Securities: SEC alleges USD8.5m lost in unauthorised trades
The USA's SEC has started proceedings against Ethan Kass, alleging that he executed unauthorised trades causing losses to investors in five hedge funds. But although the proceedings were entered yesterday, the allegations relate to conduct in 2005.
The Securities and Exchange Commission says that five funds managed by Tobias Bros. Inc. (Tobias), a New York-based registered investment adviser suffered losses as a result of Kass's actions. Tobias also was a registered broker-dealer from 1998 until 2 February, 2008.
The SEC's complaint alleges a course of conduct that will terrify many employers.
Kass, says the SEC, was employed in a support role in the back office at Tobias.
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.
In fact, 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, says the SEC, Kass traded without any authorisation or direction from his supervisors. Kass routinely concealed his unauthorised 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 unauthorised trades would not appear on that system’s daily real-time profit and loss statements.
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 permanent injunction and a civil penalty of USD50,000 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.
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