OTC Markets Public Companies Charged With Failing to Comply With Form 10-Q Requirements
The Securities and Exchange Commission announced charges against five public companies for failing to provide financial statements that were reviewed by their independent external auditor when they filed quarterly reports with the Commission on Form 10-Q.
Regulation S-X provides that interim financial statements must be subject to a review conducted by an independent external auditor prior to the statements being included in quarterly reports filed with the Commission. This requirement helps to ensure that investors are provided timely, accurate, and reliable interim financial information on a periodic basis.
According to the SEC’s orders, each of the five companies filed one or more Forms 10-Q with interim financial statements where a review was not conducted prior to filing, as required by Regulation S-X. These actions are the Commission’s first enforcement proceedings against an issuer for violating the Regulation S-X interim review requirement and resulted from a review of filings, staff comment letters and other metrics that indicated potential violations. Each company agreed to settle the SEC’s charges, and the agency assessed a total of $250,000 in penalties. Read More
SEC Awards Almost $4 Million to OTC Markets Whistleblower
The Securities and Exchange Commission announced that it has awarded nearly $4 million to an overseas whistleblower whose tip led it to open an investigation and whose extensive assistance helped it bring a successful enforcement action.
“Whistleblowers, whether they are located in the U.S. or abroad, provide a valuable service to investors and help us stop wrongdoing,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “This award recognizes the continued, important assistance provided by the whistleblower throughout the course of the investigation.”
The SEC has now awarded over $326 million to 59 individuals since issuing its first award in 2012. In that time, more than $1.7 billion in monetary sanctions have been ordered against wrongdoers based on actionable information received by whistleblowers.
Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million. All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards. Read More
Press Release SEC Charges Unregistered Sales of Securities Issued Under EB-5 Immigrant Investor Program
The Securities and Exchange Commission announced that an Illinois-based regional center, its CEO, and 37 affiliated limited partnerships have agreed to settle charges related to securities issued under the EB-5 Immigrant Investor Program, which provides foreigners who invest in the U.S. a potential path to becoming a U.S. resident.
According to the SEC’s order, from 2011 to 2015, 37 entities affiliated with CMB Export LLC offered EB-5 securities in the form of limited partnership interests without registering them with the SEC and without a valid exemption from registration. The order also found that CMB Export, at the direction of its CEO Patrick Hogan, paid transaction-based compensation to U.S. individuals and entities for soliciting foreign investors to purchase these securities. In 2015, CMB and Hogan began developing and implementing a compliance program to ensure compliance with the federal securities laws. Read More
Business Services Company Barrett Business Services Inc. and Former CFO James D. Miller Charged With Accounting Fraud
The Securities and Exchange Commission charged the former chief financial officer of Barrett Business Services Inc. for his role in an accounting fraud involving BBSI’s workers’ compensation expenses. The SEC also charged BBSI in the accounting fraud and charged the company’s former controller for his role in improperly approving certain of the CFO’s accounting entries. Both BBSI and the former controller agreed to settle the Commission’s charges against them.
The SEC’s complaint against BBSI’s former CFO James D. Miller, filed in federal district court in the Western District of Washington, alleges that Miller manipulated BBSI’s accounting records to hide the fact that its workers’ compensation expense was increasing relative to its revenue. According to the complaint, Miller took steps to conceal from BBSI’s independent auditor a third-party actuarial report concluding that BBSI needed to add tens of millions of dollars to its workers’ compensation liability. BBSI’s stock dropped 32 percent when the Vancouver, Washington-based firm announced it needed to restate its financial results to reflect increased workers’ compensation expenses. Read More
SEC Obtains Relief to Fully Reimburse Retail Investors Sold Unsuitable Product By Cadaret, Grant & Co. Inc.
The Securities and Exchange Commission announced it has obtained monetary relief that will fully reimburse retail investors for losses on a leveraged oil-linked exchange-traded note (ETN) that registered representatives of Syracuse, New York-based broker-dealer and investment adviser Cadaret, Grant & Co. Inc. recommended without a reasonable basis.
