Corporate & Securities Law

By Jim Hamilton

A 2nd Circuit panel upheld an order by Judge Ellen Bree Burns of the District of Connecticut imposing sanctions against William A. DiBella, the former majority leader of the Connecticut State Senate, and his consulting firm, North Cove Ventures, L.L.C. The SEC charged DiBella and the firm with aiding and abetting Paul J. Silvester, the former Connecticut state treasurer, in a fraudulent investment scheme. As alleged, Silvester had invested $75 million in state pension funds with Thayer Capital Partners, a Washington, D.C.-based private equity firm, and arranged for Thayer to pay DiBella a percentage of the investment, though he did not do work to justify the payment (SEC v. DiBella).

The district court ordered DiBella to disgorge $374,500 (the amount of his ill-gotten gains from the scheme) and to pay $307,127.45 in prejudgment interest. In addition, the trial court imposed a civil penalty of $110,000.

The appellate panel rejected DiBella's argument that there were no violations for him to aid or abet because the treasurer had no fiduciary duty to disclose information concerning the investments and payments, and that the Investment Advisers Act did not apply because the case involved a state government and a state pension fund. According to the 2nd Circuit, Connecticut state law defined the treasurer as a fiduciary of the fund with duties to disclose to at least the relevant legislative committee. The Advisors Act also was applicable because Thayer, and not the state, was the alleged violator.

The SEC has also filed an application in the district court for a contempt order against DiBella for his failure to pay in the amounts entered by Judge Burns.

Full post as published by Jim Hamilton's World of Securities Regulation on November 30, 2009 (boomark / email).