Among recent enforcement actions by the Securities and Exchange Commission were charges against a former brokerage CEO for his part in a fraudulent scheme; against an Atlanta man for insider trading; against five offshore entities for offering and selling unregistered penny stocks; and against a mutual fund advisor for improperly handling fund assets.
In addition, the former chief compliance officer of a broker-dealer has sued the firm and its principals, saying he was fired in retaliation for investigating and reporting wrongdoing instead of for the reasons the firm claimed on his Financial Industry Regulatory Authority Form U5.
Former CCO Sues Firm, Principals
The former CCO of Cabot Lodge Securities, Inc., Albert Ackerman, has sued Cabot Lodge; URTI GP LLC; Jacob Frydman; and Craig Gould, saying that they filed a “false and defamatory” Form U5 after Ackerman uncovered and reported wrongdoing in his capacity as CCO.
According to the suit, filed in New York, Ackerman found that Frydman, who controls URTI GP, engaged in behavior that included “frivolous and trivial litigation” and the misuse of funds.
Ackerman’s suit says that he went to Gould, who is acting CEO of Cabot Lodge, with his concerns. However, Gould not only took no action and did not report any of the “unlawful activities” but, in concert with Frydman, terminated Ackerman and submitted a U5 that characterized his termination as “‘discharge’ and articulates false and defamatory reasons for said discharge.”
In addition, the suit says that before the U5 was submitted, Gould and Frydman called Ackerman and “offered to ‘go easy’ if [Ackerman] would be willing to testify in a pending legal matter involving Jacob Frydman.”
When Ackerman declined, he was “harass[ed] … by sending threatening text and email messages…” and the Form U5 was filed. As a result, the suit said, another firm withdrew a job offer it had made to Ackerman and his reputation was damaged.
In addition to seeking the return of funds from Frydman that he says in the suit were misused, Ackerman seeks an award of no less than $1 million.
Former Brokerage CEO Charged by SEC in Fraudulent Scheme
The SEC has settled charges filed against Craig Lax, the former CEO of the brokerage subsidiary of global investment services firm ConvergEx Group Securities.
The subsidiary and two others were previously charged in a scheme to defraud customers, and have paid $107 million and admitted wrongdoing to settle the charges. The SEC had also charged two former employees in that previous action, as well as filing charges separately against a different former ConvergEx subsidiary CEO; that last case is pending in federal court.
According to the agency, the ConvergEx subsidiaries under his control schemed to cause customers to pay considerably higher amounts than the disclosed commissions for buying and selling securities. They concealed the fact that they routed trading orders to an offshore affiliate to pile on hidden markups and markdowns referred to as “trading profits” or “TP.”
Lax authorized employees to temporarily suspend taking TP when a customer asked for a certain report that could reveal the hidden charges. He also authorized a proprietary trading algorithm that hid those charges from a customer. He also skirted possible customer questions about why one particular trader was located offshore by requesting new business cards claiming that the trader was located in New York.
In addition to being barred from the securities industry for at least five years, Lax has agreed to pay more than $783,000 and admit wrongdoing, as well as to cooperate in the ongoing investigation and in litigation. A financial penalty in addition to what he has already agreed to will be determined at a later date.
SEC Charges Atlanta Man With Insider Trading
Charles Hill Jr. of Atlanta was charged by the SEC with insider trading in the stock of a technology company by exploiting nonpublic information he learned from the friend of a company executive.
According to the agency, Hill’s friend was also friends with an executive at Radiant Systems, and when the friend learned from the executive some confidential inside information about an impending tender offer by NCR Corp. to buy the company, he shared that with Hill. Hill promptly went out and bought about 100,000 shares of stock in the company — in which he had never previously invested — and in fact had not bought any stock at all for the four years previous to the purchase.
The stock Hill bought was worth nearly $2.2 million on the last trading day before the acquisition was publicly announced in July 2011. When Hill sold the stock, he made approximately $740,000 in illicit profits. Appropriate remedial actions will be decided at a public hearing before an administrative law judge.