Post by jannikki on Oct 1, 2006 18:01:30 GMT -4
Low Level Wall Street Manager fights Multiple Enforcement, High Level Executive Remains Free - September 27, 2006
David Patch
Who says it doesn't help to have friends in high places?
Back in 2001 a Private Placement financing deal (PIPE) into CompuDyne Corp. seemed relatively benign. CompuDyne needed an infusion of cash and Wall Street was willing to comply.
Today this PIPE deal, and presumably many others, is under the scrutiny of the regulators seeking actions against those who potentially traded illegally off the inside information stemming from the PIPE negotiations.
But to what extent is the resolve of the regulators to settle these matters?
In 2001 Wall Street firm Friedman Billings Ramsey Group was hired to manage the PIPE deal on behalf of CompuDyne. FBR sought out interested private investors to provide the necessary investment capital into CompuDyne and in return these investors would receive shares at a discounted value.
According to SEC and NASD documents, the PIPE deals managed by FBR involved at least two Hedge Funds, one managed by Hilary Shane and another managed by John Mangan as well as capital being put up by the firm FBR.
In late 2004 news of questionable activity surrounding the deal hit the news as the NASD brought their first charges of securities fraud against Hilary Shane for the sale of unregistered securities and insider trading. In 2005 the news continued as the SEC brought charges against a registered broker of FBR and Hedge Fund Manager John Mangan. FBR and their executives were not excluded from this fraud as the company announced in a 2005 EDGAR filing that they were negotiating a settlement with the SEC and NASD in which $5 Million had been set aside towards this settlement. FBR Co-Founder Emanuel Friedman and several other top executives resigned shortly thereafter.
Eventually, the charges against Shane were settled and, along with a 1.3 Million fine, Shane was barred from being a registered member with the NASD. Charges against Mangan were also settled with the NASD in which a fine of $125,000 was imposed and Mangan was barred from being a registered member with the NASD. In neither case were these defendants barred from the industry as a whole, which only the SEC can do.
And now, nearly 6 years after the initial fraud was committed, the US Attorney out of Southern District of NY filed criminal charges against Hilary Shane for insider trading and fraud. The 38 year old fund manager, once the poster child of regulators for illegally shorting PIPE's, has now become the poster child of the US attorney as they take insider trading allegations to criminal levels.
A check of the FBR filings continues to include a liability associated with this crime. According to reports out of TheStreet.com, FBR continues to "negotiate a deal" with regulators now ranging in the $7.5 Million range, up from the previously disclosed $5 Million range.
But here lies the rub.
How is it that two low level players have seen civil enforcement actions taken against them, and one is now facing criminal charges and yet Emanuel Friedman and FBR have yet to be brought to justice? What exactly takes so long in "negotiating" a settlement when it appears the data and the players have been clearly identified?
This wreaks of regulatory bias and the ability to defer charges if you have the money and the power to do so. Worse, this has the appearance of a parallel SEC "negotiation" tactic that eventually cost investors billions.
In 2001 Rhino Advisors and Refco Securities entered into an illegal trading scheme similar to what Shane is alleged to have entered into. Audiotapes of this scheme included such language as "sell with unbridled levels of aggression" and "collapse the stock". In 2003 the SEC brought charges against Rhino Advisors seeking a $1 Million fine but remained in "negotiations" with Refco Securities and the key executives of Refco Securities at the time Refco went public in August 2005.
By October 2005 Refco imploded under a scandal of fraud and the executives under negotiations with the SEC for securities fraud again found themselves in the spotlight for yet a more egregious act of fraud. This time Refco, only 3 months public, had lost billions in market cap and was filing for bankruptcy. The "negotiations" of 2002/2003 with these executives is all but lost in the noise as the level of victims simply grew exponentially.
Investors and the general public can only question the logic of a federal agency so committed to negotiating with well funded and well respected Wall Street executives as they quickly stomp the small fish that are ill-equipped to fight back. Shouldn't a negotiation phase be limited to a fixed amount of time at which point the SEC simply moves forward and be done with it?
Trust me when I say, the story here is not isolated but instead has become the norm. The SEC has become the devil child of the IRS where they focus on those they know can intimidate instead of those committing the higher degree of the crimes. As more unfolds in the PIPE market fraud and illegal trading practices this statement will become abundantly clear.
On a somewhat related side note: The SEC yesterday announced that they were bringing insider-trading charges up on the Butler to American media baron Robert F. X. Sillerman. According to the SEC the butler read an incoming fax that identified a pending merger and placed a $600.00 bet on that information. The bet netted $48,000 in profit and the SEC is going after this win fall.
The irony in this is that the SEC staff is presently accused by a former SEC attorney of blocking an investigation into a 20 million dollar insider trading allegation against Morgan Stanley CEO John Mack and Hedge Fund Pequot Capital. In addition, recent news publications have exposed the serious concerns the commission claims to have over insider trading related to the relationship between banks and hedge funds based on comments made by SEC Director of Enforcement Linda Thomsen before a Senate Committee.
Thomsen comments regarding insider trading, "One such area involves insider trading by hedge funds-an area of significant concern to the Commission." And with the enforcement cases known to date, this insider trading activity nets the low level hedge fund and not the member participant acting in coordination with this hedge fund. Illegal Shorting ahead of a PIPE deal, the inside trade, REQUIRES active participation of Wall Street no matter how much denial the SEC wants to provide.
