SEC Enforcement Actions 2012 - Russell L. Forkey

Mutual Fund Fraud and Mismanagement – Florida FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Thu, 03 Jan 2013 20:49:32 GMT

SEC Bans Arizona-Based Investment Adviser From Securities Industry For Fraudulent Actions In Mutual Fund Collapse

The Securities and Exchange Commission recently barred an Arizona-based mutual fund manager from the securities industry for failing to follow the investment objectives of a stock mutual fund managed by his firm, leading to the fund’s collapse.

An SEC investigation found that the prospectus of Z Seven Fund (ZSF) stated that it sought long-term capital appreciation and restricted the use of options. Nonetheless, beginning in September 2009, Barry C. Ziskin and his firm Top Fund Management (TFM) invested ZSF in put options for speculative purposes contrary to the fund’s stated investment policy. The losses from options trading and the ensuing investor redemptions ultimately resulted in ZSF’s liquidation in December 2010.

“ZSF investors expected the fund to pursue capital appreciation by buying stocks, but TFM and Ziskin took the fund down a very different and disastrous path,” said Bruce Karpati, Chief of the SEC Enforcement Division’s Asset Management Unit. “Mutual fund advisers who deviate from their fund’s investment strategy and keep investors in the dark will be held accountable for their fraudulent actions.”

According to the SEC’s order instituting settled administrative proceedings against TFM and Ziskin, disclosures in ZSF’s prospectuses and statements of additional information provided that the fund could trade options only to hedge its portfolio. However, because TFM and Ziskin traded put options in such large amounts relative to the size of ZSF’s equity portfolio, their strategy amounted to speculation. For example, ZSF’s equity portfolio had a market value of $1,835,607 on July 6, 2010, but ZSF held enough option contracts to protect a portfolio worth $32,858,000 (17.9 times the value of the equity portfolio). ZSF’s options trading also caused the fund’s performance to plummet. As of October 2009, ZSF had net assets of $5.3 million, but over the next 15 months the fund suffered $3.7 million in losses from options. TFM and Ziskin misled ZSF investors by misrepresenting in a shareholder report that options trading was for hedging purposes.

The SEC’s order finds that TFM and Ziskin willfully violated the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940. The order also finds that TFM and Ziskin violated Section 34(b) of the Investment Company Act of 1940 and caused ZSF to violate Section 13(a)(3) of that act. Without admitting or denying the SEC’s findings, TFM and Ziskin agreed to cease and desist from committing or causing any violations and any future violations of these provisions. They also consented to the entry of an SEC order that censures TFM and bars Ziskin from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization and prohibits him from serving as an officer, director or employee of a mutual fund.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Raj Rajaratnam – Investment and Securities Fraud and Misrepresentation Florida FINRA Arbitration and State and Federal Litigation Attorney

Russell L. Forkey — Fri, 28 Dec 2012 00:59:02 GMT

Securities and Exchange Commission v. Rajat K. Gupta and Raj Rajaratnam, Civil Action No. 11-CV-7566 (SDNY) (JSR)

SEC Obtains Final Judgment on Consent as to Raj Rajaratnam

The Securities and Exchange Commission recently announced that, on December 26, 2012, the Honorable Jed S. Rakoff, United States District Judge, United States District Court for the Southern District of New York, entered a Final Judgment, on consent, as to former hedge fund manager Raj Rajaratnam in the SEC’s insider trading case, SEC v. Rajat K. Gupta and Raj Rajaratnam, Civil Action No. 11-CV-7566 (SDNY) (JSR). The final judgment orders Rajaratnam to pay $1,299,120 in disgorgement and $147,738, in prejudgment interest, for a total of $1,446,858.

The SEC’s complaint, filed October 26, 2011, alleges that, among other things, Rajat K. Gupta tipped his business associate Raj Rajaratnam, Galleon Management’s founder and managing general partner, to confidential information Gupta learned in the course of his duties as a member of the Board of Directors of The Goldman Sachs Group, Inc. The complaint alleges that Gupta disclosed material nonpublic information concerning Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs in September 2008, and concerning Goldman Sachs’s financial results for both the second and the fourth quarter of 2008. Rajaratnam used the information he learned from Gupta to trade profitably in certain Galleon hedge funds. By engaging in this conduct, Gupta and Rajaratnam violated Section 10(b) of the Securities Exchange Act of 1934, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act of 1933.

On June 15, 2012, in a parallel criminal case arising out of the same facts, Gupta was convicted of one count of conspiracy to commit securities fraud and three counts of securities fraud. On October 24, 2012, Gupta was sentenced to two years in prison and one year of supervised release, and ordered to pay a $5 million criminal fine.

The Final Judgment in the SEC’s case orders Rajaratnam to disgorge his share of the profits gained and losses avoided as a result of the insider trading plus prejudgment interest on that amount. The SEC’s claims against Gupta remain pending.

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Kamal Abdallah and Eric Todd Seiden – South Florida Low Priced Stock (Penny Stock) Fraud and Breach of Fiduciary Duty FINRA Arbitration and State (Broward and Palm Beach County) and Federal Litigation Attorney

Russell L. Forkey — Thu, 27 Dec 2012 12:25:56 GMT

SECURITIES AND EXCHANGE COMMISSION v. ERIC TODD SEIDEN AND KAMAL ABDALLAH, Civil Action No. CV 09-3116 (KAM) (EDNY)

COURT ENTERS FINAL JUDGMENTS BY CONSENT AGAINST SEC DEFENDANTS ERIC TODD SEIDEN AND KAMAL ABDALLAH

The Securities and Exchange Commission recently announced that on March 30, 2012, the Honorable Kiyo A. Matsumoto, United States District Court Judge for the Eastern District of New York, entered a final judgment by consent against Defendant Kamal Abdallah. The final judgment permanently enjoins Abdallah from future violations of Sections 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, prohibits Abdallah from acting as an officer or director of a public company, and bars him from participating in an offering of penny stock. The final judgment also orders Abdallah liable for disgorgement and prejudgment interest totaling $214,963.02, deemed satisfied by the restitution order entered against Abdallah in the parallel criminal action, United States v. Abdallah, 09-cr-717 (JFB) (E.D.N.Y.).

On April 16, 2012, Judge Matsumoto modified a June 30, 2011 judgment by consent against Eric Todd Seiden, enjoining him from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and barring Seiden from participating in an offering of penny stock. The judgment also provided that Seiden would pay disgorgement, prejudgment interest, and a civil penalty as determined by the Court upon motion of the Commission. On April 16, 2012, in view of the restitution order and prison sentence imposed on Seiden in the parallel criminal case, United States v. Seiden, 09-cr-582 (ILG) (E.D.N.Y.), the Commission withdrew its claims against Seiden for disgorgement and a penalty.

