Friday, May 18, 2012

SEC Litigation Releases: Week in Review

By Tim Dulaney, PhD

SEC Charges US Perpetrators in $35 Million International Boiler Room Scheme, May 16, 2012, (Litigation Release No. 22370)

The SEC filed charges this week against Nicholas Louis Geranio, Keith Michael Field, The Good One, Inc. and Kaleidoscope Real Estate, Inc. for their roles in an international boiler room scheme which ran from April 2007 to October 2009 and raised approximately $35 million in proceeds.  Geranio allegedly "organized eight U.S. Issuers, installed management (including Field), and entered into consulting agreements with them through his alter-ego entities The Good One and Kaleidoscope."  Money would be raised by the sale of Regulation S shares of the involved companies to offshore investors by boiler rooms (teams of unregistered telemarketers using high-pressure sales tactics).  The SEC complaint "further alleges that Geranio directed traders, including Field, to engage in matched orders and manipulative trades to establish artificially high prices[...]".  Everyone from the telemarketers, to the escrow agents, to the issuers to the defendants profited from this scheme -- except of course the investors (many of whom were elderly).  For additional information, see the SEC complaint (link opens PDF).

Former CEO of Presstek, Inc. Settles Regulation RD Charges, May 15, 2012, (Litigation Release No. 22369)

In March 2010, the SEC filed charges against Edward J. Marino and Presstek, Inc. alleging that in September 2006, Marino selectively disclosed material non-public information to a group of investors concerning Presstek's third quarter 2006 financials (in violation of the Securities and Exchange Act of 1934 and Regulation FD).  Marino has agreed to pay a $50,000 civil penalty and Presstek has been ordered to pay a $400,000 civil penalty.

SEC Charges China Natural Gas and Its Chairman for Concealing Loans to Benefit His Family, May 14, 2012, (Litigation Release No. 22368)

Earlier this week, the SEC filed charges in the US District Court for the Southern District of New York alleging China Natural Gas, Inc. and Qinan Ji (China Natural Gas, Inc.'s chairman and former CEO) defrauded investors by "loaning company funds to benefit Ji’s son and nephew while failing to disclose the true nature of the loans."  Perhaps ironically, Ji allegedly concealed the true nature of the loans' with the help of the company's internal audit chief (also his niece's husband).  For the SEC complaint in this matter, see here (link opens PDF).

SEC Charge Former Oil Company Executive with Insider Trading, May 11, 2012, (Litigation Release No. 22367)

The SEC recently charged Frank Lynn Blystone with insider trading.  Blystone, a former executive at Tri-Valley Corporation, allegedly liquidated his position in his former company's stock on the basis of material non-public information he received in email updates from the company concerning ongoing efforts to raise capital and problems with a recent securities offering.  Shortly after the public announcement, the stock dropped nearly 40% and Blystone avoided losses of approximately $36,000 according to the release.  To settle the charges brought by the SEC, Blystone has agreed to pay $75,000 without admitting or denying the allegations.

Court Enters Final Judgment Against Defendants Philip Pritchard, Pietro Cimino, and Global Development & Environmental Resources, Inc., May 11, 2012, (Litigation Release No. 22366)

The US District Court for the Middle District of Florida entered a final judgment against Philip Pritchard, Pietro Cimino and Global Development & Environmental Resources, Inc. as a result of the May 2008 SEC complaint (Litigation Release No. 20598) which alleged the defendants participated in a "pump-and-dump" scheme.  The defendants have been ordered to pay (jointly and severally) over $2.6 million in disgorgement and prejudgment interest as well as a civil penalty of $130,000 each.

SEC Charges Apartments America and Its Owners in Scheme to Defraud Investors, May 11, 2012, (Litigation Release No. 22365)

Late last week, the SEC filed a complaint against Michael J. Stewart, John J. Packard and Randall A. Smith in the US District Court in Orange County, California.  The SEC complaint (link opens PDF) alleges that the trio misrepresented the track-record and assets of Apartments America, LLC by cherry-picking the few successful investments of their former bankrupt company Pacific Property Assets while at the same time removing any mention of this former company.  The defendants' misrepresentations allegedly facilitated their pooling of investor funds to invest in unregistered securities.  The SEC is seeking permanent injunctions against the defendants as well as financial penalties.

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