Friday, February 22, 2013

SEC Litigation Releases: Week in Review

SEC Charges Fund Manager in Scheme Involving Risky Mortgage-Related Investment, February 20, 2013, (Litigation Release No. 22622)

According to the complaint (PDF), George Charles Cody Price "raised $18 million for three investment funds through his firm ABS Manager LLC" promising investors that their investments were "secured by government-backed bonds yielding extraordinary double-digit returns as high as 18 percent per year." In reality, Price was allegedly "investing in one the riskiest tranches of CMOs on the market, and the investments failed to achieve the returns that Price promised."  Additionally, Price purportedly stole "a half-million dollars of fund assets in the form of purported fees." The defendants have been charged with violating various sections of the Exchange Act and Investment Advisors Act. The SEC has named "Price's three investment funds (ABS Fund, LLC [Arizona], ABS Fund, LLC [California], and Capital Access, LLC),..[Price's] company Cavan Private Equity Holdings LLC and his wife's company Lucky Star Events LLC" as relief defendants. The SEC has also "sought a temporary restraining order, asset freeze, receiver, order prohibiting the destruction of documents, and an accounting."

District Court Enters Judgment against New Mexico Ponzi Schemer, February 20, 2013, (Litigation Release No. 22621)

A consent judgment was entered against Douglas F. Vaughan ("a Ponzi schemer who was convicted of fraud in a related criminal case") enjoining him from future violations of securities laws and ordering him to disgorge over $43 million. The disgorgement order was deemed sastisfied "by an order of restitution for the same amount and an order of forfeiture in the criminal prosecution." The original 2010 complaint against Vaughan and his companies (The Vaughan Company, Realtors, Inc. and Vaughan Capital, LLC) alleged that Vaughan used his companies to operate a Ponzi scheme from 1993 to 2010. In 2011, Vaughan pleaded guilty to mail and wire fraud, as well as making false statements to the Commission, and was "sentenced to 12 years in prison, ordered to pay restitution of $43,658,821...and directed to forfeit $74,745,724 to the United States." Judgments have also been entered against Vaughan Realtors and Vaughan Capital that permanently enjoin them from violating sections of the Securities Act and Exchange Act.

SEC Freezes Assets in Swiss-Based Account Used in Suspected Insider Trading Ahead of Heinz Acquisition, February 19, 2013, (Litigation Release No. 22620)

According to the complaint (PDF), suspected insider trading occurred in regards to Berkshire Hathaway's and 3G Capital Partners. Ltd.'s acquisition of Heinz. According to the SEC, a group of "unknown traders took risky bets that Heinz’s stock price would increase" the day before the public announcement. Suspiciously, the account "through which the traders purchased the options had no history of trading Heinz securities in the last six months." The SEC obtained an emergency court order that "freezes the traders’ assets and prohibits them from destroying any evidence." The SEC seeks permanent enjoinment and payment of disgorgement and financial penalties.

District Court Grants Securities and Exchange Commission's Motions for Default Judgment against a Nationally Known Psychic and his Corporate Entities in Multi-Million Dollar Offering Fraud, February 15, 2013, (Litigation Release No. 22619)

Default judgments were entered against Sean David Morton,  "a nationally-recognized psychic who bills himself as "America's Prophet, his wife, relief defendant Melissa Morton, and corporate shell entities co-owned by the Mortons." The SEC's 2010 civil injunction action against Morton charged him with fraudulently raising over "$5 million from more than 100 investors for his investment group, which he called the Delphi Associates Investment Group." Morton allegedly made false claims that "he has called all the highs and lows of the stock market, on their exact dates, over a fourteen year period...[and] falsely asserted that the alleged profits in the accounts were audited and certified by PricewaterhouseCoopers LLP." Additionally, Morton allegedly lied about his "past successes and about key aspects of the Delphi Investment Group, including the use of investor funds and the liquidity of the funds." The default judgment orders the defendants to pay, jointly and severally, over $11 million in disgorgement, prejudgment interest and penalties. Relief defendants Melissa Morton and the Prophecy Research Institute, were ordered to pay almost $575,000 in disgorgement and prejudgment interest. The judgment also permanently enjoins the defendants from future violations of the securities laws.

District Court Grants Securities and Exchange Commission's Motions for Default Judgment against a Nationally Known Psychic and his Corporate Entities in Multi-Million Dollar Offering Fraud, February 15, 2013, (Litigation Release No. 22618)

Last week, Delsa U. Thomas, The D. Christopher Capital Group, LLC, and the Solomon Fund LP were charged with "defrauding investors out of $2.3 million in a high-yield investment scheme." According to the SEC, Thomas falsely promised that "$1 million in investor funds would remain safely invested in U.S. Treasury securities and would yield 650 percent returns in 35 banking days." In addition, Thomas purportedly used investor funds to make Ponzi payments. The complaint also alleges that "DCCMG was improperly registered with the Commission as an investment adviser." The SEC has charged the defendants with violating sections of the Securities Act and Exchange Act and seeks "permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest and civil penalties against each of the defendants."

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