Securities and Exchange Commission

Hedge Fund Manager Faces SEC Charges For Insider Trading

Published on: September 21, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed insider trading civil charges against Leon G. Cooperman and his Omega Advisors. According to the regulator, the hedge fund manager made illicit profits when he bought Atlas Pipeline Partners securities right before it sold its natural gas processing facility in Oklahoma.

Cooperman is accused of using his position as one of Atlas Pipeline’s biggest shareholder to obtain confidential information about the upcoming sale. This, even after Cooperman and his firm had agreed not to to make trades using the information he was given. When the sale of the facility, for $682 million, was announced publicly, Atlas Pipeline’s stock price went up by over 31%.

The SEC, in its complaint, said that when Cooperman’s firm was sent a subpoena regarding its trading involving Atlas Pipeline securities, Cooperman allegedly spoke to the executive who had given him the nonpublic information and attempted to make up a story about the trading. The executive was reportedly upset to find out that Cooperman had traded before the announcement of the sale.

SEC Awards Whistleblower $4M

Published on: September 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is awarding over $4M to a whistleblower for providing original information that led to a successful fraud case. This is individual is the 34th whistleblower that the SEC’s program has awarded since 2011, upping the total amount granted in such awards to over $111M.

In what was the second biggest award issued by the regulator to date, he SEC awarded $22M to an to an ex- Monsanto Co. financial executive last month. The individual had reported alleged accounting violations involving Roundup, the company’s weed killer. According to media reports, Monsanto offered distributor rebates to raise sales but moved the costs into the following fiscal year. As a result, the company moved up its revenue while postponing the reduction that resulted from the costs.

Under the SEC Whistleblower program, individuals who voluntarily give the regulator unique information that leads to a successful enforcement case are entitled to 10-30% of the sanctions collected when that amount is over $1M. Since the program’s inception five years ago, the Commission has received over 14,000 tips.

Securities Violations: Raymond James and Robert W. Baird to Pay Fines For Alleged Wrap Fee Compliance Failures, RBC Agrees to Pay $2.5M Over Proxy Statement Disclosures, and Ex- ARCP Accounting Executives Are Accused of Overstating REIT’s Performance

Published on: September 10, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Raymond James and Robert W. Baird Are Charged With Compliance Failures

The Securities and Exchange Commission said that Robert W. Baird and Co. and Raymond James & Associates (RJF) will pay $250K and $600K, respectively, to settle charges accusing them of compliance failures in their own wrap free programs. Both firms resolved the charges without admitting or denying to them. They did, however, consent to the regulator’s orders, which found that they violated the Investment Advisers Act of 1940 and Rule 206(4)-7.

According to the SEC’s investigation, Raymond James and Robert W. Baird did not put into place the necessary policies and procedures that would have allowed them to figure out how much in commissions their clients were charged when sub-advisers “traded away” with a brokerage firm that was not part of the wrap fee programs. As a result, said the regulator, the advisers could not let clients know the “magnitude of the costs” nor did the firm consider these commissions when trying to figure out whether the wrap fee program or sub-advisers were appropriate for clients. Because of this, claims the SEC, some clients did not know that they were paying for more than the single wrap fee for investments that were bundled.

Two ARCP Ex-Accounting Executives Face SEC and Criminal Charges For Allegedly Inflating the REIT’s Performance

Brian S. Block and Lisa P. McAlister are facing criminal and civil charges for allegedly overstating the performance of the American Reality Capital Properties (ARCP), now called VEREIT Inc. The two former ARCP accounting executives are accused of inflating a key metric that investors and analysts used to evaluate the publicly-traded real estate investment trust.

SEC Bans Andrew Caspersen After $38M Financial Fraud

Published on: September 7, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Andrew Caspersen is now permanently barred from the investment industry. The Securities and Exchange Commission announced the ban.

Caspersen, who used to be the managing principal at Park Hill Group and is the son of financier and philanthropist Finn M. W. Caspersen, had pleaded guilty to criminal charges of securities fraud and wires fraud. He admitted to bilking investors of over $38M and misappropriating over $8M. Park Hill fired him earlier this year.

The ex-Wall Street executive admitted to having a “gambling addiction” and his involvement in a scam to raise $95M. His fraud victims included family and friends. According to his attorney, Caspersen lost $123M by speculating on put options in the S & P index. His sentencing hearing is in November.

13 Investment Advisers Pay Penalties Over F-Squared Investment’s False Performance Claims

Published on: August 25, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has imposed penalties against more than a dozen investment advisory firms because they purportedly spread false claims made by F-Squared Investments about its Alpha Sector strategy. The SEC said that the firms violated securities laws.

According to the regulator, which conducted an enforcement sweep, 13 firms accepted y F-Squared’s false claim that its exchange-traded funds’ investing strategy had outperformed the S & P index for a number of years. The firms touted these claims when recommending the investment to their clients. The SEC said that they did this without first obtaining adequate documentation to confirm that what F-Squared had told them was true.

It was in 2014 that F-Squared admitted to wrongdoing and consented to pay $35M to settle allegations accusing it of using false performance information about its key product to bilk investors. The SEC said that F-Squared falsely advertised its supposed successful multi-year performance record. Unfortunately, that supposed time period for this performance record would have taken place before key algorithm that had been touted for this success even existed.

In reality, backtesting had been used to come up with a “hypothetical performance” from the noted period of supposed success. Yet, F-Squared and ex-CEO Howard Present marketed AlphaSector as “not backtested.” Also, the hypothetical information included a performance calculation mistake that increased results by about 350%.

