Friday, January 11, 2013

SEC Litigation Releases: Week in Review

Court Orders New York-Based Hedge Fund Manager and Firm to Pay Nearly $5 Million in Disgorgement and Penalties, January 9, 2013, (Litigation Release No. 22588)

Final judgments were entered against hedge fund manager Chetan Kapur and his firm ThinkStrategy Capital Management for allegedly overstating the performance of their ThinkStrategy Capital Fund, "inflat[ing] the firm’s assets, exaggerat[ing] the firm’s longevity and performance history, and misrepresent[ing] the size and credentials of ThinkStrategy’s management team." In addition, Kapur and ThinkStrategy allegedly "misstated the scope and quality of due diligence checks on certain managers and funds selected for inclusion in" the TS Multi-Strategy Fund, a second hedge fund that they managed. This resulted in the TS Multi-Strategy Fund making "investments in certain hedge funds that were later revealed to be Ponzi schemes or other serious frauds, including Bayou Superfund, Valhalla/Victory Funds, and Finvest Primer Fund." The final judgment orders the defendants to pay almost $5 million in disgorgement and civil penalties, and permanently enjoins them from future violations of the Securities Act and Investment Advisers Act. In addition, Kapur has been barred from associating with "any investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization."

SEC Charges Three Former Senior Officers of Commonwealth Bank with Understating Losses and Material Misstatements During Financial Crisis, January 9, 2013, (Litigation Release No. 22587)

According to the complaint (opens to PDF), from 2008 to 2010 Bank of the Commonwealth's former CEO, President, and Chairman of the Board, Edward J. Woodward, Jr., along with Chief Financial Officer and Secretary, Cynthia A. Sabol, and Executive Vice President and Commercial Loan Officer, Stephen G. Fields, "understat[ed] millions of dollars in losses...masking the true health of the bank's loan portfolio at the height of the financial crisis." Woodward and Sabol have been charged with violating sections of the Exchange Act and Securities Act, and Fields has been charged with violating sections of the Exchange Act.

SEC Obtains Judgments Against Former Spongetech Executives Michael E. Metter and Steven Y. Moskowitz, January 4, 2013, (Litigation Release No. 22586)

Final judgments were entered against Michael E. Metter, former Chief Executive Officer of Spongetech Delivery Systems, Inc., and Steven Y. Moskowitz, Spongetech's former Chief Financial Officer, for their involvement in a scheme that illegally increased the demand for "the unregistered sale...[of] Spongetech stock by...'pumping' up demand for the stock through false public statements about non-existent customers, fictitious sales orders, and phony revenue." During this scheme, Metter and Moskowitz allegedly flooded the market with "false public information." Metter and Moskowitz consented to the judgment that imposes a penny stock bar and officer and director bar against them, as well as enjoins them from future violations of the federal securities laws. In addition, the judgment orders them to pay penalties and disgorgement that will be determined at a later date.

Earlier this year, final judgments were entered against RM Enterprises International, Inc., "a Spongetech affiliate," and George Speranza, which imposed full injunctive relief against both of them, imposed a penny stock bar against Speranza, and ordered Speranaza to pay over $135,000 in  disgorgement, penalties, and prejudgment interest. In addition, BusinessTalkRadio.net, Inc. and Blue Star Media Group, Inc. were named as relief defendants.

In May 2010, Metter and Moskowitz were arrested in a parallel criminal action. Later that year in October, a superseding indictment was filed against George Speranza, a stock promoter, and "four former Spongetech employees – Andrew Tepfer, Seymour Eisenberg, Thomas Cavanagh, and Frank Nicolois – on charges including securities fraud, obstruction of justice, money laundering, structuring, and contempt." All defendants, excluding Metter, pled guilty to the charges.

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