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Blotter: December 2012

Inside Story

A former hedge fund manager for SAC Capital Advisors was arrested and charged with orchestrating a $276 million insider-trading scheme.  Prosecutors for the U.S. Attorney’s office—in conjunction with the FBI and SEC—described Mathew Martoma’s use of insider information as the “the most lucrative insider-trading scheme ever charged.”

Through a consultant, Martoma learned of negative results on trials for a drug thought to treat Alzheimer’s disease. The fund manager then acted on the information, selling all shares from the drug’s parent companies Elan Corp. and Wyeth held by his hedge fund, CR Intrinsic, it’s alleged.

Through the scheme—which ran from 2006 until July 2008—Martoma avoided losing $194.3 million and earned $76.2 million from short-selling the stocks, the complaint said.  Martoma is facing one count of conspiracy to commit securities fraud and two counts of securities fraud, each of which carries up to 20 years in prison.

Athlete Calls Foul On FA

Boston Celtics shooting guard Jason Terry sued his financial advisor, SunTrust and two brokerage firms on Nov. 9, claiming that through improper supervision the wealth manager had unlawfully funneled $2.4 million into risky investments and alleged Ponzi schemes. 

Terry claimed his advisor William C. Crafton Jr. and his associate Adam
Fein fraudulently invested the athlete’s funds while operating under the supervision of CSI Capital Management and Martin Kelly Capital Management, both of which were acquired by SunTrust Bank.

Terry alleged that despite asking Crafton to invest his money in low-risk funds, the advisor lost about $2.4 million in high-risk alternative investments, which were Ponzi schemes controlled by Crafton’s personal contacts.

Firms Drag Their Feet

The SEC hit two investment firms with sanctions on Nov. 20, saying New York-based Barthelemy Group and California-headquartered EM Capital hampered the regulator during investigations.

According to the agency, Evens Barthelemy and his firm inflated the records for their claimed assets under management by a factor of 10 in order to show that the firm was eligible for SEC registration. Meanwhile, Seth Richard Freeman and EM Capital repeatedly delayed handing over the company’s books and records related to the firm’s mutual fund advisory business for nearly 18 months.

Both firms agreed to settle the SEC’s allegations and pay a combined $20,000 penalty. Freeman and EM Capital also agreed to censures and cease-and-desist orders.

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