Friday, April 24, 2015

Enforcement Actions: Week in Review


SEC Charges BlackRock Advisors With Failing to Disclose Conflict of Interest to Clients and Fun Boards
April 20, 2015 (Litigation Release No. 71)
BlackRock Advisors LLC has been charged by the SEC for failing to disclose a conflict of interest of one of their top portfolio managers. Daniel J. Rice III founded Rice Energy, a natural gas and oil company, while managing energy sector funds and separately managed accounts at Blackrock Advisors. Rice personally invested about $50 million in Rice Energy. A joint venture between Rice Energy and Alpha Natural Resources would later become the largest holding in the largest fund managed by Rice (BlackRock Energy & Resources Portfolio). BlackRock has agreed to settle charges by paying a $12 million penalty and having an internal review conducting by an independent compliance consultant. Additionally, former chief compliance officer Bartholomew A. Battista was charged with failing to report a “material compliance matter” to BlackRock’s boards of directors and has agreed to settle those charges by paying a $60,000 penalty.

Fort Worth Regional Director David Woodcock to Leave SEC
April 20, 2015 (Litigation Release No. 72)
It has been announced that David Woodcock, Regional Director of the SEC’s Fort Worth Office, is leaving the SEC later this spring. Woodcock has been Regional Director since 2011 and has been chairman of the Enforcement Division’s Financial Reporting and Audit Task Force since its inception. Following Mr. Woodcock’s departure, Associate Regional Directors Marshall Gandy and David Peavler will share duties as acting Regional Directors.

SEC Announces Million-Dollar Whistleblower Award to Compliance Officer
April 22, 2015 (Litigation Release No. 73)
The SEC has announced an award of $1.4-1.6 million to a compliance officer for providing information that assisted the SEC in bringing an enforcement action against the officer’s company. The SEC’s whistleblower program has awarded over $50 million to 16 whistleblowers since it began in 2011. Awards are funded solely by SEC sanctions.

SEC Charges Issuer for Failing to Make Public Filings
April 22, 2015 (Litigation Release No. 74)
Real estate investment firm W2007 Grace Acquisition I Inc. has been charged by the SEC for failing to submit public filings. In November 2007, W2007 Grace filed a notice to the SEC of exemption from filing public reports because, at the time, they had fewer than 300 holders of preferred shares. In the SEC’s order, W2007 Grace is found to have improperly counted holders as of January 1st, 2014 and, therefore, should have resumed filing public reports. They have agreed to settle charges with a $640,000 penalty.

Friday, April 17, 2015

Enforcement Actions: Week in Review


SEC Halts Investment Scheme Targeting Military Personnel
April 14, 2015 (Litigation Release No. 66)
The SEC has charged Leroy Brown Jr. and his firm, LB Stocks and Trades Advice LLC, with securities fraud and conducting an unregistered securities offering and ordered an asset freeze against Brown. Brown fabricated his stock broking experience to prospective clients telling them that he had many years of experience in securities and that he had all the necessary licenses and registrations. In reality, Brown is not a licensed securities professional and his firm is not registered with the SEC. A majority of Brown’s clientele are current and former military personnel as Brown is an Army veteran himself.

SEC Staff and FINRA Issue Report on National Senior Investor Initiative
April 15, 2015 (Litigation Release No. 67)
In light of the growing population of senior citizens (the Social Security Administration estimates that an average of 10,000 Americans will turn 65 every day for the next 15 years), the SEC and FINRA issued a report to help broker-dealers assess, craft, or refine their procedures for senior investors. At a time where conservative investments, that are traditionally suited for senior investors, are yielding historically low returns, Broker-dealers may be advising a variety of possibly unsuitable products and services to senior investors. This report examines the types of securities purchased for senior investors as well as broker-dealer training programs on investments for senior citizens.

SEC Charges New York-Based Financial Advisor with Stealing $20 Million from Customers
April 16, 2015 (Litigation Release No. 68)
The SEC announced fraud charges against Michael J. Oppenheim, a New York City-based financial advisor, for stealing at least $20 million from his clients. Oppenheim convinced some of his customers to withdraw millions out of their accounts in order to purchase municipal bonds in their name. However, Oppenheim deposited the funds into his personal brokerage accounts to engage in risky and sizable trading of stocks and options. Oppenheim lost the majority of his clients’ funds and used the rest for personal expenditures, including paying for his mortgage. Oppenheim hid his actions from his clients by creating false account statements and transferring money from other client accounts. The SEC seeks disgorgement of ill-gotten gains plus prejudgment interest, financial penalties, and permanent injunctions barring future violations.