The SEC found that Cadaret Grant, president Arthur Grant, and senior vice president Beda Lee Johnson failed reasonably to supervise the firm’s registered representatives who recommended that customers buy and hold the leveraged oil-linked ETN without a reasonable basis. The order found that before recommending the investment, the brokers did not take steps to reasonably research or understand inherent risks of the ETN or the index it tracked. According to the order, the ETN was meant to be a daily trading tool for sophisticated investors and was not designed to be held for more than one day. The brokers mistakenly believed the ETN’s value would increase over time as oil prices increased even though the ETN offered no direct exposure to spot oil prices, and recommended that retail customers buy and hold the ETN indefinitely. The order also finds that Cadaret Grant failed to adopt and implement policies and procedures concerning the sale of exchange traded products in investment advisory accounts. Read More
Business Services Company Barrett Business Services Inc. and Former CFO James D. Miller Charged With Accounting Fraud
The Securities and Exchange Commission charged the former chief financial officer of Barrett Business Services Inc. for his role in an accounting fraud involving BBSI’s workers’ compensation expenses. The SEC also charged BBSI in the accounting fraud and charged the company’s former controller for his role in improperly approving certain of the CFO’s accounting entries. Both BBSI and the former controller agreed to settle the Commission’s charges against them.
The SEC’s complaint against BBSI’s former CFO James D. Miller, filed in federal district court in the Western District of Washington, alleges that Miller manipulated BBSI’s accounting records to hide the fact that its workers’ compensation expense was increasing relative to its revenue. According to the complaint, Miller took steps to conceal from BBSI’s independent auditor a third-party actuarial report concluding that BBSI needed to add tens of millions of dollars to its workers’ compensation liability. BBSI’s stock dropped 32 percent when the Vancouver, Washington-based firm announced it needed to restate its financial results to reflect increased workers’ compensation expenses. Read More
SEC Shuts Down $345 Million Fraud and Obtains Asset Freeze From Kevin B. Merrill, Jay B. Ledford, And Cameron Jezierski
The Securities and Exchange Commission announced it has obtained a court order halting an ongoing Ponzi-like scheme that raised more than $345 million from over 230 investors across the U.S. The SEC also obtained an emergency asset freeze and the appointment of a receiver.
An SEC complaint unsealed yesterday alleges that Kevin B. Merrill, Jay B. Ledford and Cameron Jezierski attracted investors to their scheme by promising significant profits from the purchase and resale of consumer debt portfolios. But in fact, the defendants were allegedly using a web of lies, fabricated documents, and forged signatures in an elaborate scheme to entice investors and perpetuate the fraud. Rather than direct investor funds to the acquisition and servicing of debt portfolios as promised, the defendants allegedly used the funds to make Ponzi-like payments to earlier investors. The SEC also alleges that Merrill and Ledford stole at least $85 million of the investor funds to maintain lavish lifestyles, spending millions of dollars on luxury items, including $10.2 million on at least 25 high-end cars, $330,000 for a 7-carat diamond ring, $168,000 for a 23-carat diamond bracelet, millions of dollars on luxury homes, and $100,000 to a private fitness club. Read More
Biopharmaceutical Company Clovis Oncology Inc. & Executive Patrick Mahaffy Charged With Misleading Investors About Cancer Drug
The Securities and Exchange Commission announced that a Boulder, Colorado-based biopharmaceutical company, its CEO, and its former CFO will pay more than $20 million in penalties to settle charges of misleading investors about the company’s developmental lung cancer drug.
The SEC’s complaint filed in federal court in Denver alleges that over a four-month period starting in July 2015, Clovis Oncology Inc. and CEO Patrick Mahaffy misled investors about how well Clovis’ flagship lung cancer drug worked compared to another drug. According to the complaint, the company’s investor presentations, press releases, and SEC filings stated that the drug was effective 60 percent of the time, far higher than suggested by actual results available internally. Clovis raised approximately $298 million in a public stock offering in July 2015, and saw its stock price collapse in November 2015 after disclosing that the effectiveness rate was actually 28 percent. The company stopped development on the drug in May 2016. Read More
SeaWorld and Former CEO James Atchison to Pay More Than $5 Million to Settle Fraud Charges
The Securities and Exchange Commission today announced that SeaWorld Entertainment Inc. and its former CEO have agreed to pay more than $5 million to settle fraud charges for misleading investors about the impact the documentary film Blackfish had on the company’s reputation and business. SeaWorld’s former vice president of communications also agreed to settle a fraud charge for his role in misleading SeaWorld’s investors.
