Due Diligence in Accredited Crowdfunding Offerings – Securities Lawyer 101
The Anti-Fraud Provisions That Apply to Accredited Crowdfunding
Even though Accredited Crowdfunding Offerings are exempt under Rule 506(c) and no specific disclosure requirements apply, under most circumstances, the anti-fraud provisions mandate disclosure of certain information to investors. Section 10(b) of the Securities Exchange Act of 1934, (the “Exchange Act”) prohibits the use of any manipulative or deceptive device in contravention of the Securities & Exchange Commission’s rules and regulations. Rule 10b-5, was adopted pursuant to Section 10(b), and prohibits fraudulent devices and schemes, material misstatements and omissions of any material facts, and acts and practices that operate as a fraud or deceit on any person in connection with the purchase or sale of a security. Read More
SEC Files Subpoena in Possible Market Manipulation Scheme
The SEC filed a subpoena enforcement action against three penny-stock companies and their CEO – Cherubim Interests, Inc., PDX Partners, Inc., Victura Construction Group, Inc., and Patrick Jevon Johnson – seeking an order directing them to comply with investigative subpoenas for documents.
According to the SEC’s application, filed on December 21, 2018 in U.S. District Court for the Central District of California, the SEC is investigating whether certain individuals or entities engaged in a potential pump-and-dump scheme in the stock of Cherubim Interests, PDX Partners, Inc, and Victura Construction Group, Inc. Because the SEC was concerned about the accuracy of the companies’ disclosures, the SEC suspended trading in their securities on February 15, 2018 for ten business days. Based on its ongoing investigation, the SEC has reason to believe that each company issued false public statements in January 2018 to “pump” their stock price, claiming that it had acquired hundreds of millions of dollars of “AAA-rated” assets, even though each company appeared to have little to no assets. After the stock price and trading volume for each company increased as a result of the news, an entity associated with the companies may have “dumped” their overvalued shares for significant profits. Read More
SEC Charges Taiwan-Based Insurance, China United with Fraudulent Market Manipulation Scheme
A Taiwan-based insurance company, China United Insurance Service, Inc. and one of its former managers have agreed to settle fraud charges brought by the SEC relating to a scheme to manipulate the company’s trading volume.
The complaint alleges that, from approximately December 2013 through March 2018, China United Insurance Service, Inc. and Cheng-Hsiung Huang schemed to deceive the investing public and Nasdaq, for the purpose of obtaining a listing on Nasdaq, that the trading volume in the company’s stock was derived from bona fide market activity. Cheng-Hsiung Huang, acting on the company’s behalf, used multiple brokerage accounts to engage in numerous transactions in the company’s stock. When Cheng-Hsiung Huang’s trading was flagged by a U.S.-based brokerage firm for high volume and possible prearranged trading and several of the accounts were frozen, Cheng-Hsiung Huang and two colleagues contacted the brokerage firm and lied about their identities, their relation to China United, and their reasons for trading. Read More
SEC Obtains Judgment Against Former CEO John Place
On November 9, 2018, the SEC obtained a judgment against John Place, a former CEO of a brokerage consulting business who was charged by the SEC in August for his role in a multimillion dollar transition management fraud.
The SEC previously charged a brokerage consulting business known as GTS along with three of its former officers, including former CEO John Place, for misleading current and prospective customers about the fees the business charged in connection with securities transactions. According to the SEC’s complaint, John Place and other GTS officers told many of their customers that GTS would receive only clearly disclosed commissions charged on customers’ trades. In reality, GTS also received additional revenue from mark-ups and mark-downs charged by other brokers. Read More
SEC Obtains Asset Freeze Against Former Thomas Laws CEO Charged with Misappropriating Investor Funds
The SEC announced on December 14, 2018 charges against Thomas Laws, the former CEO of Santa Fe Gold Corporation, for the misappropriation of investor funds. The SEC also obtained an asset freeze against Thomas Laws.
