HEDGE FUND ADVISORY FIRM AGREES TO $600 MILLION INSIDER TRADING SETTLEMENT

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., March 15, 2013 — The Securities and Exchange Commission today announced that Stamford, Conn.-based hedge fund advisory firm CR Intrinsic Investors has agreed to pay more than $600 million to settle SEC charges that it participated in an insider trading scheme involving a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies.

The SEC charged CR Intrinsic with insider trading in November 2012, alleging that one of the firm’s portfolio managers Mathew Martoma illegally obtained confidential details about the clinical trial from Dr. Sidney Gilman, who was selected by the pharmaceutical companies — Elan Corporation and Wyeth — to present the final drug trial results to the public.

The settlement filed today in federal court in Manhattan is the largest ever in an insider trading case, requiring CR Intrinsic — an affiliate of S.A.C. Capital Advisors — to pay $274,972,541 in disgorgement, $51,802,381.22 in prejudgment interest, and a $274,972,541 penalty.

"The historic monetary sanctions against CR Intrinsic and its affiliates are sharp warning that the SEC will hold hedge fund advisory firms and their funds accountable when employees break the law to benefit the firm," 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, "A robust culture of compliance and zero tolerance toward employee misconduct can help other firms avoid the severe financial consequences that CR Intrinsic is facing for its misconduct."

The SEC’s complaint against CR Intrinsic, Martoma, and Dr. Gilman alleged that during phone calls arranged by a New York-based expert network firm for which Dr. Gilman moonlighted as a medical consultant, he 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 and CR Intrinsic then caused several hedge funds to sell more than $960 million in Elan and Wyeth securities in a little more than a week.

In an amended complaint filed today, the SEC added S.A.C. Capital Advisors and four hedge funds managed by CR Intrinsic and S.A.C. Capital as relief defendants because they each received ill-gotten gains from the insider trading scheme. These ill-gotten gains are comprised of profits and avoided losses resulting from trades placed in the hedge fund portfolios that CR Intrinsic and S.A.C. Capital managed, and include fees that S.A.C. Capital received as a result of these ill-gotten gains.

The settlement is subject to the approval of Judge Victor Marrero of the U.S. District Court for the Southern District of New York. The settlement would resolve the SEC’s charges against CR Intrinsic and the relief defendants relating to the trades in the securities of Elan and Wyeth between July 21 and July 30, 2008. The settling parties neither admit nor deny the charges. The settlement does not resolve the charges against Martoma, whose case continues in litigation. The court previously entered a consent judgment against Dr. Gilman requiring him to pay disgorgement and prejudgment interest, and permanently enjoining him from further violations of the anti-fraud provisions of the federal securities laws.

The SEC’s investigation, which is continuing, has been conducted by Charles D. Riely and Amelia A. Cottrell of the SEC’s Market Abuse Unit in New York, and Matthew J. Watkins and Neil Hendelman 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, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority (FINRA).

COURT ORDERS CORPORATION AND PRINCIPAL TO PAY $1.4 MILLION TO SETTLE FOREX FRAUD CHARGES

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION

Federal Court in New York Orders Madison Dean, Inc. and Its Principal, George Athanasatos, to Pay over $1.4 Million to Settle Forex Fraud Charges in CFTC Enforcement Action

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a federal court Order against Defendants Madison Dean, Inc. (Madison Dean), of Wantagh, N.Y., and its principal, George Athanasatos, also of Wantagh, requiring them jointly to pay nearly $250,000 in restitution to defrauded customers. The Consent Order of Permanent Injunction, entered by Judge Joseph F. Bianco of the U.S. District Court for the Eastern District of New York, also imposes a $1 million civil monetary penalty on Madison Dean and a penalty of $210,000 on Athanasatos. The Order imposes permanent trading and registration bans against both defendants and prohibits them from violating the anti-fraud provisions of the Commodity Exchange Act, as charged.

The Order stems from a CFTC Complaint filed on May 8, 2012, charging Madison Dean, Athanasatos, and another Madison Dean principal, Laurence Dodge of Fresh Meadows, N.Y., with fraudulently soliciting approximately 19 persons to invest approximately $415,000 in managed trading accounts to trade off-exchange foreign currency (forex) contracts on a leverage or margined basis (see CFTC Press Release 6254-12).

