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Legal Roundup: Two Actions and a 'No Action'

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BRIDGEPORT, Conn. (–The former chief operating officer of Durus Capital Management LLC was sentenced to one year of probation and a fine of $10,000 Monday [March 6].

Douglas Schmidt had pleaded guilty five months before to a charge of aiding and abetting the filing of false reports with the Securities and Exchange Commission. The charge carried a maximum penalty of 20 years imprisonment and a fine of $5 million.

“It is our hope that this prosecution will send a message to hedge fund operators that the federal government is watching,” U.S. Attorney Kevin O’Connor said in a statement issued Monday. “The failure to obey securities laws, especially by making false statements in SEC filings on which investors rely, is a serious crime. Violators will be vigorously prosecuted.”

On Dec. 21, 2005, Scott Sacane, Durus’s owner, waived indictment and pleaded guilty to one count of violating the Investment Advisers Act of 1940 in connection with a market manipulation scheme. Mr. Sacane will be sentenced on June 28.

In another enforcement matter, a federal court judge for the southern district of Florida found Michael Lauer guilty of contempt on Jan. 24 for violating an asset freeze order, failing to participate in the discovery process in good faith, and repeatedly violating court orders. Mr. Lauer, founder of Lancer Management Group LLC, has in court filings (he is representing himself) referred to the attorneys for the SEC as “increasingly rabid and … authority-abusing.”

The relevant authority, the district court, held an evidentiary hearing on the contempt charge in December 2005, and the contempt finding resulted. Judge Kenneth A. Marra has ordered Mr. Lauer to return all assets that he transferred since the freeze on July 10, 2003, an amount the court sets as at least $172,258, within 20 days. In the event of non-compliance, Mr. Lauer could face a daily monetary penalty of $1,000 per day.

Judge Marra also ordered Mr. Lauer to reimburse the SEC’s attorney’s fees and travel costs and expenses.

In an unrelated matter: on Feb. 17, the SEC’s division of market regulation sent a no-action letter to TriNet Group Inc., San Leandro, Calif., in connection with an employee-leasing plan among broker-dealers.

TriNet, which is not an associated person of a broker-dealer, proposes to place on its own payroll the existing employees of broker-dealer clients, in order to offer “certain administrative employer services.” In other words, its clients are outsourcing various human resource functions.

The SEC, in agreeing that this arrangement doesn’t merit enforcement action under the Exchange Act, effectively agrees that TriNet isn’t making itself a broker-dealer within the meaning of the Securities Exchange Act of 1934.

“While the employees placed on TriNet’s payroll are employees of TriNet for purposes of applicable employment laws, they are employees of its broker-dealer clients for purposes of the securities laws and these broker-dealer clients will maintain direction and control over them.”

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Contact Bob Keane with questions or comments at [email protected].


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