Wednesday, 25 November 2015

Former Goldman Employee Charged With Insider Trading Before Mergers

The Securities and Exchange Commission today announced insider trading charges against a former Goldman Sachs employee accused of stealing nonpublic information in the firm’s e-mail system so he could trade illegally in advance of client mergers and make more than $450,000 in illicit profits.  The SEC has obtained an emergency court order to freeze the assets of the trader and accounts he used to place the illicit trades. 

The SEC alleges that Yue Han, who worked as an associate in Goldman’s compliance department and also goes by the name John Han, traded on confidential information contained in e-mails sent and received by Goldman investment bankers responsible for advising clients on impending merger and acquisition transactions.  Han gained access to investment banker e-mails as part of his work developing surveillance software designed to monitor other employees for potential misconduct such as insider trading.

The SEC’s case stems from its Market Abuse Unit’s Analysis and Detection Center, which uses data analysis tools to detect suspicious patterns such as improbably successful trading across different securities over time.  Enhanced detection capabilities enabled SEC enforcement staff to spot Han’s unusual trading activity in two different accounts.

“We allege that Han’s employer gave him access to confidential information so that he could help the firm detect and deter illegal activity, but he betrayed that trust by using the information for his own profit,” said Joseph G. Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit.  “Fortunately the SEC staff’s probing analysis uncovered Han’s suspicious trading and enabled us to obtain an asset freeze before he could dissipate his ill-gotten gains.”

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

  • Han began working at Goldman in late 2014 and was assigned to a group tasked with enhancing the firm’s ability to conduct electronic surveillance of its employees in order to identify insider trading and other misconduct. 
  • As part of his job, Han was given access to the e-mails of investment banking employees.
  • Han exploited the information contained in these confidential e-mails to purchase securities, including “out of the money” call options, of at least four companies that were on the brink of being acquired:  Yodlee Inc., Zulily Inc., Rentrak Corporation, and KLA-Tencor Corp.
  • Han traded not only in his own account, but also in an account belonging to his father Wei Han, who lives in China.

The SEC’s complaint charges Yue Han with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Section 14(e) of the Exchange Act and Rule 14e-3.  Wei Han is named as a relief defendant in the SEC’s complaint for the purposes of recovering ill-gotten gains that Yue Han generated by trading in the account held in Wei Han’s name.

The SEC’s continuing investigation is being conducted by Barry O’Connell and John Rymas of the Market Abuse Unit and Jordan Baker of the New York Regional Office.  The case has been supervised by Mr. Sansone, and the litigation will be led by Alexander Janghorbani and Mr. O’Connell.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

Tuesday, 24 November 2015

SEC Charges Political Intelligence Firm

The Securities and Exchange Commission today announced that a political intelligence firm agreed to admit wrongdoing and pay a $375,000 penalty for compliance failures.

Marwood Group Research LLC also agreed to retain an independent compliance consultant after an SEC investigation found that the firm failed to properly inform compliance officers about instances when analysts obtained potential material nonpublic information from government employees.  Under Marwood Group’s written policies and procedures, compliance officers are central to the firm’s efforts to prevent confidential or nonpublic information from being released to clients, who in turn could use it to influence their securities trading decisions.

"Government employees routinely possess and generate confidential market-moving information.  When political intelligence firms like Marwood Group obtain information from government employees, they must take the necessary steps to prevent the dissemination of potentially material nonpublic information obtained in the course of their research,” said Andrew J. Ceresney, Director of the SEC’s Enforcement Division.

According to the SEC’s order instituting a settled administrative proceeding:

  • Marwood Group’s misconduct occurred in 2010, when analysts sought and received information about policy issues or pending regulatory approvals at the Centers for Medicare & Medicaid Services and the Food and Drug Administration.
  • As part of its business, Marwood Group provided hedge funds and other clients with regulatory updates and analysis about potential timing and developments for future government actions or rulemaking decisions.
  • In gathering content for these “research notes,” Marwood Group encouraged its analysts to maintain relationships with government employees.  Since government employees often are familiar with confidential matters at their agencies, such interactions increased the likelihood that Marwood Group employees could acquire material nonpublic information in the course of their work.
  • Marwood Group’s written policies and procedures expressly prohibited the acquisition and dissemination of material nonpublic information and required employees to bring it to the attention of the compliance department if they encountered anything confidential.
  • Despite the red flags regarding information received by analysts, Marwood Group drafted research notes and distributed them directly to clients who could have used any material nonpublic information to inform securities trading decisions.
  • Marwood Group’s analysts failed to bring the information to the compliance department’s attention so it could be properly vetted for any material nonpublic information ripe for insider trading.

The SEC’s order finds that Marwood Group violated Section 15(g) of the Securities and Exchange Act of 1934 and Section 204A of the Investment Advisers Act of 1940.

