Friday, September 20, 2013

SEC Litigation Releases: Week in Review

Court Enters Final Judgment by Consent Against SEC Defendant Roland Kaufmann, September 19, 2013, (Litigation Release No. 22802)

Yesterday the US District Court for the Eastern District of New York entered a final judgment against Roland Kaufman.  The judgment bars Kaufman from participating in penny stock offerings and from serving as a director or officer of a public company.  The judgment stems from a July 2012 SEC complaint that alleged Axius, Inc., Jean-Pierre Neuhaus, and Roland Kaufmann "engaged in a fraudulent broker bribery scheme [involving kickbacks] designed to manipulate the market for the common stock of Axius, Inc."

SEC Charges Imaging Diagnostic Systems, CEO, and CFO With Fraud, September 18, 2013, (Litigation Release No. 22801)

The SEC has filed a complaint against Imaginig Diagnostic Systems with making material misrepresentations about their application with the FDA and with failing to pay payroll taxes to the IRS.  The company is involved with the development of a technology to be used for the detection of breast cancer.  Although the Linda Grable (CEO) and Allan Schwartz (CFO) knew their projections for the FDA review process to be without basis, the company disclosed the projections in their filings.  In addition, the executives did not disclose their failure to remit payroll taxes in their MD&A, and did not file beneficial ownership reports from 2009 to 2011.  The SEC is seeking financial penalties as well as director-and-officer bars for the Grable and Schwartz.

SEC Charges Indiana-Based Company and Executives for Defrauding Investors in Renewable Fuel Production Scheme, September 18, 2013, (Litigation Release No. 22800)

On Wednesday, the SEC charged a group of conspirators with running a scheme to conceal "extensive illegal activity" under the guise of a legitimate biodiesel production business.  While receiving significant government subsidies for their biodiesel business, E-Biofuels used middlemen (Caravan Trading LLC, Cima Green LLC, and CIMA Energy Group) to buy finished biofuel then falsely represented that it was the raw material used to produce the fuel.  E-Biofuels -- through their owners Craig Ducy, Chad Ducy and Brian Carmichael -- then allegedly turned around and sold the biodiesel for as much "as double the price it paid for it."  When Imperial Petroleum bought the company, Imperial CEO Jeffrey Wilson allegedly learned of the scheme and continued to conceal the operation.  Imperial's revenue, and stock price, soared after the purchase and collapsed once the scheme was exposed "resulting in a market loss of approximately $60 million."  Each stage of the scheme was facilitated by false reporting and complicity.  The SEC is seeking "disgorgement of ill-gotten gains, financial penalties, and permanent injunctions against further violations of the securities laws."

SEC Charges Purported Money Manager in New York Who Schemed Investors and Lied to SEC Examiners, September 17, 2013, (Litigation Release No. 22799)

The SEC has charged Fredrick D. Scott -- owner of ACI Capital Group -- with making false statements amounting to extreme exaggeration of his assets under management for his investment advisory firm.  Scott allegedly used the pretense of significant assets to accumulate investor funds with the promise of "too-good-to-be-true investment opportunities".  Rather than paying any returns to investors, Scott used investor funds to pay for his personal expenses.  Scott has plead guilty to related criminal charged filed by the US Attorney's office.

Joseph Paul Zada Indicted for Fraud, September 17, 2013, (Litigation Release No. 22798)

Earlier this week, a grand jury indicted Joseph Paul Zada with "21 counts of mail fraud, two counts of wire fraud, two counts of money laundering, and two counts of interstate transportation of stolen property."  The indictment stems from allegations that Zada attracted several investors to invest a total of over $20 million based upon material misrepresentations and omissions.  Rather than investing the funds in purported Saudi oil ventures, Zada alleged used the funds to finance his indulgent lifestyle and pay "returns" to earlier investors. A hearing date has been set for October. For more information, see the November 2010 litigation release.

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