SEC ALLEGES HYPING STOCK PRICE SCHEME IN FLORIDA

The following excerpt is from the SEC website:

Washington, D.C., Jan. 26, 2012 – The Securities and Exchange Commission today charged a Fort Lauderdale-based firm and its founder with conducting a fraudulent boiler room scheme in which they hyped stock in two thinly-traded penny stock companies while behind the scenes they sold the same stock themselves for illegal profits.

The SEC alleges that First Resource Group LLC and its principal David H. Stern employed telemarketers who fraudulently solicited brokers to purchase stock in TrinityCare Senior Living Inc. and Cytta Corporation. While recommending the securities in these two microcap companies, Stern sold First Resource’s shares of TrinityCare and Cytta stock unbeknownst to investors who were purchasing them – a practice known as scalping. As Stern was selling the stocks, he also purchased small amounts in order to create the false appearance of legitimate trading activity and induce investors to purchase shares in both companies.
“First Resource and Stern used a telephone sales boiler room to make inflated claims and defraud investors while simultaneously manipulating the price of the stocks and making profits for themselves,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “The SEC will continue to aggressively pursue perpetrators of microcap stock fraud schemes that hound potential investors to buy stock.”
Since the beginning of fiscal year 2011, the SEC has filed more than 50 enforcement actions for misconduct related to microcap stocks, and issued 63 orders suspending the trading of suspicious microcap issuers. Microcap stocks are issued by the smallest of companies and tend to be low priced and trade in low volumes. Many microcap companies do not file financial reports with the SEC, so investing in microcap stocks entails many risks.

According to the SEC’s complaint filed against Stern and First Resource in U.S. District Court for the Southern District of Florida, they violated federal securities laws by acting as unregistered broker-dealers. Stern hired and trained First Resource’s salespeople and gave them information about TrinityCare to prepare sales scripts and pitch the stock to potential investors. Stern reviewed the draft scripts, made edits, and approved the scripts before the salespeople were allowed to use them.
The SEC alleges that Stern gave the salespeople a list of potential investors to cold call and pitch the stocks. First Resource’s salespeople falsely claimed TrinityCare stock “is going to be $5-7 in 6-12 months” and the company “is going to be a half-a-billion dollar company in five years or roughly a $40 stock.” Stern also disseminated a research report on Cytta to investors and falsely touted: “Sales projections for 2010-2014 should exceed $500 million with a pre-tax net of over $400 million.”
The SEC’s complaint alleges that First Resource Group and Stern violated Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC is seeking permanent injunctions, disgorgement plus prejudgment interest, and financial penalties as well as a penny stock bar against Stern.

The SEC’s investigation was conducted by Jorge L. Riera under the supervision of Elisha L. Frank in the SEC’s Miami Regional Office in coordination with an examination of First Resource conducted by Anson Kwong, Michael J. Nakis, George Franceschini, and Nicholas A. Monaco of the SEC’s Miami office. Edward D. McCutcheon will lead the SEC’s litigation efforts.
The SEC’s investigation is continuing."

SEC OBTAINS FINAL JUDGMENTS AGAINST BARAI CAPITAL MANAGEMENT AND OTHERS

 

The following excerpt is from the SEC website:

January 25, 2012

"The SEC announced that the Honorable Jed S. Rakoff, United States District Judge, United States District Court for the Southern District of New York, entered a Final Judgment on Consent as to Noah Freeman on December 23, 2011, and entered Final Judgments on Consent as to Bob Nguyen, Samir Barai and Barai Capital Management on January 23, 2012, in the SEC's insider trading case, SEC v. Mark Anthony Longoria, et al., 11-CV-0753 (SDNY) (JSR).

This case alleges insider trading by ten individuals and one investment adviser entity, all of whom are consultants, employees, or clients of the so-called "expert network" firm, Primary Global Research LLC ("PGR"). The SEC filed its Complaint on February 3, 2011, charging two PGR employees and four consultants with insider trading for illegally tipping hedge funds and other investors. On February 8, 2011, the SEC filed an Amended Complaint, charging a New York-based hedge fund and four hedge fund portfolio managers and analysts who illegally traded on confidential information obtained from technology company employees moonlighting as expert network consultants. The scheme netted more than $30 million from trades based on material, nonpublic information about such companies as Advanced Micro Devices, Seagate Technology, Western Digital, Fairchild Semiconductor, and Marvell Technology Group Ltd. The charges were the first against traders in the SEC's ongoing investigation of insider trading involving expert networks.

The SEC alleged that Nguyen was a PGR employee who facilitated the transfer of material nonpublic information from PGR consultants to PGR clients and, in certain instances, acted as a conduit by receiving material nonpublic information from PGR consultants and passing that information directly to PGR clients. The SEC also alleged that Freeman, Barai and Barai Capital were among the recipients of the material nonpublic information supplied by PGR consultants and employees, and either traded on the information or directly or indirectly caused hedge funds they managed or were otherwise affiliated with to trade based on the information.

The Final Judgment entered against Freeman: (1) permanently enjoins him from violations of Section 10(b) of the Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5; and (2) orders him liable for disgorgement of ill-gotten gains of $833,480, together with prejudgment interest of $180,548, for a total of $1,014,028. Based on Freeman's agreement to cooperate with the SEC, the Commission did not seek a civil penalty. In addition, on January 20, 2012, the Commission issued an order on consent in a related administrative proceeding that bars Freeman from association with any broker, dealer, investment adviser, municipal securities dealer or transfer agent.

The Final Judgment entered against Nguyen: (1) permanently enjoins him from violations of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5; and (2) orders him liable for disgorgement of ill-gotten gains of $190,890.04, together with prejudgment interest of $11,449.16, for a total of $202,339.20. Based on Nguyen's agreement to cooperate with the SEC, the Commission did not seek a civil penalty. In addition, Nguyen has agreed to be barred in a separate administrative proceeding from association with any broker, dealer, investment adviser, municipal securities dealer or transfer agent, and from participating in any offering of a penny stock.

