ALLEGED INFLATION OF PERFORMANCE BY HEDGE FUND ADVISER LEADS TO SEC CHARGES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Press Release

SEC Charges Hedge Fund Adviser With Deceiving Investors by Inflating Fund Performance

FOR IMMEDIATE RELEASE

2018-83

Washington D.C., May 9, 2018 —
The Securities and Exchange Commission today announced that it has charged New York-based investment adviser Premium Point Investments LP with inflating the value of private funds it advised by hundreds of millions of dollars.  The SEC also charged Premium Point’s CEO and chief investment officer Anilesh Ahuja as well as Amin Majidi, a former partner and portfolio manager at the firm, and former trader Jeremy Shor.

According to the SEC’s complaint, the scheme ran from at least September 2015 through March 2016 and relied on a secret deal where in exchange for sending trades to a broker-dealer, Premium Point received inflated broker quotes for mortgage-backed securities (MBS).  In addition, the defendants allegedly used “imputed” mid-point valuations, which were applied in a manner that further inflated the value of securities. This practice allegedly boosted the value of many of Premium Point’s MBS holdings and further exaggerated returns.  The complaint alleges that the defendants overstated the funds’ value in order to conceal poor fund performance and attract and retain investors.

“Investors rely on their investment advisers to fairly and accurately value securities, and that is especially true when the securities trade in opaque markets,” said Daniel Michael, Chief of the Enforcement Division’s Complex Financial Instruments Unit.  “As we allege, Premium Point masked its true performance, which denied investors the opportunity to make informed investment decisions.”

The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, charges the defendants with fraud, with aiding and abetting fraud, or both.  The SEC complaint seeks permanent injunctions, return of allegedly ill-gotten gains with interest, and civil penalties.

The U.S. Attorney’s Office for the Southern District of New York, which conducted a parallel investigation of this matter, today announced charges against Ahuja, Majidi, and Shor.

The SEC’s investigation, which is continuing, was conducted by H. Gregory Baker and Brian Fitzpatrick of the Asset Management Unit, Osman Nawaz of the Complex Financial Instruments Unit, and Preethi Krishnamurthy of the New York Regional Office under the supervision of Mark D. Salzberg of the Asset Management Unit.  The litigation is being conducted by Ms. Krishnamurthy, Mr. Baker, and Mr. Nawaz.  The SEC acknowledges the assistance and cooperation of the U.S. Attorney’s Office and the FBI in this matter.

COURT ORDERS FLORIDA MAN, COMPANY TO PAY $5.7 MILLION FOR ROLES IN COMMODITY POOL PONZI SCHEME

FROM:  COMMODITY FUTURES TRADING COMMISSION 
Federal Court Orders Ward Onsa of Marco Island, Florida and His Company, New Century Investment Management LLC of Southampton, Pennsylvania to Pay $5.7 Million Civil Monetary Penalty for Operating a Commodity Pool Ponzi Scheme

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today announced that on March 20, 2014, Judge Mary A. McLaughlin of the U.S. District Court for the Eastern District of Pennsylvania entered a final judgment Order imposing a civil monetary penalty of almost $6 million against Defendants Ward Onsa of Marco Island, Florida, and his company, New Century Investment Management LLC (New Century), of Southampton, Pennsylvania, in a CFTC enforcement action. The court’s March 20, 2014, Order followed an earlier default judgment Order entered on December 5, 2011, finding that the Defendants had committed fraud and imposing registration and trading bans.

The Orders stem from a CFTC Complaint filed on April 5, 2011, in which the CFTC charged Onsa and New Century with solicitation fraud, misappropriation, and issuing false account statements to commodity pool participants while operating a commodity pool Ponzi scheme (see CFTC Release 6016-11, April 6, 2011).

The court’s partial default judgment Order finds that through Onsa’s fraudulent misrepresentations at least 12 pool participants invested a total of more than $2.2 million with New Century Hedge Fund Partners I, LP to trade commodity futures and options contracts. The Order further finds that the Defendants misappropriated pool participants’ funds and used them to pay personal expenses and to pay earlier participants with newer participants’ funds in the manner of a Ponzi scheme. The Order imposes permanent trading and registration bans on Onsa and New Century, and prohibits them from violating the anti-fraud provisions of the Commodity Exchange Act, as charged.

The court’s final judgment Order concludes that based on the deterrent purposes of a civil monetary penalty (CMP), the egregiousness of the Defendants’ intentional conduct, the length of time of the Defendants’ wrongful trading activity, and the Defendants’ failure to attempt to ameliorate their wrongful conduct, the CFTC’s request for a CMP of triple Defendants’ gain is appropriate and orders Onsa and New Century to jointly pay a CMP of $5.7 million, in addition to post-judgment interest.

The Order provides that all payments made by Onsa pursuant to the Order will be applied first to satisfy Onsa’s criminal restitution obligation in U.S. v. Ward Onsa, Docket No. 10-CR-730 (DLI) (U.S. District Court for the Eastern District of New York) and, upon satisfaction of that obligation, thereafter will be applied to Defendants’ CMP obligation. In that criminal case, on July 26, 2012, Onsa was sentenced to 78 months imprisonment and on August 21, 2012, was ordered to pay restitution of $3,135,132.22 to 26 victims of various criminal schemes perpetrated by him, including the scheme involving the defrauding of New Century pool participants. Onsa is currently incarcerated at the Federal Correctional Institution located in Estill, South Carolina.

The CFTC appreciates the assistance of the Office of the United States Attorney for the Eastern District of New York.

CFTC Division of Enforcement staff members responsible for this case are Elizabeth Brennan, Philip Rix, Steven Ringer, Lenel Hickson, Jr., and Manal M. Sultan.

SEC ALLEGES INVESTMENT ADVISORY FIRM AND ITS PRESIDENT PLAYED FAVORITES WITH CLIENTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today announced charges against a San Diego-based investment advisory firm and its president for allegedly steering winning trades to favored clients and lying about how certain money was being spent.

The SEC’s Enforcement Division alleges that J.S. Oliver Capital Management and Ian O. Mausner engaged in a cherry-picking scheme that awarded more profitable trades to hedge funds in which Mausner and his family had invested.  Meanwhile they doled out less profitable trades to other clients, including a widow and a charitable foundation.  The disfavored clients suffered approximately $10.7 million in harm.

The SEC’s Enforcement Division further alleges that Mausner and J.S. Oliver misused soft dollars, which are credits or rebates from a brokerage firm on commissions paid by clients for trades executed in the investment adviser’s client accounts.  If appropriately disclosed, an investment adviser may retain the soft dollar credits to pay for expenses, including a limited category of brokerage and research services that benefit clients.  However, Mausner and J.S. Oliver misappropriated more than $1.1 million in soft dollars for undisclosed purposes that in no way benefited clients, such as a payment to Mausner’s ex-wife related to their divorce.

“Mausner’s fraudulent schemes were a one-two punch that betrayed his clients and cost them millions of dollars,” said Marshall S. Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “Investment advisers must allocate trades and use soft dollars consistent with their fiduciary duty to put client interests first.”

The SEC also charged Douglas F. Drennan, a portfolio manager at J.S. Oliver, for his role in the soft dollar scheme.

According to the SEC’s order instituting administrative proceedings, Mausner engaged in the cherry-picking scheme from June 2008 to November 2009 by generally waiting to allocate trades until after the close of trading or the next day.  This allowed Mausner to see which securities had appreciated or declined in value, and he gave the more favorably priced securities to the accounts of four J.S. Oliver hedge funds that contained investments from Mausner and his family.  Mausner profited by more than $200,000 in fees earned from one of the hedge funds based on the boost in its performance from the winning trades he allocated.  Mausner also marketed that same hedge fund to investors by touting the fund’s positive returns when in reality those returns merely resulted from the cherry-picking scheme.

According to the SEC’s order, the soft dollar scheme occurred from January 2009 to November 2011.  Mausner and J.S. Oliver failed to disclose the following uses of soft dollars:

More than $300,000 that Mausner owed his ex-wife under their divorce agreement.
More than $300,000 in “rent” for J.S. Oliver to conduct business at Mausner’s home.  Most of this amount was funneled to Mausner’s personal bank account.
Approximately $480,000 to Drennan’s company for outside research and analysis when in reality Drennan was an employee at J.S. Oliver.
Nearly $40,000 in maintenance and other fees on Mausner’s personal timeshare in New York City.
According to the SEC’s order, Drennan participated in the soft dollar scheme by submitting false information to support the misuse of soft dollar credits and approving some of the soft dollar payments to his own company.

The SEC’s order alleges that J.S. Oliver and Mausner willfully violated the antifraud provisions of the federal securities laws and asserts disclosure, compliance, and recordkeeping violations against them.  The SEC’s order alleges that Drennan willfully aided, abetted, and caused J.S. Oliver’s fraud violations in the soft dollar scheme.

