SEC TARGETS SECURITIES FRAUD WITH HELP FROM FBI
Teaming up with the FBI, the SEC recently filed civil actions alleging securities fraud in five separate kickback schemes uncovered by an FBI sting operation. Officials are touting the operation as further proof that the organizations can and in fact are working together to prosecute securities fraud. The actions, filed in the Southern District of Florida, are "based upon allegations that the named parties are insiders or promoters of publicly traded companies who made stock sales to a hedge fund in exchange for illegal kickbacks to an individual whom they believed to be a hedge fund manager, but who was in reality an undercover FBI agent." (See SEC.gov for more information)
A sign of things to come? Notably, hedge fund reporting requirements, in general, have been a topic of regulatory inquiry in recent months. This case suggests the SEC may continue to focus on hedge funds but has enlarged its net so as to pursue individuals at the issuers allegedly willing to pay kickbacks to hedge funds to bolster stock price at the expense of investors.
In somewhat tongue and cheek fashion, the Commission notes that "with one exception, the defendants actually paid the promised kickback after the hedge fund bought the stock defendants were promoting." The Commission also stated that its investigation is still ongoing.
Heading into 2008, it looks like hedge funds and securities fraud will continue to be at the forefront of regulator attention.
