FINAL JUDGEMENT OBTAINED BY SEC AGAINST INSIDER TRADER

The case below is a excerpt from the SEC website:

July 15, 2011
“The SEC announced that the Honorable Jed S. Rakoff, United States District Judge, United States District Court for the Southern District of New York, entered a Final Judgment as to Danielle Chiesi on July 12, 2011, in the SEC’s insider trading case, SEC v. Galleon Management, LP, et al., 09-CV-8811 (SDNY) (JSR). The SEC filed its action on October 16, 2009, against Raj Rajaratnam, Galleon Management, LP, Danielle Chiesi and others, alleging a widespread insider trading scheme involving hedge funds, industry professionals, and corporate insiders.
At the time of the alleged conduct, Chiesi was a consultant and portfolio manager at New Castle Funds LLC, formerly a registered hedge fund investment adviser. The SEC alleged that Chiesi traded on and tipped others to material, nonpublic information she learned from corporate insiders about Akamai Technologies, Inc., Sun Microsystems, Inc., IBM, and Advanced Micro Devices Inc.
The Final Judgment entered against Chiesi: (1) permanently enjoins her from violations of Section 10(b) of the Exchange Act of 1934 (“Exchange Act”) and Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act of 1933 (“Securities Act”); and (2) orders her liable for disgorgement of ill-gotten gains of $500,000, together with prejudgment interest of $40,534.90, for a total of $540,534.90. Chiesi awaits sentencing in a parallel criminal action against her in which she pleaded guilty, United States v. Chiesi, 10 CR 1184 (RJH) (SDNY).
In addition, since the case was filed the SEC has:
entered into a settlement with David Plate, a proprietary trader at broker/dealer Schottenfeld Group, LLC. Pursuant to that settlement, Plate is permanently enjoined from violations of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5; and is liable for disgorgement of $43,876.37, plus prejudgment interest of $9,415.54. The judgment further provides that the Court later will determine issues relating to a civil penalty. Plate has agreed to cooperate with the SEC in connection with this action and related investigations.
entered into a settlement with Gautham Shankar, a proprietary trader at Schottenfeld. Pusuant to that settlement, Shankar is permanently enjoined from violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5; and is liable for disgorgement of $243,105.59, plus prejudgment interest of $34,462.35. The judgment further provides that the Court later will determine issues relating to a civil penalty. Shankar has agreed to cooperate with the SEC in connection with this action and related investigations.
entered into a settlement with Ali Hariri, an Atheros Communications, Inc. executive. Pursuant to that settlement, Hariri is permanently enjoined from violations of Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act; and is permanently barred him from acting as an officer or director of any public company. Hariri also is liable for disgorgement of ill-gotten gains, together with prejudgment interest, for a total of $2,665.68.
entered into a settlement with Robert Moffat, Senior Vice President and Group Executive of IBM’s Systems and Technology Group. Pursuant to that settlement, Moffat is permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, and barred from acting as an officer or director of any public company.
entered into a settlement with Mark Kurland, Chief Executive Officer of New Castle Funds LLC. Pursuant to that settlement, Kurland is permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act. Kurland is also liable for disgorgement of $4,213,630.18, representing profits made and/or losses avoided as a result of the unlawful trading alleged to have occurred at New Castle, together with prejudgment interest thereon in the amount of $204,553.59, for a total of $4,418,183.77.
