Securities Lawyer Blog

A tough week for Jonathan Hollander, a former hedge fund professional. He has settled a matter filed yesterday by the Securities and Exchange Commission (SEC) which alleged that he had engaged in insider trading on a pending takeover of the grocery chain Albertson's, LLC (ABS).

The settlement requires that the former SAC Capital Advisors LP professional, pay in excess of $220,000 to close the claim that he traded on inside information about the impending acquisition of ABS.

The insider information was allegedly obtained from one of Mr. Hollander's friends who happened to be an employee of the financial advisor selected by ABS to provide services with regard to the impending acquisition. The tippees are alleged to have been a friend and family member who, together with Hollander, secured nearly $100,000 in illegal profits.

The SEC alleged in its complaint, that Mr. Hollander bought 5,600 shares of ABS stock and others involved purchased call options over a period of several days. Then on the day ABS announced the acquisition, all shares held by the parties were sold and illegal profits gained.

United States District Judge Richard Sullivan has yet to issue final approval of this settlement. It includes the agreement that Mr. Hollander be barred "from association with a broker, dealer, investment adviser, municipal securities dealer or transfer agent with the right to reapply after three years."

The New York securities regulation and enforcement attorneys at Gusrae Kaplan Nusbaum PLLC represent broker-dealers in regulatory and enforcement matters. Our lawyers advise clients and defend industry members in matters involving a broad spectrum of issues: Market timing; Sales practice violations; NASD Rule 3070 violations; Forms U4 and U5 reporting violations; Front running; Insider trading; Market manipulation; Trading issues and many more areas of regulation and enforcement. Contact our law firm to consult with one of our attorneys.

Late last year, the Securities Lawyer Blog posted on the cease and desist order sought by The Financial Industry Regulatory Authority (FINRA) against San Antonio's Pinnacle Partners Financial Corporation, as well as its President, Brian K. Alfaro. That order was issued on January 21, 2011 and has been in place since that time.

This past week, FINRA announced that it has suspended both Pinnacle and its president for their failure to comply with the Temporary Cease and Desist Order that prohibited the continuation of what FINRA alleged were fraudulent misrepresentations. FINRA announced that their Notice of Suspension alleged that the parties "continued to make fraudulent oral and written misrepresentations and omissions in connection with their offer and sale of certain oil and gas joint interests, and had otherwise failed to comply" with the Temporary Order.

FINRA's announcement released earlier this week included a statement by Executive Vice President and Chief of Enforcement, Brad Bennett. Mr. Bennett noted that: "Brian Alfaro and Pinnacle pose a serious risk to the investing public. Even after the issuance of a Temporary Cease and Desist Consent Order, Alfaro and Pinnacle continued to market oil and gas offerings through material misrepresentations, with the intent to deceive investors."

The original complaint against these parties dated Dec. 3, 2010 alleged that Pinnacle and its president established "boiler room" operation that included literally thousands of cold calls that sought investments in oil and gas drilling. The solicitations included "grossly inflated natural gas prices," along with inflated estimated gross returns and monthly cash flows. Other allegations include solicitation for wells that were never drilled and other misrepresentations. The Temporary Cease and Desist Order was issued pending hearing.

The methods that led to the TCDO, enabled the parties to raise more than $10 million from over 100 investors. The allegations were that these funds were not invested, but rather were used by the president for personal use. The parties are alleged to have continued to pursue this course of conduct even after the issuance of the Temporary Cease and Desist Order.

Now the parties will be heard on Sept.12, 2011 before a Hearing Panel that will consider both these claims and whether to impose additional penalties.

New York City's Wall Street law firm, Gusrae Kaplan Nusbaum PLLC, represents brokers and traders before all regulatory agencies and handles securities and commodities litigation and appeals. Please contact our law firm to talk with one our lawyers about representation and our litigation and advisory practice. Our lawyers are former regulators and experienced litigators in all aspects of securities practice.

UBS Financial Services Inc. will pay a total of $11 million in fines and restitution after agreeing to settle a matter before The Financial Industry Regulatory Authority (FINRA). The firm will pay $2.5 million in fines and another $8.25 million in restitution for what FINRA alleged were "omissions and statements made that effectively misled some investors regarding the 'principal protection' feature of 100% Principal-Protection Notes (PPNs)" that were issued by Lehman Brothers before it files for bankruptcy in September 2008.

Among the allegations in this matter were that some of the firm's financial advisors did not fully understand the "protection" provided by the product, and due to this were not able to correctly communicate details of the investment to customers. The situation was not helped by the allegation that customers were misled about the risks and limitations of the product found in the advertising materials.

The major issue with regard to clarity for customers was the suggestion that retaining the investment to maturity would guarantee the return of principal. In fact, credit risk was an underlying potential problem with return of principal, but customers were not informed of this.

As the credit crisis worsened, FINRA alleged that UBS did not inform investors that what the firm described as principal-protected investments were in fact unsecured obligations. Specifically, FINRA claimed that the firm failed to inform investors that the principal protection feature was in fact subject to credit risk; did not adequately supervise the sale of these investments including informing financial advisors of the impact of the credit crisis on them; fell short in the suitability analysis for certain customers; and, misled customers in advertising materials.

The firm is also alleged to have fallen short in their risk profile requirements, which allowed this product to be sold to customers with "moderate" to "conservative" risk profiles. Adding to this issue was the conclusion that "particular investors were more likely to rely on UBS' representations about the '100% principal protection' feature of Lehman PPNs because of their risk averse investment objectives."

The New York law firm Gusrae Kaplan Nusbaum PLLC, advises broker-dealers in establishing policies and procedures to comply with securities laws and regulations and represents broker dealers in proceedings before all regulatory agencies. Please contact our Wall Street law firm for more information about our advisory services as well as our regulatory and enforcement representation.

The Securities and Exchange Commission (SEC) announced last week that a case that began in 2004 against Neurotech Development Corporation and its officers who are father and son, has now come to a conclusion. The case has reached this conclusion in stages and over a period of many years.

The Report and Recommendation that were issued by a Magistrate Judge against the company were adopted in full Judge Platt of the United States District Court for the Eastern District of New York. The individual respondents will over $173,000 and over $141,000 in civil penalties, disgorgement of ill-gotten gains and prejudgment interest. As noted in the SEC's press release on this litigation "[t]he Magistrate Judge stated that the recommended civil penalties were 'third tier' penalties and that he considered the defendants' financial conditions" in the decision to "not recommend higher penalty amounts."

The original allegations against the company and its two officers were filed in 2004 and centered around claims that during the period between 1999 through 2003 it had made false statements in SEC filings. Specifically, the complaint alleged that Neurotech made false claims concerning the sale and construction of prefabricated hospitals in China and Indonesia and overseas construction contracts that were falsely stated to be in the billions of dollars. The SEC also alleged that false public statements were made regarding bank guarantees to finance the construction of hospitals and that the principals sold the company's common stock and received illicit gains from those sales into the market.

According to the SEC, the company settled in 2010 and the father and son agreed to partial settlements that included: permanent injunctions from violating Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act); Rule 10b-5; Section 16(a) of the Exchange Act; aiding and abetting Neurotech's violations of reporting provisions of the Exchange Act; and the individual defendants' false certifications of SEC filings as well as five-year officer and director and penny stock bars.

The disgorgement, interest, and civil penalties remained to be determined by the court and these have now been completed with the final acceptance of the Report and Recommendation.

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