Friday, October 11, 2013

SEC Litigation Releases: Week in Review

Previously Unknown Insider Traders in Heinz Agree to $5 Million Settlement, October 10, 2013, (Litigation Release No. 22841)

According to the complaint (PDF), Rodrigo Terpins traded on nonpublic information concerning H.J. Heinz that he learned from his brother, Michel Terpins. Rodrigo Terpins made his trades through "a Cayman Islands-based entity named Alpine Swift that holds assets for one of their family members." The Terpins brothers and Alpine Swift, which was named as a relief defendant, have agreed to pay over $1.8 million in disgorgement to settle the charges. Additionally, they have agreed to a final judgment which permanently enjoins them from future violations of the securities laws.

SEC Obtains Judgments By Consent Against Charles J. Dushek, Charles S. Dushek, and Capital Management Associates, Inc., October 10, 2013, (Litigation Release No. 22840)

Judgments were entered against Charles J. Dushek, Charles S. Dushek, and Capital Management Associates, Inc. for their involvement in a nearly $2 million cherry picking scheme. The judgment permanently enjoins the defendants from future violations of the securities laws and orders them to pay disgorgement, prejudgment interest, and civil penalties.

Two Penny Stock Promoters Indicted for Securities Fraud Following the SEC's Investigation of ConnectAJet.Com, Inc., October 10, 2013, (Litigation Release No. 22839)

This September a Grand Jury indictment was obtained "against Jason Wynn and Martin Cantu for their role in a conspiracy to defraud prospective investors in a penny stock company that they controlled, ConnectAJet.com, Inc." According to the charges, Wynn and Cantu " issued several false public statements and advertisements that misled potential investors" to "artificially boost demand for ConnectAJet stock." The indictment charges Wynn and Cantu with violating sections of the Exchange Act. The charges in the "criminal indictment stem from the same misconduct underlying the Securities and Exchange Commission’s prior investigation of ConnectAJet and the Commission’s prior civil enforcement actions against Wynn and Cantu." In its cases against the defendants (SEC v Reynolds, et al. and SEC v. ConnectAJet.com, Inc) the SEC found the defendants guilty of violating various provisions of the securities laws and permanently enjoined them from future violations, barred them from participating in penny stock offerings, barred Cantu from "serving as an officer and director of a public company," and ordered them to pay over $10.4 million combined in disgorgement, prejudgment interest, and penalties.

Former Investment Fund Employee Criminally Indicted On Federal Charges for Insider Trading in Marvel Stock Prior to Disney Deal, October 9, 2013, (Litigation Release No. 22838)

The SEC charged Toby G. Scammell in 2011 with trading on insider information regarding Walt Disney Company's acquisition of Marvel. A final judgment was entered against Scammell in 2012 that imposed a permanent injunction against him and ordered him to pay disgorgement, prejudgment interest, and civil penalties.

On October 8, 2013, "a federal grand jury returned a criminal indictment charging Scammell with one count of securities fraud and one count of wire fraud based upon his trading in Marvel."

SEC Files Fraud Charges Against Lee Chi Ling and Perfect Genius Limited for Their Roles in a Wide-Ranging Stock Manipulation Scheme, October 9, 2013, (Litigation Release No. 22837)

On September 26, 2013 the SEC "filed an action related to an elaborate stock manipulation scheme involving shares of China Energy Savings Technology, Inc. against Lee Chi Ling, as a defendant, and Perfect Genius Limited, as a relief defendant." Previously, the SEC charged "Chiu Wing Chui, Lai Fun Sim, Jun Tang Zhao, Lee, and others acting in concert" with orchestrating the scheme. According to the SEC, Lee and entities under her control, including Perfect Genius, "furthered the fraud by: (i) receiving shares of China Energy directed to her by the Chiu Group; (ii) selling some of those shares to profit from artificially high prices...and (iii) acting as nominees...which concealed the illegal trading in the shares of China Energy."

The SEC has charged Lee with violating sections of the Securities Act and Exchange Act and seeks disgorgement, prejudgment interest and the return of ill-gotten gains from Perfect Genius.

Former Envit Capital Boiler-Room Salesman Settles SEC Fraud Charges, October 8, 2013, (Litigation Release No. 22836)

A judgment was entered against Johnathan Fraiman for allegedly participating in "a boiler room operated by Edward M. Laborio." According to the SEC, "Fraiman, Laborio, Matthew K. Lazar, and seven entities owned and controlled by Laborio, including a non-existent hedge fund...rais[ed] up to $5.7 million from...investors through the fraudulent sale of five unregistered offerings." Fraiman was allegedly hired by Laborio in 2008 to "to market Envit Capital Multi Strategy Mixed Investment Fund I LP, a purported hedge fund that in reality never conducted any business." Fraiman allegedly "raised hundreds of thousands of dollars for Laborio by misrepresenting the historical returns and financial health of the Envit Companies." The final judgment enjoins Fraiman from future violations of the securities laws, imposes a penny stock bar against him, and orders him to pay over $205,000 in disgorgement and prejudgment interest. However, payments of disgorgement and prejudgment interest have been waived based upon Fraiman's financial condition. Fraiman also consented to be barred for 10 years from "any future association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization."

The SEC's case against Laborio, Lazar, and the Envit Companies, (SEC v Laborio et al.) "is still pending."

Court Enters Final Judgments Against Brothers Thomas and James Mulholland, October 7, 2013, (Litigation Release No. 22835)

Final judgments were entered against brothers, Thomas and James Mulholland, for using false and misleading statements to"[offer] and [sell] approximately $2 million of demand notes...to fund [their] failing real estate business." Additionally, the SEC has charged the brothers with acting as unregistered broker-dealers. James and Thomas Mulholland have consented to a final judgment that permanently enjoins them from future violations of the securities laws, and orders them to pay over $1 million combined in disgorgement, prejudgment interest, and civil penalties.

Securities and Exchange Commission v. Nguyen et al., October 7, 2013, (Litigation Release No. 22834)

Final judgments were entered against Tai Nguyen and ThanhHa Bao in SEC v. Nguyen et al., for trading on matertial non-public information concerning Abaxis, Inc. securities. Nguyen traded on the information that he learned from his sister, Bao, who at the time was an employee at Abaxis. Nguyen reaped over $144,000 in illicit profits from the trading. The defendants have consented to final judgments that order them to pay over $458,000 combined in disgorgement, prejudgment interest, and penalties, and permanently enjoin them from future violations of the securities laws.

In a parallel criminal case, Nguyen was sentenced to a year of incarceration.

Court Enters Final Judgment by Default Against SEC Defendant China MediaExpress Holdings, Inc., October 7, 2013, (Litigation Release No. 22833)

A final judgment was entered against China MediaExpress Holdings, Inc. for engaging in a scheme "to mislead and defraud investors by, among other things, grossly overstating [its] cash balances." The final judgment permanently enjoins China Media from future violations of the securities laws and orders it to pay over $49 million in disgorgement, prejudgment interest, and civil monetary penalties.




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