MAN AND COMPANY CHARGED IN COMMODITY POOL FUND COMINGLING CASE

FROM: COMMODITY FUTURES TRADING COMMISSION

CFTC Charges North Carolina Resident James A. Shepherd and James A. Shepherd, Inc. with Commodity Pool Fraud
Defendants charged with fraudulently soliciting approximately $10 million from approximately 176 investors and misappropriating and commingling at least $4.45 million of the pool’s funds


Washington, DC —The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a civil enforcement Complaint against James A. Shepherd (Shepherd) and James A. Shepherd Inc., a registered Commodity Pool Operator, charging them with fraudulently soliciting, accepting, and pooling approximately $10 million from approximately 176 individuals to invest in a commodity pool called the Shepherd Major Play Option Fund LP (Pool) for the purpose of trading options on futures contracts. Shepherd allegedly misappropriated at least $4.45 million of the pool’s funds.

According to the CFTC’s Complaint, Shepherd fraudulently told pool participants and prospective pool participants that their funds would be invested in on-exchange options on commodity futures and that the Pool’s assets would not be commingled with the assets of any other entity. Rather than trade funds as represented, Defendants allegedly misappropriated a large portion of Pool funds and commingled those funds with funds unrelated to the Pool. Beginning in 2006, Shepherd allegedly transferred a large portion of Pool funds to: (i) Shepherd’s own bank account, for his own personal use and to repay other business obligations unrelated to the Pool; (ii) futures and options trading accounts maintained in Shepherd’s own name, which suffered significant trading losses; and (iii) a bank account in the name of a separate hedge fund operated by Shepherd, which he used to pay redemptions to those hedge fund investors.

The Complaint further alleges that Defendants concealed the fraud by distributing to pool participants periodic statements and annual certified financial statements that falsely represented the net asset value of the Pool. Defendants further concealed the fraud by forging bank statements and bank confirmations and making false statements to the Pool’s outside auditor and the NFA during the course of their respective audits, according to the complaint.

In its continuing litigation, the CFTC seeks restitution, disgorgement of ill-gotten gains, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of the Commodity Exchange Act as charged.

The CFTC appreciates the assistance of the U.S. Attorney’s Office for the Western District of North Carolina, the Federal Bureau of Investigation and the National Futures Association.

CFTC Division of Enforcement staff members responsible for this case are Elizabeth C. Brennan, Patryk J. Chudy, W. Derek Shakabpa, Michael P. Geiser, Philip Rix, David Acevedo, Lenel Hickson, Jr., Stephen J. Obie, and Vincent A. McGonagle.

REVLON CHARGED BY SEC WITH MISLEADING SHAREHOLDERS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., June 13, 2013 — The Securities and Exchange Commission today charged cosmetics and beauty care manufacturer Revlon with violating federal securities laws when the company misled shareholders during a "going private transaction."

Going private transactions can occur in many forms and typically involve the company delisting and deregistering its stock and cashing out their shareholders so the company or a private equity firm can acquire all of the outstanding shares. An SEC investigation found that during a voluntary exchange offer to satisfy a significant debt to its controlling shareholder, Revlon engaged in "ring fencing" that deprived its independent board members from knowing critical information: the transaction's consideration had been deemed inadequate by a third party who evaluated whether current and former employees invested in Revlon common stock through the company's 401(k) plan could exchange their shares.

Revlon agreed to settle the SEC's charges and pay an $850,000 penalty.

"Going private transactions create opportunities for shareholder abuse and can have coercive effects on minority shareholders," said Antonia Chion, Associate Director in the SEC's Division of Enforcement. "By erecting informational barriers, Revlon kept critically important information from its board and, in turn, misled investors."

According to the SEC's order instituting settled administrative proceedings, controlling shareholder MacAndrews and Forbes (M&F) asked Revlon in 2009 to offer minority shareholders the option to exchange their common stock shares on a one-for-one basis for preferred shares with certain financial characteristics. The exchanged shares would then be provided to M&F to pay down Revlon's debt. The trustee administering Revlon's 401(k) plan decided that 401(k) members could tender their shares only if a third-party financial adviser made an "adequate consideration determination," which involved assessing whether the value of the preferred stock 401(k) members would receive was at least equal to the fair market value of the exchanged common stock shares. The third-party financial adviser ultimately found that the consideration offered in the transaction was inadequate for tendering 401(k) shareholders.