The Commission’s amended complaint, filed in the Eastern District of New York, alleges that Seiden, a former securities professional, and Abdallah, the former CEO of Universal Property Development & Acquisition Corp. (“UPDV”), conspired to create artificial demand for UPDV stock and inflate its stock price. The Amended Complaint charges Seiden with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Abdallah with violating Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

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Steven B. Hart – South Florida Securities and Investment Fraud and Misrepresentation FINRA Arbitration and State (Broward and Palm Beach County) and Federal Court Litigation Attorney

Russell L. Forkey — Thu, 27 Dec 2012 12:13:36 GMT

Securities and Exchange Commission v. Steven B. Hart, Civil Action No. 12-CV-8986 (S.D.N.Y.)

SEC CHARGES NEW YORK-BASED FUND MANAGER WITH TWO WIDESPREAD FRAUDULENT TRADING SCHEMES SPANNING NEARLY FOUR YEARS

The Securities and Exchange Commission recently charged New York-based fund manager Steven B. Hart (Hart) with repeated violations of the federal securities laws related to two distinct multi-year trading schemes, involving illegal matched trading and insider trading. In addition, the Commission charged Hart with making fraudulent representations in two securities purchase agreements.

The SEC alleges that from January 17, 2008 through June 4, 2009, Hart used his control of Octagon Capital Partners, LP, a small investment fund he controls, and his position of authority at an investment fund for which he was employed as a portfolio manager to direct thirty-one matched trades between the two investment funds, benefitting Octagon at the expense his employer’s fund. Generally, Hart caused Octagon to purchase stock in small, thinly traded issuers at the going market price and, on the following day, sold the same stock to his employer’s fund at a price substantially above the prevailing market price. Each of the sales from Octagon to the employer’s fund occurred in premarket trading; thus, Hart ensured that the trades matched. Later that same day or within a few days of the matched trades, the employer’s fund, at Hart’s direction, sold the recently-acquired stock on the open market at a loss. As a result of this scheme, Hart generated ill-gotten gains of $586,338 for Octagon.

According to the SEC’s complaint, Hart, after being confidentially solicited to invest in numerous securities offerings – and despite expressly agreeing to keep the information he received confidential and to not trade on it by agreeing to go “over-the-wall” – nevertheless traded on behalf of Octagon while in possession of material nonpublic information concerning the offerings. From June 19, 2007 through March 15, 2011, in breach of a duty of trust or confidence, Hart directed trades in the securities of nineteen issuers conducting twenty separate offerings, including PIPEs, registered direct offerings, and confidentially marketed public offerings. As a result of Hart’s conduct, Octagon derived ill-gotten gains of $244,733.

In addition, on two occasions, in order to induce issuers to sell securities to his fund, Hart signed securities purchase agreements falsely representing that, after he was solicited, Octagon had not traded the issuers’ securities in the days leading up to the public announcement of the transactions. Despite going “over-the-wall” during the solicitation process for the offerings, Hart nevertheless directed short sales of the issuer’s securities, realizing insider trading gains, and subsequently signed the securities purchase agreements.

The SEC filed action in the U.S. District Court for the Southern District of New York against Hart, alleging violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Without admitting or denying the allegations of the complaint, Hart consented to the entry of a judgment enjoining him from future violations of the respective provisions of the Securities Act, Exchange Act, and Advisers Act. Hart also agreed to pay $831,071 in disgorgement and $103,424 in prejudgment interest, and a civil penalty of $394,733. The settlement is subject to court approval.

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Danny Garber, Michael Manis, Kenneth Yellin and Jordan Feinstein – Florida Penny Stock Fraud and Misrepresentation FINRA Arbitration and State and Federal Litigation Attorney

Russell L. Forkey — Thu, 27 Dec 2012 12:03:43 GMT

Securities and Exchange Commission v. Danny Garber, Michael Manis, Kenneth Yellin, Jordan Feinstein, Aluma Holdings LLC, Azure Trading LLC, Coastal Group Holdings, Inc., Greyhawk Equities LLC, Leonidas Group Holdings LLC, The Leonidas Group LLC, Nismic Sales Corp., The OGP Group, Perlinda Enterprises LLC, Rio Sterling Holding LLC, Slow Train Holding LLC, and Spartan Group Holdings LLC, Civil Action No. 12 Civ. 9339 (SAS) (S.D.N.Y.)

SEC CHARGES FOUR PENNY STOCK PURCHASERS WITH FRAUD

The Securities and Exchange Commission recently charged four securities industry professionals with conducting a fraudulent penny stock scheme in which they illegally acquired over a billion unregistered shares in microcap companies at deep discounts and then dumped them on the market while claiming bogus exemptions from the registration provisions of the federal securities laws.

The SEC Complaint alleges that, from at least early 2007 until 2010, Danny Garber, Michael Manis, Kenneth Yellin, and Jordan Feinstein acquired shares at about 30 to 60 percent off the market price by misrepresenting to the penny stock companies that they intended to hold the shares for investment purposes rather than immediately re-selling them. Instead, they immediately sold the shares without registering them by purporting to rely on an exemption for transactions that are in compliance with certain types of state law exemptions. However, no such state law exemptions were applicable to their transactions. To create the appearance that the claimed exemptions were valid, they created virtual corporate presences in Minnesota, Texas, and Delaware. The SEC also charged 12 entities that they operated in connection with the scheme.

The SEC’s action was filed in the U.S. District Court for the Southern District of New York, alleging violations by Garber, Manis, Yellin, Feinstein and the named entities of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933; Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC’s complaint seeks a final judgment, among other things, ordering all of the defendants to pay disgorgement, prejudgment interest and financial penalties; permanently enjoining all the defendants from future violations of the securities laws; and permanently enjoining all the defendants from participating in penny stock offerings.

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John A. Geringer, Christopher A. Luck and Keith E. Rode – Florida Ponzi Scheme Securities and Investment Fraud FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Thu, 27 Dec 2012 11:48:30 GMT

Securities and Exchange Commission v. GLR Capital Management, LLC, GLR Advisors, LLC, John A. Geringer, and Relief Defendant GLR Growth Fund, L.P., Civil Action No. 12-02663

SEC FILES CHARGES AGAINST TWO OTHERS IN NORTHERN CALIFORNIA FUND MANAGER’S $60 MILLION SCHEME

Recently the Securities and Exchange Commission filed additional charges in its case against a Northern California fund manager accused of running a $60 million Ponzi-like scheme.

The SEC previously charged the fund manager, John A. Geringer, with defrauding investors by touting imaginary trading profits instead of reporting the actual trading losses he had incurred. The agency today sought court approval to add charges against Christopher A. Luck, of Scotts Valley, Calif., and Keith E. Rode, of Franklin, Wisc., who along with Geringer were principals of GLR Capital Management LLC, which managed the GLR Growth Fund, L.P.

The SEC alleges that GLR Capital deceived investors into thinking that the fund was earning double-digit returns by investing 75 percent of its assets in highly liquid investments tied to well-known stock indices like the S&P 500, NASDAQ, and Dow Jones. In reality, the fund was heavily invested in two private, illiquid startup companies, and Geringer’s trading for years had generated substantial losses. Luck and Rode sat on the boards of directors at both startup companies.

