Kenneth J. Guido (KG3470)
Attorneys for Plaintiff Securities and Exchange Commission
UNITED STATES DISTRICT COURT
Securities and Exchange Commission,
MOISES SABA MASRI and ALBERT MEYER SUTTON
04 Civ ____ (___)
Plaintiff Securities and Exchange Commission (the "SEC") alleges that:
1. This action involves a fraudulent scheme to manipulate the closing price of T.V. Azteca, S.A. de C.V. American Depository Receipts ("TZA") on August 20, 1999 by Moises Saba Masri ("Saba") and Albert Meyer Sutton ("Sutton"), a broker at Middlegate Securities Limited ("Middlegate") who handled various accounts through which Saba traded. The scheme was effected so that Saba, trading through a Middlegate account held in the name of an Irish corporation owned and controlled by his family, Tentafin Limited, would avoid the assignment of Tentafin's pre-existing TZA short put option position, which was expiring that day, at a cost of approximately $4.3 million. Saba and Sutton's successful manipulative scheme allowed Saba to avoid economic losses.
2. By engaging in such conduct, the defendants violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
3. The SEC seeks to permanently enjoin the defendants from engaging in the wrongful conduct in this Complaint. The SEC also seeks disgorgement by Saba of any ill-gotten gains and payment of prejudgment interest thereon, and payment of civil money penalties by both defendants pursuant to Exchange Act Section 21(d)(3) [15 U.S.C. § 78u(d)(3)].
4. The SEC brings this action pursuant to Exchange Act Section 21(d) [15 U.S.C. § 78u(d)].
5. This Court has jurisdiction over this action pursuant to Exchange Act Sections 21(e) and 27 [15 U.S.C. §§ 77u(e) and 78aa].
6. Defendants, directly and indirectly, singly and in concert, have made use of the means and instrumentalities of interstate commerce, or of the mails, or of the facilities of a national securities exchange in connection with the transactions, acts, practices, and courses of business alleged in this Complaint.
7. Moises Saba, age 40, is a Mexican national and resides near Mexico City. He is a former Executive President of T.V. Azteca, a Mexican corporation. During the relevant time period, Saba was also the secretary and a director of Tentafin. Saba conducted all the trades in Tentafin's brokerage account at Middlegate.
8. Albert Meyer Sutton, age 39, is the Executive Vice President and founding principal of Middlegate, a broker dealer registered with the Commission and located in New York City. At all relevant times, Sutton was the registered representative handling all of Saba's Middlegate brokerage accounts, including the Tentafin account. Sutton specializes in servicing high net-worth clients. Throughout the relevant period, Saba was one of Sutton's biggest clients and, as a result, the two generally had frequent contact throughout each trading day.
9. Tentafin Limited was a foreign corporation domiciled in Ireland. All of Tentafin's securities trading at issue here occurred through its Middlegate brokerage account, which Saba established and controlled. Tentafin was dissolved in 2001.
10. During the relevant time period, Saba controlled Tentafin and was one of its two officers and directors.
11. Saba established Tentafin's brokerage account at Middlegate and was the only individual that traded in the account during the relevant period.
12. At all relevant times, TZA was listed and traded on the New York Stock Exchange.
13. In February, March, and May of 1999, Saba, through his Tentafin account at Middlegate, sold TZA put options with strike prices of $5 and $7.50 ("August 5 TZA put options" and "August 7.50 TZA put options"). Specifically, Saba sold 8,600 August 5 TZA put options and 8,150 August 7.50 TZA put options. These put options, if exercised by the option holders on or before the date of their expiration, August 20, 1999, contractually obligated Saba to purchase TZA at $5 and $7.50 per share, respectively. Saba received premiums of $785,125 and $1.05 million, respectively, for a total of $1.84 million that was credited to Tentafin's brokerage account. Prior to August 20, 1999, Saba's total August 7.50 TZA put options was reduced to 4,979.
14. Following Saba's sale of TZA put options, the price of TZA fluctuated at approximately $7 per share and eventually declined.
15. On August 20, 1999, the price of TZA opened at $5 per share and fluctuated between $4.9375 and $5.1875 throughout the day. At this point, it would have been reasonable for Saba to conclude that his remaining 4,979 August 7.50 TZA put options would be exercised against him, causing a $3.7 million liability and a substantial loss on that position. With ten minutes remaining before the market closed at 4:00 p.m. on August 20, 1999, TZA's price hovered at $5, with the bid (i.e., the highest offer to buy a security to a prospective seller) at $4.938 and the ask (i.e., the lowest offer to sell a security to a prospective buyer) at $5.0625. The price of the last executed purchase of shares prior to the market close determines whether an outstanding option position will be "in the money." Thus, if the price at the close of trading was below $5 per share, and the option holders subsequently exercised their August 5 TZA put options, Saba would then have been required to purchase $4.3 million of TZA, in addition to the $3.7 million of TZA resulting from the assignment of the August 7.50 TZA put options.
16. This potential exposure on TZA was particularly significant given the cash shortfall in Saba's Tentafin account as of August 20, 1999. First, Tentafin's cash account had been at varying levels of deficit since August 17, and the deficit was $660,000 on August 20. Second, because of Saba's previous recent purchases on margin, Tentafin's account already required an infusion of approximately $4 million in cash to satisfy margin requirements. Finally, Saba could reasonably expect approximately $40 million in options to be assigned against him-not counting the August 5 TZA put options-and approximately $30 million in options to be assigned on his behalf on August 20, 1999, resulting in a further $10 million drain on Saba's resources.
