by T. GormanPosted on Posted in SECActions

The “broken windows” approach to enforcement is alive, well and continuing. This time the Commission bundled together three groups of actions and eight proceedings, all centered on a failure to update disclosures tied to going private transactions:

In the Matter of Berjaya Lottery Management (H.K.), Adm. Proc. File No. 3-16436 (March 13, 2015) names as a Respondent the Hong Kong based firm which manufactures and distributes computerized lottery and voting systems. The action centers on a going-private transaction regarding International Lottery & Totalizator Systems, Inc., a California based public company. Between July 7 and 10, 2013 the firm took significant steps toward the privatization of International Lottery. Since the firm had acquired a majority holding in International Lottery it had an obligation to promptly amend its Item 4 disclosures on Schedule 13D concerning the transaction. Nevertheless, the firm waited eight months to make the required disclosures regarding the steps taken, contrary to Exchange Act Section 13(d)(2). The firm settled, consenting to the entry of a cease and desist order based on the Section cited in the Order while agreeing to pay a penalty of $75,000.

In the Matter of The Ciabattoni Living Trust Dated August 17, 2000, Adm. Proc. File No. 3-16437 (March 13, 2015) is a proceeding which names the trust as a Respondent. It centers on a going private transaction regarding First Physicians Capital Group, Inc. Related proceedings were filed against the beneficial owners of the shares, Aathony J. Ciabattoni and Jane Ciabattoni. In the Matter of Anthony J. Ciabattoni, Adm. Proc. File No. 3-16438 (March 13, 2015); In the Matter of Jane G. Ciabattoni, Adm. Proc. File No. 3-16439 (March 13, 2015). The Orders state that the Respondents in each proceeding waited over five months to amend their Schedule 13D disclosures after taking significant steps toward a going private transaction regarding First Physicians, contrary to Exchange Act Section 13(d)(2). In addition, Respondents violated Section 16(a) by failing to report material transactions in shares of that group for months. The proceedings were resolved with each Respondent consenting to the entry of a cease and desist order based on the Sections cited in the Order. In addition, the three defendants were ordered to pay a penalty, on a joint and several basis, of $75,000. The settlements reflect the cooperation of the Respondents. See also In the Matter of SMP Investments I, LLC, Adm. Proc. File No. 3-16440 (March 13, 2015)(proceeding also tied to the First Physicians transaction alleging the same type of violations involved in The Ciabattoni Living Trust; resolved with a cease and desist order based on the same Sections and the payment of a penalty of $63,750 on a joint and several basis with Brian Potiker); In the Matter of Brian Potiker, Adm. Proc. File No. 3-16441 (March 13, 2015)(same): In the Matter of William A. Houlihan, Adm. Proc. File No. 3-16442 (March 13 2015)(A proceeding also based on the First Physicians transaction alleging essentially the same violations; settled with a cease and desist order based on the same Sections and the payment of a penalty of $15,000).

In the Matter of Shuipan Lin, Adm. Proc. File No. 3-16435 (March 13 2015) names as a Respondent the CEO of China based Exceeds Company Ltd. The action centers on a going private transaction regarding that firm. After taking several steps to effectuate that transaction Respondent filed to amend his Schedule 13D as required. The proceeding was resolved with Respondent’s consent to a cease and desist order based on Exchange Act Section 13(d)(2) and the payment of a civil penalty of $30,000.

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by T. GormanPosted on Posted in SECActions

Portfolio manager Steven Hart made a difficult situation worse. He was under investigation by the SEC. That inquiry focused on whether he had made a series of matched trades. The investigation resulted in an SEC enforcement action. SEC v. Hart, Civil Action No. 12 CIV 8986 (S.D.N.Y. Filed December 11, 2012). Mr. Hart made it worse. He lied during testimony and in telephone calls with the SEC staff. Now he faces not just sanctions from the Commission, but also time in prison. U.S. v. Hart, Case No. 1:15-cr-0084 (S.D.N.Y. Filed February 13, 2015).

Steven Hart was employed at Octagon Capital Partners as a portfolio manager. He reported directly to the firm president. As the portfolio manager he had control over several brokerage accounts for the Octagon Capital Partners Ltd. fund. He also controlled a private investment fund, Octagon Capital Partners, LP. Mr. Hart invested his money in that fund as did several associates.

The SEC’s investigation focused on whether Mr. Hart had engaged in a series of matched trades or cross trades between his personal fund and the one for which he served as portfolio manager. The investigation also sought to determine if he had used material non-public information when executing certain transactions tied to a number of PIPE offering.

The SEC issued a subpoena to the investment firm for records as part of its investigation. Mr. Hart received the subpoena and responded to it without informing others at the firm. Subsequently, during testimony in the investigation, Mr. Hart stated that the President of the investment firm agreed that the matched trades be undertaken. Mr. Hart also testified that he had discussed the investigation with the firm President, informing him that he would testify before the staff.

In December 2009 the staff telephoned the investment firm. Mr. Hart took the call, representing that he was another firm employee. The staff requested that the President of the firm return their call. The message was not relayed. The next day the staff called again. Mr. Hart took the call and claimed to be the firm President. During the conversation Mr. Hart, while claiming to be the President, told the staff that he was aware of the trades, had approved them and wanted Mr. Hart to remain at the firm.

Later a second staff member called the firm along with the SEC attorney who had the initial conversations. Again Mr. Hart took the call and claimed to be the firm President. He told the two staff attorneys that the trades were part of a trading strategy, that he was aware of the investigation and that Mr. Hart was a valued employee.

Each of the statements during the two telephone conversations, as well as those of Mr. Hart’s during his testimony regarding the firm President were false. Mr. Hart pleaded guilty to obstruction of justice and perjury. He is awaiting sentencing.

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