What We Have Here Is Failure To Communicate

September 26, 2013

It comes off as a bizarre game of hide-and-seek involving the Federal Bureau of Prisons and the Securities and Exchange Commission. You got a convicted felon. You got the SEC looking to bang him out of the biz. Trouble is they either can't find the guy in his cell or they don't want to bother him during orientation week.

On October 3, 2012, the Securities And Exchange Commission ("SEC") file a Complaint in federal court in the Northern District of California against Lion Capital Management LLP and Hausmann-Alain Banet.  The SEC alleged that the investment advisor and Banet defrauded investors of Lion Absolute Value Fund, an investment fund Lion Capital and Banet controlled, by misusing fund assets and providing investors with fabricated statements of the fund's performance. The account statements materially misstated the financial condition and performance of the fund, as well as the amount of assets it had. According to the SEC's complaint, Banet stole more than a half-million dollars from a retired schoolteacher who thought she was investing her retirement savings in Banet's hedge fund. 

In October 2012, the United States Attorney for the Northern District of California unsealed an Indictment against Banet and on May 22, 2013, Banet entered a written plea agreement to two counts of mail fraud and two counts of wire fraud. On August 15, 2013, Banet was sentenced to 56 months of incarceration, 36 months of supervised release, ordered to pay $1,217,668.40 in restitution,  and ordered to forfeit certain assets.

I'm not looking to gild the lily here or pile it on.  The SEC's Complaint, the USA's Indictment, and the Plea Agreement set it all forth in nauseating detail.  This is not a nice guy. This was not a nice scam. He got what he deserved. Aint' sheddin' no tears for this low life.

Unfortunately, things go a tad awry from here. Not anything major but, frankly, a bit absurd bordering on comical.

On August 28, 2013, the SEC issued an Order Instituting Proceedings ("OIP") against Hausmann-Alain Banet, and scheduled a September 30, 2013, hearing. What, you may understandably ask, is this OIP all about.  Ahhh . . . it's one of those bits of bureaucracy and legal nonsense that elicits much head scratching and eye rolling.  To be clear, it's not the SEC fault, per se, because it's something that's mandated upon the regulator by law. Boiled down to a distillate of nonsense, the SEC is bringing proceedings to bar Banet from the securities industry because of his status as a convicted felon. 

In furtherance of the SEC's proceedings, we have this fascinating tid bit, as set forth in In the Matter of Hausmann-Alain Banet  (Order, Securities and Exchange Commission, Admin Pro. Ruling Release NO. 883; Admin Pro. File No. 3-15445 / September 18, 2013):

On September 17, 2013, the Division of Enforcement (Division) filed a Response to Order Scheduling Hearing and Designating Presiding Judge, notifying this Office that Respondent, who is incarcerated, has not been served with the OIP because the Federal Bureau of Prisons has not yet identified the institution where Respondent will be serving his recently imposed sentence. The Division suggests that the hearing be postponed to allow time to perfect service.

To allow time for service of the OIP and for Respondent to answer, IT IS ORDERED that the September 30, 2013, hearing is POSTPONED sine die, and a telephonic prehearing conference shall be held on Monday, October 28, 2013, at 10:30 a.m. EDT. Respondent's Answer to the allegations in the OIP is due within twenty days of service of the OIP . . .

Sometimes the wheels of justice roll forward smoothly. They hum. Sometimes you can hear them grind to a halt. 

Lemme see if I got this. 

You got a defendant in a criminal case and an SEC civil case who pled guilty and was sentenced on August 15, 2013, to 56 months in federal prison.  On August 28, 2013, the SEC apparently sought to have this felon barred from the securities industry and scheduled a September 20th hearing for just such a purpose. All well and fine, however, on September 17, 2013, the SEC reschedules its hearing because "the Federal Bureau of Prisons has not yet identified the institution where Respondent will be serving his recently imposed sentence."  

Ummm . . . am I missing something here? 

The SEC's September 18th Order clearly asserts: "Respondent, who is incarcerated . . ." Is incarcerated as in federal prison, right? The delay in these seemingly perfunctory SEC proceedings to bar someone who will be sitting in a federal cell for much of the next five years is because the Federal Bureau of Prisons doesn't know where Banet is or where he will finally be residing?  What the hell?  Y'all lose this guy in the system? Is it too much of an imposition upon this fine fellow to have him respond to the SEC's Order because it would be something of an inconvenience during his prison orientation week? Remind me again -- how much consideration did this creep give his victims?