Friday, August 16, 2013

SEC Litigation Releases: Week in Review

SEC Obtains Final Judgment Against Conrad M. Black, August 15, 2013, (Litigation Release No. 22781)

According to the complaint (PDF), Conrad M. Black, former Chief Executive Officer of Hollinger International, Inc., "fraudulently diverted money from Hollinger International to himself and other corporate insiders in the form of purported non-competition payments in the PMG Acquisition and Forum Communications Company newspaper sale transactions." Additionally, Black allegedly "made misstatements and omissions of material fact about these related party payments in Hollinger International's filings with the Commission." A final judgment was entered against Black that permanently enjoins him from future violations of the Exchange Act, orders him to pay over $4 million in disgorgement and prejudgment interest to Chicago Newspaper Liquidation Corporation, and prohibits Black from "acting as an officer or director of any public company."

SEC v. Jack Freedman, SEC v. Jeffrey L. Schultz and Redfin Network, Inc., SEC v. Richard P. Greene and Peter Santamaria, SEC v. Douglas P. Martin and VHGI Holdings, Inc.,SEC v. Sheldon R. Simon, SEC v. Thomas Gaffney and Health Sciences Group, Inc., SEC v. Mark Balbirer, SEC v. Stephen F. Molinari and Nationwide Pharmassist Corp., August 14, 2013, (Litigation Release No. 22780)

Last week the SEC charged Thomas Gaffney, Health Sciences Group, Inc., Mark Balbirer, Stephen F. Molinari, Nationwide Pharmassist Corp., Jack Freedman, Jeffrey L. Schultz, Redfin Network, Inc., Richard P. Greene, Peter Santamaria, Douglas P. Martin, VHGI Holdings, Inc., and Sheldon R. Simon with engaging in various schemes involving "undisclosed inducement payments made to individuals to facilitate the manipulation of the stock of several microcap issuers." According to the SEC, "the defendants in the schemes involving undisclosed kickbacks understood they needed to disguise the kickbacks as payments to phony companies, which they knew would perform no actual work" and in the schemes "involving the undisclosed inducement payments or bribe...the defendants knew their illegal activities were meant to artificially inflate the companies’ stock volume and prices." The SEC has charged the defendants with violating sections of the Exchange Act and Securities Act and seeks "permanent injunctions, disgorgement plus prejudgment interest, and financial penalties against all the defendants; penny stock bars against all the individual defendants; and officer-and-director bars against defendants Schultz, Martin, Gaffney, and Molinari."

Securities and Exchange Commission v. Javier Martin-Artajo and Julien G. Grout, August 14, 2013, (Litigation Release No. 22779)

According to the complaint (PDF), Javier Martin-Artajo and Julien Grout, two former traders at JPMorgan Chase & Co., "fraudulently overvalu[ed] investments in order to hide massive losses in a portfolio they managed." According to the SEC, the defendants "deliberately mismark[ed] hundreds of positions by maximizing their value instead of marking them at the mid-market prices that would reveal the losses." This caused "JPMorgan's reported first quarter income before income tax expense to be overstated by $660 million." The SEC has charged Martin-Artajo and Grout with violating sections of the Exchange Act. The SEC's investigation remains ongoing.

Commission Charges Anchor Bancorp Wisconsin and Former CFO with Fraud, August 14, 2013, (Litigation Release No. 22778)

According to the complaint (PDF), Anchor Bancorp Wisconsin, Inc. and its former CFO, Dale C. Ringgenberg, "intentionally or recklessly made material misstatements in Anchor's quarterly Report on Form 10 Q for the period ended June 30, 2009." The defendants consented to final judgments that permanently enjoin them from future vioaltions of the Exchange Act and order Ringgenberg to pay a $75,000 civil penalty, and impose a 5-year officer and director bar against Ringgenberg.

SEC Halts Fraud by Ohio-Based Hedge Fund Manager, August 14, 2013, (Litigation Release No. 22777)

According to the complaint (PDF), Anthony J. Davian through his asset management firm, Davian Capital Advisors, LLC, "raised more than $1.5 million from investors by promoting Davian Capital Advisors, LLC as a highly successful investment management firm" and then "misappropriated at least $1 million in investor proceeds [using] the funds to pay for personal expenses such as the purchase of a luxury home and automobile." Davian has been charged with violating various sections of the securities laws. The SEC received a temporary restraining order and asset freeze against Davian and seeks permanent injunctions, disgorgement of ill-gotten gains, and financial penalties.

15 Year Prison Term for Gregory Mcknight, Orchestrator of $72 Million Ponzi Scheme, August 13, 2013, (Litigation Release No. 22776)

Gregory N. McKnight was sentenced to 188 months in prison followed by 3 years of supervised release and ordered to pay over $48.9 million in restitution for his "role in orchestrating a $72 million Ponzi scheme" through his company Legisi Holdings. These charges arose from the same facts that "were the subject of an emergency action that the Commission filed against McKnight and others on May 5, 2008." In July 2011, a final judgment was entered against McKnight based on the Commission's action that ordered him to "pay disgorgement of ill-gotten gains, prejudgment interest, and civil penalties totaling approximately $6.5 million" and permanently enjoined him from violating sections of the Securities Act and Exchange Act.

Earlier last month, "McKnight's associate Matthew J. Gagnon was sentenced to five years in prison for his role in promoting Legisi."

SEC Charges Former Executive of Massachusetts-Based Company with Insider Trading, August 12, 2013, (Litigation Release No. 22775)

According to the complaint (PDF), Joseph M. Tocci, former executive of American Superconductor Corporation, used insider information he "obtained as the assistant treasurer of American Superconductor to purchase option contracts through which [he] essentially bet that the company's stock price would soon decrease on the release of negative news." Tocci gained over $80,000 in illicit profits based on this trading. Tocci has consented to a judgment that enjoins him from future violations of the Exchange Act and orders him to pay over $170,000 in disgorgement, prejudgment interest, and civil penalties. Additionally, Tocci has agreed to plead guilty in a parallel criminal case.

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