Friday, March 16, 2012

SEC Litigation Releases: Week in Review (Part I)

By Tim Dulaney, 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 first of the two posts.

SEC Files Civil Injunctive Action Against Senior Management of Thornburg Mortgage, Inc. for Alleged Fraudulent Overstatement of Thornburg’s Income, March 13, 2012 (Litigation Release No. 22287)

Ealier this week, the SEC charged that Larry Goldstone, Clarence Simmons and Jane Starrett (former executives of Thornburg Mortgage, Inc.) had  "materially misrepresent[ed] the financial condition and liquidity of Thornburg."  The defendants allegedly overstated quarterly income in Thornburg's 2007 annual report by over $420 million changing the loss actually experienced by Thornburg into a false profit.  Immediately preceding the 2007 annual report, Thornburg received over $300 million in margin calls that could not be met on a timely basis which "severely drained its liquidity." For more information about this complaint, see here (link opens PDF).

Court Orders Two Officers of United American Ventures to Pay $1 Million Penalties and $8.5 Million in Disgorgement in SEC Case, March 13, 2012 (Litigation Release No. 22286)

In 2010, the SEC charged Eric J. Hollowell, Philip Lee David Jack Thomas, Matthew A. Dies, Anthony J. Oliva and United American Ventures, LLC with securities fraud steming from United American Ventures' alleged "rais[ing of] $10 million from at least 100 investors through the unregistered and fraudulent sale of convertible bonds."  A federal judge in New Mexico assessed fines and penalties against Hollowell and Thomas amounting to more than $10 million.  The judge also assessed disgorgement and penalties amounting to  over $400,000 for Oliva (jointly with Integra Investment Group, LLC) and over $100,000 for Dies.

Former StarMedia Executive Agrees to Settlement in SEC Litigation, March 13, 2012 (Litigation Release No. 22285)

Earlier this week, the US District Court for the Southern District of New York entered a final judgement against Adriana J. Kampfner of the non-defunct StarMedia Network, Inc.  This final judgement stems from a 2006 SEC civil injunctive (Litigation Release No. 19627) action that alleged StarMedia had "made materially false disclosures and financial statements in its annual Report on Form 10-K for its fiscal year 2000 and its quarterly Reports on Form 10-Q for the first two quarters of 2001."  According to the original litigation release, StarMedia allegedly inflated revenues by nearly $20 million to meet projections and in order to obtain additional financing.

SEC Settles With Former Wall Street Professional for Insider Trading Relating to the Acquisition of Jamdat Mobile, Inc., March 12, 2012 (Litigation Release No. 22284)

Ealier this month, the US District Court in Manhattan entered a final judgement against Alissa Joelle Kueng.  In October 2009 (Litigation Release No. 21249), the SEC alleged that Kueng dispensed material non-public information concerning the acquisition of Jambat Mobile, Inc. by Electronic Arts, Inc. including the acquisition price prior to the public announcement of the acquisition.  The four other defendants in this action had previously settled the charges against them.  The final judgement ordered Kueng to pay a civil penalty of $25,000.

SEC Charges Two Operators of Home Maintenance Company with Conducting Fraudulent Securities Offering, March 9, 2012 (Litigation Release No. 22281)

The SEC filed a civil injunctive action earlier this month in the US District Court for the Eastern District of Pennsylvania against Edward V. Ellis and Jennifer L. Seidel alleging the two had conducted an unregistered offering of Sederon, Inc. stock.  Sederon was a company that provided home maintenance services to residential home owners.  Although Sederon was "never profitable [...] and often failed to generate enough revenue to meet payroll and other expenses", the defendants allegedly raised more than $500,000 by claiming the company was highly profitable and that investors could potentially realize a 900-1300% profit when the company went public.  The SEC is seeking nearly $600,000 in disgorgement and prejudgment interest.

SEC Charges Former Executive at Coca-Cola Bottling Company with Insider Trading, March 9, 2012 (Litigation Release No. 22280)

In a complaint (link opens PDF) filed earlier this month, the SEC alleged that Steven Harrold traded on material non-public information in his wife's brokerage account.  Steven Harrold was a VP at Coca Cola Enterprises Inc. (CCE) and alleged knew that his company planned "to acquire The Coca-Cola Company's [(KO)] bottling operations in Norway and Sweden."  Harrold allegedly traded CCE during the blackout period before the public announcement of the acquisition and allegedly realized an illicit profit of nearly $90,000.

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