SEC Sues UK-Based Trader for Account Intrusion Scheme

The Securities and Exchange Commission today announced it has obtained an emergency court order to freeze the assets of a United Kingdom resident charged with intruding into the online brokerage accounts of U.S. investors to make unauthorized stock trades that allowed him to profit on trades in his own account.

In a complaint filed in U.S. District Court in the Southern District of New York, the SEC alleges that in April and May, Idris Dayo Mustapha hacked into numerous accounts of U.S. customers of broker-dealers in and outside the U.S.  The complaint alleges that Mustapha placed stock trades without the customers’ knowledge and then traded in the same stocks through his own brokerage account.  In one case, Mustapha allegedly hacked into a brokerage account and rapidly purchased shares at increasing prices and then profited by selling his own shares of the stock in his brokerage account.  According to the complaint, Mustapha’s scheme made at least $68,000 profits for himself and caused losses in the victims’ accounts of at least $289,000.   

“We will swiftly track down hackers who prey on investors as we allege Mustapha did, no matter where they are operating from and no matter how sophisticated their technology,” said Robert Cohen, Co-Chief of the SEC Enforcement Division's Market Abuse Unit.  

The SEC obtained an emergency court order today that freezes more than $100,000 in Mustapha’s assets and prohibits Mustapha from destroying evidence.

The SEC alleges that Mustapha violated the antifraud provisions of federal securities laws and a related SEC antifraud rule.  In addition to the emergency relief, the SEC is seeking permanent injunctions, return of allegedly ill-gotten gains with interest, and financial penalties.

The SEC's Market Abuse Unit and its Boston Regional Office jointly conducted the investigation, which is continuing.  Eric Forni, Susan Cooke Anderson, Mark Albers, and Michele Perillo investigated the matter, with the assistance of Alex Lefferts of the Enforcement Division’s Center for Risk and Quantitative Analytics and Stuart Jackson of the Division of Economic and Risk Analysis.   

SEC Press Release

Software Executive and Three Friends Charged With Insider Trading

The Securities and Exchange Commission today announced insider trading charges against a former software company executive and three close friends who made more than a half-million dollars based on his illegal tip about an upcoming merger.

 

The SEC alleges that Christopher Salis, then a global vice president at SAP America, received thousands of dollars in kickbacks for tipping Douglas Miller in advance of SAP’s impending acquisition of Concur Technologies.  Miller tipped his brother Edward Miller and mutual friend Barrett Biehl as they rushed to open online brokerage accounts and make risky, short-term trades in Concur call options so they could profit substantially when the deal was publicly announced.

 

“When corporate insiders exploit confidential information to enrich themselves and their friends, they undermine the level playing field that is fundamental to our capital markets,” said Scott W. Friestad, Associate Director in the SEC’s Division of Enforcement.  “As this and recent cases demonstrate, we are working aggressively to root out and identify insider trading by connecting patterns of trading to sources of material nonpublic information.”

 

According to the SEC’s complaint filed in federal court in Indiana:

• Salis tipped Douglas Miller in the summer of 2014 when he became aware of plans for the SAP-Concur merger.
• At the time, the Millers were strapped for cash as co-owners of a car wash with mounting debts.  After being tipped by Salis, Douglas Miller referred to the Concur options trades as “our possible savior” and added, “This is what we all need to weather any storm and put us on top bro!  Just make sure your [sic] a squirrel and sock it away … I hope were [sic] dancing in the streets in the next 4-5 Weeks!” 
• When a brokerage firm would not accept cash and an electronic transfer would take days to clear, the Millers obtained cashier’s checks and drove a half-hour to the nearest branch office to deposit the money and trade as quickly as possible.
• Douglas Miller also placed trades in his parents’ account and another friend’s account, and Salis repeatedly accessed the Millers’ online brokerage accounts to monitor the trades.
• Hours before the public announcement, Douglas Miller began making plans to sell the options, telling a brokerage representative that he was “just trying to prepare [himself] if something happened.”
• Kickbacks to Salis included at least $10,400 in cash he received only weeks after the merger announcement when he visited Douglas Miller.  Concerned about detection, Salis deposited some of the money before heading to the airport with the rest.  He later texted Miller: “I am through security . . . Ps. Half in my bag, half in my pockets…no problem.”
• Salis’s startup company later received approximately $80,000 from Miller and his family.

