More On Legal & Compliancefrom The Advisor's Professional Library
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
The SEC charged a biopharmaceutical executive and a doctor and patient she tipped about confidential information, along with an Nvidia insider connected to the SAC Capital insider trading case.
In addition, the agency charged a former stock promoter with fraud and issued a stop order against a company that sought to issue stock under an amended registration statement containing false and misleading information.
Stock Promoter Touting Phony Background Charged
A former Florida-based stock promoter currently serving a two-year prison sentence for lying to SEC investigators was charged by the agency with fraud.
Robert Vitale, according to the agency, defrauded investors in a Florida real estate venture, sold unregistered securities and acted as an unregistered broker-dealer. He and his firm Realty Acquisitions & Trust Inc. raised at least $8.7 million from investors, including many senior citizens, and racked up a litany of lies while doing so.
Vitale allegedly told investors their funds were “100% protected” when they were not. He also claimed to be a financial expert with a business degree from Notre Dame when he never attended college after graduating from Notre Dame High School in West Haven, Conn.
While claiming “great honesty and integrity,” Vitale never mentioned to his investors that he had been charged by the SEC in 2004 for a pump-and-dump scheme, settled the charges and agreed to be barred from the brokerage industry.
Vitale is an inmate at the Federal Detention Center in Miami. In September 2013, he was sentenced after being convicted of obstruction of justice and providing false testimony in the SEC’s investigation that led to the current batch of charges.
The SEC seeks the return of allegedly ill-gotten gains with interest, a monetary penalty, and a permanent injunction against Vitale. The complaint also charges Coral Springs Investment Group Inc. as a relief defendant, alleging the company holds assets that came from defrauded investors that should be returned.
Biopharm Exec, Doctor and Patient Settle Insider Trading Charges
A former biopharmaceutical executive and two others have settled SEC charges that they traded on confidential information about the company’s key developmental drug.
According to the agency, Dr. Loretta Itri, president of pharmaceutical development and chief medical officer of Genta Inc., tipped her longtime friend, Dr. Neil Moskowitz, an emergency room physician, about clinical trial results for an experimental drug designed to treat advanced melanoma. Itri had been directly involved in the drug trials and was among the first to learn the results before the public announcement on Oct. 29, 2009.
Without admitting or denying the charges, the three have agreed to settle with the SEC. The settlement, subject to court approval, requires Itri to pay a civil penalty of approximately $64,000 and bars her from serving as an officer or director of a public company for five years. Moskowitz would be required to return $64,300 of allegedly ill-gotten gains, plus prejudgment interest of $9,556, and pay a civil penalty of $64,300. Cashin would be required to return $75,140, plus prejudgment interest of $10,955, and pay a civil penalty of $37,570, which reflects the cooperation Cashin provided to the SEC’s investigation.
Nvidia Insider Settles Tipping Charge in SAC-Related Case
A former accounting manager at technology company Nvidia Corp. who tipped a friend with confidential company information was charged by the SEC after the information set off a chain of tipping and illegal trading among a network of hedge fund traders who made millions.
Chris Choi of San Jose, Calif., tipped his friend Hyung Lim with nonpublic information about Nvidia’s financial performance in advance of the company’s quarterly earnings announcements in 2009 and 2010. Lim then shared that information with Danny Kuo, a fellow poker player who was a hedge fund manager at Whittier Trust Co.
Kuo not only illegally traded on the information for his firm, he also passed it along to analysts at such other firms as Diamondback Capital Management, Level Global Investors LP and Sigma Capital Management, which is an affiliate of S.A.C. Capital Advisors LP. The analysts relayed Choi’s information to their portfolio managers, and as a result funds conducted insider trading in Nvidia securities.
According to the agency, Choi’s tips enabled hedge funds to bring in approximately $16.5 million in illicit profits and avoided losses. He routinely gave Lim nonpublic information about Nvidia’s highly confidential calculations of its revenues, gross profit margins, and other financial metrics ahead of its quarterly earnings announcements. Lim, Kuo, Diamondback, Level Global and Sigma Capital have already been charged in the case.
Choi is the 45th person to be charged in the SEC’s ongoing investigation into expert networks that arose out of the Galleon Management inquiry, which itself resulted in charges against 36 individuals including Raj Rajaratnam. Investment professionals, hedge funds and corporate insiders so far revealed by the investigation have brought in illicit profits of approximately $430 million, and the investigation is still ongoing.
SEC Issues Stop Order for False Info on Registration Statement
The SEC has issued a stop order to halt Comp Services Inc.’s issuance of stock based on an amended registration statement for an IPO that contains false and misleading information.
Northern California-based Comp Services, according to the agency, failed in its registration statement to disclose the identity of the control person and promoter behind the company, and falsely states that Comp Services earned revenue for providing computer services even though the company has never earned any revenue. The registration statement has been amended 10 times, most recently in December.
The company has consented to the issuance of the stop order, which also triggers the bad actor disqualifications to prohibit Comp Services from engaging or participating in any unregistered offering conducted under Rule 506 of Regulation D for five years. The SEC’s investigation is continuing.
Check out FINRA Reverses Schwab Class Action Waiver Decision on ThinkAdvisor.