The SEC prevailed in a pair of litigated cases this week. First, in SEC v. EagleEye Asset Management, LLC, Civil Action No. 11-CV-11576 (D. Mass.) a jury returned a verdict in favor of the Commission and against registered investment adviser EagleEye Management and its sole principal Jeffrey Liskov based on a fraud on the advisory clients. Second, in SEC v. Greenstone Holdings, Inc., Civil Action No. 10-cv-1301 (S.D.N.Y.) the court granted in part the Commission’s motion for summary judgment, fining attorney Virginia Sourlis liable for aiding and abetting a fraud by issuing a false legal opinion.
The complaint in EagleEye Asset Management centered around a forex trading scheme. Between April 2008 and August 2010 Mr. Liskov made material misrepresentations to a dozen clients, according to the Commission. The representations were made to induce the clients to liquidate their securities holdings and use the cash to engage in high risk forex trading. The trades resulted in about $4 million in losses for the clients but generated over $300,000 in performance fees. In some instances Mr. Liskov used a strategy which resulted in short term profits to generate the fees. Later, however, the positions would decline sharply in value.
In the case of two clients Mr. Liskov liquidated their brokerage accounts without permission. He then transferred the proceeds to forex trading accounts where virtually all of their money was lost. The transfers were done by doctoring the documents. The complaint alleged violations of Exchange Act Section 109b) and Advisers Act Sections 206(1), 206(2) and 204. See also Lit. Rel. No. 22546 (Nov. 27, 2012).
In Greenstone Holdings the Commission claimed that attorney Sourlis authored a false legal opinion that was used by the firm to issue over six million shares of unregistered stock. The opinion described notes, note holders and communications with those note holders for which there was no basis in fact.
In ruling in favor of the Commission the Court concluded that Ms. Sourlis claimed to have spoken note holders who do not exist and that for several other representations in the legal opinion there was no factual basis. Accordingly, the Court found that Ms. Sourlis aided and abetted violations of Exchange Act Section 10(b). The Court reserved ruling on the Securities Act Section 5 claim against the attorney while rejecting the SEC’s claim of primary liability against Ms. Sourlis. The Commission plans to file a motion seeking appropriate remedies. See also Lit. Rel. 22542 (Nov.. 26, 2012).