Biotech Employee Charged With Insider Trading Ahead of Company’s Announcements About Breast Cancer Drug

The Securities and Exchange Commission today charged the former senior director of regulatory affairs for Puma Biotechnology with insider trading ahead of the company’s news announcements about its drug to treat breast cancer.

 

The SEC alleges that Robert Gadimian pocketed more than $1.1 million in illicit profits by secretly purchasing Puma stock and short-term call options based on nonpublic information he learned about positive developments in two clinical trials for Puma’s drug, neratinib.  Gadimian allegedly bought Puma securities before the results from the first trial were announced in December 2013 and again before the results of the second trial were announced in July 2014.

 

According to the SEC’s complaint, Puma confronted Gadimian after learning about his trades and he admitted to trading because of “greed.”  Gadimian allegedly proceeded to alter his trading records before providing them to Puma for its internal investigation, deleting certain trades in Puma securities and renumbering the pages of the altered documents to hide his changes.  Gadimian was fired in October 2014.

 

“We allege that Gadimian used valuable confidential information about his employer’s drug trials to trade illegally and enrich himself,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement. 

 

In a parallel case, the U.S. Attorney’s Office for the District of Massachusetts today announced criminal charges against Gadimian.

 

The SEC’s investigation was conducted by Timothy K. Halloran with assistance from Martin L. Zerwitz and Michael C. Baker of the Enforcement Division’s Market Abuse Unit.  The case was supervised by Deborah A. Tarasevich, Ms. Chion, and Robert A. Cohen, Co-Chief of the Market Abuse Unit.  The litigation will be conducted by Jonathan P. Hooks and Mr. Halloran.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Massachusetts, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.  

SEC Press Release

Supervisory Failures leads to 15 Million Dollar Fine

The SEC fined UBS $15 million for systematically failing to train its advisers in complex products they sold to unsophisticated investors

On Wall Street Article

SEC Files Insider Trading Charges Against Peruvian Traders Using Overseas Accounts

The Securities and Exchange Commission today charged two lawyers and a brokerage firm manager in Peru with insider trading prior to the merger of two mining companies.

 

The SEC alleges that Nino Coppero del Valle, who worked at Canadian-based HudBay Minerals Inc., tipped his close friend and fellow attorney Julio Antonio Castro Roca with material nonpublic information about a tender offer his company submitted to acquire the shares of Arizona-based Augusta Resource Corp.  Castro allegedly traded on the inside information through a brokerage account held by a shell company he set up in the British Virgin Islands in an attempt to avoid having the trades traced back to him and Coppero.  According to the SEC’s complaint, Castro and Coppero made more than $112,000 in illicit profits from these unlawful trades.

 

The SEC further alleges that Coppero tipped an acquaintance Ricardo Carrion when seeking his advice about making illegal trades untraceable.  According to the SEC’s complaint, Carrion exploited the inside information and caused his brokerage firm to purchase Augusta Resource shares ahead of the tender offer announcement.  Carrion’s firm obtained $73,000 in alleged profits.

 

“As alleged in our complaint, Coppero breached his duty to his employer by tipping Castro and Carrion in advance of any public announcement about HudBay’s impending tender offer,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Try as they might, overseas traders shouldn’t presume they can cover their tracks to avoid detection and scrutiny from U.S. law enforcement when they violate insider trading laws.”

 

The SEC’s complaint charges Coppero and Castro with violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.  Coppero, Castro, and Carrion are charged with violating the prohibitions against trading ahead of the announcement of a tender offer contained in Exchange Act Section 14(e) and Rule 14e-3.  The complaint seeks disgorgement of ill-gotten gains plus interest and penalties among other things.

 

The SEC’s investigation is continuing.  It is being conducted by Jorge G. Tenreiro and Thomas P. Smith Jr. of the New York office.  The litigation will be led by Preethi Krishnamurthy and Mr. Tenreiro.  The case is being supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

SEC Press Release

SEC Charges CEO and Boiler Room Operator With Fraud

The Securities and Exchange Commission today charged a former microcap company CEO and a boiler room operator with defrauding seniors and others who were pressured to invest in a pair of penny stock companies and promised lucrative profits.

 

The SEC alleges that Craig V. Sizer founded Sanomedics Inc. and Fun Cool Free Inc., which were purportedly in the business of selling non-contact infrared thermometers and software applications respectively, and he hired Miguel “Michael” Mesa to help him attract and defraud investors in both companies.  Sizer allegedly provided Mesa with a list of pitch points for use by boiler-room agents hired by Mesa to sell shares of the stocks based on misrepresentations that investor funds would be used for research and development and no sales commissions would be paid out of investor funds.  According to the SEC’s complaint, Sizer and Mesa misappropriated approximately 90 percent of the funds raised from investors, enriching themselves and paying sales commissions to the boiler-room agents.  Several hundred investors nationwide were allegedly defrauded out of a total of approximately $20 million.

 

“We allege that Sizer and Mesa fraudulently touted Sanomedics and Fun Cool Free stocks as profitable investments while in fact only Sizer and Mesa and the sales agents were profiting at the expense of investors, many of whom were seniors,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.

 

In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges.

 

Sizer and Mesa have agreed to partial settlements of the SEC’s charges without admitting or denying the allegations.  They both agreed to be barred from future penny stock offerings, and Sizer agreed to be barred from serving as an officer or director of a public company.  Financial sanctions will be decided by the court at a later date.  The SEC’s complaint alleges that Sizer and Mesa violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Mesa also allegedly violated Section 15(a) of the Exchange Act, and Sizer allegedly aided and abetted Mesa’s violations.

 

The SEC’s continuing investigation is being conducted by Gary M. Miller and Eric E. Morales of the Enforcement Division’s Microcap Fraud Task Force in the Miami office, and the case has been supervised by Elisha L. Frank and Jason R. Berkowitz of the Microcap Fraud Task Force.  The SEC’s litigation is being led by Alejandro O. Soto.  The SEC appreciates the assistance of the Federal Bureau of Investigation and the U.S. Attorney’s Office for the Southern District of Florida.

SEC Press Release

''Movie Studio'' Executives Charged With Microcap Fraud

The Securities and Exchange Commission today charged three company executives with defrauding investors in a purported project to construct the largest movie studio in North America at a suburban location outside Savannah, Georgia.

 

The SEC alleges that Manu Kumaran, the founder and former chairman and CEO of a startup movie production company called Medient Studios and later Moon River Studios, schemed with his successor CEO Jake Shapiro to make an assortment of false and misleading statements in press releases and corporate filings.  They allegedly claimed that construction was underway and projected dates by which the studio would be operational while knowing full well they did not have anywhere near sufficient funding to begin building the touted "Studioplex."  In addition, Kumaran, Shapiro, and Roger Miguel – the CEO of a separate successor public company called Fonu2 that also operated under the name Moon River Studios – are alleged to have backdated and falsified promissory notes as part of a scheme to issue common stock in exchange for financing. 

 

The SEC further alleges that while the Studioplex never materialized and the company eventually shuttered without releasing a single movie or video game, Kumaran and Shapiro nonetheless enriched themselves in the process.  According to the SEC’s complaint, Kumaran spent an average of $1,700 per day of company funds on his globetrotting travel and personal expenses from April 2014 to June 2014 after claiming publicly that he did not draw a salary and assuring shareholders that all funds were being used to benefit the company.  Shapiro allegedly misappropriated company funds for personal use after becoming CEO and lived in a house worth nearly a million dollars that was paid for by the company.

 

Miguel agreed to settle the charges against him without admitting or denying the allegations.  He agreed to be barred from participating in any penny stock offerings or serving as a public company officer or director for five years, and the court will determine monetary sanctions at a later date.  The settlement is subject to court approval. The litigation continues against Kumaran and Shapiro.  The SEC's complaint was filed in U.S. District Court for the Southern District of Georgia.

 

Three company directors who are not alleged to have participated in the fraud were separately charged with violating federal securities laws by failing to timely report their stock transactions in the company while serving on its board.  Former New York Democratic Governor David A. Paterson and music producer Charles A. Koppelman each agreed to pay $25,000 penalties to settle the charges against them without admitting or denying the findings.  An administrative proceeding was instituted against Matthew T. Mellon II, a businessman and former chairman of the New York Republican Party Finance Committee.  The matter will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating what, if any, remedial actions are appropriate.

 

"We allege that Kumaran and Shapiro preyed upon investor interest in the movie industry and financed their own lifestyles rather than build the promised Studioplex,” said Walter Jospin, Director of the SEC’s Atlanta Regional Office.  "Koppelman, Paterson, and Mellon allegedly failed in their personal responsibility to comply with the beneficial ownership reporting requirements of the federal securities laws." 

 

The SEC’s continuing investigation has been conducted by Joshua M. Dickman of the Atlanta office under the supervision of Aaron W. Lipson and William P. Hicks.  The litigation to determine the merits of the allegations against Kumaran and Shapiro will be led by Wm. Shawn Murnahan and M. Graham Loomis with the assistance of Shannon Statkus from the U.S. Attorney’s Office for the Southern District of Georgia.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Georgia.

SEC Press Release

SEC Charges Hedge Fund Manager Leon Cooperman With Insider Trading

The Securities and Exchange Commission today charged hedge fund manager Leon G. Cooperman and his firm Omega Advisors with insider trading based on material nonpublic information he learned in confidence from a corporate executive.

