U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20948 / March 12, 2009
SEC v. Brian Travis, et al., Civil Action 09 CV 2288 (PKC) (SDNY)
Securities and Exchange Commission Charges Hedge Fund Employees and Brokers with Bribery Scheme
The Securities and Exchange Commission ("Commission") announced today that it filed a complaint in the United States District Court for the Southern District of New York alleging that two brokers, David Harrison Baker ("Baker") and Daniel Schreiber ("Schreiber"), and the broker-dealer with which Schreiber was associated, Granite Financial Group, LLC ("Granite"), paid bribes to Brian Travis ("Travis") and Nicholas Peter Vulpis, Jr. ("Vulpis"), two employees of a hedge fund investment adviser in exchange for Travis and Vulpis routing hedge fund trades, and the associated commissions, to Baker, Schreiber and Granite.
According to the Complaint, from March 2003 to October 2005, two employees of the investment adviser JLF Asset Management LLC ("JLF"), Travis and Vulpis, solicited and accepted bribes from brokers. The bribes took the form of payments for expensive travel and various personal services. In exchange for those bribes, Travis and Vulpis directed trades to those brokers. Their conduct defrauded JLF's hedge fund clients, whose trades — unbeknownst to the clients — were being steered to brokers for the purpose of enriching the defendants. The brokers offering these bribes included Baker and Schreiber.
The Complaint also alleges that among the benefits Travis and Vulpis extracted from these brokers were international air travel (including for family members), hotel arrangements, the cost of building a special crate to transport Travis' Great Dane, fully-paid vacations, daily car service, computer equipment, and monthly rent payments for a personal residence. Collectively, Travis and Vulpis received at least $312,000 in such personal benefits. Baker, Schreiber, and Granite benefited handsomely from this scheme as well: in exchange for bribes, Travis and Vulpis directed a substantial amount of trades to each of them, which, in turn, meant that each received substantial commissions. Indeed, during the relevant period, Baker, Schreiber and Granite received a total of approximately $10,702,105 in commissions from trades that Travis and Vulpis directed to them.
The Complaint further alleges that Travis and Vulpis concealed their bribery scheme, and the material conflicts of interest it created, from JLF's hedge fund clients. For example, Travis and Vulpis used a "net" commission structure with Baker, Schreiber, Granite and others, to obscure the amount of trades they were directing and commissions they were paying to, among others, Baker, Schreiber, and Granite. As a result, JLF did not disclose to its funds its material conflicts of interest which were the direct result of Travis' and Vulpis' corrupt dealings with the other defendants.
The Commission's complaint charges Travis, Vulpis, Baker, Schreiber and Granite with violations of Section 17(a) of the Securities Act of 1933, 15 U.S.C. §§ 77q(a), Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 77j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5, and with aiding and abetting JLF's violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, 15 U.S.C. §§ 80b-6(1) and 80b-6(2). The Commission's complaint seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties.