The SEC announced securities fraud charges this week against Mark P. Welhouse and investment adviser Welhouse & Associates, Inc. According to the SEC, the respondents engaged in a multi-year cherry-picking scheme whereby Mr. Welhouse used a master account to trade options in an S&P 500 ETF called SPY. He then delayed allocating the trades until later in the day when he “disproportionately allocated those trades that had appreciated in value during the course of the day to his personal and business accounts, while allocating trades that had depreciated in value during the day to the accounts of his advisory clients.” Notably, the SEC reports that this is the first enforcement action to result from a new data-driven initiative seeking “to identify potentially fraudulent trade allocations” which have historically been particularly difficult to detect “without an investor astutely noticing that something may be amiss” and reporting the investor’s suspicions to the SEC.
Former Alstom executive Lawrence Hoskins is continuing his efforts to chip away at FCPA charges filed against him by the U.S. Attorney’s Office in the District of Connecticut. As explained in prior posts, Hoskins has tried to defeat the government’s case by arguing that he is not the proper subject of a Foreign Corrupt Practices Act prosecution because he was not an “agent of a domestic concern” under the statute. Instead, he was employed by the domestic concern’s French parent company.
Last month, Hoskins moved to dismiss Count One of the third superseding indictment against him, which charges Hoskins with conspiring to violate the FCPA “together with a domestic concern” rather than, as pleaded in the second superseding indictment, “while ‘being’ an agent of a domestic concern.” Hoskins argues that the conspiracy charge is an impermissible end run around the government’s inability to prove agency, and that under Gebardi v. United States, 287 U.S. 112, (1932), “where Congress has crafted a criminal statute to effect an affirmative legislative policy to exclude certain classes of persons from liability, as does the FCPA, the government cannot nullify that intent by charging such individual with conspiracy to violate that statute.”