Friday, November 8, 2013

SEC Litigation Releases: Week in Review

SEC Charges Royal Bank of Scotland Subsidiary with Misleading Investors in Subprime RMBS Offering, November 7, 2013, (Litigation Release No. 22866)

According to the complaint (PDF), RBS Securities Inc. (a subsidiary of the Royal Bank of Scotland plc) misled investors "in a 2007 subprime residential mortgage-backed security (RMBS) offering" by stating that the "loans backing the offering 'generally' met the lender's underwriting guidelines." According to the SEC, nearly 30 percent of the loans "fell so short of the guidelines that RBS should have excluded them from the offering entirely." RBS has agreed to a final judgment that orders it to pay over $150 million in disgorgement, prejudgment interest, and civil penalties.

SEC Obtains Final Judgment Against Defendants Charged with Perpetrating $35 Million International Boiler Room Scheme, November 7, 2013, (Litigation Release No. 22865)

A final judgment was entered against Nicholas Louis Geranio, The Good One, Inc., and Kaleidoscope Real Estate, Inc. "for their roles in a $35 million scheme to manipulate the market and to profit from the issuance and sale of certain U.S. companies' stock through offshore boiler rooms." According to the SEC, from 2007 to 2009, Geranio organized eight companies: Green Energy Live, Inc., Spectrum Acquisition Holdings, Inc., United States Oil & Gas Corp., Mundus Group, Inc., Blu Vu Deep Oil & Gas Exploration, Inc., Wyncrest Group, Inc., Microresearch Corp., and Power Nanotech, Inc. Geranio then "installed management, and entered into consulting agreements with them through his alter-ego entities The Good One and Kaleidoscope." Geranio then allegedly used boiler rooms to raise money and direct "traders to engage in matched orders and manipulative trades to establish artificially high prices for at least five of the Issuers' stock."

The final judgment permanently enjoins the defendants from future violations of the securities laws, orders them to pay over $3 million in disgorgement, prejudgment interest, and penalties, places a penny stock bar against them and places an officer-and-direct bar against Geranio. The judgment also "order[s] relief defendant BWRE Hawaii, LLC to pay, jointly and severally with Geranio, The Good One, and Kaleidoscope, an additional $240,000 in disgorgement plus prejudgment interest thereon of $55,295."

The Commission Dismisses Its Claims for Disgorgement and Prejudgment Interest Against Charles O. Morgan, Jr., as Personal Representative of the Estate of Frederick J. Kunen, November 7, 2013, (Litigation Release No. 22864)

The SEC has dismissed its claims "for disgorgement and prejudgment interest against Charles O. Morgan, Jr.,  in his capacity as personal representative of the probate estate of Frederick J. Kunen, because Kunen's Estate was placed under Receivership."

SEC Files Subpoena Enforcement Action Against Anthony Coronati for Failure to Produce Documents and Appear for Testimony in Investigation of Solicitations Relating to Pre-IPO Securities, November 5, 2013, (Litigation Release No. 22863)

The SEC has filed a subpoena enforcement action (PDF) against Anthony Coronati. The Court then entered "an order directing Coronati to show cause (PDF) why he should not be ordered to comply with the subpoenas." According to the SEC, "Coronati and others have violated or are violating registration, anti-fraud, or other provisions of the federal securities laws in connection with a business known as" Coronati has allegedly ignored the subpoenas by "never produc[ing] any documents, appear[ing] for testimony, or otherwise respond[ing] to the subpoenas." The SEC's application seeks an order that compels "Coronati to comply fully with the subpoenas."

SEC Halts Ponzi Scheme Involving New Zealand Companies, November 5, 2013, (Litigation Release No. 22862)

According to the complaint (PDF), Christopher A.T. Pedras misled his initial investors into believing they were investing in a profitable trading platform, "Maxum Gold Small Cap Trade Program, in which Pedras's company Maxum Gold purportedly serves as the intermediary between banks that can't legally trade with each other directly." When Pedras and his companies "encountered difficulty paying the promised 4 to 8 percent monthly returns," they began steering investors to invest in a "New Zealand company called FMP Medical Services Limited that would" supposedly "be publicly traded and operate kidney dialysis clinics in New Zealand." According to the SEC, both of these investment "opportunities" were part of a Ponzi scheme that "paid investors more than $2.4 million in 'returns' using new investor money." Pedras allegedly stole over $2 million from investors through the scheme.

The complaint charges Pedras, Sylvester M. Gray II (his business partner), Alicia Bryan (a lead sales representative), Maxum Gold Bnk Holdings Limited, Maxum Gold Bnk Holdings LLC, FMP Medical Services Limited, and FMP Medical Services LLC with violating the Securities Act and Exchange Act. The complaint also names Comptroller 2013 as a relief defendant. A temporary asset freeze has been placed against the defendants and a hearing has been scheduled for November 20th.

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