Among recent enforcement actions by the SEC, the middleman in the Post-It notes insider trading case agreed to settle with the agency; a hedge fund manager admitted wrongdoing and paid $4.5 million in SEC penalties for reporting bad information; and 34 defendants were charged in a scheme to manipulate the market for microcap securities.
Napkin-Eating Broker Agrees to Cooperate With SEC
The SEC has announced that it has reached a settlement with Frank Tamayo, who was previously charged for passing along insider information on napkins and Post-It notes from a law firm clerk to a stockbroker. To destroy the evidence, Tomayo then ate the napkins or Post-It notes on which the ticker symbols of the companies being tipped about were written.
After being charged, Tamayo agreed to cooperate with the agency, and rendered extensive assistance during the SEC's investigation. As a result, the proposed final judgment will order him to disgorge more than $1 million of his ill-gotten gains from the scheme, but that payment would be deemed satisfied by the entry of orders of forfeiture or restitution in the parallel criminal case, in which he has pled guilty. He will not be facing a monetary penalty from the SEC.
Under the terms of the agreement, Tamayo must continue to cooperate as a witness in the SEC's ongoing case against the law firm clerk, Steven Metro of Katonah, New York, and the stockbroker, Vladimir Eydelman of Colts Neck, New Jersey. The SEC seeks disgorgement of ill-gotten gains plus prejudgment interest, financial penalties and injunctions against them.
Phony Advisor Used Ponzi Scheme Funds on Porn and Travel
The SEC has charged Paul Lee Moore, a phony investment advisor in San Diego, with stealing money from clients for personal use and conducting a Ponzi scheme to pay customers making redemption requests.
According to the agency, Moore and his so-called investment advisory firm Coast Capital Management brought in $2.6 million from clients. But instead of investing their money as promised, Moore spent almost $2 million on pornographic websites, travel expenses and retail goods. The remaining $625,000 of clients' money, which came from new clients, he used to pay off older clients who wanted to redeem their funds.
He kept clients fooled with phony account statements showing securities he never bought and was able to draw in new clients when existing clients showed off those fake statements to family members, friends and business associates. He also lied to clients about his education, employment experience and Coast Capital's supposed assets under management. Coast Capital, which was not registered as an investment adviser with the SEC or any state regulator, is no longer in business.
The SEC seeks a permanent injunction, return of allegedly ill-gotten gains plus prejudgment interest and a penalty. In a parallel action, the U.S. Attorney's Office for the Southern District of California has announced criminal charges against Moore.
Hedge Fund Manager Admits to Providing Bad Data, Pays $4.5 Million
Hedge fund manager OZ Management LP has been charged by the SEC with providing inaccurate trade data to four prime brokers, causing inaccuracies in the brokers' books and records and in data provided to the SEC in investigations.
According to the agency, for nearly six years, ending in December 2013, OZ Management misidentified some trades in data provided to four of its prime brokers. While the data didn't affect trade settlement, it did cause the four prime brokers to inaccurately list approximately 552 million shares in their own books and records. The bad data were also incorporated into data that brokers provide electronically to regulators, resulting in approximately 14.4 million shares being inaccurately reported in response to the SEC's "blue sheet" requests. FINRA made several referrals to the SEC based on the incorrect trade data.
The SEC found OZ's violations during a 2013 investigation, when it found that the firm's own files identified certain trades differently than the blue sheets. The discrepancy arose for trades where OZ did not characterize sales as long or short based on how they were marked when they were sent to the market but filtered them based on other factors, such as the relevant fund's position in the stock at the prime broker.
That meant that sometimes the way trades were identified changed, causing some long sales to be erroneously shown as short sales when OZ provided the data to its prime brokers. OZ has since provided corrected historical information to the affected prime brokers who are working to make their own corrections.
