Friday, October 4, 2013

SEC Litigation Releases: Week in Review (Part II)

SEC Obtains Asset Freeze and Other Emergency Relief in Ponzi Scheme Targeting Investors in Japan, October 3, 2013, (Litigation Release No. 22832)

The SEC was granted a temporary restraining order, asset freeze and other emergency relief against Edwin Yoshihiro Fujinaga and his company MRI International, Inc.. Fujinaga allegedly raised more than $800 million from investors through MRI, an allegedly "fraudulent Ponzi scheme designed to misappropriate money from investors."  The defendants represented "that the company used investors' money to buy [medical account receivables (MARs)] from medical providers at a discount and tried to recover the full value of the MARs from the insurance companies." In reality, however, investor funds were used to "pay the principal and interest due to earlier investors, for the expenses of MRI and other businesses owned by Fujinaga, and to buy luxury cars and pay Fujinaga's credit card bills, alimony, and child support." The SEC has charged Fujinaga and MRI International with violating sections of the Securities Act and Exchange Act and seeks disgorgement, financial penalties, permanent injunctions, and other emergency relief.

Court Enters Final Judgment by Consent Against SEC Defendants Philip A. Falcone, Harbinger Capital Partners Offshore Manager, L.L.C., Harbinger Capital Partners Special Situations GP, L.L.C., and Harbinger Capital Partners LLC, October 2, 2013, (Litigation Release No. 22831)

A final judgment was entered by consent against Philip A. Falcone, Harbinger Capital Partners Offshore Manager, L.L.C., Harbinger Capital Partners Special Situations GP, L.L.C., and Harbinger Capital Partners LLC. The SEC's original actions charged "Falcone [with] improperly us[ing] $113 million in fund assets to pay his personal taxes, secretly favor[ing] certain customer redemption requests at the expense of other investors, and conduct[ing] an improper 'short squeeze' in bonds issued by a Canadian manufacturing company." The final judgment bars Falcone from the security industry for at least five years and and orders Falcone and his advisory firm Harbinger Capital Partners to "pay more than $18 million in disgorgement and penalties and admit wrongdoing."

SEC Charges New Jersey Resident in Prime Bank Investment Scheme and Files Settled Charges Against California Attorney Escrow Agent, October 2, 2013, (Litigation Release No. 22830)

Last week the SEC filed an enforcement action (PDF) against Brett A. Cooper and his companies Global Funding Systems LLC, Dream Holdings, LLC, Fortitude Investing, LLC, Peninsula Waterfront Development, LP and REOP Group Inc., "who from at least November 2008 through about April 2012 perpetrated three fraudulent schemes and engaged in various fraudulent and deceitful acts, practices and courses of business in furtherance of those schemes."

In the first scheme, "Cooper raised approximately $1.4 million from investors by claiming to have special access to programs that...allowed individual investors to participate in this investment opportunity generally available only to Wall Street insiders." Cooper misrepresented that "the financial instruments are issued by the world’s largest and most financially sound banks," used language designed "to deceive the investors into believing that he offered legitimate investments, misrepresented that extraordinary returns of up to 1,000 percent...were possible with little risk to principal, lied to investors that their principal would be collateralized with cash or semi-precious gemstones," and misled investors to believe "that their money would remain safe in escrow with attorneys pending the completion of certain steps in the transaction."

In the second scheme, "Cooper offered to participate as an investor in the purchase and trade of a $100 million bank guarantee on the condition that all investor funds were pooled in an attorney client trust account." Cooper then sent "a forged escrow agreement, purportedly from an attorney, containing wiring instructions for the attorney client trust account." The wire instructions "were for an account controlled by Cooper, not an attorney acting as escrow agent. The four investors unwittingly deposited a total of $925,000 in the phony escrow account which was, in fact, for Cooper’s company Dream Holdings, after which Cooper misappropriated the funds."

In the third scheme, Cooper and his company REOP purportedly told an investor that for a $50,000 fee, they could find a buyer for "a purported Brazilian sovereign bond." Cooper then forged "a letter that purported to be from the broker-dealer indicating that the bond had been 'accepted' by the broker-dealer. Based upon this letter, the deceived investor paid Cooper’s $50,000 'fee'."

According to the SEC, Cooper used investor funds "to pay personal expenses, buy cars, pay associates in the scheme, and fund frequent gambling junkets to casinos in Las Vegas and Atlantic City." The SEC alleges that "Cooper has never been registered with the SEC to sell securities." The complaint charges the defendants with violating various provisions of the securities laws and seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties.

Last week the SEC also charged David H. Frederickson (PDF), "a sole practitioner, and his law firm The Law Offices of David H. Frederickson, with aiding and abetting Cooper’s prime bank scheme in two transactions in 2010 and 2011." Frederickson and his firm have agreed to settle the charges by agreeing to a final judgment that permanently enjoins them from future violations of the securities laws, permanently enjoins them "from providing professional legal or escrow services in connection with, or from, the issuance, offer, or sale of securities involving bank guarantees, medium term notes, standby letters of credit, structured notes, and similar instruments, provided, however, that such injunction shall not prevent Frederickson from purchasing or selling securities listed on a national securities exchange" and orders them to pay over $32,000 in disgorgement, prejudgment interest, and penalties. Frederickson has also been permanently suspended from "appearing or practicing before the Commission as an attorney."

