SEC matters.
Meantime, the U.S. Attorney’s Office for the District of Massachusetts has filed a parallel criminal probe against Rafal over the allegations that he obstructed the SEC’s proceedings.
Bond Trader Jesse Litvak’s Trial is Underway
Former Jefferies Group (JEF) bond trader Jesse Litvak’s second trial has begun. Litvak was convicted of securities fraud for allegedly misleading customers from ’09 to ’11. Two years ago, he was convicted of fraud and sentenced to two years behind bars.
However, a federal appeals court overturned that decision because it found that the judge made mistakes and that there was insufficient evidence proving that Litvak bilked the government related to a federal bailout during the financial crisis. Now, Litvak is being retried over allegations that he bilked customers. According to a federal prosecutor who spoke at Litvak’s trial last week, the former bond trader lied to customers about the price of mortgage securities in order to make more money for his firm.
Meantime, Litvak and his legal team have argued that his customers, who included AllianceBernstein LP (AB.N), and other asset managers, were financially savvy enough to know if they’d been defrauded. They claim that these sophisticated investors depended on other factors when making decisions about whether to sell and buy investments and at what price.
Former Barclays Plc (BARC) Gets Prison Term for Passing Merger Tips
A US District Judge has ordered Stephen McClatchey to pay a $10K fine and forfeit, jointly with plumber Gary Pusey, $76K. McClatchey, formerly a Barclays Plc (BARC) director, pleaded guilty to securities fraud and conspiracy last year.
McClatchey admitted to passing tips regarding mergers in process that involved the bank to Pusey. The former Barclays director said that he wanted get a job with the latter’s Long Island plumbing business.
The criminal securities case against the two men is related to a probe by the SEC, which identified an “illicit pattern of trading” on Pusey’s part. Pusey would trade before the mergers that involved McClatchey. In total McClatchey tipped Pusey about more than 10 mergers. Meantime, McClatchey was given thousands of dollars and free bathroom renovations service courtesy of Pusey.
The Long Island plumber, who made about $76K from insider trading, cooperated with the FBI and federal prosecutors after they began investigating the suspect activity. Pusey pleaded guilty to securities fraud last year but he has yet to be sentenced.
Shepherd Smith Edwards and Kantas, LTD LLP is a securities fraud law firm. Contact one of our broker fraud attorneys or investment adviser fraud lawyers if you suspect you have grounds for a claim.
Investment Adviser, Lawyer Settle Charges in Secret Referral Fee Scheme, SEC, January 9, 2017
Barclays Director Sentenced to Prison for Insider Trading, NY Law Journal, January 11, 2017