Friday, September 26, 2014

Enforcement Actions: Week in Review


SEC ENFORCEMENT ACTIONS
 
Court Enters Final Judgments Against CEO and Executive Vice President of Company Involved in Pump-And-Dump Scheme Involving Fictitious Buyout Offer, September 25, 2014 (Litigation Release No. 23092)
 
The SEC announced that the US District Court for the District of Massachusetts entered final judgments against Maximilien Arella, CEO, and Ian Morrice, the Executive Vice President, both of Spencer Pharmaceutical Inc. (a microcap pharmaceutical company). Permanent injunctions were imposed on Arella and Morrice, and each are required to pay $50,000 in penalties. The SEC’s complaint, filed in December of 2012, laid out the involvement of Spencer and its senior leadership specifically in a pump-and-dump scheme. A marketing campaign, waged with false information, “significantly pumped up the price of Spencer's stock - at one point causing the price to more than double in two days - and consequently enabled Amyot to dump tens of millions of shares into the market at artificially inflated prices for gross proceeds in excess of $5 million.”
 
Court Imposes Injunctions and Monetary Sanctions of Over $80 Million Against Marlon Quan and His Companies Based On Fraud Verdict, September 25, 2014 (Litigation Release No. 23093)
 
The SEC announced that the US District Court in Minneapolis had, on September 19, issued an Opinion and Order imposing permanent injunctions against Marlon Quan, Acorn Capital Group, LLC, Stewardship Investment Advisors, LLC and ACG II, LLC. In addition, the Court imposed more than $80 million in sanctions against Marlon Quan and the defendants he was in charge of. According to the SEC, Quan “helped to facilitate the massive fraud of Tom Petters by funneling several hundred million dollars of investor money into the Petters Ponzi scheme.” Quan and his firms had promised investors, under false pretenses, that they would be protected by multiple safeguards. They were not.
 
SEC Obtains a TRO and Asset Freeze to Stop an Ongoing Pyramid Scheme, September 23, 2014 (Litigation Release No. 23091)
 
The SEC filed a civil injunctive action against Zhunrize, Inc. and Jeff Pan, Zhunrize’s CEO. The SEC also obtained an order freezing the defendant’s assets. “The Commission alleges that Zhunrize, an Atlanta-based multi-level marketing company, and Pan have been operating a fraudulent pyramid scheme that has raised over $100 million from investors worldwide.” The company’s commission structure is based solely on continual recruitment of new individuals and is unrelated to any tangible product sales. Since 2012, the company has defrauded about 77,000 investors of approximately $105 million. The SEC complaint was filed in the US District Court for the Northern District of Georgia.
               
Final Judgment Entered Against Trendon T. Shavers, A/K/A/ "Pirateat40" - Operator of Bitcoin Ponzi Scheme Ordered to Pay More Than $40 Million in Disgorgement and Penalties, September 22, 2014 (Litigation Release No. 23090)
 
The US District Court in Sherman, Texas entered a final judgment against Trendon T. Shavers and Bitcoin Savings and Trust (BTCST). Starting in 2011, Shavers defrauded investors out of more than 700,000 bitcoins through BTCST. The Court ordered “Shavers and BTCST to pay more than $40 million in disgorgement and prejudgment interest, and orders each Defendant to pay a civil penalty of $150,000.”
 
SEC Charges Brooklyn Man for Facilitating Insider Trading Scheme Via Post-It Notes At Grand Central Terminal, September 22, 2014 (Litigation Release No. 23089)
 
The SEC charged Frank Tamayo with “facilitating a $5.6 million insider trading scheme that typically involved the passing of illegal tips via napkins or post-it notes at Grand Central Terminal. According to the allegations, Tamayo had received nonpublic information regarding impending corporate deals, and subsequently tipped off a stockbroker, Vladimir Eydelman, who used the information to make illegal trades for himself, Tamayo and others. The US Attorney’s Office for the District of New Jersey also announced criminal charges against Tamayo.
 
Former Owner of a Massachusetts-Based Trading Company Sentenced to Nine Years in Prison, September 19, 2014 (Litigation Release No. 23088)
 
The SEC announced that Craig A. Karlis, the former owner of Boston Trading and Research LLC, was sentenced to nine years in prison on September 16 “after pleading guilty to charges that he and his business partner defrauded more than 700 investors out of more than $30 million.” Karlis’ sentence includes an additional three years of supervised release, and requires him to pay $4,378,306 in restitution to the fraud victims. In March, Karlis had plead guilty to nine counts of wire fraud, in addition to other charges. Ahmet Devrim Akyil, Karlis’ business partner, was also charged, but remains a fugitive, believed to be hiding out in Turkey.

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