Among recent enforcement actions by the SEC were charges against two ex-Wells Fargo employees—an analyst and a trader—for insider trading ahead of ratings changes and against two individuals for insider trading ahead of a hedge fund manager’s announcement about Herbalife. The third SEC action went against two Florida men for fraud in connection with a proposed television network.
In addition, Massachusetts has charged tax advisor John Patrick Horan and his firm with fraud and warned of a telephone scam targeting the Brazilian community.
SEC Charges Two Former Wells Fargo Employees With Insider Trading
Gregory Bolan Jr. and Joseph Ruggieri, two former employees of Wells Fargo, were charged by the SEC with insider trading ahead of ratings changes that Bolan, a research analyst, was going to make in reports that had not yet been released.
According to the agency, Bolan tipped Ruggieri, a Wells Fargo trader, along with another friend now deceased, before Bolan released reports that contained market-moving ratings upgrades or downgrades for certain securities. Ruggieri made more than $117,000 on the tips; the other friend, before his death, made about $10,000 on three ratings changes Bolan told him about in advance.
Ruggieri’s trades based on the tips were atypical for his normal trading patterns, according to the SEC, either buying the stocks ahead of an upgrade or buying short positions ahead of a downgrade and selling his overnight positions the next day after the information went public. He made money from these atypical trades on six of Bolan’s eight reports from April 2010 to March 2011 that contained ratings changes.
The administrative proceeding will determine any relief against Bolan and Ruggieri, including disgorgement of ill-gotten gains, prejudgment interest, financial penalties and other remedial measures.
(See Bloomberg View columnist Matt Levine’s take on this case, Research Analyst Told Trader What Stocks to Buy.)
Two Charged With Insider Trading on Herbalife
Filip Szymik of New York and Jordan Peixoto of Toronto were charged by the SEC with insider trading on the news that the hedge fund manager Pershing Square Management was taking a short position on Herbalife.
According to the agency, Szymik learned of the impending announcement of the short from his rommate, a Pershing Square analyst at the time. Szymik tipped Peixoto, who then purchased Herbalife put options on Dec. 19, 2012, the day before the announcement. As a result, Peixoto made $47,100 in illicit profits.
Szymik has settled with the SEC and has been ordered to cease and desist from further violations and pay a $47,100 civil penalty. Peixoto faces litigation that will determine violations and appropriate relief.
The roommate was not named in the SEC statement.
Phony TV Station Startup in Florida Leads to SEC Fraud Charges
Two Florida men, Erick Laszlo Mathe and Ashif Jiwa, were charged by the SEC with defrauding investors in a purported startup television network and production company by providing false information about its revenues and future prospects, including that former basketball star Michael Jordan planned to invest in the company.
According to the agency, Vision Broadcast Network’s then-CEO Mathe, with assistance from consultant Jiwa, raised at least $5.7 million in startup capital from approximately 100 investors nationwide through the sale of the company’s common stock and convertible debentures. They solicited investors from approximately August 2007 to February 2010, and the securities offering was not registered with the SEC, as is required under the federal securities laws.
The pair falsely claimed to investors that Vision Broadcast owned low-power television stations as well as 70 broadcast licenses to operate additional low-power television stations estimated to be worth $400 million once the television stations became operational.
And in addition to using the glamour of Michael Jordan’s name, the two also said an institutional investor had committed a $25 million investment to the company. None of this was true.
The SEC seeks financial penalties, disgorgement of ill-gotten gains with prejudgment interest, penny stock bars, officer-and-director bars and permanent injunctions. The SEC also names a company affiliated with Jiwa called Bluemark Asset Management LLC as a relief defendant for the purposes of recovering investor funds that Vision Broadcast used to pay Bluemark for professional services that were never actually provided.
In a parallel action, the U.S. Attorney’s Office for the Eastern District of Pennsylvania has announced criminal charges against Mathe and Jiwa. Vision Broadcast is now a dissolved company.
Man Charged With Fraud in Massachusetts
Tax advisor John Horan and his company, Horan Associates Ltd. of North Easton, Massachusetts, were charged with fraud by Secretary of the Commonwealth William Galvin for the misuse of the brokerage account of elderly relatives and providing unregistered investment advice.
According to the complaint, in 2010 Horan created an investment plan for his elderly relatives that started with them opening a Fidelity brokerage account. Horan had their Fidelity online user name and password, and used them, along with other information he possessed, such as birthdates and Social Security numbers, to impersonate them with Fidelity.
Horan manipulated the account, even managing to establish third-party electronic funds transfers from it. According to the complaint, “Horan’s ability to attach his bank account to his elderly relatives’ Fidelity account coupled with the user name and password allowed Horan to treat the elderly relatives’ Fidelity account like his own personal piggy bank.”
He transferred more than $61,500 from their account into his own accounts, and used it for personal expenses while telling his relatives he’d invested it in two South Easton companies he was connected with.
It wasn’t until after the Securities Division subpoenaed the two companies for investor information that Horan admitted to his elderly relatives what he had actually done with their money.
The complaint seeks a permanent bar against Horan and his company from the securities business in the state, along with disgorgement of the proceeds and an administrative fine.