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On March 19, 2014, the SEC announced that they had charged a stockbroker and a managing clerk at a law firm with insider trading around more than a dozen mergers or other corporate transactions for illicit profits of $5.6 million during a four-year period.

The SEC alleged that Vladimir Eydelman and Steven Metro were linked through a mutual friend who acted as a middleman in the illegal trading scheme. Metro, who worked at Simpson Thacher & Bartlett in New York, obtained material nonpublic information about corporate clients involved in pending deals by accessing confidential documents in the law firm’s computer system. Metro typically tipped the middleman during in-person meetings at a New York City coffee shop, and the middleman later met Eydelman, who was his stockbroker, near the clock and information booth in Grand Central Terminal. The middleman tipped Eydelman, who was a registered representative at Oppenheimer and later at Morgan Stanley, by showing him a post-it note or napkin with the relevant ticker symbol. After the middleman chewed up and sometimes even ate the note or napkin, Eydelman went on to use the illicit tip to illegally trade on his own behalf as well as for family members, the middleman, and other customers. The middleman allocated a portion of his profits for eventual payment back to Metro in exchange for the inside information. Metro also personally traded in advance of at least two deals.

According to the SEC’s complaint, the insider trading scheme began in early February 2009 at a bar in New York City when Metro met the middleman and other friends for drinks. When Metro and the middleman separated from the rest of their friends and began discussing stocks, the middleman expressed concern about his holdings in Sirius XM Radio and his fear that the company may go bankrupt. Metro divulged that Liberty Media Corp. planned to invest more than $500 million in Sirius, and said he obtained this information by viewing documents at the law firm where he worked. As a result, the middleman later called Eydelman and told him to buy additional shares of Sirius. Eydelman expressed similar concern about Sirius’ struggling stock, but the middleman assured him that his reliable source was a friend who worked at a law firm. The middleman told Metro following the announcement that he had set aside approximately $7,000 for Metro as a “thank you” for the information. Instead of taking the money, Metro told the middleman to leave it in his brokerage account and invest it on Metro’s behalf based on confidential information that he planned to pass him in the future.

Also according to the SEC’s complaint, Metro tipped and Eydelman traded on inside information about 12 more companies as they settled into a routine to cloak their illegal activities. Metro shared confidential nonpublic information with the middleman by typing on his cell phone screen the names or ticker symbols of the two companies involved in the transaction. Metro pointed to the names or ticker symbols to indicate which company was the acquirer and which was being acquired. Metro also conveyed the approximate price of the transaction and the approximate announcement date. The middleman then communicated to Eydelman that they should meet. Once at Grand Central Station, the middleman walked up to Eydelman and showed him the post-it note or napkin containing the ticker symbol of the company whose stock price was likely to increase as a result of the corporate transaction. Eydelman watched the middleman chew or eat the tip to destroy the evidence. Eydelman also learned from the middleman an approximate price of the transaction and an approximate announcement date.

The SEC alleged that Eydelman then returned to his office and typically gathered research about the target company. He eventually e-mailed the research to the middleman along with his purported thoughts about why buying the stock made sense. The contrived e-mails were intended to create what Eydelman and the middleman believed to be a sufficient paper trail with plausible justification for engaging in the transaction.

According to the SEC’s complaint, Eydelman also traded on inside information in the accounts of more than 50 of his brokerage customers. Eydelman earned substantial commissions as a result of this trading, and received bonuses from his employers based on his performance driven in large part by the profits garnered through the insider trading scheme. The middleman’s agreement with Metro resulted in more than $168,000 being apportioned to Metro as his share of profits from the insider trading scheme in addition to his profits from personally trading in advance of at least two transactions.

The SEC’s complaint charged Metro and Eydelman with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 as well as Section 17(a) of the Securities Act of 1933. The complaint is seeking a final judgment ordering Metro and Eydelman to pay disgorgement of their ill-gotten gains plus prejudgment interest and penalties, and permanent injunctions from future violations of these provisions of the federal securities laws.

On March 13, 2014, the SEC announced enforcement actions against a pair of brokers, an investment advisory firm, and several others involved in a variable annuities scheme to profit from the imminent deaths of terminally ill patients in nursing homes and hospice care.

