Securities regulators are suing a former hedge fund manager, charging him with insider trading in shares of a small company doing a private placement.
The civil lawsuit filed by the
Securities and Exchange Commission
against John Mangan Jr. arises from a lengthy investigation into allegations of improper trading by hedge funds that invested in a 2001 private investment in public equity, or PIPE. The lawsuit is the latest in a long string of regulatory actions to stem from the investigation into allegations of improper trading in the deal, which raised $12 million for
( CDCY), a Maryland security-services company.
Mangan, in a statement, says he intends the fight the SEC charges and did nothing wrong.
A week ago, the SEC and the National Association of Securities Dealers reached a settlement with
Friedman Billings Ramsey
, the brokerage firm that managed the PIPE and found hedge funds to invest in the deal. Several of the investment firm's former top executives, including co-founder Emanuel Friedman, were sanctioned by regulators.
Mangan is a former Friedman Billings Ramsey broker who was still registered with the investment firm at the time of the PIPE deal. At the same time, Mangan also was co-managing a hedge fund with Hugh McColl III, the son of former
Bank of America
CEO Hugh McColl. The SEC charges Mangan made the improper trades through an account managed by McColl.
McColl, also named as a defendant in the SEC lawsuit, settled with regulators. He is paying a penalty of $115,643.
A year ago, Mangan paid a $125,000 fine to the NASD to settle similar allegations arising from the Compudyne PIPE deal. But now Managan has decided to fight the latest attempt by regulators to question his actions.
"By taking this case to court, I will finally have the opportunity to get the facts of my case out of the SEC's bureaucracy and into a court of law,'' says Mangan. "I never engaged in insider trading.
In his statement, Mangan says the SEC allegations center around a single trade and was under the impression that what he was doing was proper. He says the trade was made in "complete good faith and without any intent to benefit from undisclosed information.''
Meanwhile, federal prosecutors also are investigating the Compudyne deal. In November, a federal grand jury indicted Hilary Shane, another hedge fund manager, who also reached an earlier regulatory settlement with the SEC and the NASD in the Compudyne investigation. The indictment charges Shane with insider trading, claiming she profited from a series of improper short trades in shares of Compudyne.