Broker/Dealer and Investment Advisor Fraud, Mismanagement and Misrepresentation FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
Securities and Exchange Commission v. SW Argyll Investments, LLC (d/b/a Argyll Investments, LLC) et al., 12-CV-0646 L WVG (U.S. District Court for the Southern District of California, filed March 15, 2012)
SEC Charges Senior Executives at California-Based Firm in Stock Lending Scheme
The Securities and Exchange Commission recently charged two senior executives and their California-based firm with defrauding officers and directors at publicly-traded companies in an elaborate $8 million stock lending scheme.
The SEC alleges that Argyll Investments LLC’s purported stock-collateralized loan business is merely a fraud perpetrated by James T. Miceli and Douglas A. McClain, Jr. to acquire publicly traded stock from corporate officers and directors at a discounted price from market value, separately sell the shares for full market value in order to fund the loan, and use the remaining proceeds from the sale of the collateral for their own personal benefit. Miceli, McClain, and Argyll typically lied to borrowers by explicitly telling them that their collateral would not be sold unless a default occurred. However, since Argyll had no independent source of funds other than the borrowers’ collateral, Argyll often sold the collateral prior to closing the loan and then used the proceeds to fund it.
Also charged in the SEC’s complaint filed in U.S. District Court for the Southern District of California is a broker through which Argyll attracted potential borrowers. The SEC alleges that AmeriFund Capital Finance LLC and its owner Jeffrey Spanier violated the federal securities laws by brokering numerous transactions for Argyll while not registered with the SEC.
The SEC alleges that Miceli and McClain induced at least nine corporate officers and directors since 2009 to transfer ownership of millions of shares of stock to Argyll as collateral for purported loans. Miceli and McClain promised to return the stock to the borrowers when the loans were repaid. However, rather than retaining the collateral shares as required, they sold the shares without the borrowers’ knowledge before or soon after funding the loans. In many cases, they used the proceeds from the collateral sales to fund the loans. Because Argyll typically loaned the borrowers 30 to 50 percent less than the current market value of the shares, the company retained substantial proceeds even after funding the loans. As a result of the scheme, Argyll reaped more than $8 million in unlawful gains that Miceli and McClain used in part toward their personal expenses.
In addition to the fraud charges against Miceli, McClain, and Argyll, the SEC alleges that they violated the federal securities laws by improperly selling the collateral shares – all of which were restricted securities – into the public markets in unregistered transactions. They also failed to register with the SEC as brokers or dealers.
The SEC’s complaint alleges that Miceli, McClain, and Argyll violated Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 5(a) and 5(c) of the Securities Act of 1933, and that Spanier and AmeriFund violated Section 15(a) of the Exchange Act. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.