Friday, May 25, 2012

SEC Litigation Releases: Week in Review

By Tim Dulaney, PhD

SEC Charges Northern California Fund Manager in $60 Million Scheme, May 24, 2012, (Litigation Release No. 22375)

The SEC charged John A. Geringer with running a $60 million Ponzi scheme.  In Geringer's management of the GLR Growth Fund, he allegedly misrepresented the fund's historical returns -- double-digit annually -- in the marketing materials and then used new investor funds to finance the returns current investors purportedly realized.  Geringer went so far as to produce account statements detailing the fictitious returns.  Geringer also allegedly represented that the fund's financial statements had been independently audited when no such audit had taken place.  Geringer's actual trading record reflected consistent losses and he eventually even stopped trading all together.  Geringer and the related entities have "consented to the entry of a preliminary injunction and a freeze on the fund's bank account."

Stephen H. Guth Settles SEC Insider Trading Charge Concerning Omrix Tender Offer, May 24, 2012, (Litigation Release No. 22374)

Yesterday, the SEC charged Stephen H. Guth with insider trading in Omrix Biopharmaceuticals, Inc. stock ahead of the public announcement of the tender offer to be made by Johnson & Johnson, Inc. for the outstanding shares of Omrix.  Ahead of the tender offer, Guth was contacted by the CEO of Omrix to assist with due diligence questions.  As a result of the communication, Guth realized an acquisition was eminent and allegedly bought Omrix stock and realized trading profits of over $60,000 as a result of the tender offer.   Guth has consented to the entry of final judgment and has been ordered to pay over $100,000 in disgorgement, prejudgment interest and civil penalties.

SEC Charges New Jersey Man in Real Estate Investment Scam, May 22, 2012, (Litigation Release No. 22373)

The SEC recently charged David M. Connolly with operating a Ponzi-like scheme in which he promised investors monthly dividends financed through the rental income of apartment properties.  Connolly allegedly used new investors' money to pay dividends to existing investors when the rental profits did not meet projections.  In addition, Connolly allegedly misappropriated more than $2 million for his personal use, wrote $2.5 million worth of checks to "cash" and paid himself an annual salary of $250,000 out of the investor funds.  The scam ultimately collapsed when new investor funds dried up, resulting in the foreclosure of the rental properties and a loss of investor equity.  The US Attorney's Office also charged Connolly with one count of securities fraud as a result of a parallel investigation.

SEC Charges Former Yahoo Executive and Ameriprise Mutual Fund Manager with Insider Trading, May 22, 2012, (Litigation Release No. 22372)

Earlier this week, the SEC announced their filing of insider trading charges against Robert W. Kwok (a former Yahoo! Inc. executive) and Reema D. Shah (a former portfolio manager at a subsidiary of Ameriprise Financial, Inc.).  The SEC alleges that Kwok tipped Shah material, non-public information concerning the search engine partnership between Yahoo! and Microsoft.  Shah used this information to alter the portfolio of the funds she managed to realize nearly $400,000 in profits.  The SEC also alleges that Shah tipped Kwok material, non-public information concerning an impending acquisition, allowing Kwok to realize a small profit through trading ahead of the acquisition.

SEC Charges Seattle-Based Fund Manager for Secretly Diverting Client Funds to His Own Start-Up Companies, May 18, 2012, (Litigation Release No. 22371)

Late last week, the SEC charged Mark Spangler with defrauding clients of several private investment funds by investing nearly $50 million into two risky start-ups Spangler co-founded all the while representing to clients that "he would invest primarily in publicly traded securities."  Spangler invested nearly $42 million into one company whose total revenue was less than $100,000 for more than a decade of operation.  While the SEC is seeking financial penalties, the US Attorney's Office is pursuing a parallel criminal action again Spangler.

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