Friday, December 28, 2012

SEC Litigation Releases: Week in Review

SEC Charges Two Brokers with Insider Trading, December 26, 2012, (Litigation Release No. 22581)

This week the SEC filed an amended complaint (opens to PDF) charging research analyst Trent Martin with tipping brokers Thomas C. Conradt and David J. Weishaus with nonpublic information about IBM Corporation’s acquisition of SPSS Inc. Martin learned of the impending IBM-SPSS transaction "from an attorney friend who was working on the deal." Martin, Conradt, and Weishaus allegedly traded on the nonpublic information, gaining more than $1 million in illicit profits. After learning of the SEC's investigation, Martin fled to Australia and now resides in Hong Kong. The SEC has charged the defendants with violating sections of the Exchange Act and seeks disgorgement, prejudgment interest, and financial penalties, and a permanent injunction against the brokers.

SEC Files Charges Against Two Others in Northern California Fund Manager's $60 Million Scheme, December 21, 2012, (Litigation Release No. 22580)

On December 21, 2012, the SEC filed additional charges to its original complaint (opens to PDF) against John A. Geringer who allegedly ran "a $60 million Ponzi-like scheme." The SEC has now charged Christopher A. Luck and Keith E. Rode "who along with Geringer were principals of GLR Capital Management LLC, which managed the GLR Growth Fund, L.P." According to the SEC's complaint, GLR Capital deceived investors by claiming it received high returns from investing" 75 percent of its assets in highly liquid investments tied to well-known stock indices" when in fact "the fund was heavily invested in two private, illiquid startup companies." In April 2009, Geringer allegedly "confessed to Luck and Rode that he had been lying to them about the balances in the fund's trading accounts." Luck allegedly continued to solicit new investors in spite of his knowledge of Geringer's dishonest activity. In addition, after Rode learned of Geringer's dishonesty he allegedly "continued to mail account statements to investors that contained grossly inflated cash balances that deceived investors about the fund's liquidity." The SEC's amended complaint charges Luck and Rode with violating or aiding and abetting the violation of various sections of the Securities Act, Exchange Act, and Investment Advisers Act. The SEC seeks financial penalties, disgorgement, and permanent injunctions from Luck and Rode.

SEC Charges Four Penny Stock Purchasers with Fraud, December 21, 2012, (Litigation Release No. 22579)

According to the complaint (opens to PDF), Danny Garber, Michael Manis, Kenneth Yellin, and Jordan Feinstein all engaged in penny stock fraud by "illegally acquir[ing] over a billion unregistered" penny stock shares "at deep discounts and then dump[ing] them on the market." The defendants sold their unregistered shares by "purporting to rely on an exemption for transactions that are in compliance with certain types of state law exemptions." Furthermore, to "create the appearance that the claimed exemptions were valid, [the defendants] created virtual corporate presences" in various states. The defendants, along with "12 entities that they operated in connection with the scheme," have been charged with violating sections of the Securities Act and Exchange Act. The SEC seeks disgorgement, prejudgment interest, financial penalties, permanent enjoinment, and penny stock bars against all of the defendants.

SEC Charges Former Chairman of Board In Connection With A Fraudulent Plan To Evade The Beneficial Ownership Reporting Requirements, December 21, 2012, (Litigation Release No. 22578)

According to the complaint (opens to PDF), Lee S. Rosen, former Chairman of the Board of New Generation Biofuels Holdings, Inc., "fraudulently evaded the reporting requirements concerning his ownership interest in New Generation shares held in five separate trusts." Rosen received at least $666,000 in profit from the trusts. The SEC has charged Rosen with violating sections of the Securities Act and the Exchange act. To settle the charges, Rosen has agreed to permanent injunction, an officer and director bar, and to pay over $911,000 in disgorgement, prejudgment interest, and penalties.

SEC Settles Pending Civil Fraud Charges Against Three Former Executives of Enron Broadband Services, December 21, 2012, (Litigation Release No. 22578)

Former Enron senior vice presidents, Rex T. Shelby and Scott Yeager, as well as former chief financial officer of Enron Broadband Services, Kevin A Howard, have agreed to pay $1.75 million in civil penalties to settle "the SEC's pending civil actions against them." In 2003, the defendants were charged with securities fraud, and Shelby and Yeager were charged with insider trading. The defendants have also agreed to permanent enjoinment from future violations of the securities laws and officer and director bars. In addition, Howard has been suspended "from appearing or practicing before the Commission as an accountant." 

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