Friday, September 28, 2012

SEC Litigation Releases: Week in Review

Court Enters Final Judgments by Consent Against SEC Defendants Shay Keren and Lawrence Steven Cohen, September 27, 2012, (Litigation Release No. 22498)

The SEC announced that final judgments have been entered against Shay Keren and Lawrence Steven Cohen which permanently enjoins them from violating sections of the Securities Act and Exchange Act as well as bars them from "participating in an offering of penny stock for a period of five years." The SEC filed a complaint in September 2008 against Glenn Grossman, Lawrence Steven Cohen, Shay Keren, and John Zanic for allegedly engaging "in a fraudulent broker bribery scheme designed to manipulate the market for the common stock of Guyana Gold, Corp."

SEC Charges Investment Bank Analyst with Illegally Tipping College Friend About Nonpublic Merger Deals, September 27, 2012, (Litigation Release No. 22497)

According to the complaint (opens to PDF), Jauyo "Jason" Lee shared nonpublic information he learned as an employee of Leerink Swann LLC with his longtime college friend, Victor Chen. Specifically, in 2009 Lee told Chen about Syneron Medical Ltd. negotiating an acquisition of Candela Corporation and then in 2010, Lee tipped Chen about Somanetics Corporation's acquisition by Covidien plc. Chen then traded with this insider information and made over $600,000 in illicit profits. Chen also used his sister Jennifer Chen's account to make some of his trades. The SEC alleges Lee and Chen violated sections of the Exchange Act and seeks "disgorgement of ill-gotten gains with prejudgment interest, financial penalties, and permanent injunctions against Lee and Chen." Jennifer Chen has been named as a relief defendant "for the purposes of recovering the illegal profits in her account."

SEC Brings Charges in $42 Million Offering Fraud Targeting Seniors, September 27, 2012, (Litigation Release No. 22496)

The SEC charged Bradley A. Holcom (PDF) and Jose L. Pinedo (PDF) in connection with a "fraudulent scheme that sold $42 million of promissory notes to more than 150 investors...many of whom were senior citizens." Holcom allegedly lured investors into his scheme by offering "guaranteed monthly interest payments on purportedly safe deals." Holcom promised that investor funds would be used to finance "the development of specific pieces of real estate," with the guarantee that "each investment would be fully secured." In actuality, these investments were unsecured. Furthermore, the complaint claims that Holcom ran a classic Ponzi scheme, using investor funds "to make interest and principal payments on promissory notes as they came due." Holcom's scheme collapsed in 2008, causing investors to lose over $25 million in principal. The SEC claims that Pinedo, who served as "Holcom's bookkeeper and as an officer or manager of Holcom's numerous corporate entities, routinely signed promissory notes and other false and misleading documents that were sent to investors." The SEC claims Holcom violated sections of the Securities Act and Exchange Act and seeks permanent injunction, disgorgement plus pre- and post-judgment interest, and civil penalties against him. Pinedo agreed to settle the matter and consented to a final judgment enjoining him from violating sections of the Securities Act.

SEC Charges Company and its Two Principals and Attorney in Stock Manipulation Scheme, September 27, 2012, (Litigation Release No. 22495)

The SEC charged 8000, Inc., along with its principals and attorney, Jonathan E. Bryant, Thomas J. Kelly and Carl N. Duncan, respectively, for engaging in a scheme to manipulate 8000, Inc.'s stock price. According to the complaint (opens to PDF), from November 2009 to October 2010, the defendants misrepresented 8000, Inc.'s financial condition to investors thereby increasing the volume of trading in 8000, Inc. by 93%. Allegedly, as Bryant and Kelly drove the stock price higher through misleading financial reports and press releases, Bryant sold "restricted" shares and Kelly bought and sold the company's securities in the secondary market. Duncan allegedly provided "false legal opinions to the company's transfer agent that improperly removed the restrictions on Bryant's shares" as well as provided "false legal opinions to OTC Markets that ensured that 8000, Inc.'s common stock would continue to be quoted on OTC Pink." Duncan received one million shares of 8000, Inc. from Bryant.  Duncan has agreed to a final judgment enjoining him from violating sections of the Securities Act and "from preparing or issuing any opinion letter in connection with the offer or sale of securities." The final judgment also includes a penny stock bar against Duncan and requires him to pay over $40,000 in disgorgement, prejudgment interest, and civil penalties.