The Final Judgment entered against Barai: (1) permanently enjoins him from violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), 10(b) of the Exchange Act and Exchange Act Rule 10b-5; and (2) orders him liable for disgorgement of ill-gotten gains of $3,000,000, together with prejudgment interest of $434,225.47, for a total of $3,434,225,47. Based on Barai's agreement to cooperate with the SEC, the Commission did not seek a civil penalty. In addition, Barai has agreed to be barred in a separate administrative proceeding from association with any broker, dealer, investment adviser, municipal securities dealer or transfer agent.

The Final Judgment entered against Barai Capital: (1) permanently enjoins it from violations of Section 17(a) of the Securities Act, 10(b) of the Exchange Act and Exchange Act Rule 10b-5; and (2) orders it liable, jointly with Barai, for disgorgement of ill-gotten gains of $3,000,000, together with prejudgment interest of $434,225.47, for a total of $3,434,225,47."

SEC ANNOUNCES TEMPORARY SUSPENSION OF TRADING IN "ONYX" SECURITIES

The following excerpt is from the SEC website:

"UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934

Release No. 66262 / January 27, 2012
The Securities and Exchange Commission (“Commission”) announced the temporary
suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the “Exchange
Act”), of trading in the securities of Onyx Service & Solutions, Inc. (“ONYX”), of Greenwood
Village, CO commencing at 9:30 a.m. on January 27, 2012, and terminating at 11:59 p.m. on
February 9, 2012.

The Commission temporarily suspended trading in the securities of ONYX because of questions
that have been raised about the accuracy and adequacy of publicly disseminated information
concerning, among other things, the company’s business projects and prospects.
The Commission cautions broker-dealers, shareholders, and prospective purchasers that they
should carefully consider the foregoing information along with all other currently available
information and any information subsequently issued by the company.

Further, brokers and dealers should be alert to the fact that, pursuant to Rule 15c2-11 under the
Exchange Act, at the termination of the trading suspension, no quotation may be entered unless
and until they have strictly complied with all of the provisions of the rule. If any broker or dealer
has any questions as to whether or not he has complied with the rule, he should not enter any
quotation but immediately contact the staff in the Division of Trading and Markets, Office of
Interpretation and Guidance, at (202) 551-5777.  If any broker or dealer is uncertain as to what is
required by Rule 15c2-11, he should refrain from entering quotations relating to ONYX
securities until such time as he has familiarized himself with the rule and is certain that all of its
provisions have been met.  If any broker or dealer enters any quotation which is in violation of
the rule, the Commission will consider the need for prompt enforcement action. “

BOTH FIRMS AND INDIVIDUALS CHARGED IN ALLEGED HIJACKED BROKERAGE ACCOUNT SCHEME

The following excerpt is from the SEC website:

January 26, 2012
“The Securities and Exchange Commission today charged a trader in Latvia for conducting a widespread online account intrusion scheme in which he manipulated the prices of more than 100 NYSE and Nasdaq securities and caused more than $2 million in harm to customers of U.S. brokerage firms.

The SEC also instituted related administrative proceedings today against four electronic trading firms and eight executives charged with enabling the trader’s scheme by allowing him anonymous and unfiltered access to the U.S. markets.

According to the SEC’s complaint filed in federal court in San Francisco, Igors Nagaicevs broke into online brokerage accounts of customers at large U.S. broker-dealers and drove stock prices up or down by making unauthorized purchases or sales in the hijacked accounts. This occurred on more than 150 occasions over the course of 14 months. Nagaicevs – using the direct, anonymous market access provided to him by various unregistered firms – traded those same securities at artificial prices and reaped more than $850,000 in illegal profits.

According to the SEC’s orders instituting administrative proceedings against the four electronic trading firms, they allowed Nagaicevs to trade through their electronic platforms without first registering as brokers. Each of the trading firms provided him online access to trade directly in the U.S. markets through an account held in the firm’s name. These firms gave Nagaicevs a gateway to the U.S. securities markets while circumventing the protections of the federal securities laws, including requirements for brokers to maintain and follow adequate procedures to gather information about customers and their trading.

The electronic trading firms and individuals named in the SEC’s administrative proceedings are:
Alchemy Ventures, Inc. of San Mateo, Calif.
Mark H. Rogers, the firm’s president, who lives in San Carlos, Calif.
Steven D. Hotovec, the firm’s vice president, who lives in Redwood City, Calif.
KM Capital Management, LLC of Philadelphia
Joshua A. Klein, the firm’s founder and co-owner, who lives in Philadelphia
Yisroel M. Wachs, the firm’s co-owner, who lives in Philadelphia
Zanshin Enterprises, LLC of Boise, Idaho
Frank K. McDonald, managing member of the firm, who lives in Boise
Richard V. Rizzo, an associate of the firm, who lives in Oceanside, N.Y.
Mercury Capital of La Jolla, CA
Lisa R. Hyatt, the firm’s president, who lives in Escondido, Calif.
Douglas G. Frederick, an associate of the firm, who lives in Brighton, Mich.
Mercury Capital, Hyatt, and Rizzo each agreed to a settlement in which they consented to SEC orders finding that they willfully committed or aided and abetted and caused violations of Section 15(a) of the Securities Exchange Act of 1934 (“Exchange Act”). Hyatt and Rizzo each agreed to pay a $35,000 penalty.
The SEC’s administrative action will determine whether the non-settling trading firms and principals willfully violated Section 15(a) of the Exchange Act, or whether the non-settling principals willfully aided and abetted and caused violations of Section 15(a) of the Exchange Act, and what sanctions, if any, are appropriate as a result. The SEC’s complaint alleges that Nagaicevs violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, and seeks injunctive relief, disgorgement with prejudgment interest, and financial penalties.”

ALLEGED FAMILY TIPS HAS LED TO INSIDER TRADING CHARGES

January 24, 2012

"The Securities and Exchange Commission today charged three people with insider trading in the securities of Oak Hill Financial, Inc. (“Oak Hill”) ahead of a July 20, 2007 announcement that Oak Hill would be acquired by WesBanco, Inc. (Nasdaq: WSBC). The Commission alleges Dale Shafer, who at the time was Oak Hill’s interim CFO, shared information with his cousin, Jason Gonski, about the anticipated merger. Gonski purchased Oak Hill stock in his account and another account and made approximately $35,500 in illicit profits. In addition, Gonski tipped his friend Joseph Mroz, and the two men together made approximately $15,099 from illegal trading in Oak Hill stock.

