Articles Posted in Securities Fraud

The U.S. Securities and Exchange Commission is awarding over $4M to a whistleblower for providing original information that led to a successful fraud case. This is individual is the 34th whistleblower that the SEC’s program has awarded since 2011, upping the total amount granted in such awards to over $111M.
In what was the second biggest award issued by the regulator to date, he SEC awarded $22M to an to an ex- Monsanto Co. financial executive last month. The individual had reported alleged accounting violations involving Roundup, the company’s weed killer. According to media reports, Monsanto offered distributor rebates to raise sales but moved the costs into the following fiscal year. As a result, the company moved up its revenue while postponing the reduction that resulted from the costs. 
Under the SEC Whistleblower program, individuals who voluntarily give the regulator unique information that leads to a successful enforcement case are entitled to 10-30% of the sanctions collected when that amount is over $1M. Since the program’s inception five years ago, the Commission has received over 14,000 tips. 

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Andrew Caspersen is now permanently barred from the investment industry. The Securities and Exchange Commission announced the ban.

Caspersen, who used to be the managing principal at Park Hill Group and is the son of financier and philanthropist Finn M. W. Caspersen, had pleaded guilty to criminal charges of securities fraud and wires fraud. He admitted to bilking investors of over $38M and misappropriating over $8M. Park Hill fired him earlier this year.

The ex-Wall Street executive admitted to having a “gambling addiction” and his involvement in a scam to raise $95M. His fraud victims included family and friends. According to his attorney, Caspersen lost $123M by speculating on put options in the S & P index. His sentencing hearing is in November.

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Apollo Global Management (APO) has agreed to settle for $52.7M allegations that the firm misled fund investors regarding fees and a loan agreement, as well as failed to supervise a senior partner. The settlement was reached with the U.S. Securities and Exchange Commission, which found during its probe that Apollo advisers did not adequately disclose benefits they obtained. This ended up harming fund investors.

Four private equity fund advisors will be paying part of the settlement include:

· Apollo Management V, LP

A jury has Sean Stewart, the ex-managing director of Perella Weinberg Partners LP of insider trading. Stewart is accused of giving his dad confidential tips about five health-care deals.

According to prosecutors, Stewart started giving his dad insider information in 2011 while he was VP of J.P. Morgan Chase & Co.’s (JPM) healthcare investment banking group. He continued to tip his dad when he went to work for Perella. As a result of the insider information, Stewart’s dad, Robert Stewart, and Richard Cunniffe made over $1M in illegal profits. The elder Stewart has already pleaded guilty to the charges against him.

During the trial, the younger Stewart testified that his dad had betrayed him by using the information that he had shared with him during casual conversation. He testified that he lied to compliance lawyers at JPMorgan in 2011 to protect his reputation and his father. He claimed that he never thought that his dad would use the information to make trades.

Robert has already been sentenced to four years of probation for his role after pleading guilty to securities fraud. Also, he had to forfeit $150K in ill-gotten gains. The elder Stewart shared the tips he received from his son with two others, including Cunniffee, who testified that they used the tips to buy stock options. Cunniffee had earlier pleaded guilty to insider trading.

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The U.S. Securities and Exchange Commission has filed a financial fraud lawsuit against Nicholas M. Mitsakos and his Matrix Capital Market. Mitsakos and his investment advisory firm are accused of pretending that they managed millions of dollars in assets. They allegedly stole about $800K from the first client that invested with them. The client, a Cayman Islands fund, invested $1.99M.

Mitsakos and his firm are accused of soliciting investors in a purported hedge fund. They are said to have falsely claimed they were successful money managers overseeing millions of dollars even though they had no assets. Instead, they allegedly made up a hypothetical investment portfolio in which the investments made up to 66% of yearly returns. The two of them are accused of pretending that these trades were real.

Commenting on the hedge fund fraud, SEC New York Regional Office Director Andrew Calamari said that it is important for investors to verify any information about an investment opportunity, especially one that is touted as having a “lofty historical performance.”

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The Securities and Exchange Commission has arrived at a global settlement with State Street Bank and Trust Company. According to the regulator, State Street misled custody clients, including mutual funds, about hidden markups that were added to foreign currency exchange trades. The firm will pay $382.4M, including $167M in penalties and disgorgement to the Commission, a $155M penalty to the U.S. Justice Department, and at least $60M to ERISA plan clients.

Among the other services it provides, State Street facilitates indirect foreign currency exchange trading for clients so that they can sell and purchase foreign currencies in transactions involving foreign securities. An SEC probe found that State Street made a substantial chunk of money in revenue when it misled some clients about Indirect FX, claimed that it offered the most competitive rates on trades, charged “market rates,” and provided “best execution.” The Commission contends that the company did not try to get the best prices for clients.