Blackfish criticized SeaWorld’s treatment of its orcas (killer whales) and received significant media attention as the film became more widely distributed in the latter half of 2013. The SEC’s complaint alleges that from approximately December 2013 through August 2014, SeaWorld and former CEO James Atchison made untrue and misleading statements or omissions in SEC filings, earnings releases and calls, and other statements to the press regarding Blackfish’s impact on the company’s reputation and business. According to the SEC’s complaint, on Aug. 13, 2014, when SeaWorld for the first time acknowledged that its declining attendance was partially caused by negative publicity, SeaWorld’s stock price fell, causing significant losses to shareholders. Read More
SEC Charges Citigroup for Dark Pool Misrepresentations
The Securities and Exchange Commission entered an order finding that Citigroup Global Markets Inc. misled users of a dark pool operated by one of its affiliates.
The SEC’s order found that Citigroup misled users with assurances that high-frequency traders were not allowed to trade in Citi Match, a premium-priced dark pool operated by Citi Order Routing and Execution (CORE), when two of Citi Match’s most active users reasonably qualified as high-frequency traders and executed more than $9 billion of orders through the pool.
The SEC order also found that Citigroup failed to disclose that over a period of more than two years, close to half of Citi Match orders were routed to and executed in other trading venues, including other dark pools and exchanges, that did not offer the same premium features as Citi Match. Citigroup also sent trade confirmation messages to certain users that indicated their orders had been executed on Citi Match when in fact those orders had been executed on an outside venue. Read More
Broker-Dealer Cowen Execution Services LLC to Pay $2.75 Million Penalty for Providing Deficient Blue Sheet Data
The Securities and Exchange Commission announced that Convergex Execution Solutions LLC, now known as Cowen Execution Services LLC, will pay $2.75 million to settle charges that the broker-dealer firm provided the SEC with incomplete and deficient securities trading information known as “blue sheet data.”
According to the SEC’s order, for nearly four years as a result of coding errors, a substantial number of the firm’s “blue sheet” submissions were missing data or contained deficiencies, including customer identifying information, order execution times, exchange codes, transaction type identifiers, and other trade information. The order found that from May 1, 2012 to Feb. 28, 2016, approximately 29 percent of Convergex’s submissions contained deficient customer identifying information. Although the Financial Industry Regulatory Authority (FINRA) sanctioned Convergex in March 2012 for deficient blue sheet submissions, the order found that the firm did not take reasonable steps to ensure that its blue sheet submissions to the SEC contained complete and accurate information and failed to identify the deficiencies during this period. Read More
SEC Charges Hedge Fund Adviser Gregory Lemelson With Short-and-Distort Scheme
The Securities and Exchange Commission charged a hedge fund adviser and his investment advisory firm with illegally profiting from a scheme to drive down the price of San Diego-based Ligand Pharmaceuticals Inc., reaping more than $1.3 million of gains for the adviser and the hedge fund.
The SEC’s complaint charges that Gregory Lemelson and Massachusetts-based Lemelson Capital Management LLC issued false information about Ligand after Lemelson took a short position in Ligand in May 2014 on behalf of The Amvona Fund, a hedge fund he advised and partly owned. Short-sellers profit when the price of stock declines. According to the SEC’s complaint, Ligand’s stock lost more than one-third of its value during the course of Lemelson’s alleged scheme. After establishing his short position, the complaint charges that Lemelson made a series of false statements to shake investor confidence in Ligand, lower its stock price, and increase the value of his position. Read More
United Technologies Charged With Violating FCPA
The Securities and Exchange Commission announced that Connecticut-based United Technologies Corporation will pay $13.9 million to resolve charges that it violated the Foreign Corrupt Practices Act (FCPA) by making illicit payments in its elevator and aircraft engine businesses.
