The Securities and Exchange Commission has filed a settled civil enforcement action against Anthony Scolaro, a former portfolio manager at the hedge fund investment adviser Diamondback Capital Management, LLC, charging Scolaro with using inside information to trade ahead of the 29 November, 2009 announced acquisition of Axcan Pharma Inc. The SEC’s complaint also names Diamondback as a relief defendant.
In its complaint, the SEC alleges that Arthur Cutillo and Brien Santarlas, two former attorneys with the international law firm of Ropes & Gray LLP, misappropriated from their law firm material, nonpublic information concerning the acquisition of Axcan. As alleged in the complaint, they tipped the inside information, through another attorney, to Zvi Goffer, a proprietary trader at the broker-dealer Schottenfeld Group LLC, in exchange for kickbacks. The SEC alleges that Goffer tipped the inside information to fellow Schottenfeld proprietary trader Franz Tudor, who traded in the securities of Axcan, and tipped the information to his friend Scolaro. The SEC alleges that based on this inside information, Scolaro traded in the securities of Axcan on behalf of a Diamondback hedge fund, resulting in illicit profits for the fund of approximately USD1.1 million.
To settle the SEC’s charges, Scolaro consented to the entry of a final judgment that: (i) permanently enjoins him from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and (ii) orders him to pay disgorgement of USD125,980, prejudgment interest of USD14,420, and a civil penalty of USD62,945. Diamondback, as a relief defendant, has consented to a final judgment ordering it to disgorge USD962,486 in gains resulting from Scolaro’s trades, plus prejudgment interest of USD110,246. In addition, Scolaro consented to the entry of an SEC order barring him from association with any investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognised statistical rating organisation. Scolaro previously pled guilty to charges of securities fraud and conspiracy to commit securities fraud in a related criminal case, United States v. Anthony Scolaro, 11-CR-429 (S.D.N.Y.) (WHP), and is awaiting sentencing.