Friday, April 19, 2013

SEC Litigation Releases: Week in Review

SEC Files Subpoena Enforcement Action Against Andrew Farmer and Iridium Capital, Ltd. for Failure To Produce Documents in Market Manipulation Investigation, April 18, 2013, (Litigation Release No. 22680)

Last week, the SEC filed a subpoena enforcement action against Andrew Farmer and Iridium Capital, Ltd. "According to the filing, the SEC is investigating possible market manipulation in connection with transactions in the securities of Chimera Energy Corporation." Subpoenas were issued last December ordering Farmer and Iridium Capital, Ltd. "to produce documents to the Commission...[including] materials related to their transactions in Chimera securities and to Chimera’s business." However, Farmer has failed to do so. The SEC is now "seeking an order from the federal district court compelling Farmer and Iridium to produce all materials responsive to the subpoenas and compelling Farmer to provide sworn testimony."

SEC Files Insider Trading Charges Against Former Trader Joseph Mancuso, April 17, 2013, (Litigation Release No. 22679)

According to the complaint (opens to PDF), Joseph Mancuso, "former proprietary trader at the registered broker-dealer Schottenfeld Group, LLC," traded on inside information ahead of the "announced acquisitions of Avaya, Inc., 3Com Corp., Axcan Pharma Inc., Hilton Hotels Corp. and Kronos Inc" in 2007. Mancuso gained this information from colleague and friend, Zvi Goffer, who allegedly learned of the acquisitions from attorneys, Arthur Cutillo and Brien Santarlas, and another former propreitary trader, Gautham Shankar. Shankar allegedly gained his insider knowledge from Thomas Hardin, "a managing director at the hedge fund adviser Lanexa Management," who in turn had been tipped by Roomy Khan, "a consultant to a New York-based investment adviser." Kahn allegedly "had received the inside information from her friend, a credit rating company analyst." According to the complaint, Goffer paid kickbacks for the inside information he received. The SEC has charged Mancuso with violating various sections of the Exchange Act and permanently enjoins him from future violations as well as orders him to pay disgorgement and prejudgment interest.

Goffer, Cutillo, Santarlas, Goldfarb, Shankar, Hardin, and other defendants were previously charged by the SEC in connection with this scheme.

Former Investment Bank Analyst and His College Friend Plead Guilty to Insider Trading Scheme, April 17, 2013, (Litigation Release No. 22678)

Jauyo "Jason" Lee and Victor Chen have pled guilty "to one count of conspiracy to commit securities fraud and one count of securities fraud for their roles in an insider trading scheme." The criminal charges "arose out of the same facts that were the subject of a civil action...the SEC filed against Lee and Chen" last September. According to the SEC, Lee, then an employee of Leerink Swann LLC, gained  information about Syneron Medical Ltd.'s acquisition of Candela Corporation and Covidien plc.'s acquisition of Somanetics Corporation from two unsuspecting coworkers. Lee then tipped Chen, and Chen made over $600,000 in illegal profits from trading on this information. Chen's sister, Jennifer Chen, has been named as a relief defendant because Chen made some of his trades using her account. The SEC has charged Lee and Chen with violating sections of the Exchange Act and seeks disgorgement, prejudgment interest, civil penalties, and permanent injunctions.

SEC Charges Two Arizona-Based Brokers with Defrauding Investors in Tankless Water Heater Venture, April 16, 2013, (Litigation Release No. 22677)

According to the complaint (opens to PDF), Jeffrey Stebbins and Corbin Jones stole "$1.8 million of investor money for their personal use and fraudulently obtained more than $6 million in stock for themselves to the detriment of investors." The funds came from a project to develop tankless water heaters. According to the SEC, Stebbins and Jones diverted almost 30 percent of the funds "they raised to pay unrelated business expenses and support their lavish lifestyles, including the lease of luxury automobiles." They also allegedly "duped certain shareholders in one of the companies, Noble Systems, to swap their private shares for publicly-traded shares in another company, Noble Innovations." This stock swap enabled "Stebbins and Jones to reap more than $6 million worth of Noble Innovations stock at the expense of these shareholders who were left with almost nothing." Furthermore, "Stebbins and Jones never reported their significant holdings in Noble Innovations as they were required to do under the securities laws." The defendants have been charged with violating sections of the Exchange Act and Securities Act. The SEC seeks an injunction, disgorgement, financial penalties, and a penny stock bar against the defendants. Additionally, the SEC revoked "registration of each class of Noble Innovations, Inc.'s securities due to the company's failure to make required periodic filings."

Former Siemens Executive Uriel Sharef Settles Bribery Charges, April 16, 2013, (Litigation Release No. 22676)

A final judgment was entered against Uriel Sharef, "a former officer and board member of Siemens Aktiengesellschaft", for his role in "Siemens' decade-long bribery scheme to retain a $1 billion government contract to produce national identity cards for Argentine citizens." The judgment orders him to pay a $275,000 civil penalty and permanently enjoins him from future violations of the securities laws.

Final Judgments Entered Against Distributor and Investment Adviser, April 16, 2013, (Litigation Release No. 22675)

Final judgments were entered by consent against Michael Bozora, Timothy Redpath, Capital Solutions Distributors, LLC and Capital Solutions Management, LP, for making "several written and oral representations to" investors in Capital Solutions Monthly Income Fund "that were materially misleading because they claimed the Fund was enjoying success and weathering disruptions in the credit and real estate markets." Bozora and Redpath, owners of Capital Solutions Distributors, LLC, allegedly "failed to make any meaningful disclosure of the default by the Fund's sole borrower, the Fund's subsequent foreclosure on the borrower's assets, and the resulting loss of any significant investment income to the Fund." Additionally, Bozora allegedly "made unsuitable recommendations for investors to purchase a note issued by CS Financing Corporation, an entity at which Bozora served as the President." The final judgment imposed permanent injunctions against the defendants and orders them to pay over $6.5 million combined in disgorgement, prejudgment interest, and penalties.

