by T. GormanPosted on Posted in SECActions

The war on insider trading continues with criminal and civil charges being brought against the owner of a research firm tied to the expert network cases, Tai Nguyen. Mr. Nguyen, is the founder of Insight Research, a consulting firm that analyzed publicly traded technology companies for hedge fund managers. On Tuesday Mr. Nguyen surrendered to the FBI. The SEC also filed a civil action, SEC v. Nguyen (S.D.N.Y. Filed June 26, 2012).

Mr. Nguyen resided in Pleasanton, California. From 2000 through 2005 he was employed as a research analyst at three different broker-dealers. From 2006 through 2009 Mr. Nguyen periodically obtained inside information about Abaxis, Inc. according to the SEC. That publicly traded company is based in Union City, California. It manufactures blood analysis systems for the medical profession. The inside information came from a relative at Abaxis who reported directly to the CFO of the company. The relative’s responsibilities included calculating the company’s quarterly revenues.

On at least seven occasions between 2006 and 2009 the relative provided Mr. Nguyen with inside information concerning the financial results of Abaxis before they were disclosed by the company. The information included the quarterly revenues as well as the gross profit margins and earnings per share of Abaxis. In each instances Mr. Nguyen traded, reaped approximately $145,000.

During the same period Mr. Nguyen passed on the earnings information about Abaxis to Sonar Capital. That firm is an investment adviser based in Boston that advised several hedge funds. Mr. Nguyen is alleged to have tipped Sonar at least six times over the three year period. In each instance Sonar traded, reaping profits and avoiding losses totaling over $5.4 million.

Mr. Nguyen also tipped Bari Capital on at least two occasions. The founder of Bari Capital is Samir Barai who pleaded guilty in the expert network cases and was named as a defendant in the parallel SEC enforcement action. U.S. v. Freeman, 22-cr-116 (S.D.N.Y.); SEC v. Longoria, Case No. 06-cv-10885 (S.D.N.Y.). Bari Capital had trading profits of over $1.7 million.

The criminal charges are being filed. The SEC’s complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b).

Yesterday Adam Smith, a former Galleon Group LLC portfolio manager who was a key cooperating witness against convicted hedge fund mogul Raj Rajaratnam, was sentenced to serve two years probation. In January 2011 he pleaded guilty to criminal charges in connection with insider trading. He was also scheduled to testify against Rajat Gupta. U.S. v. Smith, 11-cr-00079 (S.D.N.Y.).

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by T. GormanPosted on Posted in SECActions

The goal of enforcement officials is always to arrive at the earliest time to save investor funds from the fraudsters. Despite their best efforts, frequently they arrive after much of the money is gone. Yet often portions can be saved. This is illustrated by two actions yesterday, one by the SEC and another by the NY AG.

The SEC obtained an injunction and freeze order against a fraudulent investment scheme being operated by Wayne Palmer through his controlled entity National Note of Utah, LC. SEC v. National Note of Utah, LC, Case No. 2:12-cv-00591 (D. Utah Filed May 25, 2012). Beginning in 2004 National Note raised over $100 million from 600 investors. Mr. Palmer lured investors with claims that his company purchased and sold collateralized loans such as mortgages, trust deed notes, options, leases and purchase contracts that would generate outsized returns of 15% to 20% annually. This claim was bolstered by a 12% guarantee from an investment process that had what he claimed was a “perfect record.”

In fact National Note was insolvent. Investor repayments were made from funds put in by subsequent investors. Those payments stopped in October 2011. The Commission’s freeze order will preserve what is left while the case continues. The SEC’s complaint alleges violations of Securities Act Sections 5 and 17(a) and Exchange Act Sections 10(b) and 15(a).

The NY AG also brought an investment fund fraud action long after the investment fund fraud began. Now however Mr. Schneiderman’s Office has brought it to a conclusion with a recovery for investors.

The suit, filed in April 2009, was against Ezra Merkin and his controlled funds, Ariel Fund Ltd, Gabriel Capital L.P, Asset Fund Ltd. and Ascot Partners L.P. Mr. Merkin raised over $4 billion from individuals and charities by portraying himself as a skilled money manager for over two decades. In reality he simply turned the money over to Bernard Madoff’s giant Ponzi scheme while concealing this fact from investors with false statements. The NY AG’s suit was brought under the Martin Act and Section 352 of the General Business Law and Section 63 of the Executive Law.

Yesterday, Mr. Schneiderman’s Office announced a $410 million settlement of the suit. Investors will be repaid based on the size of their loss and whether they knew about the involvement of Madoff. Those that did not will receive a larger settlement. All investors are expected to receive additional payments. The state will recoup $5 million in litigation costs under the terms of the agreement.

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