October 31, 2011
Securities and Exchange Commission v. Drake Asset Management, LLC and
The following excerpt is from the SEC website:
Oliver R. Grace, Jr., Civil Action No. 11-CV-01905 (D.D.C. Oct. 31, 2011)
SEC Charges New York-Based Hedge Fund Adviser and its Co-Owner for Scheme to Evade Group Purchase Limits in Several Bank Conversion Offerings
The Securities and Exchange Commission today announced the filing of a civil injunctive action against Drake Asset Management, LLC (Drake), of Glen Head, NY, and Oliver R. Grace, Jr., of Hobe Sound, FL, for conducting a scheme to evade the group purchase limits of the public offerings of seven banks that were converting from mutual to stock ownership. The SEC’s complaint alleges that, from 2003 through 2007, Grace knowingly or recklessly failed to disclose his association with certain entities, including hedge funds managed by Drake, which participated in the offerings alongside Grace. Under Grace’s direction, Drake also knowingly or recklessly failed to disclose the hedge funds’ association with Grace. By failing to disclose these associations, the Drake hedge funds and Grace were able to acquire stock that exceeded the offerings’ group purchase limits, in violation of offering terms and banking regulations. The complaint alleges that Drake and Grace, to conceal their relationships and group activity from converting banks and their underwriters, arranged for the hedge funds and Grace’s other associated entities to take steps to prevent the banks from associating these group orders. Over the course of the scheme, Drake and Grace generated $610,781 in ill-gotten gains. Because the seven offerings at issue were oversubscribed, the scheme harmed other bank depositors by limiting the amount of stock available to them.
The SEC’s complaint, which was filed in the United States District Court for the District of Columbia, charges Drake and Grace with violations of the antifraud provisions of the Securities Exchange Act of 1934, Section 10(b) and Rule 10b-5 thereunder.
Drake, without admitting or denying the allegations in the complaint, has consented to the entry of a final judgment permanently enjoining it from violating the abovementioned provisions and imposing a civil monetary penalty of $175,000. Grace, without admitting or denying the allegations in the complaint, has consented to the entry of a final judgment permanently enjoining him from violating the abovementioned provisions, ordering him to pay $838,285 in disgorgement and prejudgment interest, and imposing a civil monetary penalty of $150,000. The settlements are subject to approval by the Court.
