Friday, April 3, 2015

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Announces Fraud Charges Against Investment Adviser Accused of Concealing Poor Performance of Fund Assets from Investors
March 30, 2015 (Litigation Release No. 52)
The SEC has announced charges against Lynn Tilton and her firms Patriarch Partners LLC, Patriarch Partners VIII LLC, Patriarch Partners XIV LLC, and Patriarch Partners XV LLC for misleading clients of the performance of their collateralized loan obligation (CLO) funds. According to the investigation, the vast majority of the CLO fund valuations reported no fluctuations in value despite their underlying loans going years without payments. The SEC alleges that Tilton used her personal discretion to value the funds instead of following the valuation procedures outlined in the CLO funds’ offering documents. It is alleged that Tilton and her companies collected nearly $200 million in fees from these funds. A public hearing is being scheduled.

SEC Charges Former Polycom CEO with Hiding Perks From Investors
March 31, 2015 (Litigation Release No. 53)
Andrew Miller, former CEO of Polycom, has been charged by the SEC for his undisclosed use of corporate funds for personal perks. It is alleged that Miller spent almost $200,000 of corporate funds for personal travel, clothing, gift cards, sports tickets, and other goods and services. It is also alleged that, in order to hide this misuse, Miller falsified expense reports, falsely claimed trips and events to be business related, and conspired with his travel agent. Polycom has already settled with the SEC for $750,000 for providing insufficient oversight and failing to disclose these perks to investors.

SEC: Companies Cannot Stifle Whistleblowers in Confidentiality Agreements
April 1, 2015 (Litigation Release No. 54)
The SEC announced its first enforcement of the whistleblower protection rule 21F-17. Rule 21F-17, enacted under the Dodd-Frank Act, proscribes corporate actions that would hinder whistleblowers from reporting to the SEC. The company charged, KBR Inc., was found to have required witnesses of some internal investigations to sign confidentiality documents that warned of disciplinary actions or termination for discussing with third parties without the consent of the KBR legal department. KBR agreed to a $130,000 penalty and has voluntarily modified its confidentiality statements to allow unannounced reporting to federal agencies.

SEC Charges North Carolina Executive With Fraud
April 1, 2015 (Litigation Release No. 55)
Former CEO Timothy Scronce has been charged for defrauding PCTEL Inc. and its investors during and after their acquisition of his firm TelWorx Communications LLC. According to the SEC’s investigation, in the preceding months of the acquisition, Scronce falsified TelWorx’s accounting in order to inflate its revenue and earnings. This activity is alleged to have continued after the acquisition. Scronce has agreed to the SEC’s order without admitting or denying the charges. He will return his alleged ill-gotten gains with interest, pay a penalty, and be barred from serving as a director or officer of a public company for ten years. Two other former executives of TelWorx have been charged and settled with the SEC in separate proceedings.

SEC Charges Friends With Insider Trading on Acquisitin of Cooper Tire
April 1, 2015 (Litigation Release No. 56)
Amit Kanodia and Iftikar Ahmed have been charged by the SEC for insider trading. The longtime friends are alleged to have used insider information regarding the acquisition of Cooper Tire and Rubber Company by Apollo Tyres Ltd. to collect over $1.1 million. The SEC alleges that Kanodia learned of the acquisition through his wife, who was serving as general counsel to Apollo Tyres. It is alleged that Kanodia gave this information to Ahmed, who then bought large amounts of Cooper Tire stock and options. After the public announcement of the acquisition, Cooper Tyres’s stock price rose 41% and Ahmed sold his holdings. It is alleged that another close friend was informed, profited and paid Kanodia back in the same way as Ahmed, using a “charity” owned by Kanodia.

 

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