Friday, August 24, 2012

SEC Litigation Releases: Week in Review

SEC Charges New York-Based Firm and Owner in Penny Stock Scheme,  August 23, 2012, (Litigation Release No. 22457).

Edward Bronson and his company, E-Lionheart Associates LLC (which also conducts business under the name Fairhills Capital Inc.), have been charged by the SEC with conducting a penny stock scheme in which they allegedly reaped over $10 million in illegal profits. The alleged scheme involved buying shares at deep discounts from over 100 penny stock companies and then selling them without filing registration statements. Bronson and E-Lionheart claimed to have exemption from registration through state law exemptions, however these state laws are not applicable to these transactions. In effect, investors in these shares were not provided with information that a registration statement would have provided. The SEC has charged E-Lionheart and Bronson with violating sections of the Securities Act and seeks disgorgement, penalties and penny stock bars. The SEC has also named Fairhills Capital Inc. as a relief defendant.


SEC Files Enforcement Action to Halt $600 Million Pyramid and Ponzi Scheme
North Carolina Company Solicited Investors Over Internet,  August 22, 2012, (Litigation Release No. 22456).

According to the complaint (opens to PDF), Paul R. Burks and Rex Venture Group LLC conducted a combined Ponzi and Pyramid scheme via ZeekRewards.com. Burks and his company raised over $600 million through more than one million Internet customers from the website. ZeekRewards, which began in January 2011, was a purported "affiliate advertising division" for companion website, Zeekler.com and offered various ways for customers to earn money.  Two of these ways--the "Retail Profit Pool" and the "Matrix"--involved purchasing unregistered securities in the form of investment contracts. The company purportedly used net profits for customer payouts. However, the SEC alleges that the "'net profits' paid to investors were comprised of funds received from new investors." Burks and Rex Venture Group LLC have agreed to "permanent injunctions against future violations of the registration and antifraud provisions." Additionally, Burks has agreed to "relinquish his interest in the company and its assets" as well as pay a $4 million civil penalty. The SEC has also frozen approximately $225 million in ZeekRewards' assets.

SEC Charges Former Array BioPharma Manager for Insider Trading,  August 21, 2012, (Litigation Release No. 22455).

According to the complaint (opens to PDF), James L. Lieberman used nonpublic information he learned as Array BioPharma Inc.'s manager of environmental health and safety to illegally trade Array stock. Only minutes after learning that a licensing transaction between Novartis and Array was imminent, Lieberman bought Array common stock for both himself and his sister. Lieberman gained over $70,000 in illegal profit. Lieberman has consented to a final judgment enjoining him from violations of the Exchange Act, and has agreed to pay over $147,000 in disgorgement, prejudgment interest, and penalties.

SEC v. Ricardo Bonilla Rojas and Shadai Yire, Inc.,  August 21, 2012, (Litigation Release No. 22454).

According to the complaint (opens to PDF), Ricardo Bonilla Rojas and his firm, Shadai Yire, raised at least $7 million between August 2005 and February 2009 from mainly evangelical Christian groups and factory workers. According to the SEC, Rojas falsely assured these inexperienced investors he would invest their money in commodities and "that their principal contributions were '100% guaranteed'" with promised returns of up to 50 percent. In reality, Rojas used their funds to repay earlier investors as well as pay himself $700,000. Rojas and Shadai Yire, both unregistered to offer securities, went as far as to create phony account statements to assure investors of their investments' growth. The SEC charges Rojas and Shadai Yire with violations of both the Securities Act and Exchange Act, and seeks disgorgement, penalties, and enjoinment from future violations.

SEC Charges College Football Hall of Fame Coach in $80 Million Ponzi Scheme,  August 17, 2012, (Litigation Release No. 22453).

According to the complaint (opens to PDF), James M. Donnan, III and Gregory L. Crabtree raised $80 million by selling unregistered securities in GLC Limited to investors from at least August 2007 to mid-October 2010. Many investors were contacts Donnan had established as a sports commentator and former college football coach. GLC allegedly was "in the wholesale liquidation business and earn[ed] substantial profits by buying leftover merchandise...and reselling those discontinued, damaged, or returned products to discount retailers." However, the SEC claims only $12 million of the investors' funds were used to purchase leftover merchandise. The remaining funds were used to pay "returns" to earlier investors and stolen for personal use by Donnan, Crabtree, and Donnan's children: Jeffrey Tood Donnan, Tammy L. Donnan and son-in-law, Gregory K. Johnson. The SEC charges Donnan and Crabtree with violating sections of the Securities Act and Exchange Act and "seeks permanent injunctions, disgorgement with prejudgment interest, and the assessment of civil penalties against them." The SEC also names Donnan's children as relief defendants and seeks disgorgement of investor funds that they received. 

SEC Sues New York Penny Stock Distributor,  August 17, 2012, (Litigation Release No. 22452).

According to the complaint (opens to PDF), Jossef (Yossef) Kahlon and TJ Management Group, LLC "abused and misused a federal securities law to buy hundreds of millions of shares of stock at steep discounts and to quickly resell all the shares to the public at market rates." They generated at least $7.7 million in profits and allegedly deprived investors of important business information for various issuers. The SEC has sued Kahlon and TJ Management Group, LLC, and seeks permanent injunctions, civil penalties, penny stock bars, and disgorgement.

New Charges in Insider Trading Case Include Former CEO and Professional Baseball Player,  August 17, 2012, (Litigation Release No. 22451).

Last year, the SEC brought charges against Doug DeCinces, former professional baseball player, as well as three others--Joseph J. Donohue, Fred Scott Jackson, and Roger A. Wittenbach--for insider trading involving the acquisition of Advanced Medical Optics Inc. by Abbot Laboratories Inc. They made more than $1.7 million in the trading and agreed to pay over $3.3 million to settle the charges. Now, the SEC has charged the alleged source of these tips, James V. Mazzo, who was the Chairman and CEO of Advanced Medical Optics. According to the complaint (opens to PDF), over $2.4 million in profits resulted from Mazzo's illegal tipping. After Decinces, who was a close friend and neighbor of Mazzo, received the tips, he passed the information along to former Baltimore Orioles teammate Eddie Murray and his friend David L. Parker. Murray and Parker have also been charged by the SEC for their alleged illegal trading. Murray has consented to a final order enjoining him from violating the Exchange Act, and has agreed to pay over $358,000 in disgorgement, prejudgment interest, and penalties.

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