The Securities and Exchange Commission today charged a stock research firm and its co-founders with defrauding investors by issuing reports purportedly based on “unbiased” and “not paid for” research when in reality they received thousands of dollars from issuers as a condition to providing each report.
According to the SEC’s complaint, SeeThruEquity LLC and brothers Ajay and Amit Tandon camouflaged the payments by inviting companies to make a “presentation” at an investor conference in order to receive a research report for free. SeeThru and the Tandons allegedly collected up to several thousand dollars in conference presentation fees per company, and the issuers regularly had input into the substance of the supposedly unbiased research reports, even including the price targets at times. The SEC alleges that the Tandons often instructed SeeThru analysts to use different, higher price targets for covered issuers than those yielded through purported quantitative analysis, and the price targets contained in SeeThru’s reports were typically more than 300 percent above the current trading price of the stock.
The SEC further alleges that Ajay Tandon, who serves as CEO, frequently traded in the same stocks that SeeThru was evaluating despite stating in published interviews and elsewhere that neither the firm nor its principals traded in securities for which they published research. According to the SEC’s complaint, Tandon also engaged in scalping, which is a form of securities fraud that occurs when a perpetrator makes a stock recommendation to investors and contemporaneously trades against that very recommendation in the open market without adequate disclosure.
“There is a clear line between paid advertising and unbiased research coverage, and we allege that SeeThru and its co-founders crossed it to deceive investors and make money,” said Richard R. Best, Director of the SEC’s Atlanta Regional Office. “According to our complaint, Ajay Tandon even scalped multiple issuers, further revealing the biased nature of SeeThru’s research reports.”
The SEC’s complaint, which was filed in federal court in Manhattan, charges Ajay and SeeThru with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and charges Amit with aiding and abetting those violations. It also charges SeeThru with violating the antifraud provisions of Sections 17(a)(1) and (3) of the Securities Act of 1933 (“Securities Act”) and the antitouting provisions of Section 17(b) of the Securities Act; charges Ajay with violating the antifraud and antitouting provisions of Sections 17(a) and (b) of the Securities Act; charges Amit with violating the antitouting provisions of Section 17(b) of the Securities Act; and charges Ajay with aiding and abetting certain of SeeThru’s antifraud and antitouting violations. The SEC seeks permanent injunctions, a conduct-based injunction that would bar Ajay, Amit, and SeeThru from promoting the issuer of any security, disgorgement, civil penalties, and officer and director and penny stock bars.
The SEC’s litigation will be led by Pat Huddleston II and Paul Kim of the Atlanta office. The SEC’s ongoing investigation is being conducted by Joshua M. Dickman and supervised by Natalie M. Brunson of the Atlanta office.