Former Investment Manager Employee Sentenced In Manhattan Federal Court To Four Months In Prison For Obstruction Of Justice And Perjury
Defendant Lied During Sworn Testimony to the SEC and Impersonated His
Preet Bharara, the United States Attorney for the Southern District of New York, announced that STEVEN HART was sentenced yesterday to four months in prison in Manhattan federal court for obstruction of justice and perjury charges relating to an investigation that the U.S. Securities and Exchange Commission (the “SEC”) had conducted into potential violations of the federal securities laws. Hart previously pled guilty on March 13, 2015 to a two-count criminal information. He was sentenced by U.S. District Judge Katherine Polk Failla.
Manhattan U.S. Attorney Preet Bharara said: “Steven Hart obstructed an SEC investigation into securities fraud by giving false testimony under oath and even going so far as to impersonate his boss when the SEC called with questions. Prosecutors and regulators cannot do their jobs properly if people deliberately obstruct their investigations, as Hart did here.”
According to the Information filed in Manhattan federal court, other court documents, and statements made in court:
HART, who was employed at an investment management firm headquartered in Englewood Cliffs, New Jersey (the “Investment Firm”), and reported directly to the president of the Investment Firm (the “Investment Firm President”), served as a portfolio manager at the firm and, in that capacity, exercised trading authority over the brokerage accounts for one of the funds managed by the Investment Firm (the “Fund”). At the same time, HART also controlled and directed Octagon Capital Partners, LP (“Octagon”), a private investment fund with its principal place of business in New York, NY. Through Octagon, HART invested his own money and the money of several of his associates.
In 2009, the SEC was investigating HART’s trading activities at the Investment Firm (the “SEC Investigation”). First, the SEC was investigating whether HART, in his capacity as a portfolio manager at the Investment Firm, had conducted improper “match trades” or “cross trades” between his personal fund, Octagon, and the Fund. The SEC was also investigating whether HART had traded in securities based on material non-public information (“MNPI”) relating to confidentially-marketed securities offerings – information that HART had obtained while being solicited to invest in those offerings.
As part of this investigation, SEC officials, among other things, issued a subpoena to the Investment Firm, care of the Investment Firm President, seeking the production of several different categories of documents. HART received the subpoena at the Investment Firm before it was seen by any other employee and produced documents to the SEC in New York without (1) informing anyone else at the Investment Firm about the subpoena, or (2) informing the SEC that it was HART alone who responded to the subpoena.
Moreover, in the course of providing sworn testimony to the SEC, HART made several materially false statements. He falsely testified that the Investment Firm President had agreed that HART should conduct match trades involving the Fund as part of an investment strategy for the Fund. HART also falsely testified that he and the Investment Firm President had discussed the SEC Investigation, and that the Investment Firm President was aware that HART had been subpoenaed to testify before the SEC.
On two occasions, HART impersonated the Investment Firm President during telephone conversations with the SEC. Specifically, on December 9, 2009, an SEC attorney called the Investment Firm to speak with the firm’s President about the SEC Investigation. HART received the phone call and pretended to be the Investment Firm President. During that call, HART, speaking as the Investment Firm President, falsely stated that: (1) the Investment Firm President was aware that HART had engaged in improper trading activity, but nevertheless wanted HART to remain an employee of the Investment Firm; and (2) the Investment Firm President was aware of, and had approved, HART’s match trading activity as a means for the Fund to dispense of restricted shares of stock.
On December 11, 2009, the same SEC attorney, along with a second SEC attorney, called the Investment Firm again to speak with the firm’s President. HART again received the phone call and pretended to be the Investment Firm President. During that call, HART, speaking as the Investment Firm President, falsely stated to the SEC attorneys that: (1) HART’s match trading activity was an intentional strategy of the Investment Firm to take a loss on the trading in exchange for the ability to sell otherwise restricted shares of stock; (2) HART was still a valued employee of the Investment Firm who had earned the Investment Firm far more than whatever amount HART had gained through match trading; and (3) HART had fully disclosed to the Investment Firm President that HART had traded based on MNPI and that this was a one-time mistake that would not happen again. Each of these statements was false.
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In addition to the prison term, Judge Failla sentenced Hart, 42, who currently resides in Manhattan, New York, to two years’ supervised release.
Mr. Bharara thanked the U.S. Securities and Exchange Commission for its assistance in the investigation.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Jason H. Cowley is in charge of the prosecution.