It was a bad week for New Jersey in enforcement proceedings, as a fund manager was charged by the Securities and Exchange Commission with fraud and hit with asset freezes even as, in another case, New Jersey and California traders pleaded guilty to insider trading.
In addition, a San Francisco venture capitalist agreed to settle charges that he stole investor funds; a biotech company was charged with fraud for misleading investors; and a former TV commentator settled with the SEC on penny stock fraud charges.
Fund Manager Charged With Stealing From Investors to Pay Nephew’s Bills
A New Jersey-based fund manager and two firms he controls were charged with fraud by the SEC, and hit with asset freezes on allegations that they stole $5.7 million from investors and diverted millions more to other improper and undisclosed uses.
According to the agency, in marketing shares in promising pre-IPO tech companies in the Bay Area to investors, John Bivona used money raised through Saddle River Advisors and SRA Management Associates to pay off earlier investors, prop up other funds and pay family-related expenses.
Bivona raised more than $53 million from investors, but used so much of that money for his own purposes that his firms were continuously short of the cash needed to buy the shares promised to investors. He secretly steered the great bulk of that money to his nephew Frank Mazzola, who was barred from the securities industry in a prior SEC enforcement action. Mazzola was charged along with Bivona and his firms in this latest action in California.
Bivona kept his scheme going by indiscriminately transferring money among more than a dozen bank accounts associated with an array of different entities. He used investor money to pay Mazzola’s credit card bills, income taxes, a car loan, attorney fees and the mortgage on a Jersey Shore vacation home.
Investors were told they would receive annual financial statements for the funds, but that never happened — no statements were ever prepared. In fact, the offering was never even registered with the SEC.
The SEC seeks permanent injunctions, plus disgorgement with prejudgment interest and monetary penalties, from Bivona and the firms, as well as from Mazzola.
The assets of Mazzola and his wife, a relief defendant, were frozen, and the SEC so obtained a court order to appoint an independent monitor over Saddle River Advisors, SRA Management, the SRA Funds, and other affiliated entities. Bivona, Saddle River Advisors, and SRA Management are also enjoined from raising money from investors.
Traders Plead Guilty to Insider Trading
Farmingdale, New Jersey resident Steven Costantin and Oak Park, California resident Ronald Chernin pleaded guilty to charges of securities fraud and conspiracy to commit securities fraud in a scheme that ran from May 2010 to August 2013.
Costantin and Chernin were charged in 2015 after they were accused of trading in advance of at least 15 stock offerings from public companies, made on the basis of tips from investment bankers that they had agreed to keep secret and not to trade on. Costantin and Chernin were day traders for Steven Fischoff, Costantin’s brother-in-law, and they and other members of the day-trading operation presented the trading entities as legitimate financial management firms of considerable size so that they’d be able to coax investment bankers to invite them to participate in stock offerings. In the course of so doing, they signed confidentiality agreements which they subsequently ignored, trading on the information they received and shorting stocks in anticipation of price drops.
The SEC said the group made more than $4.4 million in the scheme. Costantin and Chernin shared half the illegitimate profits with Fischoff.
The two will be sentenced in July.
SEC Fines Venture Capitalist for Stealing Investor Funds
San Francisco-based biotech venture capitalist G. Steven Burrill has agreed to settle SEC charges that he siphoned money from a fund managed by his firm, Burrill Capital Management, in order to prop up other struggling businesses he owned and finance his lavish lifestyle.
According to the agency, Burrill hid the fact that he took money from the Burrill Life Sciences Capital Fund III under the guise of “advanced” management fees and spent it on family vacations to Saint Barthélemy and Paris as well as jewelry, gifts, car service and private jets. The fund’s investors included state pension funds, public companies and other institutional investors.
Burrill Capital Management’s chief legal officer, Victor Hebert, and controller, Helena Sen, played integral roles in Burrill’s scheme. Hebert led investment committee meetings and agreed to call in additional capital from fund investors, even though he knew the money would be spent on expenses unrelated to the fund.
In addition, Burrill and Sen in at least two instances delayed distribution of payments owed to fund investors so money could instead be used to continue paying Burrill’s personal expenses, as well as the salaries of Hebert and Sen.