Friday, July 27, 2012

SEC Litigation Releases: Week in Review

SEC Charges Aider and Abettor of Penny Stock Company's Disclosure of Fake Investment,  July 25, 2012, (Litigation Release No. 22424).

The SEC lodged a complaint against Ronald Feldstein who allegedly filed a false press release announcing a "fictitious $6 million investment in a penny stock company, Interlink-US Network, Ltd." Feldstein was paid by Interlink's management to play the role of a prospective investor. Feldstein, posing as President of LED Capital Corp., entered into a phony investment agreement with Interlink, where he claimed LED would pay $6 million for Interlink shares "that, at the time, had a market value of under $1.2 million." Feldstein also aided Interlink in drafting Form 8-K to disclose the supposed agreement to the market. The Commission seeks "injunctions from future violations" of provisions of the Securities Exchange Act, "disgorgement of ill-gotten gains, and a civil monetary penalty."

SEC Charges Close Friend of Staffing Company CEO with Insider Trading Around Acquisition,  July 25, 2012, (Litigation Release No. 22423).

According to the complaint (opens to PDF), Ladislav "Larry" Schvacho used inside information to trade around the acquisition of Comsys IT Partners Inc. by Manpower Inc. Schvacho gained the insider information from his close friend Larry L. Enterline, a Comsys CEO. The two had been close friends since the 1970s when they worked at the same company. Over the years, they maintained their close friendship even after Enterline moved to Houston when he became the Comsys CEO in 2006. Schvacho used information he overheard from Enterline's telephone calls about the potential acquisition in November and December 2009 to purchase over 70,000 shares in Comsys stock before its public announcement in February 2010 of its acquisition by Manpower Inc. Schvacho made approximately $511,000 in illegal profits from the insider trading. The SEC seeks "permanent injunctive relief, disgorgement of ill-gotten gains, plus pre-judgment interest, and civil penalties" against Schvacho.

Investment Advisor Charged by SEC with Fraud Sentenced to 51 Months in Prison,  July 25, 2012, (Litigation Release No. 22422).

On July 5, 2012, Renee Marie Brown was sentenced to "51 months in federal prison followed by three years probation, and restitution in the amount of $618,408." On May 11, 2011, Brown was charged with securities fraud, wire fraud and transactional money laundering that led to a misappropriation of $1.1 million from her advisory clients. From July 2009 through March 2010, Brown transferred more than $1.1 million to Investors Income Fund X, LLC, "a sham fund formed and controlled by Brown." She falsely represented the fund as a bond fund and even distributed false "returns" to investors to convince them Fund X was legitimate. She then used these funds for personal use, including purchasing a condominium and office space for her business. The SEC obtained a temporary restraining order and asset freeze against her on April 8, 2010. Brown pled guilty to the charges on February 15, 2012.

Defendant Matthew Brown Settles Penny Stock Manipulation Charges,  July 25, 2012, (Litigation Release No. 22421).

On July 2, 2012, a final judgment was entered against Matthew W. Brown in SEC v. Dynokowski, et al. Pawel P. Dynkowski along with other accomplices were involved with various schemes that sold "large blocks of shares for penny stock companies in exchange for a portion of the proceeds." The defendants inflated the market price of the stocks artificially through "wash sales, matched orders and other manipulative trading." Dynokowski orchestrated the scheme with Brown in 2006 for GH3 International, Inc. Stock. At the time, Brown operated a penny stock website, Investorshub.com. Not only did Brown engage in manipulative trading, but he also issued false press releases. Nearly $750,000 in illicit profits were generated from this specific scheme. Additionally, Brown planned a manipulation scheme involving the stock of Asia Global Holdings, Inc. that generated over $4 million in illicit profits. Brown consented to the final judgment that orders him to pay over $100,000 in disgorgement and prejudgment interest and bars him from participating in any offering of a penny stock. In a related case, U.S. v. Brown, Brown was sentenced to four years in prison and ordered to pay over $4.75 million in criminal forfeiture.

SEC Charges Stock Promoter in Internet-Based Scalping Scheme,  July 23, 2012, (Litigation Release No. 22420).

According to the complaint (opens to PDF), Jerry S. Williams, a stock promoter, along with the two companies he controlled, Monk's Den, LLC, and First in Awareness, LLC, were involved with a scalping scheme which resulted in over $2.4 million in profits for Williams. From 2009 to 2010, Williams recommended stocks Cascadia Investments, Inc. and Green Oasis Environmental, Inc. to a group of potential investors. He used his "internet-based message board (called "Monk's Den"), in-person seminars (called "Monkinars"), and other means to encourage people to buy, hold, and accumulate" these stocks. Unbeknownst to investors, Williams had been hired by Cascadia and Green Oasis to promote their stock. In return for the promoting, Williams received millions of free and discounted shares of these stocks. Williams secretly sold these shares while he encouraged potential investors to buy, hold and accumulate these stocks, making over $2.4 million. The SEC seeks "permanent injunctions, disgorgement, prejudgment interest, and civil penalties against each defendant and, as to Williams only, a penny stock bar." 

SEC Charges CEO with Insider Trading in Secondary Offering of Company Stock,  July 20, 2012, (Litigation Release No. 22419).

According to the complaint (opens to PDF), Manouchehr Moshayedi, CEO of STEC, Inc., used insider information "in a secondary offering of...stock shares with knowledge of confidential information that a major customer's demand for one of its most profitable products" had significantly declined. From January to August 2009, STEC's stock price increased more than 800 percent as the company "reported higher revenues, sales, and margins for its products, particularly its flagship flash memory product called 'ZeusIOPS.'" This rise in stock came as STEC announced in July 2009 that its largest customer, EMC Corporation, had agreed to buy $120 million worth of ZeusIOPS in the third and fourth quarter of that year. However, Moshayedi learned that EMC would only purchase $34 million in the third quarter, and then would never again enter into a similar agreement with STEC. In response, Moshayedi entered into a secretive side deal with EMC to meet "the third quarter consensus revenue estimates." On July 29, EMC was convinced by Moshayedi to purchase $55 million of ZeusIOPS product in the third quarter "in exchange for an undisclosed additional $2 million price discount on the product in the fourth quarter." Moshayedi also withheld from investors that EMC would not make further volume commitments. The SEC seeks disgorgement, prejudgment interest, financial penalties, and a permanent barring of Moshayedi from serving as an "officer and director of any registered public company."

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