The case was filed in the U.S. District Court for the Southern District of Ohio. The complaint alleges that:

Shafer learned of the planned merger on May 14, 2007, and told Gonski about it. Gonski misappropriated the information by trading on it. He later told Shafer that he bought Oak Hill stock. Shafer did not tell Gonski to stop trading and did not tell anyone at Oak Hill what had happened. Over the next several weeks, Shafer continued to provide material, nonpublic information about the merger to Gonski and during this time period, Gonski substantially increased his position in Oak Hill. Gonski also tipped his friend Mroz, and they both bought shares of Oak Hill using Mroz’s brokerage account. Total profits in the accounts Gonski traded in were approximately $50,000, which includes $15,099 in profits from trading in the account of Mroz.

Without admitting or denying the allegations in the complaint, Shafer, Gonski and Mroz have offered to settle the case by consenting to the entry of a final judgment permanently enjoining them from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The three settling defendants have agreed to pay disgorgement, prejudgment interest, and penalties totaling more than $150,000, as follows:

Gonski will pay disgorgement and prejudgment interest totaling $59,565.24 for which Shafer is jointly and severally liable for $38,957.81 of that amount and Mroz is jointly and severally liable for $8,766.74. Gonski will pay a civil penalty of $50,686.38. Shafer will pay a civil penalty of $33,484.08. Mroz will pay a civil penalty of $7,459.95. In addition, Shafer has agreed to be barred for five years from serving as an officer or director of a publicly traded company. Shafer has also consented to the issuance of an order under Rule 102(e)(3) suspending him from appearing or practicing before the Commission as an accountant with a right to apply for reinstatement after five years. The proposed settlements are subject to the court’s approval.

The Commission acknowledges the assistance of FINRA in this matter."

SEC FILES CIVIL INJUNCTION IN ALLEGED STOCK INFLATION SCHEME

 The following excerpt is from the SEC website:

January 25, 2012
“On January 25, 2012, the Securities and Exchange Commission (“Commission”) filed a civil injunctive action against a former senior vice president and a vendor of InPhonic, Inc., a now-bankrupt online retailer of cellular phones that was headquartered in Washington, D.C. According to the Commission’s complaint, from late 2005 through early 2007, Len A. Familant, then an InPhonic senior vice president, and Paul V. Greene, president of telephone supplier Americas Premiere Corporation (“APC”), engaged in a fraudulent scheme involving a series of “round-trip transactions” to artificially inflate InPhonic’s financial results.

The Commission’s complaint, filed in federal court in the District of Columbia, alleges:
After the end of the third quarter of 2005 and each quarter in 2006, but before InPhonic reported its financial results, Familant obtained a total of almost $10 million in sham credits from APC and Greene. Familant and Greene entered into an unwritten, undisclosed agreement that InPhonic would repay APC by purchasing cellular telephones and repair services from APC at inflated prices and by paying for fake repairs.

InPhonic improperly recorded the false credits from APC as a decrease in cost of goods sold. InPhonic subsequently made repayments to APC in the form of overpayments for cellular telephones, repair services and fake repairs.

The round-trip scheme agreed to and implemented by Familant and Greene resulted in material understatements of InPhonic’s net loss (between 7% and 55%) in quarterly and annual filings with the Commission and material overstatements of InPhonic’s adjusted EBITDA in earnings releases from 2005-2007.

Familant and Greene concealed the fraudulent round-trip scheme. For instance, together they identified particular telephone models APC could provide to InPhonic at inflated prices without raising suspicion.

Greene hid the round-trip scheme from InPhonic’s independent auditors even after APC’s accountant had informed Greene that APC’s sham credit transactions with InPhonic were illegal.

Familant encouraged APC to hide its billing for phony services after Familant learned that APC’s accountant had told Greene, “[w]e cannot do that. That is fraud. . . .”

In October 2007, as InPhonic’s business was failing and after APC had been unable to fully recoup the credits, Greene sent an email to himself outlining a proposed lawsuit against InPhonic. Greene referred to “the fake credits that were negotiated with INPC that they were using to hit certain quarterly numbers.”
Greene is charged with violating, and aiding and abetting InPhonic’s and Familant’s violations, of the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Exchange Act Rules 10b-5(a) and (c). Greene is also charged with violating the books and records provision of Exchange Act Rule 13b2-1, and with aiding and abetting InPhonic’s violations of the reporting and books and records provisions of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11 and 13a-13. The SEC is seeking a permanent injunction, disgorgement, civil penalties and prejudgment interest against Greene.

Familant has agreed to settle the Commission’s charges without admitting or denying the allegations against him. Familant has consented to a final judgment enjoining him from violating the antifraud provisions of Section 10(b) of the Exchange Act and Exchange Act Rules 10b-5(a) and (c), and the books and records provision of Exchange Act Rule 13b2-1, and from aiding and abetting InPhonic’s violations of the reporting and books and records provisions of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13. Familant also has agreed to pay a $50,000 civil penalty and to be barred from serving as an officer or director of a public company. The proposed settlement with Familant is subject to the approval of the District Court.”

HEDGE FUND ADVISER TO PAY $9 MILLION TO SETTLE INSIDER-TRADING CHARGES

The following excerpt is from a SEC e-mail: 

01/23/2012 10:33 AM EST

"Washington, D.C., Jan. 23, 2012 — The Securities and Exchange Commission today announced that Diamondback Capital Management LLC has agreed to pay more than $9 million to settle insider-trading charges brought by the Commission on Jan. 18. The proposed settlement is subject to the approval of Judge Paul G. Gardephe of the U.S. District Court for the Southern District of New York. As part of the proposed settlement, the Stamford, Conn.-based hedge fund adviser also has submitted a statement of facts to the SEC and federal prosecutors, and entered into a non-prosecution agreement with the U.S. Attorney’s Office for the Southern District of New York.

