U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21250 / October 15, 2009
Securities and Exchange Commission v. Ethan Kass, United States District Court for the Southern District of New York, Civil Action No. 09 CV 8764 (WHP) (S.D.N.Y. October 15, 2009)
SEC Charges a Former Order Processing Clerk at a New York-Based Investment Adviser with Unauthorized Trading
The Securities and Exchange Commission charged Ethan Kass (Kass) with executing and concealing at least 24 unauthorized trades between February and May 2005 resulting in at least $8,474,325 in losses to investors in five hedge funds managed by Tobias Bros. Inc. (Tobias), a New York-based registered investment adviser. Tobias also was a registered broker-dealer from 1998 until February 2, 2008.
According to the SEC’s complaint, filed in U.S. District Court for the Southern District of New York, Kass, 28, who resides in New York, New York, did not have any authority or discretion to independently make any trades on behalf of Tobias or any funds or accounts it managed. Rather, Kass was responsible for providing back office support, including order entry, internal and external trade reporting, and trade reconciliation, under the general supervision of portfolio managers who were associated with Tobias. On at least 24 occasions, Kass traded without any authorization or direction from his supervisors. Kass routinely concealed his unauthorized trading from his supervisors by intentionally omitting such trades from Tobias’s internal records, including its handwritten trade blotter, and by deleting, altering or manipulating information in Tobias’s internal portfolio management system so that his unauthorized trades would not appear on that system’s daily real-time profit and loss statements.
The SEC’s complaint charges Kass with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and aiding and abetting Tobias’s violations of Sections 206(2) and 204 of the Investment Advisers Act of 1940 and Rule 204-2 thereunder. The complaint seeks a permanent injunction and civil monetary penalties.
Kass agreed to settle the SEC’s claims and, without admitting or denying the allegations, consented to the entry of a judgment that will grant the SEC the full relief that it seeks, including a civil penalty of $50,000 to be paid within 360 days together with post-judgment interest in accordance with a payment plan. The agreement to resolve the SEC’s action is subject to approval by the court.