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New York Fund Manager Settles $1.3 Million SEC Penalty

Eliane Chavagnon

12 December 2012

The Securities and Exchange Commission has charged a New York-based fund manager with conducting two illegal trading schemes for the financial benefit of his investment fund, Octagon Capital Partners.

The SEC alleges that Steven Hart made $831,071 between 2007 and 2011 through illicit trading, while also working as a portfolio manager and employee at a New Jersey-based firm that served as an advisor for several affiliated investment funds. 

Hart has agreed to pay over $1.3 million to settle the charges.

"In one scheme, Hart illegally matched 31 pre-market trades to benefit his own fund at the expense of one of his employer's funds," the SEC said in a statement. In the other, Hart conducted insider trading in the securities of 19 issuers based on non-public information he obtained prior to their offering announcements.

"Furthermore, Hart signed two securities purchase agreements in which he falsely represented that he had not traded the issuer's securities prior to the public announcement of the offerings in which he had been confidentially solicited to invest," the authority continued.

Hart caused Octagon to purchase stock in small, "thinly-traded" issuers at the going market price to then sell the same stock the next day to his employer's fund at a cost "substantially above" the prevailing market price. In this scheme, he allegedly generated ill-gotten gains of $586,338.

According to the SEC's complaint - filed in US District Court for the Southern District of New York - Hart was "confidentially solicited" by 19 issuers to invest in securities offerings where he agreed to go "over-the-wall" and keep confidential the information he received.

"Nevertheless, Hart traded for Octagon on the basis of material non-public information about the offerings in breach of his duty of trust or confidence," the SEC said.

Hart's subsequent illegal trades involved private investment in public equity offerings, registered direct offerings and confidentially marketed public offerings. Octagon derived ill-gotten gains of $244,733 as a result of his misconduct in this case.