Among recent enforcement actions by the SEC were charges against an advisor for defrauding investors; against a foreign exchange trader for fraud; against two childhood friends for insider trading; against Ethiopia’s electric utility for selling unregistered bonds in the U.S.; and barred one executive and suspended another for phony accounting.
Advisor Charged With Steering Investor Funds to His Own Companies
Richard Davis Jr. was charged with fraud by the SEC for defrauding investors by secretly steering portions of real estate-related investments into deals with companies that he owned or operated himself.
According to the agency, Davis breached his fiduciary duty, kept the truth from clients and made no attempt to avoid or ameliorate conflicts of interests when he sold interests in two unregistered pooled investment vehicles named DCG Commercial Fund I LLC and DCG Real Assets LLC. He defrauded at least 85 people who invested a total of approximately $11.5 million.
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He told Commercial Fund investors that their money would be used to fund short-term fully secured loans to real estate developers, but hid the fact that two of the four projects invested in by the fund were his own companies. The loans were never paid in full, but Davis never told the investors; instead, even after he declared one loan to be in default, he never reappraised the value of the loan and reflect that change in the shareholder’s account statements.
He also failed to inform Real Assets investors that he transferred to his own entities at least $7.7 million of the $9.8 million he raised from them. From there the money was spent or transferred to additional entities he owned or controlled until the entire $7.7 million was gone.
Instead of coming clean with investors, he told them that their investments were growing in value year after year, and falsely claimed that the Real Assets fund held more than $10 million in assets. But his claims were based on his own valuations of the fund’s assets, not any tabulation of the fund’s true net asset value.
Without admitting or denying the charges, Davis has agreed to a settlement subject to court approval, with disgorgement plus interest and penalties to be determined by the court at a later date; the SEC’s investigation is continuing.
Childhood Friends Charged With Insider Trading
Two Rhode Island men who were friends since childhood have been charged by the SEC with insider trading in the securities of deal targets being pursued by the pharmaceutical company where one of them worked.
According to the agency, Michael Maciocio used confidential nonpublic clinical and business data about other pharmaceutical firms being considered by his company for potential acquisitions and business relationships to trade in the stocks of those firms. Maciocio made approximately $116,000 on trades of such pharmaceutical companies as Medivation Inc., Ardea Biosciences, and Furiex Pharmaceuticals.
But Maciocio went further than trading; he tipped his friend, stockbroker David Hobson, who used the information to bring in at least $187,000 in illicit trading profits for himself and $145,000 for his customers.
“We allege that Maciocio and Hobson engaged in a multiyear insider trading scheme by repeatedly using the confidential information of Maciocio’s employer to place illicit trades,” Joseph Sansone, co-chief of the SEC enforcement division’s market abuse unit, said in a statement. Sansone added, “Given his years of experience in the securities industry, Hobson’s misuse of this highly sensitive corporate deal information represents an especially egregious violation of the law.”
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York has announced criminal charges against Maciocio and Hobson.
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