Friday, March 8, 2013

SEC Litigation Releases: Week in Review

SEC Charges Robert Crane for Market Manipulation, March 7, 2013, (Litigation Release No. 22636)

According to the complaint (opens to PDF), in 2010 Robert Crane manipulated the market of two penny stocks: Argentex Mining Corporation and ERHC Energy Inc. The complaint charges Crane with violating sections of the Securities Act and Exchange Act. A court order was entered against him that permanently enjoins him from future violations of those laws and also imposes a penny stock bar against Crane.

Securities and Exchange Commission v. M. Mark McAdams and R. Dane Freeman, Civil Action No. Civil Action No. 4:10-CV-00701-TLW (D.S.C.), March 7, 2013, (Litigation Release No. 22635)

Final judgments were entered against M. Mark McAdams and R. Dane Freeman for engaging in alleged fraud "in connection with sales of securities interests in Global Holdings." The judgment enjoins the defendants from future violations of the Securities Act and Exchange Act and orders them to pay over $4.5 million jointly and severally in disgorgement, prejudgment interest, and civil penalties.

Court Enters Final Judgment Against Arizona Resident, March 7, 2013, (Litigation Release No. 22634)

A final judgment was entered against Gerald D. Kegley for his alleged participation in a fraudulent scheme in 2010. In this alleged scheme, misrepresentations were made to investors and funds were misappropriated. The final judgment permanently enjoins Kegley from future violations of the Securities Act and Exchange Act and orders him to pay over $209,000 in disgorgement, prejudgment interest, and civil penalties.

Court Enters Final Judgment Against Defendants, March 7, 2013, (Litigation Release No. 22633)

Final judgments were entered against J.C. Reed & Company, J.C. Reed Advisory Group, and Barron A. Mathis for their participation in the alleged "offer and sale of more than $11 million of JC Parent stock in unregistered transactions." In addition, the defendants were also charged with misrepresenting and omitting facts to investors. The final judgment holds J.C. Reed & Company and J.C. Reed Advisory Group liable for over $14.9 million in disgorgement and prejudgment interest. The final judgment permanently enjoins Mathis from future violations of the securities laws and holds him liable for over $15 million in disgorgement and prejudgment interest.

Securities and Exchange Commission v. Colin McCabe (D/B/A Elite Stock Report, The Stock Profiteer, and Resource Stock Advisor), Civil Action No. 2:13-cv-00161, March 5, 2013, (Litigation Release No. 22632)

According to the complaint (opens to PDF), stock promoter Colin McCabe (who did business as "Elite Stock Report, The Stock Profiteer and Resource Stock Advisor") disseminated "false and misleading information to investors when recommending penny stocks to them." He also allegedly failed to tell his newsletter subscribers that "he was being paid substantial sums...to promote some of the same stocks he recommended to them in his other publications." Additionally, the complaint alleges that McCabe "falsely represented that Guinness Exploration Inc. had acquired a mining property well before discoveries in May 2009 turned the region into 'a red-hot area play,' when, in fact, the property was not acquired until ...November 2009. " The SEC seeks permanent enjoinment from future violations of the Exchange Act and for McCabe to pay civil penalties, disgorgement, and prejudgment interest.

SEC Charges Advisers to the RAHFCO Hedge Funds with Fraud, March 4, 2013, (Litigation Release No. 22631)

According to the complaint (opens to PDF), RAHFCO Management Group, LLC, along with its principal, Randal Kent Hansen, its sub-adviser/portfolio manager, Hudson Capital Partners Corporation, and HCP's principal, Vincent Puma, engaged in "the fraudulent offer and sale of limited partnership interests in two hedge funds -- RAHFCO Funds LP and RAHFCO Growth Fund LP." The complaint alleges that the defendants made material misrepresentations to investors and "siphoned off the invested funds for [their] own purposes." The SEC has charged the defendants with violating various provisions of the securities laws and seeks "permanent injunctions, third-tier civil penalties, disgorgement plus prejudgment interest, and other relief against all of the defendants."

