SEC Charges Hedge Fund Managers With Fraud

The SEC charged a pair of hedge fund managers and their firms with lying to investors about how they were handling the money invested in their respective hedge funds. The charges are the latest in a series of actions taken by the SEC Enforcement Division and its Asset Management Unit against hedge fund-related misconduct in the markets.

In one case, the SEC alleges that San Francisco-based hedge fund manager Hausmann-Alain Banet and his firm Lion Capital Management stole more than a half-million dollars from a retired schoolteacher who thought she was investing her retirement savings in Banet’s hedge fund. In the other case, the SEC charged Chicago-based hedge fund managers Norman Goldstein and Laurie Gatherum and their firm GEI Financial Services with fraudulently siphoning at least $147,000 in excessive fees and capital withdrawals from a hedge fund they managed.

Since the beginning of 2010, the SEC has filed more than 100 cases involving hedge fund malfeasance such as misusing investor assets, lying about investment strategy or performance, charging excessive fees, or hiding conflicts of interest. The SEC today issued an investor bulletin detailing some of those cases as examples of why investors must rigorously evaluate a hedge fund investment before making one.

“These hedge fund frauds have lured even the most sophisticated investors using the siren song of outsized returns or secured and guaranteed investments,” said the Director of the SEC’s Division of Enforcement. “As fraudsters increasingly capitalize on the cachet of hedge funds, we will maintain our strong presence in policing this industry.”

In the past few weeks alone, the SEC has charged an Atlanta-based private fund manager and his firm with defrauding investors in a purported “fund-of-funds” and then trying to hide trading losses, charged a hedge fund adviser in Oregon with running a $37 million Ponzi scheme through several hedge funds he managed, and charged a New York-based hedge fund manager who touted a diversified and controlled-risk investment strategy for his fund while in reality misusing investor assets to prop up a failing private company. The New York-based fund manager also failed to disclose conflicts of interest, and he falsely overstated his firm’s assets under management in various magazine articles he authored.

There is more information at the Commission's site.

If you have questions or concerns regarding an SEC investigation or a FINRA enforcement proceedings, our attorneys have been representing targets, subjects and witnesses in civil and criminal proceedings for decades. Contact us at info@seclaw.com

http://www.sec.gov/news/press/2012/2012-206.htm

FINRA Notice of New Procedures for Late Disclosure Fees

FINRA has implemented new procedures regarding application of the late disclosure fee under Section 4(h) of Schedule A to the FINRA By-Laws to the reporting of judgment/lien events on Forms U4. Under the new procedures, FINRA is requesting that member firms provide the date the registered person learned of the judgment/lien on Form U4 when reporting such events and will assess the late disclosure fee based on that date.

The full FINRA Notice is available at its web site. If you have questions or issues with U-4 or U-5 disclosures, contact my firm at info@beamlaw.com to see if we can help you with those questions, or to remove questionable disclosures through an expungement procedure.

SEC Sues Investment Advisor for Failure to Disclose

Before anyone thinks that the SEC is not monitoring investment advisors, last week the Commission announced that it instituted a settled administrative proceeding against two Portland, Oregon-based investment advisory firms and their owner regarding the failure to disclose a revenue-sharing agreement and other potential conflicts of interest to clients.

The SEC alleged violations in three areas of the advisory business run. Most notably, the firm did not disclose to customers that it was receiving revenue-sharing payments from a brokerage firm that managed a particular category of mutual funds being recommended to the firm's clients. Because the firm received a percentage of every dollar that its clients invested in these mutual funds, there was an incentive to recommend these funds over other investment opportunities in order to generate additional revenue for the firm.
Without admitting or denying the SEC’s charges, the owner and the two advisory firms agreed to pay a combined $1.1 million to settle the case.
If you are not sure if you are in compliance, with SEC or state regulations, hire an experienced securities attorney to represent you and to provide you with the appropriate guidance. The time and energy in preventing a compliance screw-up is a whole lot less than defending an SEC action and paying a significant fine, for the same screw-up. Need help? Email us.

