SEC Charges Jerry Miller in Petrotech Oil Fraud
On March 13, 2017, the Securities and Exchange Commission charged Jerry Miller in connection with Petrotech Oil and Gas, Inc.. According to the SEC allegations, Miller is the principal of a Florida-based consulting firm to several microcap issuers. Miller has been charged with fraud for falsely claiming that one of his microcap issuer clients, had obtained a marijuana license in connection with its purported marijuana business.
The SEC’s complaint, filed in federal court in Miami, Florida, alleges that on February 26, 2014, Petrotech falsely announced in a press release that it had secured a medical and recreational marijuana license from Colorado in conjunction with Petrotech’s newly-founded marijuana business. The release also included marijuana production capacity projections based, in part, on Petrotech purportedly having secured the license. In reality, as alleged in the SEC’s complaint, Petrotech had not received a license to conduct a marijuana business in Colorado. Miller allegedly wrote the press release and was responsible for publishing it. Read More
What is the Transfer Agent Direct Registration System (DRS)?
The Depository Trust Company (“DTC”) offers a service to transfer agents known as the Direct Registration System (“DRS”). DRS allows transfer agents to provide shareholders with the ability to hold their shares in book-entry form with the transfer agent instead of a physical stock certificate. A DRS Statement evidences ownership of the security and replaces the physical stock certificate. DRS shares are represented by a DRS Statement in the name of the shareholder. The shareholder has full ownership of the shares and has all rights and privileges of share ownership. The Direct Registration Statement serves as evidence of ownership of the shares as opposed to a physical certificate.
Shares held in DRS are transferred between the issuer’s Transfer Agent and holder’s broker-dealer electronically. Read More
SEC Charges Lek Securities – Posted by Brenda Hamilton
On March 10, 2013, the Securities and Exchange Commission (“SEC”) announced fraud charges against Lek Securities and Avalon FA, a Ukraine-based trading firm in connection with a layering scheme. According to the SEC, Avalon FA, Fayyer and Pustelnik manipulated the U.S. markets hundreds of thousands of times in the scheme.
The SEC’s complaint alleges that Avalon FA Ltd touted itself to traders as a destination to engage in layering, a scheme in which orders are placed but later canceled after tricking others into buying or selling stocks at artificial prices, resulting in illicit profits. Avalon allegedly made more than $21 million in the layering scheme involving U.S. stocks during a five-year period. According to the SEC’s complaint, Avalon also made more than $7 million in illicit profits through a cross-market manipulation scheme in which the firm bought and sold U.S. stocks at a loss in order to manipulate the prices of the stock and its corresponding options so that it could then profitably trade at artificial prices. Avalon allegedly used traders in Eastern Europe and Asia to conduct its trading, and the firm kept a portion of the profits and collected commissions from the traders. Read More
SEC Eases Access to Exhibits in SEC Filings
On March 1, 2017 the Securities and Exchange Commission (the “SEC”) approved amendments related to SEC filings. The new amendments make it easier for investors and other market participants to find and access exhibits in registration statements and periodic reports that were originally provided in previous filings.
The amendments will require issuers to include a hyperlink to each exhibit in the filing’s exhibit index. Currently, someone seeking to retrieve and access an exhibit that has been incorporated by reference must review the exhibit index to determine the filing in which the exhibit is included, and then must search through the registrant’s filings to locate the relevant exhibit. This process can take hours if the issuer has filed SEC reports for years. “As the SEC looks for new ways to modernize financial disclosures, one of the easiest things we can do is add hyperlinks
SEC Uses Satellite Imagery to Charge Desarrolladora Homex
Anyone who thinks that the Securities and Exchange Commission (the “SEC”) is behind the times should check out the SEC’s latest action against Mexico-based home building company Desarrolladora Homex S.A.B. de C.V. The SEC used satellite imagery to help uncover the accounting scheme and illustrate its allegation that Homex had not even broken ground on many of the homes for which it reported revenues. According to the SEC, Desarrolladora Homex agreed to settle charges that it reported fake sales of more than 100,000 homes to boost revenues in its financial statements during a three-year period. Read More
New SEC Approves Ease Access to Exhibits in SEC Filings
On March 1, 2017, the SEC voted to adopt rule and form amendments that impact SEC Filings. The SEC’s new rules make it easier to locate and access exhibits in registration statements such as Form S-1 and periodic reports such as Form 10-K and 10-Q that were originally provided in previous SEC filings.