The SEC’s investigation, which is continuing, has been conducted by Ronnie Lasky and C. Dabney O’Riordan of the Enforcement Division’s Asset Management Unit in the Los Angeles Regional Office.  The SEC’s litigation will be led by David Van Havermaat, John Bulgozdy, and Ms. Lasky.  The examination of J.S. Oliver was conducted by Ashish Ward, Eric Lee, and Pristine Chan of the Los Angeles office’s investment adviser/investment company examination program.

SEC FILES INJUCTIVE ACTION RELATED TO FRAUDULENT OFFER OF LIMITED PARTNERSHIP INTESESTS IN TWO HEDGE FUNDS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Advisers to the RAHFCO Hedge Funds with Fraud
The Securities and Exchange Commission ("Commission") filed a civil injunctive action on March 1, 2013, in the United States District Court for the Southern District of New York relating to the fraudulent offer and sale of limited partnership interests in two hedge funds -- RAHFCO Funds LP and RAHFCO Growth Fund LP (collectively "RAHFCO Hedge Funds"). The Commission charged RAHFCO Management Group, LLC ("RAHFCO Management"), a Delaware corporation and general partner of RAHFCO Hedge Funds; its principal, Randal Kent Hansen of Sioux Falls, South Dakota; Hudson Capital Partners Corporation (HCP), a New York corporation, the sub-adviser/portfolio manager of RAHFCO Hedge Funds; and Vincent Puma of Morganville, New Jersey, the principal of HCP, with securities fraud, among other violations of the securities laws, for engaging in a fraudulent scheme that defrauded investors out of more than $10 million.

The Commission's complaint alleges that the RAHFCO Hedge Funds raised approximately $23.5 million from over 100 investors nationwide between 2007 and the funds' collapse in about May 2011. Additionally, the complaint alleges that the primary function of the Defendants' scheme was to convince investors to invest in fraudulent pooled investments that purportedly traded in options and futures on the S&P 500 Index and in equities, then the Defendants siphoned off the invested funds for the Defendants' own purposes. The complaint also alleges that, in furtherance of their fraud, Defendants engaged in schemes to defraud investors and made material misrepresentations to investors and others.

The Commission's complaint alleges that all of the defendants violated the antifraud provisions of the securities laws in Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The complaint also alleges that Hansen and RAHFCO Management violated Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 and that Puma and HCP aided and abetted these violations. Finally, the complaint alleges that Hansen and RAHFCO Management violated Section 15(a) of the Exchange Act by acting as unregistered broker-dealers. The Commission's complaint seeks permanent injunctions, third-tier civil penalties, disgorgement plus prejudgment interest, and other relief against all of the

SEC CHARGES HEDGE FUND MANAGERS WITH SECURITIES FRAUD

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Connecticut Hedge Fund Managers With Securities Fraud

In February 26, 2013, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the District of Connecticut against Connecticut-based hedge fund managers David Bryson and Bart Gutekunst ("Gutekunst") and their advisory firm, New Stream Capital, LLC, ("New Stream") for lying to investors about the capital structure and financial condition of their hedge fund. New Stream was an unregistered investment adviser based in Ridgefield, Connecticut that managed a $750-plus million hedge fund focused on illiquid investments in asset-based lending. The SEC also charged New Stream Capital (Cayman), Ltd. ("Cayman Adviser"), a Caymanian adviser entity affiliated with New Stream, Richard Pereira ("Pereira"), New Stream’s former CFO, and Tara Bryson, New Stream’s former head of investor relations, for their role in the scheme. Tara Bryson has agreed to a proposed settlement relating to her conduct in this matter.

According to the SEC’s complaint, in March 2008, David Bryson and Gutekunst, New Stream’s lead principals and co-owners, decided to revise the fund’s capital structure to placate their largest investor, Gottex Fund Management Ltd. ("Gottex"), by giving Gottex and certain other preferred offshore investors priority over other investors in the event of a liquidation. Gottex had threatened to redeem its investment in the New Stream hedge fund because a wholesale restructuring of the fund just a few months earlier had created two new feeder funds and -- without Gottex’s knowledge -- granted equal liquidation rights to all investors, thereby eliminating the preferential status previously enjoyed by Gottex. Gottex’s investment totaled nearly $300 million at the time.

The SEC alleges that, even after revising the capital structure to put Gottex ahead of other fund investors, David Bryson and Gutekunst directed New Stream’s marketing department, led by Tara Bryson, to continue to market the fund as if all investors were on the same footing, fraudulently raising nearly $50 million in new investor funds on the basis of these misrepresentations. The marketing documents failed to disclose the March 2008 revisions to the capital structure to the new investors. In addition, Pereira, New Stream’s CFO, falsified the hedge fund’s operative financial statements to conceal the March 2008 revisions to the capital structure.

As further alleged in the complaint, disclosure of the March 2008 changes to the capital structure would have made it far more difficult to continue to raise money through the new feeder funds and would have spurred further redemptions from existing investors in the new feeder funds. As such, disclosure of the March 2008 changes would have adversely affected the defendants’ own pecuniary interests by, among other things, jeopardizing the increased cash flow from a new, lucrative fee structure that they had implemented in the fall of 2007. The defendants also misled investors about the increased level of redemptions after Gottex submitted its massive redemption request in March 2008. When asked by prospective investors about redemption levels, New Stream did not include the Gottex redemption and others that followed. For example, Gutekunst falsely told one investor in June 2008 that there was nothing remarkable about the level of redemptions that New Stream had received and that there were no liquidity concerns.

The SEC further alleges that by the end of September 2008, as the U.S. financial crisis worsened, the New Stream hedge fund was facing $545 million in redemption requests, causing it to suspend further redemptions and cease raising new funds. After several attempts at restructuring failed, New Stream and affiliated entities filed Chapter 11 bankruptcy petitions in March 2011. Based on current estimates, the defrauded investors are expected to receive approximately 5 cents on the dollar -- substantially less than half the amount that Gottex and other investors in its preferred class are expected to receive.

The SEC’s complaint charges New Stream, David Bryson and Gutekunst with violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 ("Advisers Act") and Rule 206(4)-8 thereunder. The Cayman Adviser is charged with violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. The SEC’s complaint charges Pereira and Tara Bryson with violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. The SEC also contends that David Bryson, Gutekunst and Pereira are each also liable pursuant to Section 20(a) of the Exchange Act as a controlling person for New Stream’s violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and David Bryson and Gutekunst are each further liable pursuant to Section 20(a) of the Exchange Act as a controlling person for the Cayman Adviser’s violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Finally, the SEC charges that David Bryson, Gutekunst, Pereira, and Tara Bryson are each also liable pursuant to Section 20(e) of the Exchange Act for aiding and abetting each other’s violations, and New Stream and the Cayman Adviser’s violations, of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; David Bryson and Gutekunst are each further liable pursuant to Sections 209(d) and 209(f) of the Advisers Act for aiding and abetting each other’s violations, and New Stream’s violations, of Sections 206(1) and 206(2) of the Advisers Act; and, in addition, David Bryson, Gutekunst, Pereira and Tara Bryson are each also liable pursuant to Sections 209(d) and 209(f) of the Advisers Act for aiding and abetting violations of Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder by New Stream, the Cayman Adviser, David Bryson and Gutekunst.

The complaint seeks a final judgment permanently enjoining the defendants from committing future violations of these provisions, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and imposing financial penalties.

In offering to settle the SEC’s charges, without admitting or denying the allegations, Tara Bryson consented to the entry of a final judgment that permanently enjoins her from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. The settlement is subject to court approval. Tara Bryson also consented to the entry of a Commission order barring her from associating with any investment adviser, broker-dealer, municipal securities dealer, or transfer agent.

TRADING SCHEMES COST HEDGE FUNDS AND MANAGER $44 MILLION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Dec. 12, 2012 — The Securities and Exchange Commission today charged the manager of two New York-based hedge funds with conducting a pair of trading schemes involving Chinese bank stocks and making $16.7 million in illicit profits. He and his firms have agreed to pay $44 million to settle the SEC’s charges.

The SEC alleges that Sung Kook "Bill" Hwang, the founder and portfolio manager of Tiger Asia Management and Tiger Asia Partners, committed insider trading by short selling three Chinese bank stocks based on confidential information they received in private placement offerings. Hwang and his advisory firms then covered the short positions with private placement shares purchased at a significant discount to the stocks’ market price. They separately attempted to manipulate the prices of publicly traded Chinese bank stocks in which Hwang’s hedge funds had substantial short positions by placing losing trades in an attempt to lower the price of the stocks and increase the value of the short positions. This enabled Hwang and Tiger Asia Management to illicitly collect higher management fees from investors.