The SEC’s complaint, unsealed on December 6, 2018, alleges that, from at least August 2016 through February 2018, Santa Fe Gold, a public mining company based in Albuquerque, New Mexico, transferred approximately $1.1 million in investor funds to Thomas Laws and THL Financial Services Corporation, an entity controlled by Thomas Laws, for various corporate purposes, including the purchase of a silver mine and mining equipment and for third party services. According to the complaint, Thomas Laws misappropriated the funds and attempted to hide his theft from the company and its independent auditor by fabricating documents, including vendor invoices, agreements, bank records, and communications. Read More
SEC Sues Orange County Investment Adviser, Craig Arsenault for Defrauding Clients
On December 14, 2018 the SEC charged Craig Arsenault, a California investment adviser with misappropriating client funds and misleading his clients about how their money was invested and how their investments were performing. The SEC is seeking an asset freeze and the appointment of a receiver to prevent any ongoing misappropriation or dissipation of assets.
The SEC’s complaint alleges that Craig Arsenault defrauded clients of his advisory firm, Atlas Capital Management, Inc., who had invested $5.7 million in a company he controlled, ACT Global Investments. According to the complaint, Craig Arsenault solicited investments in Atlas Capital Management, telling his advisory clients that their funds would be used to make secured loans to doctors for the purpose of acquiring medical equipment. The complaint alleges that Craig Arsenault and ACT used client funds instead to make unsecured loans to, for example, a used car dealership, and to acquire undeveloped real estate. As alleged in to the complaint, Craig Arsenault then provided clients with deceptive account statements that made it appear as if these investments were generating substantial income when they were not. The SEC also alleges that he misappropriated and misused over $1 million of the client money invested in Atlas Capital Management. Read More
SEC Obtains Final Judgment Against Gregory Webb, a Chicago Tech Executive
The SEC has obtained a final judgment against Gregory Webb, the former Chairman and CEO of a company purportedly in the homeland security business.
In October 2011, the SEC charged Gregory E. Webb, the Chairman and CEO of InfrAegis, Inc., and InfrAegis, with conducting a fraudulent, unregistered offering that raised over $20 million from at least 395 investors nationwide. According to the SEC’s complaint, Gregory Webb and InfrAegis made false and misleading claims about the company’s commercial success and the existence of contracts for the installation of InfrAegis’ products. Read More
Rule 506 Offerings FAQ By: Brenda Hamilton Attorney
Rule 506 Offerings are the most common of the Regulation D exemptions from registration under the Securities Act of 1933, as amended (the “Securities Act”). It has been approximately a year since the Securities and Exchange Commission (the “SEC”) adopted new criteria for Rule 506 offerings. Under the new rules, issuers may use general solicitation and advertising in their securities offerings if certain conditions are met. The SEC’s new rules also create “disqualifying events” for “covered persons” which prevent the issuer from relying on the Rule 506 exemption.
This blog post addresses the most common questions we received over the last year from our clients about the JOBS Act’ and its changes to Rule 506. Read More
Form 10 v Form S-1 Registration Statements – Going Public
Form S-1 and Form 10 each provide unique benefits in the going public process. Additionally, Form S-1 and Form 10 require similar disclosures. A company can voluntary file a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) and/or the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Form S-1 is most commonly used registration statement form under the Securities Act. Form S-1 registration statements provide issuers with flexibility in going public transactions. A registration statement on Form S-1 can be used to register specific securities for a company to sell to investors and specific shares for the company’s shareholders to resell publicly. Form S-1 can be used to register both simultaneously. Form S-1 registration statements can be used for a Direct Public Offering (“DPO”) or Initial Public Offering (“IPO”) and can be structured a variety of way depending upon the particular transaction.
Using Form S-1, the issuer or its shareholders are able to sell unrestricted securities and if structured properly, qualify for a ticker symbol assignment by the Financial Industry Regulatory Authority (“FINRA”) Read More
Regulation A+ Q&A
Since Regulation A+ was adopted in 2015, it has gained notable market acceptance. Regulation A+ provides an offering that can be used in combination with direct public offerings and initial public offerings as part of a Going Public Transaction allowing the issuer to avoid the risks of reverse merger transactions. Regulation A+ simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority (“FINRA”) while allowing the issuer to raise initial capital. This blog post addresses the most common questions we receive about Regulation A+.
How much can I raise with Regulation A+?