According to the SEC’s order, United Technologies subsidiary Otis Elevator Co. made unlawful payments to Azerbaijani officials to facilitate the sales of elevator equipment for public housing in Baku and as part of a kickback scheme to sell elevators in China. The order also found that United Technologies, through its joint venture, made payments to a Chinese sales agent in a bid to obtain confidential information from a Chinese official that would help the company win engine sales to a Chinese state-owned airline. The SEC’s order also found that United Technologies improperly provided trips and gifts to various foreign officials in China, Kuwait, South Korea, Pakistan, Thailand, and Indonesia through its Pratt & Whitney division and Otis subsidiary in order to obtain business. Read More
SEC Charges Investment Adviser Tamara Steele With Defrauding Retail Advisory Clients
The Securities and Exchange Commission charged an Indianapolis-based investment advisory firm and its sole owner with selling approximately $13 million of high-risk securities to more than 120 advisory clients – many of whom are current or former teachers or other workers in public education – without disclosing that the firm and its owner stood to receive commissions of up to 18 percent from the sales.
The SEC’s complaint alleges that from December 2012 to October 2016, Steele Financial Inc. and Tamara Steele sold to advisory clients and other investors more than $15 million of the securities of Behavioral Recognition Systems Inc. (BRS), a private company previously charged with fraud by the SEC. All told, Steele and Steele Financial received commissions of cash and warrants from BRS that were worth more than $2.5 million. Steele and Steele Financial allegedly targeted their own advisory clients who generally did not invest in individual stocks, selling more than 120 clients approximately $13 million of BRS securities without disclosing that the defendants were receiving commissions from BRS. The complaint further alleges that the defendants created false invoices and took other steps to conceal their involvement selling BRS securities. Read More
SEC Uses Data Analysis to Detect Cherry-Picking By Broker Michael A. Bressman Alternative Reporting, Alternative Reporting Requirements, Direct Public Offering, Direct Public Offering Attorney, Direct Public Offering Attorneys, Direct Public Offering Lawyer, Exchange Act, Form 1-A, Form 1-K, Form 1-SA, Form 1-Z, Form 211, Form S-1, Form S-1 Attorney, Form S-1 Lawyer, Form SEC, Go Public Direct, Going Public Attorney, Going Public Attorneys, Going Public Lawyer, Going Public Lawyers, Market Maker, OTC Markets, OTC Markets Alternative Reporting, OTC Markets and Sponsoring Market Maker, OTC Markets Attorney, OTC Markets Group, OTC Markets Lawyer, OTC Markets Link, OTC Markets Market Maker, OTC Markets OTC Pink, OTC Markets OTCAX, OTC Markets OTCQB, OTC Markets OTCQX, OTC Markets Sponsoring Market Maker, OTC Pink, OTC Pink Market, OTCQB, OTCQB lawyer, OTCQX, Registered Direct Public Offering, Registration Statement, Regulation A, Regulation A Qualification, Regulation A Reporting, Rule 15c2-11, SEC Effectiveness, SEC Qualification, SEC Reporting, SEC Reporting Obligations, SEC Reporting Requirements, Securities Act
The Securities and Exchange Commission charged a New Jersey-based broker with misusing his access to customers’ brokerage accounts to enrich himself and family members at the expense of his customers, many of whom had entrusted him with their retirement accounts. The SEC uncovered the alleged fraud with data analysis used to detect suspicious trading patterns.
The SEC filed fraud charges in federal district court against Michael A. Bressman of Montville, New Jersey, alleging that he misused his access to an omnibus or “allocation” account to obtain at least $700,000 in illicit trading profits over a six-year period ending in February. The SEC’s complaint alleges that Bressman placed trades using the allocation account and cherry-picked profitable trades, which he then transferred to his own account and the account of two family members, while placing unprofitable trades in other customers’ accounts. Read More
SEC Charges ICO Superstore TokenLot LLC and Owners Lenny Kugel & Eli L. Lewitt With Operating As Unregistered Broker-Dealers
The Securities and Exchange Commission announced that TokenLot LLC, a self-described “ICO Superstore,” and its owners will settle charges that they acted as unregistered broker-dealers. This is the SEC’s first case charging unregistered broker-dealers for selling digital tokens after the SEC issued The DAO Report in 2017 cautioning that those who offer and sell digital securities must comply with the federal securities laws.
