U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19474 / November 29, 2005
Securities and Exchange Commission v. Berton M. Hochfeld and Hochfeld Capital Management, LLC, Case No. 05-CIV.-9921 (S.D.N.Y., filed November 23, 2005).
SEC CHARGES ANALYST WITH FRAUD
The United States Securities and Exchange Commission ("Commission") announced the filing on November 23, 2005, of a complaint in the United States District Court for the Southern District of New York against Berton M. Hochfeld and his wholly-owned management company, Hochfeld Capital Management, LLC ("HCM"). The complaint alleges that Hochfeld committed violations of the antifraud provisions of the federal securities laws. Hochfeld's misconduct occurred while he was a research analyst at First Montauk Securities Corp. ("First Montauk"), a registered broker-dealer. In his capacity as a research analyst, Hochfeld followed companies in the enterprise software sector and regularly authored research reports which were distributed to First Montauk's institutional customers.
The complaint alleges that Hochfeld's violations resulted from his directed trading of securities in contradiction to advice he gave in his research reports, a fraudulent conduct that is commonly referred to as "scalping." According to the complaint, at the same time he was an analyst for First Montauk, Hochfeld also managed and directed trading for a private hedge fund called Hepplewhite Fund L.P. ("Hepplewhite") through HCM. The complaint alleges that between March 27, 2003 and December 15, 2003, Hochfeld's research reports failed to disclose that Hepplewhite maintained positions in the stocks that were the subjects of Hochfeld's research reports. The complaint further alleges that the reports failed to disclose that on numerous occasions, Hochfeld caused trades to be made in the subject stocks immediately after the issuance of the reports, contrary to the information or recommendations in the reports.
The complaint alleges that, as a result of the foregoing, Hochfeld and HCM violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 thereunder. Without admitting or denying the Commission's allegations, Hochfeld and HCM have consented to the entry of a final judgment that permanently enjoins them from future violations of the above-mentioned provisions of the federal securities laws. Hochfeld and HCM have also agreed to disgorge, jointly and severally with each other, their ill-gotten gains of $77,915 plus prejudgment interest of $5,545, and to pay a civil penalty, assessed jointly and severally, in the amount of $75,000.