Friday, October 17, 2014

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Obtains Summary Judgment Against Defendants in Securities Fraud Involving Biopharmaceutical Company
October 15, 2014 (Litigation Release No. 23114 )
On October 10, the US District Court for the Northern District of Illinois granted the Commission’s motion for “summary judgment and for partial summary judgment, respectively, against Defendants Douglas McClain, Sr. ("McClain Sr."), of Fair Oaks, Texas, and Douglas McClain Jr. ("McClain Jr."), formerly of Savannah, Georgia. The Court found that McClain Sr. violated the antifraud provisions of the federal securities laws by making misrepresentations and omissions and that McClain Sr. and McClain Jr. engaged in insider trading.” The SEC’s action was filed against the defendants in August 2011. The allegations argue that the defendants were engaged in securities fraud, including misleading investors in public SEC filings and in oral presentations. The defendants had presented a scenario in which regulatory approval for their products was underway, when in fact the FDA had issued clinical holds on their drug applications twice, prohibiting clinical trials from happening altogether. The Court is still in the process of determining appropriate remedies against the defendants.

Jury Finds Anthony M. Knight, Former Chairman of a Failed Internet Startup, Liable for Securities Fraud and Illegal Sale of Unregistered Securities
October 15, 2014 (Litigation Release No. 23112 )
On October 14, a federal court reached a verdict in favor of the SEC, finding that Anthony M. Knight, the co-founder and former Chairman of iShopNoMarkup.com, was liable for “securities fraud and illegally selling unregistered securities.” Knight and his associates defrauded more than 350 investors of about $2.3 million in investments. While US District Judge Denis R. Hurley is still determining remedies, the SEC is “seeking a judgment requiring the defendant to pay disgorgement of ill-gotten gains plus prejudgment interest, as well as civil monetary penalties, an injunction, and an officer and director bar.”

Judgment Against Former CEO Orders Payment of Over $450,000 in Case Involving Scheme to Manipulate Company's Stock
October 10, 2014 (Litigation Release No. 23110 )
The SEC announced that the US District Court for the Southern District of New York had entered a Final Judgment against Thomas J. Kelly on October 9. Kelly, the former CEO of 8000, Inc., was charged with being a party to “a scheme to manipulate the trading volume and price of 8000 Inc.'s common stock by disseminating false information about the company and simultaneously selling, or facilitating the sale of its securities which were not for sale to the general public.” Also charged were Jonathan E. Bryant, an undisclosed principal in 8000 Inc. and the attorney for 8000 Inc, Carl N. Duncan. When 8000 Inc.’s stock price increased due to aforementioned false information, Bryant “sold 56.8 million "restricted" shares of 8000, Inc. into the market with the assistance of Duncan who provided false legal opinions removing the restrictions, and Kelly to have bought and sold the company's securities in the secondary market.” According to the SEC, the volume of trading in 8000, Inc. by 93% and the stock price rose from below $.01 per share to $.42 per share between November 2009 and October 2010. Kelly was ordered to pay $415,592 in disgorgement fees as well as $46,697 in pre-judgment interest. Kelly is permanently barred from “acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, and permanently bars him from participating in an offering of a penny stock.”

SEC Obtains Summary Judgment Win On Liability in Ponzi Scheme Case
October 10, 2014 (Litigation Release No. 23111 )
An SEC motion for summary judgment was granted by the US District Judge for the District of Nevada granted on October 3 against Edwin Fujinaga and MRI International, Inc. on all charges levied by the SEC, including antifraud violations. The case, filed on September 11, 2013, alleges that Fujinaga and MRI International, Inc. had been engaged in “an elaborate Ponzi scheme”. According to the allegations, Fujinaga and MRI raised funds in excess of “$800 million from thousands of investors living primarily in Japan under the ruse that MRI was using their investments to buy medical accounts receivable from medical providers at a discount to recover their full value from insurance companies.” The SEC’s allegations go on to say that the defendants had used the investments to pay back earlier investors and further, Fujinaga had used investor funds for personal purchases. The Court found that “Fujinaga had sole control over investment funds, using them for his own personal benefit" and wrote that "[w]hile depleting the pool of collected investments, Fujinaga facilitated a Ponzi scheme funded by new investments." Litigation to determine appropriate remedies will continue.



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