SEC HAS NEW SUPERVISORY COOPERATION ARRANGEMENTS WITH FOREIGN GOVERNMENTS

The following excerpt is from the SEC website:
SEC Establishes New Supervisory Cooperation Arrangements with Foreign Counterparts
Washington, D.C., March 23, 2012 — The Securities and Exchange Commission today announced that it has established comprehensive arrangements with the Cayman Islands Monetary Authority (CIMA) and the European Securities and Markets Authority (ESMA) as part of long-term strategy to improve the oversight of regulated entities that operate across national borders.

The two memoranda of understanding (MOUs) reached this month follow on a similar supervisory arrangement that the SEC concluded with the Quebec Autorité des marchés financiers and the Ontario Securities Commission in 2010 and expanded to include the Alberta Securities Commission and the British Columbia Securities Commission last September.

The SEC’s latest supervisory cooperation arrangements will enhance SEC staff ability to share information about such regulated entities as investment advisers, investment fund managers, broker-dealers, and credit rating agencies. The Cayman Islands is a major offshore financial center and home to large numbers of hedge funds, investment advisers and investment managers that frequently access the U.S. market. ESMA is a pan-European Union agency that regulates credit rating agencies and fosters regulatory convergence among European Union securities regulators.

“Supervisory cooperation arrangements help the SEC build closer relationships with its counterparts to cooperate and consult on each other’s oversight activities in ways that may help prevent fraud in the long term or lessen the chances of future financial crises,” said Ethiopis Tafara, Director of the SEC’s Office of International Affairs.
The SEC’s approach to supervisory cooperation with its overseas counterparts follows on more than two decades of experience with cross-border cooperation, starting in the late 1980s with MOUs facilitating the sharing of information between the SEC and other securities regulators in securities enforcement matters. The SEC’s enforcement cooperation arrangements — which now encompass partnerships with approximately 80 separate jurisdictions via bilateral MOUs and a Multilateral MOU under the auspices of the International Organization of Securities Commissions (IOSCO) — detail procedures and mechanisms by which the SEC and its counterparts can collect and share investigatory information where there are suspicions of a violation of either jurisdiction’s securities laws, and after a potential problem has arisen.

In contrast, the SEC’s supervisory cooperation arrangements generally establish mechanisms for continuous and ongoing consultation, cooperation and the exchange of supervisory information related to the oversight of globally active firms and markets. Such information may include routine supervisory information as well as the types of information regulators need to monitor risk concentrations, identify emerging systemic risks, and better understand a globally-active regulated entity’s compliance culture. These MOUs also facilitate the ability of the SEC and its counterparts to conduct on-site examinations of registered entities located abroad.

Although they are designed to achieve different things, enforcement and supervisory cooperation arrangements are complimentary tools. Supervisory cooperation involves ongoing sharing of information regarding day-to-day oversight of regulated entities. Enforcement cooperation MOUs, by contrast, help the Commission collect information abroad that is necessary to help ensure that the SEC’s enforcement program deters violations of the federal securities laws, while also helping to compensate victims of securities fraud when possible.
The SEC entered into its first supervisory cooperation MOU in March 2006 with the United Kingdom’s Financial Services Authority. Following the recent financial crisis, the Commission has expanded its emphasis on this form of continuous supervisory cooperation in an effort to better identify emerging risks to U.S. capital markets and the international financial system. As part of this effort, SEC commissioners and staff co-chaired an international task force in 2010 to develop principles for cross-border supervisory cooperation. These principles have since proven to be a useful guideline for structuring MOUs around the type of information to be shared, the mechanisms which regulators can use to share information, and the degree of confidentiality this information should be accorded.

INSIDE TRADER SETTLES 3COM CORP ACQUISITION CASE

The following excerpt is from the SEC website:
March 20, 2012
Defendant Michael Kimelman Settles SEC Insider Trading Charges
The U.S. Securities and Exchange Commission announced today that on March 16, 2012, The Honorable Richard J. Sullivan of the United States District Court for the Southern District of New York, entered a final judgment against Michael Kimelman in SEC v. Cutillo et al., 09-CV-9208, an insider trading case the SEC filed on November 5, 2009. See Lit. Rel. No. 21283 (Nov. 5, 2009). The SEC charged Kimelman, who was a trader at Lighthouse Financial Group, LLC, with trading on inside information regarding the announced acquisition of 3Com Corp. in September 2007.

In its complaint, the SEC alleged that Arthur Cutillo, a former attorney with the law firm Ropes & Gray LLP, misappropriated from his law firm material nonpublic information concerning, among other things, the potential acquisition of 3Com, and tipped the inside information, through another attorney, to Zvi Goffer, in exchange for kickbacks. The SEC further alleged that Goffer tipped the inside information to a number of individuals, including Kimelman, who traded based on the information, realizing illicit profits of approximately $270,000 in two personal trading accounts.

