UNITED STATES SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION v. JOHN P. VENNERS, U.S. District
Court for the District of Columbia, Civil Action Number 00CV01547 (HHK)
(June 29, 2000) (D.D.C.)
Litigation Release No. 16613 / June 29, 2000
SEC SETTLES "MARKING THE CLOSE" MANIPULATION CASE AGAINST JOHN P. VENNERS
The Securities and Exchange Commission today filed a Complaint in the United States District Court for the District of Columbia alleging that from March 1997 through June 1998 John P. Venners, 50, a consultant to KFX, Inc., artificially raised the closing price of KFX stock by purchasing at or near the close of the market. The Complaint alleges that Venners "marked the close" in order to increase the value of equity in a margin account where he held a substantial number of KFX shares. The Complaint further alleges that Venners' manipulative conduct enabled him to avoid margin maintenance calls on some occasions, and to decrease the dollar amount he had to pay to satisfy margin calls on other occasions. According to the Complaint, Venners' actions conveyed false information to the market concerning the demand for KFX's stock and its price level free of manipulative influence, and misled the securities brokerage firm issuing the margin calls as to the value of the collateral for its margin loan to him.
Venners, without admitting or denying the allegations of the Complaint, simultaneously consented to the entry of a permanent injunction against violations of the antifraud provisions of the federal securities laws and agreed to pay a $10,000 civil penalty.
Specifically, the Complaint alleges the following:
- Beginning in March 1997, after KFX's market value had declined, Venners received an increasing number of margin maintenance calls in a margin account in which he held 102,000 shares of KFX stock. In order to satisfy the calls and prevent additional ones, Venners began marking the close. In March and early April 1997 Venners marked the close four times, purchasing KFX shares on three of those occasions during the last ten minutes of the trading day.
- In an effort to conceal his conduct, in late April 1997 Venners stopped marking the close through his margin account and opened a new account at a separate broker-dealer. When he opened this new account, Venners did not disclose to his new broker the existence of the margin account in which he held a substantial number of KFX shares.
- During the period from April 24, 1997, through March 6, 1998, Venners was issued forty-three margin maintenance calls calling for him to deposit additional equity into his margin account. To combat this steady stream of margin calls, commencing April 1997 Venners systematically marked the close in KFX stock in his newly opened brokerage account. Between April 24, 1997, and June 12, 1998, Venners purchased KFX stock in that account on seventy-two occasions. Fifty-one of those purchases were executed during the last ten minutes of the trading day. Of those fifty-one purchases, thirty-four were the last KFX trade of the day on the American Stock Exchange. The vast majority of these trades were executed on an uptick (i.e., the purchase price was higher than that of the previously reported trade), and others were executed on a zero plus tick (i.e., the purchase price was the same as for the previously reported trade, which trade had been executed on an uptick).
- Venners benefited from his conduct, because even a small increase in the closing price of KFX stock (frequently $1/16 or $1/8 higher than if he had not purchased) resulted in a significant increase in the valuation of the equity in his margin account. These increases enabled Venners in some cases to avoid margin maintenance calls altogether, and in other cases to decrease the dollar amounts he had to pay to satisfy the margin calls. Of the forty-three margin calls issued to Venners during the relevant period, twenty were met by market appreciation following Venners' marking the close trades. Even where Venners was unable fully to satisfy margin calls by marking the close, on some occasions he was able partially to satisfy the margin calls by means of his manipulative activity.
The Complaint alleges that, by his fraudulent conduct, Venners violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Simultaneously with the filing of the Complaint, without admitting or denying its allegations, Venners consented to the entry of a Final Judgment enjoining him from future violations of those provisions, and requiring him to pay a civil penalty of $10,000.
The Commission acknowledges the assistance of the American Stock Exchange in investigating this matter.