Tier 1 of Regulation A+ is available for offerings of securities of up to $20 million in a 12- month period, with no more than $6 million in offers by selling security- holders that are affiliates of the issuer. Tier 2 is available, for offerings of securities of up to $50 million in a 12-month period, with no more than $15 million in offers by selling security-holders that are affiliates of the issuer. Read More
Regulation A+ , Going Public and Secondary Trading
The Securities & Exchange Commission’s amendments to Regulation A known as Regulation A+ went into effect on June 19, 2015. Regulation A+ has gained market acceptance not only by issuers quoted on the OTC Markets but also by the New York Stock Exchange (“NYSE”) and NASDAQ Stock Market as an effective means of raising capital and going public.
A sometimes overlooked aspect of Regulation A+ is the impact of Blue Sky laws on secondary trading and liquidity. State Blue Sky laws are applicable to secondary trading and vary from state to state. From a practical perspective, it is important for a company looking to raise capital to offer liquidity to investors and facilitate secondary trading.
The trading of securities of issuers listed on National Securities Exchanges like the NASDAQ Stock Market and the NYSE are exempt from State Blue Sky laws that govern secondary trading; however, other companies such as those on the OTC Markets platform must comply with State Blue Sky laws for both their Regulation A+ Offerings and secondary sales. Read More
Form S-1 Registration Statement Filings – Securities Lawyers – Going Public
Form S-1 registration statement filings remain widely used by companies seeking to raise capital and go public even after the enactment of Regulation A. Form S-1 registration filings are the most commonly used registration statement form. The flexibility and benefits of a Form S-1 filing allows for a variety of structures in securities offerings and going public transactions. All companies qualify to register securities on a Form S-1 registration statement. Private companies going public should be aware of the expansive disclosure required in registration statements filed with the SEC prior to making the decision to go public. A Form S-1 registration statement on Form S-1 has two principal parts which require line item disclosures. Part I of the registration statement is the prospectus, which requires that the company provide to Investors certain disclosures about its business operations, financial condition, and management. Part II contains information that doesn’t have to be delivered to investors.
This blog post provides a summary of the sec disclosures and reporting requirements related to Form S-1 registration statement filings. Read More
SEC Files Subpoena Enforcement in Possible Market Manipulation Scheme
The SEC filed a subpoena enforcement action against NVC Fund LLC and its principal, Frank Ekejija, seeking an order directing them to comply with an investigative subpoena for documents and testimony.
According to the SEC’s application, filed on November 30, 2018 in U.S. District Court for the Central District of California, the SEC is investigating whether certain individuals or entities engaged in a potential pump-and-dump scheme in the stock of three penny-stock companies, Cherubim Interests, Inc., PDX Partners, Inc., and Victura Construction Group, Inc. Because the SEC was concerned about the accuracy of the companies’ disclosures, the SEC suspended trading in their securities on February 15, 2018 for ten business days. Based on its ongoing investigation, the SEC has reason to believe that each company issued false public statements in January 2018 to “pump” their stock price, claiming that NVC Fund owns “trillions” of dollars in “AAA-rated” assets, and that each company acquired hundreds of millions of dollars of these assets from NVC Fund. After the stock price and trading volume for each company increased as a result of the news, an entity associated with the companies may have “dumped” their overvalued shares for significant profits. Read More
The SEC Declared A Cease and Desist Proceedings with CoinAlpha Advisors LLC.
On December 7, 2018, CoinAlpha Advisors LLC submitted an Offer of Settlement, which the SEC has determined to accept. CoinAlpha Advisors LLC consented to the Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings, and Imposing a Cease-and-Desist Order.
CoinAlpha Advisors LLC is a Delaware limited liability company with its principal place of business in Sunnyvale, California. CoinAlpha Advisors LLC was formed in July 2017 to act as the managing member of and manager to CoinAlpha Falcon LP. They has never been registered with the SEC in any capacity.