SEC Charges 10 Individuals in Scheme to Sell Stock in Blank Check Companies Secretly Bound for Reverse Mergers
April 16, 2015 (Litigation Release No.69)
The SEC alleges that Daniel McKelvey, Alvin Mirman, and Steven Sanders created undisclosed blank check companies, while falsely depicting in SEC filings that the companies were pursuing business ventures under figurehead officers that they installed. Blank check companies generally have no operations and no value other than their status as a registered entity. McKelvey, Mirman, and Sanders created nearly two dozen undisclosed blank check companies and sold them for about $6 million. The SEC also alleges that Edward Sanders, Scott Hughes, and Jeffrey Lamson assisted the scheme by posing as corporate nominees with knowledge of the false business plans, sometimes drafting the false business plans or recruiting other nominee officers. All six men are charged with violating or aiding and abetting violations of the antifraud, reporting, recordkeeping, and internal control provisions of the federal securities laws.

SEC Announces Agenda for May 13 Meeting of the Equity Market Structure Advisory Committee
April 17, 2015 (Litigation Release No. 70)
The SEC’s Equity Market Structure Advisory Committee will host its first meeting on May 13. The advisory committee was established this February to provide the SEC with a formal mechanism to receive advice on equity market structure issues. The first meeting will focus on “trade throughs” which are trades at prices inferior to displayed and immediately accessible quotations at other trade centers. The meeting is open to the public and will also be webcast live on SEC’s website.

Friday, April 10, 2015

Enforcement Actions: Week in Review


SEC Charges Firms and Individuals for Defrauding Investors in Cellular Licensing Scheme
April 6, 2015 (Litigation Release No. 57)
Twelve companies and six individuals have been charged with defrauding investors in a scheme involving falsely advertised securities based on licenses for cellular spectrum bands. The alleged orchestrators of the scheme are David Alcorn and Kent Maerki, cofounders of Janus Spectrum LLC. The SEC alleges that third-party fundraisers sold securities based on licenses for portions of the 800Mhz band which were obtained by Janus Spectrum. These securities were billed as valuable based on the bands’ desirability to cellular carriers. It was undisclosed to investors that these bands were not capable of supporting cellular systems, and are primarily used by law enforcement and delivery businesses. The SEC alleges that the scheme raised over $12.4 million between May 2012 and October 2014; only a small percentage of funds were used to prepare license applications, the rest being pocketed by the scheme’s participants. It is alleged that Alcorn and Maerki appeared in misleading videos that contributed to the scheme and are therefore involved.

SEC Obtains Asset Freeze in Ponzi Scheme Involving Loans to Professional Athletes
April 7, 2015 (Litigation Release No. 58)
The SEC announced fraud charges against former professional football player, William D. Allen, and others for violating federal anti-fraud laws, operating a Ponzi scheme. Will Allen and his business partner Susan C. Daub promised investors profits from making loans to professional athletes. In hindsight, some of the investors’’ money was used to pay other investors and to fund Allen and Daub’s personal expenses and ventures. Investors were told that by funding loans to athletes they could receive interest up 18 percent which would be paid by the athletes. From this scheme more than $31 million was raised from investors while around $18 million was loans to athletes. The SEC seeks the return of their allegedly ill-gotten gains with interest along with payment of civil monetary penalties.

OCIE Director Andrew Bowden to Leave SEC
April 7, 2015 (Litigation Release No. 59)
Andrew Bowden, Director of the Office of Compliance Inspections and Examinations (OCIE), will be leaving the SEC at the end of April to return to the private sector. Mr. Bowden has been with the SEC since November 2011, and he has worked with OCIE leadership and staff on a number of initiatives and accomplishments during his tenure. His qualifications previous to working for the SEC include having a variety of roles in the broker-dealer and asset management industries and in private legal practice.

