TWO CHARGED FOR INSIDER TRADING AHEAD OF EARNINGS ANNOUNCEMENTS AT DELL AND NVIDIA CORPORATION

FROM: SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., March 29, 2013 —The Securities and Exchange Commission today charged Michael Steinberg, a portfolio manager at New York-based hedge fund advisory firm Sigma Capital Management, with trading on inside information ahead of quarterly earnings announcements by Dell and Nvidia Corporation

The SEC alleges that Steinberg's illegal conduct enabled hedge funds managed by Sigma Capital and its affiliate S.A.C. Capital Advisors to generate more than $6 million in profits and avoided losses. Steinberg received illegal tips from Jon Horvath, an analyst who reported to him at Sigma Capital. Horvath was charged last year among several hedge fund managers and analysts as part of the SEC's broader investigation into expert networks and the trading activities of hedge funds. Earlier this month, Sigma Capital and two affiliated hedge funds agreed to a $14 million settlement with the SEC for insider trading charges.

"Steinberg essentially got an advance copy of Dell and Nvidia's quarterly earnings announcements, allowing him to trade on tomorrow's news today," said George S. Canellos, Acting Director of the SEC's Division of Enforcement.

Sanjay Wadhwa, Senior Associate Director of the SEC's New York Regional Office, added, "The SEC's aggressive pursuit of hedge fund insider trading, including this enforcement action against Steinberg, underscores its steadfast commitment to leveling the playing field for all investors by rooting out illicit conduct by well-capitalized traders."

In a separate action, the U.S. Attorney's Office for the Southern District of New York today announced criminal charges against Steinberg.

According to the SEC's complaint filed in federal court in Manhattan, Steinberg traded Dell and Nvidia securities based on nonpublic information in advance of at least four quarterly earnings announcements in 2008 and 2009. Horvath provided Steinberg with nonpublic details that he had obtained through a group of hedge fund analysts with whom he regularly communicated. Steinberg used the inside information to obtain more than $3 million in profits and losses avoided for a Sigma Capital hedge fund.

The SEC's complaint further alleges that Steinberg also illegally tipped inside information about Dell's quarterly earnings to another portfolio manager at Sigma Capital. Horvath sent an e-mail to the other portfolio manager and copied Steinberg on the message. The e-mail stated:
"I have a 2nd hand read from someone at the company - this is 3rd quarter I have gotten this read from them and it has been very good in the last quarters. They are seeing GMs miss by 50-80 [basis points] due to poor mix, [operating expenses] in-line and a little revenue upside netting out to an [earnings per share] miss. . . . Please keep to yourself as obviously not well known."
The SEC alleges that two minutes later, Steinberg chimed in, "Yes, normally we would never divulge data like this, so please be discreet." Only 24 minutes after Horvath's e-mail, the other portfolio manager began to sell shares of Dell stock on behalf of the Sigma Capital hedge fund and reduced the hedge fund's Dell holdings by 600,000 shares ahead of Dell's quarterly earnings announcement. In the days following the negative announcement, Steinberg closed out a short position in Dell stock and multiple options positions for a $1 million illicit profit to the Sigma Capital hedge fund. The other portfolio manager's sales of Dell stock enabled the Sigma Capital hedge fund and a hedge fund managed by S.A.C. Capital Advisors to avoid more than $3 million in losses.

The SEC's complaint charges Steinberg with violating Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks a final judgment ordering Steinberg to pay disgorgement of his ill-gotten gains plus prejudgment interest and financial penalties, and permanently enjoining him from future violations of these provisions of the federal securities laws.

The SEC's investigation, which is continuing, has been conducted by Joseph Sansone, Daniel Marcus, and Stephen Larson of the Market Abuse Unit in New York as well as Matthew Watkins, Justin Smith, Neil Hendelman, Diego Brucculeri, and James D'Avino of the New York Regional Office. The case has been supervised by Sanjay Wadhwa. The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation.

HEDGE FUND ADVISER TO PAY $9 MILLION TO SETTLE INSIDER-TRADING CHARGES

The following excerpt is from a SEC e-mail: 

01/23/2012 10:33 AM EST

"Washington, D.C., Jan. 23, 2012 — The Securities and Exchange Commission today announced that Diamondback Capital Management LLC has agreed to pay more than $9 million to settle insider-trading charges brought by the Commission on Jan. 18. The proposed settlement is subject to the approval of Judge Paul G. Gardephe of the U.S. District Court for the Southern District of New York. As part of the proposed settlement, the Stamford, Conn.-based hedge fund adviser also has submitted a statement of facts to the SEC and federal prosecutors, and entered into a non-prosecution agreement with the U.S. Attorney’s Office for the Southern District of New York.

