In this holiday shortened first week of the year, one of
the most significant current cases moved forward with the entry of a not guilty
plea by Mathew Martoma to insider trading charges. Mr. Martoma is the latest
person charged in the on-going insider trading wars being waged by the
Manhattan U.S. Attorney's Office and the SEC. His former affiliation with SAC
Capital, the huge trading profits in the case, and the manner in which they
were made has fueled speculation about possible charges against that firm and
its founder.
The SEC settled an investment fund fraud action filed
initially in 2010 this week but did not bring any civil injunctive actions or
administrative proceedings, excluding 12j and tag along actions. The CFTC filed
two actions, one centered on the protection of customer funds and another based
and on a cherry picking scheme. In New York another defendant was sentenced in
the on-going bid rigging actions centered on the municipal bond market. The SFC
announced that it lost an action based on aiding and abetting unlicensed
activity.
The SEC
Report: The SEC's 2012 Agency
Financial Report details its performance over the last government fiscal year
which ended September 30, 2012. The Report provides an overview of the work of
the Commission during the period. Two sections focus on the Division of
Enforcement and highlight many of its significant cases.
SEC Enforcement: Filings and settlements
Weekly statistics: This
week the Commission did not file any civil injunctive actions or administrative
proceedings (excluding tag-along-actions and 12(j) actions).
Investment fund fraud: SEC v.
Online-Registries, Inc., Civil Action No. 10-CV-00433 (D.R.I.
Filed Oct. 19, 2010) is an action against David Stern and his company. This
week the Commission announced a settlement with each defendant. According to
the complaint, the defendants defrauded at least 10 investors who purchased
shares in Online-Registries for a total of $170,000 based on
misrepresentations. Mr. Stern, a convicted felon and disbarred attorney, told
investors the company had developed technology to help permit the sharing of
medical records, that it had thousands of subscribers and that they would be
forming a partnership with a major technology company. The representations were
false. The complaint alleges violations of Securities Act Section 17(a) and
Exchange Act Section 10(b). Under the terms of the settlement each defendant
consented to the entry of a permanent injunction based on the Sections cited in
the complaint. In addition, Mr. Stern agreed to pay disgorgement of $197,875
and prejudgment interest. Payment of those amounts was waived and a penalty not
imposed based on financial condition. The company agreed to pay disgorgement of
$197, 875 along with prejudgment interest. See also Litg. Rel. No. 22583
(Jan. 2, 2013).
CFTC
Customer funds: The
agency issued an order fining Mizuho Securities USA Inc. $175,000 and directing
that it cease and desist from violations of certain regulations regarding the
reporting of deficiencies in customer segregated accounts and relating to
supervision. Specifically, the order found that in October 2011 the firm
discovered that it had a deficiency of over $12.4 million in its secured funds
account which is suppose to hold funds sufficient to cover obligations to
foreign futures and options customers. Futures Commission Merchants who fail to
fully comply with this requirement must promptly report any deficiency to the
CFTC. Here the firm failed to promptly report the deficiency and to reasonably
supervise its personnel with regard to this matter.
Supervision: The
regulator settled charges with R.J. O'Brien & Associates, LLC with the
entry of an order requiring the firm to pay a penalty of $300,000 and to cease
and desist from further violations of CFTC regulation 17 C.F.R. Section 166.3.
The underlying action charged that an employee from January 2003 through
February 2007 at the end of the trading day allocated profitable trades to his
personal account and losing ones or less profitable ones to other accounts.
Criminal cases
Bid rigging: Adrian
Scott-Jones, formerly a br oker for Tradition N.A. was sentenced to serve 18
months in prison in connection with his guilty plea in the on-going
investigations into bid rigging in the municipal bond markets. Mr. Scott-Jones
pleaded guilty to participating in multiple conspiracies with executives of
General Electric Co. affiliates from 1999 to 2006. In conducting the auctions,
which focused primarily on the investment of the proceeds from the sale of
municipal bonds, Mr. Scott-Jones and others gave co-conspirators information
about the prices, price levels or conditions in competitors' bids, a practice
known as "last look" which is prohibited by Treasury regulations. To date the
government has charged 20 individuals in the on-going inquiry, 19 of whom have
been convicted at trial or pleaded guilty. One is currently awaiting trial. One
company has also pleaded guilty.
SFC
Aiding and abetting: The
Securities and Futures Commission announced that Universal Insurance
Consultants and Brokers and Ms. Au Mei Chun had been acquitted of claims that
they aided and abetted unlicensed sales of securities. The company is a
registered insurance firm but not securities broker. The two defendants had
been charged with aiding and abetting unlicensed sales of securities by a third
person who was immunized and testified at trial against them. The Magistrate
found that the testimony was unclear that the company and Ms. Au requested that
the person execute subscription forms on behalf of the clients.
Hurricane Sandy: As
we begin the New Year please remember the victims of Sandy's destruction with a
donation to the Red Cross (here).
