FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
Federal Court in Nevada Orders Charles Leroy Timberlake and Trans Global Investments, LLC to Pay $340,000 to Settle Commodity Pool Fraud Charges
Defendants permanently barred from the commodities industry
Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a federal court order requiring defendants Trans Global Investments, LLC (Trans Global), a Nevada company and unregistered Commodity Pool Operator (CPO), and its President, Charles Leroy Timberlake, a Texas resident, to pay $200,000 in restitution and a $140,000 civil monetary penalty to settle CFTC charges of commodity pool fraud.
The consent order of permanent injunction, entered on January 14, 2013, by Judge Gloria M. Navarro of the U.S. District Court for the District of Nevada, also imposes permanent trading and registration bans against Timberlake and Trans Global and prohibits them from violating the anti-fraud provisions of the Commodity Exchange Act, as charged.
The CFTC had sued Trans Global and Timberlake, along with CIS Commodities LLC of Henderson, Nev., and its founder and president, Allen Nicholas Ward, of Aspen, Colo., on June 29, 2011 (see Related Link: CFTC Press Release 6068-11). As to Timberlake and Trans Global, the CFTC complaint alleged that Timberlake fraudulently solicited at least $220,000 from five individuals for the purpose of trading commodity futures and option contracts through the Trans Global pool. The complaint further alleged that Timberlake falsely represented that he was registered with the CFTC as a CPO when, in fact, he has never been registered with the CFTC in any capacity. Finally, the complaint also alleged that Timberlake made false representations of material facts and issued false statements to Trans Global pool participants regarding the profitability and value of their investments.
The litigation continues as to the remaining defendants.
FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
"The End-User Bill of Rights"
Statement of Commissioner Bart Chilton
April 3, 2013
We are one week away from an important date in Dodd-Frank implementation: the April 10 compliance date for Dodd-Frank swap reporting rules for end-users. This date represents the first major compliance date for the end-user community, a class of market participants that includes many who have not been regulated by the CFTC until now.
As we move one step closer to the full implementation of Dodd-Frank, I’m reminded of another important transition, one from over 220 years ago, the transition of this great nation from a colonial monarchy to a national democracy. At the dawn of the United States of America, the founding fathers set out ten principles, the "Bill of Rights" that would bind the new national democratic government. Similarly, today I am setting out ten principles to guide the Commission as we move into a new, more transparent Dodd-Frank regulatory regime. I believe these principles best protect our consumers and end-users who help move our economy forward—and let's keep in mind that these end-users were not the cause of the financial crisis that lead to financial reform. In fact, end-users were among the many victims of the crisis and much of Dodd-Frank was drafted with their interests in mind.
The futures and swaps markets wouldn't exist without end-users. The primary public benefit of derivatives markets is that they provide end-users risk management opportunities that, in turn, allow them to more easily fund operations and investments and thereby generate economic growth. The ability of end-users to fund their operations is directly related to the prices paid by consumers and the overall well-being of our economy; so protecting the end-users is akin to protecting the every-day consumer. The End-User Bill of Rights therefore focuses on what I believe should be the inalienable rights of end-users:
1. Right to reasonable Dodd-Frank implementation. Dodd-Frank needs to be implemented and needs to be implemented quickly, but that does not mean it should be done so harshly. Back in December 2012, I supported the Commission providing good faith forbearance relief for swap dealers (SDs) and major swap participants (MSPs) until July 31, 2013 (under certain circumstances) when trying in earnest to come into compliance with new CFTC Dodd-Frank rules. Consistent with that six month forbearance relief, I will not approve an action against end-users seeking to comply with CFTC Dodd-Frank rules in good faith, provided they act in ways consistent with a good faith intention to comply, until after October 31, 2013.
2. Right to legal certainty. The Commission and the Commission staff need to provide the market as much legal certainty as possible as we move through a challenging implementation period. End-users and other market participants should have little doubt as to the status of their activities and the Commission and staff should respond thoughtfully and diligently to requests for legal certainty. When an answer isn’t easy to provide, then the Commission or staff should be as transparent as possible with the public. The Commission or staff should strive to provide the market relief or clarity well in advance of a compliance date—last minute relief and clarification should be avoided. Finally, during this implementation of Dodd-Frank, I will not support an action against an end-user, exchange, or anyone else on an issue deserving clarity that is the subject of an outstanding request for interpretive guidance.