Under the proposed settlement, Diamondback will give up more than $6 million of allegedly ill-gotten gains and pay a $3 million civil penalty. In addition, Diamondback consented to a judgment that permanently enjoins it from future violations of federal anti-fraud laws. The proposed settlement would resolve charges of insider trading by Diamondback in shares of Dell Inc. and Nvidia Corp. in 2008 and 2009.

“We are pleased to have reached a prompt resolution of the charges against Diamondback,” said George S. Canellos, Director of the SEC’s New York Regional Office. “If approved by the court, we believe that the proposed settlement appropriately sanctions the misconduct while giving due credit to Diamondback for its substantial assistance in the government’s investigation and the pending actions against former employees and their co-defendants.”

Last week, the SEC filed insider-trading charges against Diamondback, a second hedge fund advisory firm, and seven individuals, including a former Diamondback analyst and former Diamondback portfolio manager. In reaching the proposed settlement announced today, the SEC considered the substantial cooperation that Diamondback provided, including conducting extensive interviews of staff, reviewing voluminous communications, analyzing complex trading patterns to determine suspicious trading activity, and presenting the results of its internal investigation to federal investigators."

JUDGEMENT ANNOUNCED AGAINST PERMAPAVE ENTITIES

The following excerpt is from the SEC website:

January 23, 2012
“The Securities and Exchange Commission today announced that, on January 19, 2012, the Honorable Jed S. Rakoff of the United States District Court for the Southern District of New York entered a default judgment that imposes a permanent injunction against future violations of the registration and antifraud provisions of the federal securities laws against PermaPave Industries, LLC, PermaPave USA Corp., PermaPave Distributions, Inc., and Verigreen, LLC (the PermaPave Entities) and that also imposes a permanent injunction against future violations of the reporting and antifraud provisions of the federal securities laws against Interlink-US-Network, Ltd.

As to monetary relief, the judgment orders the PermaPave Entities to pay disgorgement, prejudgment interest, and civil penalties and orders Interlink to pay civil penalties. The judgment also orders relief defendants DASH Development, LLC, Aron Holdings, Inc., PermaPave Construction Corp., Dymoncrete Industries, LLC, Dymon Rock LI, LLC, and Lumi-Coat, Inc. to disgorge the ill-gotten gains they received from defendants.

This judgment resolves the Commission’s claims and grants all relief sought against the PermaPave Entities, Interlink, DASH, Aron Holdings, PermaPave Construction, Dymoncrete Industries, Dymon Rock, and Lumi-Coat in a civil action filed on October 6, 2011.

The Commission’s Complaint alleged that, from 2006 to 2010, the PermaPave Entities raised more than $26 million from the sale of promissory notes and “use of funds” agreements to over 140 investors. Their management told investors that there was a tremendous demand for the product that the PermaPave Entities ostensibly sold – permeable paving stones – and that investors would be repaid by the profits generated by the guaranteed sales of this product. In reality, however, there was little demand for the product, and defendants used investor proceeds to make “interest” and “profit” payments to earlier investors and to fund management’s lavish lifestyles. The management of the PermaPave Entities also caused Interlink to issue a Form 8-K stating that a company that had never heard of Interlink had agreed to invest $6 million in Interlink.

The judgment (i) permanently enjoins the PermaPave Entities 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 Exchange Act Rule 10b-5, (ii) permanently enjoins Interlink from future violations of Sections 10(b) and 13(a) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, and 13a-11, (iii) orders the PermaPave Entities to pay $7,734,983 in disgorgement, $281,268 in prejudgment interest, and $7.7 million in civil penalties, (iv) orders Interlink to pay $375,000 in civil penalties, and (v) orders relief defendants DASH, Aron Holdings, PermaPave Construction, Dymoncrete Industries, Dymon Rock, and Lumi-Coat to disgorge ill-gotten gains received from defendants totaling $4,236,252 and prejudgment interest totaling $214,233.

The Commission’s civil action continues against Defendants Eric Aronson, Vincent Buonauro, Robert Kondratick, Fredric Aaron, and Permeable Solutions, Inc. and Relief Defendants Caroline Aronson and Deborah Buonauro.”

SEC CHARGES BIG HEDGE FUNDS WITH INSIDER TRADING SCHEME INVOLVING DELL AND NVIDIA CORPORATION

The following excerpt is from the SEC website:

“On January 18, 2012, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York charging two multi-billion dollar hedge fund advisory firms as well as seven fund managers and analysts involved in a $78 million insider trading scheme based on nonpublic information about Dell’s quarterly earnings and other similar inside information about Nvidia Corporation.

The charges stem from the SEC’s ongoing investigation into the trading activities of hedge funds. The U.S. Attorney for the Southern District of New York today announced criminal charges against the same seven individuals.

The SEC alleges that a network of closely associated hedge fund traders at Stamford, Conn.-based Diamondback Capital Management LLC and Greenwich, Conn.-based Level Global Investors LP illegally obtained the material nonpublic information about Dell and Nvidia. Investment analyst Sandeep “Sandy” Goyal of Princeton, N.J., obtained Dell quarterly earnings information and other performance data from an insider at Dell in advance of earnings announcements in 2008. Goyal tipped Diamondback analyst Jesse Tortora of Pembroke Pines, Fla., with the inside information, and Tortora in turn tipped several others, leading to insider trades on behalf of Diamondback and Level Global hedge funds.

According to the SEC’s complaint, the illicit gains in the Dell insider trades exceeded $62.3 million, and the illicit gains in the Nvidia insider trades exceeded $15.7 million. For his role in the scheme, Goyal was paid $175,000 in soft dollar payments that were deposited in a brokerage account of an individual affiliated with him.
The SEC alleges that after obtaining the inside information from Goyal in advance of Dell’s first and second quarter earnings announcements in 2008, Tortora tipped his portfolio manager at Diamondback, Todd Newman of Needham, Mass. Newman traded on the information on behalf of the Diamondback hedge funds he controlled. Tortora also tipped Spyridon “Sam” Adondakis, an analyst at Level Global. Adondakis tipped his manager Anthony Chiasson, who then traded on the inside information on behalf of Level Global hedge funds. During this time period, both Adondakis and Chiasson lived in New York City.

