Friday, December 21, 2012

SEC Litigation Releases: Week in Review

SEC Files Settled FCPA Charges Against Eli Lilly and Company, December 20, 2012, (Litigation Release No. 22576)

According to the complaint (opens to PDF), Eli Lilly and Company's subsidiaries in Russia, Brazil, China, and Poland made improper payments to foreign government officials in exchange for business. Lilly's Russian subsidiary allegedly paid "millions of dollars to third parties chosen by government customers or distributors" through offshore "marketing agreements "despite knowing little or nothing about the third parties beyond their offshore address and bank account information." Lilly has been charged with failing to curtail the inappropriate agreements when it became aware of the possible "FCPA violations in Russia." Additionally, Lilly's Chinese subsidiary allegedly "falsified expense reports in order to provide spa treatments, jewelry, and other improper gifts and cash payments to government-employed physicians," Lilly's Brazilian subsidiary allowed a pharmaceutical distributor to bribe government health officials, and Lilly's Polish subsidiary made improper payments to an official's charity in exchange "for the official’s support for placing Lilly drugs on the government reimbursement list." To settle the charges, Lilly has agreed to pay over $29.3 million in disgorgement, prejudgment interest, and penalties. Lilly has also been permanently enjoined from violating various sections of the Exchange Act and has agreed to retain an "an independent consultant to review and make recommendations about its foreign corruption policies and procedures."

SEC Charges TheStreet, Inc. and Former Executives In Connection With Accounting Fraud, December 18, 2012, (Litigation Release No. 22575)

According to the complaint (opens to PDF), in 2008 TheStreet, Inc. and three executives engaged in an accounting fraud "at a former subsidiary of TheStreet, Inc." The fraud "allowed TheStreet to report artificially inflated revenue and misstated operating income or loss in each period of 2008." A separate complaint against Eric Ashman, former CFO of TheStreet, charges him with aiding and abetting the fraud "by improperly and prematurely recognizing revenue based on several of the former subsidiary's transactions." The co-presidents of the subsidiary, Gregg Alwine and David Barnett, allegedly "aided and abetted the fraud by entering into sham transactions, and fabricating and backdating contracts and other documents." TheStreet has been charged with "lacking appropriate internal controls over its subsidiary's revenue and with violating books and records and reporting provisions of the securities laws." The defendants have agreed to pay $375,000 in penalties combined.

SEC Charges Company Based in Massachusetts and Canada and Other Parties in Stock Pump-and-Dump Scheme Involving Fictitious Buyout Offer, December 17, 2012, (Litigation Release No. 22574)

According to the complaint (opens to PDF), beginning in 2010 Spencer Pharmaceutical Inc., IAB Media Inc., and Hilbroy Advisory Inc., along with Spencer's controller, Jean-Fran├žois Amyot, Spencer's officers, Maximilien Arella and Ian Morrice, and two other companies controlled by Amyot, participated in a "'pump-and-dump' scheme involving Spencer’s stock." In order to artificially "pump up" the price of its stock, Spencer allegedly "disseminated false and misleading press releases claiming that it had received an unsolicited buyout offer from a Mideast company for $245 million when, in fact, the purported buyout offer was not real." Arella and Morrice have been charged with helping Amyot create and disseminate these releases. Amyot gained almost $5.8 million in illicit profit from the scheme. The SEC has charged the defendants with "violating securities registration provisions of the securities laws" and seeks permanent injunctions, disgorgement plus prejudgment interest, and civil penalties against them. Additionally, the SEC seeks penny stock bars and officer and director bars against Amyot, Arella, and Morrice.

SEC Charges Santa Monica-Based Hedge Fund Manager in Cherry-Picking Scheme, December 14, 2012, (Litigation Release No. 22573)

According to the complaint (opens to PDF), Peter J. Eichler, Jr., and his firm Aletheia Research and Management, Inc., conducted a "'cherry-picking' scheme by steering winning trades to their own trading accounts and favored clients to the detriment of certain hedge fund investors." In addition, Aletheia allegedly failed "to implement policies, procedures, or a code of ethics that could have prevented a cherry-picking scheme from occurring." Furthermore, Aletheia and Eichler allegedly failed to "disclose [the hedge fund's] financial troubles to clients until immediately before a bankruptcy filing." Eichler and Aletheia have been charged with violating sections of the Exchange Act and Advisers Act. The SEC seeks "permanent injunctions, disgorgement of the defendants' ill-gotten gains plus pre-judgment interest, and penalties."

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