Friday, March 2, 2012

SEC Litigation Releases: Week in Review

By Tim Dulaney, PhD and Tim Husson, PhD

Court Enters Summary Judgement Against Insider Trading Defendants John Jantzen and Wife, Marleen Jantzen, March 1, 2012 (Litigation Release No. 22273)

On Wednesday, United States District Judge James R. Nowlin of the Western District of Texas, Austin Division, entered summary judgment against Austin residents John and Marleen Jantzen on insider trading charges brought by the Commission in 2010. The Court found that both Jantzens insider traded in violation of the Exchange Act based on material nonpublic information obtained by Marleen, a former assistant to an executive at Dell, Inc, that Dell would soon acquire Perot Systems, Corp. in a tender offer. John was a licensed securities broker at the time and purchased call options and stock on the firms just before their public announcement of the deal. The Court ordered the couple to pay disgorgement of $26,920.50, representing profits gained as a result of the illegal insider trading, plus prejudgment interest.

Court Dismisses Remaining Claims Against Frank T. Noyes, February 28, 2012 (Litigation Release No. 22272)

The SEC had alleged (PDF) that Noyes manipulated revenue by backdating a contract in 2001. Noyes was a senior manager and then director of financial reporting at Qwest Communications International Inc., a Denver-based telecommunications company, between April 1999 and September 2000 and a senior director of finance in April 2001. The claims were dismissed upon motion by the SEC.

Court Enters Final Judgement Against Former CFO of Qwest Communications Int’l Robert S. Woodruff, February 28, 2012 (Litigation Release No. 22271)

The United States District Court for the District of Colorado entered a Final Judgment dated February 3, 2012, in a civil action against Robert S. Woodruff, the former chief financial officer of Qwest Communications International Inc., a Denver-based telecommunications company. The SEC claimed (PDF) that "from at least April 1, 1999 through March, 2001, Woodruff and others at Qwest engaged in a large-scale financial fraud that hid from the investing public the true source and nature of the company’s revenue and earnings growth," and that "Woodruff sold Qwest stock in violation of the insider trading prohibition of the securities laws." The Court found him liable for disgorgement of $1,731,048 (plus prejudgment interest of $640,427), imposed a civil penalty of $300,000, and prohibited him from acting as an officer or director of a public company for a period of five years.


SEC Obtains Final Judgments on Consent against Jason Pflaum and Walter Shimoon, February 24, 2012 (Litigation Release No. 22270)

The Securities and Exchange Commission alleged that between 2008 and 2010, Jason Pflaum (a former analyst at Barai Capital Managament) received material non-public information and caused others to trade upon this information. Similarly, Walter Shimoon (a former VP of Business Development at Flextronics International Ltd.) disseminated material non-public information about his company. Both Pflaum and Shimoon have plead guilty to their respective charges and were fined approximately $113,000 and $50,000, respectively.

Court Accepts Guilty Plea from Gregory McKnight in $72 Million Ponzi Scheme, February 24, 2012 (Litigation Release No. 22269)

In mid-February, the US District Court for the Eastern District of Michigan accepted Gregory N. McKnight's plea of guilty on the charges of wire fraud (one count) and his orchestration of a $72 million Ponzi scheme that ensnared over 3,000 investors. McKnight raised investor funds through his company Legisi Holdings, LLC and promised investors unrealistic returns (as high as 15%/month) by investing in "foreign currencies, commodity futures, stocks and real estate." McKnight allegedly only invested a fraction of investor funds and used new investor funds to pay for the supposed profits accumulated by old investors. In addition to the fines and penalties levied last summer totally approximately $6.5 million, McKnight faces the possibility of 20 years in a federal prison. For the previous litigation releases in this matter, see here and here.

Court Enters Judgements Against Defendants Magnum d’Or Resources, Inc., David Della Scuicca, Jr., and Dwight Flatt, February 24, 2012 (Litigation Release No. 22268)

In April 2011 (Litigation Release No. 21951), the SEC filed a complaint in the US District Court for the Southern District of Florida alleging Joseph J. Glusic and Magnum d'Or Resources, Inc. (where he was formerly the CEO and president) had committed antifraud and registration violations. In addition, Dwight Flatt, Shannon Allen and David Della Sciucca, Jr. were charged with registration violations. According to the litigation release, "Magnum issued stock pursuant to false Form S-8 registration statements, and used bogus consultants to funnel more than $7 million in illicit stock proceeds back into the company." Glusic and Allen have already consented to the entry of judgments against them, without admitting or denying the accusations. This latest release announces the results of the litigation which include nearly $9 million in fines and penalties for Magnum and permanent injunctions against Sciucca and Flatt.

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