Two Indian-origin brothers have been charged by the US federal regulator for deceiving investors by purporting to provide unbiased research reports on certain publicly-traded small and microcap companies.
Ajay Tandon, 41, and Amit Tandon, 47, of New York and stock research firm SeeThruEquity co-founded by them were charged by the Securities and Exchange Commission 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.
Mr Ajay is the co-founder and CEO of SeeThruEquity and has experience in the securities industry. Mr Amit is the Director of Research at SeeThru as well as an attorney and a member of the New York Bar.
According to the SEC's complaint, SeeThruEquity and the Tandon brothers 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 brothers 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, according to the complaint.
The SEC alleges that the brothers 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 per cent above the current trading price of the stock.
The SEC further alleges that Mr Ajay 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.
It alleges that the brothers 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," Director of the SEC's Atlanta Regional Office Richard Best said.
"According to our complaint, Ajay Tandon even scalped multiple issuers, further revealing the biased nature of SeeThru's research reports."
The complaint, which was filed in federal court in Manhattan, charges Mr Ajay and SeeThru with violating the antifraud provisions of the federal securities laws, and charges Mr Ajay and Mr Amit with aiding and abetting certain violations by SeeThru.
The SEC seeks permanent injunctions, a conduct-based injunction that would bar the brothers and SeeThru from promoting the issuer of any security, and disgorgement of ill-gotten gains plus interest, penalties, officer-and-director bars, and penny stock bars.