SEC Enforcement Actions 2012

Thomas C. Conradt and David J. Weishaus – West Palm Beach, Florida Securities and Investment Fraud (Call Option) FINRA Arbitration and Litigation Attorney

Published on: December 5, 2012 | By Russell L. Forkey, P.A.

SEC Charges Two Brokers With Insider Trading Ahead of IBM-SPSS Merger for $1 Million Profit

The Securities and Exchange Commission recently charged two retail brokers who formerly worked at a Connecticut-based broker-dealer with insider trading on nonpublic information ahead of IBM Corporation’s acquisition of SPSS Inc.

The SEC alleges that Thomas C. Conradt learned confidential details about the merger from his roommate, a research analyst who got the information from an attorney working on the transaction who discussed it in confidence. Conradt purchased SPSS securities and subsequently tipped his friend and fellow broker David J. Weishaus, who also traded. The insider trading yielded more than $1 million in illicit profits. The SEC’s investigation uncovered instant messages between Conradt and Weishaus where they openly discussed their illegal activity. The SEC’s investigation is continuing.

Joseph J. Hennessy and Resources Planning Group – South Florida Investment Fund and Private Equity Fraud and Mismanagement FINRA Arbitration and Litigation Attorney

Published on: December 5, 2012 | By Russell L. Forkey, P.A.

SEC Charges Chicago-Based Investment Adviser With Defrauding Investors in Failing Private Equity Fund

The Securities and Exchange Commission recently charged a Chicago-based investment adviser and his firm with defrauding clients and others who were promised returns that would “beat the market” for investing in a private equity fund they managed. What investors didn’t know was the fund was failing and they were being used to raise money to repay promissory notes to earlier investors.

The SEC alleges that Joseph J. Hennessy and Resources Planning Group (RPG) raised more than $1.3 million by misrepresenting the Midwest Opportunity Fund (MOF) as a viable private equity fund that could offer high returns. Hennessy failed to tell investors about the fund’s poor financial condition or that their money was being used to repay MOF promissory notes that he had personally guaranteed. He therefore misappropriated client funds to make payments on the notes and prop up the fund. Hennessy used at least $641,408 to make partial payments to certain note holders, substantially reducing his personal liability on the notes.

Joseph P. Cillo – Dade City and Tampa, Florida Penny Stock and Reverse Merger Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney

Published on: December 5, 2012 | By Russell L. Forkey, P.A.

SEC v. Joseph P. Cillo:

The Securities and Exchange Commission (“Commission”) recently announced that the Honorable James D. Whittemore, United States District Judge for the Middle District of Florida in Tampa has entered final judgment against defendant Joseph P. Cillo (“Cillo”) of Dade City, Florida. The judgment permanently enjoins Cillo from further violations of Section 15(b)(6)(B)(i) of the Securities Exchange Act of 1934 (“Exchange Act”), imposes a statutory penny stock bar on him pursuant to Section 21(d)(6) of the Exchange Act, and orders that he pay disgorgement in the amount of $20,000 with prejudgment interest thereon in the amount of $1.124.50 within 30 days. In addition, Cillo was ordered to pay a civil penalty in the amount of $60,000 within 30 days. Cillo consented to the final judgment without admitting or denying the allegations of the Commission’s complaint.

The Complaint alleged that in November 2007, through a reverse merger with a penny-stock shell company, Cillo became the CEO and controlling shareholder of eFUEL EFN Corp. (“eFUEL”), a purported web development company then based in Tampa, Florida and listed on the OTC Market Group’s “OTC Pink” market tier (formerly the “Pink Sheets”) under the symbol “EFUL.” It further alleged that in connection with an ongoing market manipulation investigation involving eFUEL and other related entities and individuals, the SEC determined that Cillo engaged in various activities related to, and for the purpose of, issuing, trading, and inducing the purchase of eFUEL’s stock. Specifically, Cillo (1) offered and/or issued hundreds of millions of shares of eFUEL stock to third-parties as purported payment for debts and services, (2) drafted and approved multiple press releases touting the company’s business plan and development prospects, and (3) prepared, signed, and submitted periodic reports to the OTC Markets Group in order to comply with the Pink Sheets’ minimal requirements for “adequate current information.” These activities constituted violations of a 1995 Commission order which barred Cillo from participating in the offering of any penny stock.

