Friday, April 6, 2012

SEC Litigation Releases: Week in Review

By Tim Dulaney, PhD

Court Holds Defendant in Contempt in SEC Action Involving Rhode Island-Based Offering Fraud, April 5, 2012, (Litigation Release No. 22317)

In October 2010, the SEC filed a civil injunctive action against David Stern alleging that he misrepresented several key characteristics of his company -- Online Registries, Inc. -- in order to raise investor funds.  The SEC also alleged that Stern then misappropriated these funds.  The court entered an Order for Other Equitable Relief in March 2011.  Last August, the SEC filed an application for civil contempt against Stern after he allegedly formed a new company -- Instant Medical Access LLC -- nearly identical to his previous company and allegedly violated the injunctive orders against him.  Earlier this week, the US District Court for the District of Rhode Island entered an order of civil contempt requiring documentation of his new business venture to be divulged and barring him from activities related to this or any related venture.

Court Enters Final Judgment against Defendant Anthony M. Cimini, Sr., April 3, 2012, (Litigation Release No. 22316)

In May 2008, the SEC alleged that Anthony M. Cimini, Sr. "participated in a fraudulent 'pump and dump' scheme to evade the registration provisions of the federal securities laws and then sell purportedly unrestricted Global shares during a fraudulent promotional campaign."  The US District Court for the Middle District of Florida entered a final judgment this week ordering Cimini to pay over $40,000 in disgorgement, prejudgment interest and penalties for his conduct outlined in the May 2008 SEC complaint (Litigation Release No. 20598).

SEC Sues Two Former ArthroCare Corporation Officers over Accounting Fraud, April 2, 2012, (Litigation Release No. 22315)

The SEC filed a complaint in federal court against Michael A. Baker and Michael T. Gluk -- respectively the former CEO and CFO of ArthroCare Corporation -- to "recover bonus compensation and stock sale profits they received during a period when the company’s financial statements were misstated due to accounting fraud."  Although the executives are not charged with personal misconduct, the executives are required to reimburse ArthroCare for bonuses and stock profits received during the period in which false financial statements were filed pursuant to the Sarbanes-Oxley Act.

Court Enters $98.6 Million Final Judgment against UK Hedge Fund Adviser Pentagon Capital Management PLC and its CEO Lewis Chester, March 30, 2012, (Litigation Release No. 22314)

Last week, the US District Court of the Southern District of New York entered a final judgment against Pentagon Capital Management and its former CEO Lewis Chester ordering total monetary relief approaching $100 million.  The final judgment stems from a previous opinion in which the court found "that Defendants 'intentionally, and egregiously,' violated the antifraud provisions of the securities laws by engaging in a late trading scheme to defraud United States mutual funds."  For more information, see the previous litigation releases here and here.

Court Enters Final Judgment against Defendants Frederick S. Schiff and Richard J. Lane, March 30, 2012, (Litigation Release No. 22313)

The US District Court in New Jersey entered final judgments against Frederick S. Schiff and Richard J. Lane in connection with an SEC allegation that, from early 2000 to late 2001, the executives participated in a "channel-stuffing" scheme in order to deceive the public about the health of Bristol-Myers Squibb Co.'s business.  The SEC complaint alleged that "Bristol Myers used financial incentives to induce wholesalers to buy its pharmaceutical products in excess of prescription demand in order to artificially inflate its results[.]"  Schiff has been order to pay over $130,000 and Lane has been order to pay over $35,000 to cover disgorgement and prejudgment interest.

British Virgin Islands Corporation and Resident of Switzerland Settle Changes of Insider Trading in the Options of Intermune, Inc., March 30, 2012, (Litigation Release No. 22312)

The US District Court for the Southern District of New York entered a settled final judgment against Michael S. Sarkesian and Quorne Ltd. in connection with an insider trading complaint filed by the SEC.  In the complaint, the SEC alleged that Sarkesian and Quorne traded InterMune, Inc. options on material non-public information.  According to the release, the "alleged illicit trading by Sarkesian and Quorne took place ahead of a December 17, 2010 announcement that the European Union’s Committee for Medicinal Products for Human Use, or CHMP, had recommended to the European Commission that it permit InterMune to market [a] developmental drug[.]"  Quorne and Sarkesian consented to the entry of final judgment and have been ordered to pay (jointly and severally) over $700,000 in disgorgement and penalties.

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