SEC Settlements

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.

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.

SEC Bars Broker From Industry, Orders Her to Pay $4M for Inflating Firm’s Investment Performance to Bring In Rich Investor Clients

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

The Securities and Exchange Commission has barred broker Dawn J. Bennett from the securities industry. The regulator also ordered and her firm to pay over $4M in fines and disgorgement. The ruling was issued by an SEC administrative law judge.

According to the Commission, Bennett exaggerated her firm’s investment performance and assets under management so she could garner business from rich clients. Bennett is accused of promoting inflated assets to try to get high rankings on Barron’s top advisers list and using these rankings to retain new clients. She was named to that list three times as a manager who oversaw over $1B in client assets.

Bennett and her firm, Bennett Group Financial Services, purportedly claimed to be managing between $1.1B and $2B from at least ’09 through ’11 when, in reality, the firm never had more than $407M under management during that time period. The SEC, along with arbitration claims filed with FINRA, contend that at least two of her firm’s clients lost over $1M when they invested their funds with her.

Securities Fraud News: Andrew Caspersen Pleads Guilty to $40M Fraud, Massachusetts Investment Advisor to Pay $8M to Investors, & CFTC Orders Florida Man and His Companies to Pay Almost $175M in Sanctions in FX Ponzi Scam

Published on: July 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Wall Street Executive Admits to Bilking Friends and Relatives
Andrew Caspersen has pleaded guilty to federal criminal charges accusing him of defrauding relatives, friends, and Moore Charitable Foundation of $40M. Caspersen is an ex-Wall Street executive and a member of the wealthy Caspersen family. The charitable foundation he bilked belongs to billionaire hedge fund manager Louis Bacon and his investment firm Moore Capital Management.

Caspersen, 39, pleaded guilty to one charge of wire fraud and one charge of security fraud. Each criminal charge comes with a maximum term of 20 years behind bars.

Caspersen’s defense team initially argued that he was addicted to gambling and suffered from mental illness, which were what supposedly compelled him to run his multi-million dollar Ponzi-like scam. His mother, close friends, the family of an ex-girlfriend, and others were among those whom he bilked.

SEC Bond Cases: Illinois Mayer Settles Municipal Bond Fraud Charges for $10K, Ethiopia’s Electric Utility Pays Over $6M to Resolve Bond Offering Violations, and Miami , Fla. Likely to Come Under Scrutiny in Civil Trial

Published on: June 12, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Mayor of Harvey, Illinois Barred From Future Involvement In Muni Bond Offerings
Eric J. Kellog, the mayor of Harvey, Illinois, will pay $10K to resolve the Securities and Exchange Commission’s case accusing him of municipal bond fraud. As part of the settlement, Kellog has agreed to never take part in a muni bond offering again.

According to the Commission, Mayor Kellogg was tied to a number of fraudulent bond offerings made by the city of Harvey. Investors thought their money would go toward building a Holiday Inn hotel when, instead, at least $1.7M in bond proceeds were diverted to cover the city’s payroll and pay for operational costs that had nothing to do with the hotel construction project.

Kellogg was in charge of Harvey’s operations. His signature was on key offering documents used by the city of Harvey to sell and offer the municipal bonds. The SEC said that the mayor was liable for fraud as a control person under the Securities Exchange Act.

By settling, Kellog is not denying or admitting to the SEC findings.

Ethiopia’s Electric Utility Pays Over $6M to Settle SEC Municipal Bond Case
In other bond fraud news, the SEC has reached a settlement with the Ethiopian Electric Power over charges that the foreign electric utility did not register the bonds that it sold and offered to U.S. residents who were of Ethiopian descent. EEP will pay almost $6.5M to resolve the case accusing it of violating U.S. securities laws.

Ex-Dean Foods Board Member, Pro Golfer Phil Mickelson, and Professional Sports Gambler Are Named in Insider Trading Case

Published on: May 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed civil charges against professional sports gambler William Walters. He is accused of making $40M from an illegal stock tip given to him by former Dean Foods Company board member Thomas C. Davis. The regulator said that Davis, who owed Walters money, gave him insider information about the company prior to market-moving events.

Professional golfer Phil Mickelson, who is a relief defendant in the case, allegedly traded in Dean Foods securities based on Walter’s recommendation. Mickelson then purportedly took the nearly $1M he made from the trading to help repay the gambling debt he owed to Walters. As a relief defendant, Mickelson is not being charged with insider trading or accused of wrongdoing. He will, however, have to pay back the money he made from trading in Dean Foods securities.

As to why Mickelson won’t be prosecuted, The New York Times reports in the article “How to Get Away with Insider Trading,” this is because of U.S. insider trading laws, which bars trading on nonpublic information only if the information has been used or obtained wrongly. This allows parties involved later on in the “chain of information” to benefit from such rules.

Walters and Davis, however, are charged in this case. The SEC’s complaint said that the illegal trading took place over five years.