 

The SEC also has linked Salis and Douglas Miller to suspicious trades in 2007 that were made in advance of a tender offer for a company called Business Objects, where Salis worked at the time.  Salis and Miller are charged with this additional count of insider trading in the SEC’s complaint, which alleges illicit profits of more than $42,000.

 

The SEC’s complaint charges Salis, Douglas Miller, Edward Miller, and Biehl with violating Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934.  Salis and Douglas Miller also allegedly violated Section 14(e) and Rule 14e-3 of the Exchange Act.

 

The SEC’s investigation was conducted by Brianna Ripa, Amy Friedman, Adam Gottlieb, and Carolyn Welshhans with assistance from John Rymas in the Market Abuse Unit’s Analysis & Detection Center.  The case has been supervised by Mr. Friestad and Robert A. Cohen, co-chief of the Market Abuse Unit.  The SEC’s litigation will be led by Kevin C. Lombardi and Cheryl Crumpton.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.
 

SEC Press Release

Hedge Fund Managers and Former Government Official Charged in $32 Million Insider Trading Scheme

The Securities and Exchange Commission today announced insider trading charges against two hedge fund managers and their source, a former government official accused of deceptively obtaining confidential information from the U.S. Food and Drug Administration (FDA).  A third hedge fund manager working at the same investment advisory firm as the alleged insider traders was charged with falsely inflating assets in portfolios he managed.

 

The SEC alleges that Sanjay Valvani reaped unlawful profits of nearly $32 million for hedge funds investing in health care securities by insider trading on tips he received from Gordon Johnston, who worked at the FDA for a dozen years and remained in close contact with former colleagues while working for a trade association representing generic drug manufacturers and distributors.  Johnston concealed his separate role as a hedge fund consultant and obtained confidential information about anticipated FDA approvals for companies to produce enoxaparin, a generic drug that helps prevent the formation of blood clots.  Johnston allegedly funneled to Valvani the details of his conversations with FDA personnel, including a close friend he mentored during his time at the agency.  Valvani then traded in advance of public announcements concerning FDA approvals for such companies as Momenta Pharmaceuticals, Watson Pharmaceuticals, and Amphastar Pharmaceuticals.

 

“We allege that Valvani’s formula for trading success was tapping Johnston to abuse his position of trust as a generic industry representative to the FDA and underhandedly obtain confidential information from his friends and former colleagues at the FDA,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “Valvani and his hedge funds made millions by trading on nonpublic FDA drug approval information not available to the rest of the stock market.”

 

The SEC further alleges that Valvani in turn tipped fellow hedge fund manager Christopher Plaford, who is charged in a separate complaint with insider trading on this nonpublic information as well as other material he received confidentially from a former Centers for Medicare and Medicaid Services official about an impending cut to Medicare reimbursement rates for certain home health services.  Plaford allegedly made approximately $300,000 by trading based on inside information in hedge funds he managed.  He has cooperated with the SEC’s investigation.

 

In a separate complaint against Stefan Lumiere, the SEC alleges that he and Plaford engaged in a fraudulent scheme to falsely inflate the value of securities held by a hedge fund advised by their firm.  For an 18-month period, Lumiere used sham broker quotes to mismark as many as 28 securities per month, surreptitiously passing his desired prices along to brokers via his personal cell phone or a flash drive delivered by a courier.  The fund consequently reported artificially inflated returns and monthly net asset values, and paid out more than $5.9 million in inflated management and performance fees to its investment adviser.

 

“Lumiere allegedly used fake prices to value assets while investors were led to believe the fund was using real prices from independent sources that reflected the market value for those assets,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Financial professionals who cheat investors and game the system should not expect to get away with it.”

