The SEC and the New York Attorney General brought high
profile actions in the on-going "pay to play" cases. The new and long-rumored
actions, are against the so-called car czar. The Commission's case settled. The
NYAG's did not.
More guilty pleas were unsealed in the expanding Galleon
criminal insider trading cases. As a result the SEC amended its parallel civil
case and filed two additional actions. The Madoff scandal resurfaced this week
with new charges being filed by the U.S. Attorney's Office and the SEC against
two employees of Mr. Maddoff's investment advisory service. They are alleged to
have managed investor funds and created false trading records to conceal the
fraud.
The Assistant Attorney General in charge of the criminal
division declared that this is a "new era" of FCPA enforcement (here). Mr. Breuer
cited statistics demonstrating increasing enforcement efforts and urged issuers
to cooperate and earn "meaningful credit."
Finally, the Ontario securities commission brought
insider trading charges against a corporate lawyer, two market professionals
and their friends. The market professionals and their friends are alleged to
have traded on confidential takeover information furnished by the attorney.
New York "Pay to play" - the "car czar" cases
The Commission settled its investigation regarding Steven
Rattner and his involvement in the New York state pension fund "pay to play"
scandal. SEC v. Rattner, Civil Action No. 10 CV 3699 (S.D.N.Y. Filed
Nov. 18, 2010). Mr. Rattner is the former head of the Presidential Task Force
on the Auto Industry or the so-called "car czar." He is also a founder of
Quadrangle Group LLC, a private equity fund which invested in media and
communications companies. During the relevant period, Mr. Rattner was a
managing principal of Quadrangle. He is also a former registered investment
adviser.
The Commission's complaint alleges that in 2005 and 2006
Mr. Rattner and Quadrangle obtained $150 million in investments from the New
York State Common Retirement Fund. Prior to those investments, Mr. Rattner had
arranged for the distribution of a DVD of a low budget film produced by former
New York State Deputy Comptroller David Loglisci and his brother. He also
agreed to pay a $1 million finders fee to Henry Morris, a top political adviser
and chief fundraiser for former New York State Comptroller Alan Hevesi and Mr.
Loglisci. At the time, Quadrangle had already retained a placement agent. The
fee to Mr. Morris was in fact a sham, according to the complaint. Following the
investment of $100 million by the Retirement Fund, Mr. Rattner arranged, at the
request of Henry Morris, for friends to make a contribution to the Hevesi
campaign for $50,000. Subsequently, the Retirement Fund invested another $50
million with Quadrangle.
At the time of the investment by the Retirement Fund,
neither the DVD deal nor the fee arrangement with Mr. Morris were disclosed to
the Retirement Fund's Investment Advisory Committee. That group is required by
state law to monitor and give advice regarding the Retirement Fund's
investments. The complaint alleges a violation of Securities Act Section
17(a)(2).
To resolve the case Mr. Rattner consented to the entry of
a permanent injunction prohibiting future violations of Securities Act Section
17(a)(2). He also agreed to pay $6.2 million and to be barred from associating
with any investment adviser or broker dealer for at least two years. See
also Litig. Rel. 21478 (Nov. 18, 2010). Previously, the
Commission filed an action against Mr. Morris (here).
New
York Attorney General Andrew Como also filed actions against Mr. Rattner based
on the "pay to play" scandal. In the first the New York AG added Mr.
Rattner as a defendant in his pending forfeiture action against Henry Morris
and others. The suit seeks to recover $13 million obtained by Mr. Rattner and
certain future profits. Cuomo v. Morris, Index No. 09/400605 (N.Y.
S.Ct.). The second is a suit based on the Martin Act alleging securities fraud.
State of New York v. Rattner (N.Y. S.Ct. Filed Nov. 18, 2010). The third
is an application to permanently ban Mr. Rattner from engaging in the
securities business in the State of New York. New York v. Rattner, Index
No. 451435/2010 (N.Y. S.Ct. Filed Nov. 18, 2010). The cases filed by the New
York AG are predicated on essentially the same facts as the Commission's
action. The application to bar Mr. Rattner from the securities business however
is based on his assertion of the Fifth Amendment privilege in testimony during
the state investigation. The SEC complaint does not mention this fact.
Read this article in its entirety at SEC Actions, a blog by Thomas Gorman