The SEC and FINRA took a number of enforcement actions recently, against both individuals and businesses for a range of offenses from insider trading to fraud and influence peddling. Among those finding themselves on the wrong end of an SEC action were a movie producer, a former mayor and a Shanghai-based auditing firm.
Former Detroit Mayor, Others Charged With Influence Peddling
The SEC also took action against former Detroit mayor Kwame M. Kilpatrick, former city treasurer Jeffrey W. Beasley and the investment adviser to the city’s public pension funds, and charged them with involvement in a secret exchange of lavish gifts to peddle influence over the funds’ investment process.
Kilpatrick and Beasley, who were trustees to the pension funds, are alleged to have solicited and received $125,000 worth of private jet travel and other perks paid for by MayfieldGentry Realty Advisors LLC, an investment adviser whose CEO, Chauncey Mayfield, was recommending to the trustees that the pension funds invest approximately $117 million in a REIT controlled by the firm.
The complaint alleges that, despite their fiduciary duties, neither Kilpatrick and Beasley nor Mayfield and his firm informed the boards of trustees about these trips and the conflicts of interest they presented. Some of the trips were presented as business travel, but no business was done and despite the fact that Mayfield knew this, he never questioned the arrangement. Other trips were for destinations such as Las Vegas, Tallahassee and Bermuda. The funds ultimately voted to approve the REIT investment, and MayfieldGentry received millions of dollars in management fees.
The SEC seeks disgorgement of ill-gotten gains, penalties and permanent injunctions, including an injunction against Kilpatrick and Beasley to prohibit them from participating in any decisions involving investments in securities by public pensions.
Movie Producer Charged by SEC
In another SEC action, a Hollywood movie producer, his brother, cousin, and three others among his friends and business partners were charged for insider trading in the stock of a company for which he served on the board of directors.
The producer, Mohammed Mark Amin, and five others agreed to settle the SEC’s charges by collectively paying nearly $2 million.
Amin, who is credited as either the producer or the executive producer for more than 75 movies, including Frida, Eve’s Bayou and four films in the Leprechaun series, is alleged by the SEC to have gained confidential information before a board meeting of DuPont Fabros Technology, which develops and manages highly specialized and secure facilities that, through long-term leases, maintain large computer servers for technology companies.
Amin provided nonpublic details to his brother Robert Reza Amin, his cousin Michael Mahmood Amin, and longtime friend and business manager Sam Saeed Pirnazar about three new leases DuPont Fabros was negotiating and three loans it was obtaining to develop new facilities.
The Amins and Pirnazar illegally traded on that information, and Reza Amin also gave the information to his friends and business associates Mary Coley and Ali Tashakori, who also illegally traded. After an earnings release that highlighted the development of these facilities, DuPont Fabros stock rose 36% and the five individuals together made more than $618,000 in insider trading profits.
They also have agreed to the entry of a final judgment permanently enjoining them from violating Section 10(b) of the Exchange Act and Rule 10b-5. Mark Amin has additionally agreed to a bar from serving as an officer or director of a public company for 10 years. The settlement is subject to court approval.
SEC, British Financial Services Authority Fine Scotland-Based Fund Management Group $14 Million
A Scotland-based fund management group was charged by the SEC with fraudulently using one of its U.S. fund clients to rescue another client, a China-focused hedge fund suffering from the global financial crisis.
Without admitting or denying the SEC’s findings, Martin Currie agreed to settle the SEC’s charges by paying a total of nearly $14 million to the SEC and the U.K.’s Financial Services Authority (FSA)—a penalty of $8.3 million to the SEC, and acceptance of censures and cease-and-desist orders against future violations, and a penalty of £3.5 million ($5.6 million) to settle the FSA’s action.
The SEC charged Martin Currie with violations of the antifraud, affiliated transaction, reporting and compliance provisions of the Investment Advisers Act of 1940 and the Investment Company Act of 1940, and alleged that it steered a U.S. publicly traded fund called The China Fund Inc. into an investment to bolster the hedge fund.
The hedge fund had acquired a significant and largely illiquid exposure to a single Chinese company. Martin Currie directly alleviated the hedge fund’s liquidity problems by deciding to use the China Fund—to the detriment of the fund and its shareholders—in a bond transaction that reduced the hedge fund’s exposure.
FINRA Hearing Officer Expels BD
During a recent hearing, a FINRA hearing officer found that Pinnacle Partners Financial Corp., a broker-dealer based in San Antonio, Texas, and its president, Brian Alfaro, conducted fraudulent sales of oil and gas private placements and unregistered securities. Alfaro was also found to have used customer funds for personal and business expenses.