 

In parallel actions, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Valvani, Johnston, Lumiere, and Plaford.

 

The SEC’s complaint against Valvani and Johnston charges them 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.  Valvani also allegedly aided and abetted his firm’s violation of Section 204A of the Investment Advisers Act of 1940. 

 

The SEC’s complaint against Plaford charges him with violations of Section 10(b) of the Exchange Act and Rule 10b-5, and Section 206 of the Advisers Act and Rule 206(4)-8.  He is also charged with aiding and abetting his firm’s violation of Section 204A of the Advisers Act. 

 

The SEC’s complaint against Lumiere charges him with committing or aiding and abetting violations of Section 10(b) of the Exchange Act and Rule 10b-5 as well as Section 206 of the Advisers Act and Rule 206(4)-8. 

 

The SEC’s complaints, filed in federal court in Manhattan, seek disgorgement of ill-gotten gains plus interest and penalties as well as permanent injunctions against future violations.

 

The SEC’s continuing investigation is being conducted by William Conway and Philip Moustakis of the Asset Management Unit and Jason Sunshine, Charles Riely, and Valerie Szczepanik of the New York office.  Assisting the investigation are Brian Fitzpatrick, Neil Hendelman, and Christopher Mele.  The litigation will be led by Alexander Vasilescu, Mr. Moustakis and Mr. Sunshine.  The case is being supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, the Department of Health and Human Services Office of Inspector General, and the Financial Industry Regulatory Authority.
 

SEC Press Release

Investment Fraud Victims Include Online Daters

The Securities and Exchange Commission today announced fraud charges and an asset freeze obtained against a Connecticut man accused of misleading people into investing in his company and then taking their money for his personal use.  His victims include several women he met through an online dating website.

 

The SEC alleges that Thomas J. Connerton told investors that his company Safety Technologies LLC was developing a material to make surgical gloves better resistant to cuts or punctures.  He claimed that several major glove manufacturers wanted the technology and Safety Technologies was on the brink of imminent deals that would result in large payouts for investors in his company.  But no deals have ever been anywhere close to materializing, and Connerton has emptied the company’s bank account by writing a series of checks to himself and using investor funds for his own expenses.

 

According to court documents filed by the SEC, among Connerton’s improper spending of investor funds was $20,000 for an engagement ring for his latest online date turned investor.  There are more than 50 investors in Safety Technologies, including six women Connerton met through online dating and 14 others who are family or friends of those women.

 

“We charge Connerton with lying about the state of his business and exploiting personal connections to lure in investors,” said Paul G. Levenson, Director of the SEC’s Boston Regional Office.  “Investors beware: a rosy picture of a business that’s about to take off could still lead to a total loss of investment.”

 

According to the SEC’s complaint, Connerton failed to comply with the requirements for private offerings exempt from registration under the federal securities laws, such as providing investors with appropriate financial information and confirming that they have sufficient knowledge and experience to evaluate the merits and risks of the investment.  Connerton also is not registered to sell investments.  Investors can quickly and easily check whether people selling investments are registered by using the SEC’s investor.gov website.

 

The SEC has obtained a court order freezing the assets of Connerton and Safety Technologies.  The SEC’s complaint seeks a permanent injunction as well as the return of allegedly ill-gotten gains plus interest and a penalty.

 

The SEC’s investigation was conducted by Jonathan R. Allen, Sofia Hussain, Alfred Day, and Amy Gwiazda of the Boston office. 
 

SEC Press Release

Consultant to Chinese Private Equity Firms Settles Insider Trading Charges

The Securities and Exchange Commission today announced that a former consultant to two China-based private equity firms has agreed to pay more than $756,000 to settle insider trading charges.

 

The SEC alleges that Guolin Ma traded on confidential information he obtained while advising the two firms as they pursued a buyout of Silicon Valley-based OmniVision Technologies, a maker of optical semiconductor devices.  Ma, an optical physicist who primarily resides in China, attended key meetings and performed technical due diligence related to the potential acquisition of OmniVision, and he received timeline and strategy documents from the firms.