The SEC alleges that Cooperman generated substantial illicit profits by purchasing securities in Atlas Pipeline Partners (APL) in advance of the sale of its natural gas processing facility in Elk City, Oklahoma.  Cooperman allegedly used his status as one of APL’s largest shareholders to gain access to the executive and obtain confidential details about the sale of this substantial company asset.  Cooperman and Omega Advisors allegedly accumulated APL securities despite explicitly agreeing not to use the material nonpublic information for trading purposes, and when APL publicly announced the asset sale its stock price jumped more than 31 percent. 
 

According to the SEC’s complaint, when Omega Advisors received a subpoena nearly a year-and-half later about its trading in APL securities, Cooperman contacted the executive and tried to fabricate a story to tell if questioned about this trading activity.  The executive was shocked and angered when he learned that Cooperman traded in advance of the public announcement. 

 

“We allege that hedge fund manager Cooperman, who as a large APL shareholder obtained access to confidential corporate information, abused that access by trading on this information,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “By doing so, he allegedly undermined the public confidence in the securities markets and took advantage of other investors who did not have this information.”

 

The SEC’s complaint further charges Cooperman with failing to timely report information about holdings and transactions in securities of publicly-traded companies that he beneficially owned, alleging that he violated federal securities laws more than 40 times in this regard. 

 

The SEC’s complaint was filed in federal district court in Philadelphia and seeks disgorgement of ill-gotten gains plus interest, penalties, and permanent injunctions against Cooperman and Omega Advisors as well as an officer-and-director bar against Cooperman.

 

The SEC’s investigation was conducted by Brendan P. McGlynn, Oreste P. McClung, Patrick A. McCluskey, and Polly A. Hayes of the Philadelphia Regional Office, and supervised by G. Jeffrey Boujoukos.  The litigation will be led by David L. Axelrod and Mark R. Sylvester.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

SEC Press Release

“Stock Trading Whiz Kid” to Pay $1.5 Million to Settle Stock Newsletter Fraud Charges

The Securities and Exchange Commission today announced that a self-proclaimed “stock trading whiz kid” and his stock newsletter company in Los Angeles have agreed to pay nearly $1.5 million to settle charges that they defrauded subscribers through false statements and misrepresentations.

According to the SEC’s complaint, Manuel E. Jesus and his newsletter company Wealthpire Inc. used advertising materials and websites touting him as “the untutored prodigy of stock investing” under the alias Manny Backus.  A self-purported “math whiz” who boasted a “skyscraping” IQ and training as a professional chess player, Backus claimed to be actively trading in the stock market with “real money” by age 19.  The SEC’s complaint also states that Wealthpire materials claimed that Backus made millions of dollars before “deciding to help other investors” by starting an alert service that let traders copy his every trading move.

The SEC alleges that from at least January 2012 to September 2014, Backus was not trading in the same stocks recommended by his services as he claimed.  He wasn’t the one making all of the recommendations either.  For instance, the SEC’s complaint alleges that Robert C. Joiner was paid by Wealthpire to make all of the stock picks for one alert service without any guidance from Backus on how to choose them.  Joiner allegedly posed as Backus during chat room sessions by signing in using a password that Backus supplied, and Joiner told investors that he was buying and selling certain recommended stocks when no such transactions were actually taking place.  Joiner also is named in the SEC’s complaint and agreed to settle the case.

The SEC’s complaint alleges a series of other misrepresentations to Wealthpire subscribers as well, including false claims about one particular stock alert service that purportedly made historic trading recommendations that yielded huge past returns higher than 1,400 percent.

“Investors who subscribe to trading alert services are relying on the purported expertise and success of those making the stock recommendations, but Wealthpire and Backus instead circulated repeated lies and falsehoods,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.

The SEC has warned investors that investment newsletters can be used as tools for fraud, noting in an investor alert for example to beware false performance claims misrepresenting the track record of the newsletter’s investment recommendations and be suspicious if the newsletter does not disclose having received any compensation.

Backus and Wealthpire agreed to pay disgorgement of $1,135,145 plus interest of $112,902, and Backus also must pay a $235,000 penalty.  Without admitting or denying the allegations, Backus, Wealthpire, and Joiner consented to the entry of a final judgment permanently enjoining each of them from future violations of the antifraud provisions of the federal securities laws.  

The SEC’s investigation was conducted by Lucee Kirka and supervised by Robert Conrrad of the Los Angeles office.  

SEC Press Release

SEC Charges CEO and Paid Promoter With Fraudulently Promoting Stock of Las Vegas Health Products Company

The Securities and Exchange Commission today charged the CEO of a sexual health products retailer and a paid promoter with orchestrating fraudulent promotional campaigns to tout the company’s stock.

 

The SEC alleges that Scott S. Fraser, who also was a major shareholder in Las Vegas-based Empowered Products Inc., separately ran a newsletter publishing business and hired Nathan Yeung to secretly help him promote Empowered Products through online newsletter articles purportedly authored by independent writers.  But Fraser and Yeung actually authored, authorized, and distributed the rosy articles about Empowered Products themselves, working under such pseudonyms as “Charlie Buck” and then hiring other promoters to disseminate the promotions to their respective subscriber lists in exchange for fees.  Meanwhile the promotions failed to disclose that Empowered Products and Fraser approved and paid for the advertisements.

 

“When promoters fail to disclose their relationship with a company they’re touting, they give investors a false impression that an investment recommendation is objective,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “We allege that Fraser and Yeung deliberately touted Empowered Products without disclosing the company’s involvement with the promotions.”

 

The SEC’s complaint charges Fraser, his newsletter company Contrarian Press, and Yeung with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Section 17(b) of the Securities Act of 1933.  The complaint further charges Fraser with aiding and abetting violations by Contrarian Press, and seeks to hold him liable as a control person of the company.  The complaint also charges Yeung with aiding and abetting violations by Fraser and Contrarian Press.

 

The SEC’s investigation was conducted by Tejal Shah, Alexander Janghorbani, Douglas Smith, and Sandeep Satwalekar of the New York office and Joseph Darragh of the Microcap Fraud Task Force.  The case is being supervised by Lara Shalov Mehraban.  The litigation will be led by Mr. Janghorbani and Ms. Shah.
 

SEC Press Release

SEC: Purported Green Technology Company Defrauding Investors

The Securities and Exchange Commission today charged a California-based company and two executives with using baseless financial projections and other misleading statements to defraud investors in a venture to manufacture environmentally-friendly building materials.

The SEC alleges that Enviro Board Corporation and its co-chairmen/CEOs Glenn Camp and William Peiffer raised approximately $6 million from investors during a four-year period by using documents predicting company earnings ranging from $18 million to $95 million per year.  They allegedly lacked any reasonable basis for such estimates amid persistent manufacturing problems plaguing the company since its inception.  Enviro Board claimed its green materials had already been used in residential and commercial construction projects, yet the company has never developed a commercially viable mill to manufacture its products.  Among other alleged misrepresentations to investors were claims to have secured $161 million in financing from a “vendor” that turned out to be nothing more than an entity created by Peiffer that lacked the resources to actually make such a loan.

Meanwhile, according to the SEC’s complaint filed in federal court in Los Angeles, Camp and Peiffer and their primary salesman Joshua Mosshart have paid themselves approximately $2.6 million in compensation out of investor funds.  Mosshart also is named in the SEC’s complaint and charged with selling unregistered securities and acting as an unregistered broker.

“We allege that Enviro Board appealed to investors’ desires to benefit the environment by creating the false impression that it was on the cusp of lucrative operations.  But Camp and Peiffer were merely lining their own pockets while their unviable manufacturing process has failed to commercialize after nearly 20 years of trying,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.

The SEC’s complaint charges Enviro Board, Camp, and Peiffer with violating Section 17(a)(2) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(b).  The complaint further charges Camp and Mosshart with violating Sections 5(a) and 5(c) of the Securities Act and Mosshart with violating Section 15(a) of the Exchange Act.  The complaint seeks permanent injunctions, disgorgement of ill-gotten gains plus interest and penalties, and officer-and-director bars against Camp and Peiffer. 

The SEC’s investigation was conducted by William Fiske, Peter Del Greco, Maria D. Rodriguez, and Marc Blau of the Los Angeles office, and the litigation will be led by Gary Leung and supervised by John W. Berry.  The SEC appreciates assistance from the Financial Industry Regulatory Authority.

SEC Press Release

SEC: Investment Adviser Boasted Phony Assets and Track Record, Stole From Client

The Securities and Exchange Commission today announced fraud charges against a San Francisco man and his investment advisory firm accused of pretending to manage millions of dollars in assets and then stealing money from the first client who invested with them based on their misrepresentations.

The SEC alleges that Nicholas M. Mitsakos and Matrix Capital Markets, which is a state-registered investment adviser in California, solicited investors in a purported hedge fund while falsely marketing themselves as experienced money managers with a highly successful track record.  They claimed assets under management in the millions when in fact they did not manage any client assets at all, and they fabricated a hypothetical portfolio of investments earning 20 to 66 percent annual returns and passed it off to investors as real trading.  When Mitsakos and Matrix Capital Markets were given $2 million in client assets to manage in September 2015, they proceeded to steal approximately $800,000 from that client and used most of it to pay for unauthorized personal and business expenses.

