Among recent enforcement actions by the SEC were charges against a company for facilitating illegal trades; against two clinical drug trial doctors for insider trading; against four former officials at a clearing firm for Regulation SHO violations; against a former chief risk officer for violations of auditor independence rules; against a private fund manager for defrauding investors in a Ponzi scheme; and against the former board member of a vitamin company and his brothers for insider trading.
Private Fund Manager Charged With Defrauding Fellow Church Members
Gaeton “Guy” S. Della Penna, a Sarasota, Fla.-based private fund manager, was charged by the SEC with defrauding investors in a Ponzi scheme that followed his use of their money on bad investments and personal expenses.
Although Della Penna presented himself to his investors, many of whom were people he’d met through his church, as a distinguished trader and profit-maker, instead he was very different. He took $1.1 million from the $3.8 million he raised from them and used it for mortgage payments on his 10,000-square-foot home and for payments to his girlfriend, who lived with him there. He also transferred some investor funds into accounts at Gaeton Capital Advisors LLC.
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He promised some investors 5% annual returns along with 80% of the trading profits generated with their investments, and later promised other investors 10% returns on their money to be used for investing in small companies. But what investments he did make were unsuccessful, and to cover up his losses and his theft, he resorted to launching a Ponzi scheme, using the money that came in from newer investors to pay older investors. He also created false account statements for some of the investors to bolster his story.
The SEC is seeking financial penalties, disgorgement of ill-gotten gains plus prejudgment interest, and a permanent injunction against Della Penna. In a parallel action, the U.S. Attorney’s Office for the Middle District of Florida has announced criminal charges against him.
Rafferty Capital Fined for Illegal Trade Facilitation
New York-based Rafferty Capital Markets was charged by the SEC with illegally facilitating trades for another firm that wasn’t registered as a broker-dealer.
According to the SEC, Rafferty agreed to serve as the broker-dealer of record in name only for approximately 100 trades in asset-backed securities that were actually introduced by the unregistered firm.
Rafferty held the necessary licenses and processed the trades, but the unregistered firm managed the business. Five of the firm’s employees became registered representatives with Rafferty, executing the trades through Rafferty’s systems, but they worked in the unregistered firm’s offices and that firm kept sole authority over their trading decisions and determined their compensation.
Rafferty, for its part, kept 15% of the compensation those trades generated and sent the rest to the unregistered firm. The arrangement lasted from May 2009 to February 2010.
During the arrangement, Rafferty did not preserve communications with its registered representatives working on behalf of the unregistered firm, nor did it ensure that the unregistered firm kept records of those communications. Due in part to Rafferty’s lack of recordkeeping, one of the registered representatives was able to conceal two trades from Rafferty, resulting in inaccuracies in its books and records.
Without admitting or denying the charges, Rafferty has agreed to settle with the SEC and consented to a cease-and-desist order that censures the firm and requires the disgorgement of $637,615 in profits, as well as payment of $82,011 in prejudgment interest and a $130,000 penalty. The SEC’s investigation is continuing.
Former Deloitte Chief Risk Officer Charged With Betting at Client’s Casino
The SEC has charged James Adams, a former Deloitte LLP chief risk officer, for causing violations of the auditor independence rules that ensure audit firms maintain their objectivity and impartiality with respect to their clients.
Adams, according to the agency, Adams repeatedly accepted tens of thousands of dollars in casino markers while he was the advisory partner on subsidiary Deloitte & Touche’s audit of a casino gaming corporation.
Adams then opened a line of credit with a casino run by the gaming corporation client, and used the casino markers to draw on that line of credit. He drew $85,000 worth of markers in July 2009 that remained outstanding for 43 days. In September, he drew $3,000 in markers that were outstanding for 13 days and $70,000 in markers that were outstanding for 27 days. In October, he drew $110,000 in markers that were outstanding for 38 days. In December, he drew $100,000 in markers that were outstanding for seven days, and later drew $110,000 in markers that remained outstanding when he retired from the firm in May 2010. He also hid the markers from Deloitte & Touche, and lied to another partner when asked if he had casino markers from audit clients of the firm.
Without admitting or denying the SEC’s charges, Adams has agreed to settle by being suspended for at least two years from practicing as an accountant on behalf of any publicly traded company or other entity regulated by the SEC.
SEC Charges Two Clinical Drug Trial Doctors with Insider Trading