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for disgorged trading profits

SEC mum on intentions
for disgorged trading profits

But the SEC is not saying what happens to that pile of cash and any later kicked in by the two remaining defendants.
Civil penalties in such cases belong to the U.S. Treasury. But the disgorged profits sometimes are returned to defrauded investors–if the pot is large enough and the injured can be identified.
SEC attorneys refused to comment on whether they plan to return money to investors.
The SEC in a December civil suit alleged that six defendants–four Rochesterians, a Detroit newspaper executive and a Washington, D.C., contractor –illegally profited from inside information about RCSB’s possible merger with Buffalo’s First Empire Corp. SEC attorneys estimated illegal profits of $410,000.
Profits being collected under the four settlements in place add up to $262,000. Penalties amount to $235,000 and interest payments add up to $31,000.
On the day the SEC suit was filed, deals with defendants Frank Vega of Detroit and Gerald Sigal of Washington D.C., put $441,490 in the settlement kitty. Penalties accounted for almost half of that amount; disgorged profits were $210,000.
Tuesday’s agreements between the SEC and Rochester defendants Peter Mancuso and Martin Slater add some $53,000 to the profits pile and $26,000 to the penalties pile.
Slater’s attorney, Howard Schiffman, said the high cost of defending the SEC suit made further litigation senseless. Formerly with the SEC, Schiffman said the low dollar amount involved probably would not justify the commission setting up a profit pool.
Further, it would be difficult to draw a causal relationship between the illegal trades and injury to specific shareholders, he said.
With some notable exceptions, Schiffman added, disbursement funds typically are set up only when an institution, rather than an individual insider, has defrauded investors.
Thomas Willett, a securities attorney with Harris, Beach & Wilcox, RCSB’s counsel, agreed that prospects of recovery from the SEC money pile are low, given the small amount involved.
He said the decision is within the SEC’s discretion.
“In some cases, the SEC makes an effort to get money back to identifiable injured investors,” said attorney David Schraver of Nixon, Hargrave, Devans & Doyle.
But Schraver predicted the RCSB profits would go into the U.S. Treasury, given the practicalities and the silence of court orders on the question.
General Accounting Office criticism of the SEC’s track record in administering profit pools meant to benefit injured shareholders will force the SEC to proceed cautiously if it does plan to return money to investors, said Gregg Jarrell, professor of business administration and finance at the William E. Simon Graduate School of Business Administration.
GAO oversight of SEC profit plans has turned up poor performance, but no scandals, Jarrell said. Nevertheless, RCSB profits are being handed over to the SEC at a time when it is tightening up its procedures.
Still standing as defendants in the SEC action are Rochester developer Kenneth Vasile and Thomas Farrell, the RCSB director, now resigned, accused of leaking confidential information.
Farrell, facing possible criminal action for his alleged mastermind role, admitted nothing in his response. Attorneys for Vasile and Farrell intend to fight to have the case moved to Rochester at a hearing next month in Virginia.


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