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

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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

The SEC charged New York-based investment advisor Premium Point Investments LP with inflating the value of private funds it advised by hundreds of millions of dollars.

The SEC also charged Premium Point’s CEO and chief investment officer Anilesh Ahuja as well as Amin Majidi, a former partner and portfolio manager at the firm, and former trader Jeremy Shor.

According to the SEC’s complaint, the scheme ran from at least September 2015 through March 2016 and relied on a secret deal where in exchange for sending trades to a broker-dealer, Premium Point received inflated broker quotes for mortgage-backed securities (MBS).

In addition, the defendants allegedly used “imputed” midpoint valuations, which were applied in a manner that further inflated the value of securities. This practice allegedly boosted the value of many of Premium Point’s MBS holdings and further exaggerated returns. The complaint alleges that the defendants overstated the funds’ value in order to conceal poor fund performance and attract and retain investors.

The SEC’s complaint charges the defendants with fraud, with aiding and abetting fraud, or both. The SEC’s complaint seeks permanent injunctions, return of allegedly ill-gotten gains with interest, and civil penalties.

Microcap Company President Charged With Boiler Room Fraud Agrees to Lifetime Bars

A former microcap company president charged by the SEC with defrauding more than 700 investors nationwide who were pressured to invest has agreed to lifetime officer-and-director and penny stock bars.

The SEC’s complaint alleges that from 2009 until 2015, Keith Houlihan, while president of publicly traded Sanomedics Inc., hired and worked with an unregistered broker and his boiler room operation to illegally sell shares of Sanomedics by cold-calling the investing public using high-pressure sales tactics.

In 2009 and 2010, Houlihan falsely told investors that for a limited time he was able to offer them Sanomedics shares at a steep discount to the stock’s market price. The complaint alleges further that Houlihan used investor monies to pay undisclosed sales commissions to boiler room sales agents and more than $110,000 to himself for personal expenses. In 2013 and 2014, Houlihan signed Sanomedics’ annual and quarterly filings with the SEC that contained false statements about Sanomedics’ financing and did not disclose the illegal boiler room activity.

In December 2017, the U.S. Attorney’s Office for the Southern District of Florida criminally charged Houlihan. He was subsequently sentenced to 111 months imprisonment and ordered to pay approximately $21 million in restitution.

In addition to the lifetime bars, Houlihan agreed to settle the SEC’s charges by consenting to a judgment that permanently enjoins him from violating the charged provisions of the federal securities laws. The settlement is subject to court approval.

SEC Charges 2 Pennsylvania Residents With Insider Trading

The SEC charged two York, Pennsylvania residents with insider trading on confidential information about the impending merger of two potato chip manufacturers.

According to the SEC’s complaint, David Zimliki learned from a close personal friend that potato chip manufacturer Golden Enterprises Inc. was going to merge with privately-held Utz Quality Foods LLC.

Before the merger was announced, Zimliki bought shares of Golden Enterprises and tipped his friend, Russell Schiefer, who also bought shares, the SEC alleges.

Shortly after the merger was announced, Zimliki and Schiefer each sold their Golden Enterprises shares.

Zimliki and Schiefer agreed to settle the charges by consenting to permanent injunctions, disgorgement of ill-gotten gains plus interest, and penalties equal to the amount of their respective profits.

— Check out DOL Fiduciary Rule Still Effective Until Court Issues Mandate: Lawyer on ThinkAdvisor.


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