The amendments will require issuers to include a hyperlink to each exhibit in the filing’s exhibit index. Currently, someone seeking to retrieve and access an exhibit that has been incorporated by reference must review the exhibit index to determine the filing in which the exhibit is included, and then must search through the registrant’s filings to locate the relevant filing. This is time consuming and burdensome particularly where issuers have made filings with the SEC for years.
SEC Staff Issues Guidance and Investor Bulletin on Robo-Advisers
On February 23, 2017 the Securities and Exchange Commission (the “SEC”) published information and guidance concerning robo-advisers for investors and the financial services industry on the fast-growing use of robo-advisers, which are registered investment advisers that use computer algorithms to provide investment advisory services online with often limited human interaction.Because of the unique issues raised by robo-advisers, the Commission’s Division of Investment Management issued guidance for investment advisers with suggestions on meeting disclosure, suitability and compliance obligations under the Investment Advisers Act of 1940.
James P. Toner Jr Settles Fraud Charges – Posted by Brenda Hamilton
The Securities and Exchange Commission (SEC) on February 14, 2017 announced that James P. Toner Jr, a purported real estate investment manager has agreed to pay more than a half-million dollars to settle charges that he pocketed investor money in an investment scheme.
The SEC alleges that James P. Toner Jr. of Scottsdale, Ariz., siphoned $51,000 from investors who were falsely told that he would personally manage some of the real estate projects in which they were purchasing interests. The stated purpose of each investor offering was to purchase a residential property in the Phoenix area, renovate that property, and then sell it for a profit. Read More
SEC Brings Cases Related to Disclosures During Battles for Corporate Control
On February 14, 2017, the Securities and Exchange Commission (the “SEC”) announced two SEC enforcement actions involving disclosure violations that deprived investors of material information during battles for corporate control of publicly traded companies.
In one case, the SEC’s order finds that Texas-based oil refinery company CVR Energy made inadequate disclosures in SEC filings about “success fee” arrangements with two investment banks retained by the company to fend off a hostile takeover bid. Shareholders were consequently unaware of potential conflicts of interest that stemmed from the fee arrangements, namely that the banks could still earn success fees even if the hostile bidder secured control of the company. CVR Energy agreed to settle the case without admitting or denying the findings in the SEC’s order, which notes that the company will not pay a penalty due to its remedial acts and extensive cooperation with the investigation.
Chinese Citizens Gain Massive Profits From Insider Trading on Comcast-Dreamworks Acquisition
On February 10, 2017 the Securities and Exchange Commission (SEC) announced that it obtained an emergency court order freezing brokerage accounts holding more than $29 million in illegal profits from insider trading in advance of the April 2016 acquisition of DreamWorks Animation SKG, Inc. by Comcast Corp.The SEC alleges that in the weeks leading up to the news of the acquisition, Shaohua (Michael) Yin amassed more than $56 million of DreamWorks stock in the U.S. brokerage accounts of five Chinese nationals, including his elderly parents. DreamWorks stock price rose 47.3% once the acquisition was announced. Read More
Financial Adviser Funds Lavish Lifestyle by Stealing from Client Accounts
The Securities and Exchange Commission (SEC) on February 3, 2017 charged Barry Connell, an investment adviser representative with stealing approximately $5 million from client accounts by initiating unauthorized wire transfers and issuing checks to third parties to cover personal expenses. According to the SEC allegations, Barry Connell, who worked in the New Jersey office of a major financial institution, conducted more than 100 unauthorized transactions by using falsified authorization forms misrepresenting that he received verbal requests from the clients. Connell allegedly used money from client accounts to rent a home in suburban Las Vegas and pay for a country club membership and private jet service. Read More
Sidoti & Company Fined For Compliance and Trading Surveillance Failures
The Securities and Exchange Commission (SEC) on February 13, 2017 announced that Sidoti & Company LLC, a New York-based brokerage firm has agreed to pay a $100,000 penalty to settle charges of compliance and trading surveillance failures.Federal securities laws require firms to enforce policies and procedures to prevent the misuse of material, nonpublic information to which their employees routinely have access.
The SEC’s order finds that Sidoti & Company had no written policies or procedures in place from November 2014 to July 2015 as it pertained to those making investment decisions for an affiliated hedge fund that invested in issuers covered by Sidoti’s research department and some other issuers for which Sidoti provided investment banking services. For example, Sidoti maintained a “daily restricted list” of securities restricting personal trading because Sidoti was involved in investment banking or marketing activities or the firm was publishing research on the security. There were 126 instances from Nov. 3, 2014 to May 5, 2015 when the hedge fund traded in a stock that appeared on the daily restricted list. Read More
SEC Sues Investment Adviser Who Turned Thief
Morgan Stanley Settles Charges Related to ETF Investments
On February 14, 2017, the SEC announced that Morgan Stanley Smith Barney has agreed to pay an $8 million penalty and admit wrongdoing to settle charges related to single inverse ETF investments it recommended to advisory clients.
