Friday, August 10, 2012

SEC Litigation Releases: Week in Review

SEC Charges Participants in $5 Million Boiler Room Scheme,  August 10, 2012, (Litigation Release No. 22444).

The SEC charged Edward M. Laborio, Jonathan Fraiman, Matthew K. Lazar, and seven entities controlled by Laborio for their alleged roles in a boiler scheme that ran from December 2006 to August 2009. The seven entities include Envit Capital Group, Inc., Envit Capital, LLC, Envit Capital Holdings, Inc., Envit Capital Private Wealth Management, LLC, Envit Capital Multi Strategy Mixed Investment Fund I LP, Aetius Group PLC, and Aetius Group LLC. The scheme "used high-pressure sales tactics to raise up to $5.7 million from approximately 150 investors through the fraudulent sale of five unregistered securities offerings." Laborio and Fraiman "made multiple misrepresentations and misleading statements to investors" including "scripts with sales pitches containing fabricated information." Allegedly, Laborio used investor funds to pay personal expenses including gambling losses. Lazar allegedly raised $585,000 from investors through one scheme alone. The SEC seeks permanent injunctions, disgorgement and other penalties.

Former Chief Financial Officer of Soyo Group Ordered to Pay $15,600,000 Penalty for Securities Fraud,  August 10, 2012, (Litigation Release No. 22443).

The SEC ordered Nancy Shao Wen Chu, former Chief Financial Officer of Soyo Group, Inc., to pay $15.6 million "in penalties for committing securities fraud." Additionally, Eric Jon Strasser was ordered to pay $260,000 in penalties. Allegedly, between January 2007 and November 2008, Chu and another defendant booked "over $47 million in fraudulent sales revenues" through Soyo and reported such revenue on the company's SEC filings. This scheme almost doubled Soyo's net revenues for 2007, causing a dramatic increase in Soyo's share price.  The Court has ordered a penalty of $130,000 against Chu "for each of the 120 fictitious transactions [... ] and against Strasser for each of the two fraudulent SEC filings."   

SEC Charges Former Public Company CEO with Fraud,  August 10, 2012, (Litigation Release No. 22442).

According to the complaint (opens to PDF), Ronald D. Brooks allegedly "committed securities fraud while serving as CEO and chairman of Standard Oil Company USA, Inc." In Standard Oil's initial disclosure statement Brooks represented that he had no prior criminal convictions when in reality Brooks "has three prior felony convictions," two of which are for securities violations. The complaint charges Brooks with violating the Exchange Act, and the SEC "seeks a permanent injunction, a civil monetary penalty, an officer-and-director bar, and a penny-stock bar."
  
Former Deloitte Partner Pleads Guilty to Insider Trading,  August 9, 2012, (Litigation Release No. 22441)

On August 8, 2012, Thomas P. Flanagan, former Deloitte and Touch LLP partner, pled guilty "to one count of criminal securities fraud for engaging in insider trading." Flanagan, certified accountant and employee of Deloitte for 38 years, along with his son, Patrick T. Flanagan, used  nonpublic information from 2005 to 2008 to trade illegally. Combined, the father and son generated over $485,000 in illegal profits. Additionally, between 2003 and 2008 Thomas P. Flanagan was found by the SEC to have violated the SEC's auditor independence rules on 71 occasions. Thomas P. Flanagan has consented to pay penalties totaling over $1 million and  Patrick T. Flanagan consented to pay penalties totaling nearly $125,000.

