Friday, January 10, 2014

SEC Litigation Releases: Week in Review

Securities and Exchange Commission v. Diamond Foods, Inc., January 9, 2014, (Litigation Release No. 22902)

According to the complaint (PDF), Diamond Foods, Inc. manipulated walnut costs to report "higher net income and inflated earnings to exceed analysts' estimates for fiscal quarters in 2010 and 2011." According to the complaint (PDF) against Diamond's former CFO, Steven Neil, Neil "directed the effort to fraudulently underreport money paid to walnut growers." Diamond's former CEO, Michael Mendes, has also been charged because he allegedly should have "known that Diamond's reported walnut cost was incorrect at the time he certified the company's financial statements."

Diamond was charged with violating various provisions of the securities laws and agreed to pay a $5 million penalty and permanent injunctions to settle the charges. Mendes and Neil were also charged with violating various provisions of the securities laws. Mendes agreed to pay a $125,000 penalty and has already "returned or forfeited more than $4 million in bonuses and other benefits he received during the time of the company's fraudulent financial reporting." The complaint against Neil seeks "a permanent injunction, civil penalties, an officer and director bar, disgorgement plus prejudgment interest, and relief pursuant to the Sarbanes-Oxley Act of 2002."

District Court Finds Eric Aronson Liable for Operating a Ponzi Scheme, Issues Permanent Injunctions Against Remaining Individual Defendants and Grants Other Relief, January 6, 2014, (Litigation Release No. 22901)

According to the SEC, "from 2006 to 2010, PermaPave Industries and its affiliates raised more than $26 million from the sale of promissory notes and 'use of funds' agreements to over 140 investors." Defendants Eric Aronson and Vincent Buonauro, as well as others, "told investors that there was a tremendous demand for the product...permeable paving stones" when in fact "there was little demand for the product." Defendants then "used investors' money to make 'interest' and 'profit' payments to earlier investors and to fund management's lavish lifestyles." Additionally, "shortly after an affiliate of PermaPave Industries acquired a majority stake in Interlink-US-Network, Ltd., Eric Aronson, Fredric Aaron - who was the attorney for Eric Aronson...- and others issued a press release stating that a company that had never heard of Interlink intended to invest $6 million in Interlink."

The SEC has charged the defendants with violating various provisions of the securities laws. Aaron has consented to a judgment that enjoins him from future violations and imposes a five-year officer-director bar as well as a penny stock bar against him. Buonauro consented to a judgment that enjoins him from future violations of the securities laws. Monetary relief against both defendants will be determined at a later date. Relief for Aronson's violations will also be determined at a later date. The SEC's civil action continues against relief defendant, Deborah Buonauro.

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