 

According to the SEC’s complaint filed in federal court in San Jose, Calif., one of the firms advised by Ma joined a group of Chinese investment firms in making a bid to buy OmniVision.  Ma stockpiled 39,373 shares of OmniVision stock through a series of purchases in April and May 2014 while possessing nonpublic information.  OmniVision’s stock price rose 15 percent when the proposed acquisition was publicly announced in August 2014, allowing Ma to generate $367,387 in illegal profits.   

 

“Guolin Ma breached a duty of trust and confidence to the private equity firms when he bought thousands of shares of OmniVision stock while aware of the impending transaction,” said Joseph G. Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit.  “It was a costly mistake because the settlement requires him to pay back double his illegal trading profits.”

 

Without admitting or denying the allegations in the SEC’s complaint, Ma agreed to pay disgorgement of $367,387 plus interest of $21,986 and a penalty of $367,387.  The settlement is subject to court approval.

 

The SEC’s investigation was conducted by Amanda Straub and supervised by Steven Buchholz of the Market Abuse Unit.  They were assisted by trial counsel E. Barrett Atwood and Wade Rhyne in the San Francisco Regional Office.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.
 

SEC Press Release

Childhood Friends Charged With Insider Trading in Pharmaceutical Stocks

The Securities and Exchange Commission today charged two Rhode Island men with insider trading in the securities of deal targets being pursued by the pharmaceutical company where one of them worked.

 

The SEC alleges that Michael J. Maciocio obtained confidential clinical and business data about other pharmaceutical firms being considered by his company for potential acquisitions and business relationships, and he used the nonpublic information to trade in their stocks.  Maciocio made approximately $116,000 in illegal profits trading in such pharmaceutical companies as Medivation Inc., Ardea Biosciences, and Furiex Pharmaceuticals.

 

The SEC further alleges that Maciocio illegally tipped his friend since childhood, stockbroker David P. Hobson, who utilized the nonpublic information to realize at least $187,000 in illicit trading profits for himself and $145,000 for his customers.

 

“We allege that Maciocio and Hobson engaged in a multi-year insider trading scheme by repeatedly using the confidential information of Maciocio’s employer to place illicit trades,” said Joseph G. Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit.  “Given his years of experience in the securities industry, Hobson’s misuse of this highly sensitive corporate deal information represents an especially egregious violation of the law.” 

 

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

 

The SEC’s complaint charges Maciocio and Hobson with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

 

The SEC’s investigation has been conducted by Charu A. Chandrasekhar and Simona K. Suh of the Market Abuse Unit and Jordan Baker and Michael D. Birnbaum of the New York Regional Office.  The case has been supervised by Mr. Sansone.  The SEC’s litigation will be led by Mr. Birnbaum and Ms. Chandrasekhar.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.

SEC Press Release

Wells Fargo Warns Energy Losses Will Grow

Wells Fargo is telling investors to brace for more losses on loans to energy companies.

That, in turn, increases the likelihood that the bank will continue to bolster its reserves to offset those losses, the bank said at its investor day presentation Tuesday in California.



Wells Fargo warns energy loan losses will grow



See: Investors Filing Claims for Energy, Oil and Gas Stock Losses



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Sallah Astarita & Cox, LLC attorneys include former SEC enforcement attorneys and brokerage firm attorneys. They represent investors and brokers across the country in securities arbitration cases, as well as SEC and FINRA investigations. For more information, or to review your situation, call them at 212-509-6544.

SEC: Forex Trader Misrepresented Track Record and Hid Massive Losses

The Securities and Exchange Commission today charged a New York City-based trader with defrauding investors out of millions of dollars by misrepresenting her investment track record, the profitability of her investments, and her use of investor funds.