According to the SEC’s amended complaint filed in federal court in San Jose and subject to court approval, Geringer in April 2009 confessed to Luck and Rode that he had been lying to them about the balances in the fund’s trading accounts. This alerted Luck and Rode to the fact that contrary to what Geringer had been telling investors, the fund had not been achieving returns of more than 17 percent by investing 75 percent of investor money in the stock market. Instead, the lion’s share of investor funds was invested in two private startup technology companies.

The SEC alleges that, despite Geringer’s confession, Luck continued to solicit new investors for the fund by touting Geringer’s trading ability and providing investors with fraudulent marketing materials claiming that the fund had earned between 17 and 25 percent annual returns in every year of the fund’s operation through investments tied to major stock indices. Rode, a certified public accountant, continued to mail account statements to investors that contained grossly inflated cash balances that deceived investors about the fund’s liquidity. Several investors made additional investments in the fund and rolled over their investments for additional one-year periods after receiving these fraudulent account statements.

The SEC further alleges that Rode provided investors with account statements that falsely claimed “MEMBER NASD AND SEC APPROVED.” The SEC does not “approve” funds or investments in funds, nor was the fund (or any related entity) a member of the NASD (now called the Financial Industry Regulatory Authority – FINRA).

In addition to the allegations in the original complaint against Geringer and the related entities, the SEC’s amended complaint alleges Luck and Rode violated or aided and abetted violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The amended complaint also alleges Rode violated Section 26 of the Exchange Act, which prohibits persons from claiming the SEC has passed on the merits of a security. Additionally, the SEC seeks financial penalties, disgorgement of ill-gotten gains, permanent injunctions, and other relief from both Luck and Rode.

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Trent Martin – Insider Trading and Market Manipulation Stock Fraud FIN RA Arbitration and Litigation Attorney

Russell L. Forkey — Thu, 27 Dec 2012 11:35:16 GMT

SEC Charges Research Analyst with Trading and Tipping Ahead of IBM-SPSS Merger

The Securities and Exchange Commission recently announced additional charges in an insider trading case against two brokers who traded on nonpublic information ahead of IBM Corporation’s acquisition of SPSS Inc.

In an amended complaint filed in federal court in Manhattan, the SEC is now charging research analyst Trent Martin, who was the brokers’ source of confidential information in an insider trading scheme that yielded more than $1 million in illicit profits. Martin worked at a brokerage firm in Connecticut and specialized in Australian equity investments, and he learned nonpublic information about the impending IBM-SPSS transaction from an attorney friend who was working on the deal. Rather than maintaining the confidence of the information, Martin used the information for his own benefit, purchasing SPSS securities and subsequently tipping his roommate Thomas C. Conradt, who traded and tipped his friend and fellow retail broker David J. Weishaus. Martin was specifically named as their source in instant messages between Conradt and Weishaus about their illegal trading.

The SEC charged Conradt and Weishaus with insider trading on November 29. Martin, who fled the U.S. to Australia soon after learning about the SEC’s investigation, currently lives in Hong Kong.

The SEC alleges that Martin’s attorney friend expected him to maintain information in confidence and refrain from illegal trading or disclosing it to others. The attorney sought moral support, reassurance, and advice when he privately told Martin about his new assignment working on the IBM-SPSS acquisition. The lawyer disclosed to Martin such details as the anticipated transaction price and the identities of the acquiring and target companies while he was describing the magnitude of the assignment.

According to the SEC’s complaint, Martin attempted to purchase SPSS common stock on the very first business day after learning the nonpublic information from his friend. His first three orders were cancelled because he did not have sufficient funds in the account to make the purchases, but he later wired $50,000 from his checking account into his brokerage account to purchase SPSS shares.

The SEC’s complaint alleges that Martin, Conradt and Weishaus violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC is seeking disgorgement of ill-gotten gains with prejudgment interest and financial penalties, and a permanent injunction against the brokers.

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Spencer Pharmaceutical, Inc., Jean-Francois Amyot, Maximilien Arella, Ian Morrice, IBA Media Inc. and Hilbroy Advisory, Inc. – Florida Penny Stock Fraud and Misrepresentation Federal and State Court Litigation Attorney

Russell L. Forkey — Tue, 18 Dec 2012 01:34:19 GMT

Securities and Exchange Commission v. Spencer Pharmaceutical Inc., Jean-François Amyot, Maximilien Arella, Ian Morrice, IAB Media Inc., and Hilbroy Advisory Inc., Civil Action No. 1:12-cv-12334 (D. Mass.)

SEC Charges Company based in Massachusetts and Canada and Other Parties in Stock Pump-and-Dump Scheme Involving Fictitious Buyout Offer

The Securities and Exchange Commission filed an enforcement action on December 17, 2012, in federal court in Boston charging Spencer Pharmaceutical Inc., its officers, and several other parties for their roles in a “pump-and-dump” scheme involving Spencer’s stock. The Commission’s complaint alleges that Jean-François Amyot, a Canadian resident who controlled Spencer, orchestrated the scheme and worked with Maximilien Arella and Ian Morrice, Spencer’s officers and directors, as well as IAB Media Inc. and Hilbroy Advisory Inc., two other companies controlled by Amyot, to create and disseminate false press releases, including press releases about a fictitious buyout offer for Spencer, and to otherwise promote Spencer’s stock. The Commission alleges that the promotional campaign pumped up the price of Spencer’s stock, and Amyot benefited by dumping his own Spencer stock at artificially inflated prices.

The Commission’s complaint, filed in the U.S. District Court for the District of Massachusetts, alleges that beginning in November 2010, Spencer, a purported pharmaceutical company with addresses in Boston, Massachusetts, and Canada, disseminated false and misleading press releases claiming that it had received an unsolicited buyout offer from a Mideast company for $245 million when, in fact, the purported buyout offer was not real. The complaint further alleges that Arella and Morrice worked with Amyot to create and disseminate the fraudulent press releases. According to the complaint, while Spencer was issuing the press releases, the defendants were conducting a promotional campaign using Internet websites and newsletters to tout Spencer’s stock and the bogus buyout offer, and the false press releases and promotional campaign were successful in pumping up the price of Spencer’s stock. For example, after Spencer publically announced that the Mideast company proposed to pay $245 million for Spencer, the price of Spencer stock more than doubled in two days – opening at $0.25 per share on November 10, 2010 and closing at $0.60 per share on November 12 – and the daily trading volume for Spencer’s stock reached almost six million shares on November 11, compared to a daily average trading volume of less than 50,000 shares during the previous three months. During the time the buyout offer was being promoted, Amyot sold approximately 36 million Spencer shares for gross proceeds of approximately $5.8 million. Each of the defendants are charged by the Commission with violating various antifraud provisions of the federal securities laws. The complaint further charges Spencer, Amyot, and Arella with violating securities registration provisions of the securities laws. According to the complaint, Amyot and Arella were involved in a series of transfers involving 12 million Spencer shares that were done to evade the securities registration requirements and move the shares into an account controlled by Amyot.

