Securities and Going Public Blog

CEO of TierOne Bank Sentenced to 11 Years in Prison

TierOne Bank

The Securities and Exchange Commission (SEC) announced that on March 23, 2016, Gilbert Lundstrom, the former chairman of the board and CEO of TierOne Bank, based in Nebraska, was sentenced to 11 years in federal prison and ordered to pay a $1.2 million criminal fine.

Lundstrom, along with TierOne’s former chief operating officer James Laphen and former chief credit officer Don Langford, was criminally charged for orchestrating a scheme to defraud TierOne’s shareholders and misleading regulators by concealing more than $100 million in losses on loans and declining real estate. Laphen and Langford both pled guilty and agreed to cooperate in the criminal case against Lundstrom. At Lundstrom’s trial, the government presented evidence that Lundstrom was the architect of an aggressive strategy to expand the bank’s portfolio beyond traditional lending in Nebraska to riskier areas like commercial real estate in Las Vegas. Read More

SEC Enters Settlement with Perpetrators of an Alleged Hacked News Release Scheme

Hacked News Release Schemes - David AmaryanThe Securities and Exchange Commission (SEC) announced on March 24, 2016 that it had entered into settlement agreements, subject to court approval, with defendants David Amaryan, Copperstone Alpha Fund, Copperstone Capital, Intertrade Pacific SA, Ocean Prime Inc., Guibor S.A., and Omega 26 Investments Ltd. in a case alleging a scheme to trade on hacked news releases. In August 2015, the SEC filed a civil action and an amended complaint in federal court in New Jersey, and the court entered an asset freeze and other emergency relief against these defendants, among others. Read More

Court Finds Leon Parvizian and His Two Companies Liable on All Counts for Oil and Gas Fraud

Oil and Gas Fraud - Leon ParvizianThe Securities and Exchange Commission (SEC) announced on March 24, 2016 that a federal court in Texas found promoters of fraudulent oil and gas investments liable all counts. The Honorable Ed Kinkeade of the United States District Judge for the Northern District of Texas granted summary judgment on March 22 for the SEC on all claims against promoters Leon Ali Parvizian and his two Dallas-based companies, Arcturus Corporation and Aschere Energy, LLC. The court also found for the SEC on its claims against Alfredo Gonzalez and AMG Energy, LLC, also of Dallas, and Florida-based Robert Balunas and R. Thomas & Co. LLC, who sold the investments.

The SEC’s charges filed in December 2013, alleged that the defendants raised nearly $22 million from at least 380 investors nationwide through illegal securities sales. In its 50-page summary judgment order, the court found that Parvizian and his companies committed securities fraud by offering and selling interests in a drilling project in which they had no rights to participate or share profits. The court also found that all defendants had illegally offered and sold unregistered securities and that Parvizian, Gonzalez, AMG Energy, Balunas, and R. Thomas & Co. acted as unregistered broker-dealers.

The court rejected defense arguments that the investments were exempt from the federal securities laws because they were structured as “joint ventures.” The court instead found that the investors had little real power and were inexperienced in the oil and gas industry, leaving them dependent on Parvizian and his companies to control the ventures. This dependency made the joint venture interests “investment contracts,” which are subject to securities laws.

The court found Parvizian and his companies liable for securities fraud under 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, concluding that they “acted with severe recklessness” in failing to disclose material information about the investments to investors. The court also found that all defendants violated the registration requirement of Sections 5(a) and 5(c) of the Securities Act, and that Parvizian, Gonzalez, AMG Energy, Balunas, and R. Thomas & Co. violated Section 15(a) of the Exchange Act by acting as unregistered broker-dealers.

The court directed the SEC to submit briefs by April 22, 2016, on the proper remedies to impose on the defendants. The SEC’s complaint seeks permanent injunctions, financial penalties, and disgorgement with prejudgment interest of the nearly $22 million in ill-gotten gains from the illegal offerings.

For further information about this securities law blog  post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at info@securitieslawyer101.com or visit  www.securitieslawyer101.com.   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855

Guy Gentile Charged with Operating a Penny Stock Manipulation Scheme

On March 23, 2016, the Securities and Exchange Commission (SEC) charged Guy Gentile, a resident of Putnam Valley, New York, with perpetrating penny stock manipulation schemes.

