02/24/2011 1 COMPLAINT against Defendants Todd M Ficeto, Todd M Ficeto(as custodian for his minor children, Relief Defendant), Colin Heatherington, Florian Homm, Hunter Advisors, LLC, Hunter World Markets, Inc. Case assigned to Judge George H. King for all further proceedings. Discovery referred to Magistrate Judge Ralph Zarefsky.(Filing fee $ 350: NO FEE REQUIRED.), filed by Plaintiff Securites and Exchange Commission.(et) (ds). (Entered: 02/24/2011)
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SUMMARY
3. From at least September 2005 through September 2007 (the “relevant period”), Todd M. Ficeto (“Ficeto”), Florian Homm (“Homm”), Colin Heatherington (“Heatherington”), Hunter World Markets, Inc. (“HWM”) and Hunter Advisors, LLC (“Hunter Advisors”) (collectively, “the Defendants”) engaged in a fraudulent scheme to manipulate the markets of various thinly-traded U.S. microcap stocks in connection with an ancillary scheme to defraud investors in several now defunct hedge funds managed by Absolute Capital Management Holdings Limited (“ACMH”).
4. During the relevant period, HWM was a registered broker-dealer located in Beverly Hills, California, and co-owned by Ficeto and Homm. Homm was also the co-founder and the chief or co-chief investment adviser for ACMH, a London-based hedge fund management company and SEC-registered investment adviser that managed eight equity hedge funds (the “Absolute funds”) and purportedly had $2.1 billion in assets under management as of August 31, 2007. Using his position as the principal investment adviser of the Absolute funds, and as a co-owner of HWM, Homm misused the assets of the Absolute funds to allow him, Ficeto, Heatherington and HWM to manipulate upward the prices of a number of domestic microcap issuers whose stock was publicly traded in the United States. Homm, Ficeto, and their mutual friend and ACMH employee, Heatherington, made tens of millions of dollars as a result of that manipulative trading activity. When Homm abruptly resigned on September 18, 2007, the same day that ACMH’s new chief executive officer was to meet with Homm to discuss increased oversight of Homm’s investment decisions and bonus payments, the Absolute funds and their investors were left holding between $440 and $530 million in “illiquid positions.” Most of those “illiquid positions” were, in fact, U.S. microcap stocks purchased and traded by the Absolute funds through HWM.
5. The U.S. microcap issuers (collectively the “Issuers”) that were the subject of the Defendants’ manipulative activities consisted of at least six U.S.- domiciled microcap companies quoted and traded in the United States on the Over-the Counter Bulletin Board (“OTCBB”) and/or the Pink Sheets operated by OTC Markets Group Inc. (“Pink Sheets”).
6. Rather than allow the markets to set the price of the Issuers’ securities through the natural interplay of supply and demand, the Defendants knowingly or recklessly rigged the market by participating in and furthering a market manipulation scheme to drive upward the prices of these thinly-traded microcap stocks. In conducting their market manipulation scheme, the Defendants used a number of classic manipulative techniques, including: placing matched orders; placing orders that marked the close or otherwise set the closing price for the day; and conducting wash sales, all of which were done for the principal purpose and effect of artificially affecting the Issuers’ stock prices.
7. Matched orders are orders for the purchase or sale of a security that are entered with the knowledge that orders of substantially the same size, at substantially the same time and price, have been or will be entered by the same or different persons for the sale or purchase of such security. As detailed within, Defendants executed hundreds of such orders in the Issuers’ securities through HWM, either by trading between and among the brokerage accounts maintained by the Absolute funds at HWM, or between the brokerage accounts maintained by the Absolute funds at HWM and the Defendants’ individual brokerage accounts at HWM, all for the principal purpose and effect of raising or stabilizing the prices of the Issuers’ securities.
8. Marking the close or last-trade-of-the day transactions, or other transactions conducted for the purpose of setting the day’s closing price for a stock, involve the practice of repeatedly executing the last transaction of the day in a security in order to affect its closing price. Defendants’ conduct included making extensive and successive purchases in an attempt to move the price of a stock and to lock in the higher price at the close of the market. As detailed within, Defendants executed and caused to be executed scores of end-of-day transactions for the purpose and effect of marking the close and to thereby artificially set the closing price of the Issuers’ stock for the day.
9. Wash trades involve the sale of securities made at about the same time as a purchase of the same securities resulting in no change of beneficial ownership of the stock. As detailed within, Defendants conducted at least eight wash sales that had no legitimate economic purpose and were conducted for the purpose of manipulating the prices of the Issuers’ stock and/or to generate massive sale credits (i.e., the amount added to the sale or purchase price of a security for compensation to the dealer) and commissions to HWM.
10. The Defendants’ intent to manipulate the markets in the Issuers’ securities is demonstrated not only through their multi-year manipulative trading activity, but also through hundreds of instant messages (“IMs”) between ACMH’s and HWM’s principal traders which were recorded on a secret, alternate messaging system that allowed ACMH’s and HWM’s traders to freely talk without fear that their scheme would be discovered by the Commission or the Financial Industry Regulatory Authority (“FINRA”). As reflected in those secret IMs, ACMH’s trader, typically Heatherington, acting at the direction and with the knowledge and consent of Homm, instructed HWM’s trader, Tony Ahn, acting under the direction and with the knowledge and consent of Ficeto -- or Ficeto himself -- to place matched orders, transactions that marked the close, and wash sales in the Issuers’ stock, for the purpose of artificially raising or stabilizing the Issuers’ stock prices.
11. The Defendants’ manipulation of the Issuers’ stock prices allowed Ficeto, Homm and Heatherington to generate enormous profits through Ficeto’s and Homm’s co-ownership of HWM, and through their sale of the Issuers’ shares to the Absolute funds at inflated prices. The Defendants’ manipulation of the Issuers’ stock prices also allowed Homm and ACMH to materially overstate the Absolute funds’ performance and net asset values (“NAVs”) in a fraudulent practice known as “portfolio pumping.” As a result of their fraudulent conduct, Ficeto, Homm, and Heatherington collectively made at least $63.7 million in illicit proceeds. |
