Monday, September 21, 2015

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Obtains $30 Million from Traders who Profited on Hacked News Releases
September 14, 2015 (Litigation Release No. 191)
Ukrainian-based firm Jaspen Capital Partners and their CEO Andriy Supranonok have agreed to settle charges that they profited off of hacked, nonpublic information. The SEC have charged 34 people in a scheme that allegedly hacked into newswire services and transmitted the stolen data to international traders. The traders allegedly generated over $100 million in illegal profits over a five-year period. Jaspen Capital and Supranonok in particular made about $25 million trading contracts-for-differences (a type of derivatives that allow highly leveraged bets on a stock’s price movement) based on the hacked data. The Director of the SEC’s Enforcement Division, Andrew Ceresney, claimed the victory over Jaspen should be seen as a warning to anyone using stolen information, even if they are operating internationally.

SEC Charges Medical Diagnostics Company Chairman and Two Others behind Scheme to Manipulate Company Stock
September 14, 2015 (Litigation Release No. 192)
Edward Withrow III, chairman of penny stock company Endeavor Power Corp, allegedly conspired with Marco Babini and Samuel Brown, a stock promoter in Idaho, to conduct a pump-and-dump scheme using the stock of Endeavor. Both Withrow and Babini used foreign accounts to conceal their ownership of around 40 million shares of Endeavor. They then hired various people to send blast emails promoting their stock. Additionally, Withrow and Babini misled investors with inaccurate public filings and press releases, including Babini double counting his trades to exaggerate demand for Endeavor stock. The SEC suspended trading in Endeavor before Babini and Withrow could dump their stocks.

SEC Removes References to Credit Ratings in Money Market Fund Rule and Form
September 16, 2015 (Litigation Release No. 193)
The SEC decided to amend money market fund rule 2a-7, a rule that restricted the kinds of securities a money market fund can invest in. Formerly, money market funds could only invest in securities with one of the two highest short-term credit ratings and 97% of their assets had to be invested in securities with the highest short-term credit rating. The new amendments with remove these restrictions, limiting money market funds to investing in securities that the fund determines presents minimal credit risks.

SEC Charges Clearing Firm Officials for Improper Margin Loans, Accounting and Disclosure Failures
September 17, 2015 (Litigation Release No. 194)
An SEC investigation found broker-dealer firm Penson Financial Services, under the publicly traded holding company Pension Worldwide, failed to disclose a series of extended credit offerings that eventually caused the company’s bankruptcy in 2013. Penson Financial offered nearly $100 million in margin loans backed by mostly unrated municipal bonds. A significant portion of these loans went to fund a horse racetrack in Texas, which suffered heavily during the financial crisis. Instead of liquidating the collateral and disclosing the losses as mandated by the SEC, Penson provided more loans hoping their customers’ financial situation would improve. In particular, Penson was betting on a proposed law passing that would allow slot machines at horse racetracks in Texas. However, the law didn’t pass and Penson suffered nearly $60 million in losses as a result. Philip Pendergraft (Director and CEO of Penson Worldwide), Kevin McAleer (CFO of Penson Worldwide), Thomas Johnson (Director of Penson Worldwide and the company that operated the horse racetrack), and Charles Yancey (Director and CEO of Penson Financial) have agreed to settle the case with the SEC.

SEC Charges Florida-Based CPA with Fraud for Issuing Bogus Audit Opinions
September 17, 2015 (Litigation Release No. 195)
Terry L. Johnson has agreed to settle the SEC’s fraud charges against him for conducting deficient and fraudulent audits of eight publicly traded companies. Johnson’s audit deficiencies included failing to properly plan audits, obtain audit evidence, and maintain audit documentation. He also created back-dated documents to appear as though he conducted a thorough audit once he learned of the SEC’s investigation. One of Johnson’s clients, Primco Management, employed convicted felon and former CPA Stephen P. Corso as their CFO. Corso was convicted of wire fraud and tax evasion and was consequently barred from practicing as an accountant. Johnson has agreed to pay back his auditing fees, plus interest, and pay a penalty of $50,000.

Attorney and Auditors Settle Charges in Microcap Scheme Involving Purported Mining Companies
September 18, 2015 (Litigation Release No. 196)
John Briner and audit firms De Joya Griffith LLC and M&K CPAS PLLC have settled their cases with the SEC for engaging in a microcap scheme. John Briner is a Canadian attorney and stock promoter who organized the scheme that would have created twenty shell companies supposedly exploring mining activities. The companies had no plan to actually explore mining, they were only going to be used to raise money. Briner was previously suspended from practicing before the SEC, so he recruited others to become CEO’s of the shell corporations and register them with the SEC. Briner hired the two audit firms to conduct audits of his shell companies. The audits were so deficient and missed several red flags that they amounted to no audits at all. The auditors agreed to monetary penalties and the partners have been suspended from practicing before the commission.


Saturday, September 5, 2015

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Halts Ongoing Fraud in Minnesota
September 2, 2015 (Litigation Release No. 176)
James M. Louks and FiberPop Solutions Inc. are being charged with fraud and are being ordered to stop raising money from investors. Fiberpop was founded in 2003 as a builder and operator of fiber optic networks and data centers. The SEC alleges that although almost 100 investors were convinced to purchase notes to fund the company’s business, Fiberpop has no operators or employees. Louks and Fiberpop have agreed to comply with the SEC’s order.

SEC Charges Advisory Firm With Fraud for Improperly Retaining Fees
September 2, 2015 (Litigation Release No. 177)
Philadelphia investment advisory firm Taberna Capital Management have agreed to settle charges with the SEC by paying over $21 million. Taberna was found to be retaining fees from collateralized debt obligation (CDO) clients that were not disclosed or allowed by CDO documents. The fees were charged for restructuring transactions, causing a conflict of interest as Taberna had an incentive to guide clients to restructure. Taberna labeled these exchange fees as “third party cost incurred” in order to disguise them and, from 2009 to 2012, retained millions in exchange fees.

SEC Charges Seattle-Area Hedge Fund Adviser With Taking Unearned Management Fees
September 4, 2015 (Litigation Release No. 178)
Chris Yoo and his investment advisory firms Summit Asset Strategies Investment Management and Summit Asset Strategies Wealth Management have agreed to settle fraud charges for a combined $1.3 million. According to the SEC, Yoo and Summit Asset Strategies Investment Management manipulated the assets of the Summit Stable Value Fund so that nearly $900,000 of purported fees could be withdrawn. It is also alleged that Yoo and Summit Asset Strategies Wealth Management did not disclose significant fees they withdrew for referring clients to invest in Summit Stable Value Fund. Summit Stable Value Fund’s external auditors, Raymon Holmdahl and Kanako Matsumoto, were found to have inadequately performed their duties, allowing the fraud to continue, and have agreed to settle their charges by being barred for three years from serving as accountants for any entity regulated by the SEC.