SEC Drops Fraud Case Against Long Island Trader

OLD WESTBURY, N.Y., Aug. 19, 2014 /PRNewswire/ -- The Securities and Exchange Commission granted a reprieve to Michael Manis late last week by agreeing to withdraw its fraud claims against him and his investment companies in a settlement endorsed by a federal judge in Manhattan.

Manis, an Old Westbury, Long Island resident, was named in a federal suit by the SEC in 2012.  The regulatory agency alleged that Manis and his investment companies, Coastal Group Holdings, Inc. and Spartan Group Holdings LLC, breached registration rules through purchases and sales of micro-cap stocks.  

Under the federal registration requirements, which date back to the Securities Act of 1933, all securities offered in the United States must be registered with the SEC or qualify for an exemption from registration.  The registration process is designed to provide investors with financial data and other information about securities being sold and the companies behind them.

The SEC cited Manis for selling unregistered securities by invoking regulatory exemptions that the SEC claimed did not apply under the circumstances.  According to the SEC's complaint, Manis's attorneys wrote letters stating that various exemptions allowed the investment companies to purchase and re-sell shares of stock without going through the registration process.  The SEC contended that the lawyers were wrong and the shares should have been registered.

While the SEC's enforcement of such procedural requirements is not uncommon, what set this case apart was the SEC's claim that Manis and his companies had committed securities fraud.  That claim threatened Manis with the prospect of huge monetary penalties and possibly even being barred from the securities industry.

Manis vigorously denied the fraud allegations. He maintained that he relied in good faith on legal advice from his attorneys.  He pointed out that the transactions were approved by the companies issuing the stock, the stock transfer agents, the brokerage firms, and numerous layers of attorneys and compliance personnel.  He emphasized that as the initial purchaser of the unregistered securities, he was the party the registration requirements were designed to protect.

Nearly two years into the lawsuit, the SEC abruptly changed course and agreed to drop the fraud claim.  The agency filed an amended complaint to supersede and replace its prior allegations ― this time, omitting any reference to securities fraud.

Shortly after that development, Manis and his companies settled the SEC's remaining claim by agreeing to "neither admit nor deny" the alleged breach of the registration rules and paying a small fraction (approximately five percent) of the proceeds the SEC alleged the transactions generated. 

The SEC announced the settlement last week in a Litigation Release posted to its website.  On August 13th, the SEC issued a "corrected" Litigation Release to remove a reference to the earlier fraud allegations that the SEC had withdrawn.  A federal judge approved the settlement on August 12th. 

Manis is represented by Hughes Hubbard & Reed LLP.

SOURCE Hughes Hubbard & Reed LLP