To settle the SEC’s charges, Kimelman consented to the entry of a final judgment that: (i) permanently enjoins him from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and (ii) orders him to pay disgorgement of $273,255, plus prejudgment interest of $54,582. In a related SEC administrative proceeding, Kimelman consented to the entry of an SEC order barring him from association with any broker or dealer, investment adviser, municipal securities dealer or transfer agent, and barring him from participating in any offering of a penny stock. Kimelman previously was found guilty of securities fraud and conspiracy to commit securities fraud in a related criminal case, United States v. Michael Kimelman, 10-CR-0056 (S.D.N.Y.), and was sentenced to 30 months in prison and ordered to pay a criminal forfeiture of $289,079.

FINAL JUDGEMENT AGAINST RELIEF DEFENDANT LANEXA MANAGEMENT LLC

The following excerpt is from the SEC website:
March 19, 2012
Lanexa Management LLC Agrees Disgorge $746,797 in Insider Trading Profits
The U.S. Securities and Exchange Commission announced today that on March 16, 2012, The Honorable Richard J. Sullivan of the United States District Court for the Southern District of New York, entered a final judgment against Relief Defendant Lanexa Management, LLC in SEC v. Thomas C. Hardin and Lanexa Management, LLC, 10-CV-8599, an insider trading case the SEC originally filed on November 12, 2010. See Lit. Rel. No. 21741 (Nov. 15, 2010). As alleged in the SEC’s amended complaint, filed on March 16, 2012, Defendant Thomas C. Hardin, a former managing director at Lanexa Management, engaged in insider trading on behalf of a Lanexa hedge fund ahead of the announced acquisition of 3Com Corp. in September 2007, resulting in more than $600,000 in illegal trading profits.

The SEC’s amended complaint alleged that Arthur Cutillo and Brien Santarlas, two former attorneys with the law firm of Ropes & Gray LLP, misappropriated from their law firm material nonpublic information concerning the acquisition of 3Com, and tipped the inside information, through another attorney, to Zvi Goffer, a former proprietary trader at Schottenfeld Group LLC, in exchange for kickbacks. The SEC further alleged that Goffer tipped the inside information to, among others, Gautham Shankar, a fellow proprietary trader at Schottenfeld, who then tipped Hardin, a managing director at Lanexa. As alleged in the amended complaint, Hardin used the inside information to trade in the securities of 3Com on behalf of a Lanexa hedge fund.

To settle the SEC’s action, Lanexa agreed to a final judgment ordering it, as a relief defendant, to disgorge $612,190 in illicit trading profits, plus prejudgment interest of $134,607. Hardin previously consented to a judgment in this case and pled guilty to charges of securities fraud and conspiracy to commit securities fraud in a related criminal case, United States v. Thomas Hardin, 10-CR-339 (S.D.N.Y.). See Lit. Rel. No. 21999 (June 14, 2011).

SEC COMPLAINT ALLEGES FRAUD SCHEME TO MISAPPROPRIATE CLIENT FUNDS

The following excerpt is from the SEC website:
March 22, 2012
The Securities and Exchange Commission (“Commission”) today announced the filing of a complaint alleging fraud charges against Andrew Franz (“Franz”), a resident of Aurora, Ohio. According to the Complaint, Franz operated a fraudulent scheme in which, through forgery and other fraudulent means, he misappropriated approximately $865,969 from clients of Ruby Corporation (“Ruby”), a registered investment adviser with which he was associated, including $779,418 from family members and $86,551 from other clients. The Commission’ complaint also alleges that Franz misappropriated approximately $172,000 from Ruby itself by stealing legitimate client fees payable to Ruby. The complaint also alleges that during this same time period, Franz returned approximately $684,000 to Ruby disguised as client fees to conceal the firm’s dwindling client base and revenues. The complaint alleges that Franz thus kept a net of approximately $354,000 in funds stolen from these sources.

In addition, the complaint alleges that in November 2011, despite no longer having access to Ruby’s client files or systems, Franz was able to successfully obtain a fraudulent distribution from a Ruby client account. The complaint alleges that Franz obtained this distribution check through two phone conversations during which he falsely identified himself to be the broker of record and then the chairman of the client corporation. The complaint also alleges that when Franz attempted to deposit the fraudulently obtained check, Franz’s bank stopped the transaction.

At the SEC’s request for emergency relief, the Hon. Benita Y. Pearson, United States District Court, Northern District of Ohio, issued an emergency injunction against Franz, an order freezing all assets under Franz’s control, and other emergency relief.