The Commission also suspended trading in Spencer securities on December 17, 2012, 34-68447. Securities of Spencer were quoted on OTC Link operated by OTC Markets Group Inc.

The Commission alleges that Spencer, Amyot, Arella, and Morrice violated Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder; that IAB Media and Hilbroy violated Sections 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c); and that Arella, Morrice, IAB Media, and Hilbroy aided and abetted the violations by Spencer of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5. The Commission also alleges that Amyot is liable for Spencer’s violations of Section 10(b) and Rule 10b-5 as the company’s control person and that Spencer, Amyot, and Arella violated Sections 5(a) and 5(c) of the Securities Act. The Commission is seeking permanent injunctions, disgorgement plus prejudgment interest, and civil penalties against Spencer, Amyot, Arella, Morrice, IAB Media, and Hilbroy. It also seeks an order prohibiting Amyot, Arella, and Morrice from serving as an officer or director of a public company and from participating in the offering of a penny stock.

Collateralized Loan Obligations and Collateralized Debt Obligations – Florida Broker/Dealer and Investment Advisor Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Tue, 18 Dec 2012 01:12:36 GMT

SEC Charges Connecticut-Based Adviser for “Skin in the Game” Misstatements About CDOs

The Securities and Exchange Commission recently charged a Connecticut-based investment adviser with falsely stating to clients that it was co-investing alongside them in two collateralized debt obligations (CDO).

The SEC’s investigation found that Aladdin Capital Management’s co-investment representation was a key feature and selling point for its Multiple Asset Securitized Tranche (MAST) advisory program involving CDOs and collateralized loan obligations (CLOs). For example, Aladdin Capital Management asked in one marketing piece, “Why is an investor better off just investing in Aladdin sponsored CLOs and CDOs?” It then emphasized that the “most powerful response I can give to your question is that Aladdin co-invests alongside MAST investors in every program. Putting meaningful ‘skin in the game’ as we do means our financial interests are aligned with those of our MAST investors.” Aladdin Capital Management in fact made no such investments in either CDO, and its affiliated broker-dealer Aladdin Capital collected placement fees from the CDO underwriters.

Aladdin Capital Management and Aladdin Capital agreed to pay more than $1.6 million combined to settle the SEC’s charges. One of the firms’ former executives Joseph Schlim agreed to pay a $50,000 penalty to settle charges against him for his role in the misrepresentations.

According to the SEC’s orders instituting settled administrative proceedings, Aladdin Capital Management’s clients committed to investing in upcoming CDO deals that would be managed by the firm. Aladdin Capital Management inaccurately informed a municipal retirement plan, a pension plan, and an individual entrepreneur that it would co-invest alongside them. After those three clients invested in the two CDOs, Aladdin Management erroneously continued to inform clients from 2007 to 2010 that the firm had skin in the game.

According to the SEC’s order against Schlim, he was significantly involved in the MAST program on a day-to-day basis. He made sales calls to potential clients and negotiated with CDO and CLO underwriters about the amount of equity in those securities that Aladdin Capital could place with customers or purchase for itself. Schlim also negotiated the placement fees to be received by Aladdin Capital for securing MAST investments in equity tranches of each CDO or CLO.

The SEC found that Schlim knew that Aladdin used the co-investment representation as a significant marketing feature in its pitches to clients, but he failed to take any action to ensure that such representations were accurate when they were made. As the CFO of Aladdin, Schlim was responsible for reserving funds for Aladdin to co-invest alongside its MAST clients, yet he failed to ensure that funds were reserved or allocated for any co-investments alongside clients in either CDO.

Aladdin Capital Management and Schlim agreed to cease-and-desist orders without admitting or denying the SEC’s allegations. The Aladdin entities agreed to jointly pay $900,000 in disgorgement, $268,831 in prejudgment interest, and a $450,000 penalty. Schlim agreed to pay a $50,000 penalty.

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Aletheia Research and Management and Peter J. Eichler, Jr. – Florida Broker/Dealer and Investment Advisor Cherry-Picking Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Mon, 17 Dec 2012 14:28:14 GMT

Securities and Exchange Commission v. Aletheia Research and Management, Inc. and Peter J. Eichler, Jr., United States District Court for the Central District of California, Civil Action No. 12-cv-10692-JFW-(RZx)

SEC CHARGES SANTA MONICA-BASED HEDGE FUND MANAGER IN CHERRY-PICKING SCHEME

The Securities and Exchange Commission recently charged a Santa Monica-based hedge fund manager and his investment advisory firm with conducting a “cherry-picking” scheme by steering winning trades to their own trading accounts and favored clients to the detriment of certain hedge fund investors. They are also charged with failing to disclose the firm’s precarious financial condition to clients in a timely manner.

The Commission alleges that Peter J. Eichler, Jr., and his firm Aletheia Research and Management, Inc., disproportionately allocated losing trades to the accounts of two hedge funds managed by the firm, resulting in monetary losses for those funds’ investors. Meanwhile, they allocated winning trades to accounts owned by Eichler and Aletheia employees as well as accounts belonging to select clients.

According to the Commission’s complaint filed in federal court in Los Angeles, Aletheia had more than $1.4 billion in assets under management and managed two hedge funds. By engaging in a cherry-picking scheme, Aletheia and Eichler violated the fiduciary duties they owed to their advisory clients. Aletheia failed to implement policies, procedures, or a code of ethics that could have prevented a cherry-picking scheme from occurring.

The Commission further alleges that Aletheia also breached its fiduciary duties and federal law when it did not disclose its financial troubles to clients until immediately before a bankruptcy filing. The federal securities laws require an investment adviser to fully and promptly disclose any financial condition that is reasonably likely to impair the investment adviser’s ability to meet contractual commitments to its advisory clients. Aletheia was in a precarious financial condition in July 2012 after the state of California had filed a tax lien for more than $2 million against the firm for unpaid taxes and penalties. On Oct. 1, 2012, California suspended Aletheia’s corporate status for non-payment. Once suspended, Aletheia had no right to lawfully engage in any business, nor could it legally exercise any of its corporate powers, rights, and privileges. But Aletheia failed to disclose its precarious financial condition to clients until November 9. The firm filed for Chapter 11 bankruptcy on November 11.

The Commission’s complaint charges Aletheia with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder and Sections 204, 204A, 206(1), 206(2), 206(4), and 207 of the Investment Advisers Act of 1940 and Rules 204-1(a)(2), 204A-1(a), 206(4)-7(a), and 206(4)-8(a) thereunder. Eichler is charged with violations of Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder and Sections 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-8(a) thereunder. The Commission’s complaint seeks permanent injunctions, disgorgement of the defendants’ ill-gotten gains plus pre-judgment interest, and penalties.

