Friday, June 14, 2013

SEC Litigation Releases: Week in Review

Former Yahoo Executive Settles SEC Insider Trading Case, June 12, 2013, (Litigation Release No. 22726)

A final judgment was entered against Robert W. Kwok, a former Senior Director of Business Management at Yahoo! Inc., for allegedly trading on nonpublic information "concerning Yahoo and Moldflow Corporation." According to the SEC, in April 2008 Kwok learned of an upcoming acquistion of Moldflow by Autodesk, Inc. from Reema Shah, "a former mutual fund and hedge fund portfolio manager at RiverSource Investments, LLC." Kwok gained approximately $4,750 in illicit profits from the trading. Additionally, Kwok allegedly tipped Shah in 2009 about "an upcoming announcement of an internet search engine partnership agreement between Yahoo and Microsoft Corporation."

A judgment was previously issued that ordered injunctive relief against Kwok and barred him from serving as an officer or director of a public company. This final judgment orders Kwok to pay over $10,000 in disgorgement, prejudgment interest, and penalties. In a parallel criminal case, United States v. Robert Kwok, Kwok pled guilty "to conspiracy to commit securities fraud and was sentenced to two years of probation and ordered to forfeit $4,754 and pay a fine of $1,000. "

SEC Files Insider Trading Charges Against Whittier Trust and Fund Manager, June 12, 2013, (Litigation Release No. 22725)

Last week, the SEC charged Whittier Turst Company and fund manager Victor Dosti with participating in "an insider trading scheme involving the securities of Dell, Nvidia Corporation, and Wind River Systems." Dosti learned of the insider information from Danny Kuo, "a Whittier Trust fund manager who Dosti supervised." The SEC has charged the defendants with violating sections of the Exchange Act and Securities Act. Whittier Trust and Dosti have agreed to pay almost $1.7 million in disgorgement, prejudgment interest, and penalties to settle the charges.

Commission Files Subpoena Enforcement Action Against Bridge Securities, LLC, Bridge Equity, LLC, Bridge Equity, Inc. and Fogfuels, Inc., June 12, 2013, (Litigation Release No. 22724)

An application was filed this week by the SEC requesting an order "to enforce investigative subpoenas served on Bridge Securities, LLC, Bridge Equity, LLC, Bridge Equity, Inc. and FOGFuels, Inc." All of these entities are under the control of Paul James Marshall. In March 2013, the SEC issued "a Formal Order Directing Private Investigation entitled In the Matter of Bridge Securities, LLC." According to the SEC, "the four entity respondents have failed to comply with validly issued and served subpoenas for documents relating to this investigation, which involves" the possible offerings and sales of unregistered securities interests in "one or more of the entity respondents."

SEC Charges Brothers with Insider Trading, June 11, 2013, (Litigation Release No. 22723)

According to the complaint (PDF), brothers Andrew W. Jacobs and Leslie J. Jacobs II tipped and traded on insider information regarding "a pending tender offer for Chattem, Inc. securities." A. Jacobs gained the inside information from his brother-in-law, "who was at the time a Chattem executive." His brother-in-law "requested that A. Jacobs keep their discussion confidential." However, the next day A. Jacobs allegedly called his brother who then traded on the information, gaining almost $50,000 in illicit profit. The SEC has charged the defendants with violating sections of the Exchange Act and seeks permanent injunctions and payment of disgorgement, interest, and penalties, as well as an officer and director bar against A. Jacobs.

Federal Court Preliminarily Enjoins Atlanta-Area Registered Representative Blake Richards from Securities Fraud Violations, June 11, 2013, (Litigation Release No. 22722)

Last week a preliminary injunction was entered against Blake Richards with allegations including "misappropriat[ion of] approximately $2 million from at least seven investors." The majority of these funds were "retirement savings and/or life insurance proceeds from deceased spouses." The complaint alleges that Richards used these funds for personal use.

Former Trader Emanuel Goffer Settles SEC Insider Trading Charges, June 11, 2013, (Litigation Release No. 22721)

A final judgment was entered against Emanuel Goffer last week for his alleged involvement in an insider trading scheme. In its original complaint, "the SEC charged nine defendants, including Goffer, a former proprietary trader at the broker-dealer Spectrum Trading, LLC, with insider trading ahead of corporate acquisition announcements." The tips were about the acquistions of Alliance Data Systems Corp., Avaya Inc. and 3Com Corp. Emanuel Goffer gained over $1.3 million in illegal profits by trading on the information that he received from his brother, Zvi Goffer, who in turn received the information from a Ropes & Gray LLP attorney. Goffer has agreed to be permanently enjoined from future vioaltions of the securities laws, and to pay over $1.5 million in disgorgement and prejudgment interest. "The disgorgement obligation will be off-set in part by a forfeiture order in a related criminal case, and the remainder waived in light of his financial condition." Goffer also consented to an "SEC order barring him from association with any broker, dealer, investment adviser, municipal securities dealer or transfer agent, and barring him from participating in any offering of a penny stock."