“We allege that Mitsakos and his firm tried to lure prospective investors with a mirage of assets under management and phony performance results, and when they finally won some actual business from a client, they proceeded to steal a large portion of it,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Whenever pitched an investment opportunity with claims of lofty historical performance, it’s important for investors to take the time to verify the information and make sure they’re getting the truth before deciding to invest.”

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Mitsakos.

The SEC’s complaint was filed in U.S. District Court for the Southern District of New York and charges Mitsakos and Matrix Capital Markets with violating the antifraud provisions of the federal securities laws.  Mitsakos also is charged with aiding and abetting Matrix Capital’s violations.  The SEC seeks permanent injunctions and disgorgement of ill-gotten gains plus penalties.

The SEC’s continuing investigation is being conducted by Alison R. Levine, Kerri Palen, Alex Janghorbani, and Valerie A. Szczepanik, and the case is supervised by Lara S. Mehraban.  The litigation will be led by Alex Janghorbani and Alison R. Levine.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York.

SEC Press Release

SEC Charges Stockbroker and Friend With Insider Trading

The Securities and Exchange Commission today charged a stockbroker and his friend with participating in an insider trading scheme to profit in advance of two major announcements out of a pharmaceutical company. 

The SEC alleges that Paul T. Rampoldi coordinated the insider trading with two other brokers at his firm as well as a then-IT executive at Ardea Biosciences.  The Ardea employee tipped one of the brokers ahead of the company’s announcement of an agreement to license a cancer drug and later tipped him in advance of its acquisition by AstraZeneca PLC.  The SEC charged the other two brokers and the Ardea employee last year.

According to the SEC’s complaint filed in federal court in San Diego today against Rampoldi and William Scott Blythe III, they made approximately $90,000 in illicit profits by trading ahead of those announcements based on nonpublic information that flowed to them through one of the fellow brokers who learned it from the other after he was tipped by the IT executive.  It was decided that in order to evade detection by the compliance department at the brokerage firm where Rampoldi and the others worked, Blythe would fund the purchase of Ardea call option contracts in a brokerage account he held at a different brokerage firm, and they would subsequently divide the profits among them.

“As a stockbroker, Rampoldi should have known better than to allegedly trade on tips about significant corporate events before they were announced,” said Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office.  “We further allege that Rampoldi and Blythe tried to evade detection by hiding their trading elsewhere, but to no avail.”

In a parallel action, the U. S. Attorney’s Office for the Southern District of California today brought criminal charges against Rampoldi and Blythe.

The SEC’s complaint charges Rampoldi and Blythe with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The SEC seeks permanent injunctions as well as disgorgement, interest, and penalties.

The SEC’s investigation was conducted by Patricia A. Paw, John S. Rymas, Daniel Koster, and Brendan P. McGlynn of the Philadelphia office, and supervised by G. Jeffrey Boujoukos.  The litigation will be led by David L. Axelrod and Michael J. Rinaldi.  The SEC appreciates the assistance of the U. S. Attorney’s Office for the Southern District of California, Federal Bureau of Investigation, and Financial Industry Regulatory Authority.

SEC Press Release

SEC Charges Cardiologist With Insider Trading on Confidential Drug Trial Developments

The Securities and Exchange Commission today charged a cardiologist with insider trading on confidential developments as he worked on a clinical drug trial.   

The SEC alleges that Dr. Edward Kosinski of Weston, Connecticut, traded in advance of two negative news announcements by Regado Biosciences, which was pursuing a drug called REG-1 to regulate clotting in patients undergoing coronary angioplasty.  Kosinski, who served as principal investigator of the drug trial, got advance notice that patient enrollment in the trial was being suspended because patients had experienced severe allergic reactions.  He allegedly sold all 40,000 shares of his Regado stock the following day to avoid approximately $160,000 in losses when the news became public and the stock price dropped.  A month later, Kosinski received advance notice that enrollment would be permanently halted because a patient had died, and he profited through options trades by betting the stock price would drop again.  Kosinski allegedly made more than $3,000 when he exercised the options after the company’s stock fell by 60 percent upon the negative news.

“We allege that Dr. Kosinski illegally sold all of his stock in the company to avoid thousands of dollars in losses when the bad news came out,” said Joseph Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit.  “Not content with avoiding heavy losses, Kosinski allegedly further enriched himself by placing options trades to profit when the company’s stock price dropped again on more bad news.”

In a parallel case, the U.S. Attorney’s Office for the District of Connecticut today announced criminal charges against Kosinski.

The SEC’s complaint filed in federal court in Connecticut charges Kosinski with violating antifraud provisions of the federal securities laws and related rules. 

The SEC’s investigation was conducted by Andrew J. Palid and Michele T. Perillo of the Market Abuse Unit in the Boston Regional Office, and the litigation will be led by Deena R. Bernstein.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Connecticut, Federal Bureau of Investigation, and Financial Industry Regulatory Authority.  

SEC Press Release

SEC Obtains Asset Freeze in Case of Investor Funds Stolen for Shopping Sprees

The Securities and Exchange Commission today announced an asset freeze it has obtained against three men who aren’t registered to sell investments and allegedly went on lavish shopping sprees with more than $5 million raised from investors to purportedly develop a resort.

In an emergency action filed in federal court in Atlanta, the SEC alleges that Matthew E. White, Rodney A. Zehner, and Daniel J. Merandi fraudulently issued $1 billion in unsecured corporate bonds out of a shell company they own and claimed the money would be used to fund the resort project.  But they never came close to raising the funds necessary to start the project, and meantime they pocketed the $5.6 million they did raise and used it for personal purchases at Saks Fifth Avenue, Gucci, Louis Vuitton, Prada, and Versace.

“We allege that these men stole millions of dollars from investors for personal use and orchestrated sham transactions to prop up the price of the worthless, expired bonds at the center of the fraud,” said William P. Hicks, Associate Director of the SEC’s Atlanta Regional Office.

The SEC encourages investors to check the backgrounds of people selling them investments.  A quick search on the SEC’s investor.gov website would have shown that White, Zehner, and Merandi are not registered to sell investments.

The SEC's complaint filed yesterday alleges that White, Zehner, Merandi, and their companies violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5. The SEC seeks permanent injunctions, disgorgement, and penalties against all of the defendants.  The court order obtained late yesterday freezes defendants’ cash held in a brokerage account and freezes the bonds held in a separate brokerage account.   

The SEC’s investigation was conducted by Debbie Hampton, Tony Winter, and Harry Roback, and supervised by Matthew McNamara and William Hicks of the Atlanta office.

Public Service Announcement: — Check Out Your Investment Professional

SEC Press Release

SEC Halts Ongoing Fraudulent Stock Scheme

The Securities and Exchange Commission today announced it has won a court-ordered asset freeze to halt an ongoing fraud by two former brokers with disciplinary histories who allegedly raised more than $5 million from investors without using the money as promised.

In an emergency action filed in federal court in Chattanooga, Tenn., the SEC alleges that James Hugh Brennan III and Douglas Albert Dyer sold purported shares in eight similarly named companies to more than 240 investors since 2008 without ever registering the stock as they promised.  Instead, according to the SEC’s complaint, Brennan and Dyer transferred investor funds into their personal accounts or those belonging to their wives.  The SEC further alleges that Brennan and Dyer continue to solicit investors while touting their securities industry experience and failing to disclose that Brennan was banned from the brokerage industry and Dyer suspended and fined for executing unauthorized transactions in customers’ accounts.

“We allege that Brennan and Dyer have been telling investors the same lies for several years without fulfilling any of the promises they’ve made, and the court’s temporary restraining order stops them from soliciting any more investors and freezes their assets as we pursue litigation,” said Walter Jospin, Director of the SEC’s Atlanta Regional Office.

The SEC encourages investors to check the backgrounds of investment professionals before investing their money.  A quick search on the SEC’s investor.gov website would have shown that neither Brennan nor Dyer has been registered to sell investments as a broker since the late 1990s as well as their disciplinary problems with the Financial Industry Regulatory Authority and state regulators. 

The SEC’s complaint alleges that Brennan, Dyer, and their company Broad Street Ventures have violated Section 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The SEC seeks disgorgement of ill-gotten gains plus interest and penalties as well as permanent injunctions.  The SEC also seeks penny stock and officer-and-director bars against Brennan and Dyer.  The court’s order issued this morning freezes the assets of Broad Street, Brennan, and Dyer.  Their spouses are named as relief defendants in the SEC’s complaint for the purposes of recovering ill-gotten gains deposited in their accounts.

The SEC’s investigation has been conducted by Michael Mashburn and Peter Diskin under the supervision of William Hicks, and the litigation is being led by Robert Schroeder, Pat Huddleston, and Graham Loomis in the Atlanta Regional Office.

Public Service Announcement: — Check Out Your Investment Professional

SEC Press Release

SEC Sues UK-Based Trader for Account Intrusion Scheme

The Securities and Exchange Commission today announced it has obtained an emergency court order to freeze the assets of a United Kingdom resident charged with intruding into the online brokerage accounts of U.S. investors to make unauthorized stock trades that allowed him to profit on trades in his own account.