Penalties for the 13 firms vary in amount from $100K to $500K. These were determined according to the fees they respectively made from strategies related to AlphaSector.

Apollo Global Management Settles Supervisory and Disclosure Failure Charges for $52.7M

Published on: August 23, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Apollo Global Management (APO) has agreed to settle for $52.7M allegations that the firm misled fund investors regarding fees and a loan agreement, as well as failed to supervise a senior partner. The settlement was reached with the U.S. Securities and Exchange Commission, which found during its probe that Apollo advisers did not adequately disclose benefits they obtained. This ended up harming fund investors.

Four private equity fund advisors will be paying part of the settlement include:

· Apollo Management V, LP

Ex-Perella Weinberg Partners Managing Director is Convicted of Insider Trading, Giving Tips to His Dad

Published on: August 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A jury has Sean Stewart, the ex-managing director of Perella Weinberg Partners LP of insider trading. Stewart is accused of giving his dad confidential tips about five health-care deals.

According to prosecutors, Stewart started giving his dad insider information in 2011 while he was VP of J.P. Morgan Chase & Co.’s (JPM) healthcare investment banking group. He continued to tip his dad when he went to work for Perella. As a result of the insider information, Stewart’s dad, Robert Stewart, and Richard Cunniffe made over $1M in illegal profits. The elder Stewart has already pleaded guilty to the charges against him.

During the trial, the younger Stewart testified that his dad had betrayed him by using the information that he had shared with him during casual conversation. He testified that he lied to compliance lawyers at JPMorgan in 2011 to protect his reputation and his father. He claimed that he never thought that his dad would use the information to make trades.

Robert has already been sentenced to four years of probation for his role after pleading guilty to securities fraud. Also, he had to forfeit $150K in ill-gotten gains. The elder Stewart shared the tips he received from his son with two others, including Cunniffee, who testified that they used the tips to buy stock options. Cunniffee had earlier pleaded guilty to insider trading.

Ex-Goldman Sachs Trader to Pay $400K Fine to Settle RMBS Fraud Case

Published on: August 16, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Edwin Chin, an ex-Goldman Sachs Group Inc. (GS) senior trader, will pay $400K to resolve U.S. Securities and Exchange Commission charges accusing him of misleading the bank’s customers when he sold them residential mortgage-backed securities at prices that were higher than they should have been. Even though he is settling, Chin is not denying or admitting to the regulator’s findings. He has, however, agreed to the entry of the order stating that he violated the Securities and Exchange Act of 1934 and Rule 10b-5.

According to the Commission’s order, from 2010 until 2012, which is when Chin left the bank, the former Goldman trader made extra money for the firm by concealing the prices that it had paid for different RMBSs and reselling the securities at higher prices to customers. The difference in cost would go to Goldman.

The SEC said Chin made over $1.5M in additional trading profits. Because Goldman made more money, Chin did as well.

The regulator accused Chin of sometimes misleading buyers by suggesting that he was in the process of negotiating a transaction between customers when he was merely selling residential mortgage-backed securities from Goldman’s inventory. In one alleged incident, Chin earned an additional $200K by telling a hedge fund client that he would sell a bond at cost price and without compensation. Unfortunately, he purportedly neglected to tell the hedge fund that he had already bought the security, had it in inventory, and was charging the fund a worse price than what Goldman paid earlier that day. The SEC said that Chin misled the same client about the price of a different security the following day, resulting in an additional $100K in profit.

San Francisco Investment Manager is Sued Over $2M Hedge Fund Fraud

Published on: August 11, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has filed a financial fraud lawsuit against Nicholas M. Mitsakos and his Matrix Capital Market. Mitsakos and his investment advisory firm are accused of pretending that they managed millions of dollars in assets. They allegedly stole about $800K from the first client that invested with them. The client, a Cayman Islands fund, invested $1.99M.

Mitsakos and his firm are accused of soliciting investors in a purported hedge fund. They are said to have falsely claimed they were successful money managers overseeing millions of dollars even though they had no assets. Instead, they allegedly made up a hypothetical investment portfolio in which the investments made up to 66% of yearly returns. The two of them are accused of pretending that these trades were real.

Commenting on the hedge fund fraud, SEC New York Regional Office Director Andrew Calamari said that it is important for investors to verify any information about an investment opportunity, especially one that is touted as having a “lofty historical performance.”

State Street to Pay $382M for Misleading Clients, Including Mutual Funds, Over Hidden Markups In Foreign Currency Exchange Trades

Published on: July 27, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has arrived at a global settlement with State Street Bank and Trust Company. According to the regulator, State Street misled custody clients, including mutual funds, about hidden markups that were added to foreign currency exchange trades. The firm will pay $382.4M, including $167M in penalties and disgorgement to the Commission, a $155M penalty to the U.S. Justice Department, and at least $60M to ERISA plan clients.

Among the other services it provides, State Street facilitates indirect foreign currency exchange trading for clients so that they can sell and purchase foreign currencies in transactions involving foreign securities. An SEC probe found that State Street made a substantial chunk of money in revenue when it misled some clients about Indirect FX, claimed that it offered the most competitive rates on trades, charged “market rates,” and provided “best execution.” The Commission contends that the company did not try to get the best prices for clients.

The SEC believes that State Street concealed markups so that custody clients would not notice. It also found that registered investment company custody clients were given monthly transaction reports and trade confirmations that were materially misleading because of misrepresentations about foreign currency exchange transaction pricing.