Friday, November 1, 2013

SEC Litigation Releases: Week in Review

SEC Obtains Summary Judgment Against Defendants Charged with Defrauding Investors in Fictitious Offering, October 30, 2013, (Litigation Release No. 22861)

A summary judgment was entered against the Estate of Frank L. Pavlico, Brynee K. Baylor, her law firm Baylor & Jackson, P.L.L.C., and their former “client” The Milan Group, Inc. for their involvement in "a prime bank investment scheme that defrauded at least 13 investors out of more than $2 million." According to the SEC, "Pavlico and Baylor operated a prime bank scheme, offering investors risk-free returns" on bank instruments and trading programs that "were entirely fictitious." Baylor and her law firm "acted as 'counsel' for Pavlico’s company Milan, vouching for Pavlico and acting as an escrow agent that in reality was merely receiving and diverting the majority of investor funds." During the scheme, Pavlico used a fictitious name, "Frank Lorenzo," " to conceal his 2008 money laundering conviction from investors." The final judgment enjoins the defendants from future violations of the securities laws and orders them to pay over $7.6 million in disgorgement, prejudgment interest, and penalties. The judgment also orders relief defendants, Patrick Lewis, GPH Holdings, LLC, The Julian Estate, Global Funding Systems, LLC, and Mia Baldassari to pay over $1.4 million combined in disgorgement and prejudgment interest. The court denied a judgment against relief defendant Brett Cooper.

The SEC previously settled with "relief defendant Dawn Jackson, Baylor’s law partner, and the court entered a final judgment against her" that ordered her to pay over $160,000 in disgorgement and prejudgment interest.

Securities and Exchange Commission v. Andrew J. Franz, October 30, 2013, (Litigation Release No. 22860)

Andrew J. Franz, who previously pled guilty to "mail fraud, securities fraud, investment adviser fraud, and income tax evasion," was sentenced to nearly five years imprisonment followed by three years supervised release. Additionally, Franz was ordered to pay over $357,000 in criminal restitution. The SEC previously filed an action against Franz, SEC v. Andrew J. Franz, based on the same charges in the criminal case. The SEC alleged that "Franz operated a fraudulent scheme in which, through forgery and other fraudulent means, he misappropriated approximately $865,969 from clients of Ruby Corporation, including $779,418 from family members and $86,551 from other clients." An emergency order was entered against Franz that permanently enjoins him from future violations of the Exchange Act and Advisers Act, as well as freezes "all assets under Franz’s control." Franz was also permanently barred from the securities industry.

Securities and Exchange Commission v. Steven W. Salutric, October 30, 2013, (Litigation Release No. 22859)

Steven W. Salutric was sentenced to eight years imprisonment followed by three years of supervised release and ordered to pay $3.89 million in criminal restitution. Salutric pled guilty to one count of wire fraud in 2012. In a 2010 action, the SEC charged Salutric with "misappropriat[ing] over $2 million from at least 17 clients to support businesses and entities linked to him and to make Ponzi-like payments to other clients." In one case, Salutric "misappropriated over $400,000 from a 96-year-old client who resided in a nursing home and suffered from dementia." In 2010, Salutric's assets were frozen and a receiver was appointed to "marshal all existing assets of Salutric." A final judgment was entered later that year that permanently enjoined Salutric from future violations of the Exchange Act and Advisers Act, and barred him from association with any investment adviser.

SEC Charges New York Investment Professional with Insider Trading, October 29, 2013, (Litigation Release No. 22858)

According to the complaint (PDF), "Rosenberg traded in the securities of Carter's Inc...on the basis of material non-public information provided by a former Carter's executive, and tipped two investment advisers about this information." Allegedly, "Rosenberg's total ill-gotten gains, losses avoided, and consulting fees...totaled approximately $500,000." A final judgment was entered against Rosenberg that permanently enjoins him from future violations of the Securities Act and Exchange Act and orders him to pay $608,000 in disgorgement and prejudgment interest.

Former Schottenfeld Trader Settles SEC Insider Trading Charges, October 29, 2013, (Litigation Release No. 22857)

A final judgment was entered against Joseph M. Mancuso in SEC v. Mancuso, who allegedly "used inside information he received from his good friend and colleague Zvi Goffer to trade ahead of the acquisitions of "Avaya, Inc., 3Com Corp., Axcan Pharma Inc., Hilton Hotels Corp. and Kronos Inc." According to the SEC, "certain of the tips originated from Arthur Cutillo and Brien Santarlas, attorneys at the law firm Ropes & Gray" while other information came from Gautham Shankar and "Thomas Hardin, a managing director at the hedge fund adviser Lanexa Management." Goffer, Cutillo, and Santarlas also used their mutual friend, Jason Goldfarb, as a conduit.

Mancuso has agreed to a final judgment that permanently enjoins him from future violations of the securities laws, orders him to pay over $460,000 in disgorgement and prejudgment interest, and bars him "from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and bar[s] him from participating in any offering of a penny stock." The payment obligations will be waived in light of Mancuso's financial condition.

SEC Obtains Permanent Injunction and $100,000 Civil Penalty Against Cellular Telephone Company President for Role in Fraudulent Scheme, October 28, 2013, (Litigation Release No. 22856)

A final judgment was entered against Paul V. Greene, President of Americas Premiere Corporation (APC), a former vendor of now-bankrupt InPhonic, Inc., for his alleged participation in a scheme to artificially inflate InPhonic's financial results. Greene consented to the final judgment, which enjoins him from future violations of the Exchange Act and orders him to pay a $100,000 civil penalty.

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