Former "Teach Me to Trade" Salesman Agrees to Settle Securities Fraud Charges and Pay a $200,000 Penalty, September 26, 2012, (Litigation Release No. 22494)

On September 5, a settled final judgment was entered against David Gengler and Lashaico, Inc. in the case SEC v. David Gengler, et al. filed in 2008. According to the SEC's complaint, "Gengler sold securities trading products and services such as classes, mentoring and software called 'Teach Me to Trade' to investors who wanted to learn how to trade securities." Gengler, president of Lashaico, Inc., claimed he was a successful trader using Teach me to Trade methods but, according the SEC, these claims were untrue. Gengler has agreed to pay a civil penalty of $200,000. The final judgment permanently enjoins Gengler and Lashaico from violating sections of the Exchange Act, and from "receiving compensation for participating in the development, presentation, promotion, marketing or sale of any classes, workshops, or seminars...given to actual or prospective securities investors concerning securities trading and designed to influence their securities trading."

SEC Charges Bank Executives in Nebraska with Understating Losses During Financial Crisis, September 25, 2012, (Litigation Release No. 22493)

The SEC charged Gilbert G. Lundstrom (PDF), former CEO and chairman of the board at TierOne Bank, along with president and chief operating officer James A. Laphen (PDF) and chief credit officer Don A. Langford (PDF) for "participating in a scheme to understate millions of dollars in losses and mislead investors and federal regulators at the height of the financial crisis."When TierOne expanded into riskier types of lending it experienced a "significant rise in high-risk problem loans." The Office of Thrift Supervision (OTS), TierOne's primary banking regulator, "directed TierOne to maintain higher capital ratios as a result of the bank's increase in high-risk problem loans." To "comply" with these heightened capital requirements, Lundstrom, Laphen, and Langford allegedly "disregarded information showing that the collateral securing certain TierOne loans and real estate repossessed by the bank was overvalued due to the bank's reliance on stale and inadequately discounted appraisals." The truth about TierOne's losses surfaced in late 2009 when OTS required TierOne to get new appraisals for its impaired loans. TierOne then disclosed its losses, which totaled more than $130 million and, as a result, TierOne's stock dropped over 70% eventually leading to the company's backruptcy.  Civil penalties totaled more than $1 million for those involved in these misdeeds.

SEC Charges Four Defendants in Fraudulent Investment Scheme, September 24, 2012, (Litigation Release No. 22492)

According to the complaint (opens to PDF), Rudolf D. Pameijer, Lindsay R. Sayer, Ryan W. Koester and his entity Rykoworks Capital Group, LLC ran a fraudulent investment scheme in which they misappropriated almost $1.7 million from investors. "Koester held himself out as an expert foreign currency trader" telling investors his unique trading strategy offered "investors a principal guaranteed investment opportunity." Koester agreed to share profits with Pameijer, who worked to bring investors into Rykoworks. In 2010 Pameijer and his daughter, Sayer, began to solicit clients to invest in Rykoworks "through promissory notes which purported to guarantee investor principal while offering risk free returns from forex trading." All of the defendants allegedly used investor funds for personal use including (but not limited to) luxury automobiles, home renovations, wedding and honeymoon expenses, and college tuition. The SEC has charged all defendants with violating sections of the Exchange Act and Securities Act and seeks "injunctions, disgorgement with prejudgment interest, and civil monetary penalties."

SEC Charges Tyco with Making Illicit Payments to Foreign Officials, September 24, 2012, (Litigation Release No. 22491)

According to the complaint (opens to PDF), Tyco International Ltd. "violated the books and records, internal controls, and anti-bribery provisions of the Foreign Corrupt Practices Act." Following a "settled accounting fraud, disclosure, and FCPA injunctive action" filed by the SEC in April 2006, Tyco "committed to and commenced a review of its FCPA compliance and a global internal investigation of possible additional FCPA violations." The violations alleged in this week's complaint are a result of that review and investigation. From 2006 to 2009, Tyco subsidiaries allegedly "operated twelve illicit payment schemes." Additionally, the complaint claims that Tyco's"books and records were misstated as a result of the misconduct and that Tyco failed to devise and maintain internal controls sufficient to detect the violations." Furthermore, the complaint "alleges that payments by a sales agent to Turkish government officials violated the anti-bribery provisions of the FCPA." Tyco has agreed to pay over $13 million in disgorgement and prejudgment interest to settle the charges.

