SEC Charges Detroit Firm For Deceiving Trustees of MM Fund

The Securities and Exchange Commission today announced fraud charges against a Detroit-based investment advisory firm and a portfolio manager for deceiving the trustees of a money market fund and failing to comply with rules that limit risk in a money market fund’s portfolio.  Money market funds seek to maintain a stable share price by investing in highly safe securities.  Under the federal securities laws, a money market fund may only invest in securities determined by the fund’s board of trustees to present minimal credit risk.

The SEC’s Enforcement Division alleges that Ambassador Capital Management and Derek Oglesby repeatedly made false statements to trustees of the Ambassador Money Market Fund about the credit risk in the securities they purchased for its portfolio.  Trustees also were misled about the fund’s exposure to the Eurozone credit crisis of 2011 and the diversification of the fund’s portfolio. 

“Money market fund managers must not hide the ball from a fund’s board,” said George S. Canellos, co-director of the SEC’s Enforcement Division.  “Ambassador Capital Management and Oglesby weren’t truthful about whether securities in the portfolio threatened to destabilize the fund, and they failed to operate under the strict conditions designed for money market fund managers to limit risk exposure and maintain a stable price.”

The enforcement action stems from an ongoing analysis of money market fund data by the SEC’s Division of Investment Management, in this case a review of the gross yield of funds as a marker of risk.  The performance of the Ambassador Money Market Fund was identified as consistently different from the rest of the market.  Upon further examination by the SEC’s Office of Compliance Inspections and Examinations, the matter was referred to the Enforcement Division’s Asset Management Unit for investigation.

For more information - SEC.gov | SEC Announces Fraud Charges Against Detroit-Based Money Market Fund Manager

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actionsand representation of investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

Insiders Who Tip Outsiders Liable for Insider Trading

Providing outsiders with inside information can result in significant problems for the insider.

As securities lawyers know, but the public does not, providing inside information to others, even if you do not buy or sell the stock yourself, creates liability for insider trading. In fact, the insider may be liable for the profits obtained by the outsider - even if he did not share in the profits.

Yesterday the SEC charged a former employee at a Silicon Valley-based semiconductor company for his role tipping nonpublic information used in connection with Raj Rajaratnam’s massive insider trading scheme.

The SEC alleges that Sam Miri, who worked in the communications division at Marvell Technology Group, tipped confidential information about the company’s financial performance to former Galleon Management portfolio manager Ali Far.  He used the nonpublic information provided by Miri to trade Marvell securities on behalf of hedge funds that he founded after leaving Galleon.  Far and Spherix Capital, who were among those earlier charged by the SEC in the Galleon matter, earned hundreds of thousands of dollars in illicit profits based on Miri’s tips.

In exchange for the illegal tips, Far arranged four quarterly payments to Miri totaling approximately $10,000. Miri, who lives in Palo Alto, Calif., has agreed to settle the SEC’s charges by paying more than $60,000 and being barred from serving as an officer or director of a public company.

According to the SEC’s complaint filed in federal court in Manhattan, Miri tipped Far in May 2008 with inside information about Marvell’s plans to announce a permanent chief financial officer after a string of interim chief financial officers.  With an earnings announcement scheduled for later that month, Miri also revealed confidential information about Marvell’s sales revenue and profitability as well as projections of future earnings potential.  In the days leading up to the announcement, Spherix Capital hedge funds purchased approximately 300,000 shares of Marvell common stock.  When the stock climbed more than 20 percent after Marvell announced its quarterly financial results and new CFO on May 29, Far’s hedge funds reaped approximately $680,000 in ill-gotten gains.

The SEC’s complaint charges Miri with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Miri agreed to pay $10,000 in disgorgement, $1,842.90 in prejudgment interest, and a $50,000 penalty.  Miri also agreed to be barred from serving as an officer or director of a public company for five years.  Without admitting or denying the charges, Miri agreed to be permanently enjoined from future violations of these provisions of the federal securities laws.  The settlement is subject to court approval.

For more information visit http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540396057

The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

SEC Charges Colorado Man with Elder Fraud

The SEC charged a self-described institutional trader in Colorado with defrauding elderly investors into making purported investments in government-secured bonds as he used their money to pay his mortgage.

The SEC alleges that Gary C. Snisky of Longmont, Colo., primarily targeted retired annuity holders by using insurance agents to sell interests in his company Arete LLC, which posed as a safe and more profitable alternative to an annuity.  Investors were told their funds would be used to purchase government-backed agency bonds at a discount, and Snisky as an institutional trader would use the bonds to engage in overnight banking sweeps.

However, Snisky did not purchase bonds or conduct any such trading, and he misappropriated approximately $2.8 million of investor funds to pay commissions to his salespeople and make personal mortgage payments.

In a parallel action, the U.S. Attorney’s Office for the District of Colorado filed criminal charges against Sinsky.