The SEC alleges that Gentile, who at the time operated as a registered broker-dealer, engaged in manipulative trading, provided illegal kick-backs, and distributed promotional mailings of glossy “newsletters” with fake publication names like “Stock Trend Report” and “Global Investor Watch,” in order to tout the stocks of purported gold and silver exploration company Raven Gold Corporation (RVNG) and natural gas production company Kentucky USA Energy. The newsletters misled investors with purportedly positive – but fake – price and volume trends for these stocks and other false information about the promoters’ identity, compensation, and control of the stock. Read More

Court Enters Judgments Against Five Fraudsters in Amogear Stock Scheme

Amogear FraudOn March 23, 2016, the Securities and Exchange Commission (SEC) announced that the federal court in Boston, Massachusetts entered judgments by consent against Andrew Affa, Michael Affa, Mitchell Brown, Christopher Putnam, and Christopher Nix in a fraud action that was filed in July 2014. The fraud involved an attempt to manipulate shares of Boston, Massachusetts-based Amogear Inc. that was caught by an FBI undercover operation.

All five defendants were permanently enjoined from violating the securities antifraud statutes and barred from participating in offerings of penny stock.

The SEC’s complaint alleged that defendants knew that Amogear was a shell company without any real operations, but schemed from at least August 2012 to February 2014 to boost the price of its securities and profit by selling their own shares. The planned scheme involved artificially inflating the price of Amogear stock by, among other things:

 

  •  issuing news releases and/or promotional materials containing false or exaggerated information,
  • generating mass emails containing false or exaggerated information; and
  • engaging in undisclosed coordinated trading of the stock, all designed to generate the appearance of demand for the stock and to increase the price of the stock.

Read More

Court Enters Nearly $2 Million Judgment Against Gregory Jones for Defrauding Investors

Gregory Jones - FraudThe Securities and Exchange Commission (SEC) announced on March 23, 2016 that a federal court has ordered a nearly $2 million judgment from an attorney who admitted to defrauding investors in two fraudulent schemes. The Honorable John McBryde, District Judge of the United States District Court for the Northern District of Texas, entered a final judgment on March 22, 2016 against Southlake, Texas attorney Gregory Jones. The final judgment orders Jones to disgorge $1,125,000, plus prejudgment interest of $51,534, and to pay a civil penalty of $600,000.

Jones admitted in 2015 to raising approximately $645,000 by selling securities issued by Aquaphex Total Water Solutions, LLC, a company he controlled that purported to recycle fracking water through a filtration process. Jones provided investors with fraudulent offering documents stating that Aquaphex’s principals had invested $2 million in the company when they had not put any cash into the company. Jones’s offering documents also misrepresented that Aquaphex was expected “to be acquired by an oil services company within five years at a projected value of $21B,” that projected investment returns would exceed 115 percent per year, and that investors were guaranteed to at least double their investment within five years. Read More

Court Enters Final Judgment Against Fraudster Bruce Strebinger

Bruce Strebinger Fraud - Securities Lawyer 101The Securities and Exchange Commission (SEC) announced on March 21, 2016 that on March 15, 2016, the Honorable Leigh Martin May of the United States District Court for the Northern District of Georgia entered a final judgment against defendant Bruce Strebinger. The final judgment imposes on Strebinger a permanent injunction against future violations of certain antifraud and reporting provisions of the federal securities laws, imposes a penny stock bar and orders that he pay disgorgement in the amount of $1,515,640.

In its Complaint, the SEC alleged that after Strebinger facilitated a reverse merger between shell company Americas Energy Company and a private start-up company in Knoxville, Tennessee, he and Brent Chapman each acquired substantial positions of over 5% of the common stock without publicly disclosing their beneficial ownership stake as required under the federal securities laws. Read More

Former Microsoft Manager Charged with Insider Trading Ahead of Acquisition of Nokia

Microsoft Manager Insider Trading - Securities Lawyer 101The Securities and Exchange Commission (SEC) announced on March 18, 2016 that former Microsoft Corporation senior manager, John Hardy III has agreed to pay nearly $380,000 to settle charges that he traded on material nonpublic information about Microsoft’s acquisition of Nokia Corporation’s mobile phone business and Microsoft’s year-end 2013 earnings release.

In its insider trading complaint filed in federal district court in Seattle, the SEC alleges that Hardy, who worked in Microsoft’s corporate financial planning and analysis group, purchased Microsoft put options after learning from highly confidential internal Microsoft documents, including a draft presentation to Microsoft’s board of directors, that the company’s fiscal-year 2013 financial results would not meet Wall Street analysts’ expectations. Read More

The Bad Actor Rule of Rule 506(d)

Bad Actor RuleAccording to a recent Securities & Exchange Commission (“SEC”) report, thousands of businesses raise billions of dollars in capital through offerings exempt from registration under Regulation D of the Securities Act of 1933, as amended. Rule 506 is the most commonly used Regulation D exemption. For small issuers, the amount raised is typically less than $2 million.

