SEC Announces Cases Related to Disclosures During Battles for Corporate Control

The Securities and Exchange Commission today announced two enforcement actions involving disclosure violations that deprived investors of material information during battles for corporate control of publicly traded companies.

In one case, the SEC’s order finds that Texas-based oil refinery company CVR Energy made inadequate disclosures in SEC filings about “success fee” arrangements with two investment banks retained by the company to fend off a hostile takeover bid.  Shareholders were consequently unaware of potential conflicts of interest that stemmed from the fee arrangements, namely that the banks could still earn success fees even if the hostile bidder secured control of the company.  CVR agreed to settle the case without admitting or denying the findings in the SEC’s or... Read More

Purported Real Estate Investment Manager Settles Fraud Charges

The Securities and Exchange Commission today announced that a purported real estate investment manager has agreed to pay more than a half-million dollars to settle charges that he pocketed investor money in an investment scheme.

The SEC alleges that James P. Toner Jr. of Scottsdale, Ariz., siphoned $51,000 from investors who were falsely told that he would personally manage some of the real estate projects in which they were purchasing interests.  The stated purpose of each investor offering was to purchase a residential property in the Phoenix area, renovate that property, and then sell it for a profit. 

According to the SEC’s complaint, Toner took $31,000 in undisclosed management fees even though he did not manage any of the offerings, and stole $20,000 directly fr... Read More

Morgan Stanley Settles Charges Related to ETF Investments

The Securities and Exchange Commission today announced that Morgan Stanley Smith Barney has agreed to pay an $8 million penalty and admit wrongdoing to settle charges related to single inverse ETF investments it recommended to advisory clients.

The SEC’s order finds that Morgan Stanley did not adequately implement its policies and procedures to ensure that clients understood the risks involved with purchasing inverse ETFs.  Among the order’s findings, Morgan Stanley failed to obtain from several hundred clients a signed client disclosure notice, which stated that single inverse ETFs were typically unsuitable for investors planning to hold them longer than one trading session unless used as part of a trading or hedging strategy.  Morgan Stanley solicited clients to purchase si... Read More

Brokerage Firm Paying Penalty for Compliance and Trading Surveillance Failures

The Securities and Exchange Commission today announced that a New York-based brokerage firm has agreed to pay a $100,000 penalty to settle charges of compliance and trading surveillance failures. Federal securities laws require firms to enforce policies and procedures to prevent the misuse of material, nonpublic information to which their employees routinely have access.  The SEC’s order finds that Sidoti & Company LLC had no written policies or procedures in place from November 2014 to July 2015 as it pertained to those making investment decisions for an affiliated hedge fund that invested in issuers covered by Sidoti’s research department and some other issuers for which Sidoti provided investment banking services.  For example, Sidoti maintained a “daily restricted list” of se... Read More

Brokerage Firm Paying Penalty for Compliance and Trading Surveillance Failures

The Securities and Exchange Commission today announced that a New York-based brokerage firm has agreed to pay a $100,000 penalty to settle charges of compliance and trading surveillance failures. Federal securities laws require firms to enforce policies and procedures to prevent the misuse of material, nonpublic information to which their employees routinely have access.  The SEC’s order finds that Sidoti & Company LLC had no written policies or procedures in place from November 2014 to July 2015 as it pertained to those making investment decisions for an affiliated hedge fund that invested in issuers covered by Sidoti’s research department and some other issuers for which Sidoti provided investment banking services.  For example, Sidoti maintained a “daily restricted list” of se... Read More

SEC Charges Chinese Citizens Who Reaped Massive Profits From Insider Trading on Comcast-Dreamworks Acquisition

The Securities and Exchange Commission today announced that it obtained an emergency court order freezing brokerage accounts holding more than $29 million in illegal profits from insider trading in advance of the April 2016 acquisition of DreamWorks Animation SKG, Inc. by Comcast Corp.

The SEC alleges that in the weeks leading up to the news of the acquisition, Shaohua (Michael) Yin amassed more than $56 million of DreamWorks stock in the U.S. brokerage accounts of five Chinese nationals, including his elderly parents.  DreamWorks stock price rose 47.3% once the acquisition was announced.  