Anand Sekaran – Boca Raton, Florida Broker/Dealer and Investment Advisor Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney

Published on: December 5, 2012 | By Russell L. Forkey, P.A.

In the Matter of Anand Sekaran:

On November 30, 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 (Order) against Anand Sekaran (Sekaran).

On November 26, 2012, the Honorable Jesse M. Furman, United States District Judge for the Southern District of New York, entered a final judgment by consent against Sekaran in the civil action entitled Securities and Exchange Commission v. Anand Sekaran, et al., Civil Action No. 12-CV-8199 (S.D.N.Y.). The final judgment imposed permanent injunctions from future violations of the antifraud provisions of the federal securities laws. Sekaran is also required to pay $2.3 million to satisfy restitution and forfeiture orders in a related criminal matter. The Commission’s complaint alleged, inter alia, that Sekaran, as an investment adviser, engaged in fraudulent conduct, including making material misrepresentations to clients, providing fabricated and misleading account statements to clients, and misappropriating client funds.

Arnett L. Waters – South Florida Broker/Dealer and Investment Advisor Fraud and Misappropriation FINRA Arbitration and Litigation Attorney

Published on: December 5, 2012 | By Russell L. Forkey, P.A.

Defendant in SEC Action Pleads Guilty to Criminal Charges and is Barred from the Securities Industry

The Securities and Exchange Commission recently announced that Arnett L. Waters of Milton, Massachusetts, a principal of a broker-dealer and investment adviser who is a defendant in a securities fraud action filed by the Commission in May 2012, has pleaded guilty to criminal charges brought by the U.S. Attorney for the District of Massachusetts and has been barred from the securities industry by the Commission. Waters’ guilty plea to securities fraud and other charges occurred on November 29, 2012, and follows an earlier guilty plea by Waters in October 2012 to criminal contempt charges for violating a preliminary injunction order obtained by the Commission in its case. The Commission’s Order barring Waters from the securities industry was issued on December 3, 2012.

The Commission filed an emergency enforcement action against Waters on May 1, 2012, alleging that he and two companies under his control, broker-dealer A.L. Waters Capital, LLC and investment adviser Moneta Management, LLC, defrauded investors from at least 2009-2012 by, among other things, misappropriating investor funds and spending it on personal expenses. On May 3, 2012, the Court entered a preliminary injunction order that, among other things, froze Waters’ assets and required him to provide an accounting of all his assets to the Commission. On August 7, 2012, the Commission filed a civil contempt motion against Waters, alleging that he had violated the court’s preliminary injunction order by establishing an undisclosed bank account, transferring funds to that account, dissipating assets, and failing to disclose the bank account to the Commission, as required by the Court’s order. On August 9, 2012, the U.S. Attorney for the District of Massachusetts filed a separate criminal contempt action against Waters based on the same allegations. On October 2, 2012, Waters pleaded guilty to the criminal contempt charges, and the Court ordered him detained pending sentencing.

Timothy S. Durham, Rick D. Snow and James F. Cochran – Florida Securities and Investment Fraud and Theft FINRA Arbitration and Litigation Attorney

Published on: December 5, 2012 | By Russell L. Forkey, P.A.

Former Fair Finance Company CEO Sentenced to 50 Years in Prison for Conducting $200 Million Fraud Scheme

The Securities and Exchange Commission (Commission) announced that on November 30, 2012, Timothy S. Durham, former CEO of Ohio-based Fair Finance Company (Fair Finance), was sentenced to 50 years in prison for orchestrating a $200 million scheme that defrauded more than 5,000 investors over almost five years. Judge Jane Magnus-Stinson of the United States District Court for the Southern District of Indiana also sentenced James F. Cochran, Fair Finance’s board chairman, to 25 years in prison, and Rick D. Snow, the firm’s chief financial officer, to a 10-year prison term. According to U.S. Attorney Joseph Hogsett in Indianapolis, Durham’s sentence is the longest white-collar fraud sentence in Indiana history.

On June 20, 2012, a federal jury in Indiana convicted Durham, age 50, of securities fraud, conspiracy and 10 counts of wire fraud. Cochran, age 57, and Snow, age 49, were also found guilty on conspiracy and securities fraud charges for their roles in the Fair Finance scheme.

