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U.S. Securities and Exchange Commission

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA


SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549-0708,

Plaintiff,

v.

EDWARD F. GOBORA
2021 Beacon Hill Drive
Newtown, Pennsylvania 18940,

Defendant.


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Case No. 1:02CV01136 (RJL)

COMPLAINT

Plaintiff Securities and Exchange Commission ("Commission") alleges as follows against the above-named defendant:

SUMMARY

1. This case involves a former portfolio and currency manager and foreign exchange trader at Merrill Lynch Investment Managers, LP ("Merrill Lynch") who defrauded several Merrill Lynch clients by engaging in two fraudulent foreign exchange trading schemes. The first scheme involved delaying the execution of foreign exchange trades on behalf of registered investment companies, and then allocating some of the trades to certain favored clients if they became profitable. The second scheme involved the misallocation of tactical foreign exchange trades and hedging transactions, with profitable trades allocated to certain clients and losing trades allocated to certain other clients. Gobora engaged in these schemes at certain times from mid-1997 through April 2001, when he was terminated by Merrill Lynch.

JURISDICTION

2. The Court has jurisdiction of this action pursuant to Sections 21(d), 21(e) and 27 of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78u(d) & (e) and 78aa], Sections 209(d) and 214 of the Investment Advisers Act of 1940 ("Advisers Act") [15 U.S.C. §§ 80b-9 and 80b-14] and Section 42(d) of the Investment Company Act of 1940 ("Investment Company Act") [15 U.S.C. § 80a-41(d)].

3. The defendant made use of the means and instrumentalities of interstate commerce or of the mails in connection with the acts, practices, and courses of business alleged herein.

THE PARTIES

4. The plaintiff is the Securities and Exchange Commission, which brings this case pursuant to authority conferred on it by Section 21(d) and (e) of the Exchange Act [15 U.S.C. §§ 78u(d) and (e)], Section 209(d) of the Advisers Act [15 U.S.C. § 80b-9(d)] and Section 42(d) of the Investment Company Act [15 U.S.C. § 80a-41(d)].

5. Defendant Edward F. Gobora ("Gobora" or "defendant"), age 35, is a resident of Newtown, Pennsylvania, and was associated with Merrill Lynch as a Director and Managing Director until April 30, 2001. Merrill Lynch is an investment adviser registered with the Commission under Section 203(c) of the Advisers Act [15 U.S.C. § 80b-3(c)].

FACTS

6. From 1995 through 2001, Merrill Lynch operated a foreign exchange trading desk, with offices in London and Princeton, New Jersey, to execute foreign exchange trades for clients, including investment companies registered with the Commission under the Investment Company Act (hereinafter referred to as "investment companies"). The foreign exchange desk executed currency trades for clients that needed foreign currency in order to buy foreign securities, to convert the proceeds from selling foreign securities into dollars or other currencies, or for purchases and redemptions by fund investors. The foreign exchange desk also served clients seeking to hedge and trade in foreign exchange.

7. Gobora was the global head of the foreign exchange desk from the inception of the foreign exchange desk in 1995 through March 1999 and again from January 2001 through April 2001.

8. During the period March 1999 through October 2000, Gobora was the porfolio manager for a domestic investment company and an off-shore fund. During the period October 2000 through December 2000, Gobora was the portfolio manager for several domestic investment companies and off-shore funds. From January 2001 through April 2001, Gobora was the portfolio manager for several off-shore funds.

9. Gobora defrauded several Merrill Lynch clients by engaging in two improper foreign exchange trading schemes.

10. In the first scheme, the foreign exchange desk received orders to buy or sell foreign currencies for investment companies managed by Merrill Lynch and other clients. Upon receiving such an order, Gobora sometimes delayed execution until after the London market closed, and then he directed Merrill Lynch's Princeton office to execute the currency trade on behalf of a generically named client such as a "London fund." Usually on the next trading day, Gobora checked the London foreign exchange prices and, if the market had moved negatively, Gobora sometimes allocated the trade to the client for whom he had received the original foreign currency order the previous day. However, if the market had moved positively overnight, Gobora sometimes allocated the original position to one or more favored clients. Gobora then executed the original trade for the investment company or other client, on a future date at a different price, thus at times causing the investment company or other client to pay more in U.S. dollars or other currencies for the currency needed for settlement.

11. In the second scheme, Gobora engaged in tactical foreign exchange trading and hedging transactions, and selectively allocated winning trades to certain accounts, including certain investment companies and losing trades to certain other accounts (depending on the account's performance at the time), including investment companies. Such trading was not within the disclosed investment parameters of the investment companies.

