The case relates to insider trading charges that the SEC recently filed against current and former Deerfield analysts, a political intelligence analyst who passed them information, and an employee at the Centers for Medicare and Medicaid Services (CMS).
On August 25, 2017, the Honorable Denise L. Cote of the U.S. District Court for the Southern District of New York denied a motion by Lek Securities Corporation and its Chief Executive Officer, Samuel Lek, to dismiss the SEC’s claims in an ongoing market manipulation litigation. The SEC’s complaint, filed in March 2017, alleges that Lek Securities and Samuel Lek aided and abetted manipulative trading schemes by one of Lek Securities’ customers, Ukraine-based trading firm Avalon FA Ltd, Avalon’s owner Nathan Fayyer, and its alleged undisclosed control person, Sergey Pustelnik.
The Court denied the Lek defendants’ motion to dismiss in its entirety, rejecting their arguments that the trading schemes at issue in the Complaint were not manipulative. The SEC’s complaint alleges two types of manipulative trading, layering and cross-market manipulation. Layering involves the entry of “non-bona fide” orders (orders that the trader allegedly does not intend to execute and that have no legitimate economic reason) to trick others into trading at artificial prices. The cross-market manipulation involves buying and selling stocks at a loss, allegedly for the purpose of moving the prices of corresponding options, so that Avalon could make a profit by trading those options at artificial prices. Read More
On Aug. 21, 2017, the Securities and Exchange Commission (“SEC”) announced that hedge fund advisory firm Deerfield Management Company L.P. has agreed to pay more than $4.6 million to settle charges that it failed to establish, maintain, and enforce policies and procedures reasonably designed to prevent the misuse of inside information, including information about confidential government decisions.
On Aug. 22, 2017, the Securities and Exchange Commission (“SEC”) charged investment adviser Jeremy Drake with defrauding two clients, a high profile professional athlete and the athlete’s wife, by deceiving them about the investment advisory fees they were paying. The SEC alleges that Jeremy Drake went to elaborate lengths to conceal his fraud, including creating and sending false documents and masquerading as another person to corroborate his lies.
The SEC alleges that Drake, then with Los Angeles-based HCR Wealth Advisors, deceived the clients for more than three years, telling them that they paid a special “VIP” annual rate of 0.15 to 0.20 percent of their assets under management when in fact they paid 1 percent. Jeremy Drake’s deception led the clients to pay $1.2 million more in management fees than Jeremy Drake represented. Jeremy Drake personally received approximately $900,000 of incentive-based compensation based on the fees paid by the clients during the course of his deception.
On August 21, 2017, the Securities and Exchange Commission (“SEC”) has obtained a final judgment against Adesh Tyagi, the former CEO of a penny stock company charged with making false claims in press releases and engaging in manipulative trading in company stock.
The final judgment, entered by consent on August 17, 2017 by the Honorable Jeffrey S. White of the U.S. District Court for the Northern District of California, permanently enjoins Adesh Tyagi from violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(d) and 16(a) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5, 13b-1 and 16a-3 and imposes a conduct based injunction and officer-and-director and penny stock bars. In addition, the final judgment orders Adesh Tyagi to pay approximately $294,000 in disgorgement and interest. Read More
On August 16, 2017, the Securities and Exchange Commission (“SEC”) announced that Vergeous LLC and Dream Team Partners LLC, two Florida-based video game development companies, and their principal have agreed to pay approximately $293,000 for misleading investors in video game projects.
According to the SEC’s complaint, through a series of unregistered securities offerings during a three-year period, Vergeous LLC, Dream Team Partners LLC, and Paul E. Renfroe raised about $1.2 million from approximately 33 investors in several states, many of whom were elderly clients of Renfroe’s other businesses. The SEC alleges that Vergeous and Renfroe told investors that their money would be used to develop “free-to-play” video game projects. Instead, the SEC alleges that more than $150,000 raised from investors was used to pay undisclosed company debts and back salaries to Renfroe and others. Renfroe also allegedly touted his experience as a “long time financial advisor” and told investors that he “voluntarily” gave up his securities licenses because placing customers’ investments at risk “caused a real conflict of conscience.” In reality, as alleged in the complaint, Renfroe was permanently barred from the securities industry by the NASD (now FINRA) for misusing customer funds. The SEC also alleges that Vergeous and Renfroe misled investors by failing to disclose that Dream Team held complete control over all intellectual property rights associated with any joint video game projects and that Renfroe had a 30 percent ownership stake in Dream Team, despite stating that “no conflicts of interest exist.” Read More
On Aug. 18, 2017, the Securities and Exchange Commission (“SEC”) announced that broker Banca IMI Securities Corp, an indirect, wholly-owned U.S. subsidiary of Italian bank Intesa Sanpaolo SpA, has agreed to pay more than $35 million to settle charges that it violated federal securities laws when it requested the issuance of and received American Depositary Receipts (ADRs) without possessing the underlying foreign shares.
ADRs are U.S. securities that represent shares of a foreign company, and for all issued ADRs there must be a corresponding number of foreign shares held in custody at a depositary bank. Under “pre-release agreements,” brokers such as Banca IMI Securities may obtain ADRs without depositing corresponding foreign shares provided the broker owns or takes reasonable steps to determine that the customer owns the number of foreign shares that corresponds to the number of shares the ADR represents.
On August 16, 2017, the Securities and Exchange Commission (“SEC”) announced insider trading charges against seven individuals, Daniel Rivas being one, who generated millions in profits by trading on confidential information about dozens of impending mergers and acquisitions. Data analysis allowed the SEC’s enforcement staff to uncover the illicit trading despite the traders’ alleged use of shell companies, code words, and an encrypted, self-destructing messaging application to evade detection.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York unsealed criminal charges against the same seven individuals.
On Aug. 15, 2017, the Securities and Exchange Commission (“SEC”) announced that KPMG has agreed to pay more than $6.2 million to settle charges that it failed to properly audit the financial statements of an oil and gas company, resulting in investors being misinformed about the energy company’s value. KPMG’s engagement partner in charge of the audit also agreed to settle charges against him.
According to the SEC’s order, KPMG was hired as the outside auditor for Miller Energy Resources in 2011 and issued an unqualified audit report despite grossly overstated values for key oil and gas assets. KPMG and the engagement partner John Riordan failed to properly assess the risks associated with accepting Miller Energy as a client and did not properly staff the audit, which overlooked the overvaluation of certain oil and gas interests that the company had purchased in Alaska the previous year. Among other audit failures, KPMG and Riordan did not adequately consider and address facts known to them that should have raised serious doubts about the company’s valuation, and they failed to detect that certain fixed assets were double-counted in the company’s valuation.
On August 16, 2017, the Securities and Exchange Commission (“SEC”) announced that it has obtained final judgments against DiMaria and Gamsey, two former executives of Bankrate Inc.
In September 2015, the SEC charged the two executives, Edward DiMaria and Matthew Gamsey, with fraudulently manipulating the company’s financial results to meet analyst expectations. The SEC also alleged that DiMaria sold Bankrate stock at a price that was artificially inflated because of the accounting manipulation. The final judgments, entered on August 16, 2017 by the Honorable Gregory Woods of the U.S. District Court for the Southern District of New York permanently enjoin: Read More