The SEC’s investigation was conducted John O’Halloran, Edward Saunders, Joshua Mayes, Kristin Murnahan, and Stephen E. Donahue in the Atlanta Regional Office.  The case was supervised by William P. Hicks.

Monday, 23 November 2015

SEC: Stockbroker Stole Investor Money for Home Renovations

The Securities and Exchange Commission today announced fraud charges against a former stockbroker accused of stealing investor money to remodel his house and pay other bills.

The SEC alleges that Bernard M. Parker raised more than $1.2 million from his longstanding brokerage customers and others who were told they were purchasing legitimate real estate tax lien certificates and would earn returns of six to nine percent annually.  However, Parker only used a small amount of investor funds to purchase tax liens and instead used their money to remodel his home in Indiana, Pa., make car payments, and pay bills for his father-in-law. 

“We allege that while Parker was using investor funds for his personal expenses, he provided investors with computer printouts of vacant lots or homes and falsely told them that his company held liens on those properties,” said Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office.  “Once he gained their trust, investors gave Parker thousands of dollars apiece for purported investments, and he swiftly stole their money.” 

In a parallel action, the U.S. Attorney’s Office for the Western District of Pennsylvania today announced criminal charges against Parker.

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

  • Parker conducted the unregistered and fraudulent offering from 2008 to 2014 through his company Parker Financial Services.
  • Parker was a registered representative associated with a dually-registered broker-dealer and investment advisory firm to which he did not disclose this side business.
  • Parker induced investors to purchase the securities by making materially false and misleading statements and omissions about his actual use of investor funds. 
  • Parker told prospective investors that Parker Financial Services would use their funds to purchase tax liens placed by municipalities on properties primarily in Florida, Arizona, and Colorado.
  • Parker pooled the money he raised from investors into several bank accounts, and when he cashed investors’ checks he routinely deposited a portion of the money into a bank account and took the remainder in cash.
  • Parker withdrew more than $650,000 in investor funds in cash from teller transactions, ATM withdrawals, and checks cashed at local supermarkets.  He additionally spent approximately $197,000 of investor money in point-of-sale transactions, $150,000 through personal checks, and $169,000 for online bill payments. 
  • Parker also made approximately $188,000 in purported interest payments to earlier investors in an effort to keep his scheme from being discovered. 

The SEC’s complaint charges Parker with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The SEC seeks disgorgement plus prejudgment interest and penalties as well as a permanent injunction.

The SEC’s continuing investigation is being conducted by Brian P. Thomas and Kelly L. Gibson in the Philadelphia office, and the litigation will be led by David L. Axelrod and Nuriye C. Uygur.  The case is being supervised by G. Jeffrey Boujoukos.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Western District of Pennsylvania, the Federal Bureau of Investigation, and the U.S. Postal Inspection Service.

Friday, 20 November 2015

Atlanta Businessman Charged in Nursing Home Investment Scheme

The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze obtained against an Atlanta-based businessman accused of misusing investor funds raised to purchase and renovate senior living facilities.

The SEC alleges that Christopher F. Brogdon amassed nearly $190 million through dozens of municipal bond and private placement offerings in which investors supposedly earn interest from revenues generated by the nursing home, assisted living facility, or other retirement community project supported by their investment.  But Brogdon secretly commingled investor funds instead of using the money to finance the project described to investors in the disclosure documents for each offering.  From the commingled accounts, he has diverted investor money to other business ventures and personal expenses.

“As alleged, Brogdon deceived investors about the true nature of these investment opportunities,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.  “Brogdon falsely promised investors they were investing in specific senior living projects when in reality they also were funding his personal expenses and other businesses, including some that are struggling financially.”

According to the SEC’s complaint filed in federal court in Newark, N.J., Brogdon has been making payments to investors by borrowing money from third parties, using proceeds from other offerings, and drawing down on personal lines of credit, all of which are improper sources under the offering disclosures made to investors. 

The SEC complaint charges Brogdon with violations of the antifraud provisions of the securities laws and related SEC rules, and seeks the return of ill-gotten gains with interest and penalties.  The complaint also seeks permanent injunctions against further violations of the securities laws, and a bar prohibiting Brogdon from serving as an officer or director of a public company.  The complaint also names Brogdon’s wife and son and a number of his other business entities as relief defendants for the purpose of recovering ill-gotten gains plus interest for investors.

The SEC’s continuing investigation is being conducted by Ranah L. Esmaili, Lee A. Greenwood, Kerri L. Palen, and Joseph Chimienti, and the litigation will be handled by Ms. Esmaili, Mr. Greenwood, Neal Jacobson, and Alexander Vasilescu.  The case is being supervised by Lara S. Mehraban and Mr. Wadhwa.  The SEC appreciates the assistance of the New Jersey Bureau of Securities and the Financial Industry Regulatory Authority, which today filed an enforcement action against Cantone Research Inc., a broker-dealer that served as a placement agent for some of Brogdon’s offerings.