In a complaint filed in U.S. District Court in the Southern District of New York, the SEC alleges that in April and May, Idris Dayo Mustapha hacked into numerous accounts of U.S. customers of broker-dealers in and outside the U.S.  The complaint alleges that Mustapha placed stock trades without the customers’ knowledge and then traded in the same stocks through his own brokerage account.  In one case, Mustapha allegedly hacked into a brokerage account and rapidly purchased shares at increasing prices and then profited by selling his own shares of the stock in his brokerage account.  According to the complaint, Mustapha’s scheme made at least $68,000 profits for himself and caused losses in the victims’ accounts of at least $289,000.   

“We will swiftly track down hackers who prey on investors as we allege Mustapha did, no matter where they are operating from and no matter how sophisticated their technology,” said Robert Cohen, Co-Chief of the SEC Enforcement Division's Market Abuse Unit.  

The SEC obtained an emergency court order today that freezes more than $100,000 in Mustapha’s assets and prohibits Mustapha from destroying evidence.

The SEC alleges that Mustapha violated the antifraud provisions of federal securities laws and a related SEC antifraud rule.  In addition to the emergency relief, the SEC is seeking permanent injunctions, return of allegedly ill-gotten gains with interest, and financial penalties.

The SEC's Market Abuse Unit and its Boston Regional Office jointly conducted the investigation, which is continuing.  Eric Forni, Susan Cooke Anderson, Mark Albers, and Michele Perillo investigated the matter, with the assistance of Alex Lefferts of the Enforcement Division’s Center for Risk and Quantitative Analytics and Stuart Jackson of the Division of Economic and Risk Analysis.   

SEC Press Release

Software Executive and Three Friends Charged With Insider Trading

The Securities and Exchange Commission today announced insider trading charges against a former software company executive and three close friends who made more than a half-million dollars based on his illegal tip about an upcoming merger.

 

The SEC alleges that Christopher Salis, then a global vice president at SAP America, received thousands of dollars in kickbacks for tipping Douglas Miller in advance of SAP’s impending acquisition of Concur Technologies.  Miller tipped his brother Edward Miller and mutual friend Barrett Biehl as they rushed to open online brokerage accounts and make risky, short-term trades in Concur call options so they could profit substantially when the deal was publicly announced.

 

“When corporate insiders exploit confidential information to enrich themselves and their friends, they undermine the level playing field that is fundamental to our capital markets,” said Scott W. Friestad, Associate Director in the SEC’s Division of Enforcement.  “As this and recent cases demonstrate, we are working aggressively to root out and identify insider trading by connecting patterns of trading to sources of material nonpublic information.”

 

According to the SEC’s complaint filed in federal court in Indiana:

• Salis tipped Douglas Miller in the summer of 2014 when he became aware of plans for the SAP-Concur merger.
• At the time, the Millers were strapped for cash as co-owners of a car wash with mounting debts.  After being tipped by Salis, Douglas Miller referred to the Concur options trades as “our possible savior” and added, “This is what we all need to weather any storm and put us on top bro!  Just make sure your [sic] a squirrel and sock it away … I hope were [sic] dancing in the streets in the next 4-5 Weeks!” 
• When a brokerage firm would not accept cash and an electronic transfer would take days to clear, the Millers obtained cashier’s checks and drove a half-hour to the nearest branch office to deposit the money and trade as quickly as possible.
• Douglas Miller also placed trades in his parents’ account and another friend’s account, and Salis repeatedly accessed the Millers’ online brokerage accounts to monitor the trades.
• Hours before the public announcement, Douglas Miller began making plans to sell the options, telling a brokerage representative that he was “just trying to prepare [himself] if something happened.”
• Kickbacks to Salis included at least $10,400 in cash he received only weeks after the merger announcement when he visited Douglas Miller.  Concerned about detection, Salis deposited some of the money before heading to the airport with the rest.  He later texted Miller: “I am through security . . . Ps. Half in my bag, half in my pockets…no problem.”
• Salis’s startup company later received approximately $80,000 from Miller and his family.

 

The SEC also has linked Salis and Douglas Miller to suspicious trades in 2007 that were made in advance of a tender offer for a company called Business Objects, where Salis worked at the time.  Salis and Miller are charged with this additional count of insider trading in the SEC’s complaint, which alleges illicit profits of more than $42,000.

 

The SEC’s complaint charges Salis, Douglas Miller, Edward Miller, and Biehl with violating Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934.  Salis and Douglas Miller also allegedly violated Section 14(e) and Rule 14e-3 of the Exchange Act.

 

The SEC’s investigation was conducted by Brianna Ripa, Amy Friedman, Adam Gottlieb, and Carolyn Welshhans with assistance from John Rymas in the Market Abuse Unit’s Analysis & Detection Center.  The case has been supervised by Mr. Friestad and Robert A. Cohen, co-chief of the Market Abuse Unit.  The SEC’s litigation will be led by Kevin C. Lombardi and Cheryl Crumpton.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.
 

SEC Press Release

Hedge Fund Managers and Former Government Official Charged in $32 Million Insider Trading Scheme

The Securities and Exchange Commission today announced insider trading charges against two hedge fund managers and their source, a former government official accused of deceptively obtaining confidential information from the U.S. Food and Drug Administration (FDA).  A third hedge fund manager working at the same investment advisory firm as the alleged insider traders was charged with falsely inflating assets in portfolios he managed.

 

The SEC alleges that Sanjay Valvani reaped unlawful profits of nearly $32 million for hedge funds investing in health care securities by insider trading on tips he received from Gordon Johnston, who worked at the FDA for a dozen years and remained in close contact with former colleagues while working for a trade association representing generic drug manufacturers and distributors.  Johnston concealed his separate role as a hedge fund consultant and obtained confidential information about anticipated FDA approvals for companies to produce enoxaparin, a generic drug that helps prevent the formation of blood clots.  Johnston allegedly funneled to Valvani the details of his conversations with FDA personnel, including a close friend he mentored during his time at the agency.  Valvani then traded in advance of public announcements concerning FDA approvals for such companies as Momenta Pharmaceuticals, Watson Pharmaceuticals, and Amphastar Pharmaceuticals.

 

“We allege that Valvani’s formula for trading success was tapping Johnston to abuse his position of trust as a generic industry representative to the FDA and underhandedly obtain confidential information from his friends and former colleagues at the FDA,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “Valvani and his hedge funds made millions by trading on nonpublic FDA drug approval information not available to the rest of the stock market.”

 

The SEC further alleges that Valvani in turn tipped fellow hedge fund manager Christopher Plaford, who is charged in a separate complaint with insider trading on this nonpublic information as well as other material he received confidentially from a former Centers for Medicare and Medicaid Services official about an impending cut to Medicare reimbursement rates for certain home health services.  Plaford allegedly made approximately $300,000 by trading based on inside information in hedge funds he managed.  He has cooperated with the SEC’s investigation.

 

In a separate complaint against Stefan Lumiere, the SEC alleges that he and Plaford engaged in a fraudulent scheme to falsely inflate the value of securities held by a hedge fund advised by their firm.  For an 18-month period, Lumiere used sham broker quotes to mismark as many as 28 securities per month, surreptitiously passing his desired prices along to brokers via his personal cell phone or a flash drive delivered by a courier.  The fund consequently reported artificially inflated returns and monthly net asset values, and paid out more than $5.9 million in inflated management and performance fees to its investment adviser.

 

“Lumiere allegedly used fake prices to value assets while investors were led to believe the fund was using real prices from independent sources that reflected the market value for those assets,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Financial professionals who cheat investors and game the system should not expect to get away with it.”

 

In parallel actions, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Valvani, Johnston, Lumiere, and Plaford.

 

The SEC’s complaint against Valvani and Johnston charges them with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  Valvani also allegedly aided and abetted his firm’s violation of Section 204A of the Investment Advisers Act of 1940. 

 

The SEC’s complaint against Plaford charges him with violations of Section 10(b) of the Exchange Act and Rule 10b-5, and Section 206 of the Advisers Act and Rule 206(4)-8.  He is also charged with aiding and abetting his firm’s violation of Section 204A of the Advisers Act. 

 

The SEC’s complaint against Lumiere charges him with committing or aiding and abetting violations of Section 10(b) of the Exchange Act and Rule 10b-5 as well as Section 206 of the Advisers Act and Rule 206(4)-8. 

 

The SEC’s complaints, filed in federal court in Manhattan, seek disgorgement of ill-gotten gains plus interest and penalties as well as permanent injunctions against future violations.

 

The SEC’s continuing investigation is being conducted by William Conway and Philip Moustakis of the Asset Management Unit and Jason Sunshine, Charles Riely, and Valerie Szczepanik of the New York office.  Assisting the investigation are Brian Fitzpatrick, Neil Hendelman, and Christopher Mele.  The litigation will be led by Alexander Vasilescu, Mr. Moustakis and Mr. Sunshine.  The case is being supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, the Department of Health and Human Services Office of Inspector General, and the Financial Industry Regulatory Authority.
 

SEC Press Release

Investment Fraud Victims Include Online Daters

The Securities and Exchange Commission today announced fraud charges and an asset freeze obtained against a Connecticut man accused of misleading people into investing in his company and then taking their money for his personal use.  His victims include several women he met through an online dating website.

 

The SEC alleges that Thomas J. Connerton told investors that his company Safety Technologies LLC was developing a material to make surgical gloves better resistant to cuts or punctures.  He claimed that several major glove manufacturers wanted the technology and Safety Technologies was on the brink of imminent deals that would result in large payouts for investors in his company.  But no deals have ever been anywhere close to materializing, and Connerton has emptied the company’s bank account by writing a series of checks to himself and using investor funds for his own expenses.

