Friday, March 21, 2014

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS


Manager of Pre-IPO Investment Funds Settles Fraud Claims, March 20, 2014, (Litigation Release No. 22949)

Frank Mazzola, brokerage firm Felix Investments, LLC, and investment adviser Facie Libre Management, Associates, LLC, have been charged with defrauding "investors in funds created to purchase shares of Facebook, Twitter, and other technology companies prior to their initial public offerings." According to the SEC, Mazzola and Felix Investments "arranged to be paid secret commissions in connection with their funds’ acquisition of Facebook stock and on the sales of fund interests to new investors." They, along with "Facie Libre Management Associates, LLC, sold interests in the pre-IPO funds despite knowing the funds did not own all of the Facebook shares that they told investors." Furthermore, "Mazzola and Felix Investments misrepresented the financial condition of Twitter, then a privately-held company, and misled investors about their attempt to acquire shares of Zynga Inc. stock."

The defendants have consented to the entry of a judgment that orders them to pay $500,000 total in disgorgement, prejudgment interest, and a civil penalty, and permanently enjoins them from future violations of the securities laws. Mazzola has also been barred from the securities industry, with right to reapply in three years.

SEC Charges Law Firm Managing Clerk and Stockbroker in $5.6 Million Insider Trading Scheme, March 20, 2014, (Litigation Release No. 22948)

Steven Metro, a managing clerk at Simpson Thacher & Bartlett, and Vladimir Eydelman, a registered representative who was at "Oppenheimer and is now at Morgan Stanley," have been charged with "insider trading around more than a dozen mergers or other corporate transactions for illicit profits of $5.6 million during a four-year period." Metro would learn of the mergers and then tip a middleman, who in turn tipped Eydelman. "Eydelman went on to use the illicit tip[s] to illegally trade on his own behalf as well as for family members, the middleman, and other customers."

The SEC has charged the defendants with violating various sections of the securities laws and seeks disgorgement, prejudgment interest, penalties, and permanent injunctions from future violations.

Criminal charges have been announced against the defendants in a parallel action.

Jury Returns Verdict of Liability Against President/CEO of Issuer of Mortgage-Backed Securities, March 19, 2014, (Litigation Release No. 22947)

A jury found Robert A. DiGiorgio, "owner and President/CEO of Radius Capital Corporation, liable for securities fraud in connection with the issuance of mortgage-backed securities guaranteed by the Government National Mortgage Association." According to the SEC, under DiGiorgio's direction Radius sold "at least fifteen mortgage-backed securities with a total principal amount of over $23 million" and induced "Ginnie Mae to guarantee these securities" by stating "to Ginnie Mae and investors that all loans backing the securities were or would be insured by the Federal Housing Administration." In reality, allegedly approximately 70% of the loans were not FHA insured. Furthermore,  DiGiorgio allegedly "directed Radius employees to ignore underwriting guidelines and knowingly approved low-quality, improperly documented, and fraudulent loans." The SEC seeks enjoinment from future violations of the securities laws, disgorgement, and civil penalties.

SEC Charges Massachusetts Resident with Insider Trading, March 19, 2014, (Litigation Release No. 22946)

According to the complaint (PDF), David J. Cancian used insider information to trade ahead of an announcement that caused American Superconductor Corporation's "stock price to tumble 42%. Cancian made profits and avoided losses of over $46,000." Cancian has agreed to a judgment that enjoins him from future violations of the securities laws and orders him to pay over $97,000 in disgorgement, prejudgment interest, and a civil penalty.

SEC Obtains Settlements in $150 Million EB-5 Immigrant Investor Offering Fraud, March 19, 2014, (Litigation Release No. 22945)

According to the complaint (PDF), Anshoo R. Sethi, A Chicago Convention Center, LLC, and Intercontinental Regional Center Trust of Chicago, LLC raised "approximately $158 million dollars from...investors as part of a fraudulent offering that targeted foreign nationals who sought to invest in the U.S. economy and gain a legal pathway to citizenship through the EB-5 Immigrant Investor Program." The defendants have agreed to a final judgment that permanently enjoins them from future violations of the securities laws, orders "joint-and-several liability for over $11.5 million in disgorgement and prejudgment interest," enjoins and restrains the defendants from offering or selling securities "issued by any of the defendants or issued by any entity owned or controlled by Sethi" for twenty years, orders Sethi to pay a $1 million civil penalty, and orders ACCC and IRCTC to "wind up and dissolve after satisfying their payment obligations."

SEC Files Emergency Action Against Promoter Behind Micrcocap Stock Scalping Scheme, Obtains Asset Freeze, March 14, 2014, (Litigation Release No. 22945)

Last week, the SEC filed an emergency action against John Babikian a promoter behind "AwesomePennyStocks.com and its related site PennyStocksUniverse.com." According to the SEC, Babikian has been committing "a brand of securities fraud known as 'scalping.'" In February 2012, the APS websites "disseminated e-mails to approximately 700,000 people...recommend[ing] the penny stock America West Resources Inc." The emails failed to disclose that Babikian held over 1.4 million shares in America West stock, "which he had already positioned and intended to sell immediately through a Swiss bank." Without the "fraudulent touts, Babikian could not have sold more than a few thousand shares at an extremely lower share price." Babikian was allegedly "attempting to liquidate his U.S. assets, which he holds in the names of alter ego front companies." The SEC's emergency order "freezes Babikian's assets, temporarily restrains him from further similar misconduct, requires an accounting, prohibits document alteration or destruction, and expedites discovery."

