Friday, March 1, 2013

SEC Litigation Releases: Week in Review

Defendant Adam S. Rosengard Settles SEC Charges in Penny Stock Manipulation Case, February 27, 2013, (Litigation Release No. 22626)

A final judgment was entered this Monday against Adam S. Rosengard for his alleged involvement in a stock manipulation scheme. According to the SEC's original complaint, Pawel P. Dynkowski and other defendants manipulated the price of Xtreme Motorsports of California, Inc.'s stock through "wash sales, matched orders and other manipulative trading." Rosengard then allegedly "acted as a nominee account holder in the scheme" by giving Dynkowski "access to a brokerage account for the purpose of selling shares of Xtreme Motorsports stock." Rosengard has agreed to a final judgment that permanently enjoins him from future violations of the Securities Act, orders him to pay over $186,000 in disgorgement and prejudgment interest, and imposes a penny stock bar against him. Due to Rosengard's financial condition, "no civil penalty was imposed, and part of the disgorgement obligation was waived."

SEC Charges Connecticut Hedge Fund Managers With Securities Fraud, February 26, 2013, (Litigation Release No. 22625)

According to the complaint (opens to PDF), hedge fund managers David Bryson and Bart Gutekunst, along with their advisory firm, New Stream Capital, LLC, lied to investors "about the capital structure and financial condition of their hedge fund." In addition, the complaint also charges "New Stream Capital (Cayman), Ltd., a Caymanian adviser entity affiliated with New Stream, Richard Pereira, New Stream’s former CFO, and Tara Bryson, New Stream’s former head of investor relations," for their alleged involvement in the scheme. In 2008, Bryson and Gutekunst revised "the fund’s capital structure to placate their largest investor, Gottex Fund Management Ltd., by giving Gottex and certain other preferred offshore investors priority over other investors in the event of a liquidation." However, New Stream's marketing department, led by Tara Bryson, "continue[d] to market the fund as if all investors were on the same footing." Pereira allegedly "falsified the hedge fund’s operative financial statements to conceal the March 2008 revisions to the capital structure." In March 2011, New Stream filed for bankruptcy. The defrauded investors are expected to "receive approximately 5 cents on the dollar -- substantially less than half the amount that Gottex and other investors in its preferred class are expected to receive."

All the defendants have been charged with violating various provisions of the securities laws. The complaint seeks permanent enjoinment, disgorgement, prejudgment interest, and financial penalties. Tara Bryson settled charges by agreeing to a final judgment that permanently enjoins her from future violations of the securities laws, and bars her "from associating with any investment adviser, broker-dealer, municipal securities dealer, or transfer agent."

Former StarMedia Executive Agrees to Settlement in SEC Litigation, February 26, 2013, (Litigation Release No. 22624)

A settled final judgment was entered against Peter R. Morales, former Controller and Vice President, Finance, for StarMedia Network, Inc., for his alleged involvement in misstating StarMedia's revenue for "fiscal year 2000 and the first two quarters of fiscal year 2001." Morales agreed to the final judgment, that permanently enjoins him from future violations of the securities laws and orders him to pay a civil penalty of $10,000.

Executives to be Permanently Enjoined, to Pay Civil Penalties and Disgorgement, and to Reimburse Company Pursuant to Section 304 of Sarbanes-Oxley; Former CEO/Chairman also to be Barred for Five Years from Serving as an Officer and Director of any Public Company, February 21, 2013, (Litigation Release No. 22623)

The SEC settled charges this week against Amnon Landan and Douglas Smith, former Chairman and Chief Executive Officer and former Chief Financial Officer (respectively) of Mercury Interactive, LLC. In 2007, Landan, Smith, and two other former senior Mercury officers were charged with "perpetrating a fraudulent and deceptive scheme from 1997 to 2005 to award themselves and other Mercury employees undisclosed, secret compensation by backdating stock option grants and failing to record hundreds of millions of dollars of compensation expense." Landan and Smith have both agreed to a final judgment that permanently enjoins them from violating various sections of the securities laws. Combined, they have been ordered to pay over $9.8 million in disgorgement, prejudgment interest, reimbursements to Hewlett-Packard (Mercury's parent company) and penalties. The reimbursements have been deemed partially satisfied by the defendants' prior repayment to Mercury.

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