In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against Tiger Asia Management.

"Hwang today learned the painful lesson that illegal offshore trading is not off-limits from U.S. law enforcement, and tomorrow’s would-be securities law violators would be well-advised to heed this warning," said Robert Khuzami, Director of the SEC’s Division of Enforcement.

Sanjay Wadhwa, Associate Director of the SEC’s New York Regional Office and Deputy Chief of the Enforcement Division’s Market Abuse Unit, added, "Hwang betrayed his duty of confidentiality by trading ahead of the private placements, and betrayed his fiduciary obligations when he defrauded his investors by collecting fees earned from his attempted manipulation scheme."

The SEC also charged Raymond Y.H. Park for his roles in both schemes as the head trader of the two hedge funds involved – Tiger Asia Fund and Tiger Asia Overseas Fund. Park, who lives in Riverdale, N.Y., also agreed to settle the SEC’s charges. Hwang lives in Tenafly, N.J.

According to the SEC’s complaint filed in federal court in Newark, N.J., from December 2008 to January 2009, Hwang and his advisory firms participated in two private placements for Bank of China stock and one private placement for China Construction Bank stock. Before disclosing material nonpublic information about the offerings, the placement agents required wall-crossing agreements from Park and the firms to keep the information confidential and refrain from trading until the transaction took place. Despite agreeing to those terms, Hwang ordered Park to make short sales in each stock in the days prior to the private placement. Hwang and his firms illegally profited by $16.2 million by using the discounted private placement shares they received to cover the short sales they had entered into based on inside information about the placements.

The SEC further alleges that on at least four occasions from November 2008 to February 2009, Hwang and his firms, with Park’s assistance, attempted to manipulate the month-end closing prices of Chinese bank stocks publicly listed on the Hong Kong Stock Exchange. These stocks were among the largest short position holdings in the hedge funds’ portfolios. The more assets the hedge funds had under management, the greater the management fee that Tiger Asia Management was entitled to collect. So Hwang directed Park to place losing trades in order to depress the stock prices, which would inflate the calculation of the management fees. Hwang and Tiger Asia Management made approximately $496,000 in fraudulent management fees through this scheme.

The SEC’s complaint charges Hwang, his firms, and Park with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Section 17(a) of the Securities Act of 1933. Hwang and his firms also are charged with violating Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8, and Park is charged with aiding and abetting those violations.

The settlements, which are subject to court approval, require Hwang, Tiger Asia Management, and Tiger Asia Partners to collectively pay $19,048,787 in disgorgement and prejudgment interest. Each of them has agreed to pay a penalty of $8,294,348 for a total of 24,883,044. Park agreed to pay $39,819 in disgorgement and prejudgment interest, and a penalty of $34,897. With the exception of Tiger Asia Management, the defendants neither admit nor deny the charges.

The SEC’s investigation was conducted by Thomas P. Smith, Jr., Sandeep Satwalekar, and Amelia A. Cottrell of the SEC’s Market Abuse Unit in New York, and Frank Milewski of the New York Regional Office. The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of New Jersey, the Federal Bureau of Investigation, the Japanese Securities and Exchange Surveillance Commission, and the Hong Kong Securities and Futures Commission.

FORMER SILICON VALLEY EXECUTIVE SETTLES CHARGES WITH SEC

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Former Silicon Valley Executive to Pay $1.75 Million to Settle Insider Trading Charges
On October 24, 2012, the Securities and Exchange Commission charged a former senior executive at a Silicon Valley technology company for illegally tipping convicted hedge fund manager Raj Rajaratnam with nonpublic information that allowed the Galleon hedge funds to make nearly $1 million in illicit profits.

The SEC alleges that Kris Chellam tipped Rajaratnam in December 2006 with confidential details from internal company reports indicating that Xilinx Inc. would fall short of revenue projections it had previously made publicly. The tip enabled Rajaratnam to engage in short selling of Xilinx stock to illicitly benefit the Galleon funds. Chellam tipped Rajaratnam, who was a close friend, at a time when Chellam had his own substantial investment in Galleon funds and was in discussions with Rajaratnam about prospective employment at Galleon. Chellam was hired at Galleon in May 2007.

Chellam, who lives in Saratoga, Calif., has agreed to pay more than $1.75 million to settle the SEC's charges. The settlement is subject to court approval.

According to the SEC's complaint filed in federal court in Manhattan, Xilinx announced in October 2006 the financial results for the second quarter of its 2007 fiscal year. Xilinx also provided guidance for the third quarter by projecting revenues of approximately $476 million to $490 million. Xilinx said it would update this revenue guidance on Dec. 7, 2006.

The SEC alleges that in the weeks leading up to Xilinx's December 7 update, Chellam received multiple reports indicating that the company's third quarter business results were not going to be as positive as projected in October. Chellam learned on November 21 that the top end of the projected revenue range was being lowered from $490 million to $470 million. He attended a December 4 confidential executive staff meeting where the bottom end of the revenue projection was lowered from $476 million to $455 million. On December 5, Chellam telephoned Rajaratnam and tipped him about Xilinx's worse-than-expected performance. Just minutes after the call, Galleon hedge funds controlled by Rajaratnam sold short Xilinx stock, eventually selling short more than 650,000 shares over the course of that day and the following day.

According to the SEC's complaint, the Galleon hedge funds reaped approximately $978,684 in illegal profits after the December 7 announcement by covering the substantial short position that Rajaratnam had accumulated based on Chellam's tip. Chellam had more than $1 million invested in one of the Galleon hedge funds in which Rajaratnam placed these trades. In May 2007, Chellam became the co-managing partner of the Galleon Special Opportunities Fund, a venture capital fund that focused on investments in late-stage technology companies. Chellam continued to work at Galleon until April 2009 and continued to obtain confidential information about Xilinx's financial performance and pass it along to Galleon colleagues. Chellam earned approximately $675,000 in total compensation during his employment at Galleon.

The SEC's complaint charges Chellam with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 17(a) of the Securities Act of 1933. The proposed final judgment orders Chellam to pay $675,000 in disgorgement, $106,383.05 in prejudgment interest, and a $978,684 penalty. Chellam also would be barred for a period of five years from serving as an officer or director of a public company, and permanently enjoined from future violations of these provisions of the federal securities laws. Chellam neither admits nor denies the charges.

The SEC has now charged 32 defendants in its Galleon-related enforcement actions, which have exposed widespread and repeated insider trading at numerous hedge funds and by other traders, investment professionals, and corporate insiders throughout the country. The alleged insider trading has occurred in the securities of more than 15 companies for illicit profits totaling approximately $93 million.

MANAGER OF HEDGE FUNDS CHARGED WITH MAKING MISREPRESENTATIONS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Former Sky Bell Hedge Fund Manager With Making Misrepresentations In Selling And Recommending His Hedge Funds

On August 27, 2012, the Securities and Exchange Commission filed a settled civil action in the United States District Court for the Northern District of California against Gary R. Marks. The Commission’s complaint alleged that Marks managed and recommended various fund of funds hedge funds through Sky Bell Asset Management, Inc. (an investment adviser formerly registered with the Commission), including the Agile Sky Alliance Fund that was co-managed with the Agile Group, PipeLine Investors, Night Watch Partners, and Sky Bell Offshore Partners (collectively "Sky Bell Hedge Funds"). The Commission’s complaint alleged that between at least 2005 and September 2007, Marks negligently misrepresented the level of correlation and diversification among certain Sky Bell Hedge Funds. Furthermore, the Complaint alleged that between at least 2005 and 2008, Marks also: a) made unsuitable investment recommendations to certain advisory clients to invest most of their investment portfolio in Sky Bell Hedge Funds, b) negligently failed to disclose that PipeLine Investors invested significantly in a purported subadviser’s fund, and c) negligently provided misleading information to certain investors about the liquidity problems at the Agile Sky Alliance Fund.

Without admitting or denying the allegations in the Commission’s complaint, Marks consented to the entry of a proposed Final Judgment enjoining him from future violations of Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8 promulgated thereunder, and Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. The proposed Final Judgment also orders Marks to pay disgorgement of $321,702, a penalty of $100,000, and prejudgment interest. The proposed settlement is subject to the approval of the district court.

INVESTMENT MANAGER AND OTHERS CHARGED BY SEC WITH SECURITIES LAW VIOLATIONS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., July 30, 2012 – The Securities and Exchange Commission charged New York-based investment manager Peter Siris and two of his firms with a host of securities law violations mostly related to his activities with a Chinese reverse merger company, China Yingxia International Inc.

