by T. GormanPosted on Posted in SECActions

The continued focus of SEC Enforcement on retail investors is translating into increased numbers of actions being brought against investment advisers. Two more examples of this trend are the following:

In the Matter of VSS Fund Management LLC, Adm. Proc. File No. 3-18729 (Sept. 7, 2018) names as Respondents the registered investment adviser and its owner and managing partner, Jeffrey Stevenson. The action centers on a 2015 buy-out offer made by Mr. Stevenson to the limited partners of VS&A Communications Partners III, L.P., a fund advised by the advisor. The Fund had been in existence for years. Some partners had expressed an interest in a buy-out. The management committee decided to dissolve the Fund, using its December 2014 NAV for pricing. In early 2015 VSS decided not to close the Fund in an effort to accommodate some partners who wanted to remain. The offer to the limited partners was revised. Subsequently, on May 1, 2015 VSS and Mr. Stevenson received preliminary information that that the Fund’s NAV had potentially increased significantly during the first quarter of the year. That information was not disclosed to the limited partners which resulted in the May letter to them being inaccurate. The first quarter financial information regarding the Fund was also not furnished to the limited partners. That information also reflected the increase in NAV. Over 80% of the limited partners accepted the offer based on the incomplete information. The Order alleges violations of Advisers Act section 206(4). To resolve the proceedings each Respondent consented to the entry of a cease and desist order based on the section cited in the Order. VSS also agreed to the entry of a censure. Respondents, jointly and severally, will pay a penalty of $200,000.

In the Matter of BB&T Securities, LLC, Adm. Proc. File No. 3-18730 (Sept. 7, 2018) names as a Respondent the firm, which is the successor to BB&T Investment Securities, Inc., a dual registered Commission broker-dealer and investment adviser since June 2007. Over about a three year period beginning in March 2012, BB&T Investment Securities, then a state registered investment adviser, recommended to clients that they invest in wrap fee programs sponsored by three other advisers, one of which was an Affiliated Adviser. In making those recommendations the firm failed to disclose sufficient information to permit those clients to discern the fact that the compensation arrangements between the firm and the Affiliated Adviser created an incentive for BB&T Investment Services and its representatives to recommend that clients invest with the Affiliated Adviser. The failure to properly advise the clients resulted in a violation of Advisers Act section 206(2), according to the Order. To resolve the matter Respondent consented to the entry of a cease and desist order based on the section cited in the Order and agreed to pay a penalty of $100,000.

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by T. GormanPosted on Posted in SECActions

Insider trading has long been a staple of the Commission’s Enforcement Division and the Manhattan U.S. Attorney’s Office. Together the two agencies have been responsible for a long series of insider trading actions. One is U.S. v. Silva, No. 1:17-cr-00503 (S.D.N.Y.), a case based on a serial insider trading ring that has been responsible for illegal insider trading in over two dozen securities involving at least 50 instances and which has generated over $5 million in illegal profits. The scheme is outlined in a 54 count indictment. One of the Defendants named in the indictment is Robert Rodriguez.

Daniel Rivas, the lynchpin of the ring, was employed at a New York investment bank. From August 2013 through May 2017 Mr. Rivas worked as a technology consultant in the research and capital markets technology group at the investment bank. Through his position Mr. Rivas had access to the firm’s proprietary information system which included facts about then pending transactions.

During the time period Mr. Rivas repeatedly transmitted inside information misappropriated from his employer to others who traded. Mr. Rodriguez, a long time friend, was a member of one of three tipping chains described in the indictment. Mr. Rivas would pass the information to Mr. Rodriguez who would intern transmit it to Mr. Sablon who had been introduced to Mr. Rivas by Mr. Rodriguez in 2015. Initially the information was transmitted by telephone and text message. Over time Mr. Rivas began furnishing the information through a messaging app.

As the scheme continued, Messrs. Rodriguez and Sablon began trading out-of-the-money call options to maximize their profits. The plan was to take the profits and start an investment fund as Mr. Rivas knew. Mr. Rivas, who initially passed the information to Mr. Rodriguez based on friendship, understood that he would be invited to be a partner in the endeavor in return for the inside information. Over the period Messrs. Rodriguez and Sablon earned over $2 million.

Mr. Rodriguez pleaded guilty to one count of conspiracy to commit securities fraud and fraud in connection with a tender offer. All but one of the defendants named in the indictment have pleaded guilty. Two are cooperating with the U.S. Attorney’s Office. The date for sentencing has not been set. See also SEC v. Rivas, Civil Action No. 1:17-cv-06192 (S.D.N.Y.).

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