Friday, October 26, 2012

SEC Litigation Releases: Week in Review

Former Silicon Valley Executive to Pay $1.75 Million to Settle Insider Trading Charges, October 26, 2012, (Litigation Release No. 22523)

The SEC charged Kris Chellam, former senior executive of Xilinx Inc., with illegally tipping "hedge fund manager Raj Rajaratnam with nonpublic information that allowed the Galleon hedge funds to make nearly $1 million in illicit profits." Chellam allegedly tipped Rajaratnam on December 5, 2006 that Xilinx Inc. "would fall short of revenue projections it had previously made." According to the charges, Rajaratnam then short sold more than 650,000 shares over the following two days. Chellam had over $1 million "invested in one of the Galleon hedge funds" and in May 2007, "Chellam became the co-managing partner of the Galleon Special Opportunities Fund." Chellam worked at Galleon until April 2009 and during this time frame he allegedly continued to pass along confidential information about Xilinx's financial performance to Galleon colleagues. Chellam has agreed to pay over $1.75 million in disgorgement, prejudgment interest, and penalties, as well as  a five year officer and director bar.

SEC Charges Denver-Based Insurance Executive with Insider Trading, October 26, 2012, (Litigation Release No. 22522)

The SEC has charged Michael Van Gilder, CEO of Van Gilder Insurance Company, with insider trading involving Tracinda's acquisition of a 35 percent stake in Delta Petroleum. According to the SEC, Van Gilder received the inside information from someone within the Delta Petroleum Corporation in November and December 2007. After receiving the information, Van Gilder allegedly tipped his broker, a co-worker, and relatives. In all, "Van Gilder and his tippees made more than $161,000 in illegal trading profits." Van Gilder has been charged with violating sections of the Exchange Act.

SEC v. Michael Johnson, October 26, 2012, (Litigation Release No. 22520)

According to the complaint (opens to PDF), Michael Johnson, "a divisional merchandise manager at Kohl's," assisted Joseph Elles, former Executive Vice President of Sales at Carter's, Inc., with financial fraud. In a previous case, the SEC charged Joseph Elles with manipulating "the amount of discounts that Carter's granted Kohl's" from 2004 to 2009. Allegedly, "Elles persuaded Johnson, who handled the Carter's account at Kohl's, to sign a false confirmation that misrepresented to Carter's accounting personnel the time and amount of those discounts." The SEC has charged Johnson with violating sections of the Exchange Act and seeks permanent injunctive relief as well as financial penalties against Johnson.

SEC Charges Former J. Crew Executive with Insider Trading, October 25, 2012, (Litigation Release No. 22519)

According to the complaint (opens to PDF), Frank A. LoBue, former Director of Store Operations at J. Crew Group, used "material, nonpublic information about sales and expenses of the company's stores to purchase J. Crew common stock in advance of earnings announcements in May and August 2009." LoBue allegedly made more than $60,000 in illiegal profits. In February 2010, J. Crew terminated LoBue's employment. LoBue has agreed to permanent enjoinment from violating the Exchange act and to pay over $128,000 in disgorgement, prejudgment interest, and penalties.

SEC Charges Two in Michigan-based Fraudulent Securities Offering, October 23, 2012, (Litigation Release No. 22518)

According to the complaint (opens to PDF), brothers James Mulholland and Thomas Mulholland conducted "a fraudulent, unregistered offer and sale of approximately $2 million in securities." The brothers, who operated a real estate business, "raised money from individual investors...through the offer and sale of securities in the form of demand notes" to finance their business. According to the complaint, when the Mulhollands' real estate business began to experience financial difficulties in January 2009, they continued to raise funds from investors on the false and misleading premises that their business "was profitable, [the investors] would earn 7% per year on investments, the returns would be generated by profits of the real estate business, and that the investors could get their money back upon 30 days' written notice." Furthermore, the brothers "never told investors that they were experiencing financial hardship, that they were having difficulty meeting financial obligations..., or that they were contemplating filing for bankruptcy." The SEC is seeking a permanent injunction, disgorgement with prejudgment interest and civil monetary penalties.
SEC v. Joseph Pacifico, October 19, 2012, (Litigation Release No. 22517)

According to the complaint (opens to PDF), Joseph Pacifico, former President of Carter's, Inc., "caused Carter's to materially misstate its net income and expenses in several financial reporting periods between 2004 and 2009" by engaging in financial fraud. According to the complaint, Joseph Elles, Carter's Executive Vice President of Sales, "fraudulently manipulated the amount of discounts that Carter's granted to [Kohl's]." According to the SEC, Elles "then concealed his conduct by persuading [Kohl's] to defer subtracting the discounts from payments until later periods and creating and signing false documents misrepresenting the timing and amount of those discounts to Carter's accounting personnel." Allegedly, when Pacifico discovered Elles's scheme, he signed "a false certification to Carter's accounting personnel that understated the amount [of] discounts that Carter's owed to the customer." Additionally, Pacifico allegedly "signed false internal forms that also misstated that discounts to be paid to the customer related to sales in 2009 when, in fact, the discounts related to prior financial periods." 

SEC v. Irwin Boock, et al., October 19, 2012, (Litigation Release No. 22516)

On October 17, 2012, the SEC filed an amended complaint naming Alena Dubinsky as a relief defendant in an action that involves "the hijacking of defunct or inactive publicly-traded companies and the unregistered offer and sale of securities." According to the amended complaint, Dubinsky "opened bank and brokerage accounts...at the behest of certain defendants through which were effected unregistered sales of securities and the deposit of at least $1 million in illicit proceeds." The SEC seeks disgorgement.

Hong Kong Firm to Pay $14 Million to Settle Insider Trading Charges, October 19, 2012, (Litigation Release No. 22515)

Well Advantage Limited agreed to pay over $14 million in disgorgement and penalties to settle charges of insider trading involving CNOOC Ltd.'s acquisition of Nexen Inc. Well Advantage has also been permanently enjoined from violating various section of the Securities Act and Exchange Act.

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