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BioChemics, Inc., John Masiz, Craig Medoff and Gregory Kroning – Boca Raton, Florida Securities and Investment Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Fri, 14 Dec 2012 21:10:46 GMT

SEC Charges Massachusetts Company, CEO and Promoters With $9 Million Securities Fraud

Recently, the Securities and Exchange Commission filed an enforcement action in federal court in Boston against BioChemics, Inc., a biopharmaceutical company based in Danvers, Massachusetts, its CEO and two individuals it paid to solicit investors. The SEC alleges, among other things, that the defendants made false statements to investors about collaborations with major pharmaceutical companies and the status and results of drug trials of the company’s main product, and that they created fraudulent valuations of the company’s stock in order to raise millions of dollars from investors. The action charges BioChemics, its CEO John Masiz of Topsfield, Massachusetts, Craig Medoff of New York, New York and Gregory Kroning of Norwood, New Jersey, with violating the federal securities laws in a fraudulent scheme that raised at least $9 million from 70 investors in 19 states from at least 2009 until 2012.

According to the SEC’s complaint, filed in the United States District Court for the District of Massachusetts, BioChemics purportedly makes a transdermal drug delivery system. The defendants allegedly told investors that BioChemics was engaged in active research and development collaborations with major pharmaceutical companies, that it had two drugs under FDA review, and that it was conducting specific clinical trials-all of which was false. According to the complaint, when BioChemics finally did conduct one clinical trial, it misrepresented the results of that trial. The SEC’s complaint further alleges that defendants Masiz and Medoff created and gave to investors fraudulent valuations setting the worth of BioChemics at between $500 million and $2 billion. However, according to the complaint, the valuations had no reasonable basis and the defendants’ representations that the valuations had been developed by reputable independent investment banks were false. In addition, the complaint alleges that defendants told investors their money would be used to fund clinical trials and for operating expenses, but in fact used some investor funds to pay for personal expenses for Masiz including meals, massages, clothes and sporting goods and to make interest-free loans of over $200,000 to Kroning in addition to paying for his personal expenses including a leased BMW.

Masiz and Medoff have previously been sued by the Commission in connection with earlier securities frauds. Masiz was a defendant in a 2004 SEC enforcement action alleging false and misleading statements by VASO Active Pharmaceuticals, a BioChemics subsidiary. A final judgment by consent was entered against Masiz that permanently enjoined him from violating the antifraud provisions of the federal securities laws. Medoff was a defendant in a 1993 SEC enforcement action alleging the fraudulent offering of unregistered securities. That case resulted in a final judgment by consent against Medoff in 1994 that permanently enjoined him from violating the antifraud provisions of the federal securities laws. The Commission also issued an Order in January 1995 barring Medoff from associating with, among others, brokers, dealers, and investment advisers. In a separate case involving different conduct, Medoff also pled guilty to criminal securities fraud charges in 1995.

The complaint charges all defendants with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder and also charges Kroning and Medoff with violating Section 15(a) of the Exchange Act by acting as unlicensed brokers and Medoff with violating Section 15(b) of the Exchange Act by acting as a broker after being permanently barred from the industry in a previous action by the Commission. The complaint seeks injunctive relief, disgorgement, and civil penalties, as well as an order barring Masiz from serving as an officer or director of any public company. The complaint also seeks an order barring Masiz and Medoff and any entity they own or control from participating in the issuance, offer, or sale of any security aside from their own personal trading accounts. [SEC v. BioChemics, Inc., et al., Civil Action No. 1:12-cv-12324 (District of Massachusetts)]

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Jeffrey A. Liskov and EagleEye Asset Management, LLC. – South Florida Investment Advisor Fraud, Misrepresentation and Mismanagement FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Fri, 14 Dec 2012 21:02:14 GMT

Securities and Exchange Commission v. EagleEye Asset Management, LLC and Jeffrey A. Liskov, United States District Court for the District of Massachusetts, Civil Action No. 11-CV-11576

Court Enters Final Judgment Against Massachusetts Investment Adviser and its Principal, Orders Payment of Over $1.7 Million in Illicit Gains and Penalties

The Securities and Exchange Commission recently announced, on December 12, 2012, a federal judge in Boston, Massachusetts entered a final judgment against registered investment adviser EagleEye Asset Management, LLC, and its sole principal, Jeffrey A. Liskov, both of Plymouth, Massachusetts, in an action the Commission previously filed against them. The Commission’s action alleged that that the defendants defrauded advisory clients concerning foreign currency exchange (“forex”) trading.

On November 26, 2012, after an eight-day trial, a federal jury found that EagleEye and Liskov violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 206(1) of the Investment Advisers Act of 1940. After a judicial hearing on remedies, Judge William G. Young also found violations by EagleEye and Liskov of Section 204 of the Advisers Act and Rule 204-2 thereunder, concerning their obligation to maintain true, accurate, and current certain books and records relating to EagleEye’s investment advisory business. The court ordered that EagleEye and Liskov are permanently enjoined from future violations of the foregoing provisions of the securities laws. The court further ordered EagleEye and Liskov to pay, jointly and severally, disgorgement of their ill-gotten gains in the amount of $301,502.26, plus pre-judgment interest on that amount of $29,603.59. The court also ordered EagleEye and Liskov each to pay a civil penalty of $725,000.

In its complaint, filed on September 8, 2011, the Commission alleged that, between at least November 2008 and August 2010, Liskov made material misrepresentations to several advisory clients to induce them to liquidate investments in securities and instead invest the proceeds in forex trading. The forex investments, which were not suitable for older clients with conservative investment goals, resulted in steep losses for clients, totaling nearly $4 million, but EagleEye and Liskov came away with over $300,000 in performance fees, in addition to other management fees they collected from clients. Liskov’s strategy was to generate temporary profits on client forex investments to enable him to collect performance fees, after which client forex investments invariably would sharply decline in value.

According to the Commission’s complaint, Liskov made material misrepresentations or failed to disclose material information to clients concerning the nature of forex investments, the risks involved, and his poor track record in forex trading for himself and other clients. The Commission’s complaint further alleged that, in the case of two clients, without their knowledge or consent, Liskov liquidated securities in their brokerage accounts and transferred the proceeds to their forex trading accounts where he lost nearly all client funds, but not before first collecting performance fees for EagleEye (and ultimately himself) on short-lived profits in the clients’ forex accounts. The complaint alleged that Liskov accomplished the unauthorized transfers by doctoring asset transfer forms. On several occasions, Liskov took old forms signed by the clients and used “white out” correction fluid to change dates, asset transfer amounts, and other data. Liskov also used similar tactics to open multiple forex trading accounts in the name of one client, thereby maximizing his ability to earn performance fees for EagleEye (and ultimately himself) on the client’s investments, all without disclosing this to the client or obtaining the client’s consent.

The Commission alleged that, as a result of this conduct, EagleEye and Liskov violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Advisers Act. The Commission also alleged that EagleEye failed to maintain certain books and records required of investment advisers in violation of Section 204 of the Advisers Act and Rule 204-2 thereunder, and that Liskov aided and abetted EagleEye’s violations of these provisions.