CFTC ENFORCEMENT ACTIONS


CFTC Charges Dallas-based Steven Lyn Scott with Solicitation Fraud, Misappropriation, and Registration Violations in Connection with a Forex Commodity Pool Scheme , March 20, 2014, (CFTC Press Release No. 6885-14)

According to the complaint (PDF), Steven Lyn Scott "fraudulently solicited at least $1,146,000 from at least 43 pool participants...to participate in pooled investment vehicles in the name of an entity he owned and controlled, Stewardship Financial Exchange, Inc." Instead of trading the funds, Scott allegedly "misappropriated 50 percent of pool participants’ funds by depositing their funds into his personal and corporate bank accounts, and then...subsequently misappropriated the remaining funds throughout the relevant period by trading them in his personal trading accounts." Additionally, Scott allegedly omitted material facts.

The CFTC seeks "civil monetary penalties, restitution, disgorgement of ill-gotten gains, trading and registration bans, and a permanent injunction against further violations of the federal commodities laws."

CFTC Charges Florida-Based Gold Distributors Inc. and Its Owner, Jordan Cain, with Engaging in Illegal, Off-exchange Commodity Transactions, March 19, 2014, (CFTC Press Release No. 6884-14)

Gold Distributors Inc. and its sole owner, Jordan Cain, have been charged by the CFTC with " engaging in illegal, off-exchange financed transactions in precious metals with retail customers." According to the complaint (PDF), "between January 2012 and February 2013, GDI and Cain solicited retail customers...to buy physical precious metals, such as gold and silver, in off-exchange leverage transactions." The customers paid "GDI a portion of the purchase price for the metals, and another entity, AmeriFirst Management, LLC, financed the remainder of the purchase price, while charging the customers interest on the amount they purportedly loaned to customers." Allegedly, "GDI’s customers never took delivery of the precious metals they purportedly purchased." The CFTC seeks disgorgement, "restitution for the benefit of defrauded customers, civil monetary penalties, permanent registration and trading bans, and a permanent injunction from future violations of federal commodities laws."

CFTC Charges Ohioan Bradley A. Miklovich with Unauthorized Trading, March 19, 2014, (CFTC Press Release No. 6883-14)

According to the complaint (PDF), Bradley A. Miklovich, a former senior commodities analyst with Rice Investment Company, "engaged in unauthorized trading for two customers’ accounts, made material misrepresentations and omissions in connection with his unauthorized trading, and falsified Rice’s internal trading documents and a customer’s account statements to conceal his unauthorized trading." The two accounts "sustained losses totaling approximately $574,323" due to Miklovich's unauthorized trading. The CFTC seeks "restitution for monies Rice paid to its clearing FCM to compensate customers for their trading losses, civil monetary penalties, permanent registration and trading bans, and a permanent injunction prohibiting Miklovich from violating federal commodity laws."

CFTC Charges South Carolina Residents Robert S. and Amy L. Leben with Commodity Pool Fraud for the Operation of a Multi-Million Dollar Ponzi Scheme, March 19, 2014, (CFTC Press Release No. 6881-14)

According to the complaint (PDF), Robert S. Leben and Amy L. Leben "fraudulently solicit[ed] and/or accept[ed] at least $3.2 million from pool participants in connection with their operation of the [Structured Finance Group Corporation] commodity pool from August 2008 to the present." The Lebens have been charged with "misappropriating pool participant funds and failing to register with the CFTC as Commodity Pool Operators in connection with their operation of SFG."  Additionally, Amy Leben has been charged "with improper operation of the pool." Furthermore, the Lebens allegedly "operated SFG as a Ponzi scheme" to perpetuate their fraud. The CFTC "seeks a permanent injunction from future violations of federal commodities laws, permanent registration and trading bans, full restitution to defrauded pool participants, disgorgement of any ill-gotten gains, and civil monetary penalties."

CFTC Orders Sean R. Stropp to Pay $250,000 Penalty to Settle Charges of Making False and Misleading Statements During a CFTC Investigation , March 18, 2014, (CFTC Press Release No. 6880-14)

The CFTC issued an order (PDF) that files and settles charges against Sean R. Stropp for allegedly "making false and misleading statements of material fact, and omitting material facts, to CFTC staff during a CFTC Division of Enforcement investigation." The order requires him to pay a $250,000 civil penaltY, requires him to "cease and desist from violating the relevant provision of the CEA and permanently prohibits him from, directly or indirectly, engaging in trading on or subject to the rules of any registered entity."

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