dismissed its claims against New Castle, which is no longer operating as an investment advisor and has filed Form ADV-W with the Commission, withdrawing its registration as an investment advisor. New Castle has agreed to cooperate with the Commission’s staff and has represented, as a condition of the dismissal of the Commission's action against it, that it will not engage in further operations.
entered into a settlement with Rajiv Goel, a former managing director in the treasury group of Intel Corp., as well as the Director of Strategic Investments at Intel Capital, an Intel subsidiary that makes proprietary equity investments in technology companies. Pursuant to the settlement, Goel is permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act. Goel is also required to pay disgorgement in the amount of $230,570.52, plus prejudgment interest in the amount of $23,447.21, for a total of $254,017.73. The Court will determine at a later date whether any civil penalty is appropriate as to Goel. Finally, Goel is barred from acting as an officer or director of any public company. Goel has agreed to cooperate with the SEC in connection with this action and related investigations.
entered into a settlement with Roomy Khan, an individual investor who had been employed at Intel in the late 1990s and had been subsequently employed at Galleon, pursuant to which Khan is permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act, and is required to pay disgorgement in the amount of $1,552,566.94, plus prejudgment interest in the amount of $304,398.77, for a total of $1,856,965.71. The Court will determine at a later date whether any civil penalty is appropriate as to Khan. Khan has agreed to cooperate with the SEC in connection with this action and related investigations.
entered into a settlement with Anil Kumar, a former director at the global consulting firm McKinsey & Co., pursuant to which Kumar is permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act, and is required to pay disgorgement in the amount of $2.6 million, plus prejudgment interest in the amount of $190,621, for a total of $2,790,621. The Court will determine at a later date whether any civil penalty is appropriate as to Kumar. Kumar has agreed to cooperate with the SEC in connection with this action and related investigations.
entered into a settlement with Schottenfeld Group, LLC, a New York limited liability company and registered broker-dealer, pursuant to which Schottenfeld is permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act, and is required to pay disgorgement in the amount of $460,475.28, plus prejudgment interest in the amount of $72,202.72, and a civil penalty of $230,237.64, representing fifty percent of the disgorgement amount, a discount from a one-time penalty in recognition of its agreement to cooperate. Schottenfeld also agreed to implement enhanced policies and procedures to prevent future securities laws violations, as well as to retain an independent consultant to review its policies and procedures.
entered into settlements with Choo-Beng Lee and Ali T. Far, who were both managing members of Far & Lee LLC, a Delaware limited liability company. In addition, Lee was president and Far a managing member of Spherix Capital LLC, an unregistered hedge fund investment adviser based in San Jose, California. Pursuant to the settlements, Lee and Far are permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act, and are required, jointly and severally, to pay disgorgement in the amount of $1,335,618.17, plus prejudgment interest in the amount of $96,385.52, and a civil penalty of $667,809.09, representing fifty percent of the disgorgement amount, a discount from a one-time penalty in recognition of their cooperation.
dismissed its claims against Far & Lee and Spherix, which are now defunct or nearly so, in exchange for their agreement to cooperate and cease doing business.”

