Market professionals continue to be a key focus of securities enforcement actions. Insider trading, market manipulation, failure to obtain best execution, intimidation and other charges are at the center of what seems to be a never ending stream of civil, criminal and regulatory actions. The fact that those actions are against market professionals can only serve to further undermine public confidence in the securities markets, fostering the notion that they are unfair and an insiders game.
As last week drew to a close another in this stream of actions moved toward resolution, U.S. v. Hampton, Case No. 13 Crim 301 (S.D.N.Y.). This case was brought against Thomas Hampton, the Managing Director of Hampton Capital. The fund invested in exchange traded funds or ETFs. Those instruments hold various types of liquid assets such as stocks, commodities or bonds and frequently attempt to track or replicate a benchmark index such as the S&P 500. Hampton Capital’s strategy was to use specially designed computer software to trade ETFs based on pricing inefficiencies. Mr. Hampton bought and sold various securities and futures contacts on behalf of the fund to implement the strategy.
When the fund began to suffer losses rather than tell investors the truth Mr. Hampton chose to deceive them. Specifically, as early as April 2011 rather than admit there were losses and risk withdrawals, Mr. Hampton began creating false statements which represented to investors that the fund had positive returns, not the losses that in fact were incurred. This encouraged investors to leave their capital in the fund and, in some instances, add to it. As the trading losses continued investors eventually lost millions of dollars.
On Friday Mr. Hampton pleaded guilty to one count of commodities fraud. The date for sentencing has not been set.