Friday, April 10, 2015

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Charges Firms and Individuals for Defrauding Investors in Cellular Licensing Scheme
April 6, 2015 (Litigation Release No. 57)
Twelve companies and six individuals have been charged with defrauding investors in a scheme involving falsely advertised securities based on licenses for cellular spectrum bands. The alleged orchestrators of the scheme are David Alcorn and Kent Maerki, cofounders of Janus Spectrum LLC. The SEC alleges that third-party fundraisers sold securities based on licenses for portions of the 800Mhz band which were obtained by Janus Spectrum. These securities were billed as valuable based on the bands’ desirability to cellular carriers. It was undisclosed to investors that these bands were not capable of supporting cellular systems, and are primarily used by law enforcement and delivery businesses. The SEC alleges that the scheme raised over $12.4 million between May 2012 and October 2014; only a small percentage of funds were used to prepare license applications, the rest being pocketed by the scheme’s participants. It is alleged that Alcorn and Maerki appeared in misleading videos that contributed to the scheme and are therefore involved.

SEC Obtains Asset Freeze in Ponzi Scheme Involving Loans to Professional Athletes
April 7, 2015 (Litigation Release No. 58)
The SEC announced fraud charges against former professional football player, William D. Allen, and others for violating federal anti-fraud laws, operating a Ponzi scheme. Will Allen and his business partner Susan C. Daub promised investors profits from making loans to professional athletes. In hindsight, some of the investors’’ money was used to pay other investors and to fund Allen and Daub’s personal expenses and ventures. Investors were told that by funding loans to athletes they could receive interest up 18 percent which would be paid by the athletes. From this scheme more than $31 million was raised from investors while around $18 million was loans to athletes. The SEC seeks the return of their allegedly ill-gotten gains with interest along with payment of civil monetary penalties.

OCIE Director Andrew Bowden to Leave SEC
April 7, 2015 (Litigation Release No. 59)
Andrew Bowden, Director of the Office of Compliance Inspections and Examinations (OCIE), will be leaving the SEC at the end of April to return to the private sector. Mr. Bowden has been with the SEC since November 2011, and he has worked with OCIE leadership and staff on a number of initiatives and accomplishments during his tenure. His qualifications previous to working for the SEC include having a variety of roles in the broker-dealer and asset management industries and in private legal practice.

SEC Charges L.A.-Based Pacific West Capital Group With Fraud in Sale of Life Settlement Investments
April 7, 2015 (Litigation Release No. 60)
The SEC has charged Pacific West Capital Group Inc. and its owner Andrew B. Calhoun for committing fraud in the sale of “life settlement” investments. Pacific West and Calhoun had not given fair disclosures to investors and instead made false statements about the risks in order to increase sales. Dating back to 2004, nearly $100 million from life settlement investors had been raised dating, and dating back to at least 2012, Pacific West and Calhoun, had defrauded investors using money obtained from the sales of new life settlements to fund the life settlements sold in previous years. The SEC seeks permanent injunctions against all defendants and the return of allegedly ill-gotten gains with interest along with penalties.

Gregg E. Berman, Associate Director in the Division of Trading and Markets, to Leave SEC
April 8, 2015 (Litigation Release No. 61)
It has been announced that Associate Director of the Division of Trading and Markets’ Office of Analytics and Research Gregg E. Berman is leaving the SEC. Berman joined the SEC in October of 2009 and has been at his current post since January of 2013 shortly after the Office of Analytics and Research was created. It is responsible for conducting quantitative research and analysis concerning markets and market structure. Prior to joining the SEC, Berman was a cofounding partner at RiskMetrics Group, has co-managed a private hedge fund and has done research in experimental nuclear physics.

SEC Charges Oregon-Based Defense Contractor With FCPA Violations
April 8, 2015 (Litigation Release No. 62)
FLIR Systems Inc. has been charged by the SEC for violating the Foreign Corrupt Practices Act (FCPA) and has agreed to settle the charges by paying over $9.5 million and reporting its compliance with the FCPA to the SEC for the next two years. The charges concerned travel and gifts given to foreign officials by employees of FLIR’s overseas offices. In 2009 FLIR’s Dubai office gave watches and organized travel, including a 20 day “world tour”, for Saudi officials. Records of these expenditures were falsified as proper business expenses. Two FLIR employees have previously been charged in this case.

SEC Halts Microcap Scheme in South Florida
April 9, 2015 (Litigation Release No. 63)
Fraud charges and an asset freeze has been announced against participants of an alleged microcap scheme based in South Florida. Boiler room brokers Dean A. Esposito, Joseph DeVito and Frederick Birks are alleged to have been hired by CEO of eCareer Holdings, Inc. Joseph J. Azzata in order to sell unregistered stock shares of his company. It is alleged that since August of 2010 over $11 million was raised from over 400 investors. It is further alleged that roughly $3.5 million of investor funds was used as undisclosed fees paid to the brokers and sales agents. Additionally, it has been revealed that the three brokers were subject to prior SEC enforcement that barred them from acting as brokers or dealers or participating in any penny stock offerings. The SEC has named Azzata’s wife as a relief defendant in order to recover investor funds diverted to her personal accounts. The investigation is ongoing.

SEC Names Marc Wyatt as Acting Director of the Office of Compliance Inspections and Examinations
April 9, 2015 (Litigation Release No. 64)
The SEC has announced Marc Wyatt as Acting Director of the Office of Compliance Inspections and Examinations (OCIE). Marc Wyatt will replace Andrew Bowden, who will be leaving the SEC at the end of April. Mr. Wyatt has many qualifications and experiences that will serve him to lead the SEC’s examination program. Since serving as the Deputy Director of OCIE in 2014, Mr. Wyatt holds other key positions including being the national co-coordinator of the OCIE’s Private Fund Specialized Working Group. Previous to joining the SEC in 2012, Mr. Wyatt was a principal and senior portfolio manager of a global multi-strategy hedge fund. Also, Mr. Wyatt us a Chartered Financial Analyst who has been a senior investment banker in the U.S. and U.K.

SEC Announces Fraud Charges Against Former Accounting Executive at Japanese Subsidiary
April 9, 2015 (Litigation Release No. 65)
Katsuichi Fusamae, former controller at Molex Japan, has been charged with fraud for his involvement in unauthorized equity trading and the concealment of losses incurred as a result of those trades. While working at Molex Japan, a Japanese subsidiary of Illinois-based Molex Incorporated, Fusamae invested the company’s excess cash in risky securities, sometimes on margin. When losses resulting from his trades appeared, Fusamae would use proceeds from undisclosed, unauthorized loans in order to replenish the company’s accounts. This scheme, which began in the late 80’s, was not discovered until 2010 when Molex Inc restated its financial statements and recognized a $201.9 million cumulative net loss. Fusamae has agreed to admit to wrongdoing and be permanently barred from being an officer of a publicly traded company. Possible monetary penalties will be decided in court at a later date.

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