SEC CHARGES OWNER AND FIRM WITH MOVING $17 MILLION IN CLIENT MONEY INTO STOCKS WHERE OWNER HAS UNDISCLOSED INTERESTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
06/17/2015 09:35 AM EDT

The Securities and Exchange Commission announced fraud charges against a Massachusetts-based investment advisory firm and its owner for funneling more than $17 million in client assets into four financially troubled Canadian penny stock companies in which the owner has undisclosed business and financial interests.

The SEC alleges that clients at Interinvest Corporation may have lost as much as $12 million of their $17 million investment based on the recent trading history of shares in the penny stock companies, some of which are purportedly in the business of exploring for gold or other minerals.  Interinvest’s owner and president Hans Peter Black has served on the board of directors of these companies, which have collectively paid an entity he controls approximately $1.7 million.  Black’s involvement with these companies and his receipt of payments from them created a conflict of interest that he and Interinvest failed to disclose to their advisory clients.

The alleged violations were first identified in an SEC examination of the firm.  The SEC’s complaint filed late yesterday in federal court in Boston alleges that Interinvest and Black have stonewalled the SEC’s investigation.  The SEC is seeking a court order to freeze Interinvest’s assets and prohibit the firm and Black from continuing to exercise investment authority over client assets under management.  As of April 2015, Interinvest purported to manage almost $95 million.

“Investment advisers have a duty to put their clients’ interests first and fully disclose all conflicts of interest,” said Paul G. Levenson, Director of the SEC’s Boston Regional Office.  “We allege that Interinvest and Black violated that duty by investing client money in companies where he has a stake without fully disclosing that conflict to clients.”

The SEC’s complaint filed alleges that Interinvest and Black violated the antifraud and related provisions of the federal securities laws.  In addition to emergency relief, the SEC’s complaint seeks to permanently enjoin Interinvest and Black from violating the securities laws and require them to repay allegedly ill-gotten gains with interest and penalties.

The SEC’s investigation was conducted by Michael Vito, Peter Moores, John McCann, Chip Harper, and Celia Moore of the Boston office.  The SEC’s examination of Interinvest was conducted by Raymond G. Titus, Paul Prata, Daniel B. Wong, and Melissa Clough of the Boston office.

SEC CHARGES OWNER NY ADVISORY FIRM WITH INSIDER TRADING IN ADVANCE OF MERGERS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today charged the owner of a New York-based advisory firm with insider trading in his own account and client accounts based on non-public information in advance of a merger announcement by pharmaceutical companies.

The SEC alleges that Tibor Klein, who lives on Long Island and is president of Klein Financial Services, learned confidential information about Pfizer Inc.'s planned acquisition of King Pharmaceuticals. He misappropriated the information and traded in advance of the public announcement for illicit profits of more than $300,000 for himself and his clients.

The SEC also charged Klein's close friend Michael Shechtman, a stockbroker living in South Florida who was tipped by Klein and traded on the non-public information for more than $100,000 in illegal profits.

According to the SEC's complaint filed in U.S. District Court for the Southern District of Florida, Klein learned material, non-public information about the impending merger in August 2010 from one of his clients - an attorney who works on matters for King Pharmaceuticals. On August 16 - the first day that the markets opened after he learned the confidential information - Klein began purchasing large amounts of King Pharmaceuticals' stock. Klein had not purchased so many securities of an individual stock for so many clients in such a short time period in 2010 as he did when he made these purchases.

The SEC alleges that Klein then went one step further and tipped his best friend, Shechtman, with the non-public information about King Pharmaceuticals. Klein and Shechtman speak often but rarely more than once a day. But Klein called Shechtman six times on August 16, when Shechtman submitted an application to open an options trading account and handwrote "Please expedite ASAP" at the top of the form. Shechtman had never before traded in options. On August 18, Klein called Shechtman 11 more times as Shechtman purchased 2,500 shares of King Pharmaceuticals stock and 300 call options in his personal account, and 2,400 shares in his wife's Roth IRA account.

According to the SEC's complaint, the public announcement was made on Oct. 12, 2010. King Pharmaceuticals stock subsequently rose 39 percent and trading volume increased by more than 12,000 percent from the previous day. Following the announcement, Klein sold his King Pharmaceuticals stock and generated profits of $328,375.02 for himself and his clients. Shechtman sold his shares and his wife's share in King Pharmaceuticals stock and options for profits of $109,040.53.

The SEC's complaint charges Klein and Shechtman with violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3. The SEC seeks disgorgement of ill-gotten gains, financial penalties, and permanent injunctive relief against Klein and Shechtman to enjoin them from future violations of the federal securities laws.

The SEC's investigation was conducted by Rachel K. Paulose and supervised by Elisha L. Frank in the Miami Regional Office. The SEC's litigation will be led by Robert K. Levenson. The SEC appreciates the assistance of the Financial Industry Regulatory Authority and the Chicago Board Options Exchange.