Friday, March 16, 2012

SEC Litigation Releases: Week in Review (Part II)

By Tim Husson, PhD

Due to the high volume of litigation releases from the Securities and Exchange Commission over the past week, we're spreading this week's review over two posts. This is the second of the two posts.

SEC Charges Five with Insider Trading on Confidential Merger Negotiations Between Philadelphia Company and Japanese Firm, March 14, 2012 (Litigation Release No. 22288)

The SEC charged Timothy J. McGee, Michael W. Zirinsky, Robert Zirinsky, and Hong Kong residents Paulo Lam and Marianna sze wan Ho with insider trading. Lam and Ho have each agreed to settle the SEC’s charges and pay approximately $1.2 million and $140,000 respectively. The SEC alleges that McGee and Michael Zirinsky, both registered representatives, traded on nonpublic information about an impending merger between Philadelphia Consolidated Holding Corp.'s (PHLY) and Tokio Marine Holdings. According to the complaint, McGee obtained knowledge of the merger from a PHLY senior executive "who was confiding in him through their relationship at Alcoholics Anonymous (AA) about pressures he was confronting at work," and made a $292,128 profit when the stock price jumped 64 percent on July 23, 2008. He also traded on this information in the accounts of several family members, and passed the information to Michael Zirinsky, who in turn tipped off Lam, who in turn tipped off Ho.

SEC Charges Three Executives At Noble Corporation With Bribing Customs Officials In Nigeria, March 14, 2012, (Litigation Release No. 22290)

The SEC claims the executives, James J. Ruehlen and Noble CEO Mark A. Jackson, violated the Foreign Corrupt Practices Act (FCPA) "by participating in a bribery scheme to obtain illicit permits for oil rigs in Nigeria in order to retain business under lucrative drilling contracts." The SEC also alleges that Thomas F. O’Rourke, who was a former controller and head of internal audit at Noble, helped approve and cover up the bribe payments. O’Rourke settled the charges by paying an undisclosed penalty.

Court Enters Order Amending Final Judgment Against Agile Group Founded and Head Portfolio Manager Neal R. Greenberg, March 14, 2012, (Litigation Release No. 22291)

The SEC claimed in September 2010 (PDF) that Greenberg "negligently misrepresented the safety, suitability, and diversification of several hedge funds to clients, in many cases conservative investors in or near retirement" and alleged provided several inadequate disclosures, account statements, and compliance and supervision policies and procedures. Greenberg was the majority owner of Tactical Allocation Services LLC, and was the head portfolio manager of the funds at issue: the Agile Safety Fund, the Agile Safety Fund International, and the Agile Safety Variable Fund. Under the amended Final Judgment, Greenberg is liable for almost $4 million in disgorgment plus post-judgment interest.

SEC Brings Charges in Connection with Secondary Market Trading of Private Company Shares, March 14, 2012, (Litigation Release No. 22292)

The SEC alleges that Frank Mazzola and his firms Felix Investments, LLC, and Facie Libre Management Associates, LLC, misled investors and reaped undisclosed commissions in connection with several funds ostensibly created to acquire shares of Facebook, Twitter, Zynga, and related technology companies. The Commission also alleged that SharesPost, Inc., an online platform that facilitated certain secondary market transactions, and its CEO, Greg Brogger, effected securities transactions without registering as a broker-dealer. SharesPost and Brogger agreed to penalties of $80,000 and $20,000, respectively.

SEC Charges a Chicago-Based Management Consultant with Insider Trading, March 15, 2012, (Litigation Release No. 22293)

The SEC claims that Sherif Mityas, a partner and vice-president at a global management consulting firm, was retained by the Carlyle Group in May 2010 in regards to Carlyle's potential acquisition of NBTY Inc., a Long Island-based vitamin company. "That same month, Mityas purchased NBTY stock and subsequently tipped a relative who also bought NBTY shares. After Carlyle publicly announced its acquisition of NBTY, Mityas and his relative sold their NBTY stock for a combined profit of nearly $38,000." Mityas has agreed to pay more than $78,000 to settle the SEC’s charges.

Court Orders Former Broker to Pay over $500,000 for Defrauding 9/11 Widow, March 15, 2012, (Litigation Release No. 22294)

A federal judge in Massachusetts entered a final judgment ordering James J. Konaxis, formerly a registered representative at Sentinel Securities, Inc., to pay $514,954 in interest, penalties, and disgorgment related to "commissions earned over a two-year period by defrauding a former customer who was left widowed by the September 11, 2001 terrorist attacks." The judge found that Konaxis “misled the victim into thinking her investments were safe, while churning (e.g., excessively trading) her funds in a manner contrary to her interests[.]” The accounts were initially funded with payments from the September 11th Victim Compensation Fund.

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