SEC Charges Registered Representative with Fraud for Issuing False Account Statements and Misappropriating Investor Funds, September 24, 2012, (Litigation Release No. 22490)

According to the complaint (opens to PDF), David L Rothman, a registered representative, Vice President, and minority owner of Rothman Securities, "conduct[ed] fraud by issuing false account statements and misappropriat[ed] investor funds." From 2006 to 2011, Rothman created and issued false account statemetns that overstated the value of investment accounts to certain elderly and unsophisticated investors.  Rothman allegedly "engaged in a scheme to conceal his fraudulent conduct by agreeing to pay...the investment returns he reported on the false account statements" to investors who had discovered their account values had been overstated. The complaint further alleges that Rothman misappropriated funds from another investor and two trust accounts for which he serves as trustee to make these payments. The SEC has charged Rothman with violating sections of the Exchange Act and Securities Act and seeks permanent injunction, disgorgement with prejudgment interest, and civil penalties. "Criminal charges have also been filed against Rothman in a parallel criminal case."

SEC Charges Revolutions Medical Corp. and its CEO for Fraudulently Issuing False and Misleading Press Releases, September 21, 2012, (Litigation Release No. 22489)

According to the complaint (opens to PDF), between August 2010 and July 2011, Revolutions Medical Corp. and its CEO, Rondald L. Wheet, "fraudulently issu[ed] false and misleading press releases concerning the company's flagship product, a retractable, medical safety syringe." These statements allegedly conveyed that the syringe had been fully developed, was slated for "mass manufacturing and commercial distribution," and that Revolutions Medical "had entered into, or was on the cusp of entering into, binding mass sales and distribution agreements." According to the complaint, the statements in these press releases were false, and  these false press releases caused Revolutions Medical's shares to become artificially inflated. Furthermore, the complaint alleges that Revolutions Medical sold shares to a "third-party hedge fund at inflated prices."

SEC Charges Edward Tackaberry for Acting as an Unregistered Broker-Dealer in Violation of Law and Prior SEC Order, September 21, 2012, (Litigation Release No. 22488)

The SEC has charged Edward Tackaberry with "acting as, or associating with, an unregistered broker-dealer...despite a Septemeber 27, 2007 order issued by the SEC barring him from associating with any broker or dealer." From 2007 through 2009, Tackaberry allegedly "acted as an unregistered broker-dealer, and/or associated with an individual acting as an unregistered broker-dealer, in connection with the soclitation of investors in several New York LLCs." Tackaberry "discuss[ed] investment transactions with prospective investors, negotiat[ed] the terms of the investments on behalf of the LLCs, and, if an agreement was reached, document[ed] those transactions." Tackaberry has agreed to a final judgment which enjoins him from further violations of the Exchange Act.

SEC Charges Oregon-Based Hedge Fund Manager with Running $37 Million Ponzi Scheme, September 21, 2012, (Litigation Release No. 22487)

According to the complaint (opens to PDF), investment advisor Yusaf Jawed "perpetrated a long-running Ponzi scheme that raised over $37 million from more than 100 investors." Allegedly, Jawed lured investors into investing in several hedge funds he managed through at least two companies he controlled: Grifphon Asset Management LLC and Grifphon Holdings LLC. He used false marketing materials to gain these investors and then "created phony assets, sent bogus account statements..., and manufactured a sham buyout of the funds to make investors think their hedge fund interest would soon be redeemed." In actuality, Jawed allegedly invested very little of the $37 million, using the money instead to pay redemptions to investors in other funds and for personal expenses. Furthermore, as the funds were collapsing, Jawed allegedly told investors that "independent third parties were buying the Grifphon funds' alleged assets at a premium."  The SEC has charged Robert P. Custis, Jawed's attorney, with sending false and misleading statements to investors about the status of the purported purchase of the Grifphon funds' assets. The SEC filed two separate complaints against individuals in connection with Jawed's scheme. Attorney Jacques Nichols (PDF) allegedly told investors that "an independent third party would pay tens of millions of dollars to buy the hedge funds' alleged assets at a premium." Lyman Bruhn (PDF), Jawed's associate, has been charged with running a separate Ponzi scheme and inducing investments "through false claims he was investing in "blue chip" stocks."

SEC Freezes Assets of Insider Trader in Burger King Stock, September 21, 2012, (Litigation Release No. 22486)

The SEC obtained an emergency court order to freeze the assets of stockbroker Waldyr Da Silva Prado Neto. According to the complaint (opens to PDF), Prado used nonpublic information of Burger King Holding, Inc.'s acquisition by 3G Capital Partners Ltd. to illegally trade in Burger King stock, making $175,000 in illicit profits. Prado learned of the acquisition from a client while working at Wells Fargo Advisors, LLC. Prado went on to allegedly tip at least four of his customers, one of which made over $1.68 million in illegal profits. The SEC seeks permanent injunctions against Prado from violating sections of the Exchange Act and seeks "disgorgement with prejudgement interest and monetary penalties."

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