The voice of public concern by the SEC appears more like that "silent negotiation" they are having with Wall Street while the staff appears hell bent on going after the butler.
www.investigatethesec.com/2006927.htm
David Patch
Who says it doesn't help to have friends in high places?
Back in 2001 a Private Placement financing deal (PIPE) into CompuDyne Corp. seemed relatively benign. CompuDyne needed an infusion of cash and Wall Street was willing to comply.
Today this PIPE deal, and presumably many others, is under the scrutiny of the regulators seeking actions against those who potentially traded illegally off the inside information stemming from the PIPE negotiations.
But to what extent is the resolve of the regulators to settle these matters?
In 2001 Wall Street firm Friedman Billings Ramsey Group was hired to manage the PIPE deal on behalf of CompuDyne. FBR sought out interested private investors to provide the necessary investment capital into CompuDyne and in return these investors would receive shares at a discounted value.
According to SEC and NASD documents, the PIPE deals managed by FBR involved at least two Hedge Funds, one managed by Hilary Shane and another managed by John Mangan as well as capital being put up by the firm FBR.
In late 2004 news of questionable activity surrounding the deal hit the news as the NASD brought their first charges of securities fraud against Hilary Shane for the sale of unregistered securities and insider trading. In 2005 the news continued as the SEC brought charges against a registered broker of FBR and Hedge Fund Manager John Mangan. FBR and their executives were not excluded from this fraud as the company announced in a 2005 EDGAR filing that they were negotiating a settlement with the SEC and NASD in which $5 Million had been set aside towards this settlement. FBR Co-Founder Emanuel Friedman and several other top executives resigned shortly thereafter.
Eventually, the charges against Shane were settled and, along with a 1.3 Million fine, Shane was barred from being a registered member with the NASD. Charges against Mangan were also settled with the NASD in which a fine of $125,000 was imposed and Mangan was barred from being a registered member with the NASD. In neither case were these defendants barred from the industry as a whole, which only the SEC can do.
And now, nearly 6 years after the initial fraud was committed, the US Attorney out of Southern District of NY filed criminal charges against Hilary Shane for insider trading and fraud. The 38 year old fund manager, once the poster child of regulators for illegally shorting PIPE's, has now become the poster child of the US attorney as they take insider trading allegations to criminal levels.
A check of the FBR filings continues to include a liability associated with this crime. According to reports out of TheStreet.com, FBR continues to "negotiate a deal" with regulators now ranging in the $7.5 Million range, up from the previously disclosed $5 Million range.
But here lies the rub.
How is it that two low level players have seen civil enforcement actions taken against them, and one is now facing criminal charges and yet Emanuel Friedman and FBR have yet to be brought to justice? What exactly takes so long in "negotiating" a settlement when it appears the data and the players have been clearly identified?
This wreaks of regulatory bias and the ability to defer charges if you have the money and the power to do so. Worse, this has the appearance of a parallel SEC "negotiation" tactic that eventually cost investors billions.
In 2001 Rhino Advisors and Refco Securities entered into an illegal trading scheme similar to what Shane is alleged to have entered into. Audiotapes of this scheme included such language as "sell with unbridled levels of aggression" and "collapse the stock". In 2003 the SEC brought charges against Rhino Advisors seeking a $1 Million fine but remained in "negotiations" with Refco Securities and the key executives of Refco Securities at the time Refco went public in August 2005.
By October 2005 Refco imploded under a scandal of fraud and the executives under negotiations with the SEC for securities fraud again found themselves in the spotlight for yet a more egregious act of fraud. This time Refco, only 3 months public, had lost billions in market cap and was filing for bankruptcy. The "negotiations" of 2002/2003 with these executives is all but lost in the noise as the level of victims simply grew exponentially.
Investors and the general public can only question the logic of a federal agency so committed to negotiating with well funded and well respected Wall Street executives as they quickly stomp the small fish that are ill-equipped to fight back. Shouldn't a negotiation phase be limited to a fixed amount of time at which point the SEC simply moves forward and be done with it?
Trust me when I say, the story here is not isolated but instead has become the norm. The SEC has become the devil child of the IRS where they focus on those they know can intimidate instead of those committing the higher degree of the crimes. As more unfolds in the PIPE market fraud and illegal trading practices this statement will become abundantly clear.
On a somewhat related side note: The SEC yesterday announced that they were bringing insider-trading charges up on the Butler to American media baron Robert F. X. Sillerman. According to the SEC the butler read an incoming fax that identified a pending merger and placed a $600.00 bet on that information. The bet netted $48,000 in profit and the SEC is going after this win fall.
The irony in this is that the SEC staff is presently accused by a former SEC attorney of blocking an investigation into a 20 million dollar insider trading allegation against Morgan Stanley CEO John Mack and Hedge Fund Pequot Capital. In addition, recent news publications have exposed the serious concerns the commission claims to have over insider trading related to the relationship between banks and hedge funds based on comments made by SEC Director of Enforcement Linda Thomsen before a Senate Committee.
Thomsen comments regarding insider trading, "One such area involves insider trading by hedge funds-an area of significant concern to the Commission." And with the enforcement cases known to date, this insider trading activity nets the low level hedge fund and not the member participant acting in coordination with this hedge fund. Illegal Shorting ahead of a PIPE deal, the inside trade, REQUIRES active participation of Wall Street no matter how much denial the SEC wants to provide.
The voice of public concern by the SEC appears more like that "silent negotiation" they are having with Wall Street while the staff appears hell bent on going after the butler.
www.investigatethesec.com/2006927.htm