Friday, April 12, 2013

SEC Litigation Releases: Week in Review

Securities and Exchange Commission v. Glenn Hoppes, United States Energy Corp., TN-KY Development Fund LP, TN-KY Development Fund II LP and TN-KY Development Fund III LP, April 8, 2013, (Litigation Release No. 22669)

According to the complaint (opens to PDF), Glenn Hoppes and four companies he controls ("United States Energy Corp., TN-KY Development Fund LP, TN-KY Development Fund II LP, and TN-KY Development Fund III LP") fraudulently offered "unregistered investments in oil drilling projects" through Joseph Hilton. Hoppes hired Hilton to sell "limited partnership units in three oil drilling projects in 2011 and 2012 and financially supported Hilton’s boiler room despite [allegedly] knowing Hilton was barred from acting as a broker by a 2008 SEC enforcement action." US Energy raised almost $2.5 million through Hilton's efforts. The complaint also alleges that Hoppes "misled investors about US Energy’s oil well assets and omitted information from offering material concerning his personal bankruptcy." The SEC has charged the defendants with violating sections of the Exchange Act and the Securities Act and seeks payment of disgorgement, prejudgment interest, and civil penalties as well as permanent injunctions against the defendants.

Securities and Exchange Commission v. Matthew John Ryan, et al., April 8, 2013, (Litigation Release No. 22668)

A final judgment was entered against Prime Rate and Return, LLC, a company which also has done business as American Integrity Financial Company. According to the SEC, Prime Rate "defrauded investors through a multi-million dollar Ponzi scheme operated...by Prime Rate’s sole owner and manager, Matthew Ryan." Prime Rate consented to a final judgment enjoining it from future violations of the securities laws and ordering it to pay over $7.1 million in disgorgement and prejudgment interest. However, disgorgement was deemed satisfied by "the $71,927 recovered by the receiver plus any additional amount the receiver recovers, after certain court-approved payments and fees, from the sale of a property in which Prime Rate owns an interest."

Ryan was convicted of securities fraud "in a criminal case arising out of the same conduct underlying the Commission’s case." The SEC's case against Ryan remains pending.

Final Judgment Entered Against Former Sales Agent of Massachusetts Company, April 5, 2013, (Litigation Release No. 22667)

A final judgment has been entered against former sales agent of Inofin, Inc., David Affeldt, for his involvement in promoting "the offering and sale of unregistered securities." According to the SEC, Inofin through its former executives Michael J. Cuomo, Kevin Mann, Sr. and Melissa George "illegally raised at least $110 million" from investors "through the sale of unregistered notes." The defendants allegedly "materially misrepresented how the Company [used] investor money and the Company’s financial performance." Affeldt and Thomas K. Keough were charged with promoting the unregistered securities and Keough's wife, Nancy Keough, was named as a relief defendant.

The final judgment against Affeldt permanently enjoins him from future violations of the securities laws and orders him to pay over $200,000 in disgorgement, prejudgment interest, and civil penalties.  Final judgments were previously entered against Cuomo and Mann "which included permanent injunctions." The SEC's case against Inofin, George, and the Keoughs remains pending.

SEC Obtains Temporary Restraining Order Against UK Company Operating Fraudulent Profitable Sunrise Internet Scheme and Names Czech Companies as Relief Defendants April 5, 2013, (Litigation Release No. 22666)

According to the complaint (opens to PDF), Inter Reef Ltd. "operated a fraudulent securities offering over the internet under the name of 'Profitable Sunrise'." Profitable Sunrise offered investors "returns of between 1.6% and 2.7% per business day, compounded daily, on funds invested in various programs that were purportedly to be used to provide loans to businesses at even higher rates." The SEC has charged that the defendant "promised impossibly high rates of return and misrepresented that investments in the program were insured by a leading investment bank." The SEC has named Czech companies,  Melland Company S.R.O., Color Shock S.R.O., Solutions Company S.R.O., and Fortuna-K S.R.O., as relief defendants for allegedly receiving funds "from investors...through transfers at the direction of Profitable Sunrise."

A temporary restraining order was granted against Inter Reef as well as an order "directing an accounting, allowing expedited discovery, preventing the destruction of documents and providing for an asset freeze." At a later time, the SEC may also seek preliminary and permanent injunctions, disgorgement, prejudgment interest, and civil penalties.

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