Broker Sentenced to More Than 5 Years in Prison for Fraud: Enforcement

A registered representative in Pennsylvania whom the Securities and Exchange Commission charged with operating a long-running offering and investment advisory fraud has been sentenced in a parallel criminal case to 63 months imprisonment, followed by one year of supervised release, and ordered to pay $886,000 in restitution.

According to the SEC’s complaint, Paul Smith raised approximately $2.35 million from approximately 30 investors by representing that he would invest their money in publicly traded securities through The Haverford Group.

However, Smith made very few securities investments and instead largely used investors’ money to repay other investors and for his own personal use. The same day that the SEC charged Smith, the U.S. Attorney’s Office for the Eastern District of Pennsylvania announced criminal charges against Smith that arose from the same conduct alleged in the SEC’s complaint.

Mass. Hedge Fund Manager Sentenced to 6 Years in Prison

A federal court in Boston sentenced Yasuna Murakami, a former Massachusetts-based hedge fund manager, to six years in prison and ordered him to pay $10.5 million in restitution for defrauding hedge fund investors, according to the SEC.

The criminal case arises from the same conduct alleged in an action the Securities and Exchange Commission filed against Murakami in 2017. Massachusetts securities regulators also issued an administrative complaint in January 2017 in which it charged Murakami with “material misrepresentations and omissions, misappropriation of investor funds, and operation of an illegal Ponzi scheme.”

Murakami was arrested in May 2017 and later pleaded guilty to wire fraud. In connection with his plea, Murakami admitted to diverting millions of dollars of investor funds to business and personal accounts that he controlled. He also used the money to pay for lavish personal expenses such as a luxury sports car, international travel, payments to personal credit cards and high-end department stores, and to place investments in his own name and make Ponzi scheme-like payments to investors who requested redemption.

Murakami also admitted to withholding material information regarding the management of a hedge fund, and to providing investors with falsified account statements and tax documentation in an effort to lull them into believing that their investments were safe.

In 2017, the SEC filed an enforcement action against Murakami in federal district court in Boston. The SEC alleged that Murakami misappropriated more than $8 million for business and personal expenses and made approximately $1.3 million in Ponzi-like payments.

Hedge Fund Firm Charged for Asset Mismarking and Insider Trading

Hedge fund advisory firm Visium Asset Management LP agreed to settle charges with the SEC related to asset mismarking and insider trading by its privately managed hedge funds and portfolio managers.

Separately, the firm’s chief financial officer agreed to settle charges that he failed to respond appropriately to red flags that should have alerted him to the asset mismarking.

The SEC’s order finds that two portfolio managers of New York-based Visium falsely inflated the value of securities held by hedge funds it advised, causing the funds to falsely inflate returns, overstate their aggregate net asset value, and pay approximately $3.15 million in excess fees to Visium.

The order also finds that certain Visium portfolio managers traded in the securities of pharmaceutical companies in advance of two generic drug approvals by the U.S. Food and Drug Administration. The trades were based on confidential information received from a former FDA official working as a paid consultant to Visium. Trades were also made in the securities of home health care providers in advance of a proposed cut to certain Medicare reimbursement rates by the Centers for Medicare and Medicaid Services (CMS), based on confidential information received from a former CMS employee working as a paid consultant to Visium.

In a separate order, the SEC finds that Visium’s CFO Steven Ku failed reasonably to supervise the two portfolio managers, Christopher Plaford and Stefan Lumiere, who perpetrated the asset mismarking scheme, by failing to respond appropriately to red flags that should have alerted Ku to their misconduct.

Visium agreed to settle the SEC’s charges by, among other things, disgorging illicit profits totaling more than $4.7 million plus interest of nearly $721,000, and paying a penalty of more than $4.7 million.

Ku agreed to pay a $100,000 penalty and to be suspended from the securities industry for a year. Visium and Ku each consented to the applicable SEC order without admitting or denying the findings.

SEC Charges Hedge Fund Advisor With Deceiving Investors by Inflating Fund Performance