Friday, October 25, 2013

SEC Litigation Releases: Week in Review

Jury Finds Mark Cuban Not Liable for Insider Trading, October 23, 2013, (Litigation Release No. 22855)

Last week, "a nine-person federal jury found Mark Cuban not liable for insider trading" in securities.

SEC Obtains Final Judgment Against New Jersey-Based Consultants to Chinese Reverse Merger Companies, October 23, 2013, (Litigation Release No. 22854)

A final judgment was entered against Huakang Zhou (a/k/a David Zhou) and Warner Technology and Investment Corporation for their alleged involvement in "a scheme to list one client on a national securities exchange through manipulative trading and by facilitating in effect an artificial shareholder base sufficient for listing." The final judgment permanently enjoins Zhou and Warner Investment from future violations of the securities laws and orders them to pay over $1.4 million combined in disgorgement, prejudgment interest, and civil penalties. The final judgment also bars the defendants from "association with any investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock, with the right to apply for reentry after five years."

SEC Obtains Jury Verdict in Its Favor Against Minneapolis Attorney, Real Estate Finance Fund and Fund Manager On Fraud Claims, October 23, 2013, (Litigation Release No. 22853)

A verdict was entered by jury this month against Todd A. Duckson, Capital Solutions Monthly Income Fund, LP, and Transactional Finance Fund Management LLC, "a company owned by Duckson that became the fund's investment advisor in November 2008." The defendants were found guilty of violating various provisions of the securities laws based on the SEC's complaint that "alleged...the defendants engaged in securities fraud in connection with their offer and sale of interests in the Fund."

Commission Files Subpoena Enforcement Action Against Michael Grosso, October 23, 2013, (Litigation Release No. 22852)

This week the SEC filed an application for "an order to enforce investigative administrative subpoenas served on Michael Grosso in conjunction with securities being sold related to BHJ Brokerage and Consulting Firm, LLC." According to the SEC, a Formal Order Directing Private Investigation was previously issued and "Grosso has failed to comply with validly issued and served subpoenas for his testimony relating to this investigation."

Former Securities Professional Aleksey Koval Settles Insider Trading Case, October 22, 2013, (Litigation Release No. 22851)

A final judgment was entered against Aleksey P. Koval a/k/a Alexei Koval, for his involvement in an "insider trading scheme in which a former UBS investment banker," Igor Poteroba, "tipped Koval about eleven impending acquisitions, tender offers, or other business combinations." According to the complaint, Koval traded on this information and then tipped his friend, Alexander Vorobiev, who also allegedly traded on the information. In a parallel criminal proceeding, "Koval pleaded guilty to three counts of securities fraud, was ordered to pay a forfeiture of $1,414,290, and was sentenced to twenty-six months of imprisonment." The final judgment entered against Koval permanently enjoins him from future violations of the Exchange Act and finds him liable for over $1.2 million in disgorgement and prejudgment interest, which is deemed "satisfied by the criminal forfeiture order." Additionally, the SEC barred Koval "from association with any investment adviser, broker, dealer, municipal securities dealer, or transfer agent, and from participating in any offering of a penny stock, based on his criminal conviction in the parallel proceeding."

SEC Obtains Jury Verdict in Its Favor Against All Defendants On All Counts, October 22, 2013, (Litigation Release No. 22850)

Earlier this month, a jury "returned a verdict against AIC, Inc., Community Bankers Securities, LLC, and Nicholas D. Skaltsounis on all counts." The SEC's 2011 complaint alleged that "Skaltsounis devised and orchestrated an offering fraud by offering and selling millions of dollars of AIC promissory notes and stock." According to the SEC, the defendants "misrepresented and omitted material information to investors relating to, among other things, the safety and risk associated with the investments, the rates of return on the investments, and how AIC would use the proceeds of the investments."

Prior to the trial, the court granted the SEC's motion for partial summary judgment and found in favor of the SEC on various claims against the defendants and also found in favor of the SEC on various claims against three relief defendants, "Allied Beacon Partners, Inc. (f/k/a Waterford Investor Services, Inc.), Advent Securities, Inc., and Allied Beacon Wealth Management, LLC (f/k/a CBS Advisors, LLC)." Additionally, prior to trial, co-defendants John B. Guyette and John R. Graves "entered into settlement agreements with the Commission." These agreements ordered injunctive relief, disgorgement, and civil penalties.

SEC Charges Diebold with FCPA Violations in China, Indonesia, and Russia, October 22, 2013, (Litigation Release No. 22849)

According to the complaint (PDF), Diebold, Inc., "a global provider of ATMs and bank security systems," paid approximately $3 million for "leisure trips, entertainment, and other improper gifts on foreign officials to obtain and retain lucrative business with government owned banks in China and Indonesia, and [paid] other bribes in connection with the sale of ATMs to private banks in Russia." Diebold has agreed to settle the charges by agreeing to a final judgment that permanently enjoins it from future violations of the securities laws, orders it to pay almost $23 million in disgorgement and prejudgment interest, and appoints an independent compliance monitor. "In a parallel criminal proceeding, Diebold has agreed to pay a $25.2 million criminal fine as part of a deferred prosecution agreement with the U.S. Department of Justice."

SEC Files Fraud Charges Against Yuhe International, Inc., and Its CEO, October 18, 2013, (Litigation Release No. 22848)

According to the complaint (PDF), Yuhe International, Inc., "a China-based provider of broiler chickens,"and its Chief Executive Officer, Gao Zhentao, "made false public statements concerning an acquisition Yuhe claimed to have executed in 2009." Furthermore, the SEC alleges that from 2009 through 2011, "Yuhe misled its public investors by disseminating a series of materially false statements concerning [the] purported acquisition of additional chicken farms for more than $15 million, often providing updates concerning the farms' integration and contribution to the company's revenue." However, in reality, "the acquisition never occurred." The complaint charges the defendants with violating sections of the Securities Act and Exchange Act and seeks permanent injunctions, civil penalties, disgorgement, prejudgment interest, an officer-and-director bar against Gao, and other relief.

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