Friday, May 16, 2014

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Charges Unregistered Securities Salesman for Selling Millions of Dollars in Oil-And-Gas Investments
, May 15, 2014, (Litigation Release No. 22993)

According to the complaint (PDF), Behrooz Sarafraz "acted as the primary salesman on behalf of TVC Opus I Drilling Program LP and Tri-Valley Corporation" and received over $16 million in sales commissions while failing to be registered with the SEC as a broker-dealer. Sarafraz has agreed to a final judgment that enjoins him from future violations of the securities laws, and has agreed to pay over $22 million in disgorgement, prejudgment interest, and penalties.

Criminal Charges Filed Against Two Principals of Massachusetts-Based Telexfree, May 13, 2014, (Litigation Release No. 22992)

Criminal charges have been entered against James M. Merrill and Carlos N. Wanzeler charging them with "conspiracy to commit wire fraud in connection with the alleged TelexFree pyramid scheme previously charged by the Securities and Exchange Commission." The criminal charges arise from an SEC action that alleges "TelexFree, Inc. and TelexFree, LLC claim to run a multilevel marketing company that sells telephone service based on 'voice over Internet' (VoIP) technology but actually are operating an elaborate pyramid scheme."

SEC Charges Three Sales Managers with Insider Trading Ahead of Major Acquisition, May 13, 2014, (Litigation Release No. 22991)

According to the complaint (PDF), three former Qualcomm Inc. sales managers, Derek Cohen, Robert Herman, and Michael Fleischli, have been charged with insider trading ahead of the announcement of an acquisition of Atheros Communications. The defendants made over $230,000 in illegal profits. The SEC charges the defendants with violating the Exchange Act and seeks disgorgement, prejudgment interest, financial penalties, and permanent injunctions.

Criminal charges have been announced against Cohen and Herman in a parallel action.

SEC Charges Texas Resident and Company in $10 Million Oil and Gas Fraud Scheme, May 13, 2014, (Litigation Release No. 22990)

According to the complaint (PDF), from September 2010 through January 2012 Charles O. Couch and his company Couch Oil & Gas, Inc. "fraudulently raised approximately $9,800,000 from more than 200 investors in two unregistered offerings of oil and gas securities." The defendants allegedly claimed "investors would receive working interests in oil and gas wells when, in fact, Couch and Couch Oil & Gas retained those working interests and never transferred them to investors." The SEC seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties.

Three Software Company Founders to Pay $5.8 Million to Settle Charges of Insider Trading Ahead of Sale, May 12, 2014, (Litigation Release No. 22989)

According to the complaint (PDF), Lawson Software's "co-chairman Herbert Richard Lawson tipped his brother William Lawson and family friend John Cerullo with nonpublic information about the status of the company’s 2011 merger discussions with Infor Global Solutions." William Lawson and John Cerullo then traded on this information  and William Lawson tipped another trader to sell shares. In total, the traders made over $2 million in illicit profits. The defendants have agreed to final judgments that enjoin them from future violations of the securities laws, impose an officer and director bar against Richard Lawson, and order them to pay over $5.7 million in disgorgement, prejudgment interest, and penalties.

CFTC ENFORCEMENT ACTIONS

CFTC Charges Florida-Based Palm Beach Capital LLC and Lawrence Scott Spain with Engaging in Illegal, Off-Exchange Precious Metals Transactions
, May 15, 2014, (CFTC Press Release No. 6931-14)

According to the complaint (PDF), Palm Beach Capital LLC and its owner and manager, Lawrence Scott Spain, engaged "in illegal, off-exchange transactions in precious metals with retail customers on a leveraged, margined, or financed basis." The CFTC seeks disgorgement, restitution, civil penalties, permanent registration and trading bans, and a permanent injunction from future violations against the defendants.

The complaint also alleges that "PBC executed the illegal precious metals transactions through Lloyds Commodities, LLC and associated entities...and Hunter Wise, LLC and associated entities." The CFTC filed enforcement actions against these entities in December 2012. In February 2014, Lloyds Commodities was ordered to pay over "$5 million in restitution and penalties." As for Hunter Wise, "a bench trial against [it] on remaining charges, which allege fraud, was concluded on March 3, 2014, and the parties are awaiting the court’s final judgment."

CFTC Charges RP Martin Holdings Limited and Its Subsidiary, Martin Brokers (UK) Limited, with Manipulation and Attempted Manipulation of Yen Libor, May 15, 2014, (CFTC Press Release No. 6930-14)

The CFTC issued an Order (PDF) against RP Martin Holdings Limited, and its subsidiary, Martin Brokers (UK) Limited, "filing and settling charges of manipulation, attempted manipulation, false reporting, and aiding and abetting derivatives traders’ acts of manipulation and attempted manipulation of the London Interbank Offered Rate (LIBOR) for Yen." The CFTC Order requires RP Martin to "pay a $1.2 million civil monetary penalty...[and] to take specified steps to ensure the integrity and reliability of benchmark interest rate-related market information disseminated by RP Martin."

In a related matter, "the United Kingdom Financial Conduct Authority issued a Final Notice regarding its enforcement action against Martin Brokers (UK) Limited and imposed a penalty of £630,000, the equivalent of approximately $1 million."

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