SEC Charges Falcon Ridge Development, Inc. and Its President and CEO for Market Manipulation Scheme, March 1, 2013, (Litigation Release No. 22630)

According to the complaint (opens to PDF), in 2008 Falcon Ridge Development, Inc. and its President and CEO, Fred M. Montano, engaged "in a fraudulent scheme to manipulate the market for Falcon Ridge’s common stock." Montano allegedly "arranged with an individual...he believed had connections to corrupt registered representatives to generate purchases of the company’s stock in exchange for cash kickbacks." In reality, the individual was, "at all times, secretly cooperating with the FBI." The SEC seeks permanent injunctions, disgorgement, prejdugment interest, and civil penalties against the defendants, as well as penny stock and officer and director bars against Montano.

Former Officer of Massachusetts-Based LocatePlus Holdings Corporation Sentenced to 60 Months' Imprisonment for Securities Fraud, March 1, 2013, (Litigation Release No. 22629)

James C. Fields, the former chief financial officer and former chief executive officer of LocatePlus Holdings Corporation, was sentenced to 60 months' imprisonment on "28 criminal charges including securities fraud, false statements to company auditors, false statements and false certifications in SEC filings." In 2010, Fields and another former LocatePlus chief executive officer, Jon Latorella, were charged "with conspiracy to commit securities fraud for their role in a scheme to fraudulently inflate revenue at LocatePlus as well as a scheme to manipulate the stock of another company." The SEC "amended a previously-filed civil injunctive action against LocatePlus arising out of the same conduct, to add both Fields and Latorella as defendants." This action is still pending and has been stayed "until the conclusion of the criminal cases against Fields and Latorella."

Securities and Exchange Commission v. Walter Ng, Kelly Ng, Bruce Horwitz, and The Mortgage Fund, LLC, Civil Action No. C-13 0895-NC (U.S. District Court for the Northern District of California), February 28, 2013, (Litigation Release No. 22628)

Walter Ng, his son, Kelly Ng, and Bruce Horwitz have been charged with fraudulently "using the assets of a new real estate fund to rescue an older, rapidly collapsing fund." The SEC alleges that the defendants "lured investors into their real estate fund called Mortgage Fund '08 LLC by claiming it was safe and secure and would replicate the success of their earlier real estate fund, R.E. Loans LLC." However, at this time R.E. Loans "could no longer make payouts to its investors, so the Ngs funneled millions of dollars from MF08 to prop up R.E. Loans." The defendants have been charged with violating various provisions of the securities laws, and the SEC seeks "injunctive relief, disgorgement of wrongful profits, and financial penalties" against the defendants.

Securities and Exchange Commission v. Keyuan Petrochemicals, Inc. and Aichun Li, Civil Action No. 13-cv-00263 (D.D.C.), February 28, 2013, (Litigation Release No. 22627)

According to the complaint (opens to PDF), Keyuan Petrochemicals, Inc., with the aid of Keyuan's former chief financial officer, Aichun Li, failed to "disclose in its SEC filings numerous material related party transactions" and operated "an off-balance sheet cash account that was kept off the company’s books by the former Vice President of Accounting." This account was used to pay cash bonuses to senior officers, reimburse CEOs for expenses, and fund gifts for Chinese government officials. Aichun Li, allegedly "signed Keyuan’s registration statements and quarterly reports that failed to disclose material related party transactions" despite encountering "red flags that should have indicated that the company was not properly identifying or disclosing related party transactions." The defendants have been charged with violating various provisions of the securities laws. Keyuan and Li have agreed to a final judgment that permanently enjoins them from future violations of the securities laws and orders Keyuan and Li to pay a $1,000,000 and a $25,000 civil penalty, respectively. Additionally, Li has been suspended from "appearing or practicing as an accountant before the Commission with the right to apply for reinstatement after two years."

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