Under the proposed settlement, Diamondback will give up more than $6 million of allegedly ill-gotten gains and pay a $3 million civil penalty. In addition, Diamondback consented to a judgment that permanently enjoins it from future violations of federal anti-fraud laws. The proposed settlement would resolve charges of insider trading by Diamondback in shares of Dell Inc. and Nvidia Corp. in 2008 and 2009.

“We are pleased to have reached a prompt resolution of the charges against Diamondback,” said George S. Canellos, Director of the SEC’s New York Regional Office. “If approved by the court, we believe that the proposed settlement appropriately sanctions the misconduct while giving due credit to Diamondback for its substantial assistance in the government’s investigation and the pending actions against former employees and their co-defendants.”

Last week, the SEC filed insider-trading charges against Diamondback, a second hedge fund advisory firm, and seven individuals, including a former Diamondback analyst and former Diamondback portfolio manager. In reaching the proposed settlement announced today, the SEC considered the substantial cooperation that Diamondback provided, including conducting extensive interviews of staff, reviewing voluminous communications, analyzing complex trading patterns to determine suspicious trading activity, and presenting the results of its internal investigation to federal investigators."

SEC SETTLES WITH PARIDON CAPITAL MANAGEMENT LLC OF ELGIN, ILLINOIS

SEC RESOLVES FRAUD-BASED LAWSUIT AGAINST CHICAGO-AREA HEDGE FUND ADVISER AND ITS OWNER The following excerpt is from the SEC website: “The Securities and Exchange Commission announced today that on November 17 Judge John F. Grady of the U.S. District Court for the Northern District of Illinois entered a final judgment against Jeffrey R. Neufeld (Neufeld) and Paridon Capital Management LLC (Paridon) of Elgin, Illinois for defrauding the TCM Global Strategy Fund (TCM Fund or the fund), a hedge fund, and its investors. Without admitting or denying the Commission’s allegations, Neufeld and Paridon consented to the entry of the final judgment which imposed a $75,000 civil penalty against Neufeld. Previously, on April 27, 2011, the Court permanently enjoined Neufeld and Paridon from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2), 206(3), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Neufeld and Paridon also consented to pay disgorgement and prejudgment interest of $53,182.33 to an injured investor. According to the Commission’s complaint, Paridon, an investment adviser, and its owner, Neufeld, fraudulently operated the TCM Fund since 2006. Neufeld and Paridon allegedly lied about the fund’s assets under management and reported inflated returns that were not based on actual trading. They also used fictitious returns to lure investors into the TCM Fund. The complaint also alleges that Neufeld and Paridon caused the fund to use a significant portion of its investor money to buy “debt securities” issued by Paridon. Although called debt securities, this investment was in reality a loan from the fund to Paridon. The debt securities were also not permitted investments for the fund, were not disclosed and consented to by the fund, and were improperly marked up by Neufeld and Paridon to offset and hide significant trading losses.”

NEW SEC RULES INCLUDE REQUIREMENT THAT HEDGE FUND ADVISORS REGISTER WITH THE SEC

The following is an excerpt from the SEC website:

"Washington, D.C., June 22, 2011 – The Securities and Exchange Commission today adopted rules that require advisers to hedge funds and other private funds to register with the SEC, establish new exemptions from SEC registration and reporting requirements for certain advisers, and reallocate regulatory responsibility for advisers between the SEC and states.

The rules adopted by the Commission implement core provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding investment advisers, including those that advise hedge funds.

“These rules will fill a key gap in the regulatory landscape,” said SEC Chairman Mary L. Schapiro. “In particular, our proposal will give the Commission, and the public, insight into hedge fund and other private fund managers who previously conducted their work under the radar and outside the vision of regulators.”

In addition, the Commission amended rules to expand disclosure by investment advisers, particularly about the private funds they manage, and revised the Commission’s pay-to-play rule.

The rules implement a transitional exemption period so that private advisers, including hedge fund and private equity fund advisers, newly required to register do not have to do so until March 30, 2012. The rules regarding exemptions for venture capital fund and certain private fund advisers are effective July 21, 2011.

