The Securities and Exchange Commission filed and settled an administrative enforcement action against VCAP Securities, LLC, a registered broker-dealer, and Brett Graham, its chief executive officer, in connection with VCAP’s conduct of five auctions to liquidate certain collateralized debt obligations in 2012. According to the SEC, while conducting these auctions as liquidation agent for various CDO trustees, VCAP and Mr. Graham secretly arranged for a third-party broker-dealer to bid for the auctioned CDOs in order to purchase them for Vertical Capital, LLC, an affiliated investment adviser of VCAP’s (Mr. Graham was also the portfolio manager and chief investment officer for Vertical). The SEC charged that Mr. Graham used confidential information VCAP was in possession of from other bidders to encourage bids placed by the third-party broker-dealer that were slightly higher than the highest bid from any other participant. After the third-party broker-dealer was successful with its bid, it would resell the relevant bond to Vertical at a slight mark-up. Vertical acquired 23 bonds through these arrangements. This practice was contrary to VCAP’s own compliance procedures and various engagement letters signed by Mr. Graham wherein VCAP agreed not to participate in bidding and not to misuse confidential information. In connection with one auction, Mr. Graham also provided one non-affiliated broker-dealer with unique, special treatment, specifically advising it to decrease its bid by one half in order to win the auction, when it had been willing to increase its bid to obtain the relevant bond. The SEC alleged VCAP’s and Mr. Graham’s conduct violated anti-fraud provisions of the relevant federal securities law and SEC rules. To resolve this complaint, VCAP agreed to pay disgorgement and prejudgment interest of almost US $1.15 million and Mr. Graham consented to pay disgorgement and prejudgment interest of US $127,733 and a penalty of US $200,000, as well as other sanctions.