According to the SEC’s complaint filed in federal court in Denver, Snisky raised at least $3.8 million from more than 40 investors in Colorado and several other states. Beginning in August 2011, Snisky recruited veteran insurance salespeople who could sell the Arete investment to their established client bases that owned annuities. The majority of investors in Arete used funds from IRAs or other retirement accounts.
The SEC alleges that Snisky described Arete as an “annuity-plus” investment in which, unlike typical annuities, investors could withdraw principal and earned interest with no penalty after 10 years while still enjoying annuity-like guaranteed annual returns of 6 to 7 percent.  Snisky emphasized the safety of the investment, calling himself an institutional trader who could secure government-backed agency bonds at a discount and save middleman fees.

Snisky’s sales pitch was so convincing that even one of his salespeople personally invested retirement funds in Arete. The SEC alleges that Snisky created and provided all of the written documents that the hired salespeople used as offering materials to solicit investors.  Snisky also showed salespeople fraudulent investor account statements purporting to show earnings from Arete’s investment activity.

 Following an initial influx of investors, Snisky organized at least two seminars where he met with investors and salespeople.  He introduced himself as the institutional trader behind Arete’s success, and encouraged investors to spread the word.  Snisky hand-delivered fraudulent account statements to investors attending the seminars to mislead them into believing their investments were performing as promised.

The SEC’s complaint against Snisky seeks a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest, and a financial penalty. As always, investors are left on their own to recover their losses, as the SEC does not pursue individual investor claims.

For more information visit SEC.gov | SEC Charges Colorado Man in Scheme Targeting Elderly Investors
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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

Dow Industrials Close Above 16,000

I remember the day that Dow reached 10,000, and it doesn't seem that long ago, but yesterday the Down closed above 16,000 for the first time. Press reports say that economic data pointed to a slowly improving labor market and subdued inflation is responsible for the rise in the markets. Financial shares led the market to its first day of gains after three sessions of losses. Although investors remain unsure about the timing of the Federal Reserve's scaling back of its $85 billion per month in bond buying, some say the market will weather the eventual pullback in that stimulus.

For more information visit Dow ends above 16,000 for first time, boosted by data

Adobe Hack Exposes 150 Million Passwords

Last month, Adobe announced hackers stole login information for some 38 million of its customers. This month estimates have run as high as 150 million users.

Many Internet companies are now notifying their users to change their password. As we all know, despite the risk, we use the same password at different sites. If the hackers have your email address and password at Adobe, maybe they have your email address and password for Facebook, or LinkedIn, or Evernote, or Dropbox, or............the possibilities are endless.

You need to change your passwords. To make this a bit easier, you can check if your account was one of the ones obtained by the hackers - press reports say that if you have an account at Adobe, your information was stolen, it is that bad.

Information on how to find out if you were includes is at http://www.zdnet.com/find-out-if-your-data-was-leaked-in-the-adobe-hack-7000023065/

Change your passwords!

For more information visit After Adobe Hack, Other Sites Reset Passwords - Digits - WSJ 

JPMorgan $13 billion mortgage settlement expected Tuesday

According to Reuters, JPMorgan Chase & Co is expected to announce a $13 billion agreement with the U.S. government on Tuesday to settle claims it overstated the quality of mortgages sold to investors during the housing boom,

The civil settlement would mark the end of weeks of negotiations between JPMorgan Chase, the largest U.S. bank, and government agencies that were under pressure to hold banks accountable for wrongdoing that led to the housing crisis.

Even after the settlement, the bank faces at least nine other government investigations, covering everything from its hiring practices in China to whether it manipulated the Libor benchmark interest rate.

For more information - JPMorgan $13 billion mortgage settlement expected Tuesday

Court Can Require Social Media Records To Be Produced, But Request Should Be Narrowly Tailored

From Craig McLaughlin's SmartProperty Blog - question before the court was whether a plaintiff could be compelled to produce his entire Facebook account.

Court Can Require Social Media Records To Be Produced, But Request Should Be Narrowly Tailored

The SEC and Deferred Prosecution Agreements

Deferred Prosecution Agreements - where a wrongdoer agrees to cooperate with the government, and the government agrees not to prosecute the wrongdoer - are the stuff that television police shows are made of. We don't see them too often in our securities defense practice, but that may soon change.

The SEC announced the adopition of a DPA policy in 2010 as part of a series of initiatives designed to encourage individuals to cooperate and assist in investigations. The agreements are formal written agreements in which the Commission agrees to forego an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and to comply with express prohibitions and undertakings during a period of deferred prosecution. We have a sample SEC DPA at SECLaw.com.

However, it was not until over a year later, in May 2011 that the SEC entered into a DPA, and in that instance, the DPA was with a corporation. The corporation discovered FCPA violations in its foreign offices, notified authorities, agreed to cooperate with the SEC and federal prosecutors and to pay $5.4 million in disgorgement and prejudgment interest. (The company also agreed, in a separate agreement with prosecutors, to pay $3.5 million in criminal penalties). The SEC's press release regarding the case is at the SEC web site.

