Friday, August 31, 2012

SEC Litigation Releases: Weekly Review

SEC Charges Brokers for Defrauding Brazilian Public Pension Funds in Markup Scheme,  August 29, 2012, (Litigation Release No. 22462).

According to the complaint (opens to PDF), Fabrizio Neves conducted a markup scheme while working at LatAm Investments LLC. The complaint alleges that from 2006 to 2009 Neves, with the assistance of Jose Luna, overcharged customers around $36 million "by using hidden markup fees on structured note transactions." Neves allegedly made millions in inflated sales commissions and Luna allegedly "received hundreds of thousands of dollars in inflated salary and commissions from LatAm and tens of thousands of dollars in additional compensation from a company that Neves controlled." The SEC seeks disgorgement, financial penalties, and enjoinment from future violations of the Securities Act and the Exchange Act. Luna has agreed to pay over $1.16 million in disgorgement and prejudgment interest, as well as a penalty amount to be determined.

Securities and Exchange Commission v. Wwebnet, Inc. and Robert L. Kelly,  August 29, 2012, (Litigation Release No. 22461).

According to the complaint (opens to PDF), from 2005 to 2008 video software company, Wwebnet, along with its chief executive officer, Robert L. Kelly, made material misrepresentations and omissions to investors in Wwebnet. The pair allegedly failed to disclose the "existence of a related-party transaction, which enabled Kelly to funnel at least $2.1 million of investor funds to himself," misrepresented "that Wwebnet had been generating revenue pursuant to contracts with entertainment companies when Wwebnet had never generated any such revenue," and misrepresented Kelly's compensation by failing to disclose Wwebnet's monthly $9,000 rental payments  for Kelly's luxury apartment in Manhattan. The SEC seeks permanent enjoinment from future violations of the Securities Act and the Exchange Act, as well as civil penalties, disgorgement, prejudgment interest, a penny stock bar, and an officer and director bar against Kelly.

SEC Charges Former Sky Bell Hedge Fund Manager with Making Misrepresentations in Selling and Recommending His Hedge Funds,  August 27, 2012, (Litigation Release No. 22460).

According to the complaint (opens to PDF), from 2005 to 2007 Gary R. Marks "negligently misrepresented the level of correlation and diversification among certain Sky Bell Hedge Funds." These funds, which Marks managed through Sky Bell Asset Management, Inc., included "the Agile Sky Alliance Fund that was co-managed with the Agile Group, PipeLine Investors, Night Watch Partners, and Sky Bell Offshore Partners." Additionally, the complaint claims that Marks "made unsuitable investment recommendations to certain advisory clients" urging them to invest mainly in Sky Bell Hedge Funds, failed to "disclose that PipeLine Investors invested significantly in a purported subadviser's fund," and "provided misleading information to certain investors about the liquidity problems at the Agile Sky Alliance Fund." Marks consented to a proposed Final Judgment enjoining him from future violations of the Advisers Act and Securities Act, as well as an order to pay over $420,000 in disgorgement and prejudgment interest. 

Convicted Ponzi Scheme Operator Jeffrey L. Mowen Ordered to Pay Over $18,000,000 in SEC Action,  August 27, 2012, (Litigation Release No. 22459).

On August 27, 2012, the US District Court for the District of Utah entered a final judgment against Jeffrey L. Mowen ordering him to pay over $18 million in disgorgement, prejudgment interest and penalties for allegedly operating a Ponzi scheme that raised over $40 million from over 150 investors. The scheme involved raising funds through Thomas Fry, who in turn then raised funds through other defendants, "Fry's promoters, via the unregistered offer and sale of high-yield promissory notes." On May 4, 2011, Mowen pled guilty to wire fraud in a related case, United States of America v. Mowen, and is serving a ten year prison sentence. On June 15, 2012, a final judgment ordering disgorgement and penalties was entered against Fry and several of his promoters. 

SEC Charges Eric Martin, Former Vice President of Investor Relations of Carter's Inc., with Insider Trading,  August 24, 2012, (Litigation Release No. 22458).

On August 23, 2012, the SEC filed a civil injunctive action against Eric Martin for allegedly trading shares of Carter's Inc. during blackout periods "while in possession of material, nonpublic information regarding the company's financial results" that he learned while serving as Carter's Director and, later, Vice President of Investor Relations. From at least 2007 to 2009, Martin "realized profits and avoided losses in excess of $170,000" through the illegal trading. The SEC seeks a permanent injunction, disgorgement with prejudgment interest and civil monetary penalties against Martin, as well as disgorgement with prejudgment interest from his wife, Robin Martin, who was named as a relief defendant.

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