Court Enters Final Judgments Against Defendants Petro-Suisse Ltd. and Mark Gasarch, October 2, 2013, (Litigation Release No. 22829)

Final judgments were entered against Petro-Suisse Ltd. and Mark Gasarch for their alleged involvement in a scheme that caused 21 of Petro-Suisse's PPMs to contain "materially false and misleading information." The judgment enjoined the defendants from future violations of the Exchange Act and Securities Act, ordered them to pay "jointly and severally...$8,370,000 in disgorgement, deemed satisfied by the previous payments made by Petro-Suisse, and [ordered] Gasarch to pay a $130,000 civil penalty. "

SEC Charges Former La Crosse, Wisconsin Resident with Fraud, October 2, 2013, (Litigation Release No. 22828)

According to the complaint, Jeremy S. Fisher and his companies, The Good Life Financial Group, Inc. and The Good Life Global, LLC, conducted "fraudulent, unregistered offerings of securities and misappropriat[ed] investor funds to pay Fisher's personal expenses." The SEC seeks permanent injunctions, disgorgement and prejudgment interest against all of the defendants, as well as civil penalties against Fisher. The defendants have agreed to settle the charges by agreeing to the entry "by the Court of the relief requested in the complaint, including orders of permanent injunction and disgorgement, plus prejudgment, totaling $936,226 to be paid jointly and severally among the defendants." Additionally, Fisher has agreed to pay a $150,000 civil penalty.

SEC Charges South Florida Resident in Ponzi Scheme Targeting Colombian-American Community, September 30, 2013, (Litigation Release No. 22827)

According to the complaint, Jenny E. Coplan raised approximately $4 million from mainly Columbian-American investors by falsely telling investors "her company Immigration General Services, LLC operated through an investment broker that would invest funds in immigration bail bonds." Coplan promised " investors interest payments ranging from 60 to 108 percent annually and falsely told prospective investors this was a safe investment and their money was FDIC insured." According to the SEC, in reality "Coplan never placed investors' funds with an investment broker to make a profit." She instead allegedly "paid purported profits to earlier investors using funds from newer investors in classic Ponzi scheme fashion and misappropriated approximately $878,000 of investors' funds for her own personal use."

The SEC has charged Coplan with violating sections of the Securities Act and Exchange Act and seeks disgorgement, financial penalties, and injunctive relief against her. Criminal charges in a parallel action have been announced against Coplan.

SEC Charges Charlotte Investment Advisors with Excessive Fee Scheme, September 27, 2013, (Litigation Release No. 22826)

Last week an action was entered against Frank Dappah and his firm, Yatalie Capital Management (a/k/a Yatalie Capital Management Co, Creato Funds L.P., a/k/a Yatalie Capital, Inc., a/k/a Creato Funds, L.P., a/k/a Yatalie Capital Management Co.), charging them with "charging grossly excessive fees to their advisory clients without authorization or notice" and violating other provisions of the securities laws. The SEC seeks permanent injunctions, civil penalties, and an asset freeze against the defendants. "The defendants have entered into a consent with the Commission agreeing to the entry by the Court of the relief requested in the complaint."

SEC Settles Civil Fraud Charges Over Improper Revenue Recognition and Stock Option Backdating Scheme, September 27, 2013, (Litigation Release No. 22825)

The SEC settled charges against Louis R. Tomasetta, former Chief Executive Officer and Director of Vitesse Semiconductor Corporation, and Eugene F. Hovanec, former Vice President of Finance, Chief Financial Officer, and Executive Vice President of Vitesse, "arising from alleged schemes to improperly recognize revenue and backdate stop option grants." Both defendants consented to an entry of final judgments that permanently enjoin them from future violations of the securities laws and order them to pay over $3 million in disgorgement and civil penalties. The disgorgement has been deemed satisfied by the defendants' former payment and transfer of shares "of Vitesse stock to the class action Settlement Fund in Louis Grasso v. Vitesse Semiconductor"

The SEC determined it would not seek penalties against "former Vitesse Controller and Chief Financial Officer, Yatin D. Mody, and former Vitesse Director of Finance, Nicole R. Kaplan, due to their timely and substantial cooperation in the Commission's investigation and litigation."

SEC Obtains Final Judgments Against Attorney Involved in 22 Corporate Hijackings and a Relief Defendant, September 27, 2013, (Litigation Release No. 22824)

A final judgment was entered against "Nicolette Loisel... in a pending civil injunctive action in which the Commission charged Loisel, along with others, with hijacking 22 defunct or inactive publicly-traded companies." The defendants then allegedly drafted "28 legal opinion letters falsely representing that offerings of approximately 223 million shares were exempt from the registration requirements of the federal securities laws." The final judgment permanently enjoins Loisel from future violations of the securities laws, places a penny stock bar against her and orders her to pay over $140,000 in disgorgement and prejudgment interest. "Pursuant to the final judgment, payment of these amounts was waived, and no civil penalty was imposed, in light of her financial condition."

On September 16th, the "court granted summary judgment in favor of the Commission against relief defendant Alena Dubinsky." The final judgment orders Dubinsky to pay over $1 million in disgorgement and prejudgment interest.

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