Variable annuities are designed to serve as long-term investment vehicles, typically to provide income at retirement. Common features are a death benefit paid to the annuity’s beneficiary (typically a spouse or child) if the annuitant dies, and a bonus credit that the annuity issuer adds to the contract value based on a specified percentage of purchase payments. The SEC Enforcement Division alleged that Michael A. Horowitz, a broker who lives in Los Angeles, developed an illicit strategy to exploit these benefits. He recruited others to help him obtain personal health and identifying information of terminally ill patients in southern California and Chicago. Anticipating they would soon die, Horowitz sold variable annuities contracts with death benefit and bonus credit features to wealthy investors, and he designated the patients as annuitants whose death would trigger a benefit payout. Horowitz marketed these annuities as opportunities for investors to reap short-term investment gains. When the annuitants died, the investors collected death benefit payouts.

The SEC Enforcement Division alleged that Horowitz enlisted another broker, Moshe Marc Cohen of Brooklyn, N.Y., and they each deceived their own brokerage firms to obtain the approvals they needed to sell the annuities. They falsified various broker-dealer forms used by firms to conduct investment suitability reviews. As a result of the fraudulent practices used in the scheme, some insurance companies unwittingly issued variable annuities that they would not otherwise have sold. Horowitz and Cohen, meanwhile, generated more than $1 million in sales commissions.

Agreeing to settle the SEC’s charges are four non-brokers and a New York-based investment advisory firm recruited into the scheme. Also agreeing to settlements are two other brokers who are charged with causing books-and-records violations related to annuities sold through the scheme. A combined total of more than $4.5 million will be paid in the settlements. The SEC’s litigation continues against Horowitz and Cohen.

According to the SEC’s orders instituting administrative proceedings, the scheme began in 2007 and continued into 2008. Horowitz agreed to compensate Harold Ten of Los Angeles and Menachem “Mark” Berger of Chicago for identifying terminally ill patients to be used as annuitants. Berger, in turn, recruited Debra Flowers of Chicago into the scheme and compensated her directly. Through the use of a purported charity and other forms of deception, Ten, Berger, and Flowers obtained confidential health data about patients for Horowitz.

According to the SEC’s orders, after selling millions of dollars in variable annuities to individual investors, Horowitz still desired to generate greater capital into the scheme. Searching for a large source of financing, he began pitching his scheme to institutional investors. A pooled investment vehicle and its adviser BDL Manager LLC were created in late 2007 in order to facilitate institutional investment in variable annuities through the use of nominees. Commodities trader Howard Feder, who lives in Woodmere, N.Y., became each firm’s sole principal. Feder and BDL Manager fraudulently secured broker-dealer approvals of more than $56 million in annuities sold through Horowitz’s scheme. Feder furnished the brokers with blank forms signed by the nominees enabling the brokers to complete the forms with false statements indicating that the nominees did not intend to access their investments for many years. Feder understood that the purpose of Horowitz’s scheme was to designate terminally ill patients as annuitants in the expectation that their deaths would result in short-term lucrative payouts. BDL Group received more than $1.5 million in proceeds from its investment in the annuities.

The order against Horowitz and Cohen alleged that they willfully violated the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 and they willfully aided and abetted and caused violations of the Exchange Act’s books-and-records provisions. Horowitz also acted as an unregistered broker.

On February 21, 2014, the SEC announced an emergency action against a New York City-based investment banker charged with insider trading for nearly $1 million in illicit profits.

The SEC alleged that while working on Wall Street, Frank “Perk” Hixon Jr. regularly logged into the brokerage account of Destiny “Nicole” Robinson, the mother of his young child. He executed trades based on confidential information he obtained on the job, sometimes within minutes of learning it. Illegal trades also were made in his father’s brokerage account. When his firm confronted him about the trading conducted in these accounts, Hixon Jr. pretended not to recognize the names of his father or his child’s mother. However, text messages between Hixon Jr. and Robinson suggest he was generating the illegal proceeds in lieu of formal child support payments.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Hixon Jr.

A federal judge granted the SEC’s request and issued an emergency order freezing Robinson’s brokerage account, which the SEC alleges contains the majority of proceeds from Hixon Jr.’s illegal trading with a balance of approximately $1.2 million.