Cetera Rebrands Its Independent B-Ds

Cetera Financial Group i has announced a rebranding each ofits four broker-dealers with new names that all begin with Cetera.

• Genworth Financial Investment Services, acquired earlier this year from insurer Genworth Financial, largely comprises advisors with expertise in tax and accounting. It will become Cetera Financial Specialists, eliminating confusion about any continued association with its former owner.
• Multi-Financial Securities, consisting of entrepreneurially minded advisors who, according to Brown, prefer a direct connection to the home office, is being renamed Cetera Advisors.
• PrimeVest, with advisors in banks, credits unions and other financial institutions, will become Cetera Financial Institutions.
• Financial Network, composed of advisors grouped into regional networks, will retain its regional orientation, becoming Cetera Advisor Networks.

Financial Planning has more details at their site.

SEC Charges Poker Players with Insider Trading

The SEC announced charges against a California man for with illegally tipping a hedge fund manager with inside information about Nvidia Corporation’s quarterly earnings that he learned from his friend who worked at the company.
The SEC alleges that Hyung Lim of Los Altos, Calif., received $15,000 and stock tips about a pending corporate acquisition for regularly providing a fellow poker player, Danny Kuo, with nonpublic details ahead of Nvidia’s quarterly earnings announcements.  Kuo, a hedge fund manager, illegally traded on the information and passed it on to multi-billion dollar hedge fund advisory firms Diamondback Capital Management LLC and Level Global Investors LP.
The SEC charged Kuo and the firms among others earlier this year as part of its widespread investigation into the trading activities of hedge funds. “These hedge fund traders were eager to find an edge in an otherwise competitive marketplace, and Lim provided them that edge for a price,” said Sanjay Wadhwa, Associate Director of the SEC’s New York Regional Office and Deputy Chief of the SEC Enforcement Division’s Market Abuse Unit.  “Now one more participant in this sprawling scheme is being held accountable for his illegal transgressions.”
In a parallel action, the U.S. Attorney for the Southern District of New York today announced criminal charges against Lim. According to the SEC’s complaint filed in federal court in Manhattan, Kuo and the hedge funds made nearly $16 million trading in Nvidia securities based on Lim’s inside information.
More detail is available at the SEC web site in its press release.
We represent professionals and investors in insider trading investigations and proceedings, and have been doing so for decades. If you have a question regarding an insider trading investigation, or any SEC, FINRA or State investigation, send us an email at info@beamlaw.com

Related articles, courtesy of Zemanta:

• 'Moles' Gave Hedge-Fund Manager Whitman Tips, U.S. Says
• Hedge Funds Buy Metals, Oil & Gas, Sell USDs: BAC
• Hedge Fund Manager Denies Trading on Insider Tip - Bloomberg
• San Francisco hedge-fund manager convicted of insider trading of Google, other tech stocks

SEC Charges Eight in Insider Trading Ring - Really? A "Ring"?

I don't think that a group of friends buying a stock based on a buddy's recommendation constitutes an insider trading "ring" but if what the SEC says they did is true, it is certainly insider trading and illegal.
The SEC charged eight individuals living in the Griffin, Ga., area for their involvement in an insider trading "ring" that generated more than $500,000 in illegal profits based on nonpublic information about an upcoming company merger.Four of the eight men agreed to settle the SEC’s charges and pay back all of their ill-gotten gains plus interest and penalties for a combined total of more than $175,000.
Here is the issue for the Commission - the original tipster in the case is the accountant for a member of the Board of Directors of a company that was going to be acquired. The accountant told his partner and three of his friends. One of those friends in turn is alleged to have tipped three of his friends.
The problem for the Commission, and the defense for the traders, is the concept of scienter, a guilty mind. The SEC has to prove that the defendants knew that they were trading on material, non-public information, in violation of a duty not to trade.
The farther we get from the original source of the information, the more difficult that burden becomes, and the friends of friends of the accountant to the Board member may very well have a defense to the charges. That is something that an experience securities attorney can assist with. Our firm's attorneys have the experience and knowledge necessary to make that evaluation and develop those defenses. If you have concerns regarding insider trading contact me at astarita at beamlaw dot com, or at 212-509-6544.
For more information on this alleged insider trading "ring" see the SEC's press release at SEC Charges Eight in Georgia-Based Insider Trading Ring  which also contains the various complaintes the SEC has filed against the alleged insider traders.dd
Related Articles:

