SEC Enforcement: Court Fines Advisor for Misleading Clients Into Switching Firms

In the second case, filed in September 2011, the SEC said that Sage and Lee Grant each violated antifraud provisions of the Investment Advisers Act, along with Lee Grant’s father, Jack Grant. The agency said Jack Grant violated an SEC bar from association with investment advisors by associating with Sage and by acting as an investment advisor himself. The bar had been based on a 1988 enforcement action against Jack Grant that alleged he sold $5.5 million of unregistered securities and misappropriated investors’ funds. The SEC said that, instead of complying with the SEC bar that he had accepted as a condition of settlement, Jack Grant went ahead and continued to provide investment advice to individuals and small businesses. He rejiggered his business as the Law Offices of Jack Grant and used his son, Lee Grant, to help implement his investment advice. In addition, all three failed to tell advisory clients of Jack Grant’s bar from the business. In a final judgment rendered in May 2013, Jack Grant was ordered to pay a total of $201,392.27, among other relief.

These latest judgments, on May 29 of this year, were entered with Sage’s and Lee Grant’s consent. As part of their consent in the second case, Sage and Lee Grant admitted wrongdoing.

SEC: Traders Posed as Portfolio Managers to Steal Inside Information

The SEC has charged four individuals with insider trading, saying they stole confidential information from investment banks and their public company clients to use in trading in advance of secondary stock offerings. The scheme involved at least 15 stocks and brought in more than $4.4 million in illegal trading profits.

According to the agency, Steven Fishoff, a former day trader living in California, schemed with his friend and neighbor Ronald Chernin; his friend Paul Petrello, a former day trader who resides in Florida; and his brother-in-law Steven Costantin to pose as legitimate portfolio managers so that they could persuade investment bankers to bring them “over the wall” and share confidential information about an upcoming secondary offering.

Of course they promised not to disclose nonpublic information, or to trade an issuer’s stock before the announcement of an offering, but they all tipped one another off when they knew about upcoming offerings expected to depress the price of the issuer’s stock. The tippees then shorted the stock before offering announcements and reaped the profits on the short sales after the stock price dropped.

They then graduated to buying stock in advance of a positive corporate news announcement based on confidential information obtained about secret negotiations between two large pharmaceutical companies.

The four were charged, along with seven entities they collectively controlled, with insider trading. In a parallel action, the U.S. Attorney’s Office for the District of New Jersey has announced criminal charges against Fishoff, Petrello, Chernin and Costantin. The SEC’s investigation is continuing.

— Check out GOP Lawmakers Demand More Info on DOL, SEC Fiduciary Collaboration on ThinkAdvisor.