The Order finds that Madison Dean and Athanasatos — through an internet website, written solicitation materials, and oral solicitations — misrepresented and omitted material facts about the history of Madison Dean, the performance record of Madison Dean, the nature of the Madison Dean’s clients, and the background and qualifications of the Madison Dean’s employees to create a false impression that Madison Dean was a well-established and successful company. The Order further finds that after being in operation for a little over one year — during which time customers lost approximately $250,000 and Madison Dean collected approximately $112,000 in commissions and fees — Madison Dean shut down its operation with no notice to its customers and no way for customers to contact the company or any of its associates.

The CFTC’s litigation continues against Defendant Laurence Dodge.

The CFTC appreciates the assistance of the United Kingdom’s Financial Services Authority in this matter.

CFTC Division of Enforcement staff members responsible for this case are Alan I. Edelman, James H. Holl, III, Michelle Bougas, Gretchen L. Lowe, and Vincent McGonagle.

BROKER TO PAY $763,000 FOR DECEPTIVE MUTUAL FUND MARKET TIMING PRACTICES

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Court Orders Former Prudential Securities Broker to Pay Over $763,000 Related to Deceptive Mutual Fund Market Timing Practices
The Securities and Exchange Commission announced today that on March 12, 2013, a federal court in New York entered final judgment against Frederick J. O’Meally, the sole remaining defendant in a fraud action filed by the Commission on August 28, 2006. The Commission alleged that he used deceptive practices to evade blocks by mutual fund companies on his market timing trading. In issuing the final judgment, the Honorable Laura Taylor Swain, United States District Court Judge for the Southern District of New York, ordered O’Meally to pay over $763,000 in disgorgement, prejudgment interest, and a civil penalty.

On December 14, 2011, a federal jury returned a verdict in the Commission’s favor on securities fraud charges against O’Meally, a resident of Bay Shore, New York. O’Meally is a former registered representative of broker-dealer Prudential Securities Inc. The jury found O’Meally liable for violations of Sections 17(a)(2) and/or (3) of the Securities Act of 1933. The verdict against O’Meally followed a month-long trial in Manhattan before the Honorable Judge Swain.

The Commission filed its Complaint on August 28, 2006 against four registered representatives formerly employed by Prudential Securities, Inc. The Complaint alleged that, between 2001 and 2003, certain mutual fund companies detected market timing activity by the defendants and attempted to block the defendants and their hedge fund customers from further trading in their funds. The Complaint further alleged that the defendants used fraudulent and deceptive trading practices to conceal their and their customers’ identities to evade these blocks. Cases against the three other defendants had been resolved previously by settlement. In its final judgment against O’Meally, the court ordered him to pay $444,836 in disgorgement of his profits from illegal market timing transactions plus $258,401.55 in prejudgment interest and a civil penalty of $60,000, for a total of $763,237.55.

The Commission also brought related enforcement actions against several other parties associated with Prudential Securities concerning deceptive market timing activities, as well as a settled enforcement action against Prudential Securities itself on August 28, 2006, in which Prudential agreed to pay $270 million that was later distributed to harmed investors.

DEFENDANTS MUST PAY NEARLY $16,000,000 TO SETTLE UNREGISTERED STOCK SALES CASE

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Court enters final judgment against Defendants

The Securities and Exchange Commission ("Commission") announced today that the Honorable William J. Haynes, Jr., United States District Judge for the Middle District of Tennessee, entered final judgments on February 27, 2013 against J.C. Reed & Company ("JC Parent") and Barron A. Mathis ("Mathis"). The final judgment against JC Parent, to which JC Parent consented, held JC Parent liable for disgorgement of $11,000,000 and prejudgment interest of $3,910,003.07, for a total of $14,910,003.07. The final judgment against Mathis, to which he consented, restrained and enjoined him from future violations of Sections 5(a), 5(c), and 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 Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Mathis also was held liable for disgorgement of $11,000,000 and prejudgment interest of $4,944,175.39, for a total of $15,944,175.39.

The Commission’s Complaint, filed on November 18, 2008, alleged that, at various times from no later than 2005 through at least September 2008, JC Parent, J.C. Reed & Advisory Group (JC Advisory), John C. Reed ("Reed"), the founder of JC Parent and JC Advisory, and Mathis facilitated the offer and sale of more than $11 million of JC Parent stock in unregistered transactions to over 100 investors in several states. According to the Complaint, JC Parent, JC Advisory, and Reed misrepresented and omitted material facts to investors relating to the value of the investors’ stock, JC Parent’s revenues and profitability, the use of key man life insurance proceeds for redemptions of Reed’s JC Parent stock, and undisclosed sales commissions. The Complaint also alleges that Mathis promoted JC Parent stock to advisory clients and misrepresented material facts to investors about undisclosed sales commissions. In addition, the Complaint alleges that JC Advisory used JC Parent’s inflated stock values to falsely report assets under management as JC Advisory’s basis for registration with the Commission and on reports filed with the Commission.