# # #

FACT SHEET
Dodd-Frank Act Amendments to the Investment Advisers Act
Background
A large number of individuals and institutions invest a significant amount of assets in private funds, such as hedge funds and private equity funds. However, until the passage of the Dodd-Frank Act, advisers managing those assets were subject to little regulatory oversight.

With the Dodd-Frank Act, Congress closed this regulatory gap by generally extending the registration requirements under the Investment Advisers Act to the advisers of these funds. The new law also provided the Commission with the ability to require the limited number of advisers to private funds that will not have to register to file reports about their business activities.

Further, in acknowledging the Commission's limited examination resources – and in light of the new responsibilities for private fund advisers – the Dodd-Frank Act reallocated regulatory responsibility for certain mid-sized investment advisers to the state securities authorities.

Private Fund Advisers and Commission Registration
For many years, advisers to private funds have been able to avoid registering with the Commission because of an exemption that applies to advisers with fewer than 15 clients – an exemption that counted each fund as a client, as opposed to each investor in a fund. As a result, some advisers to hedge funds and other private funds have remained outside of the Commission's regulatory oversight even though those advisers could be managing large sums of money for the benefit of hundreds of investors.

Title IV of the Dodd-Frank Act eliminated this private adviser exemption. Consequently, many previously unregistered advisers, particularly those to hedge funds and private equity funds, will have to register with the Commission and be subject to its regulatory oversight, rules and examination.

These advisers will be subject to the same registration requirements, regulatory oversight, and other requirements that apply to other SEC-registered investment advisers. To provide these advisers with a window to meet their new obligations, the transition provisions the Commission is adopting today will require these advisers to be registered with the Commission by March 30, 2012.

Reporting Requirements for Hedge Fund and Other Investment Advisers
Background
When investment advisers register with the Commission, they provide information in their registration form that is not only used for registration purposes, but that is used by the Commission in its regulatory program to support its mission to protect investors.

To enhance its ability to oversee investment advisers to private funds, the Commission is requiring advisers to provide additional information about the private funds they manage. The information obtained as a result of these amendments will assist the Commission in fulfilling its increased responsibility for private fund advisers arising from the Dodd-Frank Act.

The Form
Under the amended adviser registration form, advisers to private funds will have to provide:

Basic organizational and operational information about each fund they manage, such as the type of private fund that it is (e.g., hedge fund, private equity fund, or liquidity fund), general information about the size and ownership of the fund, general fund data, and the adviser's services to the fund.
Identification of five categories of “gatekeepers” that perform critical roles for advisers and the private funds they manage (i.e., auditors, prime brokers, custodians, administrators and marketers).
These reporting requirements are designed to help identify practices that may harm investors, deter advisers' fraud, and facilitate earlier discovery of potential misconduct. And this information will provide for the first time a census of this important area of the asset management industry.

In addition, the Commission is adopting other amendments to the adviser registration form to improve its regulatory program. These amendments will require all registered advisers to provide more information about their advisory business, including information about:

The types of clients they advise, their employees, and their advisory activities.
Their business practices that may present significant conflicts of interest (such as the use of affiliated brokers, soft dollar arrangements and compensation for client referrals).
The rules also will require advisers to provide additional information about their non-advisory activities and their financial industry affiliations.

Reporting Requirements for Exempt Advisers
Background
While many private fund advisers will be required to register, some of those advisers may not need to if they are able to rely on one of three new exemptions from registration under the Dodd-Frank Act, including exemptions for:

Advisers solely to venture capital funds.
Advisers solely to private funds with less than $150 million in assets under management in the U.S.
Certain foreign advisers without a place of business in the U.S.
The Commission can still impose certain reporting requirements upon advisers relying upon either of the first two of these exemptions (“exempt reporting advisers”).

The Rules
Under the new rules, exempt reporting advisers will nonetheless be required to file, and periodically update, reports with the Commission, using the same registration form as registered advisers.

Rather than completing all of the items on the form, exempt reporting advisers will fill out a limited subset of items, including:

Basic identifying information for the adviser and the identity of its owners and affiliates.
Information about the private funds the adviser manages and about other business activities that the adviser and its affiliates are engaged in that present conflicts of interest that may suggest significant risk to clients.
The disciplinary history (if any) of the adviser and its employees that may reflect on the integrity of the firm. Exempt reporting advisers will file reports on the Commission’s investment adviser electronic filing system (IARD), and these reports will be publicly available on the Commission’s website. These advisers will be required to file their first reports in the first quarter of 2012.
Reallocation of Regulatory Responsibility
Background
Since 1996, regulatory responsibility for investment advisers has been divided between the Commission and the states, primarily based on the amount of money an adviser manages for its clients. Under existing law, advisers generally may not register with the Commission unless they manage at least $25 million for their clients.

