CHARGES FILED IN ILLEGAL MANIPULATIVE TRADING CASE

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged the owner of a Holmdel, N.J.-based brokerage firm with manipulative trading of publicly traded stocks through an illegal practice known as “layering” or “spoofing.” 

The SEC also charged the owner and others for registration violations.  Two firms and five individuals agreed to pay a combined total of nearly $3 million to settle the case.

In layering, the trader places orders with no intention of having them executed but rather to trick others into buying or selling a stock at an artificial price driven by the orders that the trader later cancels.  An SEC investigation found that Joseph Dondero, a co-owner of Visionary Trading LLC, repeatedly used this strategy to induce other market participants to trade in a particular stock.  By placing and then canceling layers of orders, Dondero created fluctuations in the national best bid or offer of a stock, increased order book depth, and used the non-bona fide orders to send false signals to other market participants who misinterpreted the layering as true demand for the stock.

“The fair and efficient functioning of the markets requires that prices of securities reflect genuine supply and demand,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office.  “Traders who pervert these natural forces by engaging in layering or some other form of manipulative trading invite close scrutiny from the SEC.”

Joseph G. Sansone, co-deputy chief of the SEC Enforcement Division’s Market Abuse Unit, added, “Week after week, Dondero lined his pockets by placing phony orders and tricking others into trading with him at distorted prices.  The fact that Dondero perpetrated this deceit through the entry of trade orders did not allow him to evade detection.”

The SEC additionally charged Dondero, Visionary Trading, and three other owners with operating a brokerage firm that wasn’t registered as required under the federal securities laws.  New York-based brokerage firm Lightspeed Trading LLC is charged with aiding and abetting the registration violations, and its former chief operating officer is charged with failing to supervise one of the Visionary owners who shared with his co-owners commission payments that he received from Lightspeed while he was simultaneously working as a registered representative there.

According to the SEC’s order instituting settled administrative proceedings, the misconduct occurred from May 2008 to November 2011.  Visionary Trading and its four owners – Dondero, Eugene Giaquinto, Lee Heiss, and Jason Medvin – illegally received from Lightspeed a share of the commissions generated from trading by Visionary customers.  Lightspeed aided and abetted the violation by ignoring red flags that Visionary and its owners were receiving transaction-based compensation while Visionary and its owners were not registered as a broker or dealer or associated with a registered broker-dealer firm. 

According to the SEC’s order, Lightspeed also failed to establish reasonable policies and procedures designed to prevent and detect the improper sharing of commissions between its registered representatives such as Giaquinto, who was associated with Lightspeed for part of the relevant period, and others who were not registered with the SEC in any capacity.  Lightspeed’s former COO Andrew Actman failed reasonably to supervise Giaquinto by not taking appropriate steps to address red flags indicating that Giaquinto was sharing commission payments that he received from Lightspeed with the other Visionary owners. 

The SEC’s order finds that Dondero violated Sections 9(a)(2) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Visionary and its owners willfully violated Section 15(a)(1) of the  Exchange Act.  Giaquinto willfully aided and abetted and caused Visionary’s and his co-owners’ violations of Exchange Act Section 15(a)(1).  Lightspeed willfully aided and abetted and caused Visionary’s and its owners’ violations of Exchange Act Section 15(a)(1).  Lightspeed and Actman failed reasonably to supervise Giaquinto. 

In settling the SEC’s charges, Dondero agreed to pay disgorgement of $1,102,999.96 plus prejudgment interest of $46,792 and penalties of $785,000 for a total exceeding $1.9 million. He agreed to a bar from the securities industry.  Giaquinto, Heiss, and Medvin must each pay disgorgement of $118,601.96 plus prejudgment interest of $14,391.32 and a penalty of $35,000 for a combined total of more than $500,000 from the three of them.  They are barred from the securities industry for at least two years.  Lightspeed must pay disgorgement of $330,000 plus prejudgment interest of $43,316.54, post-order interest of $4,900.38, and a penalty of $100,000 for a total of approximately $478,000.  Actman agreed to a penalty of $10,000 and a supervisory bar for at least one year.

The SEC’s investigation was conducted by Jason Burt, a member of the Market Abuse Unit in Denver, and Thomas P. Smith, Jr. of the New York Regional Office.  It was supervised by Mr. Sansone, Mr. Wadhwa, and Daniel M. Hawke, chief of the Enforcement Division’s Market Abuse Unit.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

Remarks Before the SEC / Academy of Finance Student Shadowing Program

Remarks Before the SEC / Academy of Finance Student Shadowing Program

MAN CHARGED BY SEC WITH DEFRAUDING HIS ADVISORY CLIENTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Charges James Y. Lee for Defrauding His Advisory Clients

On February 13, 2014, the Securities and Exchange Commission filed charges against James Y. Lee, a resident of La Jolla, California, alleging he defrauded his advisory clients.