The SEC alleges that Siris, an active investor in Chinese companies and former newspaper money columnist, misled investors in his two hedge funds through which he invested $1.5 million in China Yingxia. Siris understated his involvement with the company particularly after it went out of business, and used his insider status to make illegal trades based on nonpublic information as he received it. In an attempt to circumvent the registration provisions of the securities laws, Siris also received shares from the China Yingxia CEO’s father and improperly sold them without any registration statement in effect. Siris further engaged in insider trading ahead of 10 confidentially solicited offerings for other Chinese issuers.

Siris and his firms agreed to pay more than $1.1 million to settle the SEC’s charges. The SEC also separately charged five individuals and one firm for securities law violations related to China Yingxia.

“Siris operated by his own set of rules in his dealings with China Yingxia and other Chinese issuers,” said Andrew M. Calamari, Acting Director of the SEC’s New York Regional Office. “He was the go-to person when Chinese reverse merger companies wanted to raise capital or needed advice about operations, but he used his prominence and reputation in this area to illegally game the system to his advantage.”

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Siris and his firms Guerrilla Capital Management LLC and Hua Mei 21st Century LLC became involved with China Yingxia in 2007 and their misconduct continued until 2010. Along with being one of three “consultants” that improperly raised money for China Yingxia, Siris and Hua Mei acted as advisers to the purported nutritional foods company.

Insider Trading and Illegal Short Selling

The SEC alleges that in February and March 2009, Siris sold China Yingxia stock while in possession of material, nonpublic information about problems at China Yingxia that he learned directly from the CEO. This confidential information included that she had engaged in illegal fundraising activities in China and that a company factory had shut down. Siris immediately began selling hundreds of thousands of shares of China Yingxia stock prior to any public disclosure by China Yingxia about these issues. Siris learned additional material, nonpublic information during the late afternoon of March 3, 2009, when he received a draft press release and notice that China Yingxia planned to publicly disclose the problems. Siris increased his orders to sell over the next couple of days before China Yingxia issued its press release publicly on March 6. Siris, through his funds, sold 1,143,660 China Yingxia shares in a matter of weeks for ill-gotten gains of approximately $172,000.

According to the SEC’s complaint, Siris and Guerrilla Capital Management also engaged in illegal insider trading ahead of 10 offering announcements for other Chinese issuers and made approximately $162,000 in ill-gotten gains. After expressly agreeing to go “over-the-wall,” which included a prohibition on trading, Siris traded ahead of the offering announcements in breach of his duty not to trade on such information.

The SEC further alleges that Siris sold short the securities of two Chinese companies prior to participating in firm-commitment offerings.

Fraudulent Representations in a Securities Purchase Agreement

The SEC alleges that in order to induce at least one issuer to sell securities to his funds, Siris falsely represented in a securities purchase agreement that his funds had not engaged in any trading after being contacted in confidence about a particular deal, when in fact his funds had effected sales in that issuer’s securities. Siris directed short sales of a Chinese issuer on Dec. 9, 2009, despite going “over-the-wall” in original solicitation discussions, and nevertheless Siris signed a securities purchase agreement later that afternoon that misrepresented he had not traded in those securities. The following morning, Siris directed additional sales of the company’s shares before the public announcement of the offering. Siris realized illegal insider trading gains.

Materially Misleading Disclosures to Fund Investors

The SEC alleges that Siris generally disclosed that he and his consulting firm Hua Mei, may provide services to Chinese issuers, but he did not disclose the depth of his involvement in China Yingxia. Investors were not informed that Siris and his firm provided drafting assistance for press releases and SEC filings, translation services, management preparation in advance of conference calls, and officer recommendations. By omitting key facts and making misrepresentations about his role with the company, Siris deprived his investors of material information that could have impacted their continued investment decisions with his funds. Furthermore, when China Yingxia later collapsed, Siris wrote to his investors and placed blame on others he claimed were responsible for the SEC filings and key hiring decisions while omitting his significant role in these very same tasks.

Acting as an Unregistered Securities Broker

The SEC alleges that Siris, who was not registered as a broker or dealer nor associated with a registered broker-dealer, acted as an unregistered broker during China Yingxia’s second securities offering, as he raised more than $2 million worth of investments. In a backdated consulting agreement, Siris through Hua Mei in fact received transaction-based fees for leading fundraising efforts for China Yingxia and not for providing consulting services. No disclosures were made to potential or actual investors concerning payments to three so-called consultants including Siris, who sold China Yingxia securities.

Improper Unregistered Sale of Securities

The SEC alleges that Siris and Hua Mei improperly sold securities that Hua Mei received from China Yingxia in a sham agreement intended to hide the fact that they were shares from a person controlled by the company. China Yingxia agreed to pay Siris for due diligence he conducted in connection with his lead investment in the company’s July 2007 PIPE offering. The company transferred shares to Siris with the appearance that they came from a shareholder to reimburse him for services performed for that shareholder. In fact, the sham agreement was simply a means for China Yingxia to provide Hua Mei with shares believed to be immediately eligible for sale, because had the company issued the shares directly to Hua Mei, they would have been restricted stock subject to holding period and other requirements for resale. The shareholder and source of the shares was later revealed to be the father of China Yingxia’s CEO – someone who was in fact a person directly or indirectly controlled by the issuer.

The SEC’s complaint against Siris and his entities alleges violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, Rule 105 of Regulation M, and Section 206(4) of the Investment Advisers Act of 1940, and Rule 206(4)-8 thereunder. Without admitting or denying the allegations, Siris and his firms agreed to pay $592,942.39 in disgorgement and $70,488.83 prejudgment interest. Siris agreed to pay a penalty of $464,011.93. They also consented to the entry of a judgment enjoining them from violations of the respective provisions of the Securities Act, Exchange Act, and Advisers Act. The settlement is subject to court approval.

Also charged for securities law violations related to China Yingxia:

• Ren Hu – the former CFO of China Yingxia made fraudulent representations in Sarbanes-Oxley (SOX) certifications, lied to auditors, failed to implement internal accounting controls, and aided and abetted China Yingxia’s failure to implement internal controls.
• Peter Dong Zhou – engaged in insider trading and unregistered sales of securities and aided and abetted unregistered broker-dealer activity while assisting China Yingxia with its reverse merger and virtually all of its public company tasks. Without admitting or denying the charges, Zhou agreed to pay $20,900 in disgorgement, $2,463.39 in prejudgment interest, and a penalty $50,000. He agreed to a three-year collateral bar, penny stock bar, and investment company bar.
• Alan Sheinwald and his investor relations firm Alliance Advisors LLC – were retained as “consultants” to China Yingxia and acted as unregistered securities brokers while raising money for China Yingxia and at least one other issuer.
• Steve Mazur – acted as an unregistered securities broker while selling away from his firm the securities of China Yingxia and one other issuer. Without admitting or denying the charges, Mazur agreed to pay $126,800 in disgorgement, $25,550.01 in prejudgment interest, and a penalty of $25,000. He agreed to a two-year collateral bar, penny stock bar, and investment company bar.
• James Fuld, Jr. – involved in the unregistered sales of securities. Without admitting or denying the charges, he agreed to pay $178,594.85 in disgorgement and $38,096.70 in prejudgment interest.

Mr. Calamari said, “With these charges, the SEC continues to make good on its commitment to hold accountable those who enable some Chinese reverse merger firms to take unfair advantage of investors in the U.S. capital markets.”

The SEC’s investigation, which is continuing, was conducted in the New York Regional Office by Celeste Chase, Eduardo A. Santiago-Acevedo, and Osman Nawaz, with assistance from Frank Milewski. Paul Gizzi and Osman Nawaz will lead the SEC’s litigation team. The SEC acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in this matter.

FATHER AND SON HEDGE FUND MANAGERS CHARGED WITH FRAUD

FROM:  SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., April 20, 2012 – The Securities and Exchange Commission today charged a Boston-based father-son duo of hedge fund managers and their firms with securities fraud for misleading investors about their investment strategy and past performance.

The SEC’s investigation found that Gabriel and Marco Bitran raised millions of dollars for their hedge funds through GMB Capital Management LLC and GMB Capital Partners LLC by falsely telling investors they had a lengthy track record of success based on actual trades using real money. In truth, the Bitrans knew the track record was based on back-tested hypothetical simulations. The Bitrans also misled investors in certain hedge funds to believe they used quantitative optimal pricing models devised by Gabriel Bitran to invest in exchange-traded funds (ETFs) and other liquid securities. Instead, they merely invested the money almost entirely in other hedge funds. GMB Capital Management later provided false documents to SEC staff examining the firm’s claims in marketing materials of a successful track record.

The Bitrans agreed to be barred from the securities industry and pay a total of $4.8 million to settle the SEC’s charges.

“The Bitrans solicited investors by touting an impressive track record and a unique investment strategy, and they lied about both,” said David P. Bergers, Director of the SEC’s Boston Regional Office.

