Friday, February 17, 2012

SEC Litigation Releases: Week in Review

By Tim Dulaney, PhD

Court Enters Default Judgement Against SEC Defendant Daniel J. Burns and Orders Him to Pay over $1.1 Million, February 16, 2012 (Litigation Release No. 22260)

In their January 2011 complaint, the SEC filed a civil injunctive action against Daniel J. Burns and Robert F. McCullough, Jr. alleging that both defendants were guilty of insider reporting violations.  In addition, Burns allegedly "received hundreds of thousands of dollars in improper compensation and benefits from CytoCore[, Inc.] as an unregistered broker."  Burns submitted expense reimbursement claims based upon false information concerning investor solicitations. The final judgement orders Burns to pay over $1.1 million and "permanently bars him from acting as an officer or director of a public company."

SEC Charges Investment Adviser Brenda A. Eschbach with Multi-Year Misappropriation of Client Funds, February 15, 2012 (Litigation Release No. 22259)

The SEC filed a civil injunctive action against Brenda A. Eschbach "with securities fraud, investment advisory fraud, and acting as an unregistered broker-dealer."  The complaint (PDF) alleges that Eschbach issued inaccurate account statements and misappropriated client funds for personal expenses.   Eschbach has agreed to pay over $2.5 million pending the final judgement and the outcome of the criminal proceeding (U.S. v. Brenda A. Eschbach, 8:10-cr-00017-JVS (C.D. Cal.)).  Eschbach has plead guilty to mail fraud and money laundering and consented to the Commission Order essentially barring her from the financial services industry.

SEC Charges Venulum with Registration Violations in Connection with Offerings of Wine Contracts and Promissory NotesFebruary 15, 2012 (Litigation Release No. 22258)

The SEC charged both a British Virgin Islands company (Venulum Ltd.) and a Canadian company (Venulum Inc.) "with registration violations in connection with unregistered offers and sales of promissory notes and interests in fine wines."  The defendants agreed to the permanent injunctive action without admitting or denying the allegations.

SEC Charges California Hedge Fund Manager Connected to Galleon Insider Trading Case, February 10, 2012 (Litigation Release No. 22257)

The SEC filed a civil injunctive action against Douglas F. Whitman alleging that Whitman Capital had participated in insider trading.  Whitman allegedly traded on earnings information regarding two technology companies prior to the public announcement of these earnings and "reaped nearly $1 million in ill-gotten gains."  In particular, Whitman allegedly took a long position in Polycom Inc. prior to the announcement of their fourth quarter 2005 earnings.  After the earnings were reported, Whitman allegedly liquidated the position realizing nearly $400,000 in profits.  In another case, Whitman allegedly bought put options on Google Inc. prior to the announcement of their second quarter 2007 earnings.  As a result of the earnings report, Whitman allegedly realized a profit of approximately $600,000.  This action is related to the vast "insider trading ring connected to Raj Rajaratnam and hedge fund advisory firm Galleon Management" involving not less than 30 defendants, securities of more than 15 companies and illicit profits approaching $100 million.

Three Defendants Settle and Additional Defendant Charged in Stock Manipulation Ring, February 10, 2012 (Litigation Release No. 22256)

Earlier this year, the US District Court for the District of Delware entered final judgements against Nathan M. Michaud, Garard J. D'Amaro and Marc J. Riviello concerning a scheme in which the defendants would agree to sell large blocks of penny stocks.  The stocks were allegedly placed in nominee accounts controlled by the defendants.  The defendants then allegedly artificially inflate the market prices and subsequently dumped the shares when a large return was realized.  For more information about the scheme, see the original SEC litigation press release on the matter.   Each of the defendants have been fined and Riviello (Criminal Action No. 09-23-SLR (D. Del.)) and D'Amaro (Criminal Action No. 09-54-SLR (D. Del.)) have served time (for related transgressions).  At the end of 2011, the SEC amended their complaint to include James Meagher as another defendant.

SEC Alleges Brent C. Bankosky Participated in Insider Trading, February 10, 2012 (Litigation Release No. 22255)

The SEC charged Brent C. Bankosky (PDF), a former director of Takeda Pharmaceuticals International, Inc., with insider trading.  The SEC alleged "that Bankosky reaped more than $63,000 of profits, achieving a 169% rate of return, by trading on non-public information about two business transactions in 2008."  Bankosky allegedly traded securities using non-public information concerning Takeda's potential acquisitions and business transactions.  Bankosky has agreed to pay nearly $150,000 to settle the charges.  The US District Court for the Southern District of New Jersey will review the settlement and will "determine whether to impose an officer-and-director bar against Bankosky."

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