The latest in Securities Exchange Commission (SEC) News and Developments involves charges SEC brought on August 29, 2018 against an NFL linebacker and an investment banker for insider trading.
SEC charged Mychal Kendricks, an NFL Linebacker for the Cleveland Browns, with receiving inside information from Damilare Sonoiki, an analyst for Goldman Sachs Group, Inc. Apparently, Kendricks and Sonoiki met at a party. It was after that party that Sonoili - who had access to private, confidential information - started sharing the information he had on upcoming mergers with Kendricks. This shared information allowed Kendricks to buy securities in companies Sonoiki told him were involved in upcoming acquisitions and then he sold those securities after the mergers were completed. Kendricks made $1.2 million on the deals, one of which gave him a 400% investment return in just two weeks. Sonoili also set up a brokerage account that both he and Kendricks could access online.
In return for the insider trading information, Kendricks provided Sonoili with free NFL tickets, cash kickbacks, and celebrity perks. Sonoili's tips presented Kendricks with the opportunity to trade on confidential information not available to the rest of the investing public.
Both men used a variety of communication methods to avoid detection but SEC's enforcement division pieced together the evidence that brought the scheme to light. The SEC case filed in Philadelphia, PA charges the duo with fraud. The case seeks return of their illegal profits plus penalties and interest. The U.S. Attorney's Office for the Eastern District of Pennsylvania intends to file a parallel criminal complaint against the two men.
The same day as SEC announced charges against the NFL player, it announced charges against a Florida Cash Advance Company and its CEO for defrauding retail investors. The SEC charged that 1 Global Capital LLC and former CEO Carl Ruderman defrauded 3,400 retail investors, many of whom had invested their retirement money. Since 2014, the company and Ruderman reportedly raised $287 million through unregistered securities that were sold through a network made up of barred brokers.
The U.S. District Court in the Southern District of Florida granted a temporary freezing of assets against Ruderman and other businesses he owns. The other Ruderman businesses are named as "relief defendants" which means they have not committed a crime but have received property obtained illegally and therefore have no legal claim to such property. The Court also granted SEC's request for a receiver over the relief defendants.
SEC says the investors in 1 Global's schemes were told they would profit from loans to small and mid-sized companies. In reality, however, much of the profits went to Ruderman's rich personal lifestyle and to his other consumer loan companies. 1 Global provided investors with false statements of account and told them that the company had an independent auditor and that the small, secured loans had low default rates. The truth was that 1 Global offered loans to businesses who wanted quick cash, made large, unsecured loans and had collections in default. 1 Global declared bankruptcy in July 2018 and Ruderman resigned.
SEC maintains that 1Global's activities were bogus investments diverted to Ruderman's personal use. SEC charges that 1 Global and Ruderman violated anti-fraud and securities registration and broker-dealer registration provisions of U.S. securities law. SEC seeks disgorgement of illegal profits plus prejudgment interest and financial penalties.
You can read more about these SEC cases in its press release entitled "SEC Charges Florida Cash Advance Company, Former CEO With Defrauding Retail Investors" and "SEC Charges NFL Player and Former Investment Banker With Insider Trading."
You may also find an interesting read in the Bloomberg article from August 29, 2018 entitled "Ex-Goldman Analyst Tipped Off NFL Linebacker for Tickets, U.S. Says."
Insider trading is pertinent to the world of crowdfunding and security token offerings as well. While these industries are still developing, insider trading happens, often accidentally and innocently.Nevertheless, it’s important for companies and investors to start thinking about how insider trading rules might impact their actions and policies.