The SEC is alleging that the portfolio manager diverted nearly $2 million to a personal account.
The SEC reports placing fraud charges against a Massachusetts-based portfolio manager accused of moving $1.95 million to his personal brokerage account from a fund that he was overseeing.
That portfolio manager, Kevin J. Amell, has also pled guilty to one federal criminal count of securities fraud in the same matter, but he has not yet been sentenced.
The SEC alleges that Arnell carried out a “matched-trades scheme in which he prearranged the purchase or sale of call options between his own account and the brokerage accounts of the fund at prices that were disadvantageous to the fund and advantageous to him.”
The SEC is calling for “disgorgement of Amell’s ill-gotten gains plus interest and penalties as well as injunctions.”
Although both the SEC and the U.S. Attorney’s Office for the District of Massachusetts, where Arnell was charged, characterize the defrauded fund only as a “major asset management firm in Boston,” the Reuters news service has identified the firm as Boston-based Eaton Vance.
“The misconduct of this former employee in willfully violating his duty of loyalty, firm compliance policies and federal securities laws is deeply regrettable,” Eaton Vance’s CEO, Thomas Faust, says in a statement to Reuters.
The commission specifically cites one “series of trades involving Amazon securities … [in which] Amell allegedly generated a $23,000 profit for himself in less than 23 minutes at the fund’s expense.”
Overall, “Amell abused his trading authority at least 265 times by matching trades between the fund and his personal account at prices that he intentionally and fraudulently skewed to benefit himself,” Joseph G. Sansone, co-chief of the SEC enforcement division’s market abuse unit, says in a statement.
According to the U.S. Attorney’s Office for the District of Massachusetts, “to conceal the fraud from his employer, Amell failed to disclose to the firm the existence of his personal brokerage accounts as required.”
According to a U.S. Justice Department statement, “the securities fraud statute provides for a sentence of no greater than 20 years in prison, five years of supervised release and a fine of $5 million…. According to the plea agreement … the U.S. Attorney’s Office has agreed to recommend a sentence of no greater than 27 months in prison. Amell has also agreed to forfeit $1,954,457.”
In addition, the SEC is charging that Amell placed orders to trade call options “in his personal account at prices that were at or near the NBB [the national best bid] (for “buy” orders) or at or near the NBO [the national best offer] (for “sell” orders), while also placing matching contra-side orders for the Fund’s accounts, which then executed against Amell’s personal account orders.
“The execution prices for these pre-arranged trades were advantageous to Amell and benefitted him at the Fund’s expense,” alleges the SEC. “Amell profited from the difference between the advantageous prices of the trades he executed against the Fund and the prices he was able to obtain in arms-length trading with third parties, which were usually closer to the midpoint of the NBBO [the national best bid and offer] spread.”
“In his scheme,” the SEC adds, “Amell usually targeted call options with relatively wide NBBO spreads that ranged from $0.40 to $2.00 per share … which allowed him to generate significant profits from his fraudulent matched trades.”
FTF News asked Arnell’s attorney for comment and also posed the following questions to Eaton Vance:
- How was Amell able to abuse his trading authority at least 265 times, as the commission put it?
- Were there oversight problems at the fund?
- Have procedures at Easton Vance been changed as a result of Amell’s illegal activities?
By deadline, there had been no reply from either Eaton Vance or Amell’s attorney.
Eaton Vance Corp. reported consolidated assets under management of $380.9 billion at the end of March 2017.
The entire SEC complaint against Amell is available at: http://bit.ly/2qzAunA .
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