According to the SEC’s order, TokenLot, Lenny Kugel, and Eli L. Lewitt promoted TokenLot’s website as a way to purchase digital tokens during initial coin offerings (ICOs) and also to engage in secondary trading. Michigan-based TokenLot received orders from more than 6,100 retail investors and handled more than 200 different digital tokens, which the SEC found included securities. The business’s profits included trading profits and a percentage of the money that TokenLot raised for ICOs. Their activities required TokenLot, Kugel, and Lewitt to be registered with the SEC as broker-dealers, but they were not. TokenLot operated from July 2017 through late February, with most of its business occurring after The DAO Report on the applicability of securities laws to digital assets. According to the order, in response to the SEC’s investigation, TokenLot voluntarily began winding down and refunding investors’ payments for unfilled orders. TokenLot, Kugel, and Lewitt also were charged with violating the registration provisions in connection with their conduct. Read More
SEC Charges Emil Botvinnik & Jovannie Aquino With Defrauding Customers
The Securities and Exchange Commission charged two brokers for recommending excessive levels of trading that were costly for retail customers but lucrative for the brokers.
In separate complaints filed in federal court in Manhattan, the SEC alleges that Florida resident Emil Botvinnik and New York resident Jovannie Aquino recommended frequent, short-term trades that generated large commissions for the brokers but were almost guaranteed to lose money for their customers. According to the SEC’s complaints, Botvinnik’s and Aquino’s customers – a number of whom were at or near retirement age – lost approximately $3.6 million as a result of the trades while the brokers pocketed approximately $4.6 million in commissions.
“We are diligently pursuing deceitful brokers who prey on their customers,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement and Chair of the Enforcement Division’s Broker-Dealer Task Force. “Brokers need to ensure that the level of trading they recommend is suitable for their customers, and investors should be on the lookout for frequent trading in their accounts.” Read More
SEC Whistleblower Receives Award of Approximately $1.5 Million
The Securities and Exchange Commission announced that a whistleblower has earned an award of more than $1.5 million. The whistleblower provided the SEC with vital information and ongoing assistance that proved important to the overall success of an enforcement action. However, the SEC’s order notes that the award was reduced because the whistleblower did not promptly report the misconduct and benefited financially during the delay.
“This award reflects the value of the information while underscoring the need for individuals to come forward without delay so that our enforcement staff may quickly leverage the information and prevent further investor harm,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “This is especially critical and, as is the case here, may result in an award reduction where an individual provided valuable information but it came after receiving a benefit from the wrongdoing.”
The SEC’s whistleblower program has now awarded approximately $322 million to 58 individuals since issuing its first award in 2012. In that time, more than $1.6 billion in monetary sanctions have been ordered against wrongdoers based on actionable information received by whistleblowers. Read More
SEC Awards More Than $54 Million to Two SEC Whistleblowers
The Securities and Exchange Commission is awarding $39 million to one whistleblower and $15 million to another whose critical information and continued assistance helped the agency bring an important enforcement action. The $39 million award is the second-largest award in the history of the SEC’s whistleblower program.
“Whistleblowers serve as invaluable sources of information, and can propel an investigation forward by helping us overcome obstacles and delays in investigation,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “These substantial awards send a strong message about the SEC’s commitment to whistleblowers and the value they bring to the agency’s mission.”
The SEC has awarded more than $320 million to 57 individuals since issuing its first award in 2012. All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards. Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million. Read More
SEC Charges Jeffrey Goldman And Christopher Eikenberry With Fraud in Fake Trading Accounts Scheme
The Securities and Exchange Commission charged two Michigan men with fraud for their roles in a fake accounts scheme perpetrated by a phony day-trading firm, Nonko Trading. The SEC alleges that Jeffrey Goldman of West Bloomfield, Michigan, and Christopher Eikenberry of Birmingham, Michigan, participated in and profited from a scheme to defraud Nonko’s customers out of at least $1.4 million. While Nonko marketed itself as a state-of-the-art platform for day-trading professionals, the SEC alleges that it secretly provided customers with training accounts that merely simulated actual trading. Nonko team members allegedly pocketed customers’ deposits and used the money for personal expenses and for Ponzi-like payments to customers who wanted to close their accounts. According to the complaint, Nonko deliberately targeted traders who were inexperienced or had a history of trading losses and lured them by promising generous leverage, low trading commissions, and low minimum deposit requirements.