In a complaint filed in U.S. District Court in the Southern District of New York, the SEC alleged the five accounts reaped $29 million from the DreamWorks trades.  The complaint al... Read More

SEC Charges Chinese Citizens Who Reaped Massive Profits From Insider Trading on Comcast-Dreamworks Acquisition

The Securities and Exchange Commission today announced that it obtained an emergency court order freezing brokerage accounts holding more than $29 million in illegal profits from insider trading in advance of the April 2016 acquisition of DreamWorks Animation SKG, Inc. by Comcast Corp.

The SEC alleges that in the weeks leading up to the news of the acquisition, Shaohua (Michael) Yin amassed more than $56 million of DreamWorks stock in the U.S. brokerage accounts of five Chinese nationals, including his elderly parents.  DreamWorks stock price rose 47.3% once the acquisition was announced.  

In a complaint filed in U.S. District Court in the Southern District of New York, the SEC alleged the five accounts reaped $29 million from the DreamWorks trades.  The complaint al... Read More

SEC Announces Agenda for February 15 Meeting of the Advisory Committee on Small and Emerging Companies

The Securities and Exchange Commission today announced the agenda for the February 15 meeting of its Advisory Committee on Small and Emerging Companies.  The committee will discuss secondary market liquidity for Regulation A companies and reporting companies not listed on an exchange, and explore why more companies may be choosing to stay private.  It also will consider recommendations on corporate board diversity and on the treatment of so-called “finders” that assist companies in capital raising activities. The February 15 meeting will begin at 9:30 a.m. in the multipurpose room at the SEC’s headquarters at 100 F Street, N.E., Washington, D.C., and is open to the public.  It will be webcast live on the SEC’s website and arc... Read More

SEC Announces Agenda for February 15 Meeting of the Advisory Committee on Small and Emerging Companies

The Securities and Exchange Commission today announced the agenda for the February 15 meeting of its Advisory Committee on Small and Emerging Companies.  The committee will discuss secondary market liquidity for Regulation A companies and reporting companies not listed on an exchange, and explore why more companies may be choosing to stay private.  It also will consider recommendations on corporate board diversity and on the treatment of so-called “finders” that assist companies in capital raising activities.

The February 15 meeting will begin at 9:30 a.m. in the multipurpose room at the SEC’s headquarters at 100 F Street, N.E., Washington, D.C., and is open to the public.  It will be webcast live on the SEC’s website... Read More

Private Equity Adviser Barred From Industry for Improper Withdrawal From Funds

The Securities and Exchange Commission today announced that a private equity adviser has been permanently barred from the securities industry and must pay a $1.25 million penalty to settle charges that he withdrew improper fees from two private equity funds he managed.

The SEC’s order finds that Scott M. Landress formed the funds to invest in real estate trusts with underlying investments in properties throughout the UK.  His investment advisory firm SLRA Inc. earned management fees based on the net asset value of the underlying investments.  SLRA’s fees shrank and its management costs increased as real estate property values fell during the financial crisis, and the funds’ limited partners declined several requests by Landress for additional compensation to cover the shortfa... Read More

SEC Charges Financial Adviser With Stealing From Client Accounts

The Securities and Exchange Commission today charged an investment adviser representative with stealing approximately $5 million from client accounts by initiating unauthorized wire transfers and issuing checks to third parties to cover personal expenses.

The SEC alleges that Barry Connell, who worked in the New Jersey office of a major financial institution, conducted more than 100 unauthorized transactions by using falsified authorization forms misrepresenting that he received verbal requests from the clients.  Connell allegedly used money from client accounts to rent a home in suburban Las Vegas and pay for a country club membership and private jet service.

“As alleged in our complaint, Connell stole funds from clients who entrusted him their finances, choosing to ... Read More

SEC Charges Investment Adviser With Stealing Investor Funds

The Securities and Exchange Commission today charged a Connecticut-based investment advisory business and its owner with stealing money from investors to settle a private lawsuit among other misuses.

The SEC alleges that Sentinel Growth Fund Management and its founder Mark J. Varacchi misrepresented to investors that money they deposited with the firm would be allocated to up-and-coming hedge fund managers for investment purposes.  According to the SEC’s complaint, Varacchi and Sentinel Growth Fund Management did not transfer all the money as promised, instead commingling investor assets and manipulating account activity, account balances, and investment returns as part of a scheme to siphon away investor funds.  Varacchi and his firm allegedly stole at least $3.95 million fr... Read More