On November 12, 2013 the SEC announced its first deferred prosecution agreement with an individual. According to the SEC, a former hedge fund admi13nistrator who helped the agency take action against a hedge fund manager who stole investor assets.

While deferred prosecution agreements are designed to encourage individuals and companies to provide the SEC with forthcoming information about misconduct and assist with a subsequent investigation.  In return, the SEC refrains from prosecuting cooperators for their own violations if they comply with certain undertakings, it does not seem to be a very popular option, with only two such agreements in over 2 years.

For more information - SEC Announces First Deferred Prosecution Agreement With Individual

Who Are the Victims of Insider Trading?

DealBook.com has a very interesting article which raises this question, but not in the traditional sense. Those who believe that insider trading is a victimless crime certainly make an argument, but the guilty plea hearing last week in the SAC insider trading case brought the issue into focus. What made it interesting is that while federal statutes allow investors who bought or sold at the same time as the insider's trades to sue the inside trader, the Justice Department argued that those investors are not victims of the crime at all!

Which of course raises an interesting defense in the next investor insider trading suit.

For more detail, visit Determining the Victims of Insider Trading - NYTimes.com

The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and insider trading cases. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

Prosecutors Investigating SEC Staff

In an interesting twist, the Wall Street Journal is reporting that federal prosecutors and the office of the inspector general of the U.S. Securities and Exchange Commission are conducting an investigation of the SEC's New York office for the possibility of improper investments.

According to Reuters, investigators are checking whether the employees' investments comply with SEC internal rules that prohibit trading shares of companies under investigation.

The article claims that the investigation appears limited to the New York office of the securities regulator, and there is no indication of widespread flouting of the rules, according to the report.

For more detail, visit U.S. authorities probing New York SEC staff investments 

Court Questions SAC Capital Advisors Settlement.

In an interesting twist to the historic settlement of charges against Steven Cohen's hedge fund entities, Judge Richard Sullivan has not approved the settlement, saying he needs more information about the accord's fairness.

Citing the recent judicial "debate" about how closely to scrutinize regulatory settlements, U.S. District Judge Richard Sullivan directed SAC and the U.S. Department of Justice to address at a hearing on Wednesday morning what standard he should use to evaluate the civil forfeiture portion of the accord.

Separately, Sullivan's colleague, U.S. District Judge Laura Taylor Swain, scheduled a Friday hearing to review the criminal portion of the settlement in which SAC agreed to plead guilty to five fraud counts.

For more detail, visit U.S. judge won't rubber-stamp SAC insider trade decision 

The Impact of the SAC Capital Advisors Criminal Guilty Plea

In what will surely be viewed as a controversial outcome, SAC Capital Advisors will plead guilty to criminal fraud charges, stop investing money for others and pay $1.8 billion — the largest financial penalty in history for insider trading — to resolve criminal and civil claims against the hedge fund giant, the government announced Monday.

The controversy will revolve around the impact of convicting a corporation of a crime. After all, you cannot put the corporation in jail. Further, since a criminal conviction effectively puts the corporation of out business, the impact of that conviction impacts all of the customers, employees and vendors of the corporation. 

While I firmly believe that it is a mistake to charge a corporation with a criminal offense - for exactly the reason stated above, this case is a bit different. 

First, many of its traders have been indicted for insider trading. Second, although Mr. Cohen was not indicted, he is, and remains, the subject of an SEC case for failing to supervise his employees. Third, with all of the negative publicity, the press conferences and Internet sites calling the firm "a magnet for cheating" and having "a culture of law-breaking" we can assume that the firm would not have lasted much longer, with or without an indictment. Finally, despite the marginal merit to the claims against Mr. Cohen personally, I would expect to see a settlement with the SEC any day now.

So, the firm was out of business, regardless of the indictment. But does that make it right? I will leave the academic discussion to the academics - I am just a securities litigator - but threatening to put a corporation out of business because of the wrongful conduct of employees - not necessarily the owners or executives - is not a path that we want to go down. The government has enough power over us - using the criminal process to force change inside of private companies by threatening to put them out of business is not a process that we should be encouraging.

The plea does end the case, and most of the related cases. Acccording to CNN,  prosecutors told the Judges presiding over the pending cases, that the "proposed global resolution" of the criminal and civil cases against SAC Capital Advisors and related companies also includes an agreement that SAC will cease operating as an investment adviser and will not accept any additional funds from third-party investors.

So, SAC Capital Advisors is out of business, with or without a criminal record. In addition, the company will pay a $900 million fine and forfeit another $900 million to the federal government, though $616 million that SAC companies have already agreed to pay to settle parallel actions by the U.S. Securities and Exchange Commission will be deducted from the $1.8 billion.

For more information - Hedge fund giant SAC Capital to pay $1.8B penalty