SEC ANNOUNCES PRISON TERM AND RESTITUTION PAYMENT ORDER FOR INVESTMENT ADVISOR

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Massachusetts Investment Adviser Sentenced to 36 Months in Jail for Defrauding Investors

The Securities and Exchange Commission (Commission) announced that, on December 11, 2013, Judge Denise J. Casper of the United States District Court for the District of Massachusetts sentenced former Plymouth, Massachusetts investment adviser Jeffrey A. Liskov (Liskov) to serve a prison term of 36 months, followed by a supervised probationary period of 3 years, and to pay $3,003,147 in restitution. The sentence was imposed in connection with Liskov’s guilty plea in July 2013 to a one-count criminal Information charging him with willfully violating Section 206 of the Investment Advisers Act of 1940 (Advisers Act).

The Commission previously filed a civil action against Liskov and his former advisory firm, EagleEye Asset Management, LLC (EagleEye), for defrauding their clients in connection with foreign currency exchange (forex) investments. The factual allegations in the criminal Information are substantially similar to those in the Commission’s complaint in the civil case.  The Commission’s complaint, filed on September 8, 2011, alleged that, between at least November 2008 and August 2010, Liskov made material misrepresentations to several advisory clients to induce them to liquidate investments in securities and instead invest in forex. The forex investments resulted in client losses totaling nearly $4 million, while EagleEye and Liskov pocketed over $300,000 in performance fees. The Commission alleged that Liskov’s strategy was to generate temporary profits on client forex investments to enable him to collect performance fees, after which client forex investments invariably quickly declined in value.

According to the Commission’s complaint, Liskov made material misrepresentations or failed to disclose material information to clients concerning the nature of forex investments, the risks involved in forex, and Liskov’s poor track record in forex trading for himself and other clients. The Commission’s complaint further alleged that, as to two clients, without their knowledge or consent, Liskov liquidated securities in their brokerage accounts and transferred the proceeds to their forex trading accounts where he lost nearly all their funds, but not before first collecting performance fees on temporary profits in these clients’ forex accounts. The complaint alleged that Liskov accomplished the unauthorized transfers by using “white out” correction fluid to change dates, amounts, and other data on asset transfer documentation. Liskov also opened multiple forex trading accounts in the name of one client, without obtaining the client’s consent, thereby maximizing his ability to earn performance fees on the client’s forex investments.

As result of the foregoing conduct, the Commission alleged that EagleEye and Liskov violated Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Advisers Act. The Commission also alleged that EagleEye failed to maintain certain books and records required of investment advisers in violation of Section 204 of the Advisers Act and Rule 204-2 thereunder, and that Liskov aided and abetted EagleEye’s violations of these recordkeeping provisions.

After an eight-day trial in the Commission’s civil case, on November 26, 2012, a jury found that EagleEye and Liskov violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 206(1) of the Advisers Act. After a further hearing, United States District Court Judge William G. Young found that EagleEye and Liskov violated Section 204 of the Advisers Act and Rule 204-2 thereunder, concerning recordkeeping obligations relating to EagleEye’s business. On December 12, 2012, the Court entered a final judgment against EagleEye and Liskov in the Commission’s action, ordering that they be permanently enjoined from future violations of the foregoing provisions of the securities laws. The Court also ordered EagleEye and Liskov to pay, jointly and severally, disgorgement of their ill-gotten gains in the amount of $301,502.26, plus pre-judgment interest on that amount of $29,603.59, and each to pay a civil penalty of $725,000.

On December 27, 2012, the Commission instituted public administrative proceedings against each of EagleEye and Liskov to determine what sanctions against them, if any, would be appropriate and in the public interest. On July 24, 2013, an administrative law judge revoked EagleEye’s registration as an investment adviser and barred Liskov from, among other things, associating with any investment adviser. On September 23, 2013, the Commission issued orders of finality in the administrative proceedings against EagleEye and Liskov.

The Commission acknowledges the assistance of Secretary of the Commonwealth of Massachusetts William F. Galvin’s Securities Division and the United States Commodity Futures Trading Commission, both of which filed cases against EagleEye and Liskov in September 2011.

COMMODITY POOL OPERATOR ORDERED TO PAY OVER $470,000 TO SETTLE FRAUD CHARGES

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
CFTC Orders David R. Lynch to Pay More than $470,000 in Restitution and a Civil Monetary Penalty to Settle Charges of Fraudulent Misappropriation, Fraudulent Solicitations, and False Statements

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it entered an Order requiring David R. Lynch of Stuart, Florida, to make restitution of $171,297 to defrauded customers and pay a $300,000 civil monetary penalty, among other sanctions, for fraudulent misappropriation, fraudulent solicitations, and false statements in connection with a commodity pool trading leveraged or margined off-exchange foreign currency contracts (forex). Lynch has never been registered with the CFTC.