According to the SEC’s complaint, Hixon Jr. illegally tipped or traded in the securities of three public companies. He traded ahead of several major announcements by his client Westway Group in 2011 and 2012. He traded based on nonpublic information he learned about potential client Titanium Metals Corporation ahead of its merger announcement in November 2012. And Hixon even illegally traded in the securities of his own firm Evercore Partners prior to its announcement of record earnings in January 2013. Hixon Jr. generated illegal insider trading profits of at least $950,000.

In addition, when Hixon Jr.’s employer asked him in 2013 whether he knew anything about suspicious trading in accounts belonging to Destiny Robinson and his father Frank P. Hixon Sr., who lives in suburban Atlanta, Hixon Jr. denied recognizing either name. When later confronted with information that he did in fact know these individuals, Hixon Jr. continued his false claims, saying he didn’t know Robinson as “Destiny” and asserting in a sworn declaration that when approached he didn’t recognize the name of the city where his father lived for more than 25 years. Hixon Jr. was subsequently terminated by his employer.

The SEC’s complaint alleged that Hixon Jr. violated the antifraud provisions of the Securities Exchange Act of 1934. In addition to the asset freeze, the complaint seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties. Hixon Sr. and Robinson have been named as relief defendants for the purposes of recovering the illegal trading profits held in their accounts.

On February 20, 2013, the SEC announced that it had charged three California residents with defrauding investors in a purported multi-million dollar movie project that would supposedly star well-known actors and generate exorbitant investment returns.

The SEC alleged that Los Angeles-based attorney Samuel Braslau was the architect of the fraudulent scheme that raised money through a boiler room operation spearheaded by Rand Chortkoff of California.  High-pressure salespeople including Stuart Rawitt persuaded more than 60 investors nationwide to invest a total of $1.8 million in the movie first titled Marcel and later changed to The Smuggler.  Investors were falsely told that actors ranging from Donald Sutherland to Jean-Claude Van Damme would appear in the movie when in fact they were never even approached.  Instead of using investor funds for movie production expenses as promised, Braslau, Chortkoff, and Rawitt have spent most of the money among themselves.  The investor funds that remain aren’t enough to produce a public service announcement let alone a full-length motion picture capable of securing the theatrical release promised to investors.

In a parallel action, the U.S. Attorney’s Office for the Central District of California today announced criminal charges against Braslau, Chortkoff, and Rawitt. 

According to the SEC’s complaint filed in U.S. District Court for the Central District of California, Braslau set up companies named Mutual Entertainment LLC and Film Shoot LLC to raise funds from investors for the movie project.  In January 2011, Mutual Entertainment spent $25,000 to purchase the rights to Marcel, an unpublished story set in Paris during World War II.  Shortly thereafter, Mutual Entertainment began raising money from investors through a boiler room operation that Chortkoff operated out of Van Nuys, Calif.  

The SEC alleged that Braslau, Chortkoff, and Rawitt claimed that 63.5 percent of the funds raised from investors would be used for “production expenses.”  However, very little if any money was actually spent on movie expenses as they instead used the vast majority of investor funds to pay sales commissions and phony “consulting” fees to themselves and other salespeople.  Rawitt made numerous false claims to investors about the movie project.  For instance, he flaunted a baseless projected return on investment of about 300 percent.  He falsely depicted that they were just shy of reaching a $7.5 million fundraising goal and the movie was set to begin shooting in summer 2013.  He instilled the belief that Mutual Entertainment was a successful film company whose track record encompassed the Harold and Kumar movies produced by Carsten Lorenz. 

According to the SEC’s complaint, Rawitt was the subject of a prior SEC enforcement action in 2009, when he was charged for his involvement in an oil-and-gas scheme.

The SEC’s complaint alleged that Braslau, Chortkoff, and Rawitt violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5.  The complaint further alleged that Chortkoff and Rawitt violated Section 15(a) of the Exchange Act, and Rawitt violated Section 15(b)(6)(B) of the Exchange Act.  The SEC is seeking financial penalties and permanent injunctions against Braslau, Chortkoff, and Rawitt.