John Lazorchak, Mark S. Cupo, Michael Castellim Michael T. Pendolino, Mark D. Foldy, James N. Deprado and Lawerance Grum – Securities and Investment (Public and Private) Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney

Published on: November 19, 2012 | By Russell L. Forkey, P.A.

The Securities and Exchange Commission recently charged three health care company employees and four others in a New Jersey-based insider trading ring of various high school friends generating $1.7 million in illegal profits and kickbacks by trading in advance of 11 public announcements involving mergers, a drug approval application, and quarterly earnings of pharmaceutical companies and medical technology firms.

The SEC alleges that Celgene Corporation’s director of financial reporting John Lazorchak, Sanofi S.A.’s director of accounting and reporting Mark S. Cupo, and Stryker Corporation’s marketing employee Mark D. Foldy each illegally tipped confidential information about their companies for the purpose of insider trading. Typically the nonpublic information involved upcoming mergers or acquisitions, but Lazorchak also tipped confidential details about Celgene’s quarterly earnings and the status of a Celgene application to expand the use of its drug Revlimid. The trading was carefully orchestrated so there was usually someone acting solely as a non-trading middleman who received the nonpublic information from the insider and tipped others. They hoped to avoid detection with no direct connection between the insiders and the traders, and the insiders were later compensated for the inside information with cash payments made in installments to avoid any scrutiny of large cash withdrawals.

The SEC alleges that Cupo’s friend Michael Castelli along with Lawrence Grum, who attended high school with Castelli, were the primary traders in the scheme. Among the ways that Castelli and Grum tried to hide their illegal conduct was by compiling binders of research to serve as a false basis for their trading. They actively traded in Celgene securities to create a pattern of long-standing positions in the stock. Grum reassured Cupo that discovery of the scheme and consequent legal action was unlikely due to limited government resources to police insider trading activity. Grum said, “At the end of the day, the SEC’s got to pick their battle because they have a limited number of people and a huge number of investors to go after.”

MassMutual – South Florida Annuity and Insurance Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney

Published on: November 17, 2012 | By Russell L. Forkey, P.A.

MassMutual to Pay $1.625 Million after SEC Investigation Highlights Prior Insufficient Disclosures about Annuity Product

MassMutual Changes Product Before Any Investors Harmed

The Securities and Exchange Commission recently charged Massachusetts Mutual Life Insurance Company with securities law violations for failing to sufficiently disclose the potential negative impact of a “cap” it placed on a complex investment product that investors were planning to use for retirement.

BP p.l.c. – Florida Limited Partnership Oil and Gas Fraud and Misrepresentation Litigation Attorney

Published on: November 17, 2012 | By Russell L. Forkey, P.A.

SEC v. BP p.l.c., Case No. 2:12-cv-02774 (E.D. La. Nov. 15, 2012).

BP TO PAY $525 MILLION PENALTY TO SETTLE SEC CHARGES OF SECURITIES FRAUD DURING DEEPWATER HORIZON OIL SPILL

The Securities and Exchange Commission recently charged BP p.l.c. with misleading investors while its Deepwater Horizon oil rig was gushing into the Gulf of Mexico by significantly understating the flow rate in multiple reports filed with the SEC.

Residential Mortgage-Back Securities (RMBS) – Florida Securities Offering Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney

Published on: November 17, 2012 | By Russell L. Forkey, P.A.

Securities and Exchange Commission v. J.P. Morgan Securities LLC, EMC Mortgage, LLC, Bear Stearns Asset Backed Securities I, LLC, Structured Asset Mortgage Investments II, Inc., SACO I, Inc., and J.P. Morgan Acceptance Corporation I, Civil Action No. 1:12-cv-01872 (RLW) (D.D.C. filed Nov. 16, 2012)

SEC CHARGES J.P. MORGAN SECURITIES LLC WITH MISLEADING INVESTORS IN RMBS OFFERINGS

In coordination with the federal-state Residential Mortgage-Backed Securities Working Group, the Securities and Exchange Commission recently charged J.P. Morgan Securities LLC and affiliated entities with misleading investors in offerings of residential mortgage-backed securities (RMBS). The firm agreed to a settlement in which it will pay $296.9 million. The SEC plans to distribute the money to harmed investors.