The SEC's order finds that Revlon did not want to disclose the third-party financial adviser's view on the adequacy of the transaction's consideration. In an attempt to avoid a potential disclosure obligation, the company engaged in what one employee termed as "ring fencing" to avoid receiving the adequate consideration determination from the third-party adviser:
Revlon amended the trust agreement it had with the trustee to ensure that the trustee would not share the adequate consideration determination with Revlon.
Revlon ensured that it was not a party to any engagement letter concerning the adequate consideration determination.
Revlon directed the trustee to inform Revlon of its decision whether to allow 401(k) members to tender their shares without any reference to the adequate consideration determination.
In a notice sent to the 401(k) members and publicly filed as an exhibit to the exchange offer documents, Revlon removed the explicit term "adequate consideration" and replaced it with citations to ERISA statutes.
The SEC's order finds that Revlon's ring-fencing conduct resulted in various materially misleading disclosures to its shareholders. For example, Revlon represented in its offering documents that the board's process was full, fair, and complete in determining the fairness of the exchange offer. In reality, the process was compromised because Revlon's board was unable to consider the adequate consideration determination as part of its process to evaluate and ultimately approve the offer. Thus, Revlon's shareholders were deprived of the opportunity to receive revised, qualified, or supplemental disclosures, including any that might have informed them of the adequate consideration determination.

The SEC's order finds that Revlon violated Section 13(e) of the Securities Exchange Act of 1934 and Rule 13e-3(b)(1)(iii), which prohibits issuers and their affiliates in going private transactions from directly or indirectly engaging in any act, practice, or course of business that operates or would operate as a fraud or deceit. The SEC's order requires Revlon to cease and desist from committing or causing these violations and any future violations. Without admitting or denying the SEC's findings, Revlon agreed to the settlement and financial penalty.

The SEC's investigation was conducted by Senior Counsel George B. Parizek and Staff Accountant Andrew M. Shirley, and supervised by Assistant Director Ricky Sachar.

WEALTH MANAGEMENT COMPANY CHARGED WITH INSIDER TRADING

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Files Insider Trading Charges Against Whittier Trust and Fund Manager


On June 7, 2013, the Securities and Exchange Commission charged a South Pasadena, Calif.-based wealth management company and a former fund manager with insider trading on non-public information about technology companies. The charges arise from the agency's ongoing investigation into expert networks and hedge fund trading.


The SEC alleges that Whittier Trust Company and fund manager Victor Dosti of San Marino, California, participated in an insider trading scheme involving the securities of Dell, Nvidia Corporation, and Wind River Systems. Dosti generated profits and avoided losses for funds he managed at Whittier Trust by trading on confidential information that he obtained from Danny Kuo, a Whittier Trust fund manager who Dosti supervised. Kuo was charged by the SEC in January 2012 and is currently cooperating with the investigation.

Whittier Trust and Dosti agreed to pay nearly $1.7 million to settle the charges.

According to the SEC's complaint filed in U.S. District Court for the Southern District of New York, Dosti used non-public information obtained from employees at Dell and Nvidia to trade in advance of five quarterly earnings announcements in 2008, 2009 and 2010. Dosti reaped profits and avoided losses of more than $475,000 for Whittier Trust funds. Dosti also made $247,000 in illicit profits for Whittier Trust funds by trading Wind River stock based upon detailed information that Kuo obtained from an Intel employee about Intel's confidential negotiations to acquire Wind River in 2009.

The SEC's complaint charges Whittier Trust and Dosti with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 17(a) of the Securities Act of 1933. Whittier Trust agreed to pay disgorgement of $724,051.62 plus prejudgment interest of $75,296.00 and a penalty of $724,051.62. Dosti agreed to pay disgorgement of $77,900.00 plus prejudgment interest of $2,951.43, and a penalty of $77,900.00. The settlements are subject to court approval and would permanently enjoin Whittier Trust and Dosti from future violations of the antifraud provisions of the federal securities laws. Whittier Trust and Dosti neither admit nor deny the SEC's charges. The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation.

SEC CHARGES BROTHERS IN INSIDER TRADING CASE

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Brothers with Insider Trading


On June 11, 2013, the Securities and Exchange Commission filed a civil injunctive action in the Northern District of Ohio against Andrew W. Jacobs ("A. Jacobs") and his brother Leslie J. Jacobs II ("L. Jacobs"). The Commission alleges that A. Jacobs provided L. Jacobs material non-public information about a pending tender offer for Chattem, Inc. securities. L. Jacobs then traded on the basis of the information he received from his brother.


According to the Commission's complaint, on December 21, 2009, Sanofi-Aventis ("Sanofi"), a French pharmaceutical company, announced its intent to make a tender offer for Chattem, a Tennessee-based distributor of over-the-counter pharmaceutical products, at the price of $93.50 per share ("Announcement"). Shares of Chattem closed 32.60% higher on the day of the Announcement than the prior trading day's close of $69.98 and volume increased more than 3,000% to 10.3 million shares.

