Post by jcline on Dec 21, 2005 14:54:20 GMT -4
STOCKGATE TODAY
An online newspaper reporting the issues of Securities Fraud
Free Pass – SEC simply fines another Habitual Securities Violator – December 21, 2005
David Patch
Anybody following the story of naked shorting abuse understands that regulatory enforcement on the abusive is limited at best. With newly drafted regulations out of the SEC to correct the abuses, and a daily publication of potentially abused victims, many question why no substantive regulatory enforcement has been seen to date.
Then came Tuesday December 20, 2005. Tuesday was a day of subtle enlightenment.
In two separate regulatory actions, the SEC and NASD both brought enforcement proceedings against short sale violators.
On Tuesday the NASD announced that John F. Mangan, Jr, a hedge fund manager and former broker for Friedman, Billings, and Ramsey had been permanently barred from associating with any NASD-registered firm and will pay a $125,000 fine to settle charges that he deceptively obtained shares in a PIPE transaction, improperly sold the shares short, and shared in profits from the shares without obtaining permission from FBR.
The NASD press release described the short selling as naked short selling of Compudyne shares that netted Mr. Mangan a profit of $87,000 on 80,000 shares illegally sold.
The NASD further identified that further investigations into additional individuals and entities was continuing. From earlier reports we are aware that former Friedman Billings CEO Emmanuel Friedman is amongst those negotiating settlement.
Previously the NASD brought charges against Hedge Fund Manager Hilary Shane for her part in the naked shorting of Compudyne shares. Ms. Shane, like Mr. Mangan was barred from any future association with an NASD-registered firm.
Also on Tuesday the SEC news digest reported a proposed settlement with European Trader Compania Internacional Financiera S.A. and its owner Yomi Rodrig for illegally covering short sales with offering securities. The SEC has proposed a $6.3 Million fine including $4.8 Million in disgorgement and $1.4 million in penalties.
According to the SEC release, European Trader Compania Internacional Financiera S.A., between the periods of January 2002 through March 2005, had participated in at least 85 public offerings whereby Campania went short ahead of a public offering and used the shares that became available to the underwriters in these offerings to cover the open short positions.
By interpretation, Campania shorted a stock and used shares that had not been registered and available in the market place as the collateral borrow in the short sale. Review of prior NASD enforcement action taken, this is considered a naked short. It is also the sale of an unregistered security under NASD guidelines based on the offering not yet in affect.
Campania Internacional and Yomi Rodrig, as part of the settlement would be ‘permanently enjoined from any future violations’ of this nature. Apparently 85 violations over a 3-year period are enough. The most recent taking place only 6 months ago; March 2005. What impact these short sales had on the overall market cap of these companies will remain undisclosed by the SEC.
By my vantage point, it appears at first glance that the SEC provided a Get out of Jail Free pass to a habitual violator of securities law while the NASD took actions that insured the violator would no longer access our markets for fraud.
In most recent recorded time, there have been but a few cases of naked shorting abuses brought through regulatory enforcement actions. As evidenced by the results, the NASD has become the strictest of regulatory arms while the SEC is content to slap wrists and the NYSE is content merely looking the other way as if nothing on that exchange ever transpires.
The case history I have come up with includes:
Dec. 2000 NASD concludes multi-year investigation into John Fiero and Fiero Brothers for naked shorting abuses. The NASD fines Fiero $1 Million and barred John Fiero from associating with any NASD-registered firm.
February 2003 SEC concludes multi-year investigation into Rhino Advisors for naked shorting abuses relating to Sedona Corporation. The SEC fined Rhino $1 Million and required Rhino to seek a consultant to evaluate compliance and policies procedures. During the investigation the SEC uncovered audio recordings of Rhino Executives bribing brokers from another firm to manipulate Sedona.
December 2004 NASD and SEC conclude a multi-year investigation into Hedge Fund Manager Hilary Shane for naked shorting abuses during a PIPE transaction relating to Compudyne. Terms of the enforcement included a $1.45 Million fine and barred Hilary Shane from associating with any NASD-registered firm.
