Two Investment Firms Settle New York’s Pay-to-Play Investigation

The New York AG’s Office announced that it has secured agreements with two major investment firms in the ongoing New York State Pension Fund investigation.  Markstone Capital adopts the Public Pension Fund Reform Code of Conduct and agrees to return $18 Million to the New York State Common Retirement Fund.  Wetherly Capital Group and its Broker-Dealer DAV/Wetherly Financial will exit the placement business and return $1 Million to the Common Retirement Fund.  According to AG Cuomo, Markstone and Wetherly are the eighth and ninth firms to adopt the Code of Conduct.

The Code of Conduct bans investment firms from hiring, utilizing, or compensating placement agents, lobbyists, or other third-party intermediaries to communicate or interact with public pension funds to obtain investments. To avoid pay-to-play schemes, the Code prohibits investment firms (and their principals, agents, employees, and family members) from doing business with a public pension fund for two years after the firm makes a campaign contribution to an elected or appointed official who can influence the fund’s investment decisions. This provision also bars all firms currently doing business with the pension fund from making such campaign contributions. Investment firms must also disclose any conflicts of interest to public pension fund officials or law enforcement authorities, to increase transparency and avoid abuse in the management of public pension funds.

Posted in New York Securities Law | No Comments »

New York Investment Firm Pleads Guilty to Securities Fraud

Melhado, Flynn & Associates (”MFA”), a broker-dealer and investment advisor registered with the former National Association of Securities Dealers, pled guilty this afternoon to conducting a long-running securities fraud before United States District Judge Arthur D. Spatt. George Motz, MFA´s co-defendant, CEO, and Chairman of the Executive Committee pled guilty to the same crime late Tuesday evening. The defendants were scheduled for trial on October 20, 2009.

MFA admitted that Motz conducted a fraudulent trade allocation scheme, known as “cherry-picking,” to benefit the firm from approximately November 2000 through June 2005. The scheme generated approximately $2.2 million in risk-free profits for MFA´s proprietary trading account and two hedge fund trading accounts Motz controlled at the expense of MFA discretionary clients.

As part of the charged scheme, Motz typically submitted large stock “buy” orders to the MFA trading desk in the morning, without indicating the accounts to which those purchases should be allocated. Later in the day—often shortly before the close of the market—Motz decided whether to sell the position and book the profit in either MFA´s proprietary trading account or the two hedge fund accounts, or to allocate the securities that depreciated in value during the day to MFA´s discretionary client accounts. While Motz carried out his scheme, MFA´s discretionary account clients were falsely assured that, to the extent MFA engaged in proprietary trading on the firm´s behalf, the firm´s account would not be favored over the clients´ accounts.

More

Posted in New York Securities Law | No Comments »

Ex-Ernst & Young Partner Convicted of Insider Trading

James Gansman, who was a partner at Ernst & Young LLP, was convicted of six federal insider-trading charges.

A federal jury in Manhattan today also acquitted Gansman of three New York insider-trading counts and conspiracy. He faces more than 20 years in prison when sentenced Oct. 1. He is free on bail. His accomplice, Donna Murdoch, a managing director at a Philadelphia-based broker-dealer, pleaded guilty in December.

Prosecutors said Gansman tipped Murdoch about seven merger and acquisitions transactions involving Ernst & Young clients, generating illegal profits of more than $300,000. They said in court papers that he provided the information to her “because of their close and personal relationship,” knowing she’d buy and sell securities.

The case was part of a U.S. crackdown on insider trading. Prosecutors have won convictions of ex-employees at firms including Bear Stearns Cos., Morgan Stanley, UBS AG and Lehman Brothers Holdings Inc.

Regulators have also targeted wrongdoing by accounting-firm employees. On May 7 four current and former executives of Ernst & Young were found guilty by federal jurors in New York of selling illegal tax shelters to wealthy clients.

Gansman was convicted of tipping Murdoch about transactions involving Freescale Semiconductor Inc., Spectralink Corp., K2 Inc., and others in which she bought options after learning of pending deals.

Defense Lawyer

Defense attorney Barry Bohrer didn’t immediately return a call.

Gansman, who is also a lawyer and who lives in Manhattan, was a partner in Ernst & Young’s transaction-advisory services department and served as engagement partner for human resources- due diligence.

According to prosecutors, he learned of the pending acquisitions through the firm’s work as adviser to Blackstone Group LP, the world’s biggest buyout company, and other acquirers. The scheme ran from 2005 to 2007, prosecutors said.

Murdoch, who lives in Malvern, Pennsylvania, until last year was the president of Glycology Inc., a nutritional- supplement company. She was also founder of a consulting firm that specialized in mergers, the Securities and Exchange Commission said in a related civil lawsuit.

The civil case is SEC v. Gansman, 08-cv-4918, and the criminal case is U.S. v. Gansman, 08-cr-471, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in Manhattan federal court at dglovin@bloomberg.net.

Source

Tags: Manhattan Insider Trading
Posted in Insider Trading, New York Securities Law | No Comments »