According to the SEC’s order instituting settled administrative proceedings, Gabriel Bitran founded GMB Capital Management in 2005 for the stated purpose of managing hedge funds using quantitative models he developed based on his academic optimal pricing research to trade primarily ETFs. He and his son Marco Bitran solicited potential investors with three primary selling points:
Very successful performance track records based on actual trades using real money from 1998 to the inception of the hedge funds.

The firm’s use of Gabriel Bitran’s proprietary optimal pricing model to trade ETFs.
Gabriel Bitran’s involvement as founder and portfolio manager of the funds.
The SEC’s order states that over a period of three years, the Bitrans raised more than $500 million for eight hedge funds and various managed accounts while making these misrepresentations to investors. In order to market the hedge funds, GMB Management and the Bitrans created performance track records beginning in January 1998 showing double-digit annualized return without any down years. They distributed these track records to potential investors in marketing materials, and told investors that they were based on actual trading with real money using Gabriel Bitran’s optimal pricing models. In reality, the Bitrans knew their representations were false and the track records were based on hypothetical historical investments. For two of their hedge funds, they created track records showing annualized returns of 16.2 percent and 11.7 percent with no down years, and told investors the returns were based on actual trading when in fact they were based on hypothetical historical allocations to hedge fund managers.

According to the SEC’s order, investors were misled to believe their money was being invested according to Gabriel Bitran’s unique quant strategy when in reality certain GMB hedge funds were merely investing predominantly in other hedge funds without his involvement. For example, investors in two GMB hedge funds were told that Gabriel Bitran spent 80 percent of his time managing the funds and was involved in reviewing trades in the funds on a daily basis. However, he actually had no role in the management of either fund. Both funds experienced a series of losses at the end of 2008, and GMB eventually dissolved them. When a possible financial fraud at the Petters Group Worldwide was reported in late September 2008, the two hedge funds’ investments in a fund that was entirely invested in the Petters Group became illiquid. However, GMB did not disclose to investors that it had been impacted by the Petters fraud, instead sending investors a letter stating that “a swap instrument that the Fund entered into seeking to realize a higher return on a portion of its uninvested cash” had become illiquid because “one of the parties underlying the swap instrument is currently experiencing a credit and liquidity crisis, in conjunction with other alleged factors.” Furthermore, the two GMB funds suffered significant losses in hedge funds that had invested with Bernard Madoff. These investments in funds that ultimately invested with the Petters Group and Madoff were made contrary to what GMB investors were told.

According to the SEC’s order, during an SEC examination of GMB Capital Management, the firm produced a document that the Bitrans claimed was a real-time record of Gabriel Bitran’s trades since 1998. In fact, the document was false and created solely for the purpose of responding to the SEC staff’s request for the books and records that supported GMB’s performance claims.

The GMB entities and the Bitrans neither admitted nor denied the SEC’s findings in settling the charges. They agreed to pay disgorgement of $4.3 million. Gabriel and Marco Bitran also agreed to pay $250,000 each in penalties and be barred from the securities industry, and the GMB entities will be censured. The SEC’s order requires the Bitrans and the GMB entities to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 204, 206(1), 206(2) and 206(4) of the Advisers Act and Rules 204-2(a)(16) and 206(4)-8 thereunder.

The SEC’s investigation was conducted by Kerry Dakin, Kevin Kelcourse, and Kathleen Shields of the Boston Regional Office. Paul Prata, Elizabeth Ward, and Milton Pepin of the Boston Regional Office worked on the SEC’s examination. Stuart Jackson of the SEC’s Division of Risk, Strategy, and Financial Innovation assisted in the investigation.

SEC CHARGES BAY AREA INVESTMENT ADVISER FOR DEFRAUDING INVESTORS WITH BOGUS AUDIT REPORT

The following excerpt is from the U.S. Securities and Exchange Commission website:
March 21, 2012
On March 15, 2012, the Securities and Exchange Commission charged a San Francisco-area investment adviser with defrauding investors by giving them a bogus audit report that embellished the financial performance of the fund in which they were investing.

The SEC alleges that James Michael Murray raised more than $4.5 million from investors in his various funds including Market Neutral Trading LLC (MNT), a purported hedge fund that claimed to invest primarily in domestic equities. Murray provided MNT investors with a report purportedly prepared by independent auditor Jones, Moore & Associates (JMA). However, JMA is not a legitimate accounting firm but rather a shell company that Murray secretly created and controlled. The phony audit report misstated the financial condition and performance of MNT to investors.

The U.S. Attorney’s Office for the Northern District of California also has filed criminal charges against Murray in a complaint unsealed yesterday.

According to the SEC’s complaint filed in federal court in San Francisco, Murray began raising the funds from investors in 2008. The following year, MNT distributed the phony audit report to investors claiming the audit was conducted by a legitimate third-party accounting firm. However, JMA is not registered or licensed as an accounting firm in Delaware, where it purports to do business. JMA’s website was paid for by a Murray-controlled entity and listed 12 professionals with specific degrees and licenses who supposedly work for JMA. However, at least five of these professionals do not exist, including the two named principals of the firm: “Richard Jones” and “Joseph Moore.” Murray has attempted to open brokerage accounts in the name of JMA, identified himself as JMA’s chief financial officer, and called brokerage firms falsely claiming to be the principal identified on most JMA documents.

The SEC alleges that the bogus audit report provided to investors understated the costs of MNT’s investments and thus overstated the fund’s investment gains by approximately 90 percent. The JMA audit report also overstated MNT’s income by approximately 35 percent, its member capital by approximately 18 percent, and its total assets by approximately 10 percent.

The SEC’s complaint charges Murray with violating Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, which prohibits fraud by investment advisers on investors in a pooled investment vehicle. The complaint seeks injunctive relief and financial penalties from Murray.

The SEC’s investigation was conducted by Karen Kreuzkamp and Robert S. Leach of the San Francisco Regional Office following an examination of MNT conducted by Yvette Panetta and Doreen Piccirillo of the New York Regional Office’s broker-dealer examination program. The SEC’s litigation will be led by Robert L. Mitchell of the San Francisco Regional Office. The SEC thanks the U.S. Attorney’s Office for the Northern District of California and the U.S. Secret Service for their assistance in this matter.

BILLION DOLLAR HEDGE FUNDS CHARGED BY SEC WITH INSIDER TRADING

The following excerlt is from an SEC e-mail:

"Washington, D.C., Jan. 18, 2012 – The Securities and Exchange Commission today charged two multi-billion dollar hedge fund advisory firms as well as seven fund managers and analysts involved in a $78 million insider trading scheme based on nonpublic information about Dell’s quarterly earnings and other similar inside information about Nvidia Corporation.

The charges stem from the SEC’s ongoing investigation into the trading activities of hedge funds. The U.S. Attorney for the Southern District of New York today announced criminal charges against the same seven individuals.

The SEC alleges that a network of closely associated hedge fund traders at Stamford, Conn.-based Diamondback Capital Management LLC and Greenwich, Conn.-based Level Global Investors LP illegally obtained the material nonpublic information about Dell and Nvidia. Investment analyst Sandeep “Sandy” Goyal of Princeton, N.J., obtained Dell quarterly earnings information and other performance data from an insider at Dell in advance of earnings announcements in 2008. Goyal tipped Diamondback analyst Jesse Tortora of Pembroke Pines, Fla., with the inside information, and Tortora in turn tipped several others, leading to insider trades on behalf of Diamondback and Level Global hedge funds.

“These are not low-level employees succumbing to temptation by seizing a chance opportunity. These are sophisticated players who built a corrupt network to systematically and methodically obtain and exploit illegal inside information again and again at the expense of law-abiding investors and the integrity of the markets,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

According to the SEC’s complaint filed in federal court in Manhattan, the illicit gains in the Dell insider trades exceeded $62.3 million, and the illicit gains in the Nvidia insider trades exceeded $15.7 million. For his role in the scheme, Goyal was paid $175,000 in soft dollar payments that were deposited in a brokerage account of an individual affiliated with him.

The SEC alleges that after obtaining the inside information from Goyal in advance of Dell’s first and second quarter earnings announcements in 2008, Tortora tipped his portfolio manager at Diamondback, Todd Newman of Needham, Mass. Newman traded on the information on behalf of the Diamondback hedge funds he controlled. Tortora also tipped Spyridon “Sam” Adondakis, an analyst at Level Global. Adondakis tipped his manager Anthony Chiasson, who then traded on the inside information on behalf of Level Global hedge funds. During this time period, both Adondakis and Chiasson lived in New York City

.

According to the SEC’s complaint, Tortora also tipped two others at firms other than Diamondback or Level Global with the Dell inside information: Jon Horvath of New York City andDanny Kuo of San Marino, Calif. Horvath caused insider trades at his firm that resulted in approximately $1.4 million of illicit gains. Kuo similarly caused the firm where he worked to execute profitable insider trades in Dell securities.

