Among recent enforcement actions, the SEC charged a stock promoter in California with defrauding investors; three fund managers and their firm for diverting investor funds; two traders in Chile for insider trading; and a corporate attorney and his wife for insider trading on a client’s information.
SEC Charges Stock Promoter With Defrauding Investors
Efstratios “Elias” Argyropoulos, a Santa Barbara, California-based stock promoter, has been charged by the SEC with fraudulently raising nearly $3.5 million from investors from October 2010 through October 2013 supposedly to purchase Facebook and Twitter shares before their IPOs.
According to the agency, instead of using the money to buy pre-IPO shares, Argyropoulos and his firm (Prima Capital Group) used the investors’ capital primarily for day trading of stocks and options, as well as to pay off certain investors who complained when they didn’t receive the promised Facebook or Twitter shares.
A separate administrative proceeding found that Khaled Eldaher, a registered representative living in Austin, Texas, came up with a side agreement with Argyropoulos to solicit investors and receive 50% of the markup on Facebook shares he sold. Eldaher sold $362,887.50 worth of Facebook shares and was paid $15,478 by Prima Capital. He was later terminated by the broker-dealer for selling securities other than through the firm.
Argyropoulos has agreed to settle the SEC’s charges and be barred from working for an investment advisor or broker-dealer. Financial penalties will be determined at a later date. Eldaher will go before an administrative law judge at a public hearing.
This is not the first time that Argyropoulos has run afoul of regulators. The SEC complaint notes that in 1983, NASD censured and fined Argyropoulos, then associated with a registered broker-dealer, for depositing personal funds into a customer’s account to cover losses generated in the account. In 1995, the NASD censured, barred, and fined Argyropoulos $200,000 for use of discretion over client accounts without written authority from the clients.
Three Fund Managers, Firm Charged for Diverting Investor Funds
VERO Capital Management and three fund managers have been charged by the SEC with siphoning off investor funds for use in salvaging a side business.
According to the agency, VERO’s president, Robert Geiger, general counsel George Barbaresi and chief financial officer Steven Downey managed a pair of funds whose offering documents claimed a goal of achieving attractive returns by investing primarily in mortgage-backed securities.
However, when the three decided to wind down the funds, they kept $4.4 million via undocumented “bridge loans” to an affiliated company that supposedly was in the risk management business. They never told investors or the funds’ director that they were making those loans to their other company from investor funds, bur rather lied to the funds’ custodial bank to withdraw $800,000 from the funds’ bank account to divert to the other company.
In addition, the firm failed to have the funds audited by independent auditors for 2012 or 2013 and also failed to arrange for a surprise examination to be performed as required.
The SEC said that VERO Capital and the three officers caused the funds to purchase three notes worth a total of $7 million from an affiliate of the firm, which constituted principal transactions that require written notice to a client as well as the client’s consent before completing the transaction. But no efforts were made either to notify the funds or obtain required consents for any of these transactions.
Two Chilean Traders Charged by SEC With Insider Trading
Two traders in Chile were charged with insider trading by the SEC after one of them passed on information he’d gotten while serving on a pharmaceutical company’s board of directors.
According to the agency, Juan Cruz Bilbao Hormaeche took advantage of highly confidential information from CFR Pharmaceuticals S.A. board meetings at which a tender offer by Abbott Laboratories was discussed. Bilbao was the beneficiary of a U.S. brokerage account, and he allegedly used Tomás Andrés Hurtado Rourke to place trades in that account and buy millions of dollars’ worth of ADRs of CFR, based on negotiations between it and Abbott.
While he was at it, Hurtado also purchased several hundred thousand dollars’ worth of ADRs in his own U.S. brokerage account. After Abbott Laboratories publicly announced a definitive agreement to acquire CFR Pharmaceuticals and commenced the tender offer, Bilbao and Hurtado sold the ADRs they’d bought to the tune of approximately $10.6 million in illicit profits.
The SEC said it is seeking disgorgement of those gains plus prejudgment interest and financial penalties, in addition to permanent. Bilbao also allegedly used an offshore entity to engage in the insider trading, and the SEC said it will attempt to repatriate all illegal profits.
SEC Charges Corporate Attorney and Wife With Insider Trading
California-based attorney Shivbir Grewal and his wife were charged by the SEC with insider trading on inside information that Grewal got from a corporate client.
According to the agency, Grewal learned while serving as outside counsel to Spectrum Pharmaceuticals last year that the company was about to announce a substantial decline in expected revenue thanks to an unanticipated drop in orders for a top-selling drug.
Within 48 hours of finding this out, Grewal not only sold his entire investment in Spectrum stock but also tipped his wife Preetinder Grewal, who proceeded to also sell all of her Spectrum shares. The day after she did so, Spectrum issued a press release that announced its reduced sales expectations for the drug Fusilev, along with its expectation of the reduced revenue to follow; the stock price dropped more than 35% after the announcement. By selling out early, Shivbir Grewal and his wife avoided losses of nearly $45,000.
Without admitting or denying the allegations, the Grewals agreed to be permanently enjoined from violating the relevant securities laws. Shivbir Grewal agreed to pay disgorgement of $30,343.17, prejudgment interest of $997.68 and a penalty of $30,343.17. In addition, he agreed to be be suspended from practicing as an attorney before the SEC on behalf of any publicly traded company or other entity regulated by the agency. Preetinder Grewal agreed to pay disgorgement of $14,400.05, prejudgment interest of $476.73 and a penalty of $14,400.05. The settlement is subject to court approval. The SEC said the investigation is continuing.
— Check out RCS Capital Faces Class-Action Shareholder Lawsuit on ThinkAdvisor.