Friday, February 17, 2012

Organized Criminal Enterprise? RICO Act Applies?

The United States Securities and Exchange Commission (SEC) successfully brought a case against a hedge fund and its Chief Executive Officer. The hedge fund utilized a late-trading scheme to profit off mutual funds that invested in international assets.  For more on this case and the civil fines ordered follow me across the jump.

Per SEC Litigation Release No. 22262/17 February 2012, U.S. District Judge Robert W. Sweet (Southern District of New York)  --  in the civil case SEC v. Pentagon Capital Management PLC et al., 08 Civ. 3324 (RWS) (S.D.N.Y.)
  --  issued an opinion in favor of the SEC.  

Judge Sweet found Pentagon Capital Management, et al. “intentionally, and egregiously violated the federal securities laws through a scheme of late trading.” Judge Sweet further found the scheme to be “broad ranging over the course of several years and in no sense isolated.”

Judge Sweet, as a result of the court's findings, ordered a disgorgement of over $38.4 million of ill-gotten gains and imposed a civil penalty of over $38.4 million.

You can read about the SEC Litigation Release here.

To fully understand the motivation for Judge Sweet's comments (quoted above) and why this scheme seems to be an organized criminal enterprise that should be criminally prosecuted under the RICO Act, please read Judge Sweet's opinion here (PDF).

"Court Finds Pentagon Capital Management PLC And Lewis Chester Liable for  Securities Fraud." SEC v. Pentagon Capital Management PLC et al., 08 Civ. 3324 (RWS) (S.D.N.Y.). SEC Litigation Release No. 22262/17 February, 2012. 

Related information:

Racketeer Influenced and Corrupt Organizations Act (RICO).

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