Among recent SEC enforcement actions were an $11 million settlement from two Hong Kong asset management firms after the firms' assets were frozen for insider trading and a guilty verdict in the trial of a Connecticut fund manager who facilitated a Ponzi scheme and sought to divert a settlement to his own purposes.
In addition, FINRA censured and fined a Dayton, Ohio-based firm and its principal on compliance failures.
Ponzi Schemer Busted Trying to Divert Settlement Cash
A jury found guilty a Connecticut fund manager who, not content to bilk clients out of funds via a Ponzi scheme he facilitated, also tried to subvert funds from a settlement connected to that scheme.
Marlon Quan, who was charged in 2011 with facilitating fraud for his part in funneling several hundred million dollars into a Ponzi scheme run by Minnesota businessman Thomas Petters, also was the target of an emergency court order by the SEC designed to stop him from diverting to himself and others settlement funds intended for U.S. victims of the original scheme.
According to the SEC, Quan and his firms (Stewardship Investment Advisors LLC and Acorn Capital Group LLC) invested hedge fund assets with Petters while pocketing more than $90 million in fees. They provided false assurances of security to investors and even participated in "round-trip" transactions that made it look as if Petters were making payments on the funds Quan managed.
But that wasn't enough for Quan, who then also negotiated an agreement to divert a settlement payment of approximately $14 million relating to a receivership and a bankruptcy of Petters's entities. In the attempt, blocked by the SEC, Quan had arranged for nearly $6 million of the settlement amount to be paid to a German bank, more than $7 million to be paid to a liquidator appointed by a Bermuda court for certain overseas fund investors, and approximately $862,500 to be directed to pay Quan's lawyers and other expenses.
Although he purportedly negotiated on behalf of his U.S. fund investors, Quan's U.S. victims would receive no money under this agreement. Instead, the money was paid into a firm affiliated with Quan's Acorn Capital Group LLC. However, the SEC stepped in with an emergency freeze order that segregated the funds and held them under court order.
Now Quan has been found guilty by a jury of securities fraud for his role in the various schemes. Andrew Ceresney, director, SEC Division of Enforcement, said in a statement, "We're very pleased the jury found Marlon Quan liable for securities fraud and that he will be held accountable for his deception in funneling several hundred million dollars of investor money into the Tom Petters Ponzi scheme. Facilitators of Ponzi schemes are just as culpable and harmful to investors as those who are conducting the schemes, and we thank the jury for sending that message in its verdict."
Two Hong Kong Firms to Pay $11 Million on SEC Insider Trading Charges
Two Hong Kong asset management firms have agreed to pay settlements totaling nearly $11 million in the wake of an emergency asset freeze by the SEC to halt an insider trading scheme involving the acquisition of Canadian energy firm Nexen Inc. by China-based CNOOC Ltd. in 2012.
In its investigation, the SEC found that traders using accounts in Hong Kong and Singapore racked up more than $13 million in illegal profits when the shares of Nexen spiked by more than 50% in the wake of the acquisition announcement. It won an emergency asset freeze against the then-unknown traders, and has since reached a string of settlements with the firms found to have engaged in insider trading.