“As alleged in our complaint, Goldman and Eikenberry actively concealed their involvement in the alleged fraud and took steps to evade U.S. broker-dealer registration requirements,” said Joseph G. Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. “But, behind the scenes, they were active and knowing participants in the scheme, which caused losses to more than 260 investors.” Read More
SEC Charges Real Estate Broker Joohyun Bahn With FCPA Violations
The Securities and Exchange Commission announced settled FCPA charges against New Jersey real estate broker Joohyun Bahn arising out of his attempt to bribe a foreign official while acting as a broker for Colliers International Group, Inc.
According to the SEC’s order, Joohyun Bahn attempted to bribe a foreign official of a country in the Middle East as part of an effort to broker the sale of Landmark 72, a high rise commercial building in Vietnam, on behalf of Colliers. The SEC’s order found that Bahn gave the bribe to an accomplice, expecting him to pass it along to the official. But the accomplice, who had misrepresented the official’s involvement in the scheme, kept the money for himself, and the official was unaware of the attempted bribe. The SEC’s order also found that Bahn circumvented Colliers’ internal accounting controls, fabricated documents, created fictitious email messages, and lied to Colliers executives. Bahn was also found to have falsely represented that a buyer had committed to acquire the building, thereby causing Colliers to improperly record commission revenue that it would never receive. “Although the fact pattern here is atypical, the underlying violations are straightforward. Bahn engaged in an egregious bribe scheme that involved a web of lies and false documents as he attempted to bribe a foreign official in order to make a sale. ” said Charles Cain, Chief of the SEC Enforcement Division’s FCPA Unit. Read More
SEC Charges Barry Honig and Others for Roles in Lucrative OTC Market sManipulation Schemes
The Securities and Exchange Commission charged a group of 10 individuals and 10 associated entities for their participation in long-running fraudulent schemes that generated over $27 million from unlawful stock sales and caused significant harm to retail investors who were left holding virtually worthless stock. According to the SEC’s complaint, from 2013 to 2018, a group of prolific South Florida-based microcap fraudsters led by Barry Honig manipulated the share price of the stock of three companies in classic pump-and-dump schemes. Miami biotech billionaire Phillip Frost allegedly participated in two of these three schemes. Honig allegedly orchestrated the acquisition of large quantities of the issuer’s stock at steep discounts, and after securing a substantial ownership interest in the companies, Honig and his associates engaged in illegal promotional activity and manipulative trading to artificially boost each issuer’s stock price and to give the stock the appearance of active trading volume. According to the SEC’s complaint, Honig and his associates then dumped their shares into the inflated market, reaping millions of dollars at the expense of unsuspecting investors.
“As alleged, Honig and his associates engaged in brazen market manipulation that advanced their financial interests while fleecing innocent investors and undermining the integrity of our securities markets,” said Sanjay Wadhwa, Senior Associate Director in the SEC’s Division of Enforcement. “They failed to appreciate, however, the SEC’s resolve to relentlessly pursue and punish participants in microcap fraud schemes.” Read More
SEC Charges Telecommunications Expense Management Company Tangoe Inc. With Accounting Fraud
The Securities and Exchange Commission charged telecommunications expense management company Tangoe Inc. for its use of fraudulent accounting practices that artificially boosted company revenues between 2013 and 2015. Four former members of the company’s senior management team were also charged for their roles in the alleged misconduct.