The SEC’s order finds that Morgan Stanley did not adequately implement its policies and procedures to ensure that clients understood the risks involved with purchasing inverse ETFs. Among the order’s findings, Morgan Stanley failed to obtain from several hundred clients a signed client disclosure notice, which stated that single inverse ETFs were typically unsuitable for investors planning to hold them longer than one trading session unless used as part of a trading or hedging strategy. Morgan Stanley solicited clients to purchase single inverse ETFs in retirement and other accounts, the securities were held long-term, and many of the clients experienced losses.
NASAA and SEC Sign Crowdfunding Agreement
On February 17, 2017 the Securities and Exchange Commission (the “SEC”) the North American Securities Administrators Association (“NASAA”) signed a crowding funding agreement. The agreement sets forth the rules to facilitate intrastate crowdfunding offerings and regional offerings take effect. The agreement signed by the SEC and NASAA is intended to facilitate the sharing of information to ensure that the new exemptions are serving their intended purpose of facilitating access to capital for small businesses. Under the memorandum of understanding (MOU), federal and state securities regulators will be better able to monitor the effects of the new rules and also guard against fraud.
The MOU was signed by SEC Acting Chairman Michael S. Piwowar and Mike Rothman, Minnesota Commissioner of Commerce and President of NASAA, which represents state securities administrators.
“The agreement not only builds on an already productive relationship between the SEC and state regulators, it also offers additional insights and protections as we help companies grow and create jobs while providing new opportunities to investors,” said Acting Chairman Piwowar. Read More
Former Shell Company, Terminus Energy and Its Officers Charged With Securities Fraud
The SEC alleges that while raising approximately $7.9 million from investors in Terminus Energy Inc., the company and its officers claimed to have a viable prototype capable of being sold and earning revenue. According to the SEC’s complaint, Terminus did not have the fuel cell technology or the funding to match their claims, and the officers were instead converting substantial amounts of investor funds to their own use.
FBI Informant Guy Gentile’s Indictment Is Tossed by the Judge
Guy Gentile Gets Good News
On January 30, 2017, brokerage firm owner Guy Gentile got the good news he’d been hoping for: Judge Jose Linares of the United States District Court for the District of New Jersey had dismissed the indictment filed against him by the Department of Justice. For Gentile, the judge’s order brings a welcome end to an involvement with the Federal Bureau of Investigation and the DOJ that had lasted nearly five years. We’ve written twice about Gentile, first in September 2016, and then in December of the same year. From our perspective, it was of interest as an example of the DOJ and FBI’s abuse of the considerable powers they possess.
The Allegations
In 2007 and 2008, Guy Gentile had participated in the promotion of two penny stocks, Raven Gold Corporation (RVNG) and Kentucky USA Energy, Inc. (KYUS). He was drawn into these schemes by Canadian promoters Mike Taxon and Itamar Cohen. The Securities and Exchange Commission eventually opened an investigation into both, suspecting pump and dump operations, and the DOJ took an interest as well. Gentile had no idea legal actions against him were being prepared, and turned to different projects after mid-2008. In 2011, he opened a new brokerage in the Bahamas that was designed to appeal to day traders. It was almost immediately successful, and he devoted his energies to it. Read More
SEC Final Judgment Entered Against Graduate Leverage
On December 23, 2016, the United States District Court for the District of Massachusetts entered final judgments against Graduate Leverage, LLC, GL Capital Partners, LLC, GL Investment Services, LLC, Taft Financial Services, LLC, and GL Advisor Solutions, Inc. These entities were controlled and manipulated by Daniel Thibeault, the individual defendant in this SEC enforcement action filed in January 2015, who misappropriated money from an investment fund that he was managing. The entities have all stopped their former business operations. The final judgments against these companies impose permanent injunctions against future violations of certain antifraud provisions of the federal securities laws and order all but one of them to pay disgorgement and interest, jointly and severally, of approximately $17.1 million. Read More
Final Judgment Entered Against Gregg Mulholland Posted by Brenda Hamilton
On January 11, 2017, the U.S. District Court for the Eastern District of New York entered a final judgment against defendant Gregg R. Mulholland, a penny stock promoter charged in an SEC action with illegally selling more than 83 million penny stock shares that he allegedly held in the names of at least 10 different offshore entities.