To provide a specific example of where the Commission could assist the end-user community with additional legal clarity, take the legal status of trade options. The Commission should tighten our guidance on commodity contracts with volumetric optionality, consistent with Commission precedent. At the same time, the Commission should focus on implementing Dodd-Frank for non-trade option swaps and broaden the trade option exemption in order to minimize any market disruptions in the trade options market. We should give end-users the opportunity to meet their statutory obligation to report trade options through an annual Form TO so that the Commission can monitor these markets for problems or evasion.
3. Right to compete in the markets. End-users should be able to hedge without getting mauled by cheetahs or crushed by Massive Passives. To protect end-users' right to compete in the markets, the Commission should start with two common sense rulemakings: First, we need high-frequency trader registration and conduct rules to prevent cheetahs from going feral. We should also provide the public market quality metrics designed to help end-users and other non-cheetahs from distinguishing between false cheetah liquidity and true liquidity. Second, we need caps on speculation so that the commodity markets return to their principal role as risk management markets for end-users. The commodity markets worked best when end-users were the predominant players. The Commission should move quickly on a new proposal on speculation limits by May 1.
4. Right to safe accounts. We need strong rules and rigorous auditing to ensure that futures commission merchants (FCMs) don't abuse their role as intermediaries while not imposing undue burdens on FCMs that provide end-users access to critical risk management markets (including a sensible compromise on residual interest). End-users should also have the right to choose between full segregation or to have their money at an FCM. If we require the availability of this option, the market will provide end-users better and more competitively-priced access to full segregation. Congress should also act to give end-users backstop protection through federally-mandated insurance.
5. Right to have confidence in the commodity markets. End-users should be confident that their intermediaries, FCMs and SDs in particular, are appropriately regulated and supervised. The Commission needs to establish rules that do this and ensure they are being enforced. The Commission needs bigger penalties to deter the abuses that threaten the health and stability of the markets. I have called for raising civil monetary penalty maximums to $10 million for entities and $1 million for individuals. The current $140,000 maximum civil monetary penalty is simply an inadequate deterrence for an agency tasked with, among other things, deterring manipulation and preventing systemic risk. Today’s regulatory infractions can spawn tomorrow’s financial meltdown and the Commission should be able to seek penalties to deter the malfeasance and negligence that can contribute to systemic problems.
6. Right to clear (or not to clear). The right to clear or not to clear should be protected for end-users. Central hedging units for non-financial end-users should be free to clear or not to clear on transactions that mitigate commercial risks for their corporate group. End-users that use inter-affiliate swaps to centralize and manage risk across a corporate group through a central hedging unit should be given the flexibility to clear or not to clear. End-users’ inter-affiliate swaps should also be exempt from transaction-by-transaction reporting. The Commission should move quickly to provide relief from reporting requirements for inter-affiliate transactions for end-users.
7. Right to margin flexibility and reasonable capital rules. Under-collateralization has not been an end-user problem. Accordingly, I support the latest February 2013 IOSCO/Basel consultation that would exempt non-financial entities that are not systemically important from prescriptive margin requirements. The Commission also needs to come up with a sensible compromise on capital requirements for non-financial SDs. The Commission should encourage non-financial SDs to register. Non-financial SDs provide competition to financial SDs and their presence lets end-users hedge their risks on more competitive terms. On the one hand, Commission capital rules should ensure non-financial SDs have adequate capital to fall back on in the event of market or portfolio stresses. On the other hand, these rules should not put non-financial SDs at a competitive disadvantage.
8. Right to hedge. Speculative position limits should encourage and not unduly complicate prudent commercial risk management practices. Public power end-users using swaps to hedge commercial risk should have the same access to risk management markets as privately-owned utilities. This should be done preferably through regulatory relief.
9. Right to smart regulation. As we move through implementation, we are going to find smarter ways to accomplish regulatory policy goals. The Commission owes the end-user community a commitment that it will amend its rules when these smarter ways become apparent. For example, there may be more prudent ways to implement Part 46 historical swaps reporting for end-users that the Commission should consider. In the interim, the Commission should give end-users a six month reprieve, through October 2013, for historical swaps reporting requirements.
10. Right to be heard. SDs and MSPs are, by definition, big boys and girls who’ve seen the writing on the wall for years. As Commission registrants and as large financial conglomerates, they can go to the NFA or industry organizations like ISDA for guidance on how to comply with our rules. NFA and ISDA and similar organizations have experience orchestrating change on an industry-wide basis. Many end-users, on the other hand, are not used to having their swaps activity subject to CFTC regulation. During and after Dodd-Frank implementation we need a venue for end-users to air their concerns. I call for an End-User Advisory Committee (EUAC) with regularized meetings. End-users face an array of unique compliance challenges and legitimate business and regulatory concerns that warrant the Commission’s focused attention.