FORMER MERCURY INTERACTIVE GENERAL COUNSEL SETTLES SUIT ALLEGING STOCK OPTIONS BACKDATING AND OTHER MISCONDUCT

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Susan Skaer, former General Counsel of Mercury Interactive Corporation, to be Permanently Enjoined and to Pay Civil Penalties and Disgorgement, and to be Barred from Practicing or Appearing as an Attorney Before the Commission

The Securities and Exchange Commission today settled civil fraud charges against Susan Skaer, the former General Counsel and Secretary of Mercury Interactive Corporation (Mercury), arising from an alleged scheme to backdate stock option grants and from other alleged misconduct.

On May 31, 2007, the Commission charged three other former senior Mercury officers and Skaer with perpetrating a scheme from 1997 to 2005 to award Mercury executives and other employees undisclosed, secret compensation by backdating stock option grants and failing to record hundreds of millions of dollars of compensation expense. The Commission's Complaint also alleged other misconduct by Skaer related to the award of stock options to Mercury executives and employees.

Without admitting or denying the allegations in the Commission's complaint, Skaer consented to the entry of a final judgment permanently enjoining her from violating and/or aiding and abetting violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, as well as the financial reporting, record-keeping, internal controls, false statements to auditors, and proxy provisions of the federal securities laws. Skaer will pay $628,037 in disgorgement and prejudgment interest, representing the "in-the-money" benefit from her exercise of backdated option grants, and a $225,000 civil penalty. The settlement is subject to the approval of the United States District Court for the Northern District of California.

As part of the settlement, and following the entry of the proposed final judgment, Skaer, without admitting or denying the Commission's findings, has consented to the entry of a Commission order, pursuant to Rule 102(e)(3) of the Commission's Rules of Practice, suspending her from appearing or practicing before the Commission as an attorney.

The settlement with Skaer, if approved, will conclude the litigation. The Commission previously filed settled charges against Mercury and three former outside directors of Mercury. On May 31, 2007, the Commission filed civil fraud charges against Mercury based on the stock option backdating scheme and other fraudulent conduct noted above. Mercury, which was acquired by Hewlett-Packard Company on November 8, 2006, after the alleged misconduct, settled the matter by agreeing to pay a $28 million penalty and to be permanently enjoined. See Litigation Release No. 20136 (May 31, 2007). On September 17, 2008, in a separate action, the Commission filed settled charges against three former outside directors of Mercury alleging that they recklessly approved backdated stock option grants and reviewed and signed public filings that contained materially false and misleading disclosures about the company's stock option grants and company expenses. The outside directors settled the matter by consenting to permanent injunctions and the payment by each director of a $100,000 penalty. See Litigation Release No. 20724 (Sept. 17, 2008). Mercury and the outside directors settled the charges without admitting or denying the allegations in the Commission's complaint. The Commission also previously settled with three of the four senior officers in its contested action. On March 20, 2009, the Commission settled with former Mercury CFO Sharlene Abrams by which she agreed to entry of a permanent injunction against the antifraud and certain other securities law provisions, to pay $2,287,914 in disgorgement which was deemed partially satisfied by payment to Mercury, to pay a $425,000 civil penalty, to be permanently barred from serving as an officer and director of any public company, and to a Commission order barring her from appearing or practicing before the Commission as an accountant. See Litigation Release No. 20964 (March 20, 2009). On February 21, 2013, the Commission settled with former Mercury CEO Amnon Landan and former Mercury CFO Douglas Smith. Landan agreed to entry of a permanent injunction against the antifraud and certain other securities law provisions, to pay $1,252,822 in disgorgement and prejudgment interest, to pay a $1,000,000 civil penalty, to be barred from serving as an officer and director of any public company for five years, and to reimburse Mercury, pursuant to Section 304 of the Sarbanes-Oxley Act, $5,064,678 for cash bonuses and profits from the sale of Mercury stock. Smith agreed to a permanent injunction against future violations of certain of the antifraud provisions, to pay $451,200 in disgorgement satisfied by a prior repayment to Mercury, to pay a $100,000 civil penalty, and to reimburse Mercury, pursuant to Section 304 of the Sarbanes-Oxley Act, $2,814,687 for profits received from the sale of Mercury stock, all but $250,000 of which was deemed satisfied by prior cash repayments and foregoing of rights to exercise vested options to the benefit of Mercury. See Litigation Release No. 22623 (Feb. 21, 2013). Landan, Abrams and Smith each settled without admitting or denying the allegations in the Commission's complaint