SEC Charges L.A.-Based Pacific West Capital Group With Fraud in Sale of Life Settlement Investments
April 7, 2015 (Litigation Release No. 60)
The SEC has charged Pacific West Capital Group Inc. and its owner Andrew B. Calhoun for committing fraud in the sale of “life settlement” investments. Pacific West and Calhoun had not given fair disclosures to investors and instead made false statements about the risks in order to increase sales. Dating back to 2004, nearly $100 million from life settlement investors had been raised dating, and dating back to at least 2012, Pacific West and Calhoun, had defrauded investors using money obtained from the sales of new life settlements to fund the life settlements sold in previous years. The SEC seeks permanent injunctions against all defendants and the return of allegedly ill-gotten gains with interest along with penalties.

Gregg E. Berman, Associate Director in the Division of Trading and Markets, to Leave SEC
April 8, 2015 (Litigation Release No. 61)
It has been announced that Associate Director of the Division of Trading and Markets’ Office of Analytics and Research Gregg E. Berman is leaving the SEC. Berman joined the SEC in October of 2009 and has been at his current post since January of 2013 shortly after the Office of Analytics and Research was created. It is responsible for conducting quantitative research and analysis concerning markets and market structure. Prior to joining the SEC, Berman was a cofounding partner at RiskMetrics Group, has co-managed a private hedge fund and has done research in experimental nuclear physics.

SEC Charges Oregon-Based Defense Contractor With FCPA Violations
April 8, 2015 (Litigation Release No. 62)
FLIR Systems Inc. has been charged by the SEC for violating the Foreign Corrupt Practices Act (FCPA) and has agreed to settle the charges by paying over $9.5 million and reporting its compliance with the FCPA to the SEC for the next two years. The charges concerned travel and gifts given to foreign officials by employees of FLIR’s overseas offices. In 2009 FLIR’s Dubai office gave watches and organized travel, including a 20 day “world tour”, for Saudi officials. Records of these expenditures were falsified as proper business expenses. Two FLIR employees have previously been charged in this case.

SEC Halts Microcap Scheme in South Florida
April 9, 2015 (Litigation Release No. 63)
Fraud charges and an asset freeze has been announced against participants of an alleged microcap scheme based in South Florida. Boiler room brokers Dean A. Esposito, Joseph DeVito and Frederick Birks are alleged to have been hired by CEO of eCareer Holdings, Inc. Joseph J. Azzata in order to sell unregistered stock shares of his company. It is alleged that since August of 2010 over $11 million was raised from over 400 investors. It is further alleged that roughly $3.5 million of investor funds was used as undisclosed fees paid to the brokers and sales agents. Additionally, it has been revealed that the three brokers were subject to prior SEC enforcement that barred them from acting as brokers or dealers or participating in any penny stock offerings. The SEC has named Azzata’s wife as a relief defendant in order to recover investor funds diverted to her personal accounts. The investigation is ongoing.

SEC Names Marc Wyatt as Acting Director of the Office of Compliance Inspections and Examinations
April 9, 2015 (Litigation Release No. 64)
The SEC has announced Marc Wyatt as Acting Director of the Office of Compliance Inspections and Examinations (OCIE). Marc Wyatt will replace Andrew Bowden, who will be leaving the SEC at the end of April. Mr. Wyatt has many qualifications and experiences that will serve him to lead the SEC’s examination program. Since serving as the Deputy Director of OCIE in 2014, Mr. Wyatt holds other key positions including being the national co-coordinator of the OCIE’s Private Fund Specialized Working Group. Previous to joining the SEC in 2012, Mr. Wyatt was a principal and senior portfolio manager of a global multi-strategy hedge fund. Also, Mr. Wyatt us a Chartered Financial Analyst who has been a senior investment banker in the U.S. and U.K.

SEC Announces Fraud Charges Against Former Accounting Executive at Japanese Subsidiary
April 9, 2015 (Litigation Release No. 65)
Katsuichi Fusamae, former controller at Molex Japan, has been charged with fraud for his involvement in unauthorized equity trading and the concealment of losses incurred as a result of those trades. While working at Molex Japan, a Japanese subsidiary of Illinois-based Molex Incorporated, Fusamae invested the company’s excess cash in risky securities, sometimes on margin. When losses resulting from his trades appeared, Fusamae would use proceeds from undisclosed, unauthorized loans in order to replenish the company’s accounts. This scheme, which began in the late 80’s, was not discovered until 2010 when Molex Inc restated its financial statements and recognized a $201.9 million cumulative net loss. Fusamae has agreed to admit to wrongdoing and be permanently barred from being an officer of a publicly traded company. Possible monetary penalties will be decided in court at a later date.

