Legal
SithLord

Brothers Bound in $15M Naked Shorting Settlement Involving Fairfax Financial

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The SEC has settled a case against two brothers who used complex options trades and naked short sales to reap more than $9 million in illicit profits that may have ties to one of the most controversial activities of small-cap trading hedge funds over the past decade. Brothers Jeffrey and Robert Wolfson did not dispute naked short selling allegations when they separately settled Securities and Exchange proceedings for a total of $15 million in disgorgement, interest and civil penalties. Sanctions against Robert Wolfson also encompassed Golden Anchor Trading II, which provided Robert Wolfson with capital in exchange for 50% of his trading profits. The companies traded illegally included Fairfax Financial (FFH), whose huge short sale trading fail-to-deliver numbers in the mid-2000s seemed to have no rational cause.Toronto-based Fairfax sued eight hedge funds including SAC Capital in 2006 for $8 billion in damages, claiming the funds were engaged in a conspiracy of distortion and false rumor-mongering aimed at destroying the company's market value and reaping profits from the funds' heavy short selling of Fairfax's stock. SAC and six other funds won an early dismissal of the suit.

Legal

Regulators Accuse Attorney, Gold Standard Mining of Fraud

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Gold Standard Mining Corp. (GSTP) and its corporate counsel Kenneth Eade filed false financial statements and lied about the extent of the company’s assets, according to a suit filed by the Securities and Exchange Commission. The suit also alleges that CPA Randall Gruber of Gruber & Co. turned a blind eye to the fraud. The complaint was filed on June 29 in the U.S. District Court in Los Angeles.

Legal

SEC Puts Kibosh on Midas Appeal

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Midas Securities and principal Jay Lee are subject to a two-year regulatory ban after the SEC upheld FINRA’s findings that the firm helped sell millions of shares of unregistered iStorage shares. The company was formed through a reverse merger with shell Camryn in 2004, after which FINRA began investigating a storm of spam email touting iStorage. The regulator learned that insiders deposited 4.5 million shares of unregistered stock into accounts at Midas and WTF Corp. (WTF is currently appealing sanctions.) Over 3 million shares were sold, at which point FINRA learned the brokers had no rules for keeping track of unregistered shares or lawfully selling them. “Lee testified that he did not want his representatives to make any decisions as to whether a stock was restricted because it was ‘not their duty,’” FINRA disciplinary records say.

Legal

SEC, Hedge Funds Say Absolute Fund Cash Disappeared

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The SEC, OM Investment and North East Capital filed separate suits last month against Absolute Fund Management and principal Jason Konior, all alleging that Absolute stole investment funds. North East filed suit against Absolute on May 2 in the New York State Supreme Court, whereOMfiled against the same parties on May 16. The SEC filed on May 24 in the U.S. District Court for the Southern District of New York. FINRA’s employment history for Konior as a broker show him changing jobs 16 times from 1996 to 2006, when he was last registered. The records reveal a variety of customer complaints against Konior, some of which were resolved in his favor.