Friday, May 4, 2012

SEC Litigation Releases: Week in Review

By Tim Dulaney, PhD

SEC Charges Two Former Investor Seminar Salespeople with Securities Law Violations, May 1, 2012, (Litigation Release No. 22354)

This week, the SEC filed a settled civil injunctive action against Darlene Nelson Powell and Robert Eldridge -- independent contractors of Long Term-Short Term Inc. (BetterTrades) -- derived from allegations that the two made misrepresentations concerning their trading experience.  As a result, legitimate investors purchased instructional courses and mentoring programs to educate themselves on successful trading strategies.  Powell has been ordered to pay over $200,000 in penalties (Eldridge was not similarly penalized due to his sworn Statement of Financial Condition).

SEC Files Injunctive Action Against Investment Advisers RKC Capital Management LLC, RKC Capital LLC, and Russell K. Cannon, May 1, 2012, (Litigation Release No. 22353)

The SEC recently filed a complaint against RKC Capital Management LLC, RKC Capital LLC and Russell K. Cannon alleging that the defendants "artificially inflated the assets of a hedge fund they managed, RKC Matador Fund LLC (“Matador”), to defraud Matador investors."  The defendants allegedly instructed the fund administrator to record a price for the fund's holdings above the actual market price for about five quarters.  The overstated holdings and returns facilitated the collection of excessive advisory fees by the defendants.

SEC Charges Attorney and Clients in Scheme to Unlawfully Sell Billions of Penny-Stock Shares, May 1, 2012, (Litigation Release No. 22352)

Earlier this week, the SEC charged Christel S. Scucci, Karen S. Beach, their companies Protégé Enterprises, LLC, and Capital Edge Enterprises, LLC and their attorney Cameron H. Linton with a scheme of acquiring and subsequently selling billions of penny-stock shares that were never registered for sale to the public.  Scucci and Beach allegedly realized proceeds of more than $1.5 million through the sale of the supposedly unrestricted stock facilitated by Linton's "baseless legal opinions".   The SEC is seeking disgorgement, prejudgment interest and civil penalties.

Defendants Kenneth A. Wolkoff and George Sobol Settle Charges of Securities Registration Violations in SEC Action, April 30, 2012, (Litigation Release No. 22351)

Last week, the US District Court for the District of Columbia entered a final judgment against Kenneth A. Wolkoff and George Sobol stemming from the SEC allegations that the defendants participated in an unregistered stock offering of e-Smart Technologies, Inc. and in doing so acted as unregistered broker-dealers.  Wolkoff and Sobol were ordered to disgorge all e-Smart stock and to pay penalties of $40,000 and $30,000 respectively.

SEC Files Charges Against Former Attorney for Mutual Benefits, April 30, 2012, (Litigation Release No. 22350)

The SEC recently filed a complaint against Michael J. McNerney for "his involvement in Mutual Benefits Corp.’s (“MBC”) offering fraud which raised more than $1 billion from approximately 29,000 investors."  For a period spanning nearly a decade, McNerney concealed the fraud and facilitated the filing of false reports to regulators in his role as primary securities counsel.  In addition to the five years in prison McNerney received for his involvement, he is ordered to pay over $825 million in restitution with his co-conspirators.

Court Dismisses Appeal of Leila C. Jenkins, Owner of Investment Adviser Locke Capital Management, Inc., April 30, 2012, (Litigation Release No. 22349)

Last June, Leila C. Jenkins and Locke Capital Management, Inc. were found jointly and severally liable for nearly $2 million in disgorgement and prejudgment interest stemming from the May 2009 SEC Charges (Ligitation Release No. 20936).  Jenkins allegedly used a fictitious high-net-worth client to attract ligitimate investors.  The SEC alleges that Jenkins "perpetuate[d] her scheme by lying to the Commission staff about the existence of the invented client and furnish[ed] the Commission’s staff with bogus documents in 2008[...]".  Last month, the US Court of Appeals for the First District dismissed Jenkins appeal.


SEC Charges VoIP Company and its Owners with Conducting Fraudulent Offering Targeting Christian Investors, April 30, 2012, (Litigation Release No. 22348)

The SEC recently filed a complaint against Terry E. Wiese and Scott A. Wiese alleging that the two used promises of ten-fold returns on investment in their company Usee, Inc. to raise funds which were eventually either misappropriated or used for Ponzi payments.  The Wiese's and Usee agreed to pay over $6 million in disgorgement, prejudgment interest and civil penalties.  For the SEC complaint in this matter, see here (PDF).

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