September 21, 2022

SEC settles insider trading charges against investment adviser and his close friend

On September 20, 2022, the Securities and Exchange Commission filed a settled action against registered investment adviser John P. Mendes and his friend, Andre Dabbaghian, concerning insider trading charges related to the purchase of Layne Christensen Company securities before a 2018 public announcement regarding the company’s impending acquisition by Granite Construction Inc..

According to the complaint which the SEC filed in the US District Court for the Northern District of California, Dabbaghian was the Senior Manager of Corporate Development at Granite Construction Inc., a California-based construction and construction materials company, who played an integral role in negotiating for Granite to acquire Layne Christensen Company, a global water management, infrastructure services and drilling company based in Texas.  In violation of a duty of confidence owned to Granite, Dabbaghian provided material nonpublic information (MNPI) regarding the acquisition to his close friend Mendes, whom he knew to be a registered representative and investment adviser with a dually-registered broker-dealer and investment adviser.  Based on this MNPI, between November 3, 2017 and February 13, 2018, Mendes purchased Layne securities for his wife and 18 of his customers and clients, including his parents.  When the acquisition was announced on February 14, 2018, the stock increased 18 percent enabling Mendes to realize collective illegal profits of approximately $170,000.  Approximately $33,000 and $9,000 of those profits were generated for his wife and parents, respectively.

In its complaint, the SEC charged Mendes and Dabbaghian with violating the anti-fraud provision of  Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  According to the SEC, Mendes has consented to the entry of a judgment against him which permanently enjoins him from engaging in further securities violations and orders him to pay nearly $42,000 in disgorgement and prejudgment interest and also pay a civil penalty of more than $51,000.  Mendes also consented to be barred for 5 years from serving as an officer or director of a public issuer.

According to the SEC, Dabbaghian consented to the entry of judgment against him without admitting or denying the allegations in the complaint and agreed to be permanently enjoined from further violations of the federal securities laws. Dabbaghian also agreed to barred for 3 years from serving as an offer or director of a public issuer.  Both judgments are subject to the court’s approval.  

On the same day, the US Attorney’s Office for the Northern District of California filed parallel criminal charges against Mendes for the unlawful securities trades.

December 21, 2022 Update:  On December 19, 2022, the SEC filed an Order barring Mendes “from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.” The Order also barred Mendes from participating in any penny stock offering.  As part of the settlement, Mendes is permitted to reapply to have his association restored, but his reentry could be conditioned upon a number of factors, including the payment of disgorgement or civil penalties.

SEC Press Release | SEC Order | USOA NDCA Press Release