Rule 506(c) allows for general solicitation of accredited investors. This rule, a product of the JOBS Act, became effective on September 23, 2013 and is the original source of the “Bad Actor Rule.” The Bad Actor Rule prohibits an issuer from relying on the exemption if the issuer or certain other persons are subject to certain “Disqualifying Events” including being convicted of, or being subject to judicial or regulatory sanctions for, certain violations of U.S. based laws.

The Bad Actor Rule Codified

The “Bad Actor” rule is codified in paragraphs (d) and (e) of Rule 506.  Rule 506(d)(1) states that the exemptions in Rule 506(b) and Rule 506(c) are not available if a covered person has had certain Disqualifying Events. For purposes of Rule 506(d), “covered persons” include, any of the following:

  • The Issuer;
  • Directors, general partners, and managing members of the issuer;
  • Executive officers of the issuer, and other officers participating in the offering;
  • 20 percent beneficial owners of the issuer;
  • Promoters;
  • Investment managers and principals of pooled investment funds; and
  • Any person compensated for soliciting investors (as well as the general partners, directors, officers, and managing members of any compensated solicitor).

Under Rule 506(d), Disqualifying Events include any of the following that occurred after September 23, 2013:

  • Criminal convictions relating to securities transactions, false filings with the SEC, or certain securities-related businesses;
  • Court injunctions and restraining orders relating to securities transactions, false SEC filings, securities-related business activities, or obtaining money or property through the mail by means of false representations;
  • Final orders of certain financial regulators that bar the covered person from associating with a regulated entity or engaging in certain financial business activities, or that are based on a violation of antifraud rules, or any postal service false representation order;
  • SEC orders revoking the registration of a regulated person, limiting the activities of such a person, or imposing industry, collateral or penny stock bars;
  • SEC cease-and-desist orders with respect to the scienter-based antifraud rules or violations of Section 5 of the Securities Act;
  • Suspension or expulsion from a self-regulatory organization such as FINRA; and
  • In the case of any registrant, issuer or underwriter named in any registration statement or Regulation A offering statement filed with the SEC, the issuance of a suspension or stop order with respect to such registration statement or offering statement, or any ongoing investigation relating to the foregoing.

Any disqualifying event occurring prior to September 23, 2013, must be disclosed by the issuer to each purchaser in a Rule 506 transaction if that event would otherwise have resulted in disqualification pursuant to Rule 506(d)(1) regardless of the passage of time.

Since the Bad Actor Rule came into effect, a common question we receive is actions by foreign regulators are Disqualifying Events. The SEC addressed this question in Compliance & Disclosure Interpretation 260.20.

Question 260.20

Question: Is disqualification under Rule 506(d) triggered by actions taken in jurisdictions other than the United States, such as convictions, court orders, or injunctions in a foreign court, or regulatory orders issued by foreign regulatory authorities?

Answer: No.

The look-back period for these Disqualifying Events is five years, other than criminal convictions for persons other than the issuer, its predecessors, and affiliated issuers and certain regulatory orders based on antifraud violations, for which the look-back is ten years, and for certain SEC or SRO suspensions, revocations, bars, expulsions, and related orders, which result in disqualification so long as they remain effective.

Issuers and management teams preparing for a private offering, should consult with their corporate counsel to prepare “Bad Actor Questionnaires.” A properly drafted questionnaire will help management; identify “covered persons” under the rule; determine if previous events render those covered persons “Bad Actors;” If the issuer has identified a “Covered Person” is a “Bad Actor” under the rule; then application of the rule will help the team determine if the triggering events create a disqualifying situation or one that merely needs to be disclosed.

Issuers seeking to conduct Rule 506(c) offerings should proceed cautiously and devote necessary time and resources to ensure full compliance with the Bad Actor disqualification provisions of Rule 506(d). Failure to comply could lead to disqualification of the issuer’s entire offering resulting in SEC enforcement action.

For further information about this securities law blog  post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at info@securitieslawyer101.com or visit  www.securitieslawyer101.com.   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855

Court Enters Final Judgment Against Insider Trading Defendant Yue Han

 

Yue Han - Insider TradingOn March 16, 2016, the Court for the Southern District of New York entered a final judgment against defendant Yue Han, based on insider trading charges filed by the Securities and Exchange Commission (SEC) against Han on November 24, 2015.

The SEC’s Complaint alleges that Han, who worked as an associate in Goldman Sachs’ compliance department, traded on confidential information contained in e-mails sent and received by Goldman Sachs’ employees who advised investment banking clients on impending merger and acquisition transactions. According to the SEC’s Complaint, Han gained access to the e-mails as part of his work developing surveillance software to monitor other employees for potential misconduct, including insider trading, and used this access to generate over $460,000 in illicit earnings. Read More