According to the SEC’s complaint, Tortora also tipped two others at firms other than Diamondback or Level Global with the Dell inside information: Jon Horvath of New York City and Danny Kuo of San Marino, Calif. Horvath caused insider trades at his firm that resulted in approximately $1.4 million of illicit gains. Kuo similarly caused the firm where he worked to execute profitable insider trades in Dell securities.
The SEC further alleges that Kuo also obtained inside information about Nvidia Corporation’s calculation of its revenues, gross profit margins, and other financial metrics in advance of the company’s first quarter 2010 earnings announcements, which was made in May 2009. Kuo again caused his firm to trade on inside information. Kuo’s insider trades in Dell and Nvidia resulted in approximately $270,000 in ill-gotten gains. Kuo also tipped Tortora at Diamondback and Adondakis at Level Global with the nonpublic information about Nvidia. Tortora again tipped Newman, who made more insider trades on behalf of the Diamondback hedge funds. The illegal trades in Dell and Nvidia securities resulted in $3.9 million in illicit gains for Diamondback. At Level Global, Adondakis tipped Chiasson who made the insider trades on behalf of those hedge funds. Chiasson’s insider trades in Dell and Nvidia resulted in approximately $72.6 million of illicit gains for the Level Global hedge funds.

The SEC’s complaint charges each of the defendants with violations of Section 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, additionally, charges Goyal, Tortora, Newman, Adondakis, Chiasson, Horvath and Kuo with aiding and abetting others’ violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC’s complaint seeks a final judgment ordering the defendants to disgorge their ill-gotten gains plus prejudgment interest, ordering them to pay financial penalties, and permanently enjoining them from future violations of these provisions of the federal securities laws.”

DIRECTOR OF SEC ENFORCEMENT DIVISION SPEAKS

The following excerpt is from the SEC website:

Speech by SEC Staff:
News Conference Remarks

by

Robert Khuzami

Director of the SEC’s Division of Enforcement
U.S. Securities and Exchange Commission

U.S. Attorney’s Office for the Southern District of New York
New York, N.Y.
January 18, 2012

Good afternoon. My name is Robert Khuzami, and I’m the Director of the SEC's Division of Enforcement.

Once again, so-called white collar professionals who enjoy so many advantages break the law in a likely craving for more money, more celebrity, and the mirage of success.

Once again, so-called white-collar professionals who should know better disregard the most basic wisdom that we teach our children – to do right and not wrong.

Once again, in a new year, I find myself here alongside our criminal law enforcement partners announcing new but troublingly familiar charges of insider trading by hedge fund firms, fund managers, and analysts.

The SEC today has filed civil charges against seven individuals, and additionally has charged two prominent hedge fund advisory firms, Diamondback and Level Global.

Why is this action so significant?

First, today’s action lays bare an organized network of analysts and fund traders who set up and used a corrupt network to obtain insider information.

This is very different from – and far more disturbing than – cases where we see opportunistic trading by someone who happens to come into possession of valuable inside information, such as a once-in-a-lifetime takeover of other extraordinary corporate announcement, and succumbs to the temptation of illegal profits.

Rather, this involves professionals who illegally obtain routine business information, such as quarterly earnings and profit margin estimates.

They then use their sophisticated trading skills to analyze the likely impact of the discrepancy between actual and expected financial results.

And then they put on trades using large amounts of capital and increasingly liquid options markets to magnify their illegal profits.

To put this last point in perspective, we allege these defendants obtained $78 million in illegal profits and avoided losses based on insider information from only three quarterly earnings reports.

This is systemic dishonesty, and it exposes a deeply embedded level of corruption.

Second, but perhaps the most worrisome, the illegal conduct alleged in today’s action was not perpetrated by fringe players in the investment adviser industry, but rather by some of the largest and most sophisticated hedge funds in the country, including Level Global and Diamondback.

There is nothing wrong with hedge funds, which can and do provide valuable services for clients and liquidity for markets.

But hedge funds are also characterized by a lack of transparency in trading practices, market power that can give them influence over those who possess insider information, access to leverage and enormous amounts of capital, and the techniques to trade extremely quickly.

These characteristics, if put to use for illicit purposes, present a grave threat to the integrity of the markets and the level playing field that is the foundation for those markets.

In closing, I’d like to thank Preet Bharara and Janice Fedarcyk and their teams from the U.S. Attorney’s Office and the FBI.

Their work, as always, has been outstanding and represents the very best in public service.

Lastly, I want to recognize the hard work and dedication of the SEC staff that conducted this investigation with thoroughness and tireless enthusiasm. Their effort has been exceptional, and I could not be more proud of what they have accomplished.

$9 MILLION ALLEGED MISAPPROPRIATION PROMPTS SEC TO FILE CHARGES

The following excerpt is from the SEC website:

January 18, 2012

"The Securities and Exchange Commission today announced that it has filed charges and obtained emergency relief, including an asset freeze and the appointment of a receiver, against several St. Louis, Missouri private investment funds and management companies. The SEC alleges that Burton Douglas Morriss, the principal of these entities, misappropriated over $9 million of investor assets.

The SEC alleges that Morriss told investors that his private investment funds and management companies would invest their money in a portfolio of financial services and technology companies. However, investors were unaware that for the past several years, Morriss had been misappropriating their money to the tune of millions of dollars through a series of fraudulent transfers to himself and another entity he controlled. To conceal his fraud, Morriss later disguised these fraudulent transfers as personal loans.

According to the SEC’s complaint filed in federal court in St. Louis, Missouri, at various times between approximately 2003 and 2011, Morriss, his two private investment funds, MIC VII, LLC and Acartha Technology Partners, LP, and his management firms, Gryphon Investments III, LLC and Acartha Group, LLC, raised at least $88 million from at least 97 investors to invest in preferred shares or membership interests in the defendant entities. The defendants represented to investors that the investment funds would invest in early to mid-stage companies in the financial services and technology sectors.

