Among recent Securities and Exchange Commission enforcement actions were insider trading charges against the former senior director of regulatory affairs for Puma Biotechnology; a penalty imposed on a casino-gaming company for retaliating against a whistleblower; charges against an investment advisor for cherry-picking profitable trades and misleading clients; and penalties against an investment advisor that chose an unqualified administrative assistant as its chief compliance officer.
Advisor Fined, Censured for Compliance Failures, Naming Unqualified CCO
The Dupree Financial Group, LLC was fined $25,000 and censured for compliance failures that included naming an unqualified administrative assistant as its CCO.
According to the agency, Dupree Financial, a registered investment advisor, failed to conduct annual compliance reviews over a multiyear period. Not only that, neither the firm nor the CCO were aware that they were obliged to do so—despite the fact that in 2010, when the firm registered with the SEC as an investment advisor, and in 2013, Dupree Financial retained external compliance consultants to assist in developing its compliance program.
When the firm registered with the SEC, it named its administrative assistant as CCO, even though she had no prior investment advisor compliance experience and no background in compliance. After being appointed as Dupree Financial’s CCO, the employee’s administrative duties continued to occupy a significant portion of her time.
Although Dupree and the CCO discussed the possibility of the CCO seeking compliance education, the CCO never obtained any formal training concerning the compliance requirements of the Advisers Act.
The firm has neither admitted nor denied the SEC’s findings, but has consented to the sanctions.
SEC Charges Exec With Insider Trading
Robert Gadimian, the former senior director of regulatory affairs for Puma Biotechnology, was charged by the SEC with insider trading ahead of the company’s news announcements about its drug to treat breast cancer.
According to the agency, Gadimian made more than $1.1 million in illicit profits by secretly purchasing Puma stock and short-term call options based on nonpublic information he learned about positive developments in two clinical trials for Puma’s drug, neratinib.
Gadimian bought Puma securities before the results from the first trial were announced in December 2013, and then again before the results of the second trial were announced in July 2014.
Puma confronted Gadimian after learning about his trades and he admitted to trading because of “greed.” Gadimian allegedly then altered his trading records before providing them to Puma for its internal investigation, deleting certain trades in Puma securities and renumbering the pages of the altered documents to hide his changes. Gadimian was fired in October 2014.
In a parallel case, the U.S. Attorney’s Office for the District of Massachusetts has announced criminal charges against Gadimian.
Casino-Gaming Company to Pay $500,000 for Whistleblower Retaliation
Casino-gaming company International Game Technology (IGT) has agreed to pay a half-million-dollar penalty for firing an employee with several years of positive performance reviews because he reported to senior management and the SEC that the company’s financial statements might be distorted.
The SEC found that the employee was removed from significant work assignments within weeks of raising concerns about the company’s cost accounting model. He was terminated approximately three months later.
According to the SEC, IGT conducted an internal investigation into the allegations made by the whistleblower, who did not oversee the company’s accounting functions, and determined its reported financial statements contained no misstatements.
“Strong enforcement of the anti-retaliation protections is critical to the success of the SEC’s whistleblower program,” Andrew Ceresney, director of the SEC’s division of enforcement, said in a statement. Ceresney added, “This whistleblower noticed something that he felt might lead to inaccurate financial reporting and law violations, and he was wrongfully targeted for doing the right thing and reporting it.”
Without admitting or denying the SEC’s findings, IGT agreed to pay the $500,000 penalty.
SEC Charges Advisor With Cherry-Picking Trades, Misleading Clients
The SEC has brought fraud charges against an investment advisor accused of “cherry-picking” profitable trades for his own account rather than a client’s accounts, and misleading seniors and other clients about the fees he charged and the risks in investments he recommended.
According to the agency, Laurence Balter and his Kihei, Hawaii-based firm Oracle Investment Research purchased equities and options in an omnibus account and waited to allocate the trades until after they were executed and Balter knew whether they were profitable. Then Balter would allocated the profitable trades to his own accounts and the unprofitable trades to his client accounts.
Balter also lied to clients invested in his affiliated mutual fund, telling them that they would not pay both advisory fees and fund management fees. He charged both fees anyway. The two tactics—the cherry-picking and the lies—made him more than a half-million dollars.
He also made trades for the mutual fund that deviated from two of its fundamental investment limitations and ultimately resulted in a nondiversified portfolio that caused significant losses to investors.
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