Friday, March 23, 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.


Defendant Michael Kimelman Settles SEC Insider Trading Charges, March 20, 2012, (Litigation Release No. 22299)

Michael Kimelman -- formerly a trader a Lighthouse Financial Group, LLC -- received material nonpublic information from an attorney concerning the acquisition of 3Com Corp. and allegedly traded on this information in September 2007.  Using this insider information, Kimelman was allegedly able to realize "illicit profits of approximately $270,000 in two personal trading accounts."  Kimelman consented to the entry of final judgment entered by the US District Court for the Southern District of New York ordering him to pay disgorgement of illicit profits and over $50,000 in prejudgment interest.  

SEC Credits Former AXA Rosenberg Executive for Substantial Cooperation during Investigation, March 19, 2012, (Litigation Release No. 22298)

In this litigation release, the SEC "provide[s] guidance regarding the circumstances under which individuals may receive credit as part of the SEC’s Cooperation Initiative."  The SEC uses the assistance of a former AXA Rosenberg Group, LLC senior executive in "the agency’s investigation into the nondisclosure of a coding error in the firm’s quantitative investment process" as an example for how the initiative works in practice.   In this example, through the timely and complete cooperation of the executive, the SEC was able to return all of the over $200 million in losses and imposed additional penalties reaching nearly $30 million.

Lanexa Management, LLC Agrees Disgorge $746,797 in Insider Trading Profits, March 19, 2012, (Litigation Release No. 22297)

The US District Court for the Southern District of New York entered a final judgment against Lanexa Management, LLC as a result of a November 2010 SEC complaint (Litigation Release No. 21741).  The SEC alleged in their complaint that Thomas C. Hardin -- a former managing director at Lanexa Management, LLC -- traded on material nonpublic information on behalf of a Lanexa hedge fund "resulting in approximately $640,000 in illicit profits."  According to the amended complaint, two attorneys distributed information concerning the acquisition of 3Com Corp. in exchange for kickbacks.  The information eventually found its way into Hardin's hands and Hardin then allegedly used the information to trade in 3Com securities ahead of the public announcement of the acquisition.  Lanexa has been ordered to pay nearly $750,000 in disgorgement and prejudgment interest.

SEC Charges Senior Executives at California-Based Firm in Stock Lending Scheme, March 16, 2012, (Litigation Release No. 22296)

Last week, the SEC charged James T. Miceli and Douglas A. McClain, Jr. -- senior executives of Argyll Investements, LLC -- with defrauding investors using their "purported stock-collateralized loan business."  Miceli and McClain allegedly induced several corporate officers into offering publicly traded stock as collateral for loans.  Miceli and McClain allegedly represented that the collateral would not be sold unless the borrower defaulted on the loan.  Miceli and McClain subsequently sold the equity at market value, using the proceeds from selling the collateral to fund the loans in some cases and to accumulate "more than $8 million in unlawful gains that Miceli and McClain used in part toward their personal expenses."

SEC Charges Former Executive at CKE Restaurants with Insider Trading, March 16, 2012, (Litigation Release No. 22295)

Earlier this month, the SEC charged Noah J. Griggs Jr. -- a former executive VP of CKE Restaurants, Inc., the parent company of Carl's Jr. and Hardee's -- with insider trading.  Griggs allegedly purchased 50,000 shares of CKE stock after learned about a potential acquisition in a monthly strategic planning meeting.  Using this material and nonpublic information, the SEC alleges that Griggs was able to realize a profit of nearly $150,000.    Without admitting or denying the allegations against him, the defendant has agreed to pay over $250,000 in disgorgement, penalties and prejudgment interest.  

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