Friday, November 16, 2012

SEC Litigation Releases: Week in Review

BP to Pay $525 Million Penalty to Settle SEC Charges of Securities Fraud During Deepwater Horizon Oil Spill, November 15, 2012, (Litigation Release No. 22531)

According to the complaint (opens to PDF), BP p.l.c misled investors by understating the flow rate of oil that was escaping from its Deepwater Horizon oil rig in 2010. According to the SEC, while BP reported the flow rate was about 5,000 barrels of oil a day, it had "at least five different flow rate calculations, estimates, or data indicating a much higher flow rate." Furthermore, when a government task force "determined the flow rate estimate was actually more than 10 times higher at 52,700 to 62,200 barrels of oil per day...BP never corrected or updated the misrepresentations and omissions it made in SEC filings for investors." BP agreed to settle the charges "by paying the third-largest penalty in agency history at $525 million." Additionally, BP has agreed to permanent enjoinment from violating sections of the Exchange Act. The SEC has plans to "establish a Fair Fund with the BP penalty to provide harmed investors with compensation for losses they sustained in the fraud." BP also plead guilty to criminal conduct in a related case, United States v. BP Exploration and Production, Inc.

SEC Charges Miami-Based Adviser with Hiding Trading Losses and Diverting Client Funds, November 9, 2012, (Litigation Release No. 22530)

According to the complaint (opens to PDF), Anand Sekaran and his firm Wasson Capital Advisors Ltd. "fabricated documents showing illusory profits after [Sekaran's] trading strategy became unprofitable in 2008." According to the SEC, Sekaran had given investors spreadsheets that "inaccurately show[ed] that Wasson was profitable." In addition, Sekaran allegedly inflated account balances on some clients' account statements, and used investor funds for personal expenses including "personal mortgage and maintenance payments, restaurant and travel expenses, entertainment and event tickets, employee salaries and health insurance, and rent and office expenses." Sekaran and Wasson have consented to a final judgment enjoining them from violating sections of the Exchange Act and Investment Advisers Act. Sekaran has agreed to being barred from the securities industry and penny stock industry and is required to pay $2.3 million "to satisfy restitution and forfeiture orders in the criminal matter."

SEC Charges Former Officers and Auditor of Electronic Game Card, Inc. with Fraud, November 9, 2012, (Litigation Release No. 22529)

According to the complaint (opens to PDF), from 2007 to 2009 Lee Cole and Linden Boyne, chief executive officer and chief financial officer of Electronic Game Card Inc. respectively, attracted investors by falsely claiming that Electronic Game Card Inc. had "millions of dollars in annual revenue, [held] millions of dollars in investments, and own[ed] an off-shore bank account worth more than $10 million." In actuality, many of the contracts were fake, "the purported investments were merely in entities affiliated with Cole or Boyne, and the bank account did not exist." Cole and Boyne reaped over $12 million in illicit profits through their alleged deception. Furthermore, the SEC has charged their auditor, Timothy Quintanilla, and the public accounting firm Mendoza Berger & Co. LLP with "knowingly or recklessly misrepresent[ing] that the firm had conducted audits of EGMI's financial statements 'in accordance with the standards of the Public Company Accounting Oversight Board,'" when in fact, critical aspects of EGMI's financial statements had been overlooked. Finally, the SEC alleges that Kevin Donovan, who replaced Cole as CEO, "ignored many red flags about the accuracy of the company's public statements and the integrity of Cole and Boyne." The SEC has charged Cole and Boyne with violating sections of the Securities Act, Exchange Act, and Sarbanes-Oxley Act, and has charged Donovan and Quintanilla with violating sections of the Securities Act and Exchange Act.

SEC Charges South Florida Man with Recruiting Victims of Ponzi Scheme, November 9, 2012, (Litigation Release No. 22528)

According to the complaint (opens to PDF), from 2004 to 2011, James F. Ellis "fraudulently solicited investors for George Elia," who operated "pooled investment vehicles under the names of Investor Funding Club and Vision Equities Funds." While Elia told investors he traded in stocks and "earn[ed] annual returns as high as 26 percent," in reality he was running a Ponzi scheme. Ellis was allegedly paid over $2.1 million by Elia to entice prospective investors. Ellis falsely told these investors that "he had personally invested with Elia $5 million...and that he earned 16% to 20% annual returns on his investment...or that he earned $20,000 to $24,000 per month." The SEC has charged Ellis with violating sections of the Securities Act and the Exchange Act and seeks permanent injunctions, disgorgement with prejudgment interest and civil penalties against Ellis. Separate criminal charges have also been announced against Ellis for his participation in the scheme.

SEC v. Aamer Abdullah, November 9, 2012, (Litigation Release No. 22527)

The SEC has finalized its settlement with Aamer Abdullah, former portfolio manager of ICP Asset Management, LLC, who was charged in June 2010 with "mismanagement of several collateralized debt obligations." In addition to a broker, dealer and investment advisor bar he to which he had previously agreed, Abdullah has agreed to pay over $275,000 in disgorgement, prejudgment interest, and civil penalties.

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