SEC CHARGES FIVE WITH INSIDER TRADING ON CONFIDENTIAL MERGER NEGOTIATIONS

The excerpt below is from the SEC website:
March 14, 2012
The Securities and Exchange Commission announced that, on March 13, 2012, it charged two financial advisors and three others in their circle of family and friends with insider trading for more than $1.8 million in illicit profits based on confidential information about a Philadelphia-based insurance holding company’s merger negotiations with a Japanese firm.

The SEC’s complaint, filed in U.S. District Court for the Eastern District of Pennsylvania, charges Timothy J. McGee, of Malvern, Pa., Michael W. Zirinsky, of Schwenksville, Pa., Robert Zirinsky, of Quakertown, Pa. and Hong Kong residents Paulo Lam and Marianna sze wan Ho with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also names as relief defendants Michael Zirinsky’s wife Kellie F. Zirinsky, sister Jillynn Zirinsky, mother Geraldine A. Zirinsky, and grandmother Mary L. Zirinsky for the purpose of recovering illegal profits in their trading accounts. Lam and Ho have each agreed to settle the SEC’s charges and pay approximately $1.2 million and $140,000 respectively.

The SEC’s complaint alleges that McGee and Michael Zirinsky, who are registered representatives at Ameriprise Financial Services, illegally traded in the stock of Philadelphia Consolidated Holding Corp. (PHLY) based on nonpublic information about the company’s impending merger with Tokio Marine Holdings. The complaint alleges that McGee misappropriated the inside information from a PHLY senior executive who was confiding in him through their relationship at Alcoholics Anonymous (AA) about pressures he was confronting at work. McGee then purchased PHLY stock in advance of the merger announcement on July 23, 2008, and made a $292,128 profit when the stock price jumped 64 percent that day.

The complaint further alleges that McGee tipped Michael Zirinsky, who purchased PHLY stock in his own trading account as well as those of his wife, sister, mother, and grandmother. Zirinsky tipped his father Robert Zirinsky and his friend Paulo Lam, who in turn tipped another friend whose wife Marianna sze wan Ho also traded on the nonpublic information. The complaint alleges that the Zirinsky family collectively obtained illegal profits of $562,673 through their insider trading. Lam made an illicit profit of $837,975 and Ho profited by $110,580.

The complaint seeks a final judgment ordering disgorgement of ill-gotten gains together with prejudgment interest from the defendants and relief defendants, and permanent injunctions and penalties against the defendants.

Lam and Ho have each consented, without admitting or denying the SEC’s allegations, to the entry of a final judgment permanently enjoining them from violating Section 10(b) of the Exchange Act and Rule 10b-5. Lam agreed to pay $837,975 in disgorgement, $123,649 in prejudgment interest, and a penalty of $251,392. Ho has agreed to pay $110,580 in disgorgement, $16,317 in prejudgment interest, and a penalty of $16,587. The settlements are subject to court approval.

The SEC’s investigation was conducted by Philadelphia Regional Office enforcement staff Brendan P. McGlynn, Patricia A. Paw and Daniel L. Koster. The SEC’s litigation will be led by Scott A. Thompson, Nuriye C. Uygur, and G. Jeffrey Boujoukos.

SEC SETTLES WITH FORMER VERITAS SOFTWARE CORPORATION VICE PRESIDENT

The following excerpt is from the SEC website:
March 22, 2012
SEC SETTLES LITIGATION WITH FORMER VERITAS SOFTWARE CORPORATION HEAD OF SALES
The U.S. Securities and Exchange Commission today announced that, on March 20, 2012, the United States District Court for the Northern District of California entered a settled final judgment against Paul A. Sallaberry, the former Executive Vice President of Worldwide Field Operations and head of sales of Veritas Software Corporation, in SEC v. Mark Leslie, Kenneth E. Lonchar, Paul A. Sallaberry, Michael M. Cully, and Douglas S. Newton, Civil Action No. 07 CV 3444 (JF) (PSG) (N.D. Cal. filed July 2, 2007).
The final judgment resolves the Commission’s case against Sallaberry. The Commission’s amended complaint alleges that certain former Veritas Software Corporation executives inflated Veritas’ reported revenues by approximately $20 million in connection with a software sale to America Online, Inc.

Without admitting or denying the allegations in the complaint, Sallaberry consented to entry of a final judgment permanently enjoining him from future violations of Rule 13b2-1 promulgated under the Securities Exchange Act of 1934 and ordering him to pay disgorgement and prejudgment interest of $75,000 and a civil penalty of $25,000.