As alleged in the complaint, Tangoe Inc., formerly a public company headquartered in Connecticut, improperly recognized approximately $40 million of revenue out of the total of $566 million reported between 2013 and 2015. In some instances, Tangoe allegedly reported revenue prematurely for work that had not been performed, including service prepayments, and for transactions that did not produce any revenue at all. The SEC alleges that Donald J. Farias, a Tangoe executive, falsified business records, some of which were provided to Tangoe’s external auditors to support revenue recognition decisions. Read More
SEC Charges Cannabis Investment Fund Greenview Investment Partners L.P and Founder Michael E. Cone in Fraudulent Scheme
The Securities and Exchange Commission charged a Texas-based investment fund Greenview Investment Partners L.P. and its founder Michael E. Cone with defrauding investors with false promises of massive returns in cannabis-related businesses. The SEC also issued an alert to warn retail investors about marijuana-related securities offerings.
The SEC’s complaint alleges that Greenview Investment Partners L.P. and its founder Michael E. Cone used misleading marketing materials in raising more than $3.3 million from investors. Cone allegedly employed boiler room sales staff who made cold calls to investors and promised them up to 24 percent annual returns from investments in Greenview. According to the complaint, Cone used an alias to conceal his prior criminal convictions, lied about having a former agent from the U.S. Drug Enforcement Administration on staff, and falsely claimed to have a long record of profitably investing millions in cannabis-related businesses. The complaint alleges that, in reality, Greenview had no track record and its sole investment of $400,000 was in a cannabis company that had yet to harvest a crop. According to the complaint, Cone spent investors’ money on designer clothes and luxury cars, and on payments to earlier investors to prolong the alleged scheme. In a parallel criminal proceeding, the U.S. Attorney’s Office for the Central District of California charged Cone and seized approximately $1.4 million in cash and assets. Read More
SEC Charges Buffalo Advisory Firm and Principal With Fraud Relating to Association With Barred Adviser Walter Grenda
The Securities and Exchange Commission filed charges against a Buffalo, New York, investment advisory firm and its owner for misleading firm clients about its association with a barred investment adviser, who is also being charged for violating the bar. The SEC’s complaint alleges that in 2014, Walter Grenda sold his investment advisory assets, including his longstanding client base, to Grenda Group LLC and his son, Gregory Grenda, in anticipation of a negative outcome in an SEC fraud investigation.
In 2015, the SEC barred Walter Grenda from association with an investment adviser, but the SEC alleges that Walter Grenda continued to associate with Grenda Group by meeting with a prospective client and current clients in the firm’s offices, as well as making discretionary changes to clients’ investment accounts. The complaint alleges that Grenda Group and Gregory Grenda permitted Walter Grenda’s association with the firm, failed to disclose his bar to their clients, and made misleading statements to clients who inquired about Walter Grenda’s bar. The SEC further alleges that Walter Grenda impersonated a Grenda Group client on a call to the firm’s broker-dealer and, while subject to the associational bar, Walter Grenda repeatedly impersonated his son on calls to the firm’s broker-dealer, after which the broker-dealer terminated its relationship with Grenda Group. The complaint alleges that Grenda Group later made misleading statements to clients and failed to disclose material facts about the termination. Read More
Sanofi Charged With FCPA Violations
The Securities and Exchange Commission announced that Paris-based pharmaceutical company Sanofi has agreed to pay more than $25 million to resolve charges that its Kazakhstan and the Middle East subsidiaries made corrupt payments to win business.
According to the SEC’s order, the schemes spanned multiple countries and involved bribe payments to government procurement officials and healthcare providers in order to be awarded tenders and to increase prescriptions of its products. In Kazakhstan, distributors were used as part of a kickback scheme to generate funds from which bribes were paid to officials to ensure that Sanofi was awarded tenders at public institutions. The kickbacks were tracked in internal spreadsheets where they were coded as “marzipans.” In the Middle East, various pay-to-prescribe schemes were used to induce healthcare providers to increase their prescriptions of Sanofi products. Read More
SEC Charges Florida Cash Advance Company, Former CEO Carl Ruderman With Defrauding Retail Investors
The Securities and Exchange Commission announced charges against 1 Global Capital LLC and its former chief executive officer for allegedly defrauding at least 3,400 retail investors, more than one-third of whom invested their retirement funds. The Florida-based cash advance company and former CEO Carl Ruderman allegedly fraudulently raised more than $287 million since 2014 in unregistered securities sold through a network that included barred brokers.