CoinAlpha Falcon LP is a Delaware limited partnership with its principal place of business in Sunnyvale, California.They has never been registered with the SEC in any capacity. A total of 22 investors invested a total of $608,491 in CoinAlpha Falcon. In October 2018, after being contacted by the SEC, CoinAlpha Advisors LLC unwound the CoinAlpha Falcon, pursuant to the authority granted in CoinAlpha Falcon’s Limited Partnership Agreement. Read More
SEC Voluntary Dismisses All Claims Against Jesse Litvak
On December 6, 2018, the U.S. District Court for the District of Connecticut entered an order dismissing, with prejudice, the U.S. Securities and Exchange Commission’s complaint against Jesse Litvak. The court’s order was based on the SEC’s motion to dismiss its claims against Jesse Litvak.
Jesse Litvak was also criminally charged by the U.S. Attorney for the District of Connecticut based on the same facts underlying the SEC’s action. Jesse Litvak was twice convicted, in jury trials in March 2014 and January 2017, but those convictions were both overturned by the U.S. Court of Appeals for the Second Circuit, most recently in May 2018. In July 2018 the U.S. Attorney moved to dismiss its criminal case against Jesse Litvak and the court granted the motion to dismiss on August 1, 2018. Read More
SEC Charges Technology Fund Adviser, Founder in Fraudulent Scheme
The SEC charged Michael Rothenberg, the founder of San Francisco-based venture capital funds and his investment advisory firm with overcharging investors to fund personal projects, including sending millions of dollars to his own virtual reality production company.
The SEC’s complaint alleges that Michael Rothenberg, 34, marketed his advisory firm, Rothenberg Ventures LLC, as uniquely positioned to identify millennial entrepreneurs and invest in “frontier technology” companies. According to SEC filings, Rothenberg’s funds had nearly 200 investors and more than $64 million in assets. The SEC’s complaint alleges that over a three-year period, Rothenberg and his firm misappropriated millions of dollars from the funds, including an estimated $7 million of excess fees, which Michael Rothenberg used to support personal business ventures he claimed were self-funded and to pay for private parties and events at high-end resorts and Bay Area sporting arenas. Read More
Court Enters Final Judgments in Eb-5 Scheme, Ordering Return of $25.8 Million to Defrauded Chinese Investors
On November 19, 2018, a U.S. District Court for the Central District of California entered final judgments on consent against defendants Edward and Jean Chen, husband and wife, and five entity defendants who had been charged with defrauding Chinese investors in connection with the EB-5 Immigrant Investor Program.
On September 20, 2017, the SEC filed a complaint against Edward and Jean Chen, Home Paradise Investment Center LLC, GH Investment LP, GH Design Group LLC, Golden Galaxy LP, and Mega Home LLC, alleging that the Chens, through the entities they controlled, raised more than $22.5 million from 45 investors in China for the development of an interior design center and an 80-unit condominium building. The complaint alleged that the Chens misappropriated and misused more than $12 million of investors’ funds by purchasing residential real estate unrelated to the two EB-5 projects. The SEC’s complaint further alleged that the Chens and their companies provided investors a fake lease for the interior design center that replaced the name of the true lessor with a Chen-controlled entity and overstated the true size of the leased space five-fold. Read More
Owner of Options Trading Website, Mark Suleymanoy Charged for Defrauding Retail Investors
On December 3,2018 the SEC charged Mark Suleymanov of Glen Cove, New York with engaging in an online binary options scheme that defrauded retail investors out of approximately $4 million.
The SEC’s complaint alleges that from at least 2012 to 2016, Mark Suleymanov engaged in the unregistered offer and sale of binary options, which are securities that pay out depending on the outcome of a “yes/no” proposition, such as whether a specific equity security will close at or above a specified price on a given trading day. Mark Suleymanov promoted and sold the options on the SpotFN website and other related websites he controlled, and misrepresented the profitability of investing in the binary options, as well as investors’ ability to access their funds. Mark Suleymanov allegedly used software to manipulate investors’ trading results to increase investor losses, and prevented many investors from withdrawing their funds. As alleged in the complaint, the SpotFN website also falsely stated that an investor’s funds would be held in a separate account and used only for trading options, not for SpotFN’s business expenses. In fact, Mark Suleymanov commingled investor funds in his bank accounts and misused certain of the funds for business and personal expenses. Read More
David Dreslin and Michael Toups charged with Orchestrating a Fraudulent Public Shell Company Scheme
The SEC announced on December 3,2018 fraud charges against a Florida-based CPA, a former broker, and his spouse, for their roles in a fraudulent scheme involving the creation and sale of a public shell company and false regulatory filings to facilitate the sale.
