U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22857 / October 29, 2013
Securities and Exchange Commission v. Joseph M. Mancuso, Civil Action No. 13-CV-2555 (S.D.N.Y) (RJS)
Former Schottenfeld Trader Settles SEC Insider Trading Charges
The Securities and Exchange Commission announced today that on October 21, 2013, The Honorable Richard J. Sullivan of the United States District Court for the Southern District of New York, entered a final judgment against Joseph M. Mancuso in SEC v. Mancuso, 13-CV-2555, an insider trading case the SEC filed on April 17, 2013. The SEC alleged in its complaint that Mancuso, a former proprietary trader at the registered broker-dealer Schottenfeld Group, LLC, used inside information he received from his good friend and colleague Zvi Goffer to trade ahead of five separate corporate acquisition announcements in 2007, resulting in illicit profits of approximately $350,000.
The SEC's complaint alleged that Mancuso used the material, nonpublic information he was tipped by Goffer to trade ahead of the announced acquisitions of Avaya, Inc., 3Com Corp., Axcan Pharma Inc., Hilton Hotels Corp. and Kronos Inc. As alleged in the complaint, certain of the tips originated from Arthur Cutillo and Brien Santarlas, attorneys at the law firm Ropes & Gray. The SEC alleged that Cutillo and Santarlas had access to inside information about potential acquisitions involving their firm's clients, and that Goffer paid them kickbacks in exchange for the information, using their mutual friend Jason Goldfarb as a conduit. The SEC alleged that other tips passed from Goffer to Mancuso came through Gautham Shankar, another former proprietary trader at Schottenfeld. As alleged in the complaint, Shankar was tipped the inside information by Thomas Hardin, a managing director at the hedge fund adviser Lanexa Management. The SEC alleged that Goffer also paid kickbacks in exchange for this information.
To settle the SEC's charges, Mancuso consented to the entry of a final judgment that: (i) permanently enjoins him from violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and (ii) orders disgorgement of $349,489, plus prejudgment interest of $112,171. Those payment obligations will be waived, and no civil penalty will be imposed, in light of Mancuso's financial condition. In addition, Mancuso consented to the entry of an SEC Order, which was issued today, barring him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and barring him from participating in any offering of a penny stock.
The judgment against Mancuso concludes the SEC's investigation in this matter, which resulted in insider trading charges against more than 20 individuals and entities, including all of the individuals named above. In these cases, the SEC obtained judgments totaling more than $16 million in disgorgement and civil penalties, and in related administrative proceedings barred 15 individuals from the securities industry. Many of these individuals also were charged and convicted in parallel criminal actions, including Goffer, who is currently serving a ten-year prison sentence.
The SEC's investigation was led by Brian O. Quinn, Anthony Kelly, and Brian Vann. The SEC thanks the U.S. Attorney's Office for the Southern District of New York, and the Federal Bureau of Investigation, for their assistance in this matter.
For further information see Litigation Releases 21283 and 21284 (Nov. 5, 2009), 21332 (Dec. 10, 2009), 21470 (Mar. 31, 2010), 21587 (July 7, 2010), 21741 (Nov. 15, 2010), 21826 (Jan. 26, 2011), 21999 (June 14, 2011), 22011 (June 21, 2011), 22021 (June 30, 2011), 22051 (July 20, 2011), 22056 (Aug. 2, 2011), 22078 (Aug. 31, 2011), 22135 (Oct. 20, 2011), 22186 (Dec. 9, 2011), 22250 (Feb. 2, 2012), 22297 (Mar. 19, 2012), 22299 (Mar. 20, 2012), 22595 (Jan. 15, 2013) and 22721 (June 11, 2013).