In the related criminal case, United States v. Emanuel Goffer, Goffer was convicted of "securities fraud and conspiracy to commit securities fraud, and was sentenced to three years in prison and ordered to forfeit $761,623."

SEC Charges Top Officials At Investment Adviser in Scheme to Hide Theft from Pension Fund of Detroit Police and Firefighters, June 10, 2013, (Litigation Release No. 22720)

According to the complaint (PDF), Chauncey C. Mayfield, "the founder, president, and CEO of MayfieldGentry Realty Advisors," stole almost $3.1 million from "the pension fund that the firm manages for the city's police officers and firefighters so he could buy two strip malls in California." Additionally, the SEC has charged chief financial officer Blair D. Ackman, chief operating officer Marsha Bass, chief investment officer W. Emery Matthew, and chief compliance officer and general counsel Alicia M. Diaz for helping Mayfield conceal the theft.

Mayfield allegedly stole the funds in 2008 and used them to purchase shopping properties and "title them in the name of a MayfieldGentry affiliate." "The stolen money could have provided a year of benefits for more than 100 retired police officers, firefighters, and surviving spouses and children." When the other defendants became aware of the scheme, they feared losing the business received from the pension fund and "devised a plan to secretly repay the pension fund by cutting costs at the firm and selling the strip malls." However, MayfieldGentry failed to raise enough capital to replace the stolen funds. The defendants continued to cover up the scheme, though, until "they finally informed the pension fund on the evening before the SEC filed a complaint against Mayfield and his firm in May 2012 for their participation in a "pay-to-play" scheme involving the former mayor and treasurer of Detroit." The pension fund "promptly terminated its relationship with MayfieldGentry."

The defendants have been charged with violating and/or aiding and abetting the violation of various provisions of the securities laws. They have agreed to pay almost $3.1 million to settle the charges. "In a parallel criminal matter, Mayfield is awaiting sentencing in connection with his guilty plea for participation in the pay-to-play scheme."

China Natural Gas and Executive Settle Fraud Charges, June 7, 2013, (Litigation Release No. 22719)

Final judgments were entered against China Natural Gas Inc. and its chairman and former CEO, Qinan Ji, for "loaning company funds to benefit Ji's son and nephew while failing to disclose the true nature of the loans." According to the SEC, China Natural Gas failed to disclose in 2010 that it loaned $14.3 million to Ji's son and nephew to benefit a real estate company that the two owned. Additionally, in 2008 China Natural Gas allegedly "paid $19.6 million to acquire a natural gas company, but did not timely and properly report the transaction in its SEC filings." The defendants have agreed to pay over $900,000 in penalties to settle charges. Additionally, Ji has agreed to reimburse "his trading profit of $77,479" to China Natural Gas. The defendants also consented to a final judgment that enjoins them from future violations of the securities laws and bars Ji from serving as "an officer or director of a public company for 10 years."

SEC Charges Cyprus-Based Company with Illegally Selling Binary Options in the U.S., June 7, 2013, (Litigation Release No. 22718)

According to the complaint (PDF), Banc de Binary Ltd. "has been offering and selling binary options to investors across the U.S. without first registering the securities as required under the federal securities laws." Additionally, Banc de Binary has been acting "as a broker when offering and selling these securities, but failed to register with the SEC as a broker as required under U.S. law." The SEC seeks disgorgement plus prejudgment interest, financial penalties, and "preliminary and permanent injunctions against Banc de Binary among other relief."  For more information, see our recent post on the subject and our review of binary options.

SEC Charges Former Officer of Intermune, Inc. with Insider Trading, June 7, 2013, (Litigation Release No. 22717)

Last week, the SEC charged Bruce W. Tomlinson, former vice president of finance, principal accounting officer, and controller of InterMune, Inc., with tipping "his friend and former business associate, Michael Sarkesian, about material nonpublic information concerning the progress of InterMune’s application before a European Union regulatory body to market its drug Esbriet in the EU." After learning the insider information, Sarkesian allegedly "directed the purchase of 400 out-of-the-money call options on InterMune common stock  through a brokerage account held in the name of Quorne Limited" and made over $600,000 in illegal profits. Tomlinson had consented to a final judgment that permanently enjoins him from future violations of the securities laws, imposes a five year officer/director bar, and orders him to pay a civil penalty of $616,000. He has also consented to an order that would suspend him from "appearing or practicing before the Commission as an accountant with a right to apply for reinstatement after five years."

Previously, a consent judgment was entered against Sarkesian and Quorne Limited in which the defendants were ordered to disgorge $616,000.

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