A jury's mixed verdict in the SEC's case against fund manager Marlon Quan had both the SEC and Quan declaring victory yesterday, although the SEC seems to have gotten the better of it. As I discussed in detail here this month, the SEC has engaged in an extraordinary flurry of trials since October 1, 2013, with generally poor results. After yesterday's verdict, the SEC has now gone to trial in ten cases so far in its FY 2014, and has either lost or suffered a mixed verdict in eight of them. 

The SEC sued Quan in 2011, alleging that Quan facilitated the Ponzi scheme operated by Minnesota businessman Thomas Petters. According to the SEC, Quan and his firms

invested hundreds of millions of hedge fund assets with Petters while pocketing more than $90 million in fees. They falsely assured investors that their money would be safeguarded by “lock box accounts” to protect them against defaults. When Petters was unable to make payments on investments held by the funds that Quan managed, Quan and his firms concealed Petters's defaults from investors by concocting sham round trip transactions with Petters.

Bloomberg reports that the jury found for the SEC on five of the agency's seven claims, but also found against the SEC on another fraud claim and an aiding-and-abetting claim. This mixed verdict led both sides to declare at least some measure of victory. Andrew Ceresney, Director of the SEC's Division of Enforcement, thanked the jury for its verdict and stated that the agency was "very pleased the jury found Marlon Quan liable for securities fraud and that he will be held accountable for his deception in funneling several hundred million dollars of investor money into the Tom Petters Ponzi scheme."

Chris Casamassima, a lawyer for Quan, disagreed with Ceresney's assessment, telling Bloomberg that the jury's mixed verdict could not be reconciled and indicated a non-unanimous jury. "Since unanimity is required for liability," he said, "the effect of the two inconsistent findings is that the SEC has failed to sustain its claim of securities fraud against Mr. Quan.” The SEC's David Glockner responded that because the single fraud claim on which the jury found against the SEC was narrower in scope, it did not impact the rest of the verdict.

Topics