Friday, March 30, 2012

SEC Litigation Releases: Week in Review

By Tim Dulaney, PhD

SEC Obtains Preliminary Injunction in New York Investment Adviser Case, March 28, 2012, (Litigation Release No. 22311)

The US District Court for the Eastern District of New York issued a preliminary injunction against Brian Raymond Callahan and his advisory firms Horizon Global Advisors, Ltd. and Horizon Global Advisors, LLC.  This preliminary injunction stems from the charges filed by the SEC alleging Callahan "defrauded investors in five offshore funds and used some of their money to buy himself a multi-million dollar beach resort property on Long Island."  The court continues to freeze Callahan's assets and requires him to repatriate assets located outside the US.

SEC Obtains Summary Judgment against Serial Fraudster Matthew J. Gagnon, March 27, 2012, (Litigation Release No. 22310)

The US District Court for the Eastern District of Michigan granted summary judgment and final judgment against Matthew J. Gagnon concerning the charges outlined in the May 2010 litigation release (Litigation Release No. 21532).  The SEC alleged that between January 2006 and August 2007, Gagnon "helped orchestrate a massive Ponzi scheme conducted by Gregory N. McKnight and his company, Legisi Holdings, LLC [...]".  In a separated scheme beginning in August 2007, Gagnon allegedly raised nearly $400,000 from 21 investors promising a 200% return in 14 months in an investment that was "risk-free and 'SEC Compliant'".  In yet another unrelated scheme in April 2009, Gagnon allegedly "[...] promot[ed] a fraudulent offering of interests in a purported Forex trading venture."  The final judgment orders Gagnon to pay over $4 million in disgorgement and prejudgment interest and a civil penalty of $100,000.

SEC Files Settled Charges Against Former Bank Executive who Misled Auditors, March 27, 2012, (Litigation Release No. 22309)

Earlier this week, the SEC charged John Cinderey -- a former executive VP at United Commercial Bank -- with misleading independent auditors concerning the risks of outstanding loans.  Cinderey allegedly "altered memoranda prepared for the independent auditors" and "circumvented accounting controls and policies that required the bank to accurately assess the risks associated with loans".  Because Cinderey has settled a related administrative action brought by the FDIC and due to his continued assistance in the investigation of this matter, Cinderey will not be required to pay a civil penalty relating to the SEC action.

SEC Obtains Final Judgment on Consent Against Winifred Jiau, March 27, 2012, (Litigation Release No. 22308)

According to the February 2011 SEC complaint, Winifred Jiau disseminated material, nonpublic information concerning the earnings of Marvell Technology Group Ltd. to two individuals who then traded on the information and realized nearly $900,000 of illicit profits.  Jiau allegedly obtained this information while serving as a consultant associated with Primary Global Research LLC.  In order to settle parallel criminal charges against her, Jiau was ordered to pay over $3 million and was sentenced to four years in prison.

SEC Charges Operator of Gold Coin Firm with Conducting Fraudulent Securities Offering, March 26, 2012, (Litigation Release No. 22307)

The SEC recently filed a civil injunctive action against David L. Marion and International Rarities Holdings, Inc. (IR Holdings) "accusing them of conducting a fraudulent, unregistered offer and sale of approximately $1 million in securities."  According to the litigation release, Marion allegedly raised the funds by offering shares in the worthless shell company IR Holdings falsely representing to investors that IR Holdings was the parent company and 100% owner of International Rarities Corporation.   Rather than expanding IR Holdings business, Marion allegedly used the funds to finance personal expenses and casino gambling.

SEC Charges Medical Device Company Biomet with Foreign Bribery, March 26, 2012, (Litigation Release No. 22306)

Earlier this week, the SEC filed charges against Biomet, Inc. -- a seller of medical devices to orthopedic surgeons based in Indiana -- alleging its subsidiaries and agents took part in an international bribery scheme wherein public doctors would receive kickbacks (sometimes as high as 15% to 20%) for buying their products.    The alleged bribery continued for the better part of a decade and took place in Argentina, Brazil and China.  Biomet has agreed to pay nearly $6 million to settle the SEC's charges and an additional $17 million to settle the parallel criminal charges from the US Department of Justice.

SEC Files Subpoena Enforcement Action Against Wells Fargo for Failure to Produce Documents in Mortgage-Backed Securities Investigation, March 23, 2012, (Litigation Release No. 22305)

Last week, the SEC filed a subpoena enforcement action against Wells Fargo & Company in connection with an SEC investigation into the possible fraudulent sale "of nearly $60 billion in residential mortgage-backed securities to investors."  Although documents have been subpoenaed, and Wells Fargo has agreed to produce, the company has yet to produce the documents.  In connection with the securitization of the loans, the SEC alleges that Wells Fargo only performed their due diligence on a sample of loans within a pool and did not take any steps to address deficiencies that may remain within the pool but outside the sample.  The SEC is investigating whether Wells Fargo "misrepresented to investors that the loans being securitized complied with the bank’s loan underwriting standards."

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