Friday, August 2, 2013

SEC Litigation Releases: Week in Review

SEC Obtains Preliminary Injunction in Binary Options Case, August 1, 2013, (Litigation Release No. 22767)

A preliminary injunction was entered against Banc de Binary Ltd. which enjoins it from offering or selling unregistered securities and acting as an unregistered broker. The SEC filed a complaint in June that charged Banc de Binary with "offering and selling binary options to investors across the U.S. without first registering the securities" and also acting as an unregistered broker.  For more information on binary options, see our introductory post.

SEC Obtains Final Judgment Against Edward O'Connor, July 31, 2013, (Litigation Release No. 22766)

A final judgment was entered against Edward O'Connor, a former director and executive officer of Optionable, Inc., for his "part in a scheme to 'u turn' pricing information from defendant David Lee, a natural gas options trader at Bank of Montreal, back to reviewers at BMO as if the information had been independently verified." The judgment orders O'Connor to pay $700,000 combined in disgorgement and a civil penalty, and permanently enjoins him from future violations of the securities laws as well as imposes an officer and director bar against him.

SEC Charges Former Officers and Investor in Houston Company in Fraudulent Penny Stock Scheme, July 31, 2013, (Litigation Release No. 22765)

According to the complaint (PDF), "PGI Energy's former Chief Investment Officer, Robert Gandy, and former CEO and Chairman, Marcellous McZeal, engaged in a scheme that included creating false promissory notes, signing misleading certifications, and altering the company's balance sheet" so that its transfer agent would "issue millions of PGI Energy common stock shares without restrictive legends." Additionally, the complaint charges "investor Alvin Ausbon for his role in the scheme, which included signing false promissory notes and diverting proceeds from the sale of PGI Energy stock back to the company and Gandy." Their scheme collapsed in February 2012 when "the SEC ordered a temporary suspension of trading in PGI Energy's securities, due to questions regarding the accuracy and adequacy of the company's representations in press releases and other public statements." The SEC has charged the defendants with violating the Securities Act and Exchange Act and seeks permanent injunctions, disgorgement, prejudgment interest, financial penalties, and penny stock bars against all three defendants, as well as officer and director bars against Gandy and McZeal.

McZeal has agreed to a final judgment that orders him to pay almost $90,000 in disgorgement, prejudgment interest, and penalties and enjoins him from future violations of the securities laws. McZeal has agreed to the officer and director and penny stock bars, as well being barred from appearing before the SEC as an attorney.

SEC Files Settled Charges Against John M. Sensenig, Founder and Owner of Conestoga Log Cabin Leasing, Inc. for Fraud and Unregistered Sales of Securities Violations, July 30, 2013, (Litigation Release No. 22764)

The SEC charged John M. Sensenig, a Mennonite community member, with violating various provisions of the securities laws. Sensenig allegedly raised millions of dollars from 1997 until 2009 "from more than 1,500 fellow members of the Amish and Mennonite communities through the offer and sale of Promissory Notes." He then allegedly used these "proceeds to finance a collection of start-up companies he founded and controlled, the largest of which was Conestoga Log Cabin Leasing, Inc." However, over " half of the funds raised by Sensenig were returned to investors." Additionally, Sensenig allegedly "made material misrepresentations and omissions to investors including failing to disclose the use of proceeds, the risks associated with the investment, and remedial sanctions placed on him by a state securities regulator."

A final judgment was entered against Sensenig which permanently enjoins him from future violations of the Securities Act, permanently enjoins him from "direct or indirect participation in any unregistered offerings of securities," orders him to pay a $131,500 civil penalty, and orders him to "surrender for cancellation all shares of stock he owns in two privately held companies formerly affiliated with Conestoga Log Cabin Leasing, Inc."

SEC Charges Tipper of Confidential Information to S.A.C. Capital Portfolio Manager, July 30, 2013, (Litigation Release No. 22763)

The SEC amended its complaint (PDF) against Richard Lee "to additionally charge Sandeep Aggarwal, a sell-side analyst who tipped Lee in advance of a July 2009 public announcement about an Internet search engine partnership between Microsoft and Yahoo." Criminal charges have also been announced against Aggarwal. A final judgment was entered against Lee and Aggarwal which orders them to pay disgorgement, prejudgment interest, and financial penalties, and permanently enjoins them from future violations of the securities laws.

SEC Charges Houston-Based Investor Relations Executive with Insider Trading in Stocks of Clients, July 30, 2013, (Litigation Release No. 22762)

According to the complaint (PDF), Stephen B. Gray, a "former CEO of a Houston-based investor relations firm," traded on non-public information that he learned from the firm's clients. He allegedly profited and avoided losses of more than $131,000 from the illicit trading. Gray was fired from the firm last October when it learned of the SEC's investigation. The complaint charges Gray with violating sections of the Securities Act and Exchange Act and seeks disgorgement, prejudgment interest, financial penalties and permanent injunctive relief.

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