On August 23, the Honorable Judge Beth Bloom of U.S. District Court for the Southern District of Florida granted the SEC’s request for a temporary asset freeze against Ruderman and other Ruderman companies charged by the SEC as relief defendants. The court also granted the SEC’s request to appoint a receiver over certain of the relief defendants – Bright Smile Financing LLC, BRR Block Inc., Digi South LLC, Ganador Enterprises LLC, Media Pay LLC, and Pay Now Direct LLC. The court scheduled a hearing for September 7 for Ruderman and the relief defendants to show cause, if any, why the asset freeze order should not continue for the pendency of the litigation or until otherwise ordered by the court. Read More
SEC Charges NFL Player Mychal Kendricks and Former Investment Banker With Insider Trading
The Securities and Exchange Commission charged a professional football player and a former investment banker with insider trading in advance of corporate acquisitions facilitated through coded text messages and FaceTime conversations. The SEC alleges that after meeting at a party, Mychal Kendricks began receiving illegal tips from Damilare Sonoiki, an analyst at an investment bank who had access to confidential, nonpublic information about upcoming corporate mergers. Mychal Kendricks allegedly made $1.2 million in illegal profits by purchasing securities in companies that were soon to be acquired and then selling his positions after the deals were publicly announced, in one instance generating a nearly 400 percent return on his investment in just two weeks.
According to the SEC’s complaint, Mychal Kendricks rewarded Sonoiki for his tips and other assistance, which included setting up an online brokerage account that both men could access, by providing cash kickbacks, free NFL tickets, and an evening on the set of a pop star’s music video in which Mychal Kendricks made a cameo appearance. Read More
Press Release SEC Charges Moody’s Investors Service Inc. With Internal Controls Failures and Ratings Symbols Deficiencies
The Securities and Exchange Commission announced that Moody’s Investors Service Inc., one of the nation’s largest credit ratings agencies, has agreed to pay a total of $16.25 million in penalties to settle charges involving internal control failures and failing to clearly define and consistently apply credit rating symbols. This marks the first time the SEC has filed an enforcement action involving rating symbol deficiencies.
Moody’s agreed to pay $15 million to settle charges of internal controls failures involving models it used in rating U.S. Residential Mortgage-Backed Securities (RMBS) and will retain an independent consultant to assess and improve its internal controls. Moody’s separately agreed to pay $1.25 million and to review its policies, procedures, and internal controls regarding rating symbols. Moody’s did not admit or deny the SEC’s charges.
According to the SEC’s order in the internal controls proceeding, Moody’s failed to establish and document an effective internal control structure as to models that Moody’s had outsourced from a corporate affiliate and used in rating RMBS from 2010 through 2013. Moreover, Moody’s failed to maintain and enforce existing internal controls that should have been applied to the models. Ultimately, Moody’s corrected more than 650 RMBS ratings with a notional value exceeding $49 billion, due, in part, to errors in the models. Also, in 54 instances, Moody’s failed to document its rationale for issuing final RMBS ratings that deviated materially from model-implied ratings. Read More
Legg Mason Charged With Violating the FCPA
The Securities and Exchange Commission announced that Legg Mason Inc. will pay over $34 million to resolve an SEC charge that the company violated the Foreign Corrupt Practices Act (FCPA) in a scheme to bribe Libyan government officials.
According to the SEC’s order, between 2004 and 2010, a former Legg Mason asset management subsidiary, Permal Group Inc., partnered with a French financial services company to solicit investment business from Libyan state-owned financial institutions. These entities engaged in a scheme to pay bribes to Libyan government officials through a Libyan middleman in order to secure investments. As a result of the corrupt scheme, Legg Mason, through its Permal subsidiary, was awarded business tied to $1 billion of investments for the Libyan financial institutions, earning net revenues of approximately $31.6 million. According to the SEC’s order, the middleman used the term “cooking” to describe his ability to cause Libyan government officials to invest by any means necessary, including bribes.
“Companies must take adequate steps to identify and mitigate the risks of bribery and corruption present in their global business. Those risks are particularly acute when, as here, agents and middlemen are used as part of a company’s efforts to obtain business with government clients,” said Charles Cain, Chief of the Enforcement Division’s FCPA Unit.
