Securities Industry Commentator by Bill Singer Esq

Wells Fargo Promissory Note Case Enters Its Second Decade of Litigation (BrokeAndBroker.com Blog)

Ex-Roommate and Co-Conspirator of Former Philadelphia Eagle Sentenced to 2 Months for Insider Trading Scheme (DOJ Release)

Federal Court Orders Tennessee and Kentucky Men and Their Company to Pay Over $5 Million for Commodity Futures Pool Fraud (CFTC Release)

Motion to Vacate FINRA Arbitration Award Fails To Raise Federal Jurisdiction (BrokeAndBroker.com Blog)

FINRA Bars JP Morgan Securities Rep Over Chase Bank Credit Card Charges (BrokeAndBroker.com Blog)

[Ramsey] traded on inside information provided by Damilare Sonoiki, at the time a junior analyst at Goldman Sachs, who had offered Kendricks information regarding upcoming mergers involving four Goldman Sachs clients.  Ramsey and Kendricks purchased call options in the target companies between July 2014 and November 2014. When the proposed merger was announced in each case, the value of the options purchased by Ramsey and Kendricks increased significantly. During the period of the conspiracy, the trading conducted by Ramsey and Kendricks from Kendricks' account resulted in profits of nearly $1.2 million on the four securities listed in the Superseding Indictment:

• The trading began when Sonoiki and Kendricks purchased call options for Compuware based on pending acquisition of Compuware that was known to Sonoiki. When Compuware announced on September 2, 2014, that it had been acquired by a private company, Kendricks made $78,423 in profits. 
  
  
• Sonoiki provided Kendricks and Ramsey inside information on a second deal in which Goldman represented News Corporation, which was in talks to acquire Move, Inc.  Ramsey and Kendricks purchased call options in Move during the month of September. When the News Corporation acquisition of Move was announced on September 30, 2014, Ramsey and Kendricks sold the open options contracts at profit of $278,701.  

• In early October 2014, Sonoiki provided Kendricks and Ramsey with inside information about a pending acquisition of Sapient, another company represented by Goldman.  Sapient was in discussions with Publicis Corporation regarding a merger deal. Ramsey began trading in Sapient on October 6, 2014. On November 3, the merger was announced, and Ramsey and Kendricks made a profit of $489,079. 
  
  
• In October 2014, Oplink was in discussions with Molex, a subsidiary of Koch Industries, regarding a merger deal. Goldman represented Molex and Koch Industries. Ramsey purchased call options in Kendricks's account between October 31 and November 17, 2014. Ramsey's trading occupied so much of the open call option market that there was a Reuters article on November 19, 2014, suggesting that someone must have had insider information. The deal was announced on November 19, 2014, at which time Ramsey and Kendricks made a profit of $351,872.

[E]vidence presented at trial showed that Ramsey traded on inside information provided by Damilare Sonoiki, at the time a junior analyst at Goldman Sachs, regarding upcoming mergers involving four Goldman Sachs clients: Compuware Corporation; Move, Inc;, Sapient Corporation; and Oplink Communications. LLC.  Sonoiki provided this information to Ramsey and his roommate Mychal Kendricks, then a linebacker for the Philadelphia Eagles. Ramsey and Kendricks purchased call options in the target companies between July and November 2014. During the football season, when Kendricks was busiest, Ramsey became the primary contact with Sonoiki, and Ramsey made the trades in Kendricks's account based on the insider information Sonoiki provided. When the proposed merger was announced in each case, the value of the options purchased by Ramsey and Kendricks increased significantly. During the period of the conspiracy, the trading conducted by Ramsey and Kendricks from Kendricks's account resulted in profits of nearly $1.2 million on the four securities.

The summary judgment and default orders impose civil monetary penalties and restitution totaling more than $5 million. This includes a $420,000 civil monetary penalty against Phelps and a $2,461,301 civil monetary penalty, jointly, against Castenir and Maverick. The orders also require Maverick and Castenir to pay $1,172,800 in restitution and Phelps also is required to pay $1,172,800 in restitution to defrauded customers. Finally, the Orders subject Defendants to permanent trading and registration bans and a permanent injunction from further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged. [See CFTC Press Release No. 7221-15].

Case Background

The summary judgment order found that Phelps and Castenir formed Maverick, which operated a commodity trading pool. In 2013, Maverick solicited more than $1.2 million in funds from investors. The solicitations were boosted by false materials claiming that Phelps had an extensive history of investing successfully in commodity trading markets. The solicitations also falsely assured investors that their risk would be "limited," and that they could expect "guaranteed returns" of more than 100% per year. They promised investors that their money would be invested in commodity trading markets with the goal of earning substantial returns.

According to the summary judgment order, Phelps and Castenir actually used less than $400,000 of the invested funds for trading. The remaining investor funds were misappropriated. Nearly all of the funds used for commodity trading were lost in unprofitable trades. Nevertheless, throughout 2013, and despite the losses, Phelps, Castenir, and Maverick sent investors false account statements showing their investments yielded remarkably high gains. Throughout the entire investment operation, Phelps never registered with the CFTC as a commodity trader, despite the fact the he and Maverik engaged in numerous regulated activities.

Criminal Action

The summary judgment order further noted that on September 20, 2019, after a jury trial, Phelps was convicted of 13 counts of fraud and conspiracy in connection with the same underlying facts as the CFTC's case. Phelps was sentenced to 108 months in prison followed by three years of supervised release.

The CFTC cautions that orders requiring repayment of funds to victims may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

• Securities Industry Commentator
• Bill Singer