By Tim Dulaney, PhD
SEC Charges Former Morgan Stanley Executive with FCPA Violations and Investment Adviser Fraud, April 25, 2012, (Litigation Release No. 22346)
Earlier this week, the SEC charged Garth R. Peterson (former managing director in Morgan Stanley's real estate investment and fund advisory business) with violating the Foreign Corrupt Practices Act (FCPA). The SEC alleges that "Peterson secretly arranged to have at least $1.8 million paid to himself and the Chinese official that he disguised as finder’s fees that Morgan Stanley’s funds owed to third parties." In addition, Peterson and the Chinese official (as well as an attorney) acquired a valuable real estate interest from a Morgan Stanley Fund. Peterson has agreed to pay more than a $250,000 in disgorgement and to give up in his interest in the valuable real estate interest (worth more than $3 million).
Attorney, Wall Street Insider, and Middleman Settle SEC Charges in $32 Million Insider Trading Case, April 25, 2012, (Litigation Release No. 22345)
The SEC alleged that an attorney (Matthew H. Kluger) leaked information concerning a dozen or so merger and acquisitions to a trader (Garrett D. Bauer), through the use a mutual friend (Kenneth T. Robinson), in advance of their public announcement. For information about the specific events involved, see this SEC press release. The settlement includes nearly $32 million, over $500,000 and nearly $900,000 in disgorgement and prejudgment interest for Bauer, Kluger and Robinson (respectively). The three have plead guilty and are due to be sentenced in June of this year.
SEC Charges H&R Block Subsidiary Option One with Defrauding Investors in Subprime Mortgage Investments, April 24, 2012, (Litigation Release No. 22344)
Earlier this week, the SEC charged Option One Mortgage Corporation (now known as Sand Canyon Corporation) with "misleading investors in several offerings of subprime residential mortgage backed securities ("RMBS")." The SEC alleges that in early 2007, Option One sold more than $4 billion of RMBS by promising investors that Option One would replace or repurchase mortgages that breached representations. Option One failed to disclose its inability to repurchase said obligations as a result of Option One's worsening financial condition. Option One has agreed to pay nearly $30 million to settle the SEC's fraud charges.
SEC Obtains Halts Fraudalent Scheme of Purportedly Selling Pre-IPO Facebook Shares, April 23, 2012, (Litigation Release No. 22343)
The US District Court for the Southern District of Florida (Miami) issued an order to halt Allen Weintraub's "ongoing fraudulent scheme of selling securities of an investment vehicle that he falsely represented owned pre-IPO shares of Facebook, Inc." The sale of these shares allegedly occurred after a final judgment had been entered against Weintraub in Janurary of 2012 and as a result Weintraub could be held in contempt for his actions. Weintraub operated through an alias (William Lewis) and through several entites including Private Stock Transfer, Inc. Importantly the "Division of Enforcement urges anyone who believes that Allen Weintraub may have recently defrauded them to contact John Rossetti, Senior Counsel, at 202-551-4819."
SEC Charges Former CalPERS CEO and Friend with Falsifying Letters in $20 Million Placement Agent Fee Scheme, April 23, 2012, (Litigation Release No. 22342)
The SEC alleges that former California Public Employees' Retirement System (CalPERS) CEO Federico R. Buenrostro and his friend Alfred J. R. Villalobos falsified documents given to a private equity firm to foster the false impression that CalPERS had approved placement agent fee disclosure documents. As a result, the private equity firm paid more than $20 million in placement agent fees to ARVCO Capital Research LLC (later known as ARVCO Financial Ventures LLC) it would not have paid without the falsified disclosure letters. The SEC is seeking disgorgement in addition to financial penalties.
SEC Sues Chairman of SinoTech Energy for Misappropriating $40 Million of Company Cash, and SinoTech for Falsifying Asset Values, April 23, 2012, (Litigation Release No. 22341)
The SEC filed charges against SinoTech Energy Limited along with Qingzeng Liu (SinoTech's Chairman), Guoqiang Xin (SinoTech's CEO) and Boxun Zhang (SinoTech's CFO) alleging various violations including securities fraud. SinoTech allegedly mislead investors concerning the usage of the IPO proceeds and subsequently overstated the value of the assets on its balance sheet. Furthermore, SinoTech's chairman allegedly misappropriated more than $40 million from the company. Beyond the injunctive relief and civil penalties sought for all defendants, the SEC is additionally seeking disgorgement from SinoTech and Liu.
SEC Obtains $4.8 Million Judgment Against Marco Glisson, April 23, 2012, (Litigation Release No. 22340)
The US District Court of Nevada issued a $4.8 million judgment against Marco Glisson as a result of the civil injunctive action filed by the SEC. The SEC complaint alleged that (between December 2005 and April 2007) Glisson "acted as an unregistered broker or dealer and illegally sold deregistered securities of CMKM Diamonds, Inc." Glisson allegedly used internet chat rooms to make a market in the deregistered securities. The judgment includes nearly $2.8 million in disgorgement, $1.4 million in civil penalties and a little under $700,000 in prejudgment interest.
Twin Brothers Allegedly Promote "Stock Picking Robot" for Pump-and-Dump Scheme, April 20, 2012, (Litigation Release No. 22339)
Earlier this month, the SEC charged Alexander John Hunter and Thomas Edward Hunter (twin brothers from the UK) with defrauding around 75,000 investors through a pump-and-dump scheme facilitated with a "stock picking robot". Investors were allegedly told that the highly sophisticated program was the product of extensive R&D. Some investors paid for an annual newsletter with information from the robot while others paid a larger amount for a "home version" of the program. At the same time, the brothers allegedly were paid to suggest specific penny stock tickers to investors being advised by the "robot" leading to a predictable spike in both volume and price. The SEC is seeking disgorgement, prejudgment interest and civil penalties.
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