The SEC’s complaint, filed on June 23, 2015, alleged that Mulholland surreptitiously accumulated, through at least ten offshore front companies, at least 84% of the issued and outstanding shares of Vision Plasma Systems Inc. Once Mulholland effectively controlled the company through this majority ownership, he liquidated his shares for proceeds of at least $21 million. No registration statement was filed or in effect covering Mulholland’s sales and no exemption from registration was available. Read More
Final Judgment Entered in “Prime Bank” Fraud – By: Brenda Hamilton
On January 13, 2017, the U.S. District Court for the District of Minnesota entered a final judgment against Minnesota resident James M. Louks and his company, FiberPoP Solutions, Inc. Louks and FiberPoP are defendants in an SEC civil enforcement action who were charged with raising money from investors under false pretenses while failing to produce the promised returns until the SEC’s emergency action stopped them from doing so.
In September 2015, the SEC announced fraud charges and an emergency order to halt Louks and FiberPop from continuing to raise money from investors. In its complaint, the SEC alleged that Louks and FiberPoP, since 2003, defrauded approximately 100 investors by promising them massive returns, while actually spending the investors’ funds on various schemes, which the SEC alleged typically bore the hallmarks of “prime bank schemes.” Prime bank schemes lure investors to participate in a sham international investing opportunity with phony promises of exclusivity and enormous profits. Read More
Traders Charged With Hacking Lawyers – Posted by Brenda Hamilton
On December 27, 2016, the Securities and Exchange Commission charged three Chinese traders with fraudulently trading on hacked nonpublic market-moving information stolen from two prominent New York-based law firms, racking up almost $3 million in illegal profits. The SEC also is seeking an asset freeze that prevents the traders from cashing in on their illicit gains. The enforcement action marks the first time the SEC has charged hacking into a law firm’s computer network.
The SEC’s complaint alleges that Iat Hong, Bo Zheng, and Hung Chin executed a deceptive scheme to hack into the networks of two law firms and steal confidential information pertaining to firm clients that were considering mergers or acquisitions. Read More
General Cable Corporation Settles FCPA Charges – Posted by Brenda Hamilton
Posted by Brenda Hamilton
One December 29, 2016, the Securities and Exchange Commission announced that Kentucky-based General Cable Corporation agreed to pay more than $75 million to resolve parallel SEC and U.S. Department of Justice investigations related to its violations of the Foreign Corrupt Practices Act (FCPA). The company agreed to pay an additional $6.5 million penalty to the SEC to settle separate accounting-related violations.
According to the SEC’s orders instituting settled administrative proceedings, General Cable’s overseas subsidiaries made improper payments to foreign government officials for a dozen years to obtain or retain business in Angola, Bangladesh, China, Egypt, Indonesia, and Thailand. General Cable’s weak internal controls also failed to detect improper inventory accounting at its Brazilian subsidiary, causing the company to materially misstate its financial statements from 2008 to the second quarter of 2012. Read More
Blackbird Capital Partners LLC and Owners Charged in Ponzi Scheme
On November 28, 2016, the Securities and Exchange Commission (“SEC”) obtained a temporary restraining order and an emergency asset freeze in a $3 million offering fraud and Ponzi scheme orchestrated by Andrew Kelley, Paul Shumway and their company Blackbird Capital Partners, LLC, a former Commodity Trading Advisor located in Draper, Utah.
The SEC’s complaint, filed in federal court in Utah, alleges that since at least September 2014, Kelley and Shumway solicited several investors to invest at least $3.1 million with Blackbird, or through a separate “friends and family” account, which Kelley claimed he managed as a proprietary trading fund. Read More
Matthew and William Griffin Charged with Fraud
On November 23, 2016, the Securities and Exchange Commission (“SEC”) filed a civil action charging brothers Matthew Griffin and William Griffin with fraudulently offering interests in two Texas partnerships.
The SEC alleges that, between November 2013 and July 2014, the Griffins, through their company, Payson Petroleum, Inc., conducted a fraudulent two-phase offering of interests in two Texas partnerships, raising $23 million from approximately 150 investors for the purpose of developing three oil and gas wells. The SEC further alleges that the Griffins misled investors about Payson’s promised participation in the program and about Payson’s compensation as the program’s sponsor and operator. Read More
CEO of Warrior Girl Corp. Jason Kumpf Charged with Fraud
On November 21, 2016, the Securities and Exchange Commission (“SEC”) charged Jason William Kumpf, the former CEO and president of microcap issuer Warrior Girl Corp. and a resident of San Francisco, California, with fraud based on his involvement in the issuance of false and misleading public statements concerning Warrior Girl.