 

According to court documents filed by the SEC, among Connerton’s improper spending of investor funds was $20,000 for an engagement ring for his latest online date turned investor.  There are more than 50 investors in Safety Technologies, including six women Connerton met through online dating and 14 others who are family or friends of those women.

 

“We charge Connerton with lying about the state of his business and exploiting personal connections to lure in investors,” said Paul G. Levenson, Director of the SEC’s Boston Regional Office.  “Investors beware: a rosy picture of a business that’s about to take off could still lead to a total loss of investment.”

 

According to the SEC’s complaint, Connerton failed to comply with the requirements for private offerings exempt from registration under the federal securities laws, such as providing investors with appropriate financial information and confirming that they have sufficient knowledge and experience to evaluate the merits and risks of the investment.  Connerton also is not registered to sell investments.  Investors can quickly and easily check whether people selling investments are registered by using the SEC’s investor.gov website.

 

The SEC has obtained a court order freezing the assets of Connerton and Safety Technologies.  The SEC’s complaint seeks a permanent injunction as well as the return of allegedly ill-gotten gains plus interest and a penalty.

 

The SEC’s investigation was conducted by Jonathan R. Allen, Sofia Hussain, Alfred Day, and Amy Gwiazda of the Boston office. 
 

SEC Press Release

Consultant to Chinese Private Equity Firms Settles Insider Trading Charges

The Securities and Exchange Commission today announced that a former consultant to two China-based private equity firms has agreed to pay more than $756,000 to settle insider trading charges.

 

The SEC alleges that Guolin Ma traded on confidential information he obtained while advising the two firms as they pursued a buyout of Silicon Valley-based OmniVision Technologies, a maker of optical semiconductor devices.  Ma, an optical physicist who primarily resides in China, attended key meetings and performed technical due diligence related to the potential acquisition of OmniVision, and he received timeline and strategy documents from the firms.

 

According to the SEC’s complaint filed in federal court in San Jose, Calif., one of the firms advised by Ma joined a group of Chinese investment firms in making a bid to buy OmniVision.  Ma stockpiled 39,373 shares of OmniVision stock through a series of purchases in April and May 2014 while possessing nonpublic information.  OmniVision’s stock price rose 15 percent when the proposed acquisition was publicly announced in August 2014, allowing Ma to generate $367,387 in illegal profits.   

 

“Guolin Ma breached a duty of trust and confidence to the private equity firms when he bought thousands of shares of OmniVision stock while aware of the impending transaction,” said Joseph G. Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit.  “It was a costly mistake because the settlement requires him to pay back double his illegal trading profits.”

 

Without admitting or denying the allegations in the SEC’s complaint, Ma agreed to pay disgorgement of $367,387 plus interest of $21,986 and a penalty of $367,387.  The settlement is subject to court approval.

 

The SEC’s investigation was conducted by Amanda Straub and supervised by Steven Buchholz of the Market Abuse Unit.  They were assisted by trial counsel E. Barrett Atwood and Wade Rhyne in the San Francisco Regional Office.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.
 

SEC Press Release

Childhood Friends Charged With Insider Trading in Pharmaceutical Stocks

The Securities and Exchange Commission today charged two Rhode Island men with insider trading in the securities of deal targets being pursued by the pharmaceutical company where one of them worked.

 

The SEC alleges that Michael J. Maciocio obtained confidential clinical and business data about other pharmaceutical firms being considered by his company for potential acquisitions and business relationships, and he used the nonpublic information to trade in their stocks.  Maciocio made approximately $116,000 in illegal profits trading in such pharmaceutical companies as Medivation Inc., Ardea Biosciences, and Furiex Pharmaceuticals.

 

The SEC further alleges that Maciocio illegally tipped his friend since childhood, stockbroker David P. Hobson, who utilized the nonpublic information to realize at least $187,000 in illicit trading profits for himself and $145,000 for his customers.

 

“We allege that Maciocio and Hobson engaged in a multi-year insider trading scheme by repeatedly using the confidential information of Maciocio’s employer to place illicit trades,” said Joseph G. Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit.  “Given his years of experience in the securities industry, Hobson’s misuse of this highly sensitive corporate deal information represents an especially egregious violation of the law.” 

 

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Maciocio and Hobson.

 

The SEC’s complaint charges Maciocio and Hobson with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

 

The SEC’s investigation has been conducted by Charu A. Chandrasekhar and Simona K. Suh of the Market Abuse Unit and Jordan Baker and Michael D. Birnbaum of the New York Regional Office.  The case has been supervised by Mr. Sansone.  The SEC’s litigation will be led by Mr. Birnbaum and Ms. Chandrasekhar.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.

SEC Press Release

Wells Fargo Warns Energy Losses Will Grow

Wells Fargo is telling investors to brace for more losses on loans to energy companies.

That, in turn, increases the likelihood that the bank will continue to bolster its reserves to offset those losses, the bank said at its investor day presentation Tuesday in California.



Wells Fargo warns energy loan losses will grow



See: Investors Filing Claims for Energy, Oil and Gas Stock Losses



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Sallah Astarita & Cox, LLC attorneys include former SEC enforcement attorneys and brokerage firm attorneys. They represent investors and brokers across the country in securities arbitration cases, as well as SEC and FINRA investigations. For more information, or to review your situation, call them at 212-509-6544.

SEC: Forex Trader Misrepresented Track Record and Hid Massive Losses

The Securities and Exchange Commission today charged a New York City-based trader with defrauding investors out of millions of dollars by misrepresenting her investment track record, the profitability of her investments, and her use of investor funds.

 

The SEC alleges that Haena Park touted her supposedly profitable futures and foreign currency (forex) trading strategy when soliciting friends, family, former Harvard classmates, and individuals with connections to them.  She proceeded to pool investor funds and incur heavy trading losses month after month in the futures and forex markets, yet repeatedly told investors that their investments were profitable and sent them monthly account statements showing fictitious profits.  At times, Park used new investor funds to make Ponzi-like payments to earlier investors.  She raised at least $14 million from more than 30 investors since 2012, and has suffered more than $16 million in trading losses during that time period.

 

“We allege that Park brazenly obtained investor money under false pretenses and compounded her egregious conduct by using phony monthly statements to convince some investors to significantly increase their investments based on fictitious positive returns,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.   

 

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today brought criminal charges against Park. 

 

The SEC’s complaint charges Park with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The SEC is seeking a permanent injunction as well as the return of alleged ill-gotten gains plus interest and penalties.

 

The SEC’s continuing investigation is being conducted by Wendy Tepperman, Rhonda Jung, and Teresa Rodriguez in the New York office.  The litigation will be led by Jack Kaufman.  The case is being supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the U.S. Department of Homeland Security, and the U.S. Commodity Futures Trading Commission.
 

SEC Press Release

SEC: Adviser Steered Investor Money to His Own Companies

The Securities and Exchange Commission today charged a North Carolina-based investment adviser with defrauding investors by secretly steering portions of real estate-related investments into deals with companies that he owned or operated himself.

 

The SEC alleges that Richard W. Davis Jr. breached his fiduciary duty and took no steps to disclose or ameliorate the conflicts of interest involved with using investor money to enter into transactions with entities he beneficially owned or controlled.  The SEC further alleges that Davis made false or misleading statements to investors before and after they made their investments, failed to inform investors of their losses as his companies failed to pay the loans, and improperly received at least $1.5 million from bank accounts commingling investor funds when he was only entitled to less than $150,000 in management fees.

 

“We allege that Davis failed to inform investors about his own companies being the borrowers of the real estate loans funded with their investments.  He then doubled down on his deception by falsely telling investors their investments were growing while his companies were not even repaying the loans,” said Stephen L. Cohen, Associate Director of the SEC Enforcement Division.

 

Davis has agreed to a settlement subject to court approval with disgorgement plus interest and penalties to be determined by the court at a later date.

 

According to the SEC’s complaint filed in federal court in Charlotte, N.C.:

• Davis sold interests in two unregistered pooled investment vehicles named DCG Commercial Fund I LLC and DCG Real Assets LLC.  He defrauded at least 85 people who invested a total of approximately $11.5 million.
• Davis told Commercial Fund investors that their money would be used to fund short-term fully secured loans to real estate developers.  He hid the fact that two of the four projects invested in by the fund were his own companies.
• Investors suffered losses because the loans made by the funds were never paid in full, yet Davis failed to inform the investors of this. Even after he declared one loan to be in default, he failed to reappraise the value of the loan and reflect that change in the shareholder’s account statements.
• Davis similarly failed to inform Real Assets investors that he transferred to his own entities at least $7.7 million of the $9.8 million he raised from them.  From there the money was spent or transferred to additional entities he owned or controlled until the entire $7.7 million was depleted.
• Davis falsely reported to investors that their investments were growing in value year-after-year, and falsely claimed that the Real Assets fund held more than $10 million in assets.  But his claims were based on his own speculative valuations of the fund’s assets and not a product of any tabulation of the fund’s true net asset value.

 

The SEC’s complaint charges Davis with violations of Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 as well as Sections 5 and 17(a) of the Securities Act of 1933, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8.  Without admitting or denying the allegations, Davis agreed to the partial settlement that bars him from any further sale of securities in a pooled investment vehicle as well as from future violations of antifraud and securities registration provisions of the federal securities laws.  He also is required to cooperate with a court-appointed receiver.

