Portfolio Manager in SEC Investigation Makes a Bad Day Worse

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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