The SEC further alleges that Kuo also obtained inside information about Nvidia Corporation’s calculation of its revenues, gross profit margins, and other financial metrics in advance of the company’s first quarter 2010 earnings announcements, which was made in May 2009. Kuo again caused his firm to trade on inside information. Kuo’s insider trades in Dell and Nvidia resulted in approximately $270,000 in ill-gotten gains. Kuo also tipped Tortora at Diamondback and Adondakis at Level Global with the nonpublic information about Nvidia. Tortora again tipped Newman, who made more insider trades on behalf of the Diamondback hedge funds. The illegal trades in Dell and Nvidia securities resulted in $3.9 million in illicit gains for Diamondback. At Level Global, Adondakis tipped Chiasson who made the insider trades on behalf of those hedge funds. Chiasson’s insider trades in Dell and Nvidia resulted in approximately $72.6 million of illicit gains for the Level Global hedge funds.

The SEC’s complaint charges each of the defendants with violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and, additionally, charges Goyal, Tortora, Newman, Adondakis, Chiasson, Horvath and Kuo with aiding and abetting others’ violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC’s complaint seeks a final judgment ordering the defendants to disgorge their ill-gotten gains plus prejudgment interest, ordering them to pay financial penalties, and permanently enjoining them 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 – members of the SEC’s Market Abuse Unit in New York – and Matthew Watkins, Neil Hendelman, Diego Brucculeri and James D’Avino of the New York Regional Office. The SEC thanks the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation for their assistance in the matter."

SEC FILES INJUCTION AGAINST ILLINOIS MAN AND HIS COMPANY

The following excerpt is from the SEC website: November 22, 2011 “The Securities and Exchange Commission today announced that on November 18, it filed a civil injunctive action against Patrick G. Rooney (“Rooney”), a resident of Oakbrook, Illinois, and his company, Solaris Management, LLC (“Solaris Management”), the investment adviser to the Solaris Opportunity Fund, LP (“Solaris Fund”) for the fraudulent misuse of the Solaris Fund’s assets and other illegal conduct. According to the SEC’s complaint, the Solaris Fund is purportedly a non-directional hedge fund with approximately 30 investors and reported assets of $16,277,780 as of December 2008. Contrary to the Solaris Fund’s offering documents and marketing materials, Rooney and Solaris Management allegedly made a radical change in the Solaris Fund’s investment strategy by becoming wholly invested in Positron Corp. (“Positron”), a financially troubled microcap company of which Rooney has been Chairman since 2004. Rooney, who has received compensation from Positron since September 2005, allegedly misused the Solaris Fund’s money by investing over $3.6 million in Positron through both private transactions and market purchases. Many of the private transactions were undocumented while other investments were loans to Positron at 0% interest. The complaint alleges that Rooney and Solaris Management hid the Positron investments and Rooney’s relationship with the company from the Solaris Fund’s investors for over four years. Although Rooney finally told investors about the Positron investments in a March 2009 newsletter, he allegedly lied by telling them he became Chairman to safeguard the Solaris Funds’ investment. The complaint further alleges that these investments benefited Positron and Rooney while providing the Solaris Fund with a concentrated, undiversified, and illiquid position in a cash-poor company with a lengthy track record of losses. The SEC’s complaint, filed in the United States District Court for the Northern District of Illinois, charges Rooney and Solaris Management with violating Section 17(a) of the Securities Act of 1933, Sections 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5 and thereunder, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) and Rule 206(4)-8(a)(1) and (a)(2) thereunder. The complaint also charges Rooney with aiding and abetting Solaris Management’s violations of Section 206(4) of the Advisers Act and Rule 206(4)-8(a)(1) thereunder, and Rooney and Solaris Management with aiding and abetting the Solaris Fund’s violation of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder, and Section 13(d)(1) of the Exchange Act and Rule 13d-1 thereunder. The SEC is seeking permanent injunctions, disgorgement of any ill-gotten gains plus prejudgment interest and civil monetary penalties against Rooney and Solaris Management, and an officer and director bar against Rooney.”

SEC GOES AFTER HEDGE FUNDS AND MANGERS FOR ALLEGED FRAUD AND OTHER ALLEGED CRIMES

The following excerpt is from the SEC website: “Washington, D.C., Dec. 1, 2011 — As part of an initiative to combat hedge fund fraud by identifying abnormal investment performance, the Securities and Exchange Commission today announced enforcement actions against three separate advisory firms and six individuals for various misconduct including improper use of fund assets, fraudulent valuations, and misrepresenting fund returns. Under the initiative — the Aberrational Performance Inquiry — the SEC Enforcement Division’s Asset Management Unit uses proprietary risk analytics to evaluate hedge fund returns. Performance that appears inconsistent with a fund’s investment strategy or other benchmarks forms a basis for further scrutiny. In particular, the SEC alleges that the firms and managers engaged in a wide variety of illegal practices in the management of hedge funds or private pooled investment vehicles, including fraudulent valuation of portfolio holdings, misuse of fund assets, and misrepresentations to investors about critical attributes such as performance, assets, liquidity, investment strategy, valuation procedures, and conflicts of interest. “We’re using risk analytics and unconventional methods to help achieve the holy grail of securities law enforcement — earlier detection and prevention,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This approach, especially in the absence of a tip or complaint, minimizes both the number of victims and the amount of loss while increasing the chance of recovering funds and charging the perpetrators.” Robert Kaplan and Bruce Karpati, Co-Chiefs of the SEC Enforcement Division’s Asset Management Unit, added, “The extraordinary returns reported by these advisers and portfolio managers were, in most cases, too good to be true. In other cases, outlier returns were a telltale sign that something else was amiss. We are applying analytics across the investment adviser space — beyond performance and beyond hedge funds.” The SEC has filed several enforcement actions to date stemming from this initiative. Of the four actions announced today, three were filed in federal court and one was brought as an administrative proceeding. Michael Balboa and Gilles De Charsonville The SEC today charged two individuals for engaging in a fraudulent scheme to overvalue the reported returns and net asset value of the Millennium Global Emerging Credit Fund. At its peak in October 2008, the hedge fund’s reported assets were $844 million. The SEC’s complaint alleges that Michael Balboa, the fund’s former portfolio manager, schemed with two European-based brokers including Gilles De Charsonville of BCP Securities LLC to inflate the fund’s reported monthly returns and net asset value by manipulating its supposedly independent valuation process. Separately, the U.S. Attorney’s Office for the Southern District of New York announced the arrest of Balboa and simultaneous filing of a criminal action against him. According to the SEC complaint, from at least January to October 2008, Balboa surreptitiously provided De Charsonville and another broker with fictional prices for two of the fund’s illiquid securities holdings for them to pass on to the fund’s outside valuation agent and its auditor. The scheme caused the fund to drastically overvalue these securities holdings by as much as $163 million in August 2008, which in turn allowed the fund to report inflated and falsely-positive monthly returns. By overstating the fund’s returns and overall net asset value, Balboa was able to attract at least $410 million in new investments, deter about $230 million in eligible redemptions, and generate millions of dollars in inflated management and performance fees. The SEC’s investigation, which continues, was conducted by Bill Conway, Brian Fitzpatrick, and Alison Conn of the New York Regional Office. Nancy Brown is leading the SEC’s litigation effort. The SEC acknowledges the assistance and cooperation of the U.S. Attorney, U.S. Postal Inspection Service, U.K. Financial Services Authority, Bermuda Monetary Authority, Comisión Nacional del Mercado de Valores, Guernsey Financial Services Authority, and Nigeria Securities and Exchange Commission. ThinkStrategy Capital Management and Chetan Kapur The SEC charged New York-based hedge fund firm ThinkStrategy Capital Management LLC and its sole managing director Chetan Kapur with fraud in connection with two separate hedge funds they managed (ThinkStrategy Capital Fund and TS Multi-Strategy Fund). At its peak in 2008, ThinkStrategy managed approximately $520 million in assets. The SEC’s complaint filed on Nov. 9, 2011 alleges that ThinkStrategy and Kapur engaged in a pattern of deceptive conduct designed to bolster their track record, size, and credentials. In particular, they materially overstated the performance of the Capital Fund and gave investors the false impression that the fund’s returns were consistently positive and minimally volatile. ThinkStrategy and Kapur also repeatedly inflated the firm’s assets, exaggerated the firm’s longevity and performance history, and misrepresented the size and credentials of firm’s management team. ThinkStrategy and Kapur consented to the entry of judgments permanently enjoining them from violating the antifraud provisions of the securities laws, and have agreed to pay financial penalties and disgorgement in an amount to be determined by a federal court. Kapur consented to the entry of an SEC order, instituted Nov. 30, 2011, barring him from association with any investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization. The SEC’s investigation was conducted by Darren Long, Jeffrey Anderson, and Scott Weisman. Michael Semler is leading the remaining litigation effort. Patrick Rooney and Solaris Management The SEC charged Oakbrook, Ill. resident Patrick G. Rooney and his company Solaris Management LLC for fraudulently misusing the assets of the Solaris Opportunity Fund LP, to which it was the investment adviser. According to the SEC’s complaint filed on Nov. 16, 2011 in federal court in Chicago, Rooney and Solaris made a radical change in the fund’s investment strategy, contrary to the fund’s offering documents and marketing materials, by becoming wholly invested in Positron Corp., a financially troubled microcap company. The SEC alleges that Rooney, who has been Chairman of Positron since 2004 and received salary and stock options from Positron since September 2005, misused the Solaris Fund’s money by investing more than $3.6 million in Positron through both private transactions and market purchases. Many of the private transactions were undocumented while other investments were interest-free loans to Positron. Rooney and Solaris hid the Positron investments and Rooney’s relationship with the company from the fund’s investors for over four years. Although Rooney finally told investors about the Positron investments in a March 2009 newsletter, he allegedly lied by telling them he became Chairman to safeguard the fund’s investments. These investments benefited Positron and Rooney while providing the fund with a concentrated, undiversified, and illiquid position in a cash-poor company with a lengthy track record of losses. The SEC’s investigation was conducted by Andrew Shoenthal, Malinda Grish, Ann Tushaus, Linda Gerstman, and Paul Montoya of the Chicago Regional Office. Timothy Leiman is leading the litigation effort. LeadDog Capital Markets, Chris Messalas and Joseph LaRocco The SEC instituted administrative proceedings against unregistered investment adviser LeadDog Capital Markets LLC and its general partners and owners Chris Messalas and Joseph LaRocco for misrepresenting or failing to disclose material information to investors in the LeadDog Capital LP fund. In proceedings instituted on Nov. 15, 2011, the SEC Division of Enforcement alleges that LeadDog, Messalas, and LaRocco induced investors to invest in a hedge fund they controlled through material misrepresentations and omissions concerning among other things Messalas’s negative regulatory history as a securities professional, compensation received by Messalas and LaRocco in connection with the fund’s investments, and Messalas’s substantial ownership interest in, and control of, some of the same companies to which he directed fund investments. In addition, LeadDog, Messalas, and LaRocco allegedly misrepresented to, and concealed from, existing and prospective investors the substantial conflicts of interests and related party transactions that characterized the fund’s illiquid investments. For example, to induce one elderly investor to invest $500,000 in the fund, LeadDog, Messalas, and LaRocco represented falsely that at least half of the fund’s assets were liquid and could be marked to market each day, and that the investor could exit the fund at any time.”