FIRST CLAIM

Gobora Violated Section 10(b) of the
Exchange Act and Rule 10b-5 Thereunder

12. The Commission realleges and reincorporates herein paragraphs 1 through 11 above.

13. Gobora, directly and indirectly, by use of the means or instrumentalities of interstate commerce or of the mails, in connection with the purchase or sale of securities: (a) employed devices, schemes, or artifices to defraud; (b) made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and/or (c) engaged in acts, practices or courses of business which operated or would operate as a fraud or deceit upon purchasers or sellers securities.

14. Gobora's delay in execution of foreign exchange trades caused investment companies and other clients to pay more in U.S. dollars for securities purchased or receive fewer U.S. dollars for securities sold.

15. Gobora knowingly or recklessly engaged in the schemes described in paragraphs 1 through 14 above.

16. Based on the foregoing, Gobora violated Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].

SECOND CLAIM

Gobora Aided and Abetted Violations
Sections 206(1) and 206(2) of the Advisers Act

17. The Commission realleges and reincorporates herein paragraphs 1 through 16 above.

18. As a result of Gobora's conduct, Merrill Lynch gave preferential allocation of tactical foreign exchange trades and hedging transactions, with profitable trades allocated to certain investment companies and clients and losing trades allocated to certain other clients.

19. As a result of Gobora's conduct, Merrill Lynch, directly and indirectly, by use of the means or instrumentalities of interstate commerce or of the mails, and while engaged in the business of advising others for compensation as to the advisability of investing in, purchasing or selling securities: (a) employed devices, schemes, or artifices to defraud; and (b) engaged in acts, practices or courses of business which operated or would operate as a fraud or deceit upon clients or prospective clients.

20. Gobora knowingly provided substantial assistance to Merrill Lynch in connection with its violations of Sections 206(1) and 206(2) of the Advisers Act [15 U.S.C. §§ 80b-6(1) and 80b-6(2)].

21. Based on the foregoing, Gobora aided and abetted Merrill Lynch's violations of Sections 206(1) and 206(2) of the Advisers Act [15 U.S.C. §§ 80b-6(1) and 80b-6(2)].

THIRD CLAIM

Gobora Aided and Abetted Violations of Section
204 of the Advisers Act and Rule 204-2 Thereunder

22. The Commission realleges and reincorporates herein paragraphs 1 through 21 above.

23. As a result of Gobora's conduct, certain records of Merrill Lynch, including documents referred to as "order sheets" sometimes identified the wrong client in connection with foreign exchange trades.

24. As a result of Gobora's conduct, Merrill Lynch violated Section 204 of the Advisers Act [15 U.S.C. § 80b-4] and Rule 204-2 thereunder [17 C.F.R. § 275.204-2] by failing to make and keep true, accurate and current certain books and records relating to Merrill Lynch's investment advisory business.

25. Gobora knowingly provided substantial assistance to Merrill Lynch in connection with its violations of Section 204 of the Advisers Act [15 U.S.C. § 80b-4] and Rule 204-2 thereunder [17 C.F.R. § 275.204-2].

26. Based on the foregoing, Gobora aided and abetted Merrill Lynch's violations of Section 204 of the Advisers Act [15 U.S.C. § 80b-4] and Rule 204-2 thereunder [17 C.F.R. § 275.204-2].

FOURTH CLAIM

Gobora Aided and Abetted
Violations of Section 207 of the Advisers Act

27. The Commission realleges and reincorporates herein paragraphs 1 through 26 above.

28. As a result of Gobora's conduct, Merrill Lynch failed to disclose that Gobora was delaying execution of certain foreign exchange trades to the detriment of certain investment companies and clients and that Gobora was providing preferential allocation of speculative foreign exchange trades.

29. As a result of Gobora's conduct, Merrill Lynch failed to disclose Gobora's conduct as described herein in certain of its applications and reports.

30. As a result of Gobora's conduct, Merrill Lynch violated Section 207 of the Advisers Act [15 U.S.C. § 80b-7] by willfully making untrue statements of material facts in registration applications and reports filed with the Commission under Section 203 and 204 of the Advisers Act [15 U.S.C. §§ 80b-3 and 80b-4], and by willfully omitting to state in such applications and reports material facts which were required to be stated therein.

31. Gobora knowingly provided substantial assistance to Merrill Lynch in connection with its violation of Section 207 of the Advisers Act [15 U.S.C. § 80b-7].

32. Based on the foregoing, Gobora aided and abetted Merrill Lynch's violation of Section 207 of the Advisers Act [15 U.S.C. § 80b-7].

