Auditor Charged With Insider Trading
The Securities and Exchange Commission announced that an auditor based in the Silicon Valley has agreed to settle charges that he traded on inside information about a client on the verge of a merger.
The SEC’s order finds that through his work at an independent audit firm, Nima Hedayati learned that Fremont, Calif.-based Lam Research Corporation was making preparations to acquire Milpitas, Calif.-based KLA-Tencor Corporation. The two companies manufacture equipment used in the creation of semiconductors.
According to the SEC’s order, Hedayati proceeded to purchase out-of-the money call options in KLA common stock in his brokerage account as well as his fiancée’s brokerage account, and he also encouraged his mother to purchase KLA common stock. After merger plans were publicly announced, KLA’s stock price increased nearly 20 percent, and Hedayati and his mother collectively profited by more than $43,000 from the illegal trades. Hedayati’s employer terminated him when it discovered his misconduct.
“Hedayati abused his important position of trust and responsibility by illicitly trading on an audit client’s nonpublic information in a quest for an easy profit, and it wound up costing him a lot more in the end,” said Jina Choi, Director of the SEC’s San Francisco Regional Office.
Without admitting or denying the SEC’s findings, Hedayati agreed to pay disgorgement of $43,027.59 plus $1,269.70 in interest and a $43,027.59 penalty for a total of more than $87,000. Hedayati agreed to be suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The SEC’s order permits him to apply for reinstatement after five years.
SEC FOIA OFFICE RECEIVES AWARD FOR EXCEPTIONAL SERVICE
The Securities and Exchange Commission today announced that its Office of Freedom of Information Act (FOIA) Services was recognized by the U.S. Department of Justice for “exceptional service” by FOIA professionals.
The award to a team of 28 professionals recognized their work in handling a growing volume of FOIA requests while reducing the office’s backlog. Between fiscal 2010 and fiscal 2016, FOIA requests to the SEC rose by 38 percent while the number of completed requests in that period increased by 40 percent.
“This award is a well-deserved recognition of the SEC’s FOIA team for their efforts to keep our agency open and accountable to the American people by building one of the best FOIA programs in the Federal Government,” said SEC Acting Chairman Michael Piwowar. “We depend on the trust of the public to serve on their behalf, and it is our responsibility to earn that trust by ensuring the freedom of information.”
Despite being a medium-sized agency, the SEC processes FOIA requests at a level received at much larger federal agencies, averaging nearly 15,000 per year in each of the last four years. In addition to increased volume, the FOIA requests to the agency have become increasingly complex. While many requests previously involved minimal time and effort to process, they now often entail multiple records over a span of years, resulting in hundreds or thousands of pages that require line-by-line reviews.
The Department of Justice award for exceptional service by a FOIA professional or team of FOIA professionals was presented at a ceremony at the Department of Justice to kickoff Sunshine Week, an annual event to highlight the importance of open government.
The SEC’s Office of FOIA Services promotes transparency in government by making SEC records available to the public to the greatest extent possible under the Freedom of Information Act. The office is committed to providing a timely and efficient response to each of the requests for SEC documents and records it receives each year.
SEC: PAYMENTS FOR BULLISH ARTICLES ON STOCKS MUST BE DISCLOSED TO INVESTORS
The Securities and Exchange Commission today announced enforcement actions against 27 individuals and entities behind various alleged stock promotion schemes that left investors with the impression they were reading independent, unbiased analyses on investing websites while writers were being secretly compensated for touting company stocks.
SEC investigations uncovered scenarios in which public companies hired promoters or communications firms to generate publicity for their stocks, and the firms subsequently hired writers to publish articles that did not publicly disclose the payments from the companies. The writers allegedly posted bullish articles about the companies on the internet under the guise of impartiality when in reality they were nothing more than paid advertisements. More than 250 articles specifically included false statements that the writers had not been compensated by the companies they were writing about, the SEC alleges.
“If a company pays someone to publish or publicize articles about its stock, it must be disclosed to the investing public. These companies, promoters, and writers allegedly misled investors by disguising paid promotions as objective and independent analyses,” said Stephanie Avakian, Acting Director of the SEC’s Division of Enforcement.
According to the SEC’s orders as well as a pair of complaints filed in federal district court, deceptive measures were often used to hide the true sources of the articles from investors. For example, one writer wrote under his own name as well as at least nine pseudonyms, including a persona he invented who claimed to be “an analyst and fund manager with almost 20 years of investment experience.” One of the stock promotion firms went so far as to have some writers it hired sign non-disclosure agreements specifically preventing them from disclosing compensation they received.
“Deception takes many forms. Our markets cannot operate fairly when there are deliberate efforts to reach prospective investors with positive articles about a stock while hiding that the companies paid for those articles,” said Melissa Hodgman, Associate Director of the SEC’s Division of Enforcement.
The SEC filed fraud charges against three public companies and seven stock promotion or communications firms as well as two company CEOs, six individuals at the firms, and nine writers. Of those charged, 17 have agreed to settlements that include disgorgement or penalties ranging from approximately $2,200 to nearly $3 million based on frequency and severity of their actions. The SEC’s litigation continues against 10 others.
The SEC also instituted separate charges against another company for its involvement in circulating promotional materials that did not comply with prospectus requirements under the federal securities laws. The company settled the case.
The SEC today released an investor alert warning that articles on an investment research website that appear to be an unbiased source of information or provide commentary on multiple stocks may be part of an undisclosed paid stock promotion. Investors should never make an investment based solely on information published on an investment research website. When making an investment decision, thoroughly research the company using multiple sources.
“Stock promotion schemes may be conducted through investment research websites,” said Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy. “Investors looking for objective investment information should be aware that fraudsters may use these websites to profit at investors’ expense.”
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