The Commission alleges that A. Jacobs learned of the tender offer in a confidential conversation with his brother-in-law, who was at the time a Chattem executive. The executive, with whom A. Jacobs had been friends since business school and who was married to his wife's sister, requested that A. Jacobs keep their discussion confidential. A. Jacobs agreed to do so. Nonetheless, according to the complaint, the next day, A. Jacobs called his brother L. Jacobs A and told him that Chattem was going to be acquired. A few days later, L. Jacobs purchased 2000 shares of Chattem at a cost of $136,579.85. After the Announcement, L. Jacobs sold those shares for a profit of $49,457.21.

The Commission's complaint, filed in the United States District Court for the Northern District of Ohio, alleges that each defendant violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder, and seeks against each defendant permanent injunctions, disgorgement with prejudgment interest and civil monetary penalties pursuant to Section 21A of the Exchange Act. The Commission also seeks an officer and director against A. Jacobs, who was a high-level executive of a public company at the time of the tip.

COMPLAINT FILED BY CFTC AGAINST MAN WHO OPERATED UNREGISTERED COMMODITY POOL

FROM: COMMODITY FUTURES TRADING COMMISSION

CFTC Files Enforcement Action against Arizona Resident for Issuing False Account Statements and Operating as an Unregistered Commodity Pool Operator


Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a civil complaint against Thomas L. Hampton, an Arizona resident. The CFTC’s complaint charges Hampton with acting as an unregistered commodity pool operator (CPO) and issuing false account statements in violation of the Commodity Exchange Act.

The complaint filed on June 11, 2013, in the United States District Court for the District of Arizona Phoenix Division alleges that from approximately September 2010 through at least September 2011 ("relevant period"), Hampton, while acting as an unregistered CPO, operated Hampton Capital Markets, LLC, an Arizona limited liability company, as a commodity pool and/or hedge fund. The complaint further alleges that, during the relevant period, Hampton solicited approximately $5.2 million from at least 72 pool participants to invest in the pool for the purpose of trading commodity futures contracts, including E-mini S&P 500 futures contracts and E-mini Dow futures contracts, as well as securities based index products. The complaint also alleges that Hampton defrauded pool participants by issuing false account statements that represented that the pool was generating significant trading profits, when Hampton knew that the pool was sustaining consistent net losses.

In its continuing litigation, the CFTC seeks a return of ill-gotten gains, restitution, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of the federal commodities laws.

The CFTC appreciates the assistance of the Arizona Corporation Commission, Securities Division and the United States Attorney’s Office for the Southern District of New York.

CFTC Division of Enforcement staff responsible for this case are: Eugene Smith, Tracey Wingate, Kyong J. Koh, Peter M. Haas, Paul G. Hayeck, and Joan Manley.




 

FORMER TRADER SETTLES CHARGES IN INSIDER TRADING/KICKBACK SCHEME

FROM: SECURITIES AND EXCHANGE COMMISSION

Former Trader Emanuel Goffer Settles SEC Insider Trading Charges

 The Securities and Exchange Commission announced today that on June 7, 2013, The Honorable Richard J. Sullivan of the United States District Court for the Southern District of New York, entered a final judgment against Emanuel Goffer in SEC v. Cutillo et al., 09-CV-9208, an insider trading case the SEC filed on November 5, 2009. In its complaint, the SEC charged nine defendants, including Goffer, a former proprietary trader at the broker-dealer Spectrum Trading, LLC, with insider trading ahead of corporate acquisition announcements.


The SEC's complaint alleged that Zvi Goffer, Emanuel's brother, orchestrated this insider trading scheme in which an attorney with the law firm Ropes & Gray LLP misappropriated from the firm material, nonpublic information concerning potential corporate acquisitions, and tipped the inside information, through another attorney, to Zvi, in exchange for kickbacks. The complaint further alleged that Zvi tipped the information to a number of individuals, including his brother Emanuel. As alleged in the complaint, the tips related to potential acquisitions involving Ropes & Gray clients, including the acquisitions of Alliance Data Systems Corp., Avaya Inc. and 3Com Corp. As alleged in the complaint, Emanuel Goffer traded on the inside information he received from his brother, resulting in illicit profits of more than $1.3 million.

To settle the SEC's charges, Goffer 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 disgorgement plus prejudgment interest of $1,546,021. The disgorgement obligation will be off-set in part by a forfeiture order in a related criminal case, and the remainder waived in light of his financial condition. In related administrative proceedings, Goffer also consented to the entry of an SEC order barring him from association with any broker, dealer, investment adviser, municipal securities dealer or transfer agent, and barring him from participating in any offering of a penny stock. In the related criminal case, Goffer was convicted of securities fraud and conspiracy to commit securities fraud, and was sentenced to three years in prison and ordered to forfeit $761,623. United States v. Emanuel Goffer, 10-CR-0056 (S.D.N.Y.).