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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 22464 / August 31, 2012

Securities and Exchange Commission v. Clay Capital Management, LLC, et al., Civil Action No. 2:11-cv-05020-DMC-JAD, United States District Court, District of New Jersey

HEDGE FUND MANAGER AND HIS FIRM ORDERED TO DISGORGE MORE THAN $2 MILLION OF ILLICIT PROFITS FROM INSIDER TRADING SCHEME

The Securities and Exchange Commission announced that on August 29, 2012, the U. S. District Court for the District of New Jersey entered final judgments against New Jersey hedge fund firm Clay Capital Management, LLC and its former Chief Investment Officer, James F. Turner II, for their roles in an insider trading scheme involving the securities of three companies – Moldflow Corporation, Autodesk, Inc. and Salesforce.com, Inc. The Court ordered Clay Capital and Turner to pay $2.1 million in illicit gains and permanently enjoined them from future violations of the antifraud provisions of the federal securities laws.

The Commission’s August 31, 2011 complaint alleged that Turner’s brother-in-law, a director at Autodesk, tipped Turner with inside information about Autodesk’s planned acquisition of Moldflow in advance of Autodesk’s public merger announcement on May 1, 2008 and about Autodesk’s fourth quarter 2008 earnings in advance of Autodesk’s public earnings announcement in February 2008. The complaint further alleged that Turner’s close friend, a manager at Salesforce, tipped Turner with confidential information about Salesforce’s performance in advance of Salesforce’s public earnings announcement in February 2008. Turner traded on the inside information in Clay Capital’s hedge fund’s account, his personal accounts and several family member’s accounts. Turner also recommended that several other friends and family members trade in the three companies’ securities. In total, the traders made illicit gains of nearly $3.9 million.

In December 2011, Turner pled guilty to securities fraud in a related criminal action brought by the U. S. Attorney’s Office for the District of New Jersey and was sentenced in April 2012 to a prison term of twelve months followed by three years of supervised release and ordered to pay a fine in the amount of $25,000. U. S. v. James Turner, Case No. 2:11-cr-00868 (D.N.J.).

The final judgments, entered pursuant to Clay Capital’s and Turner’s consents, permanently enjoined them from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. Without admitting or denying the Commission’s allegations, Clay Capital consented to an order for disgorgement of $1,062,822.36 plus prejudgment interest of $182,444.73, provided that all but $850,000 is waived based on its financial condition. Turner consented to an order for disgorgement of $2,585,241.94 plus prejudgment interest of $430,047.42, provided that all but $1,250,000 is waived based on his financial condition. Turner also has agreed to settle an administrative proceeding, to be instituted based on his criminal conviction and the entry of the permanent injunction, in which the Commission would bar him from associating with any broker, dealer, investment adviser, municipal securities dealer or transfer agent.

For further information, see Litigation Release No. 22080 (August 31, 2011).

 

http://www.sec.gov/litigation/litreleases/2012/lr22464.htm


Modified: 08/31/2012