Just like the Constitution is subject to amendment (some of the best amendments came almost eighty years after the first ratified draft), so is this document. I look forward to working with end-users, consumers, SDs, MSPs, FCMs, and others as we move through an exciting and challenging implementation period and invite their comments on this End-User Bill of Rights. If we do our jobs as regulators and implement Dodd-Frank quickly and reasonably, the markets will improve for the benefit of end-users and the American public. That was the goal of Congress and that continues to be my goal.
FROM: COMMODITY FUTURES TRADING COMMISSION FOREX
CFTC Charges North Carolina Resident James Harvey Mason with Commodity Pool Fraud
Federal court issues emergency order freezing assets and protecting books and records of Mason, The JHM Forex Only Pool, and Forex Trading at Home
Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Graham Mullen of the U.S. District Court for the Western District of North Carolina entered an emergency Order freezing and preserving assets under the control of defendant James Harvey Mason of Graham, North Carolina, and relief defendants The JHM Forex Only Pool (JHM) and Forex Trading at Home (FTAH). The Order also prohibits Mason, JHM, and FTAH from destroying books and records, appoints a receiver to protect customer funds, and grants the CFTC immediate access to the records of the defendant and his agents.
The Order arises out of a civil enforcement Complaint filed by the CFTC on March 27, 2013, charging Mason with fraudulently soliciting, accepting, and pooling at least $1.1 million from at least 60 individuals to participate in off-exchange foreign currency (forex) commodity pools and misappropriating at least $600,000 of participant funds.
According to the CFTC’s Complaint, Mason fraudulently told pool participants and prospective pool participants that they would be at no risk of losing their principal and would instead make profits of as much as 500 percent annually if they invested with one or both of JHM and FTAH. In fact, the Complaint alleges that the forex accounts traded lost more than $1 million since July 2010. The Complaint further alleges that Mason failed to register with the CFTC as a Commodity Pool Operator and also failed to disclose to participants that he had a conviction in 2000 for wire fraud in connection with the sale of commodities.
In its continuing litigation, the CFTC seeks a permanent injunction from future violations of federal commodities laws, permanent registration and trading bans, restitution to defrauded pool participants, disgorgement of ill-gotten gains, and civil monetary penalties.
The CFTC appreciates the assistance of the North Carolina Secretary of State’s Securities Division and the U.S. Attorney’s Office for the Western District of North Carolina.
CFTC Division of Enforcement staff members responsible for this case are Barry R. Blankfield, Jennifer E. Smiley, Heather Johnson, Patricia Gomersall, Joseph Konizeski, Scott Williamson, Rosemary Hollinger, Joan Manley, and Richard B. Wagner
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Remarks to Students at The George Washington University
by
Chairman Elisse Walter
U.S. Securities and Exchange Commission
Washington, D.C.
April 1, 2013
Good evening. Thank you for that kind introduction, and my thanks to the members of Alpha Kappa Psi — the nation’s largest and oldest professional business fraternity — for inviting me to speak and pulling this event together. Thanks, as well, to all of you for taking the time to attend. And I’d particularly like to thank my friend Mary Goelzer, who was kind enough to extend the invitation to me.
What I’d like to talk about this evening before I take your questions is something that isn’t always recognized in day-to-day discussion of business and government and their interaction. That is, the importance of the public sector and those who work in the public sector, like my many dedicated colleagues, to the health of our markets and to a flourishing economy.
Of course, the regulations we write at the SEC, the examinations we conduct, and the enforcement actions we bring demand time and resources that businesses would rather spend on other things. But, the truth is that the SEC wants the investing public and the businesses in which they invest their hard-earned money to succeed.
That is why the SEC was created in 1934 as part of the effort to lift the American economy out of the rubble of the Great Depression. Since then, we have worked for nearly 80 years to make our capital markets the strongest and most vibrant in the world. And we understand that economic growth on a national level is the product of millions of individual financial achievements, so a great deal of our work is focused on facilitating your success:
We want you to succeed as entrepreneurs, and to have access to the capital you need to grow your business, and to the kind of securities markets that keeps your stocks liquid.
We want you to succeed as investors, and we work to give you access to accurate and timely information that allows you to make informed investment decisions, and to protect you from financial predators.