CIVIL INJUNCTION FILED AGAINST TWO MEN WHO TRIED TO EVADE LIMITS ON PUBLIC OFFERINGS

October 31, 2011 “The Securities and Exchange Commission today announced the filing of a civil injunctive action against Drake Asset Management, LLC (Drake), of Glen Head, NY, and Oliver R. Grace, Jr., of Hobe Sound, FL, for conducting a scheme to evade the group purchase limits of the public offerings of seven banks that were converting from mutual to stock ownership. The SEC’s complaint alleges that, from 2003 through 2007, Grace knowingly or recklessly failed to disclose his association with certain entities, including hedge funds managed by Drake, which participated in the offerings alongside Grace. Under Grace’s direction, Drake also knowingly or recklessly failed to disclose the hedge funds’ association with Grace. By failing to disclose these associations, the Drake hedge funds and Grace were able to acquire stock that exceeded the offerings’ group purchase limits, in violation of offering terms and banking regulations. The complaint alleges that Drake and Grace, to conceal their relationships and group activity from converting banks and their underwriters, arranged for the hedge funds and Grace’s other associated entities to take steps to prevent the banks from associating these group orders. Over the course of the scheme, Drake and Grace generated $610,781 in ill-gotten gains. Because the seven offerings at issue were oversubscribed, the scheme harmed other bank depositors by limiting the amount of stock available to them. The SEC’s complaint, which was filed in the United States District Court for the District of Columbia, charges Drake and Grace with violations of the antifraud provisions of the Securities Exchange Act of 1934, Section 10(b) and Rule 10b-5 thereunder. Drake, without admitting or denying the allegations in the complaint, has consented to the entry of a final judgment permanently enjoining it from violating the abovementioned provisions and imposing a civil monetary penalty of $175,000. Grace, without admitting or denying the allegations in the complaint, has consented to the entry of a final judgment permanently enjoining him from violating the abovementioned provisions, ordering him to pay $838,285 in disgorgement and prejudgment interest, and imposing a civil monetary penalty of $150,000. The settlements are subject to approval by the Court.”

FORMER HEDGE FUND MANAGER TO PAY $1 MILLION PENALTY

The following case is an excerpt from the CFTC website: “Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today issued an order filing and simultaneously settling charges that Christopher Louis Pia of North Castle, N.Y., while employed as portfolio manager for Moore Capital Management, LLC (Moore Capital), attempted to manipulate the settlement prices of palladium and platinum futures contracts on the New York Mercantile Exchange (NYMEX). Moore Capital is a predecessor of Moore Capital Management, LP. The CFTC order requires Pia to pay $1 million civil monetary penalty. It also permanently bans Pia from trading CFTC-regulated products during the closing period of the markets and from trading CFTC-regulated products in platinum and palladium. The order further requires Pia to distribute a copy of the CFTC order to current investors and to current and future employees, principals, and officers and to provide a disclosure document setting out the CFTC action to existing and prospective clients. The CFTC order finds that, from at least November 2007 until May 2008 (relevant period), Pia attempted to manipulate the settlement prices of palladium and platinum futures contracts by engaging in a trading practice known as “banging the close.” Specifically, Pia caused to be entered market-on-close buy orders that were executed in the last ten seconds of the closing period for both contracts in an attempt to exert upward pressure on the settlement prices of the futures contracts. Pia engaged in this trading strategy at Moore Capital frequently throughout the relevant period, the order finds. According to CFTC Division of Enforcement Director David Meister: “To protect market participants and promote market integrity, individuals who attempt to manipulate commodity prices must and will be held personally accountable. As demonstrated by today's action, the Commission will not hesitate to impose significant sanctions on such traders.” The CFTC order further requires that a monitor ensures Pia’s compliance with the order for a five-year period and establishes undertakings related to any entity Pia owns or controls. The order also imposes registration conditions if Pia or any of his entities become registered with the CFTC for a period of five years from the date of the order. Within 120 days of the issuance of the order, Pia must submit a report to the Commission on his compliance with the undertakings required in the order. On April 29, 2010, the CFTC issued an order filing and settling similar charges of attempted manipulation of platinum and palladium futures settlement prices in 2007 – 2008 and supervisory violations against Moore Capital Management, LP (MCM), Moore Capital Advisors, LLC (MCA), both based in New York, N.Y., and Moore Advisors, Ltd. (MA), a Bahamian entity. The CFTC order required MCM, MCA, and MA jointly and severally to pay a $25 million civil monetary penalty and placed restrictions on their CFTC registrations, including a two-year restriction on trading during the closing periods of the palladium and platinum futures and options markets (see CFTC Press Release 5815-10, April 29, 2010). The CFTC thanks the CME Group, the parent company of the NYMEX, for its assistance.”

$230 MILLION RETURNED TO U.S. WHILE PONZI SCHEME INVESTIGATED

The following excerpt comes from the SEC website:

"Washington, D.C., June 28, 2011 — The Securities and Exchange Commission today told a federal court that $230 million held in an offshore account by a hedge fund has been returned to the U.S. and will remain frozen pending completion of the SEC’s Ponzi scheme lawsuit against the fund’s adviser and its principal.

In a filing in the U.S. District Court for the District of Connecticut, the SEC said the money was returned as a result of the court order obtained by the SEC in its case against Francisco Illarramendi of Connecticut and his firm Highview Point Partners LLC, which managed three hedge funds.

“We’re pleased with the return of this money to the U.S. and believe it will help preserve these assets for the benefit of defrauded investors,” said David P. Bergers, Director of the SEC’s Boston Regional Office.

Ethiopis Tafara, Director of the SEC’s Office of International Affairs, added, “In this case, the ability to freeze and repatriate the alleged financial crime proceeds was critical to the SEC’s effective enforcement of the U.S. securities laws.”

The SEC charged Illarramendi and his unregistered investment advisory firm MK Capital Management in January with running a multi-year, multi-million dollar Ponzi scheme. Stamford, Conn.-based Highview was added as a defendant in May. Three hedge funds managed by Highview and several entities affiliated with MK Capital Management were named as relief defendants for allegedly holding funds tainted by the Ponzi scheme.