 

The SEC alleges that Haena Park touted her supposedly profitable futures and foreign currency (forex) trading strategy when soliciting friends, family, former Harvard classmates, and individuals with connections to them.  She proceeded to pool investor funds and incur heavy trading losses month after month in the futures and forex markets, yet repeatedly told investors that their investments were profitable and sent them monthly account statements showing fictitious profits.  At times, Park used new investor funds to make Ponzi-like payments to earlier investors.  She raised at least $14 million from more than 30 investors since 2012, and has suffered more than $16 million in trading losses during that time period.

 

“We allege that Park brazenly obtained investor money under false pretenses and compounded her egregious conduct by using phony monthly statements to convince some investors to significantly increase their investments based on fictitious positive returns,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.   

 

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today brought criminal charges against Park. 

 

The SEC’s complaint charges Park 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.  The SEC is seeking a permanent injunction as well as the return of alleged ill-gotten gains plus interest and penalties.

 

The SEC’s continuing investigation is being conducted by Wendy Tepperman, Rhonda Jung, and Teresa Rodriguez in the New York office.  The litigation will be led by Jack Kaufman.  The case is being supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the U.S. Department of Homeland Security, and the U.S. Commodity Futures Trading Commission.
 

SEC Press Release

SEC: Adviser Steered Investor Money to His Own Companies

The Securities and Exchange Commission today charged a North Carolina-based investment adviser with defrauding investors by secretly steering portions of real estate-related investments into deals with companies that he owned or operated himself.

 

The SEC alleges that Richard W. Davis Jr. breached his fiduciary duty and took no steps to disclose or ameliorate the conflicts of interest involved with using investor money to enter into transactions with entities he beneficially owned or controlled.  The SEC further alleges that Davis made false or misleading statements to investors before and after they made their investments, failed to inform investors of their losses as his companies failed to pay the loans, and improperly received at least $1.5 million from bank accounts commingling investor funds when he was only entitled to less than $150,000 in management fees.

 

“We allege that Davis failed to inform investors about his own companies being the borrowers of the real estate loans funded with their investments.  He then doubled down on his deception by falsely telling investors their investments were growing while his companies were not even repaying the loans,” said Stephen L. Cohen, Associate Director of the SEC Enforcement Division.

 

Davis has agreed to a settlement subject to court approval with disgorgement plus interest and penalties to be determined by the court at a later date.

 

According to the SEC’s complaint filed in federal court in Charlotte, N.C.:

• Davis sold interests in two unregistered pooled investment vehicles named DCG Commercial Fund I LLC and DCG Real Assets LLC.  He defrauded at least 85 people who invested a total of approximately $11.5 million.
• Davis told Commercial Fund investors that their money would be used to fund short-term fully secured loans to real estate developers.  He hid the fact that two of the four projects invested in by the fund were his own companies.
• Investors suffered losses because the loans made by the funds were never paid in full, yet Davis failed to inform the investors of this. Even after he declared one loan to be in default, he failed to reappraise the value of the loan and reflect that change in the shareholder’s account statements.
• Davis similarly failed to inform Real Assets investors that he transferred to his own entities at least $7.7 million of the $9.8 million he raised from them.  From there the money was spent or transferred to additional entities he owned or controlled until the entire $7.7 million was depleted.
• Davis falsely reported to investors that their investments were growing in value year-after-year, and falsely claimed that the Real Assets fund held more than $10 million in assets.  But his claims were based on his own speculative valuations of the fund’s assets and not a product of any tabulation of the fund’s true net asset value.

 

The SEC’s complaint charges Davis with violations of Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 as well as Sections 5 and 17(a) of the Securities Act of 1933, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8.  Without admitting or denying the allegations, Davis agreed to the partial settlement that bars him from any further sale of securities in a pooled investment vehicle as well as from future violations of antifraud and securities registration provisions of the federal securities laws.  He also is required to cooperate with a court-appointed receiver.

 

The SEC’s continuing investigation is being led by Christopher R. Mathews and Andrew R. McFall and supervised by J. Lee Buck II.  The trial attorney on the case is Patrick R. Costello.

 

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SEC Press Release