SEC ANNOUNCES FORMER PORTFOLIO MANAGER BARRED FROM INDUSTRY OVER MISREPRESENTATIONS

FROM:  SECURITIES AND EXCHANGE COMMISSION 
01/22/2014 09:56 AM EST

The Securities and Exchange Commission today announced that a former Oppenheimer & Co. portfolio manager has agreed to be barred from the securities industry and pay a $100,000 penalty for making misrepresentations about the valuation of a fund consisting of other private equity funds.

The SEC announced administrative proceedings against Brian Williamson last August based on allegations that he disseminated information falsely claiming that the reported value of the fund’s largest investment came from the portfolio manager of the underlying fund.  Williamson, who managed the fund of funds, actually had valued the investment himself at a significant markup to the value estimated by the underlying fund’s portfolio manager.  Williamson sent marketing materials to potential fund investors reporting a misleading internal rate of return that failed to deduct the fund’s fees and expenses.  Williamson also made false and misleading statements to investor consultants and others in an effort to cover up his fraud.

“Investors rely on truthful and complete disclosures about valuation methodologies and fund fees and expenses, especially when committing to a long-term private equity investment,” said Julie M. Riewe, co-chief of the SEC Enforcement Division’s Asset Management Unit.  “Williamson misled prospective investors by marking up the fund’s interim valuations and concealing his role in enhancing its reported performance.”

Last year, Oppenheimer agreed to pay $2.8 million in a settlement of related charges.

The SEC’s order against Williamson finds that he willfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8.  Without admitting or denying the findings, Williamson consented to the order requiring him to pay a $100,000 penalty and barring him from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization for at least two years.

The SEC’s investigation was conducted by Panayiota K. Bougiamas, Joshua M. Newville, and Igor Rozenblit of the Asset Management Unit along with Jack Kaufman and Lisa Knoop of the New York Regional Office.  The case was supervised by Valerie A. Szczepanik.  The SEC’s litigation was handled by Mr. Kaufman, Mr. Newville, and Charu Chandrasekhar.

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.

SEC'S LARGEST INSIDER TRADING CASE

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

November 20, 2012

The Securities and Exchange Commission today charged Stamford, Conn.-based hedge fund advisory firm CR Intrinsic Investors LLC and its former portfolio manager along with a medical consultant for an expert network firm for their roles in a $276 million insider trading scheme involving a clinical trial for an Alzheimer's drug being jointly developed by two pharmaceutical companies. The illicit gains generated in this scheme make it the largest insider trading case ever charged by the SEC.

The SEC alleges that Mathew Martoma illegally obtained confidential details about the clinical trial from Dr. Sidney Gilman, who served as chairman of the safety monitoring committee overseeing the trial. Dr. Gilman was selected by Elan Corporation and Wyeth to present the final drug trial results to the public. In phone calls that were arranged by a New York-based expert network firm for which he moonlighted as a medical consultant, Dr. Gilman tipped Martoma with safety data and eventually details about negative results in the trial about two weeks before they were made public in July 2008. Martoma then caused several hedge funds to sell more than $960 million in Elan and Wyeth securities in just over a week.

Dr. Gilman, who lives in Ann Arbor, Mich., where he works as a medical school professor, has agreed to settle the SEC's charges and cooperate in this action and related SEC investigations. In a parallel action, the U.S. Attorney's Office for the Southern District of New York today announced criminal charges against Martoma and a non-prosecution agreement with Dr. Gilman. Martoma lives in Boca Raton, Fla.

According to the SEC's complaint filed in federal court in Manhattan, Martoma first met Dr. Gilman through paid consultations arranged by the expert network firm. Dr. Gilman provided Martoma with material nonpublic information concerning the Phase II trial of the potential Alzheimer's drug called bapineuzumab (bapi). They coordinated their expert network consultations around scheduled safety monitoring committee meetings, and during their phone calls they discussed PowerPoint presentations made during the meetings and Dr. Gilman provided Martoma with his perspective on the results. Dr. Gilman developed a personal relationship with Martoma, eventually coming to view Martoma as a friend and pupil.

The SEC alleges that Martoma caused hedge funds managed by CR Intrinsic as well as hedge funds managed by an affiliated investment adviser to trade on the negative inside information he received from Dr. Gilman. Although Elan and Wyeth's shares rose on June 17, 2008, on the public release of top-line results of the Phase II trial, market participants were disappointed by the detailed final results issued on July 29, 2008. Double-digit declines in Elan and Wyeth shares ensued. After Martoma was tipped, the hedge funds not only liquidated their combined long position in Elan and Wyeth of more than $700 million, but went on to hold substantial short positions in both securities. This massive repositioning allowed CR Intrinsic and the affiliated advisory firm to reap approximately $82 million in profits and $194 million in avoided losses for a total of more than $276 million in illicit gains.

According to the SEC's complaint, Martoma received a $9.3 million bonus at the end of 2008 - a significant portion of which was attributable to the illegal profits that the hedge funds managed by CR Intrinsic and the other investment advisory firm had generated in this scheme. Dr. Gilman, who was generally paid $1,000 per hour as a consultant for the expert network firm, received more than $100,000 for his consultations with Martoma and others at the hedge fund advisory firms. Dr. Gilman also received approximately $79,000 from Elan for his consultations concerning bapi in 2007 and 2008.

The SEC's complaint charges each of the defendants 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, and seeks a final judgment ordering them 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.

Dr. Gilman has agreed to pay more than $234,000 in disgorgement and prejudgment interest. He also agreed to a permanent injunction against further violations of the federal securities laws. The proposed settlement is subject to approval by the court, which also will determine at a later date whether any additional financial penalty is appropriate.