As still another example where the SEC has stepped-up its investigation and enforcement activities in connection with fraudulent activities involving hedge funds, the SEC recently filed charges in U.S. District Court (SEC v. Ficeto C.D. Cal., No. 2:11-CV-01637-6HK-RZ, 2/24/2011) in connection with an alleged international share manipulation scheme against a hedge fund trader, two firms, and two associated securities professionals. The scheme allegedly generated more than $63 million in illegal profits for the defendants.
According to the SEC's complaint, from 2005 – 2007, Florian Homm (Spain), Todd Ficeto (Malibu, California), and Colin Heatherington (Canada), through an affiliated broker-dealer, purchased shares of microcap companies in reverse mergers, manipulated the share prices through a variety of devices, and then sold the shares at deflated prices to various offshore hedge funds controlled by Mr. Homm. The scheme, according to the complaint, allowed the hedge funds to overstate their performance and the funds' values by more than $440 million, and the defendants collected more than $63 million in profits through stock sales, commissions, and sales credits.
The SEC charged the defendants with anti-fraud violations and is seeking permanent injunctive relief, disgorgement, interest, and monetary penalties. In a related matter, the SEC filed cease-and-desist actions against Tony Ahn, primary trader for Hunter World Markets, Inc., the involved broker-dealer, and Elizabeth Pagliarini, Hunter World Markets' Chief Compliance Officer, over their roles in the scheme. Mr. Ahn was accused by the SEC of executing the trades that manipulated the stock prices, and Ms. Pagliarini was accused by the SEC for failing to supervise Mr. Ahn's activities and further aiding and abetting the broker-dealer's violations. Mr. Ahn and Ms. Pagliarini have settled the charges with the SEC, with Mr. Ahn agreeing to a five-year industry bar and to a $40,000 penalty. Ms. Pagliarini agreed to be suspended for one year from a broker-dealer supervisory capacity and a $20,000 penalty.