April 2005 SEC initiates charges of insider trading and illegal short selling against former S.G. Cowen Managing Director Guillaume Pollet. The complaint alleges 10 separate occurrences of illegal PIPE transactions in 2001 resulting in over $4 Million of locked in illegal profits. To date no SEC enforcement actions have concluded against Pollet and SG Cowen has agreed to a $1 Million fine for their participation in the fraud. This case mimics that of the NASD’s complaint against Hilary Shane.
July 2005 NASD concludes a multi-year investigation into Scott Ryan and Ryan & Company for illegal shorting practices on behalf of 3 Hedge Funds. Ryan was accused of using the naked shorting Market Making exemption to short for Hedge Funds who would otherwise not be able to short preferred stocks. Under the NASD settlement Scott Ryan is barred from associating with any NASD-registered firm.
December 2005 NASD concludes a multi-year investigation into John Mangan for naked shorting abuses relating to a private placement PIPE transaction in Compudyne. The terms of the NASD actions included a $125,00 fine and Mangan was barred from associating with any NASD-registered firm.
December 2005 SEC concludes a multi-year investigation into Compania Internacional Financiera S.A for illegal naked shorting relative to 85 stock offering placements. Terms of the SEC settlement included a $6.3 Million fine and a promise not to violate Rule 105 again.
In addition, reports have surfaced that the NASD continues to negotiate settlements with Friedman Billings and Ramsey (FBR) former CEO Emanual Friedman, former Head Trader Scott Dreyer, and former Compliance Chief Nicholas Nichols. Most believe each will receive similar NASD actions barring these gentlemen from further association with NASD-registered firms. FBR has already paid a $7.5 Million fine to the SEC and NASD for the companies involvement.
While the NASD continues to take a hard line approach, the SEC continues to hand out those free hall passes. For example:
In the Scott Ryan case listed above, the 3 Hedge Funds associated with Ryan in his scheme to defraud are outside the jurisdiction of the NASD and thus free from NASD enforcement actions. Any enforcement to be taken against the Hedge Funds falls on the efforts of the SEC. To date the SEC has brought no actions that we know of against these Hedge Funds or Fund Managers.
Likewise, in the Rhino Advisors case it is rumored that the SEC obtained evidence implicating Refco Securities brokers as those in the audio recordings being bribed to manipulate Sedona stock.
Prior to Refco taking the business public in an August 2005 IPO it was reported that the SEC was negotiating a settlement with the company and it’s executive management over their activities involving Rhino Advisors and Sedona. The proposed settlement, made public by Refco in May 2005, reportedly that a small fine would be imposed and one executive would face a 1-year suspension of supervisory duties at the firm. No job loss would result.
Since the IPO proceeded along as planned in August 2005 it is inferred that the SEC had no intent on deterring this firm from future fraudulent activities.
Only 8-weeks after the Refco IPO took place Refco proceeded to collapse under an accounting scandal. The firm filed for bankruptcy less than a week later yielding billions in investor losses. Ultimately the collapse resulted in the DOJ arrest of former Refco CEO Phillip Bennett for securities fraud violations. Former Refco Securities executive Santo Maggio, who was the reported executive that would be the recipient of the 1-year suspension, is now offering his services to the Feds in order to achieve a lighter sentence.
Had the SEC taken appropriate steps to reign in Refco Management sooner, instead of giving out the free passes habitual offenders, the collapse of the firm and the destruction on investor accounts would have been mitigated.
Setting histrionics aside, the aforementioned actions don’t lie. Each is a recoded event in history and thus irrefutable. As the NASD continues to take actions to seek out and remove perceived habitual and dangerous offenders from further fraudulent activities the top regulator, the SEC, only resorts to minor fines imposed and promises of a better behavior next time.
On Wall Street history has proven that there always is a next time when money can be made.
As to the fines imposed. To put in perspective what little these fines mean in the overall scheme of things, compare these fines to the net worth of those being fined. To near billionaires and multi-multi millionaires a fine of $100,000 here $1 Million there means nothing. It is cab fare. As the $1.4 Billion fine in the research analysts settlement didn’t even dent the Industry bottom lines, neither have these fines in the net worth of the violators.
Removing these vultures from the Industry is the real penalty that hurts them and thus the deterrent. The NASD gets it; the SEC doesn’t.
