Friday, January 4, 2013

SEC Litigation Releases: Week in Review

SEC Charges California Company and CEO with Defrauding Investors in Nevada Gold Mining Venture, January 3, 2013, (Litigation Release No. 22585)

According to the complaint (opens to PDF), Nekekim Corporation and its CEO, Kenneth Carlton, "induced hundreds of investors to pour $16 million into a fruitless gold mining venture." From 2001 to 2011, the defendants attracted investors claiming that a physicist (who in reality "had no scientific training") helped "develop a confidential gold extraction technique licensed by Nekekim." In addition, the defendants allegedly  represented that one of Nekekim's mine sites "contained gold deposits worth at least $1.7 billion" by using test results that used unconventional testing methods. Carlton failed to inform investors that the reliability of the two labs that produced these results had been questioned by geologists and a government study. Carlton has agreed to settle the charges by paying a $50,000 penalty and has been prohibited from future violations of the securities laws as well as selling securities for Nekekim and managing the company. Nekekim has been prohibited from future violations of the securities laws and is required to disclose "these sanctions in any offering of securities for the next three years."

Final Judgment Entered Against Defendant in SEC Action Involving Rhode Island-Based Offering Fraud, January 2, 2013, (Litigation Release No. 22583)

This week the SEC announced the resolution of charges it made against David G. Stern and Online-Registries, Inc. Its original complaint alleged that "Stern and OMR made false and misleading statements to investors" that were "related to OMR's business ventures, the status of its technology, [and] its number of customers." The complaint also alleges investors were misled about Stern's background, which includes "disbarment from the practice of law and a prior criminal conviction...relat[ed] to financial wrongdoing." The SEC named Michele Ritter as a relief defendant, but then dismissed the charges against Ritter on December 27, 2012. The final judgment permanently enjoins Stern from violating sections of the Securities Act and the Exchange Act, and holds Stern liable for over $225,000 in disgorgement and prejudgment interest. However, the final judgment "waives the payment of disgorgement and prejudgment interest and does not impose a civil penalty based upon the representations in Stern's sworn statement of financial condition." OMR has been permanently enjoined from violating sections of the Securities Act and Exchange Act and has been ordered to pay over $222,000 in disgorgement and prejudgment interest.

SEC Obtains Final Judgment on Consent as to Raj Rajaratnam, December 27, 2012, (Litigation Release No. 22582)

A final judgment was entered against Raj Rajaratnam for allegedly trading on nonpublic information he learned from business associate, Rajat K. Gupta. The insider information was about "Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs in September 2008...[and] Goldman Sachs’s financial results for both the second and the fourth quarter of 2008." In a parallel criminal case, Gupta was convicted of "one count of conspiracy to commit securities fraud and three counts of securities fraud" and "sentenced to two years in prison and one year of supervised release," as well as "ordered to pay a $5 million criminal fine." The final judgment against Rajaratnam orders him to disgorge the profits and avoided losses he gained from the insider trading and to pay prejudgment interest. The SEC's charges against Gupta "remain pending."

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