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Archive for January, 2014

SEC issues alert on Investment Adviser due diligence of alternative investments

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) today issued a Risk Alert on the due diligence processes that investment advisers use when they recommend or place clients’ assets in alternative investments such as hedge funds, private equity funds, or funds of private funds.  

The alert describes current industry trends and practices in advisers’ due diligence. Compared to observations from prior periods, the staff noted that advisers are:

  • Seeking more information and data directly from the managers of alternative investments
  • Using third parties to supplement and validate information provided by managers of alternative investments 
  • Performing additional quantitative analysis and risk assessment of alternative investments and their managers.

 Additionally, staff observed certain deficiencies in several of the advisory firms examined, including:

  • Omitting alternative investment due diligence policies and procedures from their annual reviews, even though these investments comprised a large portion of certain advisers’ investments on behalf of clients
  • Providing potentially misleading information in marketing materials about the scope and depth of due diligence conducted
  • Having due diligence practices that differed from those described in the advisers’ disclosures to clients.

The alert can be found by clicking here.

3 with ties to Ponzi scheme charged

Three major associates of Nicholas Cosmo, the mastermind of a $400 million Ponzi scheme, were arraigned on an indictment Wednesday charging them with conspiracy, as well as mail, wire and securities fraud, officials said.

The three — Jason Keryc, 34, of Wantagh; Anthony Ciccone, 39, of Locust Valley; and Diane Kaylor, 36, of Bethpage — all pleaded not guilty at arraignment in federal District Court in Central Islip, officials said.

Keryc, Ciccone and Kaylor had originally been arrested in April of 2012 on similar charges.

Magistrate A. Kathleen Tomlinson continued the $1 million bail they had each originally posted after their arrests.

The three had been charged in the indictment along with two other close associates of Cosmo — Bryan Arias, 40, of Maspeth, and Shamika Luciano, 31, of Coram — when Arias and Luciano were arrested in December. The new indictment added securities fraud to the original charges.

Arias and Luciano each were released on $500,000 bail shortly after their arrests.

Cosmo, who is serving a 25-year sentence for fraud, took in more than $400 million dollars from 5,000 investors during the operation of the scheme out of his Hauppauge-based companies, Agape World and Agape Merchant Advance, officials have said.

Of that total, 4,100 investors lost $179 million from 2003 until 2009 when the scheme was shut down, officials have said. Much of the rest of the money Cosmo took in went to pay off early investors with Agape.

Working with Cosmo, of Lake Grove, Keryc allegedly made $16 million, Ciccone $10.7 million; Kaylor $4.7 million; Arias $1.7 million; and Luciano $275,000, according to court papers filed by Eastern District federal prosecutors Grace Cucchissi and Christopher Caffarone.

Former broker ordered to pay $5.6 Million for insider trades

The Securities and Exchange Commission obtained a final judgment against a former registered representative who misappropriated material nonpublic information from his customer and used it to trade Burger King Holding, Inc.’s (“Burger King”) securities and tip others before the company’s September 2, 2010 announcement that it was being acquired by a New York private equity firm.

On January 7, 2014, the SEC obtained a final judgment against Waldyr Da Silva Prado Neto (“Prado”), a citizen of Brazil formerly employed by Wells Fargo Advisors, LLC in Miami. Prado learned about the impending acquisition from one of his customers who invested in a fund managed by the private equity firm that was used to acquire Burger King. Prado misused the confidential information to illegally trade in Burger King securities for $175,000 in illicit profits, and he tipped others living in Brazil and elsewhere.

The final judgment entered by the U.S. District Court for the Southern District of New York on the SEC’s motion for a default judgment, permanently enjoins Prado from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The judgment orders Prado to disgorge $397,110 in ill-gotten gains from the illegal Burger King trading plus prejudgment interest of $41,622. Prado is also ordered to pay $5,195,500 in penalties.

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