The SEC's complaint, filed in federal district court in San Diego, alleges that Lee portrayed himself to prospective clients as a highly successful financial industry expert. According to the complaint, Lee recruited clients to open online brokerage accounts, including margin accounts in which he had discretionary authority to trade in options. He also charged his clients a management fee of as much as 50% of their monthly realized profits and promised clients that he would share equally in 50% of their realized losses. But when Lee's clients suffered large realized losses, he failed to reimburse most of them for his promised share.

The complaint alleges that Lee defrauded his clients in several ways. He charged some clients fees for the month of February 2011 based on false performance and concealed from them that they had actually incurred realized losses that month. In addition, he misled clients about his background, including failing to disclose a criminal conviction for embezzlement and an SEC cease-and-desist order for his role in illegal unregistered penny stock offerings. He also misled clients about his promise to share in realized losses and the risks of his options trading strategy. Furthermore, he traded in penny stocks in client accounts outside of his discretionary authority, and fraudulently induced one client to loan money to a penny stock company.

The complaint charges Lee with violating the antifraud provisions of the federal securities laws - Section 17(a) of the Securities Act of 1933, Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, and Section 206(1) and (2) of the Investment Advisors Act of 1940. The SEC is seeking a permanent injunction as well as disgorgement, prejudgment interest and civil penalties against Lee.

The complaint names several relief defendants including Lee's girlfriend, his son and his close business associate as well as their respective companies. According to the complaint, Lee diverted investor funds to all of the relief defendants to avoid holding assets in his own name.

In a related matter, on February 12, 2014, the SEC settled administrative and cease-and-desist proceedings against Ronald E. Huxtable II, of Palm Coast Florida. (Rel. 33-9547) In those proceedings the SEC found that Huxtable, one of Lee's clients, aided, abetted and caused Lee's violations by helping Lee charge certain clients fees for the month of February 2011 based on false performance and conceal the fact that they had actually incurred net realized losses for that month.

The SEC's investigation was conducted by Jennifer Peltz and Delia Helpingstine and supervised by Paul Montoya. The SEC's litigation will be led by Michael Foster.

Disclosure Effectiveness: Remarks Before the American Bar Association Business Law Section Spring Meeting

Disclosure Effectiveness: Remarks Before the American Bar Association Business Law Section Spring Meeting

TWO WILL PAY $5 MILLION TO RESOLVE ALLEGATIONS OF SUSPICIOUS TRADING IN CALL OPTIONS OF H.J. HEINZ COMPANY

FROM:  SECURITIES AND EXCHANGE COMMISSION 
Two Previously Unknown Insider Traders in Heinz Ordered to Pay Nearly $5 Million

The Securities and Exchange Commission obtained court approval of a settlement that requires two brothers in Brazil to pay nearly $5 million to resolve charges that they were behind suspicious trading in call options of H.J. Heinz Company ("Heinz") the day before the company publicly announced its acquisition.

Final judgments entered on April 2, 2014 by the Honorable Jed S. Rakoff of the U.S. District Court for the Southern District of New York permanently enjoin Rodrigo Terpins and Michel Terpins from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The judgments also order them to disgorge, jointly and severally with Alpine Swift Ltd., a Cayman Islands entity, $1,809,857 in illegal profits made from their Heinz trading, and for each of the Terpins brothers to pay $1.5 million in civil penalties.

The SEC filed an emergency enforcement action against previously unknown traders in Heinz securities in February 2013 to freeze assets of a Swiss-based trading account used to reap $1,809,857 from trading in advance of the Heinz announcement. The SEC filed an amended complaint in October 2013 alleging that the Terpins brothers were behind that trading, which occurred through an account that belonged to Alpine Swift.

SEC CHARGES MAN WITH INSIDER TRADING AHEAD OF ORACLE'S ACQUISITION OF ACME PACKET INC.

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged a Silicon Valley man with insider trading ahead of Oracle Corporation's acquisition of Acme Packet Inc. based on confidential details he learned from his wife, a finance manager at Oracle.

The SEC alleges that Tyrone Hawk of Los Gatos, Calif., violated a duty of trust by trading after he overheard work calls made by his wife, a finance manager at Oracle Corp., regarding her company's plan to acquire Acme Packet Inc. Hawk also had a conversation with his wife in which she informed him that there was a blackout window for trading Oracle securities because it was in the process of acquiring another company. According to the SEC's complaint, Hawk bought Acme Packet shares before the acquisition was announced in February 2013, and reaped approximately $150,000 by selling after the stock price rose 23 percent on the news. Without admitting or denying the allegations, Hawk agreed to pay more than $300,000 to settle the SEC's charges.

The SEC's complaint charges Hawk with violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Hawk has settled the SEC's charges without admitting or denying the allegations. He has agreed to the entry of a judgment enjoining him from future violations of the relevant provisions of the Exchange Act, and to pay disgorgement and prejudgment interest of $154,134.50, and an additional penalty equal to his profits of $151,480.00.

The SEC's investigation was conducted by Jennifer J. Lee under the supervision of Michael S. Dicke and Jina L. Choi of the San Francisco Regional Office. The SEC acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in this matter.