• More Insider Trading Follies - This Time Professional Baseball Players!
• Insider Trading? Why Not? This time a CEO and His Own Company's Stock!
• The Securities Law Blog: More Insider Trading Follies - This Time, Physicians!
• Attorney, Trader and Middleman Settle SEC Charges in $32 Million Insider Trading Case
• Yahoo Executive and Mutual Fund Manager Charged With Insider Trading - Civil and Criminal.
• Japan Checking Possible Insider Trading of ANA, Official Says 
• China's securities regulator roots out insider trading

Baby Boomers Not Ready For Retirement. Is There Still time?

Financial Planning.com is reporting that the majority of Baby Boomers and Generation Xers appear to be looking at their retirement years through rose-colored glasses. More than three in four feel confident they will have enough money to live comfortably in retirement, even though nearly 40% of Baby Boomers and about two-thirds of Gen Xers have less than $100,000 in retirement savings. Moreover, a worrisome percentage--21.7% of Baby Boomers and 27.8% of Gen Xers--has no retirement savings at all. The grim statistics are the highlights of a report released today by the Insured Retirement Institute.

It gets worse. Not only do they lack savings, they lack the skils and investment knowledge to address the issue, according to the report. The combination of the two - lack of funding and lack of skills to increase savings and earnings is a dangerous combination. The lack of funds increases the chances of attempting to hit a home run with each investment, which typically leads to disaster.  In my decades of practice I have seen hundreds of investors who attempted to recoup losses, or increase gains, by speculative investments or risky trading strategies.

 

The problem is that some investors simply do not know better. Rather than attempt to get 100% or 1,000% return on an investment, get yourself to an financial advisor who knows more than you do, and who can calculate how much money you will need in retirement, and how to get there with as minimal amount of risk as possible.

Choosing an investment advisor is not an easy task, and there is no magic formula to find one either. Do some research, get referrals from friends, and do your homework. At the same time, educate yourself. When I came out of law school, knowing nothing about investing, a mentor told me to read two magazines every month - Money, which is written for the average person, and Financial Times, written for sophisticated investors and financial professionals. He told me that I would understand most of Money, and none of Financial Times, but to do it every month for a year.

I don't know that the average investor needs to read Financial Times, but I did, and my mentor was right. It took a while but I wound up with a practical understanding of investing and the markets, which has served me very well over my legal and investing career. 

Take this statistic from the report seriously - slightly more than half (51.4%) of Baby Boomers and less than half (40.7%) of Generation Xers have tried to calculate how much savings they will need for a comfortable retirement.

You need to do that, and if you don't know how, you need to learn how, and you need an advisor to help you plot the investment course to get there.

Baby Boomers, Gen Xers View Retirement Through Rose-Colored Glasses | Financial Planning

Supreme Court Affirms $2 Billion Judgment and $300 Million in Fees for Breach of Fiduciary Duty

The Delaward Corporate and Commercial LItigation Blog has an interesting post regarding this decision, with a link to the 110-page decision which awarded damages over breach of fiduciary duty related to the sale of a company.