The SEC believes that State Street concealed markups so that custody clients would not notice. It also found that registered investment company custody clients were given monthly transaction reports and trade confirmations that were materially misleading because of misrepresentations about foreign currency exchange transaction pricing.

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$64M Pension Fund Fraud Settlement Reached Against Dana Holding Corp. Executives
Plaintiffs in the shareholder class action case brought against Michael Burns and Robert Richter have reached a $64M out-of-court settlement with the two ex-Dana Holding Corp. executives. The union pension funds include lead plaintiffs SEIU Pension Plans Master Trust, Plumbers & Pipefitters National Pension Fund, and the West Virginia Laborers Pension Trust Fund.

They accused Bornes and Richter, the company’s ex-CEO and CFO, respectively, of purposely misleading investors about Dana Holding’s financial woes in the months prior to its filing for bankruptcy in 2006. Although the securities fraud case was initially dismissed by a district court on the grounds that the plaintiffs failed to show that the two men and Dana knew they were engaging in wrongdoing, the 6th U.S. Circuit Court of Appeals in Cincinnati reversed that decision, saying evidence showed otherwise.

Federal Reserve Gives Banks More Time to Meet Volcker Rule Requirements
The U.S. Federal Reserve has extended the deadline for banks to rid themselves of ownership in certain legacy investments and cut ties with funds that are barred under the Volcker Rule. The rule, part of the Dodd-Frank Act, aims to stop banks with government-backed deposits from betting on Wall Street for their benefit. It doesn’t allow insured banks and their subsidiaries to own or be affiliated in any way with a private equity fund or hedge fund or take part in proprietary trading. Lenders are not allowed to trade using their own capital and are restricted from investing in funds.

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Martin Shkreli, the former chief executive of Retrophin Inc., has pleaded not guilty to a new charge of conspiracy. Shkreli was arrested last year for allegedly plotting to bilk the pharmaceutical company to cover up losses sustained by investors in his hedge funds. He was let go as CEO two years ago.

Shkreli had already been charged with seven counts of fraud and conspiracy. This latest charge of securities fraud conspiracy accuses him of not disclosing to the U.S. Securities and Exchange Commission that he owned certain Retrophin shares. Prosecutors claim that he concealed the fact that he was in control of a number of free trading or unrestricted shares in Retrophin by distributing the shares to contractors and employees so that the 5% ownership threshold, which would have required for him to notify the SEC, would not be triggered. Shkreli also is accused of allegedly telling employees to move chunks of their Retrophin shares to cover debts that he owed.

Also pleading not guilty to this latest charge is Shkreli’s ex-attorney Evan Greebel who was the outside counsel of Retrophin at the time of the alleged scheme. Greebel also faces numerous criminal charges.

The two men are accused of allegedly lying to investors about the poor performances of MSMB Capital Management, Elea Capital Management, and MSMB Healthcare, all hedge funds, from ’06 to ’12. They also allegedly took money from Retrophin to pay bad market bets of the MSMB funds.

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Martin Shkreli, the founder of Turing Pharmaceuticals AG, has asked a judge to wait before scheduling his criminal trial on charges of securities fraud. Shkreli, 33, says he may be subject to more charges.

He is accused of bilking investors of Retrophin Inc., which is a drug company that he also ran, and certain hedge funds. He allegedly used up to $11M of assets from that company to repay hedge fund investors who lost money.

Shkreli also is accused of lying to investors regarding the amount of money he oversaw and about his track record as a money manager. Now, Shkreli may face charges involving the distribution of stock in Retrophin, as well as a private placement deal that helped to finance the company. Also charged over the alleged securities scam is ex-corporate attorney Evan Greebel, who allegedly aided Shkreli with his scam and helped him hide the fraud.

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Ex-NOVA Bank CEO and president Brian Hartline and Barry Bekkedam, the bank’s former chairman, have been convicted of defrauding the government when trying to get over $13M in Troubled Asset Relief Program (TARP) funds.

By 2008, bad loans and investments had placed the bank at risk of failure. To try to save the bank, parent company NOVA Financial Holdings applied for about $13.5B in TARP funds. NOVA Bank then received approval for the money as long as it raises $15M from investors.

To make the bank appear more financially healthy, Hartline and Bekkedam made it seem as if outsiders were sending funds to NOVA Bank when, in truth, the bank was recycling its own cash. For example, Nova wired $5M to the account of a Florida businessman, who then wired the money to an account for investments in the parent company. In 2009, Hartline and Bekkedam persuaded two other people to make “investments” with the use of loans from the bank. They told employees to lie to the US Treasury Department about this new money.

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