SEC Settles Claims Against James V. Mazzo Former Chairman/CEO of Advanced Medical Optics, Inc.

The SEC announced on November 14, 2018, that it has agreed to resolve its insider trading claims against James Mazzo, the former Chairman and Chief Executive Officer of Advanced Medical Optics, Inc.for allegedly tipping information about his company’s acquisition to his close personal friend, former professional baseball player Douglas V. DeCinces.

The SEC’s complaint alleged that in October 2008 James Mazzo executed a nondisclosure agreement with Abbott Laboratories, Inc., as Abbott explored a potential acquisition of Advanced Medical Optics. Talks between Advanced Medical Optics and Abbott Laboratories progressed over the ensuing months. James Mazzo provided Douglas DeCinces with material, nonpublic information about the acquisition on multiple occasions. The complaint further alleges that Douglas DeCinces bought between Advanced Medical Optics securities numerous times after communicating with James Mazzo about the progress of the merger talks. Douglas DeCinces also allegedly tipped five of his friends, including a former Baltimore Orioles teammate and a businessman, David L. Parker. Douglas DeCinces’s trading resulted in over $1.3 million in alleged ill-gotten gains, and the tippees obtained another $1 million in ill-gotten gains. Read More

SEC Charges Mark Burnett, Jeffrey Miller, Christian Romandetti, Frank Sarro, Anthony Vassallo, and Elite Stock Research

SEC Charges Mark Burnett, Jeffrey Miller, Christian Romandetti, Frank Sarro, Anthony Vassallo, and Elite Stock Research, Inc.in Boiler Room

On November 15, 2018, the Securities and Exchange Commission  (“SEC”) brought charges against a Long Island, New York-based boiler room previously sued for defrauding elderly and unsophisticated investors. The charges allege that First Choice Healthcare Solutions Inc. CEO Christian Romandetti, the boiler room, and four others, manipulated the company’s shares generating more than $3.3 million of illegal profits and more than $560,000 in kickbacks for Christian  Romandetti.

The SEC’s complaint alleges that Christian Romandetti,  Mark Burnett, Jeffrey Miller, Frank Sarro, Anthony Vassallo, and Elite Stock Research duped more than 100 victims in a scheme that inflated First Choice’s stock price from less than $1 per share to $3.40 per share. According to the complaint, from at least September 2013 until about June 2016, the defendants used multiple accounts in an attempt to disguise their trading, engaged in manipulative trading practices, and hired Elite Stock Research, a boiler room run by defendant Anthony Vassallo, to promote First Choice to vulnerable investors, some of who invested retirement savings. Read More

Five Public Companies Charged With Failing to Comply With Form 10-Q Requirements

Five Public Companies Charged With Failing to Comply With Form 10-Q RequirementsThe 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 Overseas Whistleblower

SEC Awards Almost $4 Million to Overseas WhistleblowerThe 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

Press Release SEC Charges Unregistered Sales of Securities Issued Under EB-5 Immigrant Investor ProgramThe 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

Business Services Company Barrett Business Services Inc. and Former CFO James D. Miller Charged With Accounting FraudThe 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.

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

Business Services Company Barrett Business Services Inc. and Former CFO James D. Miller Charged With Accounting FraudThe 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

SEC Shuts Down $345 Million Fraud and Obtains Asset Freeze From Kevin B. Merrill, Jay B. Ledford, And Cameron JezierskiThe 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

Biopharmaceutical Company Clovis Oncology Inc. & Executive Patrick Mahaffy Charged With Misleading Investors About Cancer DrugThe 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