According to the SEC, David Dreslin and Michael Toups created a shell company, Anglesea Enterprises, Inc., by filing false and misleading registration statements and periodic reports with the SEC, creating a phony business plan, and appointing nominal officers and directors to conceal their control over the company. The goal of the alleged scheme was to sell Anglesea in a reverse merger for profit. The SEC also alleges that Leslie Toups served as Anglesea’s majority shareholder and director and signed filings and other documents that contained materially false and misleading statements and omissions over a multiyear period. Read More
A Kentucky Man, Jared Forrester charged for Role in Nationwide Oil Investment Scheme
The Securities and Exchange Commission charged a 35-year-old Jared Forrester for his role in a scheme that resulted in the fraudulent offering and sale of at least $15 million of securities to more than 150 investors.
The SEC’s complaint alleges that Jared Gabriel Forrester was installed as a figurehead to run Tennessee-based Tennstar Energy Group, Inc., formerly known as Black Gold Resources, Inc. He misled investors by failing to disclose that two convicted felons actually were running the company. Despite having no background in oil drilling or production efforts, Tennstar’s website allegedly described Jared Forrester as having “an immense knowledgebase in oil and gas development and how to effectively maximize profits.” Tennstar offering materials also allegedly claimed that Jared Forrester “had a multitude of roles within the petroleum industry over the years.” The complaint further alleges that Jared Forrester even told one Tennstar investor that he had “worked his way up through the oil fields” and had been in the industry during his “whole adult life.” However, Jared Forrester’s work history mainly consisted of jobs in hotels and retail furniture sales, as well as a stint as a stock broker trainee. Read More
SEC Charges Eric “EJ” Dalius, Network Marketer with Masterminding a Multimillion Dollar Ponzi and Pyramid Scheme
The SEC has charged Eric “EJ” Dalius and seven corporate entities that he controlled with defrauding investors through the promotion and operation of a multimillion dollar Ponzi and pyramid scheme.
The SEC alleges that Eric “EJ” Dalius, who pled guilty in 2001 to criminal charges in connection with a long distance phone card scam, and the companies he controlled under the umbrella name “Saivian,” sold securities that entitled holders to receive 20% cash back on their shopping purchases in exchange for paying a fee of $125 every 28 days, and submission of receipts. EJ Dalius and the Saivian companies falsely claimed that Saivian funded its cash back payments to members by monetizing the point-of-sale receipt data submitted by its members. Instead, they satisfied promised returns to some investors through the investments of others rather than through legitimate business activity. EJ Dalius and his companies also allegedly promised a daily residual income stream for affiliates who sold Saivian memberships to downline recruits. The SEC also alleges that EJ Dalius hid his creation and ownership of the Saivian scheme and failed to disclose his 2001 criminal conviction in connection with the earlier multi-level marketing fraud. Read More
SEC Charges Self-Described Promoter Eric Landis with Microcap Market Manipulation Scheme
On November 29, 2018, the SEC charged Eric Landis, a self-described penny stock promoter and an entity he controlled with orchestrating a scheme to manipulate trading in at least 97 microcap stocks.
According to the SEC’s complaint, Eric Landis falsely claimed to third-party media buyers for microcap companies that he would distribute promotional materials for the stocks via email lists with tens of thousands of subscribers. Yet, in reality, his distribution lists were a sham. To generate trading volume and create the false impression that he was drumming up investor interest, the SEC alleges that Eric Landis traded thousands of microcap shares himself using brokerage accounts in his own name, in the name of an entity he controlled, Ridgeview Capital Partners LLC, and in the names of several third parties. Altogether, the SEC alleges that Eric Landis placed thousands of manipulative trades over three years, including approximately 1,300 “matched trades,” which involved simultaneously selling and buying stocks in the microcap companies he was paid to promote. Read More
SEC Accepts Settlement Offer Against Ricardo Goldman
On November 29, 2018, the SEC determined to accept the Offer of Settlement which was submitted by Ricardo Goldman.
