SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17264 \ December 10, 2001
SEC CHARGES INVESTMENT ADVISERS WITH CREATING FALSE ACCOUNT STATEMENTS THAT OVERSTATED THE VALUE OF CLIENTS' ASSETS BY OVER $139 MILLION
Securities and Exchange Commission v. Yehuda Shiv, Sagam Capital Management Corporation and Sagam Capital LLC, Civil Action No. 01 Civ. 11282
On December 10, 2001, the Securities and Exchange Commission filed an injunctive action in the United States District Court for the Southern District of New York alleging that from approximately 1995 through 2001, Yehuda Shiv ("Shiv"), and two registered investment advisers that Shiv controls, Sagam Capital Management Corp. ("Sagam Corp.") and Sagam Capital LLC ("Sagam Capital"), created and sent false account statements to clients that overstated the net value of assets in their accounts by at least $139 million.
The Commission filed the action against the following defendants:
In this action, the Commission alleged the following. Until late 1994, Shiv utilized a trading strategy in clients' accounts that involved borrowing foreign currencies to purchase mortgage-backed securities, which provided clients with sizeable returns. In late 1994, Shiv's trading strategy became unprofitable and clients suffered substantial losses. Because Shiv did not want to disclose the losses to his clients, Shiv began creating false account statements to clients. Shiv sent false account statements to approximately ten clients from 1995 through 2001, which showed that the trading in their accounts had been, and was continuing to be, profitable. By October 31, 2001, Shiv had overstated the net value of clients' assets by over $139 million.
Shiv, Sagam Corp. and Sagam Capital profited from their fraudulent conduct. Shiv charged his clients management and performance fees based upon the artificially inflated value of the clients' portfolios.
Additionally, to conceal his fraud, Shiv made unauthorized transfers of assets between clients' accounts. For instance, if a client requested a withdrawal from his account and there were insufficient funds, Shiv would withdraw funds from another client's account and transfer the funds to the client who had originally requested the withdrawal.
The Commission charged Shiv, Sagam Corp. and Sagam Capital with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and (2) of the Investment Advisers Act of 1940. The Commission is seeking injunctive relief, disgorgement of ill-gotten gains, civil penalties.
Additionally, today the Court granted the Commission's application for a preliminary injunction and other emergency relief, including an asset freeze and the appointment of a receiver to take control of the two corporations. The defendants consented to the entry of the preliminary injunction and other relief.