2 MORE CHARGED BY SEC WITH INSIDER TRADING IN SPSS INC. ACQUISITION BY IBM CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today announced it has charged two additional brokers with trading on inside information ahead of the $1.2 billion acquisition of SPSS Inc. in 2009 by IBM Corporation.

The SEC alleged that former brokers Benjamin Durant III and Daryl M. Payton illegally traded on a tip about the acquisition from Thomas C. Conradt, a friend and fellow broker in the New York office of a Connecticut-based broker-dealer.  The SEC complaint, filed in federal court in Manhattan, seeks return of alleged ill-gotten trading gains of approximately $300,000, with interest, financial penalties, and permanent injunctions.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Durant and Payton.

The SEC previously charged that Conradt and David J. Weishaus, another fellow broker and tippee, traded on confidential information that Conradt received from his roommate, Trent Martin, a research analyst who misappropriated it from an attorney working on the transaction.  Martin, Conradt, and Weishaus settled with the SEC and pled guilty last year to related criminal charges in the matter.

“Durant and Payton were licensed professionals who knowingly disregarded insider trading laws to enrich themselves at the expense of investors,” said Sharon B. Binger, director of the SEC’s Philadelphia Regional Office.  “The SEC is committed to taking action against those who undermine the public’s confidence in the markets by engaging in insider trading.”

According to the SEC’s complaint, in a private meeting with Martin, his attorney friend revealed nonpublic information about the acquisition, including the names of the companies and the anticipated transaction price.  The lawyer expected Martin to keep the information in confidence and refrain from trading on it but instead, Martin traded and tipped Conradt, who traded and tipped Durant and Payton, among others.  The SEC further alleges that on the day that IBM’s acquisition of SPSS was publicly announced, Durant, Payton, and others met at a Manhattan hotel room and discussed what to do if law enforcement officials contacted them about their trading in SPSS securities.

The SEC’s continuing investigation is being conducted by Scott A. Thompson, A. Kristina Littman, and John S. Rymas.  G. Jeffrey Boujoukos and Catherine E. Pappas are handling the litigation.  All are with the SEC’s Philadelphia Regional Office.

The SEC acknowledges the assistance of the Options Regulatory Surveillance Authority (ORSA), the U.S. Attorney’s Office for the Southern District of New York, and the Federal Bureau of Investigation.

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SEC CHARGES PALM BEACH HEDGE FUND ADVISORY FIRM AND FOUNDER WITH FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged a West Palm Beach, Fla.-based hedge fund advisory firm and its founder with fraudulently shifting money from one investment to another without informing investors.  The firm’s founder and another individual later pocketed some of the transferred investor proceeds to enrich themselves.

The SEC alleges that Weston Capital Asset Management LLC and its founder and president Albert Hallac illegally drained more than $17 million from a hedge fund they managed and transferred the money to a consulting and investment firm known as Swartz IP Services Group Inc.  The transaction went against the hedge fund’s stated investment strategy and wasn’t disclosed to investors, who received account statements falsely portraying that their investment was performing as well or even better than before.  Weston Capital’s former general counsel Keith Wellner assisted the activities.

The SEC further alleges that out of the transferred investor proceeds, Hallac, Wellner, and Hallac’s son collectively received $750,000 in payments from Swartz IP.  Weston Capital and Hallac also wrongfully used $3.5 million to pay down a portion of a loan from another fund managed by the firm.

“Investment advisers owe their clients a fiduciary duty of utmost good faith and full disclosure about what they’re doing with their money,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.  “Weston and Hallac dishonored that duty with Wellner’s assistance by secretly steering investor proceeds to a third party and then pocketing some of those funds.”

Weston Capital, Hallac, and Wellner agreed to settle the SEC’s charges along with Hallac’s son Jeffrey Hallac, who is named as a relief defendant in the SEC’s complaint for the purposes of recovering ill-gotten gains in his possession.  The court will determine monetary sanctions for Weston Capital and Hallac at a later date.  Wellner and Jeffrey Hallac each agreed to pay $120,000 in disgorgement.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, Weston Capital managed more than a dozen unregistered hedge funds in early 2011 with combined total assets of approximately $230 million.  One of the funds managed by the firm was Wimbledon Fund SPC, which was segregated into five separate classes of investment portfolios.  The Class TT Segregated Portfolio was required to invest all of its investor money in a diversified multi-billion hedge fund called Tewksbury Investment Fund Ltd., that invested in short-term, low risk interest bearing accounts and U.S. Treasury Bills.

The SEC alleges that in violation of its stated investment strategy, Weston Capital and Hallac redeemed TT Portfolio’s entire investment in the Tewksbury hedge fund and transferred the money to Swartz IP.  The transaction was not disclosed to investors and Weston Capital and Hallac solicited and received investments for the TT Portfolio during this time while knowing the funds would not be invested in Tewksbury. As soon as Swartz IP received the money transfers, it disbursed the funds primarily to a special purpose entity created to support and finance varying medically related business ventures.

The SEC’s complaint alleges that Weston and Hallac violated federal anti-fraud laws and rules as well as Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8, and that Wellner aided and abetted these violations.  Without admitting or denying the allegations, Weston Capital, Hallac, and Wellner consented to the entry of a judgment enjoining them from future violations of these provisions.  

The SEC’s investigation was conducted by Julie M. Russo and Karaz S. Zaki under the supervision of Elisha L. Frank in the SEC’s Miami Regional Office and was assisted by Victor M. Pedroso III, Jean M. Cabot, and John C. Mattimore of the Miami office examination program.  The SEC’s litigation is being led by Russell Koonin.

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