Securities and Exchange Commision v. Heart Tronics, Inc., et al.,  August 8, 2012, (Litigation Release No. 22440)

On August 8, 2012, Martin B. Carter and Ryan A. Rauch agreed to settle charges "brought against them in SEC v. Heart Tronics, Inc., et al." Allegedly, Heart Tronics "announced millions of dollars in fraudulent sales orders for its heart monitoring device between 2006 and 2008." Carter, who fabricated numerous documents to support these claims, also shipped products to a friend to produce the illusion that the company delivered its product to a "bona fide customer." While encouraging investors to buy Heart Tronics stock, Rauch allegedly failed to inform them that he was being paid in exchange for Heart Tronics' promotion. Carter agreed to a judgment enjoining him from violating sections of the Securities Act and Exchange Act and a permanent penny stock bar. Rauch consented to a judgment that permanently enjoins him from violating sections of the Securities Act and imposes a three-year penny stock bar. Additionally, Rauch has agreed to pay over $37,000 in disgorgement, prejudgment interest, and civil penalties.

The SEC filed a civil enforcement action on December 20,2011 alleging that Heart Tronics, Inc. (formerly Signalife, Inc. and Recom Managed Systems, Inc.) along with "several individuals associated with the Company, engaged in a wide-ranging series of frauds." Mitchell J. Stein, the fraud schemes' mastermind, led "a campaign of public misinformation to drive up the price of Heart Tronics' stock." He then sold his and his wife's stock for a profit of more than $5.8 million. A grand jury indicted Stein on December 13, 2011 on 14 criminal counts. The SEC's "civil action against the remaining defendants, including Stein, Heart Tronics' co-CEOs Willie Gault and Rowland Perkins, and former stock broker Mark Nevdahl, is stayed until the conclustion of the criminal case against Stein."

SEC Obtains Bar Against Former Executive from Serving as an Officer or Director of a Public Company Due to Illegal Insider Trading,  August 8, 2012, (Litigation Release No. 22439)

On July 30, 2012, R. Brooke Dunn, former executive at Shuffle Master, Inc., was barred from serving as an officer or director of a public company for five years due to alleged insider trading in Shuffle Master stock and options. The SEC filed a complaint against Dunn along with Nicholas P. Howey on November 19, 2009. According to the complaint, on February 26, 2007 Dunn provided Howey with nonpublic information. Previously, Dunn and Howey settled the SEC's lawsuit "by agreeing to pay a civil penalty in the amount of $181,594 each." Additionally, Howey agreed to pay over $211,000 in disgorgement and prejudgment interest.

SEC Files Settled FCPA Charges Against Pfizer Inc. and Wyeth LLC,  August 8, 2012, (Litigation Release No. 22438)

On August 8, 2012, the SEC filed a settled enforcement action against Pfizer Inc. "for violating the Foreign Corrupt Practices Act." Allegedly, "employees and agents of Pfizer's subsidiaries in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia, and Serbia" bribed foreign officials "to obtain regluatory and formulary approvals, sales, and increasesd prescriptions for the company's pharmaceutical products." According to the complaint, if a doctor agreed to use Pfizer products, the doctor's institution then received a percentage of the value purchased in "the form of cash, international travel, or free products." A separate action was filed against Wyeth LLC--a pharmaceutical company acquired by Pfizer a few years ago--for FCPA violations as well. Allegedly, "subsidiaries marketing Wyeth nutritional products...bribed government doctors to recommend their products to patients." The complaint alleges that Pfizer's misconduct started as early as 2001, and Wyeth's misconduct started at least as early as 2005. In October 2004, Pfizer "made an initial voluntary disclosure of misconduct by its subsidiaries to the SEC...and fully cooperated with SEC investigators." Pfizer also allegedly undertook "a comprehensive worldwide review of its compliance program." Pfizer has consented to pay over $26.3 million in disgorgement and prejudgment interest. Wyeth has agreed to pay over $18.8 million in disgorgement and prejudgment interest. Pfizer is also "required to report to the SEC on the status of its remediation and  implementation of compliance measures over a two-year period." 

