Financial Crime Weekly: Cantor Fitzgerald Charged With Violating AntiFraud Provisions, Ex-ComTech CEO Charged With Insider Trading

SEC Charges Cantor Fitzgerald With Causing 2 SPACs To Make Misleading Statements

The Securities and Exchange Commission on Thursday charged  financial services firm Cantor Fitzgerald, L.P. with causing two special purpose acquisition companies that it controlled to make misleading statements to investors ahead of their initial public offerings. 

The SEC’s Order states that a team of Cantor Fitzgerald executives controlled two SPACs in 2020 and 2021 which raised $750 million from investors through IPOs. The SEC’s order finds that Cantor Fitzgerald caused the SPACs in their SEC filings to deny having had contact or substantive discussions with potential business combination targets prior to their IPOs. 

However, the Order finds that at the time of each SPAC’s IPO, Cantor Fitzgerald personnel had already begun negotiations with a group of potential target companies for the SPACs, including with View, Inc. (OTC:VIEWQ) and Satellogic, Inc. (NASDAQ:SATL), the companies with which the SPACs eventually merged.

“Cantor Fitzgerald misled investors about a critical investment consideration by repeatedly stating in public filings that it had not identified or approached any potential merger targets, despite having had substantive discussions with several private companies regarding a potential merger, including with the companies with which its SPACs eventually merged,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement.

The order charges Cantor with causing violations of certain antifraud and proxy provisions of the federal securities laws. Cantor Fitzgerald agreed to cease and desist from violations of the charged provisions and to pay a $6.75 million civil penalty without admitting or denying the order’s findings. 

SEC Charges Former Comtech CEO with Insider Trading

The SEC announced insider trading charges on Wednesday against Ken Peterman, the former CEO of Comtech Telecommunications Corp. (NASDAQ:CMTL), in connection with his sale of Comtech shares ahead of Comtech’s forthcoming negative quarterly earnings results.

According to the SEC complaint, Peterman received a confidential presentation detailing Comtech’s forthcoming negative quarterly earnings results on March 4, 2024 and informed that he was being terminated for cause eight days later. 

The SEC’s complaint alleges that just a few hours after he was terminated, and while under two different trading blackouts, Peterman placed an order to sell Comtech stock.

On March 18, 2024, Comtech reported its negative quarterly earnings, which caused its stock price to drop more than 25 percent. The complaint alleges that Peterman avoided losses by selling the shares in advance of Comtech’s negative earnings announcement. 

Peterman also allegedly directed his financial advisor to sell additional Comtech stock he held in a joint account, but the financial advisor was unable to complete the sale. Peterman allegedly would have avoided additional losses of about $110,000 had the trade been executed. 

“There is no gray area when it comes to trading on the basis of material non-public information in breach of one’s fiduciary duty. C-suite executives like the defendant, a CEO with decades of experience, know that it is illegal to use their company’s confidential information for their own financial gain,” said Tejal D. Shah, Associate Director of the SEC’s New York Regional Office. 

“Our action today should serve as a strong deterrent to those executives who might think about going down the same path,” Shah added. 

The complaint charges Peterman with violating Section 10(b) of the Securities Exchange Act of 1934 and seeks permanent injunctive relief, disgorgement with prejudgment interest, civil penalties and a bar preventing Peterman from serving as an officer or director of a public company.

The U.S. Attorney’s Office for the Eastern District of New York also announced criminal charges against Peterman on Wednesday.