Among recent enforcement actions were charges by the SEC against four California residents in an insider trading scheme; charges of real estate investment fraud against a Boston firm and its two principals by the Massachusetts Securities Division, and FINRA actions against one firm for email surveillance failures and another for inventing false customer complaints against two of its former advisors.
FINRA Arb Panel Awards Advisors $3.6M After Boss Faked Client Compaints
A FINRA arbitration panel has ordered San Ramon, Calif.-based Valentine Capital Asset Management Inc., and its owner, John Valentine, to pay $3.6 million to two former advisors of the firm after he came up with false customer complaints against them.
Valentine was ordered to pay $800,000 in compensatory damages and $2.5 million in punitive damages for his actions in instigating false claims against the advisors. In addition, William Leitch and Corey Casilio are also to be paid $338,000 in attorney fees and $30,000 in sanctions and other fees.
According to the panel’s findings, Valentine instigated false customer claims against Leitch and Casilio after they left his firm, and also orchestrated the dissemination of false accusations via the Web to damage their reputations and prevent potential customers from doing business with them.
In addition to the financial penalties, the panel also ordered the expungement of five customer complaints from Casilio’s record and two from Leitch’s, as well as a correction of each advisor’s U-5 so that they no longer reflect the bogus complaints.
SEC Charges Four With Insider Trading
The SEC has charged four northern California residents, Saleem Khan, his friend Roshanlal Chaganlal and Khan’s work colleagues Ranjan Mendonsa and Ammar Akbari, with insider trading of Ross Stores stock options based on nonpublic information about monthly sales results leaked by one of the retailer’s employees.
According to the agency, Khan was routinely tipped by his friend Roshanlal Chaganlal, who was a director in the finance department at Ross headquarters in Dublin, Calif. Chaganlal had access to confidential sales figures on an internal webpage limited to a relatively small group of Ross employees, and regularly shared that information with Khan so he could trade ahead of impending monthly sales announcements by Ross.
Besides trading in his own brokerage account, Khan traded in his brother-in-law Shahid Khan’s account as well as an account belonging to another acquaintance. Saleem Khan also gave the information to Mendonsa and Akbari.
Collectively the group made $12 million from the scheme. Saleem Khan brought in $5.4 million in profits in his own account and $6 million in profits in his brother-in-law’s account. Khan’s supervisor Mendonsa made approximately $800,000, and Akbari made approximately $2,000.
When the scheme started, Chaganlal gave $17,000 to Saleem Khan for insider trading in Ross securities using Shahid Khan’s account. Saleem Khan and Chaganlal tried to hide what they were doing by using two cashier’s checks for $8,500 purchased in the name of Chaganlal’s wife, who had a different surname. Saleem Khan later funneled $130,000 of the generated trading profits back to Chaganlal by using third-party intermediaries. In one instance, Khan wrote Akbari a check for $35,000, and Akbari in turn wrote two checks totaling $35,000 to Chaganlal’s wife. Another $75,000 was routed in a roundabout way to a title company so it could be credited at closing toward Chaganlal’s purchase of a newly built home.
Saleem Khan also separately made approximately $450,000 in illicit profits by insider trading in stock options of software company Taleo Corporation before it was acquired by Oracle Corporation in 2012. Khan began purchasing large numbers of options in Taleo six days before the merger announcement, based on nonpublic information he got from someone he knew at Oracle. Khan had never previously traded in Taleo securities.
In addition to the four traders, Shahid Khan and an acquaintance of Saleem Khan, Michael Koza, have also been charged as relief defendants. The two have agreed to settle the charges against them by paying the court the entire amount of insider trading profits remaining in their accounts, which total $240,741 for Shadid Khan and $31,713 for Koza.
The SEC seeks permanent injunctive relief, disgorgement of illicit profits plus interest, and financial penalties against Saleem Khan, Chaganlal, Mendonsa, and Akbari. The complaint also seeks an officer-and-director bar against Chaganlal. The investigation is continuing.
Cabot Investment Properties Charged With Defrauding Seniors
Massachusetts Secretary of the Commonwealth William Galvin has charged Boston-based Cabot Investment Properties LLC (CIP) and its principals, Carlton Cabot and Timothy Kroll, with embroiling seniors in a real estate fraud scheme.