SEC headquarters in Washington. (Photo: National Law Journal)

The Securities and Exchange Commission charged a former broker with knowingly or recklessly trading unsuitable investment products in the accounts of five customers and misappropriating more than $170,000 from one of those customers.

The SEC’s complaint alleges that Demitrios Hallas repeatedly traded unsuitable investments in his customers’ accounts, exposing customers who were unsophisticated with limited or no investing experience and modest incomes, net worth levels and assets to a significant degree of volatility and risk. 

In a little more than a year, Hallas allegedly traded 179 daily leveraged exchange-traded funds (ETFs) and exchange-traded notes (ETNs) – products that the SEC alleges are inherently risky, complex and volatile, and only appropriate for sophisticated investors – in the customers’ accounts, generating commissions and fees of approximately $128,000. 

The net loss across all 179 positions was approximately $150,000. The SEC’s complaint further alleges that Hallas misappropriated more than $170,000 in funds from one customer. Instead of investing the funds on the customer’s behalf, Hallas allegedly deposited the funds into his own personal bank accounts and spent them on personal expenses, including significant bar and restaurant bills, credit card and student loan payments, and rent.

 “As alleged in our complaint, Hallas enriched himself by systematically disregarding his customers’ investment profiles and repeatedly trading in risky, volatile products that were unsuitable for them,” said Andrew M. Calamari, director of the SEC’s New York Regional Office and Co-Chair of the Enforcement Division’s Broker Dealer Task Force.  “As reflected in this case and our recent case against two former JD Nicholas brokers, the SEC is very focused on brokers who seek to exploit their customers by willfully recommending unsuitable trades or strategies to them.”

The SEC’s complaint seeks a permanent injunction as well as the return of ill-gotten gains plus interest and penalties.

The SEC previously issued an Investor Alert warning about excessive trading and churning that can occur in brokerage accounts, and an Investor Bulletin educating investors about ETNs and the risks associated with them.

Portfolio Manager Charged With Diverting Nearly $2 Million to Personal Account

The SEC announced fraud charges against a Massachusetts-based portfolio manager accused of diverting at least $1.95 million to his personal brokerage account from a fund over which he had trading authority.

The SEC’s complaint alleges that Kevin J. Amell carried out a fraudulent matched-trades scheme in which he prearranged the purchase or sale of call options between his own account and the brokerage accounts of the fund at prices that were disadvantageous to the fund and advantageous to him. In one series of trades involving Amazon securities, for example, Amell allegedly generated a $23,000 profit for himself in less than 23 minutes at the fund’s expense.

In a parallel action, the U.S. Attorney’s Office for the District of Massachusetts filed criminal charges against Amell.

The SEC is seeking disgorgement of Amell’s ill-gotten gains plus interest and penalties as well as injunctions. 

SEC Accuses Risk Management Professional of Insider Trading

The SEC charged a vice president in the risk management department of a New York-based investment bank with insider trading on confidential information he learned in advance of a private equity firm’s acquisition of a publicly traded technology company.

The SEC alleges that Avaneesh Krishnamoorthy learned that Golden Gate Capital planned to acquire Neustar Inc., and he then began trading in Neustar securities. The trading took place in two brokerage accounts that Krishnamoorthy allegedly kept hidden from his employer, which had been approached by Golden Gate Capital to finance the transaction.

According to the SEC’s complaint, Krishnamoorthy made approximately $48,000 in illicit profits.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today filed criminal charges against Krishnamoorthy. 

The SEC is seeking an emergency court order to freeze the assets in the brokerage accounts belonging to Krishnamoorthy and his wife, who has been named as a relief defendant in the SEC’s complaint for purposes of recovering allegedly ill-gotten gains in the account in her name.

SEC Awards Nearly $4 Million to Whistleblower

The SEC announced an award of nearly $4 million to a whistleblower who tipped the agency with detailed and specific information about serious misconduct and provided additional assistance during the ensuing investigation, including industry-specific knowledge and expertise.

“Not only did this whistleblower step forward and report suspicious conduct, but continued to help after we opened our investigation,” said Jane Norberg, chief of the SEC’s Office of the Whistleblower. “Whistleblowers with specialized experience or expertise can help us expend fewer resources in our investigations and bring enforcement actions more efficiently.”

Approximately $153 million has now been awarded to 43 whistleblowers who became eligible for an award after voluntarily providing the SEC with original and useful information that led to successful enforcement actions. 

SEC enforcement actions from whistleblower tips have resulted in more than $953 million in financial remedies against wrongdoers.

Telecom Executives Agree to Pay Penalties for FCPA Violations

The SEC announced that two former executives at Hungarian-based telecommunications company Magyar Telekom have agreed to pay financial penalties and accept officer-and-director bars to settle a previously-filed SEC case alleging they violated the Foreign Corrupt Practices Act (FCPA).

Magyar Telekom paid a $95 million penalty in December 2011 to settle parallel civil and criminal charges that the company bribed officials in Macedonia and Montenegro to win business and shut out competition in the telecommunications industry.  The SEC’s complaint also charged the company’s former CEO Elek Straub and former chief strategy officer Andras Balogh with orchestrating the use of sham contracts to funnel millions of dollars in corrupt payments. The two executives were set to stand trial this month.

Straub has agreed to pay a $250,000 penalty and Balogh has agreed to pay a $150,000 penalty.  Both executives agreed to a five-year bar from serving as an officer or director of any SEC-registered public company. The settlements are subject to court approval.

A third Magyar Telekom executive charged in the SEC’s complaint, former director of business development and acquisitions Tamas Morvai, agreed to a settlement that was approved by the court in February requiring him to pay a $60,000 penalty for falsifying the company’s books and records in connection with the bribery scheme.