SEC WILL USE INFLATION GUIDE TO DETERMINE WHEN ADVISERS CAN CHARGE CLIENTS PERFORMANCE FEES

The following is an excerpt from the SEC website:

“Washington, D.C., July 12, 2011 – The Securities and Exchange Commission today issued an order that raises, to adjust for inflation, two of the thresholds that determine whether an investment adviser can charge its clients performance fees. The order carries out a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Rule 205-3 under the Investment Advisers Act allows an investment adviser to charge a client performance fees if the client meets certain criteria, including two tests that have dollar amount thresholds. Under today’s order, an investment adviser will be able to charge performance fees if the client has at least $1 million under the management of the adviser, or if the client has a net worth of more than $2 million. Either of these tests must be met at the time of entering into the advisory contract. The previous thresholds were $750,000 and $1.5 million respectively, and were last revised in 1998.
The Dodd-Frank Act requires that the Commission issue an order to adjust for inflation these dollar amount thresholds by July 21, 2011 and every five years thereafter. The Commission published a notice of its intent to issue the order on May 10, 2011. The Commission also proposed amendments to rule 205-3, which are currently under consideration.
The order will be effective on September 19, 2011, which will be approximately 60 days after its publication in the Federal Register.”

CFTC CHAIRMAN SUPPORTS DOD-FRANK

The following is an excerpt from the CFTC website:

"Chairman Gensler’s Statements of Support on Five Dodd-Frank Final Rules
Enhancing the Commission’s ability to protect against manipulation

I support the final rulemaking to enhance the Commission’s ability to protect against manipulation. Effective regulation requires an effective enforcement program. The Dodd-Frank Act enhances the Commission's enforcement authorities in the futures markets and expands them to the swaps markets. This rule implements new Dodd-Frank authorities to police against fraud and fraud-based manipulative schemes, based upon similar authority that the Securities and Exchange Commission, Federal Energy Regulatory Commission and Federal Trade Commission have for securities and certain energy commodities."

In the past, the CFTC had the ability to prosecute manipulation, but to prevail, it had to prove the specific intent of the accused to create an artificial price. Under the new law and one of the rules before us today, the Commission's anti-manipulation reach is extended to prohibit the reckless use of fraud-based manipulative schemes. This closes a significant gap, as it will broaden the types of cases we can pursue and improve the chances of prevailing over wrongdoers.

The rule also implements the Dodd-Frank Act’s price-based manipulation authority to police against corners and squeezes. These new authorities expand the CFTC’s arsenal of enforcement tools and strengthen the Commission’s ability to effectively deal with threats to market integrity. We will use these tools to be a more effective cop on the beat, to promote market integrity and to protect market participants.

I thank Senator Maria Cantwell for her work to secure this important authority for the CFTC. As Senator Cantwell explained in proposing that this authority be included in the Commodity Exchange Act, “It is a strong and clear legal standard that allows regulators to successfully go after reckless and manipulative behavior.”

Large trader reporting for swaps on physical commodities

I support the final rulemaking to establish large trader reporting for physical commodity swaps. This is a significant rulemaking that, for the first time, enables the CFTC to receive data from large traders in the commodity swaps markets.

The American public has benefited for decades by the Commission’s ability to gather large trader data in the futures market and use that data to police the markets. Today’s large trader reporting rulemaking establishes that clearinghouses and swap dealers will have to report to the CFTC about the swaps activities of large traders in the physical swaps markets.

Over time, as a result of the Dodd-Frank Act, the markets will benefit from swap data repositories. Today’s rulemaking will enable the Commission to gather important swaps data until there are robust, well-regulated swap data repositories. This data will be useful for the Commission to monitor and police the markets, including establishing and enforcing position limits.

Definition of “agricultural commodity”

I support the final rulemaking that defines the term, “agricultural commodity.” The Dodd-Frank Act requires that agricultural commodities be defined. In a separate rulemaking, the Commission will determine the requirements that apply to swaps on agricultural commodities.

Preventing certain business affiliate marketing and establishing other consumer information protections under the Fair Credit Reporting Act

I support the final rulemaking to extend to customers of CFTC-regulated entities protections preventing certain business affiliated marketing and establishing other consumer information protections under the Fair Credit Reporting Act (FCRA). The rulemaking protects consumers by providing privacy protections to nonpublic consumer information held by entities that are subject to the jurisdiction of the Commission. The final rulemaking provides customers of CFTC-regulated entities with the same privacy protections now enjoyed by the customers of entities regulated by other federal agencies.

The rulemaking has two important features. First, it allows customers to prohibit Commission-regulated entities from using certain consumer information obtained from an affiliate to make solicitations to that customer for marketing purposes. This will be done by means of a customer opt out. Second, it requires Commission-regulated entities to develop and implement a written program and procedures for the proper disposal of consumer information. The rulemaking will help prevent the unauthorized use and disclosure of nonpublic, consumer information.

Expanding scope of privacy protections for consumer financial information under the Gramm-Leach-Bliley Act

I support the final rulemaking to expand the scope of privacy protections for consumer financial information under the Gramm-Leach-Bliley Act. The rulemaking expands the scope of the Commission’s existing privacy protections afforded to consumers’ information – under the Commission’s Part 160 rules – to swap dealers and major swap participants."