The SEC alleges that unbeknownst to investors, for the past several years, Morriss has misappropriated investor funds through transfers from his companies to himself and another entity he controlled, Morriss Holdings, LLC, to pay for personal expenses, including, mortgage and alimony payments, payment of personal loans, pleasure trips, and household expenses. In an attempt to conceal his scheme, the fraudulent transfers that Morriss made to himself were recorded as “loans” on the defendant entities’ books. In fact, these transfers were never truly loans because Morriss did not intend to repay them at the time of his misappropriation. Moreover, the funds transferred to Morriss for his personal use were inconsistent with the disclosures contained in the offering materials provided to investors.

The SEC’s complaint also alleges that Morriss concocted a scheme to recruit new investors to purchase membership interests in one of his private investment funds without the unanimous consent of existing investors, as required. This diluted the investments of the fund’s existing investors.

On January 17, 2012, the Honorable Carol E. Jackson granted the SEC’s request for asset freezes, the appointment of a receiver over the entity defendants, and other emergency relief to prevent further dissipation of investor assets. The SEC seeks permanent injunctive relief and financial penalties against Morriss and the entity defendants, as well as disgorgement of all ill-gotten gains from them and the relief defendant Morriss Holdings, LLC. The SEC also seeks an officer-and-director bar against Morriss. In addition, the SEC’s action names Morriss Holdings, LLC as a relief defendant.

The SEC’s complaint charges:

• Morriss with violations of Section 17(a)(1), (2), and (3) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5(a) and (c) thereunder, his aiding and abetting violations of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder, and his violations or, in the alternative, aiding and abetting violations of Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) and Rule 206(4)-8(a)(2);
• Acartha Group and Gryphon III with violations of Section 17(a)(1), (2), and (3) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5(a),(b), and (c) thereunder, and Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8(a)(2), thereunder; and
• MIC VII and ATP with violations of Section 17(a)(1), (2), and (3) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5(a), (b), and (c) thereunder."

FDIC SAYS IT CAN SUE PROFESSIONALS WHO PLAYED ROLE IN THE FAILURE OF AN INSTITUTION

The following excerpt is from the FDIC website:

As receiver for a failed financial institution, the FDIC may sue professionals who played a role in the failure of the institution in order to maximize recoveries. These individuals can include officers and directors, attorneys, accountants, appraisers, brokers, or others. Professional liability claims also include direct claims against insurance carriers such as fidelity bond carriers and title insurance companies.

The FDIC follows the policies adopted by the FDIC Board in 1992, Statement Concerning the Responsibilities of Bank Directors and Officers, require Board approval before actions are brought against directors and officers.

Professional liability suits are only pursued if they are both meritorious and cost-effective. Before seeking recoveries from professionals, the FDIC conducts a thorough investigation into the causes of the failure. Most investigations are completed within 18 months from the time the institution is closed. Prior to filing the claim, staff will attempt to settle with the responsible parties. If a settlement cannot be reached, however, a complaint will be filed, typically in federal court.

As receiver, the FDIC has three years for tort claims and six years for breach-of-contract claims to file suit from the time a bank is closed. If state law permits a longer time, the state statute of limitations is followed.

Professionals may be sued for either gross or simple negligence. The The Supreme Court has ruled that the FDIC may pursue simple negligence claims against directors and officers if state law permits (Atherton v. FDIC)."

BANK AND TOP EXECUTIVE CHARGED BY SEC WITH MISLEADING INVESTORS

The following excerpt is from an SEC e-mail: 

"Washington, D.C., Jan. 18, 2012 — The Securities and Exchange Commission today charged the holding company for one of Florida’s largest banks and its top executive with misleading investors about growing problems in one of its significant loan portfolios early in the financial crisis.

The SEC alleges that BankAtlantic Bancorp and its CEO and chairman Alan Levan made misleading statements in public filings and earnings calls in order to hide the deteriorating state of a large portion of the bank’s commercial residential real estate land acquisition and development portfolio in 2007. BankAtlantic and Levan then committed accounting fraud when they schemed to minimize BankAtlantic’s losses on their books by improperly recording loans they were trying to sell from this portfolio in late 2007.

“BankAtlantic and Levan used accounting gimmicks to conceal from investors the losses in a critical loan portfolio," said Robert Khuzami, Director of the SEC's Division of Enforcement. "This is exactly the type of information that is important to investors, and corporate executives who fail to make that required disclosure will face severe consequences."

According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, BankAtlantic and Levan knew that a large portion of the loan portfolio — which consisted primarily of loans on large tracts of lands intended for development into single family housing and condominiums — was deteriorating in early 2007 because many of the loans had required extensions due to borrowers’ inability to meet their loan obligations. Some loans were kept current only by extending the loan terms or replenishing the interest reserves from an increase in the loan principal. Levan knew this negative information in part from participating in the bank’s Major Loan Committee that approved the extensions and principal increases. BankAtlantic and Levan also were aware that many of the loans had been internally downgraded to non-passing status, indicating the bank was deeply concerned about those loans.

“BankAtlantic and Levan publicly minimized the risks in the bank’s commercial residential loan portfolio when in reality, they had significant concerns about the borrowers’ ability to pay,” said Eric I. Bustillo, Miami Regional Office Director. “Investors had a right to know this key information.”

The SEC alleges that despite this knowledge, BankAtlantic’s public filings in the first two quarters of 2007 made only generic warnings of what may occur in the future if Florida’s real estate downturn continued. BankAtlantic failed to disclose the downward trend already occurring in its own portfolio. The steady deterioration of this portfolio constituted a known trend that should have been disclosed in the Management’s Discussion and Analysis (MD&A) section of BankAtlantic’s filings, which were signed by Levan. During earnings calls in the same time period, Levan made further misleading statements to investors about the portfolio. BankAtlantic finally acknowledged the problems in the third quarter of 2007 by announcing a large unexpected loss. The investing public did not expect a loss of that magnitude, and BankAtlantic’s share price immediately dropped 37 percent.

According to the SEC’s complaint, BankAtlantic and Levan attempted to sell some of the deteriorating loans after this announcement. However, they failed to account for them properly as being “held for sale,” which is required by Generally Accepted Accounting Principles (GAAP). BankAtlantic concealed the attempted sales from auditors and investors alike, because proper accounting would have required BankAtlantic to write them down and incur immediate additional losses. Instead, BankAtlantic schemed to understate its net loss by more than 10 percent in its 2007 annual report.