In this holiday shortened first week of the year, one of
the most significant current cases moved forward with the entry of a not guilty
plea by Mathew Martoma to insider trading charges. Mr. Martoma is the latest
person charged in the on-going insider trading wars being waged by the
Manhattan U.S. Attorney's Office and the SEC. His former affiliation with SAC
Capital, the huge trading profits in the case, and the manner in which they
were made has fueled speculation about possible charges against that firm and
its founder.
The SEC settled an investment fund fraud action filed
initially in 2010 this week but did not bring any civil injunctive actions or
administrative proceedings, excluding 12j and tag along actions. The CFTC filed
two actions, one centered on the protection of customer funds and another based
and on a cherry picking scheme. In New York another defendant was sentenced in
the on-going bid rigging actions centered on the municipal bond market. The SFC
announced that it lost an action based on aiding and abetting unlicensed
activity.
The SEC
Report: The SEC's 2012 Agency
Financial Report details its performance over the last government fiscal year
which ended September 30, 2012. The Report provides an overview of the work of
the Commission during the period. Two sections focus on the Division of
Enforcement and highlight many of its significant cases.
SEC Enforcement: Filings and settlements
Weekly statistics: This
week the Commission did not file any civil injunctive actions or administrative
proceedings (excluding tag-along-actions and 12(j) actions).
Investment fund fraud: SEC v.
Online-Registries, Inc., Civil Action No. 10-CV-00433 (D.R.I.
Filed Oct. 19, 2010) is an action against David Stern and his company. This
week the Commission announced a settlement with each defendant. According to
the complaint, the defendants defrauded at least 10 investors who purchased
shares in Online-Registries for a total of $170,000 based on
misrepresentations. Mr. Stern, a convicted felon and disbarred attorney, told
investors the company had developed technology to help permit the sharing of medical
records, that it had thousands of subscribers and that they would be forming a
partnership with a major technology company. The representations were false.
The complaint alleges violations of Securities Act Section 17(a) and Exchange
Act Section 10(b). Under the terms of the settlement each defendant consented
to the entry of a permanent injunction based on the Sections cited in the
complaint. In addition, Mr. Stern agreed to pay disgorgement of $197,875 and
prejudgment interest. Payment of those amounts was waived and a penalty not
imposed based on financial condition. The company agreed to pay disgorgement of
$197, 875 along with prejudgment interest. See also Litg. Rel. No. 22583
(Jan. 2, 2013).
CFTC
Customer funds: The
agency issued an order fining Mizuho Securities USA Inc. $175,000 and directing
that it cease and desist from violations of certain regulations regarding the
reporting of deficiencies in customer segregated accounts and relating to
supervision. Specifically, the order found that in October 2011 the firm
discovered that it had a deficiency of over $12.4 million in its secured funds
account which is suppose to hold funds sufficient to cover obligations to
foreign futures and options customers. Futures Commission Merchants who fail to
fully comply with this requirement must promptly report any deficiency to the
CFTC. Here the firm failed to promptly report the deficiency and to reasonably
supervise its personnel with regard to this matter.
Supervision: The
regulator settled charges with R.J. O'Brien & Associates, LLC with the
entry of an order requiring the firm to pay a penalty of $300,000 and to cease
and desist from further violations of CFTC regulation 17 C.F.R. Section 166.3.
The underlying action charged that an employee from January 2003 through
February 2007 at the end of the trading day allocated profitable trades to his
personal account and losing ones or less profitable ones to other accounts.
Criminal cases
Bid rigging: Adrian
Scott-Jones, formerly a br oker for Tradition N.A. was sentenced to serve 18
months in prison in connection with his guilty plea in the on-going
investigations into bid rigging in the municipal bond markets. Mr. Scott-Jones
pleaded guilty to participating in multiple conspiracies with executives of
General Electric Co. affiliates from 1999 to 2006. In conducting the auctions,
which focused primarily on the investment of the proceeds from the sale of
municipal bonds, Mr. Scott-Jones and others gave co-conspirators information
about the prices, price levels or conditions in competitors' bids, a practice
known as "last look" which is prohibited by Treasury regulations. To date the
government has charged 20 individuals in the on-going inquiry, 19 of whom have
been convicted at trial or pleaded guilty. One is currently awaiting trial. One
company has also pleaded guilty.
SFC
Aiding and abetting: The
Securities and Futures Commission announced that Universal Insurance
Consultants and Brokers and Ms. Au Mei Chun had been acquitted of claims that
they aided and abetted unlicensed sales of securities. The company is a
registered insurance firm but not securities broker. The two defendants had
been charged with aiding and abetting unlicensed sales of securities by a third
person who was immunized and testified at trial against them. The Magistrate
found that the testimony was unclear that the company and Ms. Au requested that
the person execute subscription forms on behalf of the clients.
Hurricane Sandy: As
we begin the New Year please remember the victims of Sandy's destruction with a
donation to the Red Cross (here).
For more cutting edge commentary on
developing securities issues, visit SEC Actions, a
blog by Thomas Gorman.
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