ADVISORS AT OPPENHEIMERS & CO. CHARGED WITH MISLEADING INVESTORS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION  

Washington, D.C., March 11, 2013 — The Securities and Exchange Commission today charged two investment advisers at Oppenheimer & Co. with misleading investors about the valuation policies and performance of a private equity fund they manage.

An SEC investigation found that Oppenheimer Asset Management and Oppenheimer Alternative Investment Management disseminated misleading quarterly reports and marketing materials stating that the fund’s holdings of other private equity funds were valued "based on the underlying managers’ estimated values." However, the portfolio manager of the Oppenheimer fund actually valued the fund’s largest investment at a significant markup to the underlying manager’s estimated value, a change that made the fund’s performance appear significantly better as measured by its internal rate of return.

Oppenheimer agreed to pay more than $2.8 million to settle the SEC’s charges. The Massachusetts Attorney General’s office today announced a related action and additional financial penalty against Oppenheimer.

"Honest disclosure about how investments are valued and how performance is measured is vital to private equity investors," said George S. Canellos, Acting Director of the SEC’s Division of Enforcement. "This action against Oppenheimer for misleadingly writing up the value of illiquid investments is clear warning that the SEC will not tolerate lax disclosure practices in the marketing of private equity funds."

According to the SEC’s order instituting settled administrative proceedings, the Oppenheimer advisers marketed Oppenheimer Global Resource Private Equity Fund I L.P. (OGR) to investors from around October 2009 to June 2010. OGR is a fund that invests in other private equity funds, and it was marketed primarily to pensions, foundations, and endowments as well as high net worth individuals and families.

According to the SEC’s order, OGR’s largest investment — Cartesian Investors-A LLC — was not valued based on the underlying managers’ estimated values. OGR’s portfolio manager himself valued Cartesian at a significant markup to the underlying manager’s estimated value. OAM’s change in valuation methodology resulted in a material increase in OGR’s performance as measured by its internal rate of return, which is a metric commonly used to compare the profitability of various investments. For the quarter ended June 30, 2009, the portfolio manager’s markup of OGR’s Cartesian investment increased the internal rate of return from approximately 3.8 to 38.3 percent.

"Particularly in the current difficult fundraising environment that can incentivize private equity managers to artificially inflate portfolio valuations, firms must implement policies and procedures to ensure that investors receive performance data derived from the disclosed valuation methodology," said Julie M. Riewe, Deputy Chief of the SEC Enforcement Division’s Asset Management Unit. "Oppenheimer failed to implement such procedures and provided investors with misleading information about its valuation policies and performance numbers."

The SEC’s order found that former OAM employees made the following misrepresentations to potential investors:
The increase in Cartesian’s value was due to an increase in Cartesian’s performance when, in fact, the increase was attributable to the portfolio manager’s new valuation method.
A third-party valuation firm used by Cartesian’s underlying manager wrote up the value of Cartesian, which was untrue.
OGR’s underlying funds were audited by independent third-party auditors when, in fact, Cartesian was unaudited.
The SEC’s order also found that Oppenheimer Asset Management’s written policies and procedures were not reasonably designed to ensure that valuations provided to prospective and existing investors were presented in a manner consistent with written representations to investors and prospective investors.

Oppenheimer Asset Management’s conduct violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Section 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-7 and 206(4)-8. Without admitting or denying the findings, Oppenheimer agreed to pay a $617,579 penalty and return $2,269,098 to those who invested in OGR during the time period when the misrepresentations were made. Oppenheimer consented to a censure and agreed to cease and desist from committing or causing any future violations of the securities laws. The firm is required to retain an independent consultant to conduct a review of its valuation policies and procedures.

Oppenheimer will pay an additional penalty of $132,421 to the Commonwealth of Massachusetts in the related action taken by the Massachusetts Attorney General.

The SEC’s investigation, which is continuing, was conducted by Panayiota K. Bougiamas and Igor Rozenblit of the Asset Management Unit and Lisa Knoop. It was supervised by Valerie A. Szczepanik. The SEC acknowledges the assistance of the Massachusetts Attorney General’s office.