Thursday, December 13, 2012

SEC Charges New York-Based Fund Manager with Conducting Fraudulent Trading Schemes


The SEC charged a New York-based fund manager with conducting a pair of illegal trading schemes to financially benefit his investment fund Octagon Capital Partners LP.

The SEC alleges that the fund manager made $831,071 during a four-year period through illicit trading while he also worked as a portfolio manager and employee at a New Jersey-based firm that served as an adviser for several affiliated investment funds.  In one scheme, he illegally matched 31 pre-market trades to benefit his own fund at the expense of one of his employer’s funds.  In the other scheme, the fund manager conducted insider trading in the securities of 19 issuers based on nonpublic information he learned in advance of their offering announcements. Furthermore, the fund manager signed two securities purchase agreements in which he falsely represented that he had not traded the issuer's securities prior to the public announcement of the offerings in which he had been confidentially solicited to invest.

The fund manager agreed to pay more than $1.3 million to settle the SEC’s charges.
“By engaging in more than 50 instances of illegal activity in his securities trading, [the fund manager] showed a complete disregard for the securities laws and our markets,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “[He] also misused his position of authority as a portfolio manager of his employer’s fund in order to make handsome profits for his own fund.”
According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, the fund manager conducted his schemes from 2007 to 2011.  He caused Octagon to purchase stock in small, thinly traded issuers at the going market price so that he could sell the same stock the following day to his employer’s fund at a price substantially above the prevailing market price.  Each of the sales from Octagon to the employer’s fund occurred in pre-market trading, thus the fund manager was able to ensure that the trades matched.  Later that same day or within a few days of the matched trades, he directed the employer’s fund to sell the recently-acquired stock on the open market at a loss. The fund manager generated ill-gotten gains of $586,338 for Octagon in this scheme.

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