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Regulation and Compliance > Federal Regulation > SEC

SEC Settles ‘Unfriendly’ Insider Trading Case: Enforcement

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The Securities and Exchange Commission announced that insider trading charges were settled against a Nevada man who obtained confidential information about a pending corporate merger from a lifelong friend and used it to generate more than $250,000 in illicit trading profits.

According to the SEC’s complaint, while Brian Fettner was a guest in the home of a longtime friend who was also the general counsel of Cintas Corp., Fettner surreptiously viewed documents contemplating an acquisition of G&K Services Inc. by Cintas.

Based on that information and without telling his friend, Fettner then purchased G&K Services stock in the brokerage accounts of his ex-wife and a former girlfriend, and persuaded his father and another girlfriend to purchase G&K shares.

The complaint further alleges that after Cintas and G&K announced the merger on Aug. 16, 2016, G&K’s stock price jumped more than 17%, resulting in illicit profits from Fettner’s misconduct of more than $250,000.

Without admitting or denying the allegations in the complaint, Fettner consented to the entry of a final judgment permanently enjoining him from violating the charged provisions of the federal securities laws and imposing a penalty of $252,995.

The SEC also named as relief defendants Fettner’s ex-wife and a former girlfriend, who each profited when Fettner used their brokerage accounts to place illicit trades. The relief defendants consented to the entry of a final judgment agreeing to disgorge those profits with prejudgment interest.

Galvin Charges BD Over Improper Mutual Fund Sales

Secretary of the Commonwealth William Galvin charged Janney Montgomery Scott with violations of state securities laws relating to an agent’s frequent sales of mutual funds with higher front-loaded fees.

In an administrative complaint, Galvin’s Securities Division alleges Janney’s failure to supervise agent Stephen Querzoli’s short-term trading of Class A shares of mutual funds harmed investors, while generating nearly $200,000 in commissions and fees over a six-year period.

The complaint states that Querzoli would frequently sell such mutual funds after mere months, using the proceeds to purchase new mutual funds, and driving up commissions charged to customers by thousands of dollars.

The complaint alleges that Janney did little to stop its agent’s improper sales practices, leaving him unchecked even after opening their own inquiry 3 years into the time period during which the inappropriate sales were taking place.

While Janney advised Querzoli that many of his clients would benefit from the purchase of mutual funds with lower front-loaded fees, Querzoli continued purchasing and selling Class A shares, even while being monitored by his employer, according to the complaint.

The complaint states that Janney and Querzoli split the front-loaded commissions generated by the purchases of Class A shares, with Janney receiving approximately 60% of commissions from the purchases Querzoli made.

“Querzoli continued his practice of purchasing Class A shares for at least four customers during the time he was under review and for several years thereafter until his termination from Janney in November of 2018,” the complaint states.

The complaint further alleges that Querzoli made unsolicited trades on at least one customer’s behalf, without the authorization to do so.

The Securities Division is seeking an order requiring Janney to conduct a review of all accounts serviced by Querzoli and engage an independent compliance consultant to review and establish written policies and procedures related to short-term trading of Class A shares of mutual funds.

The Division is also asking for an administrative fine, censure and restitution to fairly compensate investors for their losses.

In a statement, the firm said, “Janney takes its regulatory and client obligations seriously. We are aware of the complaint and will address the allegations filed by the Massachusetts Securities Division.”

SEC Obtains Judgment Against Former Broker for Fraud

A federal district court entered a final judgment against a broker who was charged with defrauding customers by making unsuitable and unauthorized trades and churning customers’ accounts, which enriched the broker at the customers’ expense.

The SEC’s complaint alleges that Rocco Roveccio, who was formerly associated with New York-based broker-dealer Alexander Capital L.P., recommended to seven customers a pattern of high-cost, in-and-out trading without any reasonable basis to believe that his customers could make a profit.

Roveccio’s recommendations resulted in losses for the customers and gains for Roveccio. Roveccio allegedly also lied to his customers about the potential for the accounts to profit. The complaint also alleges that Roveccio engaged in unauthorized trading and churning.

The final judgment orders Roveccio to pay $324,614 total, which includes disgorgement, prejudgment interest and a civil penalty. Separately, the SEC instituted settled administrative proceedings against Roveccio in which, without admitting or denying the findings, Roveccio consented to a Commission order barring him from the securities industry and penny stock trading.

SEC Charges Two Internal Auditors With Repeated Insider Trading

The Securities and Exchange Commission filed insider trading charges against two internal auditors who repeatedly traded and tipped on confidential information that they obtained through their respective employers.

The SEC’s complaint alleges that Lloyd Schuman learned that his employer Verso Corp. had confidential plans to acquire privately-held NewPage Holdings Inc. According to the SEC’s Complaint, Schuman purchased Verso shares before Verso publicly announced the acquisition.

Schuman also allegedly tipped a relative, who also purchased Verso shares before the public announcement. Immediately after the announcement, Schuman sold all of his Verso shares realizing more than $107,000 in profits. Schuman’s relative also sold his Verso shares, realizing more than $2,500 in profits.

The SEC further alleges that Schuman also engaged in insider trading based on tips that he received from his close friend, Dane Janes, who worked for Ashford Hospitality Trust. Janes allegedly obtained confidential information through his employer about Ashford Hospitality Trust and Ashford Hospitality Prime, including plans to issue more shares and a quarterly earnings release.

According to the SEC’s complaint, Janes tipped Schuman with this information before it became public. Schuman allegedly traded based on Janes’s tips, avoiding $10,478 in losses and realizing profits of $4,672.

Without admitting or denying the allegations in the SEC’s complaint, Schuman and Janes have consented to a final judgment. The final judgment orders Schuman to pay $122,574 in disgorgement, $21,341 in prejudgment interest, and a civil penalty of $125,134. The final judgment further orders Janes to pay a civil penalty of $15,150.


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