Friday, July 26, 2013

SEC Litigation Releases: Week in Review

SEC Charges Former Portfolio Manager At SAC Capital with Insider Trading, July 25, 2013, (Litigation Release No. 22761)

This week the SEC charged Richard Lee, a former portfolio manager at SAC Capital Advisors, with insider trading "ahead of  public announcements about a Microsoft-Yahoo partnership and the acquisition of 3Com Corporation by Hewlett-Packard." Lee's alleged insider trading caused "the S.A.C. Capital hedge fund that he managed to generate more than $1.5 million in illegal profits." The SEC has charged Lee with violating sections of the Exchange act and seeks disgorgement, prejudgment interest, financial penalties, and permanent enjoinment from future violations of the securities laws. Criminal charges have also been announced against Lee.

Minneapolis-Based Fraudster Patrick Joseph Kiley Sentenced to 20 Years in Prison, July 25, 2013, (Litigation Release No. 22760)

Patrick J. Kiley was sentenced to "20 years in prison and pay $155 million in restitution" based on his "conviction on 15 criminal counts including mail and wire fraud, conspiracy to commit mail and wire fraud, and money laundering for his role in a $194 million foreign currency trading scheme that defrauded approximately 1,000 investors." Additionally, Kiley is a defendant in a civil injunctive action filed by the SEC. This action "arose out of the same facts that are the subject of the criminal case against him." The SEC's complaint charges Kiley and co-defendants Trevor G. Cook, Jason Bo-Alan Beckman, and Beckman's investment advisory firm, Oxford Private Client Group, LLC, with violating various sections of the securities laws. A permanent injunction was entered against Cook in 2010 and a receiver was appointed to "to marshal and preserve all of the Defendants' assets." The cases against Kiley and Beckman remain pending.

Massachusetts-Based Penny Stock Promoter Ordered to Pay Over $1.6 Million in Penny Stock Fraud Case, July 25, 2013, (Litigation Release No. 22759)

A final judgment was entered against National Financial Communications, Inc. for making "material misrepresentations and omissions in penny stock publications" it issued with Geoffrey J. Eiten. The judgment enjoins NFC from future violations of the securities laws and imposes a penny stock bar against NFC. Additionally, the judgment orders NFC to pay over $1.6 million in disgorgement, prejudgment interest, and civil penalties. The SEC's case against Eiten remains pending.

Former Investment Banker and His College Friend Sentenced to 16 Months in Prison for Insider Trading Scheme, July 25, 2013, (Litigation Release No. 22758)

Jauyo "Jason" Lee and his friend, Victor Chen, were sentenced to "16 months in prison for their roles in an insider trading scheme." The defendants were also sentenced to "two years of supervised release following their incarceration and ordered that restitution and forfeiture be considered at a subsequent hearing." Chen previously paid over $600,000 in forfeiture. The SEC's original complaint charged Lee and Chen with violating sections of the Exchange Act. The SEC's complaint seeks "disgorgement,...prejudgment interest, civil penalties, and permanent injunctions against Lee and Chen" and remains pending.

New York State Suspends Attorney Mitchell S. Drucker from Practicing Law for Three Years Based On Insider Trading Violation, July 25, 2013, (Litigation Release No. 22757)

A decision was issued by the Appellate Division, Second Department, of the New York State Supreme Court, that suspends "attorney Mitchell S. Drucker from the practicing law for three years." This decision is based on a judgment the SEC obtained in its "insider trading case against Drucker" (SEC v. Mitchell S. Drucker, et al). In 2007, a jury found that Drucker, a former member of the legal department of NBTY, Inc., had "violated the antifraud provisions of the securities laws by insider trading the common stock of NBTY, tipping his father, who traded, and trading his friend's NBTY shares." Drucker had previously been enjoined from violating sections of the Securities Act and Exchange Act and was barred from serving as an officer or director of any public company. He was also ordered to pay over $400,000 in disgorgement, prejudgment interest, and civil penalties.

SEC Charges Florida Resident with Unregistered Sales of Securities, July 25, 2013, (Litigation Release No. 22756)

Settled charges were filed against Jorge Bravo, Jr. for the "unlawful sales of millions of shares of" AVVAA World Health Care Products, Inc. "to the public without complying with the registration requirements of the Securities Act of 1933." Bravo consented to a final judgment that permanently enjoins him from future violations of the Securities Act, places a penny stock bar against him, and orders him to pay almost $600,000 in disgorgement, prejudgment interest, and penalties.

SEC Files Fraud Charges Against China Intelligent Lighting and Electronics, Inc.; NIVS Intellimedia Technology Group, Inc.; and Their Sibling CEOs, July 22, 2013, (Litigation Release No. 22755)

According to the complaint (PDF), China Intelligent Lighting and Electronics, Inc., NIVS IntelliMedia Technology Group, Inc., and their respective CEOs, Xuemei Li and, her brother, Tianfu Li, "engaged in fraudulent schemes to raise and divert offering proceeds." They then allegedly "attempted to hide the diversions by lying to auditors and making false and materially misleading filings with the Commission." The SEC seeks permanent injunctive relief, disgorgement with prejudgment interest, civil penalties, officer and director bars, and "any other appropriate relief." Additionally, the SEC entered an order "to determine whether the registration of each class of securities of CIL and NIV should be revoked for failure to make required periodic filings with the Commission."

Former Bristol-Myers Executive Agrees to Settle Insider Trading Charges, July 22, 2013, (Litigation Release No. 22754)

A judgment was entered that approves "a $324,777 settlement between the Commission and Robert D. Ramnarine, a former executive at Bristol-Myers Squibb Co., in a case that arose from allegations of insider trading in the securities" of ZymoGenetics, Inc., Pharmasset, Inc. and Amylin Pharmaceuticals, Inc. The final judgment also permanently enjoins Ramnarine from future violations of the Exchange Act and Securities Act, places an officer and director bar against him, and " requires that funds in a brokerage account controlled by Ramnarine that were frozen by previous order of the Court be transferred to the Commission."

A parallel criminal case, U.S. v Ramnarine, was filed. Ramnarine pled guilty to securities fraud and is scheduled to be sentenced on September 26, 2013.

Securities and Exchange Commission v. City of Miami, Florida, and Michael Boudreaux, July 19, 2013, (Litigation Release No. 22753)

According to the complaint (PDF), the City of Miami and its former Budget Director, Michael Boudreaux, "made materially false and misleading statements and omissions concerning certain interfund transfers in three 2009 bond offerings totaling $153.5 million, as well as in the City's fiscal year 2007 and 2008 Comprehensive Annual Financial Reports." Allegedly, the City, through Boudreaux, "transferred a total of approximately $37.5 million from its Capital Improvement Fund and a Special Revenue Fund to the General Fund in 2007 and 2008 in order to mask increasing deficits in the General Fund." The transferred funds, however, included " legally restricted dollars which, under City Code, may not be commingled with any other funds or revenues of the City." Additionally, "the funds transferred were allocated to specific capital projects which still needed those funds as of the fiscal year end or, in some instances, already spent that money." These transfers allowed the City's bond offerings to receive favorable ratings by credit rating agencies. Once the majority of the transfers were reversed, "the City had to declare a state of fiscal urgency..., and bond rating agencies downgraded their ratings on the City's debt." The SEC has charged the defendants with violating various sections of the Securities Act and Exchange Act and seeks injunctive relief and financial penalties. Additionally, the SEC has charged the City with violating a 2003 "SEC Cease-and-Desist Order which was entered against the City based on similar misconduct" and seeks an order "commanding the City to comply with the SEC's 2003 Order."

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