Friday, September 7, 2012

SEC Litigation Releases: Weekly Review

SEC Files Settled Insider Trading Action Against Pharmaceutical Company Executive and His Father-In-Law,  September 6, 2012, (Litigation Release No. 22474).

On September 6, 2012, the SEC filed a civil injunctive action against APP Pharmaceuticals, Inc.'s former Director of Contract Marketing, Arthur H. Reed, as well as Reed's father-in-law, Allan F. Derusha. According to the complaint (opens to PDF),the pair engaged in "insider trading and/or tipping in advance of APP's July 7, 2008 public announcement that it was being acquired by Fresenius SE." In total, the pair allegedly reaped over $430,000 in illegal profits. Reed has consented to a final judgment enjoining him from violating sections of the Exchange Act and he has agreed to pay over $405,000 in disgorgement, prejudgment interest, and penalties. Derusha has consented to a final judgment enjoining him from violating sections of the Exchange Act and he has agreed to pay over $258,000 in disgorgement, prejudgment interest, and penalties.

SEC Charges Public Relations Executive with Insider Trading in Client's Stock,  September 6, 2012, (Litigation Release No. 22473).

On September 5, 2012, the SEC charged Renee White Fraser, CEO of Fraser Communications, with insider trading. According to the complaint (opens to PDF), Fraser traded with information she gained from East West Bancorp when it approached her firm "for marketing and public relations support during its acquisition of United Commercial Bank." Fraser allegedly gained over $43,000 in illegal profits. Fraser has agreed to pay over $91,000 to settle the SEC's charges and has also agreed to a permanent injunction and a permanent officer and director bar.

SEC Charges Attorney and Two Other South Florida Residents in $27.5 Million Investment Fraud,  September 6, 2012, (Litigation Release No. 22472).

 According to the complaint (opens to PDF), James C. Howard III, founder and former president of Commodities Online LLC and Commodities Online Management LLC, along with Louis N. Gallo III, the company's vice president, and Michael R. Casey, led a $27.5 million investment scheme. This scheme led "investors to believe they were purchasing securities consisting of 'pre-sold' commodities contracts with a pre-determined profit." In reality, "the majority of 'profits' allocated or distributed to investors were not profits from completed commodities transactions, but instead [were] taken from the funds of other investors." Additionally, Howard and Gallo allegedly dispersed investor funds to sham companies, stealing these funds for their own use. In 2010, Howard stepped down as president due to an arrest for an unrelated investment fraud. Casey, who then became president, misled investors about "Howard's continuing control over Commodities Online while also misrepresenting the profitability, structure, and existence of the purported commodities contracts." Gallo, who "ran an in-house 'boiler room' of telephone sales agents and a network of approximately 20...sales offices" failed to tell investors he was a convicted felon and misled them about Howard's role at Commodities Online. 

Howard, Gallo, and Casey have all been charged with violating various sections of the Securities Act and Exchange Act. Commodities Online and Commodities Online Management have been charged with violating sections of the Exchange Act. The SEC seeks disgorgement, prejudgment interest, financial penalties, and permanent injunctions against Howard, Gallo, and Casey. The complaint also names Sutton Capital LLC, J&W Trading LLC, American Financial Solutions LLC, and Minjo Corporation as relief defendants. 

SEC Charges California Man for Illegal Tips to Hedge Fund Manager,  September 5, 2012, (Litigation Release No. 22471).

According to the complaint (opens to PDF), Hyung Lim received $15,000 and stock tips for "regularly providing a fellow poker player, Danny Kuo" with insider information concerning Nvidia's quarterly earnings. Lim gained this information from a friend who worked for Nvidia over phone calls and would then immediately relay the information to Kuo. According to the complaint, Kuo, a hedge fund manager, then would illegally trade with this information and pass it on to hedge fund advisory firms Diamondback Capital Management LLC and Level Global Investors LP. In total, the hedge funds made nearly $16 million from trading the securities based on Lim's tips. Kuo and his firms were charged earlier this year by the SEC. The SEC charges Lim with violating anti-fraud provisions of the U.S. securities laws and seeks disgorgement, prejudgment interest, penalties, and permanent enjoinment from future violations as well as barring Lim from serving as officer or director of a public company. 