According to the SEC’s complaint, filed on November 21, 2016 in the U.S. District Court for the Southern District of New York, Kumpf, along with two individuals that were previously charged by the SEC, drafted a press release that Warrior Girl issued on or about July 1, 2010. Read More
FBI Informant Guy Gentile Pushes Back
In September, we wrote about Guy Gentile, the owner of two successful stock brokerages, and his troubles with the U.S. Department of Justice (“DOJ”). According to the DOJ, back in 2007-2008, Guy Gentile had become involved in the promotion of two penny stocks, Raven Gold Corporation (RVNG) and Kentucky USA Energy, Inc. (KYUS). The Securities and Exchange Commission (“SEC”) opened an investigation into both, and the DOJ took an interest as well. The individuals who paid for the promotions were different, but the promoters were the same: Canadians Mike Taxon and Itamar Cohen. Taxon and Cohen recruited Gentile because they needed a trader who could create the appearance of a market for their first play, RVNG.
The operation followed a pattern familiar to anyone who follows penny stock pump and dump operations. The Canadians who controlled the RVNG shell gave a large block of unrestricted stock to the promoters, who would use it to get trading going, and eventually to pay for a hard mailer, other advertising, and manipulative trading. Some friendly traders and stock touts were willing to accept free RVNG shares as kickbacks for open market purchases of the stock. The company’s CEO began to issue press releases that would be used in the preparation of the mailer. The mailer was distributed in mid-July 2007, and not surprisingly, it drove price and volume. Before the promotion began, the stock price had hovered around $0.80 a share; at the promo’s height, it hit $1.73. Read More
William Allen and Susan Daub Plead Guilty to Wire Fraud
On November 14, 2016 and November 21, 2016, William Allen and Susan Daub pled guilty in federal court to criminal wire fraud and other charges in connection with an investment scheme involving fraudulent loans to professional athletes. The criminal charges arise from the same conduct alleged in a related SEC civil enforcement action.
Allen and Daub both pled guilty to two counts of wire fraud, one count of conspiracy to commit wire fraud, and one count of charging a money transaction in proceeds of a specified unlawful activity. Allen and Daub were arrested on these charges in June 2015. As part of the fraud, Allen and Daub collected funds from investors for certain fictitious or oversubscribed loans and created the false impression that athletes were repaying certain fictitious or oversubscribed loans on schedule by making scheduled monthly payments to investors from new investor funds. Read More
Stanley Fortenberry Pleads Guilty to $900,000 Fraud
On November 18, 2016, Stanley Jonathan Fortenberry (a/k/a S.J., John, or Johnny Fortenberry) of San Angelo, Texas, pleaded guilty to an indictment charging him with obstruction of justice and other charges in connection with two investment companies he ran that defrauded investors out of approximately $900,000 over a four-year period.
On April 28, 2014, the SEC instituted public administrative and cease-and-desist proceedings against Fortenberry. The Division of Enforcement alleged that Fortenberry ran an investment company called Premier Investment Fund (Premier), which raised funds from investors for social media projects run by another company with ties to the country music industry. Read More
Former KIT Digital Inc. President Gavin Campion Charged with Securities Fraud
The Securities and Exchange Commission (“SEC”) charged Gavin Campion, the former president of KIT Digital Inc., with securities fraud.
The SEC’s complaint, filed in federal court in New York on November 15, alleges that over a one-year period ending in late 2011 Campion – along with Kaleil Isaza Tuzman, then KIT Digital’s CEO, and Robin Smyth, then its chief financial officer – caused KIT Digital to recognize more than $25 million in false revenue from at least a dozen sham license agreements that inflated KIT Digital’s publicly reported financial results. Read More
Francisco Martin Charged with Defrauding Investors in Native American Tribal Bonds
On November 14, 2016, the Securities and Exchange Commission (“SEC”) added Francisco Martin of Woodland Hills, California to a civil injunctive action currently pending in the U.S. District Court for the Southern District of New York, charging him with defrauding investors in sham Native American tribal bonds.
The SEC’s amended complaint alleges that Martin, along with seven other co-defendants, participated in a scheme to convince a Native American tribal corporation affiliated with the Wakpamni District of the Oglala Sioux Nation to issue limited recourse bonds that Jason Galanis and his father, John Galanis, had already structured. As Jason Galanis allegedly told two of his associates, the “primary objective” of the scheme was to provide Jason Galanis and his associates “a source of discretionary liquidity.” Read More
