Among recent enforcement actions were a positive jury verdict for the SEC in a case of insider trading; charges filed by the agency against the Chinese and U.S. executives of an animal feed company for accounting fraud; charges against Jefferies LLC for failure to supervise mortgage-backed securities during the financial crisis; and a judge’s ruling on the disgorgement amount former Goldman Sachs trader “Fabulous Fab” Fabrice Tourre must pay.
Goldman’s ‘Fabulous Fab’ Ordered to Pay More Than $825,000
The SEC got some backup from U.S. District Judge Katherine Forrest in Manhattan for the financial penalties it sought to levy on “Fabulous Fab” Fabrice Tourre, former Goldman Sachs trader, for his role in defrauding investors in subprime mortgage products that melted down during the financial crisis.
The agency had sought to make Tourre pay a $910,000 fine and additional penalties that totaled approximately $1.15 million, after he was found liable in a jury trial for his actions. While the judge did not go quite that far, she did impose a stiff penalty—$650,000 in civil fines and another $175,463 from his bonus, plus interest, that was tied to the fraud.
Tourre had challenged the SEC’s right to demand bonus disgorgement from him, citing the $15 million disgorgement already paid by Goldman in the firm’s settlement with the SEC. He also challenged other provisions, including one that sought to bar him from re-entering the securities industry.
While the judge did not bar Tourre, saying that there was no evidence he planned to re-enter the industry, she said the SEC could reapply if he returned within three years. Backing the SEC, she also barred Tourre from being reimbursed by Goldman for the penalty. Goldman did pay Tourre’s legal fees.
Brothers Found Guilty in Insider Trading Case
Two brothers charged by the SEC with insider trading last June were found guilty by a jury.
Andrew Jacobs of Cleveland, Ohio, and his brother Leslie Jacobs II of Lancaster, Pa. had been charged with insider trading in connection with the December 2009 tender offer for Chattem Inc., a Chattanooga, Tenn.-based distributor of pharmaceutical products. Andrew Jacobs found out about the proposed tender from his brother-in-law, who at the time was an executive of Chattem.
Although he had been asked to keep the information confidential and promised that he would, the next day Andrew Jacobs called Leslie Jacobs and filled him in on the deal. Leslie Jacobs promptly bought 2000 shares of Chattem, which he sold after the acquisition was publicly announced. Leslie Jacobs made a total of $49,457.21 in illicit profits.
The SEC had charged the brothers, and a six-day jury trial resulted in a guilty verdict on the charge of insider trading in connection with a tender. The court will decide the penalties in the case.
SEC Charges Jefferies on MBS Supervision Failures
Global investment bank and brokerage firm Jefferies LLC was charged by the SEC with failing to supervise employees on its mortgage-backed securities desk who were lying to customers about pricing.
Jefferies representatives including Jesse Litvak, who was charged last year with securities fraud, lied to customers about the prices that the firm paid for certain mortgage-backed securities; that misled them about the true profit margin earned by the firm in its trading.
Jefferies’ policy required supervisors to review traders’ and salespeople’s electronic communications to flag any untrue or misleading information provided to customers. However, the firm did not implement the policy in a way that could detect misrepresentations about price.
According to the agency, on numerous occasions from 2009 to 2011, Jefferies failed to provide direction or tools to supervisors on the MBS desk to meaningfully review communications to customers by Litvak and others about the price that Jefferies paid for MBS. Jefferies supervisors failed to check traders’ communications against actual pricing information, which made it hard to identify misrepresentations. MBS supervisors also did not review communications with customers that took place in Bloomberg group chats, where Jefferies traders and salespeople lied about pricing.
Jefferies agreed to pay $25 million to settle the SEC’s charges as well as a parallel action by the U.S. Attorney’s Office for the District of Connecticut. In a related criminal trial, Litvak was convicted of multiple counts of securities fraud and other charges.