For more on this issue please visit the Host site at www.investigatethesec.com .
Copyright 2005
An online newspaper reporting the issues of Securities Fraud
Free Pass – SEC simply fines another Habitual Securities Violator – December 21, 2005
David Patch
Anybody following the story of naked shorting abuse understands that regulatory enforcement on the abusive is limited at best. With newly drafted regulations out of the SEC to correct the abuses, and a daily publication of potentially abused victims, many question why no substantive regulatory enforcement has been seen to date.
Then came Tuesday December 20, 2005. Tuesday was a day of subtle enlightenment.
In two separate regulatory actions, the SEC and NASD both brought enforcement proceedings against short sale violators.
On Tuesday the NASD announced that John F. Mangan, Jr, a hedge fund manager and former broker for Friedman, Billings, and Ramsey had been permanently barred from associating with any NASD-registered firm and will pay a $125,000 fine to settle charges that he deceptively obtained shares in a PIPE transaction, improperly sold the shares short, and shared in profits from the shares without obtaining permission from FBR.
The NASD press release described the short selling as naked short selling of Compudyne shares that netted Mr. Mangan a profit of $87,000 on 80,000 shares illegally sold.
The NASD further identified that further investigations into additional individuals and entities was continuing. From earlier reports we are aware that former Friedman Billings CEO Emmanuel Friedman is amongst those negotiating settlement.
Previously the NASD brought charges against Hedge Fund Manager Hilary Shane for her part in the naked shorting of Compudyne shares. Ms. Shane, like Mr. Mangan was barred from any future association with an NASD-registered firm.
Also on Tuesday the SEC news digest reported a proposed settlement with European Trader Compania Internacional Financiera S.A. and its owner Yomi Rodrig for illegally covering short sales with offering securities. The SEC has proposed a $6.3 Million fine including $4.8 Million in disgorgement and $1.4 million in penalties.
According to the SEC release, European Trader Compania Internacional Financiera S.A., between the periods of January 2002 through March 2005, had participated in at least 85 public offerings whereby Campania went short ahead of a public offering and used the shares that became available to the underwriters in these offerings to cover the open short positions.
By interpretation, Campania shorted a stock and used shares that had not been registered and available in the market place as the collateral borrow in the short sale. Review of prior NASD enforcement action taken, this is considered a naked short. It is also the sale of an unregistered security under NASD guidelines based on the offering not yet in affect.
Campania Internacional and Yomi Rodrig, as part of the settlement would be ‘permanently enjoined from any future violations’ of this nature. Apparently 85 violations over a 3-year period are enough. The most recent taking place only 6 months ago; March 2005. What impact these short sales had on the overall market cap of these companies will remain undisclosed by the SEC.
By my vantage point, it appears at first glance that the SEC provided a Get out of Jail Free pass to a habitual violator of securities law while the NASD took actions that insured the violator would no longer access our markets for fraud.
In most recent recorded time, there have been but a few cases of naked shorting abuses brought through regulatory enforcement actions. As evidenced by the results, the NASD has become the strictest of regulatory arms while the SEC is content to slap wrists and the NYSE is content merely looking the other way as if nothing on that exchange ever transpires.
The case history I have come up with includes:
Dec. 2000 NASD concludes multi-year investigation into John Fiero and Fiero Brothers for naked shorting abuses. The NASD fines Fiero $1 Million and barred John Fiero from associating with any NASD-registered firm.
February 2003 SEC concludes multi-year investigation into Rhino Advisors for naked shorting abuses relating to Sedona Corporation. The SEC fined Rhino $1 Million and required Rhino to seek a consultant to evaluate compliance and policies procedures. During the investigation the SEC uncovered audio recordings of Rhino Executives bribing brokers from another firm to manipulate Sedona.
December 2004 NASD and SEC conclude a multi-year investigation into Hedge Fund Manager Hilary Shane for naked shorting abuses during a PIPE transaction relating to Compudyne. Terms of the enforcement included a $1.45 Million fine and barred Hilary Shane from associating with any NASD-registered firm.
