by T. GormanPosted on Posted in SECActions

Federal and state law enforcement officials are continuing their investigation into bid rigging and manipulation in the municipal bond market. Last week GE Funding Capital Market Services, Inc. became the latest market participant to settle. The firm resolved possible charges with the DOJ, the SEC, the IRS, and 25 state attorneys general. See, e.g., SEC v. GE Funding Capital Market Services, Inc., Civil Action No. 2:11-cv-07465 (D.N.J. Filed Dec. 23, 2011).

The actions involving GE Funding, as well as prior cases, centered on the reinvestment of funds from the sale of municipal bonds. IRS regulations require that those funds be invested at fair market value which is generally established through a competitive bidding process.

In the cases involving GE Funding, the firm is alleged to have manipulated the bidding process from 1999 through 2004. During that period former GE Funding traders entered into agreements to manipulate the bidding process and made payments and engaged in other activities related to those agreements which continued through 2006. In connection with those agreements GE Funding is alleged to have won numerous bids through a practice called “last looks” under which it obtained information regarding competitor bids prior to bidding. The firm also deliberately submitted losing bids to facilitate other arrangements in the market. Collectively, these actions, which involved at least 328 municipal bond reinvestment transactions in 44 states and Puerto Rico, jeopardized the tax-exempt status of billions of dollars in municipal securities.

GE Funding settled with the DOJ by admitting and accepting responsibility for its anticompetitive and manipulative actions. The firm entered into a non-prosecution agreement with the Justice Department. It also agreed to pay a total of $70 million in disgorgement, penalties and restitution in conjunction with its settlements with the DOJ, SEC, IRS and the states. The settlement with the DOJ took into consideration the cooperation of the firm.

In settling with the SEC, the firm consented to the entry of a permanent injunction without admitting or denying the allegations in the complaint, except as to jurisdiction, prohibiting future violations of Securities Act Section 17(a). GE Funding also agreed to pay $10.5 million as a civil penalty along with disgorgement of $10,625,775 with prejudgment interest. The Commission also acknowledged the cooperation of the company.

The settlement with GE Funding is the latest in the on-going investigations into manipulative and anticompetitive actions in the municipal bond market. Previously, Wachovia, now known as Wells Fargo, JPMorgan Chase & Co. and UBS AG entered into settlements based on similar allegations. In addition, criminal charges have been brought against 18 former executives of financial services companies and one is cooperating with the government. Nine executives have pleaded guilty. The investigations are continuing.

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by T. GormanPosted on Posted in SECActions

The SEC continues to aggressively pursue insider trading with the filing of a new, settled action against seven individuals. SEC v. Easom, Civil Action No. 2:11-CV-7314 (D. N.J. Filed Dec. 16, 2011); see also Lit. Rel. No. 22205 (Dec. 21, 2011).

The case centers on the acquisition of Vital Signs, Inc. by a subsidiary of the General Electric Company in a deal announced on July 24, 2008. At the time defendant John Easom was an Executive Vice President for Global Business Development and officer of Vital Signs. On June 5, 2008 the CEO of Vital Signs met with the CEO of GE to finalize the acquisition. Following the meeting Vital Signs’ CEO told certain senior company managers, including Mr. Easom, the terms of the deal. Previously, on January 21, 2008 Mr. Easom executed a non-disclosure agreement with GE Healthcare, a subsidiary of GE, under which the information about a possible acquisition was to be kept confidential.

Subsequently, Mr. Eason sent a text message to the husband of his cousin, William Echeverri. It stated the price at which Vital Signs’ shares would be acquired. Mr. Echewvrri, a registered representative at a broker dealer, began purchasing shares of Vital Signs the next day. Ultimately he purchased 9,800 shares for a total cost of $556,820.18 which yielded him trading profits of $150,121.19.

Mr. Echeverri is also alleged to have tipped five other individuals, all of whom traded on inside information, according to the Commission and collectively had about $190,000 in trading profits:

  • Defendants Rory Trigali and Robert Miketich: On June 6, 2008 Broker Esceverri is alleged to have tipped his friend Rory Tringali in two telephone calls. Defendant Robert Miketich, a friend of Mr. Tringali, was on the second call. The next day the two men began trading, using the account of Mr. Tringali’s father. Mr. Tringali was unemployed at the time and had never purchased shares of Vital Signs. Ultimately he acquired 4,377 shares of Vital Signs in his father’s account at a cost of $251,394.96. Mr. Miketich also traded in several other accounts. The complaint claims that Mr. Trigali traded while “in possession of material, nonpublic information . . . “ and “knew or should have known that the information originated from someone who breached a duty of trust and confidentiality … “ The complaint makes similar allegations as to Mr. Miketich.
  • Defendant Victor Esheverri is the brother of broker Escheverri. On June 11, 2008 broker Escheverri called his brother and, according to the complaint, tipped him. Two days later, on June 13, Victor Echeverri called his friend, Mr. Tringali, and asked him to trade for his brother in the shares of Vital Signs using the account of Mr. Tringali’s father. On June 17, 2008 Mr. Trignali bought about $45,000 worth of Vital Signs shares with the proceeds of a wire to his father’s account from broker Echeverri. The shares were sold after the announcement and $57,000 was wired back to Victor Echeverri, representing his investment and a $12,000 profit. Mr. Tringali kept the remaining profits.
  • Defendant Joseph Mancuso, a friend of broker Echeverri received a telephone call from him on June 26, 2008 for two minutes. The next day he received another short call. According to the complaint, the inside information was “passed along” during the conversations. Three days later Mr. Mancuso purchased 3,800 shares of Vital Signs for $217,100.18, after drawing down his home equity line.
  • Defendant Paul Qassis spoke with broker Echeverri on June 26, 2008. The men spoke a second time later that day for one minute. Mr. Qassis made two purchases of Vital Signs shares based, according to the complaint, on inside information. He is also alleged to have tipped a friend, Gary Saggu, who also purchased shares of Vital Signs. The complaint makes the same general allegations regarding the knowledge of these men as it does for the others.

Defendants Easom, Echeverri, V. Echeverri, Miketich, Mancuso, Qassi and Saggu each consented to the entry of permanent injunctions prohibiting future violations of Exchange Act Section 10(b). Mr. Easom also agreed to be barred for five years from serving as an officer or director of a publically traded company. In addition, each agreed to pay disgorgement, prejudgment interest and a civil penalty as follows: Mr. Easom, $327 in disgorgement and a penalty of $10,000; Mr. Echeverri $150,121.19 in disgorgement and a civil penalty of $227,428.22; V. Esceverri $12,477.19 in disgorgement and no civil penalty based on his financial condition; Mr. Miketich $31,455 in disgorgement and a civil penalty of $41,455; Mr. Mancuso $61,367.01 and a civil penalty of $61,367.01; and Mr. Qassis $111,494.29 and a civil penalty of $55,747.14. Mr. Easom entered into a cooperation agreement with the Commission which is reflected in the terms of his settlement.

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