 

The SEC’s continuing investigation is being led by Christopher R. Mathews and Andrew R. McFall and supervised by J. Lee Buck II.  The trial attorney on the case is Patrick R. Costello.

 

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More Information

 

SEC Investor Alert: Self-Directed IRAs and the Risk of Fraud

SEC Press Release

SEC: Nashville Firm Schemed to Collect Extra Fees From Hedge Funds

The Securities and Exchange Commission today charged a Nashville, Tenn.-based investment advisory firm and its owner with scheming to collect extra monthly fees from a pair of hedge funds they managed.
 

Examiners in the SEC’s Atlanta office detected the misconduct during an examination of Hope Advisers Inc., which is owned by Karen Bruton.  The SEC alleges that in order to circumvent the funds’ fee structure under which the firm is entitled to fees only if the funds’ profits that month exceed past losses, Hope Advisers and Bruton have been orchestrating certain trades that enable the funds to realize a large gain near the end of the current month while basically guaranteeing a large loss to be realized early the following month.  Without the fraudulent trades, Hope Advisers would have received almost no incentive fees since October 2014. 

 

“We allege that Hope Advisers and Bruton disregarded investors by engaging in a pattern of deceptive trades so they could continue earning large incentive fees,” said Walter Jospin, Director of the SEC’s Atlanta Regional Office.

 

Hope Advisers and Bruton have consented to an interim order that restricts them from accessing $7 million of their own investments in the funds, prohibits them from collecting any further fees unless they satisfy the high water mark in the funds’ fee structure, and restricts them from taking additional investments in the fund.  Without admitting or denying the allegations, Hope Advisers and Bruton also are preliminarily enjoined from violating the antifraud statutes of the federal securities laws.

 

According to the SEC’s complaint filed in federal court in Atlanta:

• The two private hedge funds managed by Hope Advisers and Bruton – named Hope Investments LLC and HDB Investments LLC – have more than $175 million in net asset value.
• Hope Advisers receives its only compensation for managing the funds in the form of an incentive fee, calculated as a share of the profits (10 or 20 percent) earned in the funds’ accounts each month.
• Hope Advisers and Bruton engaged in a continuous pattern of trading to inflate their compensation from the funds.  They not only delayed realization of trading losses but also intentionally sized certain trades so the funds realized a profit every month.
• The scheme has enabled Hope Advisers to avoid realization of more than $50 million in losses in the hedge funds while earning millions of dollars in fees to which they were not entitled.
• Without the fraudulent trades, Hope Advisers would have received almost no incentive fees from at least October 2014 through the present.

 

The SEC’s complaint charges Hope Advisers and Bruton with violating or aiding and abetting 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 as well as Sections 206(1), (2) and (4) of the Investment Advisers Act of 1940, and Rule 206(4)-8.  The SEC’s complaint seeks disgorgement of ill-gotten gains plus interest and penalties as well as permanent injunctions. 

 

The complaint also names Bruton’s charity called Just Hope Foundation as a relief defendant for the purposes of returning money it received out of the fees to which the firm was not entitled.  The complaint does not allege that the Just Hope Foundation participated in the wrongdoing. 

 

The SEC examination that uncovered the misconduct was conducted by Jamila Abston, Elaina Labossiere, and Ed McConnell under the supervision of Bill Royer and with assistance from Terry Moran in the Chicago office and Jim Richardson in the Miami office.  The ensuing investigation was conducted by Peter Diskin, Graham Loomis, Joshua Mayes, Robert Gordon, and Grant Mogan in the Atlanta office with assistance from Mr. Moran and Mr. Richardson.  The investigation was supervised by William P. Hicks, the Associate Regional Director of Enforcement in the Atlanta office.   
 

SEC Press Release

Mortgage Company and Executives Settle Fraud Charges

The Securities and Exchange Commission today announced that a California-based mortgage company and six senior executives agreed to pay $12.7 million to settle charges that they orchestrated a scheme to defraud investors in the sale of residential mortgage-backed securities guaranteed by the Government National Mortgage Association (Ginnie Mae). 

 

First Mortgage Corporation (FMC) is a mortgage lender that issued Ginnie Mae RMBS backed by loans it originated.  The SEC alleges that from March 2011 to March 2015, FMC and its senior-most executives pulled current, performing loans out of Ginnie Mae RMBS by falsely claiming they were delinquent in order to sell them at a profit into newly-issued RMBS.  FMC caused its Ginnie Mae RMBS prospectuses to be false and misleading by improperly and deceptively using a Ginnie Mae rule that gave issuers the option to repurchase loans that were delinquent by three or more months. 

 

According to the SEC’s complaint filed in U.S. District Court for the Central District of California, FMC purposely delayed depositing checks from borrowers who had been behind on their loans, falsely claiming to both investors and Ginnie Mae that such loans remained delinquent when in reality they were current.  This was done with the knowledge and approval of the company’s senior-most management.  After repurchasing at prices applicable to delinquent loans, FMC was able to resell the loans into new Ginnie Mae RMBS pools at higher prices applicable to current loans for an immediate, nearly risk-free profit.  Investors, meanwhile, were wrongly deprived of the interest payments on the repurchased loans.

 

“FMC and its senior executives abused their privileged access to Ginnie Mae’s securitization program by allowing greed to corrupt their business practices,” said Andrew Ceresney, Director of the SEC's Division of Enforcement.  “It is critical that we hold senior management fully accountable for this kind of misconduct, which we were able to accomplish here quickly due to the cooperation of company insiders.”

 

The executives charged with fraud in the SEC’s complaint agreed to the following settlements:

• Chairman and CEO Clement Ziroli Sr. agreed to a $100,000 penalty.
• Company president Clement Ziroli Jr. agreed to pay 411,421.98 plus $27,203.92 in interest and a $200,000 penalty.
• Chief financial officer Pac W. Dong agreed to pay a $100,000 penalty.
• Senior vice president Ronald T. Vargas, who headed FMC’s capital markets department, agreed to pay a $60,000 penalty.
• Senior vice president Scott Lehrer agreed to pay a $50,000 penalty.
• Managing director of the servicing department Edward Joseph Sanders agreed to pay disgorgement of $51,576.51 plus $6,811.19 in interest.  Sanders cooperated in the SEC’s investigation.

 

In settling the charges without admitting or denying the allegations, each of the six executives agreed to be barred from serving as an officer or director of a public company for five years.

 

The SEC’s complaint alleges that FMC, Ziroli Sr., Ziroli Jr., Dong, Vargas, Lehrer, and Sanders violated Sections 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act, and Rule 10b-5(a) and (c).  The complaint also alleges that FMC violated Rule 10b-5(b).  The settlements are subject to court approval.

 

The SEC’s investigation was conducted by Allison Herren Lee and John B. Smith from the Complex Financial Instruments Unit in the Denver Regional Office.  They were assisted by Dugan Bliss and Judy Bizu, and the case was supervised by Laura M. Metcalfe and Michael J. Osnato.  The SEC appreciates the assistance of Ginnie Mae.
 

SEC Press Release

Investment Banker and Plumber Charged With Insider Trading

The Securities and Exchange Commission today announced insider trading charges against an investment banker and his close friend, a plumber who allegedly helped remodel his bathroom and put cash in his gym bag in return for illicit tips about upcoming mergers and acquisitions.

 

The SEC alleges that Steven McClatchey had regular access to highly confidential nonpublic information about impending transactions being pursued for investment bank clients.  The Analysis and Detection Center within the SEC Enforcement Division’s Market Abuse Unit detected an illicit pattern of trading by Gary Pusey, who McClatchey allegedly tipped with nonpublic information on 10 different occasions ahead of public merger announcements.

 

“We will continue enhancing our market surveillance techniques to detect patterns of insider trading and expose schemes, even when alleged perpetrators like McClatchey and Pusey attempt to avoid detection by providing in-person tips and cash payments,” said Joseph Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit.

 

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges.

 

According to the SEC’s complaint filed in federal court in Manhattan:

• The scheme began in early 2014 after McClatchey and Pusey became close friends upon meeting at a marina where they kept their fishing boats. 
• One of McClatchey’s job responsibilities was to collect timely information about potential mergers and acquisitions involving clients of the investment bank where he worked in New York City.  McClatchey misused his ready access to confidential information and regularly tipped Pusey.
• Pusey used the misappropriated nonpublic information as he purchased securities in 10 companies before their acquisitions were announced publicly, enabling him to generate $76,000 in illicit trading profits. 
• In return for the tips, Pusey provided McClatchey with free services during his bathroom remodel and paid him thousands of dollars in cash that he typically placed in McClatchey’s gym bag while at the marina or handed to him directly in his garage. 

 

The SEC’s complaint charges McClatchey and Pusey with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Section 14(e) of the Exchange Act and Rule 14e-3.  The complaint seeks a final judgment ordering McClatchey and Pusey to pay disgorgement of their ill-gotten gains plus interest and penalties, and permanently enjoining them from future violations of these provisions of the federal securities laws.