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Deer Hill Financial Group and Stephen B. Blankenship – Fort Lauderdale, Florida Investment and Securities Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Fri, 14 Dec 2012 20:53:00 GMT

Securities and Exchange Commission v. Deer Hill Financial Group, LLC, et al., Criminal No. 12-cr-00197-VLB (District of Connecticut)

Defendant in SEC Enforcement Action Sentenced and Ordered to Pay Restitution

The Securities and Exchange Commission announced recently that, on December 5, 2012, the United States District Court for the District of Connecticut sentenced Stephen B. Blankenship, a resident of New Fairfield, Connecticut to forty-one months imprisonment plus three years of supervised release and ordered him to pay a fine of $7,500.00, and restitution in the amount of $607,516.81 based upon his guilty plea to one count of Mail Fraud and one count of Securities Fraud. On September 12, 2012, Blankenship pleaded guilty to all charges brought by the United States Attorney’s Office in Connecticut in connection with a scheme he operated through Deer Hill Financial Group, LLC in Danbury, Connecticut. From 2002 to 2012, Blankenship falsely represented to numerous investors that he had investment opportunities that were safe and would pay a consistent return to investors. Instead, there were no actual investments and Blankenship used some of the victim’s funds to pay personal and business expenses and other investors in furtherance of his fraud.

On September 13, 2012, the Commission filed a civil complaint in the United States District Court for the District of Connecticut alleging that Blankenship misappropriated at least $600,000 from at least 12 investors by falsely representing that he would invest their funds. The Commission’s complaint seeks the entry of a permanent injunction against future violations, disgorgement of ill-gotten gains plus pre-judgment interest and civil monetary penalties. The Commission litigation is still pending.

On October 11, 2012, the Commission barred Blankenship from the securities industry based his guilty plea. The Connecticut Department of Banking’s Securities Division has also obtained, by consent, a revocation of Blankenship’s state license and barred Blankenship and Deer Hill from operating in Connecticut.

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Steven B. Hart – Florida Securities and Investment Trading Fraud FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Tue, 11 Dec 2012 19:42:46 GMT

SEC Charges New York-Based Fund Manager with Conducting Fraudulent Trading Schemes

The Securities and Exchange Commission recently charged a New York-based fund manager with conducting a pair of illegal trading schemes to financially benefit his investment fund Octagon Capital Partners LP.

The SEC alleges that Steven B. Hart made $831,071 during a four-year period through illicit trading while he also worked as a portfolio manager and employee at a New Jersey-based firm that served as an adviser for several affiliated investment funds. In one scheme, Hart illegally matched 31 pre-market trades to benefit his own fund at the expense of one of his employer’s funds. In the other scheme, Hart conducted insider trading in the securities of 19 issuers based on nonpublic information he learned in advance of their offering announcements. Furthermore, Hart signed two securities purchase agreements in which he falsely represented that he had not traded the issuer’s securities prior to the public announcement of the offerings in which he had been confidentially solicited to invest.

Hart agreed to pay more than $1.3 million to settle the SEC’s charges.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Hart conducted his schemes from 2007 to 2011. He caused Octagon to purchase stock in small, thinly traded issuers at the going market price so that he could sell the same stock the following day to his employer’s fund at a price substantially above the prevailing market price. Each of the sales from Octagon to the employer’s fund occurred in pre-market trading, thus Hart was able to ensure that the trades matched. Later that same day or within a few days of the matched trades, Hart directed the employer’s fund to sell the recently-acquired stock on the open market at a loss. Hart generated ill-gotten gains of $586,338 for Octagon in this scheme.

According to the SEC’s complaint, Hart was confidentially solicited by 19 issuers to invest in securities offerings where he expressly agreed to go “over-the-wall” and keep confidential the information he received and not trade on it. Nevertheless, Hart traded for Octagon on the basis of material nonpublic information about the offerings in breach of his duty of trust or confidence. Hart’s illegal trades involved PIPE offerings, registered direct offerings, and confidentially marketed public offerings. Octagon derived ill-gotten gains of $244,733 as a result of Hart’s misconduct.

The SEC alleges that in order to induce two issuers to sell securities to his fund, Hart signed securities purchase agreements falsely representing that Octagon had not traded the issuers’ securities after he had been solicited. Despite going “over-the-wall” during the solicitations conducted by the two issuers, Hart directed short sales of these issuers’ securities and obtained insider trading profits. He subsequently signed the securities purchase agreements misrepresenting that he hadn’t traded in their securities in the days leading up to the public announcements about the offerings.

The SEC’s complaint against Hart alleges violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Hart agreed to pay $831,071 in disgorgement, $103,424 in prejudgment interest, and a $394,733 penalty to settle the SEC’s charges without admitting or denying the allegations. Hart also consented to the entry of a judgment enjoining him from future violations of the respective provisions of the Securities Act, Exchange Act, and Advisers Act. The settlement is subject to court approval.

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Premco Western, Inc. and Rodney Ratheal – Florida Oil and Gas Fraud and Misrepresentation State and Federal Court Litigation Attorney

Russell L. Forkey — Tue, 11 Dec 2012 19:34:32 GMT

Securities and Exchange Commission v. Premco Western, Inc., et al., Civil Action No. 2:12-cv-01120-BSJ (USDC Utah, Filed December 10, 2012)

SEC CHARGES OIL AND GAS COMPANY AND PRINCIPAL WITH OFFERING FRAUD

Recently, the Securities and Exchange Commission filed a settled civil injunctive action against Premco Western, Inc. (Premco), and its principal, Rodney Ratheal (Ratheal). Premco is an oil and gas company incorporated in Texas that operates by drilling land leased from the Bureau of Land Management (BLM). Premco has been solely owned and operated by Ratheal since he acquired it in June 2001.

In its Complaint, filed in the U.S. District Court for the District of Utah, the Commission alleges that, from June 2001 through April 2012, Ratheal raised over $4 million from approximately 100 investors through the fraudulent and unregistered sale of undivided fractional working interests in two oil and gas wells located along the Utah/Arizona border. Ratheal actively promoted and solicited investors by conducting marketing seminars in investors’ homes, cold-calling, and by posting Premco’s private placement memo (PPM) on the company’s Internet website.

The Commission alleges that Premco – through Ratheal – made various false and misleading statements to investors orally and in the company’s private PPM, regarding, among other things, that the company’s purported “in house” geologist and a geologist working for the U.S. Geological Survey (USGS), had discovered a “Super Giant” oil and gas field under Premco’s 1,000 acres of federal mineral leases, with recoverable oil reserves of 5 to 10 billion barrels.

The Commission further alleges that once drilling commenced on each drill site, Ratheal misrepresented to investors that drilling was successful. In reality, neither of the two wells drilled with investor funds produced any oil. In fact, the BLM terminated the drilling permits for lack of actual drilling. Additionally, Ratheal misrepresented to investors that their investment proceeds would be used to drill the two wells and that only 10% of the investment proceeds would be to cover his living expenses. In reality, approximately nearly $3 million (or 70%) of investor funds were used to support Ratheal’s lavish lifestyle.