FIFTH CLAIM

Gobora Aided and Abetted Violations of Section 31(a)
of the Investment Company Act and Rule 31a-1 Thereunder

33. The Commission realleges and reincorporates herein paragraphs 1 through 32 above.

34. As a result of Gobora's conduct, the records of certain investment companies managed by Merrill Lynch contained inaccurate information concerning the terms of foreign exchange trades.

35. As a result of Gobora's conduct, certain investment companies managed by Merrill Lynch violated Section 31(a) of the Investment Company Act [15 U.S.C. 80a-30(a)] and Rule 31a-1 thereunder [17 C.F.R. § 270.31a-1] by failing to maintain and keep current the accounts, books, and other documents relating to its investment company business.

36. Gobora knowingly provided substantial assistance to certain investment companies managed by Merrill Lynch in connection with their violations of Section 31(a) of the Investment Company Act [15 U.S.C. § 80a-30(a)] and Rule 31a-1 thereunder [17 C.F.R. § 270.31a-1].

37. Based on the foregoing, Gobora aided and abetted the violations of Section 31(a) of the Investment Company Act [15 U.S.C. § 80a-30(a)] and Rule 31a-1 thereunder [17 C.F.R. § 270.31a-1] by certain investment companies managed by Merrill Lynch.

SIXTH CLAIM

Gobora Aided and Abetted Violations of
Section 34(b) of the Investment Company Act

38. The Commission realleges and reincorporates herein paragraphs 1 through 37 above.

39. As a result of Gobora's conduct, certain investment companies managed by Merrill Lynch failed to disclose Gobora's conduct as described herein in their registration statements, applications, reports, accounts, records, and other documents filed or transmitted pursuant to the Investment Company Act or the keeping of which is required pursuant to Section 31(a) of the Investment Company Act [15 U.S.C. § 80a-30(a)].

40. As a result of Gobora's conduct, certain investment companies managed by Merrill Lynch violated Section 34(b) of the Investment Company Act [15 U.S.C. § 80a-33(b)] by making untrue statements of material facts in registration statements, applications, reports, accounts, records, and other documents filed or transmitted pursuant to the Investment Company Act or the keeping of which is required pursuant to Section 31(a) of the Investment Company Act [15 U.S.C. § 80a-30(a)], or omissions of facts necessary in order to prevent the statements made therein, in the light of the circumstances under which they were made, from being materially misleading.

41. Gobora knowingly provided substantial assistance to certain investment companies managed by Merrill Lynch in connection with their violations of Section 34(b) of the Investment Company Act [15 U.S.C. § 80a-33(b)].

42. Based on the foregoing, Gobora aided and abetted violations of Section 34(b) of the Investment Company Act [15 U.S.C. § 80a-33(b)] by certain investment companies managed by Merrill Lynch.

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that the Court:

I.

Enter judgment in favor of the Commission finding that Gobora violated Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5], and aided and abetted violations of Sections 204, 206(1), 206(2) and 207 of the Advisers Act [15 U.S.C. §§ 80b-4, 80b-6(1), 80b-6(2), and 80b-7] and Rule 204-2 thereunder [17 C.F.R. § 275.204-2] and Sections 31(a) and 34(b) of the Investment Company Act [15 U.S.C. §§ 80a-30(a) and 80a-33(b)] and Rule 31a-1 thereunder [17 C.F.R. § 270.31a-1].

II.

Permanently enjoin Gobora from violating Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5], and further enjoin him from aiding and abetting violations of Sections 204, 206(1), 206(2), and 207 of the Advisers Act [15 U.S.C. §§ 80b-4, 80b-6(1), 80b-6(2), and 80b-7] and Rule 204-2 thereunder [17 C.F.R. § 275.204-2] and Sections 31(a) and 34(b) of the Investment Company Act [15 U.S.C. §§ 80a-30(a) and 80a-33(b)] and Rule 31a-1 thereunder [17 C.F.R. § 270.31a-1].

III.

Order Gobora to pay a civil money penalty pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)] and Section 209 of the Advisers Act [15 U.S.C. § 80b-9].

IV.

Grant such other relief as this Court may deem just and proper.

Dated: June 11, 2002

Respectfully submitted,

________________________
Linda Chatman Thomsen
(D.C. Bar No. 334219)
Scott W. Friestad
Robert G. Wilson
Ansu N. Banerjee
(D.C. Bar No. 440660)
Attorneys for Plaintiff
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0708
(202) 942-4726 (Banerjee)
(202) 428-6222 (Facsimile)


http://www.sec.gov/litigation/complaints/comp17555.htm

Modified: 08/13/2002