And we want you to succeed in your career and — as individuals interested in the world of business and finance — we hope that you will consider spending time in public service, perhaps even with the SEC.
That’s what I’d like to talk to you about this evening: our efforts to facilitate your success through financial literacy and investor protection initiatives and — briefly — how you might be able to contribute to our nation’s success by making public service a component of your career.
Financial Literacy
I am sure all of you are aware of the significance of this day — not as April Fools’ Day, but the first day of Financial Capability Month — a broad, national occasion to highlight the importance of financial literacy.
Last summer, the SEC released a report on investor literacy required by the Dodd-Frank Act that unfortunately reached the conclusion that "U.S. retail investors lack basic financial literacy ... have a weak grasp of elementary financial concepts and lack critical knowledge of ways to avoid investment fraud."
As Chairman of the SEC, it pains me greatly that, for as much effort as we and others have expended, many retail investors still lack an understanding of basic financial principles.
Educating Investors
So, in addition to our higher-profile regulatory and law enforcement functions, I strongly support our investor education and outreach efforts. This is a nationwide program focused on teaching individuals how to make better decisions about investing in our capital markets. And importantly, it also teaches them how to spot the securities frauds that our Division of Enforcement works so hard to uncover, investigate, and address.
We are fortunate that we don’t have to do this work alone. We leverage our resources through strategic partnerships. For example, we are working with the Financial Industry Regulatory Authority — which regulates broker-dealers — AARP and state securities regulators on a campaign designed to reduce investment fraud among Americans.
With our partners, we regularly participate in events that teach investors how to identify common persuasion techniques used by con artists.
We also train attendees on how to "ask and check" about investments and investment professionals before they invest, so they can protect themselves and teach others in their community about effective fraud detection techniques.
Our staff also assists tens of thousands of investors every year with questions and complaints, produces a wide variety of print publications, issues investor alerts and bulletins on topical subjects, and even tweets.
We have a website Investor.gov that is focused exclusively on investor education. Individual investors can access a wide variety of useful information about investing.
For example, on Investor.gov, you can research public companies and other filers using our EDGAR database. You can find, for example, annual corporate filings, mutual fund prospectuses, and information on variable insurance products. And you can find out how to read them, using materials that explain the disclosures in more detail.
You can conduct background checks on financial professionals you’re considering working with.
You can access information aimed at investors with particular investment needs, such as members of the military, students, teachers, and retirees.
And while we don’t give investment advice on Investor.gov, you can find analyses of different types of investments — the benefits and the risks of investment vehicles including stocks, bonds, mutual funds, and real estate investment trusts.
Younger Investors
Educating younger investors is especially important to us. That is one of the reasons why we offer the SEC Graduate Program to teachers and professors in conjunction with NYSE Euronext. The course provides professional development programs designed to help educators teach students about the financial marketplace and its importance in their lives and the global economy.
In addition to SEC staff, training sessions are led by, among others, representatives from the White House, the Federal Reserve, the Department of Treasury, the Department of Education, and Commodity Futures Trading Commission.
The fact is, very few people under 30 are looking very far down the road, and this can lead to fundamental investing errors and missed opportunities.
For example, many young people don’t realize the importance of starting to save and invest early in their careers and the awesome power of compound interest. Einstein called it the Eighth Wonder of the World.
If you invest just $100 a month with a 6 percent return, starting at 25, you’ll have around $211,000 in your account at the age of 67 (according to the handy calculator you can find on Investor.com). If you wait until you’re 45 to start saving and investing, putting aside that same amount at that same return would be worth only around $52,000 when you reach retirement age. By saving for twice as long, you end up with four times the money.
I want people to realize that they should pay themselves first, especially if they can get "free money." When you are young, relatively care-free and earning a regular, decent, paycheck for the first time, you tend not to worry about retirement as much as paying back that college loan or maybe spending weekends at the beach.
But a tax-favored retirement fund earns a first-year return equal to your tax rate plus social security deductions.
And most employers offer a match that can significantly increase your nominal contribution — and it’s free money you can use. I have never been more proud than when, on starting his first full-time job late in the year, my son ravaged his paycheck to make sure that he maxed out his retirement contribution.
Another thing people don’t consider when investing for the long haul is the impact of fees and expenses. They may look at the historical returns in the prospectus, but they often don’t consider the long term impact of the seemingly small amounts of money retained by the fund managers. But that, too, adds up. You can use FINRA’s Fund Analyzer to compare the fees and expenses of over 18,000 mutual funds.