After an evidentiary hearing, the Honorable Janet Bond Arterton, U.S. District Judge for the District of Connecticut, entered an order on June 16 freezing the assets of three hedge funds and ordering that all assets of the funds, including $230 million held in an offshore account, be immediately returned to the U.S.

Judge Arterton had previously frozen the assets of Illarramendi, Highview, MK Capital Management, and several affiliated entities.

In its filing today, the SEC informed the court that the $230 million was received last week and is being held in a bank within the U.S.

The SEC charges Illarramendi, Highview, and Michael Kenwood Capital Management with violating Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, and also charges Highview with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The following entities are named as relief defendants, alleging that they received investor funds to which they have no right: Highview Point Master Fund, Ltd., Highview Point Offshore, Ltd., and Highview Point LP, Michael Kenwood Asset Management LLC, Michael Kenwood Energy and Infrastructure LLC, and MKEI Solar LP. In addition to preliminary emergency relief, the SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus interest and penalties from the defendants, and disgorgement plus interest from the relief defendants.

Last year, the SEC returned more than $2.2 billion to harmed investors through financial recoveries in SEC enforcement actions.

Carlos J. Costa-Rodrigues, Sofia T. Hussain, Michelle Perillo, and LeeAnn Ghazil Gaunt of the SEC’s Boston Regional Office conducted the investigation following an examination conducted by Zerubbabel Johnson, Stephen M. Latin, Michael D. O’Connell, and Elizabeth Salini. Timothy Geishecker of the SEC’s Office of International Affairs assisted with the investigation. The SEC’s litigation effort is being led by Rua M. Kelly and Kathleen B. Shields. The SEC’s investigation is ongoing."

SEC CHARGES HEDGE FUND MANAGERS WITH DEFRAUDING CLIENTS

The following case brought by the SEC against two hedge fund managers alleges a “scheme” to defraud clients. Pleas read the following excerpt from the SEC web site for details of this case:

“Washington, D.C., March 15, 2011 – The Securities and Exchange Commission today charged a hedge fund investment advisory firm and its two founders with orchestrating a multi-faceted scheme to defraud clients and failing to comply with fiduciary obligations.
The SEC alleges that Eugenio Verzili and Arturo Rodriguez through their firm Juno Mother Earth Asset Management LLC misappropriated client assets, inflated assets under management, and filed false information with the SEC. Juno, Verzili and Rodriguez looted approximately $1.8 million of assets from a hedge fund they manage, misusing it to pay Juno’s operating costs related to payroll, rent, travel, meals, and entertainment. They issued promissory notes to conceal a substantial portion of their misappropriation. Juno, Verzili and Rodriguez also misrepresented the amount of capital that some Juno partners had invested in one of its funds, claiming they had invested millions of dollars when they actually had invested nothing in the funds.

“Verzili, Rodriguez and their firm violated the most fundamental duties of an investment adviser by lying to their clients and misappropriating the money entrusted to their care,” said George S. Canellos, Director of the SEC’s New York Regional Office. “They compounded their wrongdoing by providing false information in filings with the SEC that are designed to ensure that registered investment advisers make full disclosure to investors.”
Bruce Karpati, Co-Chief of the Asset Management Unit in the SEC’s Division of Enforcement, said, “Hedge fund investors derive comfort from knowing the fund’s adviser has so-called ‘skin in the game’ by investing its own money side-by-side with investors and sharing the same risks and rewards. These managers deliberately distorted their skin in the game.”
According to the SEC’s complaint filed in the U.S. District Court for the Southern District of New York, Juno sold securities in client brokerage and commodity accounts and directed 41 separate transfers of cash to Juno’s bank account, claiming falsely that the transfers were reimbursements for expenses Juno had incurred on behalf of the client fund. Verzili and Rodriguez later fabricated and issued nine promissory notes to make it appear that the client fund had invested the money in Juno. But they concealed the so-called investment from the independent directors of the client fund.
The SEC’s complaint further alleges that Juno, Verzili and Rodriguez marketed investments in the Juno-advised fund and failed to disclose Juno’s precarious financial condition to investors. They also failed to disclose that Juno owed a client fund a minimum of $1.2 million, which represented the proceeds of the promissory notes. While offering and selling securities in the client fund, Juno repeatedly inflated and misrepresented the amount of assets that Juno managed and claimed at one point that Juno had as much as $200 million under management. Verzili also represented falsely to investors that Juno’s partners had up to $3 million of their own capital invested in a client fund. Juno’s partners had never actually invested any of their own money.
The SEC alleges that Juno filed false Forms ADV with the SEC in order to avoid deregistration with the Commission, claiming in those filings that Juno managed $40 million more than it actually did. Verzili and Rodriguez also caused Juno to provide a number of false filings to the SEC that failed to disclose that Juno had engaged in principal transactions with its client and had custody of client assets.
The SEC’s complaint charges Juno, Verzili and Rodriguez with violations of the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940, as well as additional regulatory-based violations of the Advisers Act. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and monetary penalties.”

In the above case the SEC alleges that the hedge fund managers lied. This is a relatively small case involving a few million dollars. Nevertheless, if most of the people in the business world lie then the society they work in will simply breakdown. Most people over time get tired of businessmen stealing from them and sooner or later will stop doing any business transactions at all. No society can exist if productive enterprise is replaced as the main philosophy of business with who can be the biggest thief?

MORE ALLEGED INSIDER TRAIDNG

Many people are still afraid of investing in the equities markets. It seems that many people believe that the securities market is really just a big fraud with certain traders with inside information making millions of dollars off the sinking investment accounts of hard working Americans. The following case alleges a grand conspiracy to trade on inside information which was not available to the general public:

“ Washington, D.C., Feb. 8, 2011 — The Securities and Exchange Commission today charged a New York-based hedge fund and four hedge fund portfolio managers and analysts who illegally traded on confidential information obtained from technology company employees moonlighting as expert network consultants. The scheme netted more than $30 million from trades based on material, nonpublic information about such companies as AMD, Seagate Technology, Western Digital, Fairchild Semiconductor, and Marvell

The charges are the first against traders in the SEC’s ongoing investigation of insider trading involving expert networks. The SEC filed its initial charges in the case last week against technology company employees who illegally tipped hedge funds and other investors with material nonpublic information about their companies in return for hundreds of thousands of dollars in sham consulting fees.
In its amended complaint filed today in federal court in Manhattan, the SEC alleges that four hedge fund portfolio managers and analysts received illegal tips from the expert network consultants and then caused their hedge funds to trade on the inside information.
“It is illegal for company insiders who moonlight as consultants to sell confidential information about their companies to traders, and it is equally illegal to buy that corruptly obtained information and trade on it,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Instead of competing on a level playing field with other investors, these hedge fund managers sought to illegally trade today on what others would not learn until tomorrow.”
The SEC’s ongoing investigation is focusing on the activities of expert networks that purportedly provide professional investment research to their clients. While it is legal to obtain expert advice and analysis through expert networking arrangements, it is illegal to trade on material nonpublic information obtained in violation of a duty to keep that information confidential.
The technology company insiders who tipped the confidential information were expert network consultants to the firm Primary Global Research LLC (PGR).
The SEC’s amended complaint alleges:
Samir Barai of New York, N.Y., the founder and portfolio manager of Barai Capital Management, obtained inside information about several technology firms from company insiders, and then traded on the inside information on behalf of Barai Capital.
Jason Pflaum of New York, N.Y., a former technology analyst at Barai Capital Management, obtained inside information about technology companies and shared it with Barai. After Pflaum shared the confidential information with him, Barai used it to illegally trade on behalf of Barai Capital.
Noah Freeman of Boston, Mass., a former managing director at a Boston-based hedge fund, obtained inside information regarding Marvell and shared it with Donald Longueuil of New York, N.Y., a former managing director at a Connecticut-based hedge fund. Longueuil caused his hedge fund to trade on the inside information. Freeman also obtained inside information about another technology company and caused his hedge fund to trade on the nonpublic information.
The SEC’s amended complaint charges each of the defendants with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and additionally charges Barai, Pflaum, Freeman and Longueuil with aiding and abetting others’ violations of Section 10(b) and Rule 10b-5 thereunder. The complaint also charges Barai, Pflaum and Barai Capital with violations of Section 17(a) of the Securities Act of 1933. The complaint seeks a final judgment permanently enjoining the defendants from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay financial penalties.”

Divining what is going to happen in the future is a key to financial success. If you were to invest in a company that makes horse shoes because you believe horses will replace automobiles in the near future then you might be making a bad investment. On the other hand, if you invest in a technology company because you know of a big contract that company was about to receive then you might just be making a good investment. Of course if you invest in the aforementioned company when only corporate officials knew about the contract then you will make lots of money with virtually no risk.