Friday, February 1, 2013

SEC Litigation Releases: Week in Review

SEC Charges Five Former Executives of Cay Clubs Resorts and Marinas in $300 Million Real Estate Investment Fraud, January 30, 2013, (Litigation Release No. 22607)

According to the complaint (opens to PDF), Cay Clubs Resorts and Marinas' former executives, Fred Davis Clark, Jr., Cristal R. Coleman, David W. Schwarz, Barry J. Graham, and Ricky Lynn Stokes conducted "an offering fraud and Ponzi scheme that raised more than $300 million from nearly 1,400 investors nationwide." Allegedly, from 2004 to 2008, the defendants solicited investors "by promising investors immediate income from a guaranteed 15% return, instant equity in undervalued properties, historic appreciation, development of a network of luxury destination resorts at its nationwide locations, at least $30,000 of unit upgrades, and a future income stream through the rental program Cay Clubs managed." However, in reality the defendants used investor funds to pay themselves salaries and commissions "in excess of $30 million," and Clark and Coleman "misappropriated millions of dollars of investor funds to purchase airplanes, boats, and to pay for unrelated business ventures that included investments in precious metals and a liquor distillery that produced Pirate's Choice Rum." The SEC has charged the defendants with violating various provisions of the securities laws and seeks disgorgement, prejudgment interest, civil penalties, permanent enjoinment from future violations, and an order to repatriate assets.

Securities and Exchange Commission v. Blake R. Wellington and Daniel J. Vance, January 30, 2013, (Litigation Release No. 22606)

Two of Clear One Health Plans' employees, Daniel Vance and Blake Wellington, have been charged with insider trading on confidential information about the merger negotiations between Clear One and PacificSource Health Plans. Vance, an information technology specialist, learned of the merger "when he was asked by Clear One's CEO to help resolve an e-mail issue." Vance then shared this information with Wellington, his supervisor, and the two allegedly then traded on this information, gaining over $70,000 in illicit profits. The defendants have agreed to pay over $154,000 combined in disgorgement, interest, and penalties to settle the charges.

Court Enters Final Judgments, By Consent, January 30, 2013, (Litigation Release No. 22605)

Final judgments were entered against Kurt S. Hovan, Hovan Capital Management, LLC, Lisa B. Hovan and Edward J. Hovan, Jr., for their alleged "fraudulent use...of 'soft dollars.'" The defendants were enjoined from violating various provisions of the securities laws, and ordered to pay $240,000 combined in disgorgement and civil penalties. However, payment of $50,000 in disgorgement has been waived for Edward Hovan due to his financial condition.

Yitzchak Zigdon Settles SEC Fraud Charges, January 29, 2013, (Litigation Release No. 22604)

A final judgment was entered against Yitzchak Zigdon "in the SEC's enforcement action against seven defendants concerning the common stock of CO2 Tech Ltd." According to the SEC's 2011 complaint, Zigdon and the other defendants conducted a scheme  that enabled them "to sell CO2 Tech stock at artificially inflated prices, resulting in profits of over $7 million." Zigdon has been permanently enjoined from violating sections of the Securities Act and the Exchange Act, has been ordered to pay over $464,000 in disgorgement, interest, and civil penalties, and has been barred from "participating in an offering of penny stock."

SEC Sues to Halt Houston-Area Investment Scheme Targeting Lebanese and Druze Communities, January 29, 2013, (Litigation Release No. 22603)

According to the complaint (opens to PDF), from 2007 to 2012 Firas Hamdan defrauded at least 33 investors from "the Houston-area Lebanese and Druze communities, raising more than $6 million" from them. Hamdan promised investors "annual returns of 30 percent" by conducting "high-frequency trading using a supposed proprietary trading algorithm." In reality, Hamdan's method "was a dismal failure, generating $1.5 million in losses." Not only did Hamdan allegedly lie to investors on multiple occasions, but he also "showed them phony documentation to support his false claims." The SEC has charged Hamdan with violating sections of the Exchange Act, and seeks a temporary restraining order, permanent injunctions, and payment of disgorgement, prejudgment interest, and financial penalties.

SEC Charges Former Jefferies Executive with Defrauding Investors in Mortgage-Backed Securities, January 29, 2013, (Litigation Release No. 22602)

According to the complaint (opens to PDF), Jesse Litvak, former managing director of Jefferies & Co., Inc. made "misrepresentations and engag[ed] in misleading conduct while he sold mortgage-backed securities (MBS) in the wake of the financial crisis." From 2009 to 2011, Litvak allegedly "lied to, or otherwise misled, ...customers about the price at which Jefferies had purchased the MBS before selling it to another customer and the amount of his firm's compensation for arranging the trades." The SEC has charged Litvak with violating the antifraud provisions of the securities laws and seeks permanent enjoinment from future violations, payment of disgorgement, prejudgment interest, and civil penalties.

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