Premco and Ratheal have consented to the entry of a permanent injunction enjoining them from future violations of Section 5(a), 5(c), and 17(a)(2) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5(b) under the Securities Exchange Act of 1934. Further, they consented to be held jointly and severally liable and consented to an entry of final judgment ordering them (1) to disgorge $2,927,037.68 and (2) to pay prejudgment interest in the amount of $4,445,221.48 for a total amount of $7,372,259.16 and (3) to pay a civil penalty but not imposing the disgorgement, prejudgment interest, and civil penalty amounts based on Ratheal’s and Premco’s demonstrated inability to pay any money.

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John W. Femenia, Shawn C. Hegedus, Aaron M. Wens, Matthew Musante, et. al. – Southwest Florida Securities and Investment Fraud FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Mon, 10 Dec 2012 15:54:19 GMT

SEC v. Femenia et al., Civil Action No. 3:12-cv-803-GCM (W.D.N.C.)

SEC CHARGES 10 IN INSIDER TRADING RING AROUND INVESTMENT BANKER’S ILLEGAL TIPS ON IMPENDING MERGERS

On December 5, 2012, the Securities and Exchange Commission charged an investment banker who was primarily based in Charlotte, N.C., and nine others involved in an insider trading ring that garnered more than $11 million in illicit profits trading on confidential information about impending mergers.

The Commission’s complaint, filed in U.S. District Court for the Western District of North Carolina, alleges that John W. Femenia misused his position at Wells Fargo Securities to obtain material, nonpublic information about four separate merger transactions involving firm clients. Upon learning inside information about an impending deal, Femenia’s first call to set the insider trading ring in motion was typically to his longtime friend Shawn C. Hegedus, who worked as a registered broker. Femenia and Hegedus illegally tipped other friends who in turn tipped more friends or family members in a ring that spread across five states.

The SEC has obtained a court order freezing the assets of the illegal traders.

According to the SEC’s complaint, Femenia was based in Wells Fargo’s Charlotte office when most of the misconduct occurred, but later moved and worked in New York where he currently resides. Femenia’s tippees included his friends Aaron M. Wens, who lives in Encinatas, Calif., and Matthew Musante, who lives in Miami. Musante tipped his father Anthony Musante, who lives in Melbourne, Fla. Hegedus tipped his girlfriend Danielle Laurenti and his business colleague Roger A. Williams, who lives in Georgetown, S.C. Williams tipped three of his friends: Frank M. Burgess, Jr. of Charlotte, James A. Hayes IV of Charlotte, and Kenneth M. Raby of Greer, S.C.

The SEC charged two companies with ties to Hegedus or Laurenti that were involved in the illegal trading: Coram Real Estate Holdings Inc. and GoldStar P.S. The SEC also charged two others as relief defendants for the purposes of recovering illicit profits that are now in their possession: Femenia’s girlfriend Kristine Lack and Anthony Musante’s wife Christine Musante.

According to the SEC’s complaint, the illegal trading occurred from July 2010 to July 2012 and involved the following transactions:

The acquisition of ATC Technology Corporation by GENCO Distribution Systems (publicly announced July 19, 2010)
The acquisition of Smurfit-Stone Container Corp. by Rock-Tenn Company (publicly announced Jan. 23, 2011)
The acquisition of K-Sea Transportation Partners by Kirby Corporation (publicly announced March 13, 2011)
The acquisition of The Shaw Group by Chicago Bridge & Iron Co. (publicly announced July 30, 2012)

According to the SEC’s complaint, Femenia’s tips enabled profitable trades in the stock and options of the companies being acquired in the deals, and at least one trader provided a portion of his profits to Femenia in exchange for the information. Some downstream tippees also kicked back a portion of their profits.

The SEC’s complaint alleges that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. At the SEC’s request, The Honorable Graham C. Mullen entered a temporary restraining order freezing the assets of the defendants and relief defendants. The court order also provides for expedited discovery and prohibits the defendants and relief defendants from destroying evidence.

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Benjamin R. Daniels – Daytona Beach, Florida Securities and Investment Fraud FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Mon, 10 Dec 2012 15:48:51 GMT

In the Matter of Benjamin R. Daniels

On December 6, 2012, the Commission issued an Order Instituting Administrative and Cease-and Desist Proceedings, Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (Order) against Benjamin R. Daniels. The Order finds that Daniels, age 35, of Indio, CA was retained by Yusef Jawed, of Portland, OR, to raise money for Jawed’s purported funds, Grifphon Alpha I Fund, L.P. and Grifphon Qualified Fund, L.P. (the “Grifphon Funds). In September 2012, the Commission charged Jawed and certain entities he controlled with securities fraud in connection with the Grifphon Funds for perpetrating a long-running Ponzi scheme that raised over $37 million from more than 100 investors in the Pacific Northwest and across the country. See SEC v. Jawed, et al., Civ. Action No. 12-01696 (D. Oregon, Sep. 20, 2012). From 2007 through 2009, Daniels raised approximately $4.3 million from 20 investors for the Grifphon Funds. Daniels served as the primary point of contact between the Grifphon Funds and certain investors. He discussed with investors the Grifphon Funds’ purported high rates of returns, the purported nature of the investments, and attested to Jawed’s reputable and trustworthy character. He also provided to investors Grifphon Funds’ private placement memoranda and other marketing materials. Several investors relied solely on Daniels’ representations in deciding to invest in the Grifphon Funds and had never met or spoken with Jawed before investing. Jawed paid Daniels approximately $286,683 in transaction-based compensation. Although Daniels previously was a registered representative associated with various broker-dealers registered with the Commission, he was not associated with a registered broker-dealer during the time he raised money for the Grifphon Funds. The Commission’s Order finds that Daniels acted as a broker without being registered or associated with a registered broker or dealer in violation of Section 15(a) of the Exchange Act.

Based on the above, the Order orders Daniels to cease and desist from committing or causing any violations and any future violations of Section 15(a) of the Exchange Act and bars Daniels from association with any broker, dealer, investment adviser, 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 three years. Daniels consented to the issuance of the Order without admitting or denying the findings in the Order.

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Guy M. Jean-Pierre – Pompano Beach, Florida Restricted Stock Fraud, Misrepresentation and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Fri, 07 Dec 2012 23:36:15 GMT

SEC Charges Florida-Based Lawyer with Forging Attorney Opinion Letters for Microcap Stocks

The Securities and Exchange Commission recently announced charges against a Florida-based securities lawyer for issuing fraudulent attorney opinion letters that resulted in more than 70 million shares of microcap stock becoming available for unrestricted trading by investors.

An attorney opinion letter is required from a licensed and duly authorized securities lawyer in order to facilitate the transfer of restricted microcap shares on the over-the-counter markets. In April 2010, the Pink Sheets (now OTC Markets Group) banned Guy M. Jean-Pierre of Pompano Beach, Fla., from issuing attorney opinion letters due to “repeated missing information and inconsistencies” about the issuers and his lack of due diligence in his past letters.