The SEC’s complaint seeks financial penalties and permanent injunctive relief against BankAtlantic and Levan to enjoin them from future violations of the federal securities laws. The complaint also seeks an officer and director bar against Levan.

The SEC’s investigation was conducted by Senior Counsel Brian P. Knight and Senior Accountant Fernando Torres under the supervision of Assistant Regional Director Thierry Olivier Desmet in the Miami Regional Office. C. Ian Anderson and Adam L. Schwartz will lead the SEC’s litigation efforts."

BILLION DOLLAR HEDGE FUNDS CHARGED BY SEC WITH INSIDER TRADING

The following excerlt is from an SEC e-mail:

"Washington, D.C., Jan. 18, 2012 – The Securities and Exchange Commission today charged two multi-billion dollar hedge fund advisory firms as well as seven fund managers and analysts involved in a $78 million insider trading scheme based on nonpublic information about Dell’s quarterly earnings and other similar inside information about Nvidia Corporation.

The charges stem from the SEC’s ongoing investigation into the trading activities of hedge funds. The U.S. Attorney for the Southern District of New York today announced criminal charges against the same seven individuals.

The SEC alleges that a network of closely associated hedge fund traders at Stamford, Conn.-based Diamondback Capital Management LLC and Greenwich, Conn.-based Level Global Investors LP illegally obtained the material nonpublic information about Dell and Nvidia. Investment analyst Sandeep “Sandy” Goyal of Princeton, N.J., obtained Dell quarterly earnings information and other performance data from an insider at Dell in advance of earnings announcements in 2008. Goyal tipped Diamondback analyst Jesse Tortora of Pembroke Pines, Fla., with the inside information, and Tortora in turn tipped several others, leading to insider trades on behalf of Diamondback and Level Global hedge funds.

“These are not low-level employees succumbing to temptation by seizing a chance opportunity. These are sophisticated players who built a corrupt network to systematically and methodically obtain and exploit illegal inside information again and again at the expense of law-abiding investors and the integrity of the markets,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

According to the SEC’s complaint filed in federal court in Manhattan, the illicit gains in the Dell insider trades exceeded $62.3 million, and the illicit gains in the Nvidia insider trades exceeded $15.7 million. For his role in the scheme, Goyal was paid $175,000 in soft dollar payments that were deposited in a brokerage account of an individual affiliated with him.

The SEC alleges that after obtaining the inside information from Goyal in advance of Dell’s first and second quarter earnings announcements in 2008, Tortora tipped his portfolio manager at Diamondback, Todd Newman of Needham, Mass. Newman traded on the information on behalf of the Diamondback hedge funds he controlled. Tortora also tipped Spyridon “Sam” Adondakis, an analyst at Level Global. Adondakis tipped his manager Anthony Chiasson, who then traded on the inside information on behalf of Level Global hedge funds. During this time period, both Adondakis and Chiasson lived in New York City

.

According to the SEC’s complaint, Tortora also tipped two others at firms other than Diamondback or Level Global with the Dell inside information: Jon Horvath of New York City andDanny Kuo of San Marino, Calif. Horvath caused insider trades at his firm that resulted in approximately $1.4 million of illicit gains. Kuo similarly caused the firm where he worked to execute profitable insider trades in Dell securities.

The SEC further alleges that Kuo also obtained inside information about Nvidia Corporation’s calculation of its revenues, gross profit margins, and other financial metrics in advance of the company’s first quarter 2010 earnings announcements, which was made in May 2009. Kuo again caused his firm to trade on inside information. Kuo’s insider trades in Dell and Nvidia resulted in approximately $270,000 in ill-gotten gains. Kuo also tipped Tortora at Diamondback and Adondakis at Level Global with the nonpublic information about Nvidia. Tortora again tipped Newman, who made more insider trades on behalf of the Diamondback hedge funds. The illegal trades in Dell and Nvidia securities resulted in $3.9 million in illicit gains for Diamondback. At Level Global, Adondakis tipped Chiasson who made the insider trades on behalf of those hedge funds. Chiasson’s insider trades in Dell and Nvidia resulted in approximately $72.6 million of illicit gains for the Level Global hedge funds.

The SEC’s complaint charges each of the defendants with violations of Section 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, additionally, charges Goyal, Tortora, Newman, Adondakis, Chiasson, Horvath and Kuo with aiding and abetting others’ violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC’s complaint seeks a final judgment ordering the defendants to disgorge their ill-gotten gains plus prejudgment interest, ordering them to pay financial penalties, and permanently enjoining them 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 – members of the SEC’s Market Abuse Unit in New York – and Matthew Watkins, Neil Hendelman, Diego Brucculeri and James D’Avino of the New York Regional Office. The SEC thanks the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation for their assistance in the matter."

SENATOR CARL LEVEN ON THE FALL OF ENRON REMINDERS

The following excerpt is from U.S. Senator Carl Leven's website:

Important Reminders from Enron's Fall

12-09-2011

Ten years ago this month, Enron collapsed, bankrupting the seventh largest U.S. corporation at the time and ripping away the mask from a massive and damaging corporate fraud.

This is a good time to reflect on what happened a decade ago and how many of the misdeeds that led to Enron’s collapse are still far too prevalent today. We shouldn’t forget how the culture of Enron – built on outsized corporate pay, conflicts of interest, tax evasion, financial engineering, and hidden debt – did so much harm to so many, and nearly brought the global economy to its knees. That culture is still too big a part of our financial system.

The Senate Permanent Subcommittee on Investigations, which I chair, released reports on the failure of Enron’s board members to safeguard shareholder interests; actions taken by major financial institutions to help Enron cook its books; and Enron’s use of financial engineering to make its financial results look better than they were, while evading taxes.

The findings we reached in the aftermath of Enron’s demise are worth keeping in mind as we consider our economic future. Why should we remember Enron?

• Runaway executive pay.  Enron paid its CEO Ken Lay $140 million in 2000, including $123 million in stock options. Enron set the standard for outrageous CEO pay, and demonstrated how, in search of ever-larger paychecks, CEOs can lead companies into ever-riskier schemes that endanger not just shareholders, but the economy as a whole.