 

The SEC's investigation was conducted by Mark S. Germann and Charles D. Riely of the Market Abuse Unit with assistance from John Rymas in the Analysis and Detection Center.  Also assisting in the investigation were Sandeep Satwalekar, James D’Avino, and Matthew Lambert of the New York Regional Office.  The case has been supervised by Mr. Sansone.  The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.
 

SEC Press Release

Mayor in Illinois Settles Muni Bond Fraud Charges

The Securities and Exchange Commission today announced that the mayor of Harvey, Ill., has agreed to pay $10,000 and never participate in a municipal bond offering again in order to settle fraud charges.

The SEC alleges that Eric J. Kellogg was connected to a series of fraudulent bond offerings by the city.  Investors were told that their money would be used to develop and construct a Holiday Inn hotel in Harvey, but instead city officials diverted at least $1.7 million in bond proceeds to fund the city’s payroll and other operational costs unrelated to the hotel project.

According to the SEC’s complaint filed in the U.S. District Court for the Northern District of Illinois, Mayor Kellogg exercised control over Harvey’s operations and signed important offering documents the city used to offer and sell the bonds.  Based on his control of the city, Kellogg is liable for fraud as a control person under Section 20(a) of the Securities Exchange Act.

“Investors were told one thing while the city did another, and Kellogg was in a position to control the bond issuances and prevent any fraudulent use of investor money.  His days of participating in muni bond offerings are over,” said LeeAnn Ghazil Gaunt, Chief of the SEC Enforcement Division’s Public Finance Abuse Unit. 

Kellogg agreed to settle the charges without admitting or denying the SEC’s allegations.  The settlement is subject to court approval.

The SEC’s investigation was conducted by Sally J. Hewitt, Eric A. Celauro, and Brian D. Fagel of the Public Finance Abuse Unit, with assistance from Scott J. Hlavacek and Eric M. Phillips of the Chicago Regional Office.

SEC Press Release

SEC Announces Insider Trading Charges in Case Involving Sports Gambler and Board Member

The Securities and Exchange Commission today announced insider trading charges against a professional sports gambler who allegedly made $40 million based on illegal stock tips from a corporate insider who owed him money.

The SEC alleges that the sports gambler, William “Billy” Walters of Las Vegas, was owed money by then-Dean Foods Company board member Thomas C. Davis.  According to the SEC complaint, Davis regularly shared inside information about Dean Foods with Walters in advance of market-moving events, using prepaid cell phones and other methods in an effort to avoid detection.  The SEC further alleges that while Walters made millions of dollars insider trading using the confidential information, he provided Davis with almost $1 million and other benefits to help Davis address his financial debts. 

The SEC complaint also alleges that professional golfer Phil Mickelson traded Dean Foods’s securities at Walters’s urging and then used his almost $1 million of trading profits to help repay his own gambling debt to Walters.  Walters and Davis are charged with insider trading, and Mickelson is named as a relief defendant.  Relief defendants are not accused of wrongdoing but are named in SEC complaints for the purposes of recovering alleged ill-gotten gains in their possession from schemes perpetrated by others.

“As we charge in our complaint, Walters illegally reaped tens of millions of dollars with the benefit of the ultimate ace in the hole – confidential information leaked by a sitting board member of a public company,” said Andrew Ceresney, Director of the SEC’s Enforcement Division.  “Additionally, Mickelson will repay the money he made from his trading in Dean Foods because he should not be allowed to profit from Walters’s illegal conduct.” 

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Walters and Davis.

After certain suspicious trades had been identified, the SEC’s investigation analyzed years of trading data and other information and followed the leads back to Walters and Davis, including their use of a variety of prepaid cell phone numbers.

According to the SEC’s complaint, Walters provided Davis with a prepaid cellular phone to use when he shared inside information about Dean Foods.  Walters further instructed Davis to refer to Dean Foods as the “Dallas Cowboys” during conversations.

According to the SEC’s complaint filed in federal court in Manhattan:

• The unlawful trading occurred during a five-year period.  Among the inside information passed from Davis to Walters in advance of Dean Foods public announcements was earnings information for the second and fourth quarters in 2008, the first and third quarters in 2010, and the first and second quarters of 2012.
• Davis also tipped Walters as Dean Foods prepared to convert its profitable subsidiary WhiteWave Foods Company into a separate business with its own stock.  Walters traded in Dean Foods stock in advance of public announcements about the spin-off and initial public offering (IPO) of WhiteWave shares.
• The SEC also identified suspicious trades in the stock of Darden Restaurants and linked them to Davis, who was recruited in 2013 by a group of shareholders buying up Darden stock with the goal of influencing management to make corporate changes.
• Davis was lacking market-moving information about Dean Foods to share with Walters at that time, so he began sharing nonpublic information about strategic plans for Darden despite signing a non-disclosure agreement to keep the group’s details secret.
• Walters in turn bought almost $30 million worth of Darden stock based on illegal tips from Davis and profited when the stock price increased 7 percent in October 2013 upon reported news about the investor group’s plans.
• In July 2012, Walters called Mickelson, who had placed bets with Walters and owed him money at the time.  While Walters was in possession of material nonpublic information about Dean Foods, he urged Mickelson to trade in Dean Foods stock.
• Mickelson bought Dean Foods stock the next trading day in three brokerage accounts he controlled.  About one week later, Dean Foods’s stock price jumped 40 percent following public announcements about the WhiteWave spin-off and strong second-quarter earnings.
• Mickelson then sold his shares for more than $931,000 in profits.  He repaid his debt to Walters in September 2012 in part with the trading proceeds.

The SEC’s complaint charges Walters and Davis with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The SEC seeks a final judgment ordering the return of ill-gotten gains plus interest and penalties as well as permanent injunctions from future violations of Section 10(b) and Rule 10b-5 and an officer-and-director bar against Davis. 

Mickelson neither admitted nor denied the allegations in the SEC’s complaint and agreed to pay full disgorgement of his trading profits totaling $931,738.12 plus interest of $105,291.69.

The SEC’s investigation was conducted in its San Francisco Regional Office by Karen Kreuzkamp, Market Abuse Unit members Victor W. Hong, William J. Martin, and Steven D. Buchholz, and Alexander M. Vasilescu of the New York office, who will also lead the SEC’s litigation.  The case was supervised by San Francisco office director Jina L. Choi and Market Abuse Unit co-chief Joseph Sansone. 

The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, Federal Bureau of Investigation, U.S. Postal Inspection Service, and Financial Industry Regulatory Authority.

SEC Press Release

SEC Charges Two Attorneys With Defrauding Escrow Clients

The Securities and Exchange Commission today announced fraud charges against two attorneys accused of making undisclosed risky investments and in some instances outright stealing money they obtained in escrow accounts from small business owners seeking commercial loans.

The SEC alleges that Jay Mac Rust and Christopher K. Brenner collected $13.8 million acting as escrow agents between their clients and a purported loan company called Atlantic Rim Funding.

Rust and Brenner assured clients that their deposits of 10 percent of the desired loan amount would be held safe and only used to purchase liquid, government-backed securities that Atlantic would then leverage to obtain their loans.

According to the SEC’s complaint, Atlantic had no ability or intention to obtain these loans.  Yet when that became obvious to Rust and Brenner they each continued to make misrepresentations to clients and collected more money anyway.  Rust siphoned $662,000 and Brenner took $595,000 in client funds to pay themselves and others, and they gambled on risky securities derivatives with the remainder of the money.  Rust and Brenner each opened numerous securities accounts at broker-dealers to make these trades, and avoided scrutiny by lying that the money being used was their own cash rather than client assets.

SEC examiners detected the scheme when examining one of the brokerage firms where trades were being placed.

“We allege that these attorneys betrayed the trust of their clients by luring them with promises of small business loans that never materialized.  They continued to recruit new escrow clients to repay earlier clients and did everything but keep client money safe as they represented they would,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

The SEC’s complaint, filed in federal court in Manhattan, charges Rust and Brenner with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The SEC seeks permanent injunctions and disgorgement of ill-gotten gains plus interest and penalties.

The examination that uncovered the misconduct was conducted by broker-dealer examiners in the New York office.  The ensuing investigation was conducted by Daphna A. Waxman, Tuongvy T. Le, and Valerie A. Szczepanik.  The litigation will be led by Richard G. Primoff, and the case is being supervised by Lara S. Mehraban.

SEC Press Release

SEC Charges Shell Factory Operators With Fraud

The Securities and Exchange Commission today announced fraud charges against a California stock promoter and a New Jersey lawyer who allegedly were creating sham companies and selling them until the SEC stopped them in their tracks.

The SEC alleges that Imran Husain and Gregg Evan Jaclin essentially operated a shell factory enterprise by filing registration statements to form various startup companies and misleading potential investors to believe each company would be operating and profitable.  The agency further alleges that their secret objective all along was merely to make money for themselves by selling the companies as empty shells rather than actually implementing business plans and following through on their representations to investors.

Moving quickly to protect investors based on evidence collected even before its investigation was complete, the SEC issued stop orders and suspended the registration statements of the last two created companies – Counseling International and Comp Services – before investors could be harmed and the companies could be sold.

“Issuers of securities offerings must make truthful disclosures about the company and its business operations so investors know what they’re getting into when they buy the stock,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.  “We allege that Husain drummed up false business plans and created a mirage of initial shareholders while Jaclin developed false paperwork to depict emerging companies that later sold as just empty shells.”