The Dodd-Frank Act raises the threshold for Commission registration to $100 million by creating a new category of advisers called "mid-sized advisers." A mid-sized adviser, which generally may not register with the Commission and will be subject to state registration, is defined as an adviser that:

Manages between $25 million and $100 million for its clients.
Is required to be registered in the state where it maintains its principal office and place of business.
Would be subject to examination by that state, if required to register.
As a result of this amendment to the Investment Advisers Act, about 3,200 of the current 11,500 registered advisers will switch from registration with the Commission to registration with the states. These advisers will continue to be subject to the Advisers Act's general anti-fraud provisions.

The Rules
The Commission is adopting amendments to several of its current rules and forms to:

Reflect the higher threshold required for Commission registration.
Provide a buffer to prevent advisers from having to frequently switch between Commission and state registration.
Clarify when an adviser will be a mid-sized adviser.
Facilitate the transition of advisers between federal and state registration in accordance with the new requirements. Advisers registered with the Commission will have to declare that they are permitted to remain registered in a filing in the first quarter of 2012, and those no longer eligible for Commission registration will have until June 28, 2012 to complete the switch to state registration.
Pay-to-Play
The Rule
The Commission also is amending the investment adviser “pay-to-play” rule in response to changes made by the Dodd-Frank Act. The pay to play rule is designed to prevent an adviser from seeking to influence government officials’ awards of advisory contracts through political contributions.

Under the amendment, an adviser will be permitted to pay a registered municipal advisor to act as a placement agent to solicit government entities on its behalf, if the municipal advisor is subject to a pay-to-play rule adopted by the MSRB that is at least as stringent as the investment adviser pay-to-play rule. The MSRB received new authority over municipal advisors under the Dodd-Frank Act. Advisers will also continue to be permitted to hire as a placement agent an SEC registered investment adviser or a broker-dealer that is subject to a pay-to-play rule adopted by FINRA that is at least as stringent as the investment adviser pay-to-play rule.

* * *

Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers With Less Than $150 Million in Assets Under Management, and Foreign Private Advisers
Background
As previously described, the Dodd-Frank Act eliminated the private adviser exemption and created three new exemptions for:

Advisers solely to venture capital funds.
Advisers solely to private funds with less than $150 million in assets under management in the United States.
Certain foreign advisers without a place of business in the United States.
The Commission is adopting rules that would implement these exemptions and define various terms.

New Exemptions
Definition of Venture Capital Fund
The Dodd-Frank Act amended the Advisers Act to exempt from registration advisers that only manage venture capital funds, and directed the Commission to define the term “venture capital fund.” The Commission is adopting a definition of “venture capital fund” that is designed to effect Congress’ intent in enacting this exemption.

Under the definition, a venture capital fund is a private fund that:

Invests primarily in “qualifying investments” (generally, private, operating companies that do not distribute proceeds from debt financings in exchange for the fund’s investment in the company); may invest in a “basket” of non-qualifying investments of up to 20 percent of its committed capital; and may hold certain short-term investments.
Is not leveraged except for a minimal amount on a short-term basis.
Does not offer redemption rights to its investors.
Represents itself to investors as pursuing a venture capital strategy.
Under a grandfathering provision, funds that began raising capital by the end of 2010 and represented themselves as pursuing a venture capital strategy would generally be considered venture capital funds. The Commission is adopting this approach because it could be difficult or impossible for advisers to conform these pre-existing funds, which generally have terms in excess of 10 years, to the new definition.

Private Fund Advisers With Less Than $150 Million in Assets Under Management in U.S.
The Commission also is adopting a rule that would implement the new statutory exemption for private fund advisers with less than $150 million in assets under management in the United States. The rule largely tracks the provision of the statute.