17. With approximately ten minutes remaining before the close of trading on August 20, 1999, Saba called Sutton and instructed him to purchase TZA in Tentafin's brokerage account. Sutton partially filled in an order ticket reflecting that Saba had placed a market order for 100,000 TZA. A market order calls for the immediate execution of the trade at the prevailing bid or ask. Contrary to what was indicated on the order ticket, however, Sutton actually entered five separate purchase orders, four of which were "marketable" limit orders that called for immediate execution. A limit order calls for the purchase or sale to be executed at a minimum or maximum price set by the trader. A "marketable" limit order to purchase securities calls for immediate execution because the limit price is set above or at ask. Each of Sutton's orders were set and timed to cause TZA's bid to rise and stay above $5, thereby ensuring that TZA's price would close above $5.
18. In all, Sutton's five orders resulted in the purchase of 200,000 TZA on behalf of Saba and Tentafin. Saba's purchases in Tentafin's brokerage account comprised approximately 94% of all TZA buy-side activity during the last hour of trading on August 20, 1999 and 75% of all TZA buy-side activity for the day. Moreover, Saba's 200,000 TZA purchase during the last ten minutes of trading that day exceeded typical volume in TZA for an entire day by 50,000 shares.
19. At 3:51 p.m. on August 20, 1999, with the bid at $4.938, Sutton placed the first limit order to purchase 50,000 TZA with a limit price of $5.0625. Because the limit price was "marketable," Sutton's trade was immediately executed. At this point, however, Sutton's trade did not affect the bid.
20. At 3:54 p.m., Sutton placed a market order to purchase an additional 50,000 TZA. After Sutton's second trade was executed, the bid rose to $5.125.
21. Three minutes later, at 3:57 p.m., Sutton placed his third order, a "marketable" limit order to purchase 25,000 TZA with a limit price of $5.1875. After Sutton's third order was executed, the bid stabilized above $5, at $5.0625.
22. Also at 3:57 p.m., after Sutton's trade on behalf of Saba and Tentafin, another unaffiliated trader sold 3,000 TZA, causing the bid to fall back below $5, to $4.938. Immediately following this purchase by an unaffiliated trader, with about a minute left before the market closed, Sutton placed two successive "marketable" limit orders to buy 20,000 TZA at $5.125 and 55,000 TZA at $5.375. The execution of these trades caused the bid to ultimately rise to $5.125. Sutton's limit order to purchase 55,000 TZA was executed at $5.1875 right before the market closed, ensuring that TZA's price closed above $5.
23. As a result of Sutton's efforts, Saba's losses from the August 7.50 TZA put options were offset by the non-exercised August 5 TZA put options. By causing TZA's price to close above $5, Sutton ensured that the August 5 TZA put options would expire worthless in the hands of their holders and, as a result, Saba would not have to divert an additional $4.3 million towards the purchase of 860,000 TZA at $5. This was of particular interest to Saba, who started the day with limited buying power in his Tentafin account. By the end of the day, all of Saba's options positions that were assigned caused a liability of $30.25 million. In fact, by the settlement date of Saba's options, August 25, 2003, Saba transferred $27 million into Tentafin's account.
24. Saba, while seeking to buy no more than 200,000 TZA, avoided losses resulting from the cost he would have incurred in covering his August 5 TZA put options on August 20, 1999.
25. The SEC realleges and incorporates by reference the allegations contained in Paragraphs 1 through 24 above.
26. Saba and Sutton, directly or indirectly, singly or in concert, by use of the means and instrumentalities of interstate commerce and by use of the mails, or a facility of a national securities exchange, knowingly or recklessly, in connection with the purchase or sale of TZA: (1) employed devices, schemes and artifices to defraud, (2) made untrue statements of material fact and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, and (3) engaged in acts, practices and courses of business which operated as a fraud and deceit upon purchasers and other persons.
27. By engaging in the foregoing conduct, Saba and Sutton committed securities fraud in violation of Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. Unless enjoined, it is likely that each defendant will continue to engage in the transactions, acts, practices, and courses of business alleged herein, and in transactions, acts, practices, and courses of business of a similar type and object.
WHEREFORE, Plaintiff respectfully requests that this Court enter a Final Judgment that:
28. Permanently enjoins Saba and Sutton from violating Exchange Act Section 10(b) [15 U.S.C. §§ 78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5];
29. Orders Saba to disgorge any ill-gotten gains realized from the conduct alleged herein and to pay prejudgment interest thereon;
30. Orders Saba and Sutton to pay civil money penalties pursuant to Exchange Act Section 21(d)(3) [15 U.S.C. § 78u(d)(3)]; and
31. Grants such other relief as the Court may deem just and equitable.
Date: February 24, 2004
Kenneth J. Guido (KG3470)
Jason P. Lee (JL0210)
Paul R. Berger
Nina B. Finston (NF6112)
Attorneys for Plaintiff Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0911
(202) 942-7933 (Guido)
(202) 942-9581 (Guido facsimile)
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