According to the CFTC’s Order, from about December 2008 through July 4, 2013, Lynch operated a commodity pool and fraudulently solicited at least $348,450 from at least 14 pool participants. Lynch falsely told pool participants that he had earned as much as 7 percent per month trading forex, that they could never lose their principal, and that they could get their funds back at any time. However, Lynch deposited only a portion of his pool participants’ funds in forex trading accounts and the trading he did was unprofitable, the Order finds.

The CFTC’s Order also finds that Lynch misappropriated over $126,000 of his pool participants’ funds by using part of those funds to pay his personal expenses and the remainder to pay false profits or purported returns of capital to some pool participants in the manner of a Ponzi scheme. Further, to conceal his trading losses and misappropriations, Lynch issued monthly account statements to pool participants that falsely showed that pool participants were earning consistent profits.

In addition to ordering restitution to be made and imposing a civil monetary penalty, the CFTC Order also requires Lynch to cease and desist from further violations of the Commodity Exchange Act and a CFTC regulation, as charged, and imposes permanent bans on trading, registration, and certain other commodity related activities.

CFTC Division of Enforcement staff members responsible for this case are Glenn I. Chernigoff, Alison B. Wilson, Kara L. Mucha, and Gretchen L. Lowe.

CPA TO PAY $400,000 TO GOVERNMENT FOR WORK DONE WHILE SUSPENDED

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Awarded $400,000 in Disgorgement from Certified Public Accountant for His Violations of Commission Suspension Order

The Securities and Exchange Commission today announced a court ruling that requires certified public accountant Michael H. Taber to pay the government $400,000 in compensation he received while suspended from appearing or practicing before the Commission as an accountant.

According to the SEC's application filed in U.S. District Court for the Southern District of New York, Taber violated a 2004 Commission Order suspending him. The 2004 Order was based on a fraud injunction obtained against Taber, in SEC v. Del Global Techs. Corp., 04 CV 4092 (S.D.N.Y. filed June 1, 2004), for his participation in a fraudulent scheme as the chief financial officer of a New York-based company. While suspended, Taber repeatedly drafted, compiled, and edited information and data that was incorporated into requisite periodic reports that public companies filed with the SEC.

On October 3, 2013, the district court entered an order enforcing compliance by Taber with the 2004 Commission Order and directing the parties to submit their positions regarding disgorgement. On December 5, 2013, U.S. District Judge Katherine B. Forrest entered an order awarding the Commission $400,000 in disgorgement from Taber, who is licensed as a certified public accountant in New York and is currently a Florida resident.

CFTC NAMES MARK P. WETJEN AS ACTING CHAIRMAN

FROM:  COMMODITY FUTURES TRADING COMMISSION 
CFTC Names Mark P. Wetjen Acting Chairman of the Commission

Washington, DC —The U.S. Commodity Futures Trading Commission (CFTC or Commission) today announced that the members of the Commission have unanimously elected Commissioner Mark P. Wetjen to serve as Acting Chairman upon the end of Chairman Gary Gensler’s service.

“I am honored to have been chosen to serve as Acting Chairman,” said Commissioner Wetjen. “I thank my colleagues, Commissioners Chilton and O’Malia, for their support and look forward to working collaboratively to oversee the ongoing implementation of the Dodd-Frank Act and the continuation of the CFTC’s critical mission. I also would like to thank Chairman Gensler for his leadership of this agency and of the financial reform effort in the aftermath of the financial crisis. I am eager to continue that effort in consultation with my fellow commissioners.”

“I am so pleased that my friend and partner Mark Wetjen will be Acting Chairman at such an exciting time for the agency,” Gensler said. “Mark has worked tirelessly to bring swaps market reform to life. The Commission has greatly benefitted from his thoughtful insight. The CFTC will be well served with Mark at the helm as it continues the important work of implementing financial reforms for the benefit of the public.”

Wetjen was sworn in as a Commissioner of the CFTC on October 25, 2011. Prior to his CFTC service, he worked in the U.S. Senate as a senior leadership staffer advising on all financial-services-related matters. Before his service in the U.S. Senate, Commissioner Wetjen was a lawyer in private practice.

Born and raised in Dubuque, Iowa, Commissioner Wetjen received a bachelor’s degree from Creighton University and a law degree from the University of Iowa College of Law.

