Articles Posted in SEC Enforcement Actions 2012

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.

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.

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.

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.

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.

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.

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.

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.

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.

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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