Foreign Private Advisers
The Dodd-Frank Act also amended the Advisers Act to provide for an exemption from registration for foreign advisers that do not have a place of business in the United States, and have:

Less than $25 million in aggregate assets under management from U.S. clients and private fund investors.
Fewer than 15 U.S. clients and private fund investors.
The Commission is adopting rules to define certain terms included in the statutory definition of “foreign private adviser” in order to clarify the application of the foreign private adviser exemption and reduce the potential burdens for advisers that seek to rely on it. The rule incorporates definitions set forth in other Commission rules, all of which are likely to be familiar to foreign advisers active in the U.S. capital markets."

HEDGE FUND ADVISOR PAYS TO SETTLE SEC CHARGES OF MARKET MANIPULATION

Making money can be very difficult if you work within our system of extremely volatile securities and commodities prices. One way to easily make money in such a system is to rig the system so that no matter what happens you will get someone else’s money out of their pocket and into yours.

It is common knowledge that many large investment firms will try to manipulate the prices of stocks sometimes on the upside but, usually it is toward the downside because when a stock price plunges small investors fear being wiped out and may also have margin calls to cover. (A margin call is when an investor is forced to sell stock because the value of his securities falls below the required total asset value to borrow money to buy on margin.) By instilling fear in the market for a stock the institutional short seller can get a stock price to tumble a lot without putting up a lot of money. It is legitimate to try to drive the price of a stock unless you have insider knowledge that diminishes or eliminates your own risk.

The following excerpt from the SEC web page is an illustration of a company that allegedly drove stock prices lower just prior to a public offering and then bought the stocks up very cheap:

“Washington, D.C., Sept. 23, 2010 — The Securities and Exchange Commission today charged Dallas-based hedge fund adviser Carlson Capital, L.P. with improperly participating in four public stock offerings after selling short those same stocks.

Carlson agreed to pay more than $2.6 million to settle the SEC's charges.
The SEC's Rule 105 of Regulation M helps prevent short selling that can reduce proceeds received by companies and shareholders by artificially depressing the market price shortly before the company prices its public offering. Rule 105 ensures that offering prices are set by natural forces of supply and demand rather than manipulative activity by prohibiting the short sale of an equity security during a restricted period — generally five business days before a public offering — and the purchase of that same security through the offering. The rule applies regardless of the trader's intent in selling short the stock.

According to the SEC's order, Carlson violated Rule 105 on four occasions and had policies and procedures that were insufficient to prevent the firm from participating in the relevant offerings. For one of those occasions, the SEC found a Rule 105 violation even though the portfolio manager who sold short the stock and the portfolio manager who bought the offering shares were different.

"Investment advisers must recognize that combined trading by different portfolio managers can still constitute a clear violation of Rule 105 when short selling takes place during a restricted period," said Antonia Chion, Associate Director of the SEC's Division of Enforcement. "This is true even when the portfolio managers have different investment approaches and generally make their own trading decisions."

In its order, the SEC found that the "separate accounts" exception to Rule 105 did not apply to Carlson's participation in that offering. If certain conditions are met, this exception allows the purchase of an offered security in an account that is "separate" from the account through which the same security was sold short. The Commission found that the combined activities of Carlson's portfolio managers violated Rule 105 and did not qualify for the separate accounts exception because the firm's portfolio managers:

Could access each others' trading positions and trade reports, and could consult with each other about companies of interest.
Reported to a single chief investment officer who supervised the firm's portfolios and had authority over the firm's positions.
Were not prohibited from coordinating with each other with respect to trading.

The SEC further found that the portfolio manager who sold short the particular stock during the restricted period received information — before the short sales were made — that indicated the other portfolio manager intended to buy offering shares.

Without admitting or denying the SEC's findings, Carlson agreed to pay a total of $2,653,234, which includes $2,256,386 in disgorgement of improper gains or avoided losses, a $260,000 penalty, and pre-judgment interest of $136,848. Carlson also consented to an order that imposes a censure and requires the firm to cease and desist from committing or causing any violations and any future violations of Rule 105. During the SEC's investigation, the adviser took remedial measures including implementation of an automated system that helps review the firm's prior short sales before it participates in offerings.”

In the above case there were two separate individuals involved that worked for the same firm. One sold the stock short while the other went long on the stock. The SEC suspected that there was collusion between the two individuals and the investment fund advisor agreed to pay back what it earned on the transaction and an additional penalty. The investment firm admitted to no wrongdoing.

It would be nice if the FBI would investigate the illegal acts of large corporations but,in truth FBI stands for For Big Institutions. In other words the FBI will investigate corparate fraud just like the SS would investigate the mental illness of Adolph Hitler.