Supreme Court Affirms $2 Billion Judgment and $300 Million in Fees for Breach of Fiduciary Duty

Related articles, courtesy of Zemanta:

• Chancery Decides: Not Per Se Breach of Fiduciary Duty for a Board to Fail to have a Succession Plan.
• Review of Recent Key Delaware Corporate and Commercial Decisions
• Do employees owe their employer a fiduciary duty?

SEC Shuts Down $600 Million Online Pyramid Operation

On Tuesday the SEC announced fraud charges and an emergency asset freeze to halt what it alleges was a $600 million Ponzi scheme on the verge of collapse.

According to the Commission's press release, thee SEC alleges that online marketer Paul Burks of Lexington, N.C. and his company Rex Venture Group have raised money from more than one million Internet customers nationwide and overseas through the website ZeekRewards.com, which they began in January 2011.

According to the SEC’s complaint filed in federal court in Charlotte, N.C., customers were offered several ways to earn money through the ZeekRewards program, two of which involved purchasing investment contracts. The offer of such contract is being considered to be a securities offering, which was not registered with the SEC as required under the federal securities laws.

The SEC further alleges that investors were collectively promised up to 50 percent of the company’s daily net profits through a profit sharing system in which they accumulate rewards points that they can use for cash payouts. However, the website conveyed the impression that the company was extremely profitable. The Commission alleges that the payouts to investors bore no relation to the company’s net profits. Most of ZeekRewards’ total revenues and the “net profits” paid to investors have been comprised of funds received from new investors in classic Ponzi scheme fashion.

“The obligations to investors drastically exceed the company’s cash on hand, which is why we need to step in quickly, salvage whatever funds remain and ensure an orderly and fair payout to investors,” said Stephen Cohen, an Associate Director in the SEC’s Division of Enforcement. “ZeekRewards misused the power of the Internet and lured investors by making them believe they were getting an opportunity to cash in on the next big thing. In reality, their cash was just going to the earlier investor.”

The SEC’s complaint alleges that the scheme is teetering on collapse with investor funds at risk of dissipation without its emergency enforcement action. Last month, ZeekRewards brought in approximately $162 million while total investor cash payouts were approximately $160 million. If customers continue to increasingly elect to receive cash payouts rather than reinvesting their money to reach higher levels of rewards points, ZeekRewards’ cash outflows would eventually exceed its total revenue.

Burks has agreed to settle the SEC’s charges against him without admitting or denying the allegations, and agreed to cooperate with a court-appointed receiver.

Our law firm regularily represents individuals and corporate entities in SEC investigations and enforcement actions. If you have any questions regarding allegations of a ponzi or pyramid scheme, or any SEC, FINRA or state enforcement action, please contact our office at info@beamlaw.com.

SEC Issues First Whistleblower Award

The SEC announced yesterday that a whistleblower who helped the it  stop a multi-million dollar fraud will receive nearly $50,000 — the first payout from a new SEC program to reward people who provide evidence of securities fraud.

The award represents 30 percent of the amount collected in an SEC enforcement action against the perpetrators of the scheme, the maximum percentage payout allowed by the whistleblower law.

“The whistleblower program is already becoming a success,” said SEC Chairman Mary L. Schapiro, who advocated for the program. “We’re seeing high-quality tips that are saving our investigators substantial time and resources.”

The award recipient, who does not wish to be identified, provided documents and other significant information that allowed the SEC’s investigation to move at an accelerated pace and prevent the fraud from ensnaring additional victims. The whistleblower’s assistance led to a court ordering more than $1 million in sanctions, of which approximately $150,000 has been collected thus far. The court is considering whether to issue a final judgment against other defendants in the matter. Any increase in the sanctions ordered and collected will increase payments to the whistleblower.

“This whistleblower provided the exact kind of information and cooperation we were hoping the whistleblower program would attract,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Had this whistleblower not helped to uncover the full dimensions of the scheme, it is very likely that many more investors would have been victimized.”

If you believe you have a whistleblower claim, or are looking for additional information regarding the SEC's program, contact our office at whistleblower@beamlaw.com