SEC ANNOUNCES FINAL JUDGMENT AGAINST FORMER CORPORATE OFFICERS

July 6, 2011
The following is an excerpt from the SEC website:

“The Securities and Exchange Commission announced that the Honorable Nancy F. Atlas of the United States District Court for the Southern District of Texas entered a final judgment today against Benjamin R. Young that (i) enjoins him from violating Sections 5 and 17(a) of the Securities Act of 1933 (Securities Act), and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and (ii) finds him liable for payment of $30,000 under Securities Act Section 20(d) and Exchange Act Section 21(d)(3). Young consented to entry of the judgment and did not admit or deny the allegations in the complaint.
According to the Commission's complaint, Young and codefendant James R. Spurger, former officers of Navigators International Management Co., Ltd., a Bahamian Corporation, solicited investors to participate in an unregistered and fraudulent bond funding program. The complaint alleged that investors were promised returns of 67% or more and were assured that their principal was safe and collateralized. The complaint further alleged that investors' funds were not safe and collateralized and that none of the investors received a return of principal or payment of the promised profits.
Earlier, on March 28, 2011, the Court entered final judgments against Spurger and Navigators International Management Co., Ltd. enjoining them from violating Sections 5 and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and (ii) finding them liable for payment of $25,000 and $45,000, respectively, under Securities Act Section 20(d) and Exchange Act Section 21(d)(3). Spurger and the corporation consented to entry of the judgments and did not admit or deny the allegations in the complaint.”

SEC ALLEGES BROKER FAILED TO PROPERLY HANDLE NONPUBLIC INFORMATION

Nonpublic information can sometimes be used by insider traders. The following case of alleged mishandled information is an excerpt from the SEC website:

“Washington, D.C., July 11, 2011 – The Securities and Exchange Commission announced today that it brought and settled charges that Philadelphia-based broker-dealer Janney Montgomery Scott LLC failed to establish and enforce policies and procedures to prevent the misuse of material, nonpublic information, as required by law.
Janney, without admitting or denying the findings, agreed to be censured and to pay an $850,000 penalty to settle the SEC’s administrative proceeding. It also agreed to cease and desist from committing or causing any violations of Section 15(g) of the Securities Exchange Act of 1934, which seeks to prevent the misuse of material, nonpublic information.

According to the Commission’s order instituting proceedings, from at least January 2005 through July 2009, Janney’s policies and procedures for its Equity Capital Markets division, which encompassed its equity sales, trading, syndicate and research departments, were deficient in a number of ways. In some instances, Janney did not enforce its policies and procedures and in others, it failed to follow them as written, creating the risk that material, nonpublic information could be used for insider trading.
“Establishing and enforcing robust policies and procedures to detect potential insider trading at broker-dealer firms is critically important because insider trading undermines confidence in the markets and creates an uneven playing field,” said Elaine C. Greenberg, Associate Regional Director of the SEC’s Philadelphia Regional Office. “Broker-dealers such as Janney must take these duties seriously, because failing to do so can result in the misuse of confidential information to the detriment of investors.”
The Commission’s order found that, in certain instances, Janney failed to:
adequately monitor trading in the securities of companies on the firm’s Watch List that its investment bankers were advising, where the potential for insider trading existed
maintain an adequate email “firewall” between its investment banking and research staff, which posed the risk that material, nonpublic information could be exchanged and misused
enforce its policies and procedures to prohibit noncompliance personnel from chaperoning meetings between investment banking and research staff
revise its policies and procedures to address its use of analysts in multiple roles, such as helping investment bankers explore business opportunities and conferring with them on deals
require its investment bankers to seek pre-clearance for personal trades
enforce its policy that all Janney employees receive approval to maintain brokerage accounts at firms other than Janney
obtain annual questionnaires identifying employees with brokerage accounts at firms other than Janney
review the brokerage account activity of employees with brokerage accounts at firms other than Janney
In addition to the censure, penalty and cease-and-desist order, Janney agreed to hire an independent compliance consultant to conduct a comprehensive review and make recommendations regarding its policies, practices and procedures relating to Section 15(g) of the Exchange Act, including the prevention of the misuse of material, nonpublic information. The independent consultant also will prepare written reports and certify in writing that Janney has established and continues to maintain policies, practices and procedures pursuant to Section 15(g) of the Exchange Act that are consistent with the findings of the Order.
Assistant Regional Director Colleen K. Lynch, Senior Counsel Lynn H. O’Connor and Investigator John S. Rymas, all of the SEC’s Philadelphia Regional Office, conducted the investigation.”