SEC Charges Real Estate Investment Company and Its Principals with Offering Fraud,  August 7, 2012, (Litigation Release No. 22437)

According to the July 6, 2012 complaint (opens to PDF),  The Companies (TC), LLC and its principals, Kristoffer A. Krohn, Stephen R. Earl, and former officer, Michael K. Krohn, "initiated four unregistered offerings of securities from January 2009 to June 2011" to raise money for real estate purchases. The Companies, or its subsidiary, Alpha Real Estate Holdings, L.P., purchased distressed real estate for investment. Kris Krohn, Earl, and Mike Krohn provided "content for and approval of the private placement memoranda...used to solicit investors." The PPMs "contained material misrepresentations and omissions related to, among other things, the value of properties to be purchases or that were owned by the Companies or Alpha LP." In total, the four offerings raised nearly $12 million from almost 170 investors. Each defendant has consented to a judgment permanently enjoining him from violating sections of the Securities Act. Additionally, The Companies agreed "to inform all investors in writing of the final judgment, provide audited financial statements, and offer return of consideration for investors who choose to return their securities to The Companies." Kris Krohn, Mike Krohn, and Earl have each also agreed to pay a $75,000 penalty each.

SEC Freezes an Additional $6 Million in Nexen Insider Trading Case,  August 6, 2012, (Litigation Release No. 22436)

According to the complaint (opens to PDF), the SEC obtained an emergency court order to freeze over $6 million "in assets of additional unknown traders who made approximately $2.3 million in illegal profits" through insider trading regarding Nexen Inc.'s acquistion by CNOOC Ltd. This court order follows an initial complaint filed by the SEC on July 27,2012. The assets frozen in this court order bring "the total value of assets frozen in this case to more than $44 million." The SEC seeks an order that will require the traders to pay disgorgement with interest and financial penalties, and permanently bar them from future violations of the Securities Act and the Exchange Act. 

Final Judgments Entered Against Former Executives of Massachusetts Company,  August 6, 2012, (Litigation Release No. 22435)

Final judgments were entered on July 23 and 24, 2012 against Inofin executives, Kevin Mann, Sr. and Michael J. Cuomo, for their alleged involvement in illegally raising at least $110 million "through the sale of unregistered notes." According to the SEC's complaint, Melissa George, another Inofin executive, was also involved with Cuomo and Mann in materially misrepresenting the Company's use of investor funds and the Company's financial performance. Sales agents, David Affeldt and Thomas K. Keough, have also been charged in allegedly promoting the offering and sale of the unregistered securities. Additionally, Nancy Keough, Thomas Keough's wife, is named "as a relief defendant for the purposes of recovering proceeds she received as a result of the violations." Cuomo and Mann have been ordered to pay nearly $2 million and over $1 million, respectively, in penalties. Action against Inofin, George, Affeldt and the Keoughs is pending.

SEC Charges Massachusetts Resident with Insider Trading in Art Technology, Inc.,  August 3, 2012, (Litigation Release No. 22434)

According to the complaint (opens to PDF), Joseph McVicker used information he gained from a close friend at a social event to engage in insider trading in shares of Art Technology Group, Inc. McVicker earned over $44,000 in illegal profits in November 2010. McVicker will pay over $88,000 in disgorgement, prejudgment interest, and civil penalties.

SEC Charges Bristol-Myers Squibb Executive with Insider Trading in Stock Options of Potential Acquisition Targets,  August 3, 2012, (Litigation Release No. 22433)

According to the complaint (opens to PDF), Bristol-Myers' treasury department executive, Robert D. Ramnarine, used confidential information regarding companies being targeted for potential acquisitions to engage in illegal trading. Ramnarine, who made more than $300,000 in illegal profits, "conducted Internet research from his Bristol computer to determine whether he could be detected by regulators." Some of the phrases he searched included "can stock option be traced to purchaser" and "illegal insider trading options trace," viewing articles including "Ways to Avoid Insider Trading." He allegedly "conducted his insider trading schemes from August 2010 to July 2012" to trade in stock options of Pharmasset Inc., Amylin Pharmaceuticals Inc., and ZymoGenetics Inc.

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