April 2005 SEC initiates charges of insider trading and illegal short selling against former S.G. Cowen Managing Director Guillaume Pollet. The complaint alleges 10 separate occurrences of illegal PIPE transactions in 2001 resulting in over $4 Million of locked in illegal profits. To date no SEC enforcement actions have concluded against Pollet and SG Cowen has agreed to a $1 Million fine for their participation in the fraud. This case mimics that of the NASD’s complaint against Hilary Shane.
July 2005 NASD concludes a multi-year investigation into Scott Ryan and Ryan & Company for illegal shorting practices on behalf of 3 Hedge Funds. Ryan was accused of using the naked shorting Market Making exemption to short for Hedge Funds who would otherwise not be able to short preferred stocks. Under the NASD settlement Scott Ryan is barred from associating with any NASD-registered firm.
December 2005 NASD concludes a multi-year investigation into John Mangan for naked shorting abuses relating to a private placement PIPE transaction in Compudyne. The terms of the NASD actions included a $125,00 fine and Mangan was barred from associating with any NASD-registered firm.
December 2005 SEC concludes a multi-year investigation into Compania Internacional Financiera S.A for illegal naked shorting relative to 85 stock offering placements. Terms of the SEC settlement included a $6.3 Million fine and a promise not to violate Rule 105 again.
In addition, reports have surfaced that the NASD continues to negotiate settlements with Friedman Billings and Ramsey (FBR) former CEO Emanual Friedman, former Head Trader Scott Dreyer, and former Compliance Chief Nicholas Nichols. Most believe each will receive similar NASD actions barring these gentlemen from further association with NASD-registered firms. FBR has already paid a $7.5 Million fine to the SEC and NASD for the companies involvement.
While the NASD continues to take a hard line approach, the SEC continues to hand out those free hall passes. For example:
In the Scott Ryan case listed above, the 3 Hedge Funds associated with Ryan in his scheme to defraud are outside the jurisdiction of the NASD and thus free from NASD enforcement actions. Any enforcement to be taken against the Hedge Funds falls on the efforts of the SEC. To date the SEC has brought no actions that we know of against these Hedge Funds or Fund Managers.
Likewise, in the Rhino Advisors case it is rumored that the SEC obtained evidence implicating Refco Securities brokers as those in the audio recordings being bribed to manipulate Sedona stock.
Prior to Refco taking the business public in an August 2005 IPO it was reported that the SEC was negotiating a settlement with the company and it’s executive management over their activities involving Rhino Advisors and Sedona. The proposed settlement, made public by Refco in May 2005, reportedly that a small fine would be imposed and one executive would face a 1-year suspension of supervisory duties at the firm. No job loss would result.
Since the IPO proceeded along as planned in August 2005 it is inferred that the SEC had no intent on deterring this firm from future fraudulent activities.
Only 8-weeks after the Refco IPO took place Refco proceeded to collapse under an accounting scandal. The firm filed for bankruptcy less than a week later yielding billions in investor losses. Ultimately the collapse resulted in the DOJ arrest of former Refco CEO Phillip Bennett for securities fraud violations. Former Refco Securities executive Santo Maggio, who was the reported executive that would be the recipient of the 1-year suspension, is now offering his services to the Feds in order to achieve a lighter sentence.
Had the SEC taken appropriate steps to reign in Refco Management sooner, instead of giving out the free passes habitual offenders, the collapse of the firm and the destruction on investor accounts would have been mitigated.
Setting histrionics aside, the aforementioned actions don’t lie. Each is a recoded event in history and thus irrefutable. As the NASD continues to take actions to seek out and remove perceived habitual and dangerous offenders from further fraudulent activities the top regulator, the SEC, only resorts to minor fines imposed and promises of a better behavior next time.
On Wall Street history has proven that there always is a next time when money can be made.
As to the fines imposed. To put in perspective what little these fines mean in the overall scheme of things, compare these fines to the net worth of those being fined. To near billionaires and multi-multi millionaires a fine of $100,000 here $1 Million there means nothing. It is cab fare. As the $1.4 Billion fine in the research analysts settlement didn’t even dent the Industry bottom lines, neither have these fines in the net worth of the violators.
Removing these vultures from the Industry is the real penalty that hurts them and thus the deterrent. The NASD gets it; the SEC doesn’t.
For more on this issue please visit the Host site at www.investigatethesec.com .
Copyright 2005