SEC Charges China Sky One Medical and Top Executive with Inflating Financial Results Through Phony Sales,  September 4, 2012, (Litigation Release No. 22470).

According to the complaint (opens to PDF), from 2007 through 2010 China Sky One Medical, Inc. (CSKY) and its CEO and chairman, Yan-qing Liu, conducted fraud by "recording fake sales of a weight loss product to inflate revenues in the company's financial statements by millions of dollars." CSKI purportedly created $19.8 million in phony export sales to Malaysia and devised a "purported strategic distribution agreement with Takasima Industries." In reality, Takasima allegedly purchased less than $200,000 of the slim patches in 2007, and purchased none in 2008. Furthermore, it never entered into any distribution agreement with CSKI. Allegedly, CSKI claimed its top two customers in 2007--Ningbo Yuehua International Trading Company and Guangzhou Xinghe International Trading Company--were sales agents for Takasima, when in fact "Takasima never had any relationship with these two entities." The SEC has charged CSKI and Liu with violating various sections of the Exchange Act. The SEC seeks financial penalties against CSKI and Liu, as well as disgorgement from Liu. The SEC also seeks "to have Liu reimburse CSKI for certain incentive-based compensation he received during the period affected by the fraud," to bar Liu from acting as an officer or director of a public company, and permanent enjoinments from future violations of the federal securities laws.

SEC Charges Griffin, Georgia CPA and Others with Insider Trading,  September 4, 2012, (Litigation Release Nos. 22469, 22468, 22467, 22466, and 22465).

According to the various SEC complaints, in December 2009 R. Jeffrey Rooks and Thomas D. Melvin, both Georgia based CPAs, along with Michael S. Cain, Joel C. Jinks, Peter C. Doffing, C. Roan Berry, Ashley J. Coots and Casey D. Jackson, traded with insider information regarding a pending tender offer from Sanofi-Aventis for Chattem, Inc. Melvin received this insider information from confidential conversations and meetings with an independent board member of Chattem. This board member, who was Melvin's client, met with Melvin to discuss "potential methods of ameliorating the effect of an acquisition of Chattem on his tax liability."  

All together, Rooks, Jackson, Coots and Berry have agreed to pay nearly $200,000 in disgorgement, prejudgment interest, and penalties. The SEC seeks permanent injunctions, disgorgement with prejudgment interest, and civil monetary penalties against Melvin, Cain, Jinks, and Doffing. 

Hedge Fund Manager and His Firm Ordered to Disgorge More Than $2 Million of Illicit Profits from Insider Trading Scheme,  August 31, 2012, (Litigation Release No. 22464).

On August 29, 2012, a final judgment was entered against Clay Capital Management, LLC and its former Chief Investment Officer, James F. Turner II, "for their roles in an insider trading scheme involving the securities of three companies--Moldflow Corporation, Autodesk, Inc. and, Inc." Clay Capital and Turner have been ordered to pay over $2 million in disgorgement and prejudgment interest. In its August 2011 complaint, the SEC alleged that in May 2008 Turner traded with non-public information he learned  from his brother-in-law, a director at Autodesk. The complaint also alleges that in February 2008, Turner traded with inside information regarding Salesforce's performance that he learned from a close friend who was a manager at Salesforce. Additionally, Turner passed the information along to other friends and family, and "traded on the inside information in Clay Capital's hedge fund's account." In December 2011, Turner pled guilty to securities fraud in a related case, U.S. v. James Turner, was sentenced to one year in prison, and ordered to pay a $25,000 fine. 

SEC Charges Former Mississippi Investment Adviser, Now Based in Bahamas, with Fraud,  August 31, 2012, (Litigation Release No. 22463).

According to the complaint (opens to PDF), from March 2010 through August 2010, Anthony K Welch, former Chairman and CEO of eHydrogen Solutions, Inc. and ChromoCure, Inc., committed fraud by issuing false and misleading press releases. Among other things, the press releases allegedly contained false information about "technologies acquired by and revenues generated by eHydrogen and ChromoCure." The releases also "coincided with suspicious price and trading volume increases in the common stock" of both companies. The complaint "further allege[s] that in multiple instances such statements were [...] distributed by Welch for no purpose other than to incite trading activity and artificially inflate the price and trading volume" of the companies.

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