SEC Charges Former Investment Banker with Insider Trading, April 16, 2013, (Litigation Release No. 22674)

According to the complaint (opens to PDF), Richard Bruce Moore used insider information to purchase ADRs of Tomkins plc "ahead of an announcement that the Canada Pension Plan Investment Board (CPPIB) and a Canadian private equity firm had approached Tomkins with a takeover offer." Moore learned of the information through his position at Canadian Imperial Bank of Commerce. Moore allegedly gained over $163,000 in illegal profits from the insider trading. The SEC has charged Moore with violating sections of the Exchange Act. Moore consented to a final judgment that enjoins him from future violations and orders him to pay over $340,000 in disgorgement, prejudgment interest, and penalties. Moore has also agreed to be barred from associating with "any broker, dealer, investment adviser, municipal securities dealer, or transfer agent, and from participating in any penny stock offering."

The Ontario Securities Commission also announced charges against Moore "based on his trading in Tomkins common shares and his trading in a second, unrelated, stock."

Court Enters Preliminary Injunction Against Inter Reef d/b/a Profitable Sunrise and Extends Asset Freeze Order, April 16, 2013, (Litigation Release No. 22673)

This week a preliminary injunction was entered against Inter Reef, Ltd. dba Profitable Sunrise as well as four Czech companies, Melland Company S.R.O., Color Shock S.R.O., Solutions Company S.R.O. and Fortuna-K S.R.O. According to the SEC's original complaint (opens to PDF), Inter Reef, Ltd. "operated a fraudulent securities offering over the internet under the name of Profitable Sunrise that has been targeted towards investors in the United States." The four Czech companies received funds from investors "at the direction of Profitable Sunrise." The court found that the SEC has "established a prima facie case that Inter Reef had violated" various sections of the securities laws and has "continued its freeze on the assets of Inter Reef and the relief defendants."

SEC Charges Parker Drilling Company with Violating the Foreign Corrupt Practices Act, April 16, 2013, (Litigation Release No. 22672)

According to the complaint (opens to PDF), Parker Drilling Company violated the Foreign Corrupt Practices Act by authorizing  payments "to a Nigerian agent totaling $1.25 million...despite former senior executives knowing that the agent intended to use the funds to 'entertain' Nigerian officials involved in resolving Parker Drilling's ongoing customs problems." After the Nigerian agent finished his work, Parker Drilling "received an unexplained $3,050,000 reduction of a previously assessed customs fine, and the company was permitted to nationalize and sell its Nigerian rigs."

Parker Drilling has agreed to pay over $4 million in disgorgement and prejudgment interest to settle the charges and has agreed to a final judgment that permanently enjoins it from future violations of the Exchange Act. In parallel criminal proceedings, the company agreed to pay an $11,760,000 penalty.

SEC Charges Former Rochdale Securities Broker for Rogue Trades, April 15, 2013, (Litigation Release No. 22671)

According to the complaint (opens to PDF), David Miller, institutional sales trader at Rochdale Securities LLC, "concocted a scheme to personally profit from placing a series of unauthorized orders to buy a total of more than 1.6 million shares of Apple, Inc. stock on October 25, 2012." After receiving an order to buy 1,625 shares of Apple from a customer, Miller "instead entered a series of orders to purchase a total of 1,625,000 shares." If Apple's stock increased, Miller planned to share in the customer's profit from selling the shares later that day. However, if Apple's stock decreased, "Miller planned to claim that he inadvertently misinterpreted the size of the customer's order, and planned for Rochdale to take responsibility for the unauthorized purchase and suffer the losses." Apple's price fell, "the customer denied buying all but 1,625 Apple shares, and, as Miller planned, Rochdale took responsibility for the unauthorized purchase." This resulted in a $5.3 million loss for Rochdale and caused "Rochdale's available liquid assets to fall below limits required by SEC rules applicable to broker-dealers." Consequently, "Rochdale effectively ceased operations shortly thereafter." The SEC has charged Miller with violating sections of the Securities Act and Exchange Act and seeks a permanent injunction as well as a civil penalty. Miller has agreed to be barred from "any future association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and to be barred from participating in any offering of penny stock."

Miller pled guilty in a parallel criminal proceeding to "one count of conspiracy to commit securities and wire fraud and one count of wire fraud."

SEC Charges Former KPMG Partner and Friend with Insider Trading, April 11, 2013, (Litigation Release No. 22670)

According to the complaint (opens to PDF), Scott London, the former partner in charge of KPMG's Pacific Southwest audit practice, tipped his friend, Bryan Shaw, "with confidential details about five KPMG audit clients and enabled Shaw to make more than $1.2 million in illicit profits trading ahead of earnings or merger announcements." In exchange for the tips, "Shaw paid London at least $50,000 in cash that was usually delivered in bags outside of his Encino, Calif. jewelry store...[and] also gave London an expensive Rolex watch as well as other jewelry, meals, and tickets to entertainment events." London recently informed KPMG, his employer for nearly 30 years, "that he was under investigation by the SEC and criminal authorities for insider trading in the securities of several KPMG clients.  The firm immediately terminated him." The SEC has charged London and Shaw with violating sections of the Exchange Act and seeks permanent enjoinment as well as payment of disgorgement, prejudgment interest, and financial penalties.

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