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SEC Charges Government Insider in Illicit Trading Scheme: Enforcement

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The Securities and Exchange Commission announced charges in an alleged insider trading scheme involving tips of nonpublic information about government plans to cut Medicare reimbursement rates, which affected the stock prices of certain publicly traded medical providers or suppliers.

The SEC’s complaint alleges that David Blaszczak, a former government employee turned political intelligence consultant, obtained key confidential details about upcoming decisions by the Centers for Medicare and Medicaid Services (CMS) from his close friend and former colleague at the agency, Christopher Worrall. 

According to the SEC’s complaint, Worrall serves as a health insurance specialist in the Center for Medicare and tipped Blaszczak about at least three pending CMS decisions that affected the amount of money that companies receive from Medicare to provide services or products related to cancer treatments or kidney dialysis. 

Blaszczak allegedly tipped two analysts at a hedge fund advisory firm that paid him as a consultant. The analysts, Theodore Huber and Jordan Fogel, allegedly used the nonpublic information to recommend that the firm trade in the stocks of four health care companies whose stock prices would likely be affected by the decisions once CMS announced them publicly. 

The alleged scheme resulted in more than $3.9 million in illicit profits. 

“As alleged in our complaint, a federal employee breached his duty to protect confidential information by tipping a political consultant who then passed along those illegal tips,” said Stephanie Avakian, acting director of the SEC Enforcement Division. “There’s no place on Wall Street or in our government for such blatant misuse of highly confidential information.”

According to the SEC’s complaint, Blaszczak’s firms were paid at least $193,000 in a 19-month period by the hedge fund where the analysts worked.  

The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, charges Blaszczak, Worrall, Huber and Fogel and seeks disgorgement of ill-gotten gains plus interest, penalties, and permanent injunctions. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced related criminal charges.  

SEC Charges Fake Filer With Manipulating Fitbit Stock

The SEC filed fraud charges against a Virginia-based mechanical engineer accused of scheming to manipulate the price of Fitbit stock by making a phony regulatory filing.

According to the SEC’s complaint, Robert W. Murray purchased Fitbit call options just minutes before a fake tender offer that he orchestrated was filed on the SEC’s EDGAR system purporting that a company named ABM Capital LTD sought to acquire Fitbit’s outstanding shares at a substantial premium. Fitbit’s stock price temporarily spiked when the tender offer became publicly available on Nov. 10, 2016, and Murray sold all of his options for a profit of approximately $3,100. 

The SEC alleges that Murray created an email account under the name of someone he found on the internet, and the email account was used to gain access to the EDGAR system. He then allegedly listed that person as the CFO of ABM Capital and used a business address associated with that person in the fake filing. The SEC also alleges that Murray attempted to conceal his identity and actual location at the time of the filing after conducting research into prior SEC cases that highlighted the IP addresses the false filers used to submit forms on EDGAR. According to the SEC’s complaint, it appeared as though the system was being accessed from a different state by using an IP address registered to a company located in Napa, California. 

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

Ponzi Scheme Operator Sentenced to Prison

A former Boston resident charged by the SEC with fraud for operating a $10 million Ponzi scheme involving purported bridge loans to Jamaican businesses has been sentenced to 70 months imprisonment in a parallel criminal case.

Mark Anderson Jones in September pleaded guilty to the criminal charges, which arose from the same fraudulent conduct alleged in the SEC’s complaint filed last year.

According to the SEC, Jones solicited investors in several states and Washington D.C. by issuing promissory notes and personal guarantees to invest in “The Bridge Fund,” an enterprise that supposedly loaned money to Jamaican businesses waiting for funding from approved commercial bank loans. Instead of investing as promised, Jones allegedly used portions of investor money to make Ponzi payments and pay personal expenses.

In March 2017, the U.S. District Court for the District of Massachusetts entered a final judgment against Jones by default. The court ordered Jones to pay $3,586,510 in disgorgement, $236,463.48 in prejudgment interest and a $160,000 civil penalty.

SEC Halts Fraudulent Mortgage Investment Scheme

The SEC filed an emergency action on May 15 to stop a fraudulent mortgage investment scheme that raised approximately $22.7 million from approximately 100 investors.

The SEC’s complaint alleges that Frisco, Texas resident Thurman P. Bryant, III and his company, Bryant United Capital Funding, Inc. (BUCF), raised approximately $22.7 million from approximately 100 investors across the country, approximately $1.4 million of which Bryant raised just since January 2017.

Bryant falsely promised these investors a risk-free, guaranteed minimum 30% annual return on investments that he claimed he would make in the mortgage industry.

However, contrary to what he told investors, Bryant commingled investor funds in a single deposit account and intentionally misappropriated $4.8 million to cover personal expenses, including rent and luxury car payments, a housekeeper, meals and groceries, private school tuition, horse riding expenses, and for an apartment.

He also funneled approximately $16.1 million to Houston, Texas-based relief defendants Arthur F. Wammel and Wammel Group for high-risk securities trading and investments in various businesses; sent $1.37 million to supposed concert promoter Carlos D. Goodspeed doing business as Top Agent Entertainment for no apparent legitimate or lawful reason; sent $140,000 to Thurman P. Bryant Jr. as purported but unearned investment returns; and made Ponzi payments to investors.

The SEC seeks permanent injunctions, civil penalties and disgorgement with prejudgment interest. And, at the SEC’s request, U.S. District Judge Amos L. Mazzant of the Eastern District of Texas appointed a receiver over the defendants’ assets and entered a temporary restraining order, asset freeze and other equitable relief.

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