Institutional Investment Fraud Roundup: STEC Inc. CEO Sued for Insider Trading, Hedge Fund Adviser Indicted for Allegedly Misleading Investors, Two Brothers Settle Naked Short Selling Lawsuit for $14.5M, & Underwriters Get New Disclosure Obligations

In SEC v. Moshayedi, the Securities and Commission is suing the Chairman and CEO of computer device storage company STEC Inc. (STEC) for insider trading. Manouchehr Moshayedi allegedly traded in his company stock’s secondary offering because he had insider knowledge that there was a decline in the demand for an important product.

The SEC contends that Moshayedi was attempting avail of a sharp upward trend in the price of the company stock when he sold a significant amount of his shares, as well as shares belonging to his brother, who had co-founded the company with him. As a result of his actions, the Commission says that the siblings made gross proceeds of approximately $134 million each. Moshayedi has denied the allegations and intends to combat the case.

In another SEC case, two other brothers that were sued by the Commission for their alleged involvement in naked short selling have agreed to settle the administrative case against them by paying $14.5 million. Robert A. Wolfson and Jeffrey Wolfson are accused of not locating and delivering shares in short sales to brokerage firms. These naked-short selling transactions allegedly earned them about $9.5 million in illegal profits.

Golden Anchor Trading II LLC was also sued over this matter and has settled as well. While the Wolfsons are paying $13.4 million, the brokerage firm has agreed to pay $1.1 million. By settling, none of them are admitting to or denying the allegations.

Meantime, hedge fund adviser Chetan Kapur, who last year settled SEC administrative and civil charges over alleged misconduct related to allegations that he misled investors, has been indicted on the charges of investment adviser fraud, securities fraud, and wire fraud. Kapur was ThinkStrategy Capital Management LLC’s sole managing principal. The financial firm managed the hedge funds ThinkStrategy Capital Management LLC and ThinkStrategy Capital Fund.

According to the criminal charges, made in the U.S. District Court for the Southern District of New York, Kapur allegedly misled clients about the financial state of the two funds through material misstatements and omissions. He also is accused of giving false information about the funds’ performance, assets, longevity, due diligence, and personnel. If convicted, he faces up to 125 years in prison.

In other securities news, beginning August 2, underwriters will have to fulfill new disclosure obligations to local and state governments. This includes disclosing any actual or possible material conflicts of interest, any third party compensation, and any risks involving complex financial transactions that are recommended to clients. Earlier this month the Municipal Securities Rulemaking Board published guidance to assist underwriters in fulfilling these new duties.

SEC v. Moshayedi (PDF)

Short Selling Brothers Agree to Pay $14.5 Million to Settle SEC Charges, SEC, July 17, 2012

SEC v. Kapur (PDF)

MSRB Rule G-17 (PDF)

More Blog Posts:
No SIPA Coverage for Soft Dollar Credits, Says Bankruptcy Court, Institutional Investor Securities Blog, July 21, 2012

SEC’s Delay in Adopting Conflict Minerals Disclosure Rule is Impeding the Development of Initiatives for Issuer Compliance, Says GAO, Stockbroker Fraud Blog, July 27, 2012

Peregrine Financial Group Customers Were Victims of the “System,” Says CFTC Chairman Gensler, Institutional Investor Securities Blog, July 26, 2012

Our institutional investment securities attorneys represents clients throughout the US, as well as clients with cases against US-based firms and financial industry representatives.