And, in an era in which the average worker can expect to change jobs many times over the course of a career, do not yield to the temptation to cash out your 401(k) when you take a new position. And even when confronted with a financial setback, leave your retirement accounts intact if at all possible. If you do cash out, not only do you take an immediate and substantial tax hit, but you sacrifice years of growth potential.
Think about this: according to a recent report by Fidelity Investments, the average individual on the verge of retirement aged 60-64 has $133,000 in his or her 401(k) plan. That amount has to last through, hopefully, decades of post-retirement living. You will likely have the opportunity to do much better than that. Remember how much just a hundred dollars a month can add up to. I hope you will take that opportunity.
Enforcement and Investor Protection
But even if you make all the right financial moves based on the numbers, the fact is there are scammers out there who will try to take your money. Given your education, you may feel relatively confident about your ability to make financial decisions and protect yourselves. Let me admonish you to maintain your skepticism. Studies have shown that victims of financial scams often are well-educated and even financially sophisticated.
That is why one of the core functions of the SEC is enforcement of the federal securities laws. For us at the SEC, the flip side of encouraging good investment habits is making sure the environment in which you save and invest is safe. I consider investor protection our primary mission.
But, when it comes to preventing, detecting, deterring and punishing financial malfeasance, we’re at a disadvantage. Often people don’t know that they’ve been robbed until long after the fraud has been committed, giving perpetrators months or even years to cover their tracks, hide the money, or victimize other investors.
So investor education is not just teaching and informing. It also is an important part of our investor protection effort. Informed investors know what to look for and when to tip us that something suspicious is going on.
One emerging area of concern, for example, is the use of social media to support fraudulent schemes — bringing what are called "boiler room" scams into chat rooms, Facebook pages, Twitter feeds, and your inbox.
Traditionally, high-pressure pitchmen would cold-call your home, touting a penny stock that they said was on the verge of a major price increase, claiming inside information or a brilliant insight into market and economic data that indicated a guaranteed jump.
Of course, after enough investors bought into the stock and pumped the price up, the schemers dumped the stock they were holding, stopped promoting it and disappeared to another boiler room as the price invariably collapsed and victims watched their investment disappear — a classic "pump-and-dump."
Today, instead of calling you on the phone, these fraudsters are increasingly likely to send you unsolicited e-mails, lurk in chat rooms talking up favored stocks, or tweet their "inside information."
Another new approach is to create an online investor newsletter feigning objectivity but, instead, using its apparent authority to boost the price of selected stocks. These newsletters might even be advertised in legitimate journals.
But they serve the same purpose as the cold calls and chat room tips: to artificially inflate share prices just long enough for someone to take the profit and walk away.
We’re going after all these and many other types of fraud
But, as you know, the Internet is a big place. So we’re counting on you — the generation that’s been bombarded with Nigerian banking offers, discount prescription drug spam and even misleading personal ads practically since birth — to be our eyes and ears. We don’t expect each of you to spend your spare time playing amateur SEC investigator. But in addition to watching out for yourself, we’d love it if you adopted the same security strategy that you see plastered all over the Washington Metro: "If you see something, say something."
And we make it easy to say something. All it takes is an online submission and we’ll take it from there.
Two years ago, the SEC brought online the technology necessary for classifying, analyzing and comparing tips we receive, searching for patterns and actionable data.
Don’t think that your information is too insignificant to send us. It may prove to be a vital piece of a larger puzzle.
As investors, it’s important that we not only look out for our own interests, but that we keep an eye open for actions that threaten others — a "neighborhood watch goes to Wall Street" effort.
Whistleblower
Teaching investors how to spot suspicious practices is one way we work to leverage the SEC’s limited staff and resources.
But there’s another way that we’re expanding our reach: our Whistleblower Program.
Established by the Dodd-Frank Act, the Whistleblower Program offers rewards of between 10 and 30 percent of the money we collect when high-quality, original information leads to a judgment of at least $1 million against a securities law violator.
Last summer, the SEC paid nearly $50,000 to a whistleblower who helped us stop a multi-million dollar fraud, a figure that could rise considerably as more ill-gotten gains are recovered.
In the first year of the program, the SEC received more than 3,000 tips from whistleblowers, and there were 143 enforcement judgments and orders issued during fiscal year 2012 that potentially qualify as eligible for a whistleblower award.