SEC Says Pennsylvania Financial Adviser Bilked Professional Athletes

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

The U.S. Securities and Exchange Commission is filing fraud charges against Louis Martin Blazer III, a Pittsburgh-based financial adviser. Blazer founded Blazer Capital Management—a firm that works with high-net worth individual clients and professional athletes. He allegedly took money out of the accounts of these athletes without their permission so he could issue Ponzi-like payments and invest in movies.

The SEC contends that Blazer took about $2.35M from five clients and invested in two movie projects. One client had even rejected the opportunity to invest in the films and still Blazer purportedly took $550K from this person’s account and invested the funds. After the client found out about the authorized investment and demanded his money back, Blazer allegedly used from another athlete’s account to pay the other client back, forging the second client’s signature on documents to initiate the transfer of $650K. He used $550K of that to pay back the first client. He purportedly used the remaining $100K to invest in a music venture on behalf of Blazer Capital.

When SEC examiners discovered the unauthorized transactions made in clients’ accounts, Blazer allegedly lied about them and turned over false documents that he had created to conceal his misconduct. He said that clients had authorized the transactions.

Institutional Fraud Cases: Shareholders Sue PJT Partners Over Andrew Caspersen’s $95M Fraud, Sabal Limited Sues Deutsche Bank, and Dallas Pension Fund Sues Firm

Published on: April 30, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Securities Case Brought Over Caspersen Fraud
Shareholders of PJT Partners Inc. have brought a class action lawsuit against the publicly traded investment bank. The complaint comes in the awake of the arrest of Andrew Caspersen, who previously was one of the top officials at the bank’s Park Hill Group unit. Caspersen is accused of running a $95M fraud in secret. He is also a defendant in this lawsuit.

According to authorities, Caspersen falsely told investors that he was raising funds for supposed private equity investments when actually he was placing their money in high-risk options bets. He lost millions of dollars through options trading in his own accounts. Among his investors were the charitable foundation of a hedge fund and other institutional clients.

Caspersen was arrested and charged last month, as well as fired from PJT Partners. Investor Gregory Barrett claims that the investment bank misled shareholders by not disclosing that it had inadequate fraud prevention and compliance controls. The shareholder lawsuit points to purported evidence of alleged control failures, including an anonymous quote in the New York Times stating that Caspersen had availed of Park Hill Group’s payment system to give investors invoices and keep his scam going.

Sabal Sues Deutsche Bank Over Swap Transaction
Sabal Limited LP is suing Deutsche Bank AG (DB). Sabal claims that the German bank falsified documents after coming to the realization that the outcome of a swap transaction wasn’t going to be in its favor. Deutsche Bank is accused of improperly holding nearly $1M from the Texas asset management firm.

According to Sabal, in 2011, Deutsche Bank proposed a way of “cheapening” the firm’s capital costs through a swap tied to the DB Pulse USD Index. Deutsche Bank purportedly said that if the swap was based on this index it would generate a lot of funds. The transaction was finalized a few months later.

SEC Files Financial Fraud Cases Against Logitech and Ener1

Published on: April 19, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed financial fraud cases against Logitech International and Ener1. Logitech, a technology manufacturer, will pay $7.5M to resolve the charges. Its former controller, Michael Doktorczyk and ex-accounting director, Sherallyn Bolles, will pay $50K and $25K penalties, respectively.

The SEC said that the two companies and their former executives committed accounting-related violations that caused investors to not have an accurate portrayal of what was going on financially at Logitech and Ener1.

According to the regulator, Logitech fraudulently inflated its financial results for the 2011fiscal year to satisfy earnings guidance, as well as committed other accounting violations over five years. The SEC also filed charges against the technology company’s former CFO, Erik Bardman, and ex-controller Jennifer Wolf, accusing them of purposely minimizing the write-down of millions of dollars of extra component parts for a product that had inventory in excess.

For the company’s financial statements, Bardman and Wolf are accused of falsely assuming that the company would construct the components into complete products even though they knew of contrary events and facts. Also, ex-CEO Gerald Quindlen, who is not accused of misconduct, gave back $194,487 in stock sale profits and incentive-based compensation that was given to him during a time when alleged accounting violations were taking place.

In the Ener1 financial fraud case, the battery manufacturer consented to pay penalties for its materially overstated assets and revenues for year-end 2010, as well as overstated assets from 2011’s first quarter. The SEC said that the financial misstatements were a result of management’s failure to impair certain receivables and investments. Ex-CFO Jeffrey A. Seidel, ex-CEO Charles Gassenheimer, and ex-chief accounting officer Robert Kamische consented to pay $50K, $100K, and $30K, respectively.

The SEC said that Robert Hesselgesser, who was the engagement partner of Price Waterhouse Coopers LLP’s audit of Ener1’s financial statements of 2010, violated auditing standards when he did not conduct the proper procedures to back his audit findings that Ener1’s management had properly accounted for revenues and assets.