According to the SEC’s complaint filed in federal court in Los Angeles:

• Husain and Jaclin created nine shell companies and sold seven using essentially the same pattern.
• Husain created a business plan for each company that would not be implemented beyond a few initial steps, and then convinced a friend, relative, or acquaintance to become a puppet CEO who approved and signed corporate documents at Husain’s direction.
• Jaclin supplied bogus legal documents that Husain used to conduct sham private sales of a company’s shares of stock to “straw shareholders” who were recruited and given cash to pay for the stock they purchased plus a commission.  Some of the recorded shareholders were not even real people.
• Husain and Jaclin filed registration statements for initial public offerings and falsely claimed that a particular business plan would be implemented.  Deliberately omitted from the registration statements were any mention of Husain starting and controlling the company.
• Husain and Jaclin filed misleading quarterly and annual reports once a company became registered publicly, providing much of the same false information depicted in the registration statements.
• Husain obtained about $2.25 million in total proceeds when the empty shell companies were sold, and Jaclin and his firm received nearly $225,000 for their legal services.

The SEC’s complaint charges Husain and Jaclin with violating or aiding and abetting violations of the antifraud, reporting, and securities registration provisions of the federal securities laws.  The SEC seeks disgorgement of ill-gotten gains plus interest and penalties, permanent injunctions, and penny stock bars.  The SEC also seeks an officer-and-director bar against Husain.

The SEC’s investigation was conducted by Roberto A. Tercero and Spencer E. Bendell as part of the Microcap Fraud Task Force.  The litigation will be led by Amy J. Longo and supervised by John Berry.  The SEC appreciates the assistance of the FBI and the U.S. Attorney’s Office for the Northern District of California.

SEC Press Release

SEC Charges Father, Son, Others in Tribal Bonds Scheme

The Securities and Exchange Commission today charged a father and son and five associates with defrauding investors in sham Native American tribal bonds in order to steal millions of dollars in proceeds for their own extravagant expenses and criminal defense costs.

The SEC alleges that Jason Galanis, whose checkered past dates from an accounting fraud case during his days as a major Penthouse shareholder to stock fraud charges last year, conducted the scheme in which the “primary objective is to get us a source of discretionary liquidity,” he wrote in an e-mail to other participants.  Galanis and his father John Galanis convinced a Native American tribal corporation affiliated with the Wakpamni District of the Oglala Sioux Nation to issue limited recourse bonds that the father-and-son duo had already structured.  Galanis then acquired two investment advisory firms and installed officers to arrange the purchase of $43 million in bonds using clients’ funds. 

The SEC further alleges that instead of investing bond proceeds as promised in annuities to benefit the tribal corporation and generate sufficient income to repay bondholders, the money wound up in a bank account in Florida belonging to a company controlled by Jason Galanis and his associates.  Among their alleged misuses of the misappropriated funds were luxury purchases at such retailers as Valentino, Yves Saint Laurent, Barneys, Prada, and Gucci.  Investor money also was diverted to pay attorneys representing Jason and John Galanis in a criminal case brought parallel to the SEC’s stock fraud charges last year.

“We allege that Jason Galanis and his associates embarked upon a brazen and complex scheme in cold and calculated fashion to steal millions of dollars from unwitting investors,” said Andrew M. Calamari, Regional Director of the SEC’s New York office.   “Galanis persisted in this alleged scheme even after he was arrested by criminal authorities and charged by the SEC in a different case.”

In addition to Jason and John Galanis, the SEC’s complaint names Devon Archer of Brooklyn, N.Y., Bevan Cooney of Incline Village, Nev., Hugh Dunkerley of Huntington Beach, Calif. and Paris, France, Gary Hirst of Lake Mary, Fla., and Michelle Morton of Colonia, N.J.  They’re charged with violations of the antifraud provisions of the federal securities laws and related rules.  The SEC seeks disgorgement plus interest and penalties as well as permanent injunctions.  The SEC also seeks officer-and-director bars against Jason Galanis, Archer, Dunkerley, and Morton. 

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against the same seven individuals. 

The SEC’s continuing investigation is being conducted by Tejal D. Shah, Nancy A. Brown, H. Gregory Baker, Christopher Ferrante, and Adam S. Grace.  The litigation will be led by Ms. Brown, Ms. Shah, and Mr. Baker.  The case is being supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the U.S. Postal Inspection Service.

SEC Press Release

Sharon Osbourne Dumps Ozzy

Sharon and Ozzy Osbourne’s marriage is reportedly coming to an end after the former X Factor judge kicked her husband out of their marital home after he allegedly cheated on her with a hairdresser.





Sharon Osbourne Dumps Ozzy Amid Claims He Cheated With A Hairdresser:

SEC: Financial Adviser Defrauded Pro Athletes and Lied to SEC Examiners

The Securities and Exchange Commission today announced fraud charges against a Pittsburgh, Pa.-based financial adviser accused of taking money without permission from the accounts of several professional athletes in order to invest in movie projects and make Ponzi-like payments.

According to the SEC’s complaint filed today in federal court in Manhattan, when SEC examiners uncovered the unauthorized withdrawals that Louis Martin Blazer III made from his clients’ accounts and asked him to explain the transactions, he lied and produced false deal documents that he created after the fact in a failed attempt to hide his misconduct.

The SEC alleges that Blazer, who founded Blazer Capital Management as a “concierge” firm targeting professional athletes and other high-net worth individuals as clients, took approximately $2.35 million from five clients without their authorization so he could invest in two movie projects.  Blazer had a personal financial interest in the development of both films, one called “Mafia the Movie” and the other called “Sibling.”  In one instance, Blazer actually pitched the movie project to an athlete as an investment opportunity, but that client expressly refused to make the investment.  Blazer allegedly took $550,000 from the client’s account anyway and invested the money in the film projects. 

The SEC further alleges that the client later learned about Blazer making the unauthorized investment in the movies and demanded repayment, even threatening a lawsuit.  Blazer then took money out of a different athlete’s account to make the repayment in Ponzi-like fashion.

“We allege that Blazer grossly abused the trust placed in him by his clients and repeatedly took their money without authorization.  And when our examiners put him on the spot, he resorted to false statements and false documents,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

Blazer has agreed to settle the charges without admitting or denying the allegations.  The settlement is subject to court approval with determination of disgorgement and financial penalties to be decided by the court at a later date.  The SEC’s complaint charges Blazer with violations of Sections 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 206(1) and 206(2) of the Investment Advisers Act of 1940. 

The SEC’s investigation has been conducted by Dominick D. Barbieri, Neil Hendelman, and Charles D. Riely in the New York office with assistance from examiners Dawn Blankenship, Joy Best, Luis Casais, and John Herrera. The case has been supervised by Sanjay Wadhwa.  

SEC Press Release

SEC Charges Unregistered Brokers with Pocketing Investor Money

The Securities and Exchange Commission today charged two men with pocketing investor money they raised for limited liability companies they owned and controlled that purportedly held warrants to purchase the common stock of a technology startup company.

 

The SEC alleges that James R. Trolice and Lee P. Vaccaro raised approximately $6 million from more than 100 investors by creating a false sense of urgency and exclusivity around the offering, claiming that only a limited amount of warrants were available and that they eventually could be exercised at a very profitable price. Trolice further lured investors by showcasing his apparent wealth and hosting elaborate investor parties at his multi-million-dollar home. He also touted his purported track record of bringing startup companies public and obtaining high returns for investors.  

 

Meanwhile, Trolice allegedly used investor funds to pay his mortgage along with other bills for a credit card, car lease, college tuition, and landscaping. Vaccaro allegedly spent at least a quarter-million dollars in investor funds at Las Vegas casinos.

 

The SEC further alleges that neither Trolice nor Vaccaro was registered with the SEC or any state regulator.  Investors can quickly and easily check whether people selling investments are registered by using the SEC’s investor.gov website.

 

“We allege that Trolice and Vaccaro lied to investors about the nature of the investment, created a phony aura of success, and ultimately funded their own lifestyles rather than investing all the money as promised,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “The SEC continues to pursue and investors should continue to be aware of unregistered brokers selling investments.”

 

The SEC’s complaint, filed today in federal court in Newark, N.J., also charges former stockbroker Patrick G. Mackaronis, who received commissions for bringing prospective investors to Trolice and Vaccaro so they could close the sales. Mackaronis ignored fraud risks and blindly touted the opportunity to family members, friends, and brokerage clients while knowing very little about the investments themselves. Mackaronis has agreed to settle the SEC’s charges by disgorging the $85,000 in commissions he received plus paying $8,486.91 in interest and a $50,000 penalty. Mackaronis also agreed to a three-year bar from the securities industry. The settlement is subject to court approval. 

 

In parallel actions, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against Vaccaro, and the New Jersey Bureau of Securities announced civil charges against Trolice, Vaccaro, and Mackaronis.

 

The SEC’s complaint charges Trolice and Vaccaro with violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5. Vaccaro is additionally charged with violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. 

 

The SEC’s continuing investigation has been conducted by Kristin M. Pauley, Ann Marie Preissler, James E. Burt IV, James Flynn, Jacqueline A. Fine, Leslie Kazon, and Sheldon L. Pollock in the New York office. The litigation will be led by Kevin McGrath and Ms. Pauley.  The case is being supervised by Sanjay Wadhwa. The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of New Jersey and the New Jersey Bureau of Securities.

SEC Press Release