Now, I am sure all of you are the kind of ethical people who would never be caught up in an attempt to manipulate financials, trade on inside information, mislead investors, or misrepresent results in official filings.
Nor would you wish to become associated with a company or a firm that would do so.
Entities registered with the SEC are generally honest and committed to the letter and spirit of securities law and regulation. And that’s why our whistleblower regulations encourage concerned individuals to contact their compliance office before coming to us.
But should you find yourself in an unfortunate situation, we believe that our investor protection mission and your common sense ethics are well-served by encouraging individuals in a difficult position to come to us for support, anonymity, and financial incentives.
Public Service
As you can see, we’re working to weave a support network for investors — particularly retail investors like you and me — that consists of regulatory organizations like FINRA, advocacy groups like the AARP, and millions of individual investors.
The SEC is the anchor of that network, as the agency that one of our first Chairmen, William O. Douglas, described as the federal government’s only "investor advocate."
Although I personally feel that the SEC’s advocacy role is "first among equals," ours is actually a three-part mission: protection of investors, maintaining the integrity of the markets, and fostering capital formation. And, at times, our critics claim that these roles priorities conflict or that we neglect one aspect of our mission to fulfill another.
Take, for instance, the JOBS Act. It’s a law that seeks to remove some of the regulatory requirements placed upon companies seeking to enter the capital markets — a law enacted by Congress that the SEC is charged with implementing. Some say it could lead to rampant fraud — unless the new regulations are accompanied by significant investor protection measures. Others say any such measures would create unnecessary barriers to capital formation, and slow the growth of the dynamic companies our economy needs.
I believe that this is a false argument. In my view, capital formation and investor protection go hand in hand — investors afraid of financial fraud simply won’t contribute the capital entrepreneurs need.
There is an implicit promise in American life that if you work hard, have a good idea, or have the discipline to put aside some money and make rational decisions, you have a fair chance of earning your own security and even getting rich. What happens to our economy if that sort of optimism fades, and people begin to believe that the kind of opportunity we used to offer can now be found more easily somewhere else? And what will that then do to the fabric of American life?
The challenge of resolving these types of issues in a way that both promotes growth and protects investors is one reason why so many people who are drawn to business and finance end up spending part or most of their career in public service.
I came to the SEC in 1977 thinking that I would spend a few years here and then move along to the next opportunity that arose. Instead, I came to believe so strongly that the SEC’s mission was so critical to the function of and confidence in the financial system, that I made the SEC the cornerstone and the heart of my career.
Although I am Chairman now and I get to speak in important venues like this one, there was little apparent cachet to the 17 years I spent as an SEC staffer in the Office of General Counsel and the Division of Corporation Finance. Government offices are not plush, there are no stock options, and we fly coach.
But what there was, was the immense satisfaction that came from working on really important matters — projects that that helped keep the U.S. financial markets the most dynamic and also the most stable in the world. Rulemakings that made it less likely that a family saving for retirement or college for their kids would lose their dreams to a Ponzi scheme or fraudulent accounting.
And there’s an exciting Wall Street/Main Street dynamic: you’re working for both finance professionals moving billions of dollars and a small town teacher putting money into her IRA. It’s a place where you can really make a difference and have a positive impact on businesses and lives.
Working with investors and the financial markets is fascinating, whether you come at them from the private sector or the public sector.
But I will remind you that the people at the SEC as well as at other federal financial regulators are driven and intelligent and the rewards we earn, though less quantifiable than those of our private sector counterparts, are just as great. At the SEC, you would have the opportunity to serve with individuals with diverse backgrounds, experiences, and thought that come together with the mutual purpose of protecting investors.
Effective agencies need the kind of talent I see in this room to carry out their mission. And I hope at a least a few of you will consider putting that talent to use on behalf of our nation and the American public.
Conclusion
At the SEC, we work with many individuals and organizations in public, private, and nonprofit sectors to foster wealth creation through a free market system that gives participants large and small a chance to profit. We have a lot of ways of pursuing that goal — protecting and educating investors, enforcement efforts that discover and deter wrongdoing, and building a regulatory framework for financial dynamism and broad prosperity.
In all of these efforts, I look forward to working with you.
Whether it’s a comment on a rulemaking, a tip you turn in or a whistle you blow, the opportunity to work alongside you to craft a more stable and responsive financial structure, or seeing you use that structure to raise capital and finance growth, there’s a lot we can do together to make our nation — and your portfolio — stronger.
Thank you.
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.
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