• Tax evasion.  Despite reporting huge profits, Enron paid no taxes in four of its last five years and used tax scams and offshore shell entities to dodge paying its fair share.  Today, dozens of U.S. corporations use similar tactics not only to dodge Uncle Sam, but claim huge tax rebates. Enron was a catalyst for today’s corporate tax cheats.

• Corporate conflicts of interest. Enron’s chief financial officer profited by using his own company, LJM, to do deals with Enron to cook its books. Heedless of Enron’s example, banks such as Goldman Sachs and Citi later set up synthetic securities, sold shares to clients, and profited by betting against their own clients.  Enron helped create a culture of corporations failing to do right by their clients.

• Accounting conflicts.  Enron’s accounting firm, Arthur Andersen, approved financial statements loaded up with fraud. Despite Enron’s cautionary tale, so did accountants for Madoff Securities, Olympus, and other firms that have collapsed in years since, damaging investors, consumers and market stability. Enron showed how accountants reliant on revenues from clients can be convinced to look the other way. It’s still happening today.

• Credit rating conflicts. Credit rating agencies gave Enron AAA ratings until it collapsed. They have given the same AAA ratings to toxic securities, failing corporations, and deadbeat banks, often because issuing tougher ratings would cost them business. Enron exposed the unreliability of credit rating agencies that place the search for market share above the need for objective analysis. 

• Excessive speculation.  Enron speculated and manipulated electricity prices for big profits. Today, speculators whipsaw the American economy with roller coaster energy, metal, and food prices.  Enron jacked up the commodity business to everyone’s detriment but the speculators; and without tough enforcement of anti-speculation laws, the damage will continue.

• Financial engineering. Enron designed countless financial engineering gimmicks that served its financial interests but endangered clients and investors.  Today, financial firms rave about financial “innovations,” while pushing toxic products like auction securities, naked credit default swaps, and worse.  Enron showed how financial engineering creates weapons of mass destruction; a decade later, exotic financial products helped bring the U.S. economy to its knees.

• The need for regulators to stop the madness.  In response to Enron, the Sarbanes-Oxley Act banned multimillion-dollar corporate loans to corporate insiders, forced CEOs to certify their internal financial controls, and created new accounting oversight.  Those changes helped curb Enron-style abuses. Congress continued the cleanup in 2010 with Wall Street reform legislation, but much more needs to be done.  All of us should keep Enron in mind as financial regulators work to turn the law we passed into strong rules that can build new protections for consumers and the economy.

SEC COMMISSIONER GALLAGHER SPEAKS AT OPEN MEETING ON PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD'S PROPOSED 2012 BUDGET

The following excerpt is from the SEC website:

"Thank you, Chairman Schapiro. I would like to echo the gratitude already expressed by my fellow commissioners to the staffs of the PCAOB and SEC for their hard work, and I would also like to thank Chairman Doty and his fellow board members for being here today.

As has been noted, section 109(b) of the Sarbanes-Oxley Act requires that the PCAOB’s budget be approved by the Securities and Exchange Commission.

It would have been possible to approve the Board’s annual budget and accounting support fee in a non-public process, but I believe it is important that the Commission exercise its approval authority in the uniquely public manner that an open meeting affords us. Indeed, as Chairman Doty recognized, the PCAOB support fees, like many other regulatory fees, are ultimately paid by investors and so this is highly important. I want to thank Chairman Schapiro for finding time on our very busy calendar to hold this meeting.

Congress provided that the Board should be funded primarily through an accounting support fee (Sec. 109(c)(1)). That means the appropriations process by which the Congress oversees the SEC and many other Government departments and agencies does not apply to the Board’s accounting support fee, and so has no potential to constrain the Board’s budget or guide the various activities it funds. The role Congress has assigned to the Commission, then, is essentially to stand in the Congress’s stead in ensuring that the Board raises and spends its funds in the best interest of the investing public and, thereby, that of accounting profession as a whole.

Having reached the end of its review process for the PCAOB’s 2012 budget, the Commission’s staff, represented this morning by the Office of the Chief Accountant, recommends that the Commission approve the Board’s budget – and I am happy to play my part in doing so.

But, consistent with our responsibility, I want to join my colleagues in raising certain questions, which I’ll direct to Jim Kroeker, our Chief Accountant, and Jim Doty, the Board’s Chairman, as appropriate."

EMPLOYEE OF DATA STORAGE COMPANY CHARGED WITH INSIDER TRADING

The following is from the SEC website:

January 17, 2012

"The Securities and Exchange Commission today charged a sales director at Santa Ana, Calif.-based data storage manufacturer STEC Inc. with insider trading in company securities based on non-public information he learned on the job.

The SEC’s complaint filed in the U.S. District Court for the Central District of California, alleges that Farzin Bazshushtari, who lives in Mission Viejo and is STEC’s Director of Industrial Distribution, purchased 7,000 STEC shares on April 27, 2009, after learning about STEC’s positive first quarter financial results. When those results were announced publicly on May 11, STEC’s stock price jumped 30 percent.

The SEC further alleges that Bazshushtari purchased another 5,500 shares on May 27, 2009, after seeing internal weekly sales reports indicating that STEC would outperform second quarter guidance. He additionally purchased 200 STEC call options on June 10. When the company publicly increased second quarter revenue guidance on June 16 to reflect the surging sales, STEC’s stock price jumped 26 percent.

According to the SEC’s complaint, Bazshushtari made total profits of $76,676.50 by trading on inside information. Bazshushtari knew that he violated company policies when he placed the trades. His April 27 purchase was made during a “blackout” period when STEC employees were prohibited from trading in company stock. He purchased STEC call options despite STEC employees being prohibited from trading in STEC options, which give holders the right to buy or sell shares in the future. Bazshushtari further violated STEC’s written insider trading and ethics policies when he traded on margin and held his STEC securities in a margin account.

Bazshushtari agreed to settle the SEC’s charges by paying $76,676.50 in disgorgement and a $76,676.50 penalty. Bazshushtari also has consented without admitting or denying the SEC’s allegations to a permanent injunction from further violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.