Friday, April 3, 2015

Enforcement Actions: Week in Review


SEC Announces Fraud Charges Against Investment Adviser Accused of Concealing Poor Performance of Fund Assets from Investors
March 30, 2015 (Litigation Release No. 52)
The SEC has announced charges against Lynn Tilton and her firms Patriarch Partners LLC, Patriarch Partners VIII LLC, Patriarch Partners XIV LLC, and Patriarch Partners XV LLC for misleading clients of the performance of their collateralized loan obligation (CLO) funds. According to the investigation, the vast majority of the CLO fund valuations reported no fluctuations in value despite their underlying loans going years without payments. The SEC alleges that Tilton used her personal discretion to value the funds instead of following the valuation procedures outlined in the CLO funds’ offering documents. It is alleged that Tilton and her companies collected nearly $200 million in fees from these funds. A public hearing is being scheduled.

SEC Charges Former Polycom CEO with Hiding Perks From Investors
March 31, 2015 (Litigation Release No. 53)
Andrew Miller, former CEO of Polycom, has been charged by the SEC for his undisclosed use of corporate funds for personal perks. It is alleged that Miller spent almost $200,000 of corporate funds for personal travel, clothing, gift cards, sports tickets, and other goods and services. It is also alleged that, in order to hide this misuse, Miller falsified expense reports, falsely claimed trips and events to be business related, and conspired with his travel agent. Polycom has already settled with the SEC for $750,000 for providing insufficient oversight and failing to disclose these perks to investors.

SEC: Companies Cannot Stifle Whistleblowers in Confidentiality Agreements
April 1, 2015 (Litigation Release No. 54)
The SEC announced its first enforcement of the whistleblower protection rule 21F-17. Rule 21F-17, enacted under the Dodd-Frank Act, proscribes corporate actions that would hinder whistleblowers from reporting to the SEC. The company charged, KBR Inc., was found to have required witnesses of some internal investigations to sign confidentiality documents that warned of disciplinary actions or termination for discussing with third parties without the consent of the KBR legal department. KBR agreed to a $130,000 penalty and has voluntarily modified its confidentiality statements to allow unannounced reporting to federal agencies.

SEC Charges North Carolina Executive With Fraud
April 1, 2015 (Litigation Release No. 55)
Former CEO Timothy Scronce has been charged for defrauding PCTEL Inc. and its investors during and after their acquisition of his firm TelWorx Communications LLC. According to the SEC’s investigation, in the preceding months of the acquisition, Scronce falsified TelWorx’s accounting in order to inflate its revenue and earnings. This activity is alleged to have continued after the acquisition. Scronce has agreed to the SEC’s order without admitting or denying the charges. He will return his alleged ill-gotten gains with interest, pay a penalty, and be barred from serving as a director or officer of a public company for ten years. Two other former executives of TelWorx have been charged and settled with the SEC in separate proceedings.

SEC Charges Friends With Insider Trading on Acquisitin of Cooper Tire
April 1, 2015 (Litigation Release No. 56)
Amit Kanodia and Iftikar Ahmed have been charged by the SEC for insider trading. The longtime friends are alleged to have used insider information regarding the acquisition of Cooper Tire and Rubber Company by Apollo Tyres Ltd. to collect over $1.1 million. The SEC alleges that Kanodia learned of the acquisition through his wife, who was serving as general counsel to Apollo Tyres. It is alleged that Kanodia gave this information to Ahmed, who then bought large amounts of Cooper Tire stock and options. After the public announcement of the acquisition, Cooper Tyres’s stock price rose 41% and Ahmed sold his holdings. It is alleged that another close friend was informed, profited and paid Kanodia back in the same way as Ahmed, using a “charity” owned by Kanodia.


Wednesday, April 1, 2015

Gilbert v Stifel Nicolaus et al - $1.5 million Churning Award

In March 2015, a FINRA arbitration panel in Jackson, MS ordered Stifel Nicolaus to pay $1,542,342 in compensatory damages and attorney fees after a hearing wherein the Claimant alleged Respondents churned the Claimant's accounts. You can read the award here. Dr. McCann testified to the egregiousness of the churning and damages on behalf of the Claimant.