SEC CHARGES CPA AND HIS CONSULTING FIRM WITH PARTICIPATING IN A PONZI SCHEME

The designation CPA (Certified Public Accountant) was once a venerated designation that meant that the bookwork handled by such a designate was accurate and that such work was according to established accounting standards. In the following case the SEC alleges that a CPA and his consulting firm helped to steer clients into a Ponzi scheme and mismanaged statements that kept the scheme ongoing. The case is an excerpt from the SEC website:

"SEC Charges John N. Irwin and Jacklin Associates, Inc. with Participating in Ponzi Scheme Orchestrated by Joseph S. Forte and Joseph S. Forte, LP
The Securities and Exchange Commission announced today that on July 11, 2011, it filed a settled civil action in the United States District Court in Philadelphia against John N. Irwin (“Irwin”), a certified public accountant, and his consulting firm, Jacklin Associates, Inc. (“Jacklin”). The Commission alleges that, from at least February 1995 through December 2008, Irwin and Jacklin participated in a multi-million dollar Ponzi scheme orchestrated and run by Joseph S. Forte (“Forte”) through his limited partnership Joseph S. Forte, LP (“Forte LP”). In December 2008, Forte confessed to federal authorities that, for over a decade, he had been operating a Ponzi scheme in which he fraudulently obtained approximately $50 million from roughly 80 investors through the sale of securities in the form of limited partnership interests in Forte LP. Subsequent investigation of Forte’s confession has revealed over 100 investors who collectively invested over $75 million. Forte and Forte LP solicited investors by making misrepresentations regarding, among other things, use of invested funds, investment returns, and investor account balances. On January 7, 2009, the Commission and the United States Commodities Futures Trading Commission filed civil actions against Forte and Forte LP and successfully sought emergency relief that, among other things, froze their assets and enjoined further illegal conduct. SEC v. Forte, et al., 09-CV-0063 (E.D. Pa.); CFTC v. Forte, 09-CV-0064 (E.D. Pa.). In parallel criminal proceedings, Forte pled guilty to charges of wire fraud, mail fraud, bank fraud and money laundering and was sentenced to 15 years in prison. U.S. v. Forte, 09-CR-304 (E.D. Pa.).

The Commission’s complaint against Irwin and Jacklin alleges that they participated in Forte’s scheme by soliciting investors for Forte LP. In doing so, Irwin relied exclusively on Forte’s misrepresentations about Forte LP’s stellar performance and, without performing any due diligence, passed along to investors through Jacklin materially false and misleading information about, among other things, Forte LP’s current value and growth, historical performance, rapid-trading strategy, and retention of an accountant. Irwin, through Jacklin, also performed back office and bookkeeping functions for Forte LP, including creating and issuing to investors false quarterly statements and tax documents prepared based on the false information provided by Forte. In communicating the fraudulent information to investors, Irwin disregarded red flags that should have alerted him that the information that he was passing on was false. Over the course of the fraud, Irwin, through Jacklin, received ill-gotten gains exceeding $5 million in purported fees and trading profits.

Irwin and Jacklin agreed to settle the Commission’s charges, without admitting or denying the allegations in the Commission’s complaint. Under the settlement, which is subject to the court’s approval, Irwin and Jacklin consented to a judgment permanently enjoining them from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. The judgment also orders the defendants to pay disgorgement plus prejudgment interest, and permits the Commission to ask the court to impose civil penalties, the amounts of which will be determined at a later date. As part of the settlement, Irwin agreed to the entry of an order suspending him from appearing or practicing before the Commission as an accountant. "