The reason we never put out Somebody Else’s Money in the mainstream hard cover book world was that we just couldn’t keep up with the crooks. So here we will give you the weekly investment frauds and their short stories, complete with a Dante’s Heat Index on a scale of 1-10.
Ever Work at Morgan Stanley and Have their Company 401k? A lawsuit filed Friday accuses Morgan Stanley and its board of mismanaging the firm’s 401(k) retirement plan and costing 60,000 employees hundreds of millions of dollars. The complaint was filed by a former employee and seeks to cover other workers. It alleges that the company picked inappropriate and high priced investments so that the bank would profit at the expense of its staffers. Dante’s Heat Index 6
The SEC Charges FRAUD Against a Hedge Fund Manager who Allegedly Scammed the Terminally ill. The SEC says the Manager and his firm paid terminally ill individuals to use their names on purportedly joint brokerage accounts so he could purchase investments on behalf of his hedge fund and redeem them early by invoking a survivor’s option. Donald Lathen of New York City Hedge Fund, Eden Arc Capital allegedly used contacts at nursing homes and hospices to identify patients with less than six months to live. He successfully recruited at least 60 of them by paying them $10,000 apiece to use their names on accounts. When a patient died, Lathen allegedly redeemed investments in the accounts by falsely representing to issuers that he and the terminally ill individuals were joint owners of the accounts. Lathen’s hedge fund was the true owner of the survivor’s option investments. Issuers paid out more than $100 million in early redemptions as a result of the alleged misrepresentations and omissions by Lathen and Eden Arc Capital. Andrew M. Calamari, Director of the SEC’s New York Regional Office said “Lathen allegedly put hedge fund client assets at risk by keeping them in accounts in his and the terminally ill individuals’ names rather than properly placing the hedge fund’s cash and securities in an account under the fund’s name or in an account containing only clients’ funds and securities, under the investment adviser’s name as agent or trustee for the client.” So, let’s see, that money belonged most likely to beneficiaries, siblings, kids… SO Latham allegedly stole somebody else’s money. Dante’s Heat Index 20 (yes, out of 10)
Goldman Sachs Head Trader Barred from the Industry Simply by Misleading Customers into Paying Higher Prices. NO!… Edwin Chin, the former head trader in residential mortgage-backed securities (RMBS) at Goldman Sachs generated extra revenue for Goldman by concealing the prices at which the firm had bought various RMBS, then re-selling them at higher prices to the buying customer with Goldman keeping the difference (and he increased his own compensation while doing it). Chin also misled purchasers by suggesting he was actively negotiating a transaction between customers when he was merely selling RMBS out of Goldman’s inventory. Chin’s gone from the business, thankfully, and is $400,000 lighter. Dante’s Heat Index 9
Whistle blower Sidestep Caught. Health Net, Inc., a California-based health insurance provider has agreed to pay a $340,000 penalty for illegally using severance agreements requiring outgoing employees to waive their ability to obtain monetary awards from the SEC’s whistle blower program. What did they have to hide? Probably nothing, right? They agreed to an SEC cease and desist order and promised to try to get in touch with all the former employees to let them know that whistle blowing is a protected right. Sure, no monetary penalties. Dante’s Heat Index 4
SEC Charges Stockbroker and Friend with an Insider Trading Scheme to Profit in Advance of Two Major Announcements out of a Pharmaceutical Company. Paul T. Rampoldi and two other brokers at his firm were apparently tipped by a then-IT executive at Ardea Biosciences ahead of the company’s announcement of an agreement to license a cancer drug and later tipped him in advance of its acquisition by AstraZeneca PLC. They made approximately $90,000 in illicit profits by trading ahead of those announcements based on nonpublic information that flowed to them through one of the fellow brokers who learned it from the other after he was tipped by the IT executive. They would subsequently divide the profits among them. The SEC seeks permanent injunctions as well as disgorgement, interest, and penalties. Dante’s Heat Index 5
Defendant in SEC Insider Trading Action Found Guilty by Federal Jury in a Related Criminal Case. On August 17, 2016, a jury in federal court convicted Sean Stewart of insider trading and related charges. He is presently scheduled to be sentenced on February 17, 2017. In a scheme spanning at least four years, Stewart illegally tipped his father, Robert K. Stewart, about future mergers and acquisitions involving clients of two investment banks where Sean Stewart worked. The complaint alleges that his father, a certified public accountant, cashed in on the tips by placing and directing highly profitable securities trades ahead of the public announcement of these corporate transactions, generating approximately $1.1 million in illicit proceeds. Guilty, Guilty, Guilty and there’s an SEC action still pending. Dante’s Heat Index 7
Court Enters Final Judgment Against Boston-Area Defendant in Insider Trading Case. Patrick O’Neill, of Belmont, Massachusetts, was found guilty of engaging in insider trading in the stock of Wainwright Bank & Trust Company (“Wainwright”). O’Neill, a former senior vice president at Eastern Bank Corporation, apparently learned through his job responsibilities that his employer was planning to acquire Wainwright, and he then tipped Watertown, Massachusetts real-estate developer Robert H. Bray (“Bray”), his friend and fellow golfer with whom he socialized at a local country club. As a result, Bray purchased 31,000 shares of Wainwright stock. After the public announcement of the acquisition caused Wainwright’s stock price to increase nearly 100 percent, Bray ultimately sold all of his shares for nearly $300,000 in illicit profits. O’Neill pled guilty to a criminal charge of conspiracy to commit securities fraud and he was sentenced to one year of probation and a $5,000 fine. Bray went to trial and a jury returned a guilty verdict on one count of securities fraud for insider trading. Bray was thereafter sentenced to two years in prison, ordered to forfeit the proceeds of his illegal trading, and ordered to pay a criminal fine of $1 million. O’Neill and Bray were both criminally charged by the United States Attorney in Massachusetts for the same conduct. Bray’s SEC case continues. Dante’s Heat Index 8