The SEC alleges that Jean-Pierre has since engaged in a scheme to continue writing and issuing attorney opinion letters in the name of his niece by applying her signature without her consent. Jean-Pierre (also known as Marcelo Dominguez de Guerra) sought to evade the ban by forming a new company called Complete Legal Solutions and misrepresenting that his niece was conducting the legal work that was allegedly performed.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Jean-Pierre hatched a plan within two weeks of his ban to continue issuing attorney opinion letters through Complete Legal and his niece’s identity. Jean-Pierre’s niece, a licensed attorney herself, was looking for work at the time. Jean-Pierre told his niece about his work issuing attorney opinion letters and offered to pay her to assist him. He suggested they form Complete Legal and asked her to send him three copies of her signature and a copy of her driver’s license. Jean-Pierre’s niece complied with his requests with the understanding this information was needed to incorporate Complete Legal. Afterwards, Jean-Pierre never requested that his niece do any legal work at Complete Legal and she was not compensated for any such work.

Instead, the SEC alleges that Jean-Pierre used the new company and his niece’s identity to continue his prior practice of issuing attorney opinion letters. Each of these letters contained fraudulent statements and falsely represented his niece as the signatory. Jean-Pierre’s niece did not write any of the letters and did not make the representations concerning the issuers. Jean-Pierre fabricated attorney opinion letters on Complete Legal letterhead for at least 11 companies that traded publicly on the Pink Sheets. Certain letters resulted in Pink Sheet issuers being granted the improved status of having adequate current information in the public domain under Rule 144(c)(2) of the Securities Act of 1933. This status kept the issuers from being tagged on the Pink Sheets’ website with a red “STOP” sign near its ticker symbol with the moniker of “OTC Pink No Information” and a large warning that the company “may not be making material information publicly available.”

According to the SEC’s complaint, adequate current public information about an issuer must be available for certain selling security holders to comply with the Rule 144 safe harbor allowing companies to issue unregistered securities pursuant to Section 4(1) of the Securities Act. Jean-Pierre falsely issued letters bearing his niece’s signature to transfer agents opining that restrictive legends could be legally removed from either pre-existing stock certificates or newly issued stock certificates pursuant to Rules 144 or 504 of the Securities Act.

The SEC’s complaint alleges that Jean-Pierre violated Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC is seeking disgorgement of ill-gotten gains with prejudgment interest and financial penalties, a permanent injunction, and a bar from participating in the offering of any penny stock pursuant to Section 20(g) of the Securities Act.

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Claudio Osorio and Craig Toll – South Florida Securities and Investment Federal and State Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Fri, 07 Dec 2012 20:37:45 GMT

SEC Charges Prominent Entrepreneur in Miami-Based Scheme

The Securities and Exchange Commission recently charged a prominent Miami-based entrepreneur with defrauding investors by grossly exaggerating the financial success of his company that purportedly produced housing materials to withstand fires and hurricanes. Claudio Osorio stole nearly half of the money raised from investors to pay the mortgage on his multi-million dollar mansion and other lavish highlife expenses.

The SEC alleges that Osorio, who is a former Ernst & Young Entrepreneur of the Year award winner, raised at least $16.8 million from investors by portraying InnoVida Holdings LLC as having millions of dollars more in cash and equity than it actually did. Osorio sometimes solicited investors one-on-one at political fundraising events. To add an air of legitimacy to his company, Osorio assembled a high-profile board of directors that included a former governor of Florida, a lobbyist, and a major real estate developer. Osorio falsely told a potential investor he had invested tens of millions of dollars of his own money as InnoVida’s largest stakeholder, and he hyped a Middle Eastern sovereign wealth fund investment as a ruse to solicit additional funds from investors.

The SEC also charged InnoVida’s chief financial officer Craig Toll, a certified public accountant living in Pembroke Pines, Fla., who helped Osorio create the false financial picture of InnoVida.

The SEC alleges that besides his Miami Beach mansion, Osorio illegally used investor money to pay for his Maserati, a Colorado mountain retreat home, and country club dues. He stole at least $8.1 million in investor funds.

In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida recently announced criminal charges against Osorio and Toll.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, the scheme began in 2007 and lasted until 2010. InnoVida was purportedly in the business of manufacturing building panels used to construct houses and other structures resistant to fires and hurricanes. The company entered bankruptcy in 2011.

To induce funds from investors, Osorio and Toll allegedly produced false pro forma financial statements. A pro forma financial statement for March 31, 2009, stated that InnoVida had more than $35 million in cash and cash equivalents and more than $100 million of equity. A pro forma financial statement for Dec. 31, 2009, listed more than $39 million in cash and cash equivalents and $122 million of equity. In reality, the company’s bank accounts held less than $185,000 on March 31, 2009, and less than $2 million on Dec. 31, 2009. Toll failed to review all of InnoVida’s bank account statements when he drafted financial statements. Instead, he accepted Osorio’s misrepresentations that InnoVida had these assets in an account to which Toll did not have access.

The SEC alleges that Osorio offered bogus share prices to prospective investors based on false valuations. He told one investor that InnoVida was valued at $250 million, and then a week later told a different investor that the company was worth $50 million. The latter investor purchased $100,000 of Osorio’s stake in the company for five cents per share.

The SEC further alleges that Osorio lied to an investor when he said that he had personally invested tens of millions of dollars into InnoVida. He had in fact made no such investment. Osorio also enticed an investor to increase an investment in InnoVida by touting a supposed $500 million deal he was negotiating with a Middle Eastern sovereign wealth fund that would significantly benefit InnoVida investors. Osorio went so far as to create a document showing the investor how much he would make once the sovereign wealth deal closed and was funded. Based on Osorio’s misrepresentations, the investor was able to raise approximately $700,000 and later borrowed $3 million from a close friend. However, no sovereign wealth buyout deal ever materialized, and InnoVida investors never benefited as promised.

The SEC’s complaint seeks disgorgement of ill-gotten gains, financial penalties, and injunctive relief against InnoVida, Osorio, and Toll to enjoin them from future violations of the federal securities laws. The complaint also seeks an order barring Osorio and Toll from serving as an officer or director of a public company.

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Angelo A. Alleca – Fort Lauderdale, Florida Securities, Investment and Insurance Fraud Misrepresentation and Litigation Attorney

Russell L. Forkey — Wed, 05 Dec 2012 10:42:32 GMT

In the Matter of Angelo A. Alleca

On November 29, 2012, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions against Angelo A. Alleca (Alleca) based on the entry of a permanent injunction against him. According to the Order, the Commission’s complaint alleged that Alleca and his company, Summit Wealth Management, Inc. (Summit Wealth Management), incurred substantial losses in Summit Investment Fund, LP (Summit Fund), and that Alleca concealed the losses from investors and provided them with false account statements. The Complaint further alleges that Alleca then raised additional funds from Summit Wealth Management clients for two additional hedge funds that he created, and that Alleca misappropriated money invested in the new funds in a Ponzi-like fashion in order to meet redemption requests in Summit Fund.

Based on the above, Alleca is barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent or nationally recognized statistical rating organization, and barred from participating in any offering of a penny stock. Alleca consented to the issuance of the Order without admitting or denying any of the findings in the Order, except he admitted to the entry of the injunction.

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