Friday, March 15, 2013

SEC Litigation Releases: Week in Review

Court Orders Former Prudential Securities Broker to Pay Over $763,000 Related to Deceptive Mutual Fund Market Timing Practices, March 13, 2013, (Litigation Release No. 22643)

A final judgment was entered against Frederick J. O'Meally, a former registered representative of broker-dealer Prudential Securities Inc, for allegedly using "deceptive practices to evade blocks by mutual fund companies on his market timing trading." The judgment orders O'Meally to pay over $763,000 in disgorgement, prejudgment interest, and penalties.

SEC Shuts Down Real Estate Investment Scheme in Redondo Beach, March 12, 2013, (Litigation Release No. 22642)

According to the complaint (opens to PDF), Alvin R. Brown raised over $3 million from investors through a scheme where he "falsely promised high profits for investing in his companies that were purportedly funding commercial and residential rental properties in California and other western states." In reality, "Brown and his companies - First Choice Investment and Advanced Corporate Enterprises - instead used investor funds to make Ponzi-like payments to pre-existing investors, and Brown routinely withdrew cash for personal use." One of Brown's targeted investors included an "elderly investor suffering from a stroke and dementia." In addition to falsely promising high returns, Brown and his companies never revealed to investors that Brown "had twice filed for bankruptcy." The SEC's request for an asset freeze and temporary restraining order was granted, and Krista Freitag was appointed "as a temporary receiver over the companies." The SEC has charged the defendants with violating various sections of the Exchange Act and Securities Act and seeks "preliminary and permanent injunctions, appointment of a permanent receiver, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties" against the defendants.

British Twin Brothers Agree to Pay $175,000 to Settle Microcap Pump-and-Dump Charges, March 12, 2013, (Litigation Release No. 22641)

Twin brothers Alexander John Hunter and Thomas Edward Hunter have agreed to settle charges for their alleged violation of the antifraud provisions of the securities laws. According to the SEC, when "the Hunters were just 16 years old...they began disseminating subscription-based e-mail newsletters through a pair of websites they created to tout stocks selected by a 'stock picking robot.'" This robot allegedly was a "highly sophisticated computer trading program that was the product of extensive research and development." In reality, the "Hunters were...paid to send selected penny stock ticker symbols to their subscribers, who were misled to believe that the stock 'picks' were the product of the robot." The brothers have agreed to pay a total of $175,000 in penalties to settle the charges, and have been enjoined from future violations of various sections of the Securities Act and Exchange Act.

SEC Charges Former International Paper Company Executive with Insider Trading, March 11, 2013, (Litigation Release No. 22640)

According to the complaint (opens to PDF), Michael Dale Lackey, "a former Vice-President and General Manager of International Paper Company," traded on material non-public information regarding International Paper Company's potential acquisition of Temple-Inland, Inc. He learned of the potential acquisition through "a private conversation with an International Paper Company Executive while attending a charity event." Lackey has agreed to settle the charges by agreeing to permanent enjoinment from future violations of sections of the Exchange Act, and to pay over $116,000 in disgorgement, prejudgment interest, and penalties. In addition, a five-year officer and director bar has been imposed on him.

SEC Halts "Plasma Engine" Investment Scheme Operated by John Rohner and His Nevada Companies, March 8, 2013, (Litigation Release No. 22639)

According to the complaint (opens to PDF), John P. Rohner "and his companies Inteligentry, Ltd., PlasmERG, Inc. and PTP Licensing, Ltd., have been operating a fraudulent investment scheme" by falsely telling investors "they have developed, tested and patented an operational 'plasma engine' fueled by abundant and inexpensive noble gases." In reality, these claims are false as "Rohner and his companies have never run an engine fueled by noble gases, nor have they obtained patents relating to the engine or the plasma technology." Additionally, Rohner falsely told investors he has advanced degrees from Massachusetts Institute of Technology and Harvard University. The complaint alleges that "Rohner, Inteligentry, PlasmERG, and PTP Licensing used investor funds to pay Rohner’s personal expenditures as well as business expenses."  A request for a temporary restraining order was granted "to prevent Rohner, Inteligentry, PlasmERG, and PTP Licensing from further engaging in the issuance, offer, or sale of any security in an unregistered transaction." The SEC charges the defendants with violating various provisions of the securities laws and seeks "permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest thereon, and civil monetary penalties against each defendant, and a bar prohibiting Rohner from serving as an officer or director of any public company."

Securities and Exchange Commission v. Brian R. Reiss, March 8, 2013, (Litigation Release No. 22638)

Last week, the SEC charged Brian Reiss with "fraudulently churning out baseless legal opinion letters for penny stocks through his website" 144letters.com, "without researching and evaluating the individual stock offerings." According to the SEC, Reiss "steered potential customers to his website by making bids on search terms through Google's AdWords, and then relied on a computer-generated template to draft his opinion letters within minutes absent any true analysis of the facts behind each stock offering." The SEC has charged Reiss with violating various sections of the Exchange Act and Securities Act and seeks disgorgement, prejudgment interest, financial penalties, and a penny stock bar against Reiss.

SEC Obtains Final Judgment Against Scott Kupersmith, March 7, 2013, (Litigation Release No. 22637)

A final judgment was entered against Scott I. Kupersmith for his alleged orchestration of "a 'free-riding' scheme" where he "[sold] stocks before paying for them." This scheme "allowed him to reap approximately $640,000 in illicit profits, while causing approximately $2 million in losses to the victim broker-dealers that he used to operate the scheme." The final judgment permanently enjoins Kupersmith from violating sections of the Exchange Act and Securities Act, and orders him to disgorge $650,000. In May 2012, Kupersmith plead guilty to criminal charges in a parallel criminal action, United States v. Kupersmith and was sentenced to 33 months in prison and ordered to pay over $1.7 million in restitution. In May 2012, Kupersmith also plead guilty to criminal charges in a related criminal action, State of New York v. Scott Kupersmith et al. and was "sentenced to a one-to-three year state prison term to run concurrently with the federal prison sentence and ordered to pay $684,703 in restitution, including a five-percent administration fee."

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