CFTC HAS NEW ACTING CHIEF ECONOMISTS

FROM:  COMMODITY FUTURES TRADING COMMISSION 
December 16, 2013
CFTC Announces Sayee Srinivasan as the Acting Chief Economist

Washington, DC — U.S. Commodity Futures Trading Commission (CFTC or Commission) Chairman Gary Gensler today announced that Sayee Srinivasan has been named Acting Chief Economist.

“I am very pleased that such a talented economist as Sayee will lead the Office of the Chief Economist,” said Chairman Gensler. “Sayee’s work has been critical to bringing much-needed transparency to the swaps marketplace. His experience and market acumen will be very valuable as the Commission continues working to promote transparency in the derivatives markets.”

In his new role, Mr. Srinivasan will be responsible for leading the Commission’s efforts drafting policy and rule-making; advising the Chairman, Commission and senior staff on industry practices and CFTC policy implications; assisting the Commission in developing capacity to analyze swaps data; publishing the Weekly Swaps Reports and guiding research as it relates to market structure for futures and swap markets.”

“The derivatives markets are in a critical stage of transition from over-the-counter to regulated platforms,” said Mr. Srinivasan. “I am excited for the opportunity to work with the talented CFTC staff and with other agencies to leverage new data sources to track and improve our understanding of these markets.”

Mr. Srinivasan joined the Commission in 2012 in the Office of the Chief Economist. He has already made critical contributions on policy and rule development on issues pertaining to the market structure of futures and swaps markets. Prior to joining the Commission, he worked with the Chicago Mercantile Exchange, the Bombay Stock Exchange, the National Stock Exchange of India, and OptiMark Technologies focusing on market and product design, trading rules, and business development across a broad range of asset classes, and both cash and derivatives markets. His research interest includes regulatory policy development on issues related to pre-trade, trade, and post trade technology, systems, processes and risk management.

Mr. Srinivasan has a Ph.D. and an M.A. in Economics from the University of Texas at Austin. He has a B.A. in Accounting and an M.A. in Finance from University of Bombay (now University of Mumbai).

SEC CHARGES HEDGE FUND ADVISER WITH INTERNAL CONTROLS FAILURE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
The Securities and Exchange Commission today charged a London-based hedge fund adviser and its former U.S.-based holding company with internal controls failures that led to the overvaluation of a fund’s assets and inflated fee revenue for the firms.

GLG Partners L.P. and its former holding company GLG Partners Inc. agreed to pay nearly $9 million to settle the SEC’s charges.

“Investors depend upon fund advisers to have proper controls in place to ensure that valuations and fees are not inflated,” said Antonia Chion, an associate director in the SEC’s Division of Enforcement.  “GLG’s pricing committee did not have the information and time it needed to properly value assets.”

According to the SEC’s order instituting settled administrative proceedings, the GLG firms managed the GLG Emerging Markets Special Assets 1 Fund.  From November 2008 to November 2010, GLG’s internal control failures caused the overvaluation of the fund’s 25 percent private equity stake in an emerging market coal mining company.  The overvaluation resulted in inflated fees to the GLG firms and the overstatement of assets under management in the holding company’s filings with the SEC.

According to the SEC’s order, GLG’s asset valuation policies required the valuation of the coal company’s position to be determined monthly by an independent pricing committee.  On a number of occasions, GLG employees received information calling into question the $425 million valuation for the coal company position.  But there were inadequate policies and procedures to ensure that such relevant information was provided to the independent pricing committee in a timely manner or even at all.  There was confusion among GLG’s fund managers, middle-office accounting personnel, and senior management about who was responsible for elevating valuation issues to the independent pricing committee.  

The SEC’s order finds that GLG Partners L.P. violated and GLG Partners Inc. caused violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-11, and 13a-13.  The order requires the firms to hire an independent consultant to recommend new policies and procedures for the valuation of assets and test the effectiveness of the policies and procedures after adoption.  The order directs the firms to cease and desist from violating or causing violations of various provisions of the federal securities laws.  The firms consented to the order without admitting or denying the charges.  The SEC is establishing a Fair Fund to distribute money to harmed fund investors.  The GLG firms agreed to pay disgorgement of $7,766,667, prejudgment interest of $437,679, and penalties totaling $750,000.

The SEC’s investigation was conducted by Jonathan Cowen, Ann Rosenfield, Robert Dodge, and Lisa Deitch.  The case arose from the SEC’s Aberrational Performance Inquiry, an initiative by the Enforcement Division’s Asset Management Unit that uses proprietary risk analytics to identify hedge funds with suspicious returns. Performance that is flagged as inconsistent with a fund’s investment strategy or other benchmarks forms a basis for further investigation and scrutiny.

The SEC appreciates the assistance of the Financial Conduct Authority in the United Kingdom.