A resident of Miami, Florida,Ricardo Goldman was a broker with an unregistered broker-dealer, American Capital Group. From at least November 2010 to August 2015, Ricardo Goldman solicited securities traders through day trading seminars he taught, as well as by offering day trading software and services. Ricardo Goldman established and maintained sub-accounts for traders under a U.S. brokerage account belonging to America Capital Group LTD held at Letsgotrade, Inc., a registered broker-dealer based in Puerto Rico. Ricardo Goldman received transactions based compensation in the form of commissions. Neither American Capital Group nor America Capital Group LTD has ever registered with the SEC in any capacity.
On November 8, 2018, a final judgment was entered by consent against Ricardo Goldman, permanently enjoining him from future violations of Sections 10(b), 15(a)(1), and 15(b)(6)(B) of the Exchange Act and Rule 10b-5. Read More
SEC Obtains Final Judgement Against Steven Newman
On November 9, 2018, the Honorable Nicholas G. Garaufis of the United States District Court for the Eastern District of New York entered a final judgment against defendant Steven Newman. The final judgment imposes on Newman a permanent injunction against future violations of certain antifraud provisions of the federal securities laws and bars Newman from serving as an officer and director of a public company.
The SEC’s complaint, filed on October 19, 2007 and amended on March 23, 2015, alleged, among other things, that Steven Newman and other officers and directors of Xybernaut Corp., signed registration statements for private investment in public equity transactions (PIPE transactions) that were all false and misleading because those registration statements named nominee entities and nominee directors as the control persons and concealed the identify of an investor group that controlled large blocks of Xybernaut’s shares. Read More
SEC Charges Four in Fraudulent Microcap Manipulation Scheme Orchestrated Through International Accountotc mar
The SEC charged Morrie Tobin and three other individuals for their roles in a scheme to profit from the manipulation and illegal sale of stock of two publicly traded companies, Environmental Packaging Technologies Holdings, Inc. and CURE Pharmaceutical Holding Corp.
According to the SEC’s complaint, Morrie Tobin, a California resident, worked with co-defendants Milan Patel, Matthew Ledvina, and Daniel Lacher to facilitate Morrie Tobin’s scheme. Milan Patel and Matthew Ledvina, attorneys at an international tax law firm, and Matthew Lacher, a resident of Switzerland, allegedly hid Morrie Tobin’s ownership and control over the companies by using offshore entitites to hold his stock and by establishing accounts to sell that stock at Wintercap SA, a Swiss-based company run by U.K. citizen Roger Knox. On October 2, 2018, the SEC filed an emergency action and obtained an asset freeze against Roger Knox and Wintercap, charging them with a scheme that generated more than $165 million of illegal sales of stock in at least 50 microcap companies. Read More
Court Enters Final Judgment in Case Against Immigration Lawyer, Steve Qi and His Law Firm
On November 5, 2018, a U.S. District Court for the Central District of California entered a final judgment on consent against immigration attorney, Steve Qi, and his law firm who were charged with violations in connection with the EB-5 Immigrant Investor Program.
The SEC’s complaint, filed December 8, 2017, alleged that Steve Qi and his law firm acted as unregistered brokers in connection with sales of EB-5 investments and defrauded their investor clients by not fully disclosing their receipt of transaction-based compensation. After the Court denied Defendants’ motion to dismiss the complaint, the parties engaged in Court-ordered mediation that resulted in resolution of the case by consent. Read More
Hurricane Restoration Company and Executives Settle SEC Accounting Fraud Charges
The former CEO and CFO of a now-defunct Dallas and New Orleans-based disaster remediation and construction business, Home Solutions of America, Inc have agreed to pay disgorgement and penalties to settle accounting fraud charges brought by the SEC. In addition, the SEC has asked the Court to convert the injunctive relief previously ordered against the company, Home Solutions of America, Inc. into a final judgment.
The SEC charged Home Solutions of America, Inc, its former CEO, Frank Fradella, and its former CFO, Jeffrey Mattich, four other former executives, and a business partner in 2009 with fraud for lying about non-existent business deals in the 2005-2008 time period and inflating the company’s revenues and stock price. To settle the SEC’s charges, Frank Fradella agreed to pay $1 million in disgorgement, a lifetime bar from serving as an officer or director of a public company, and to be permanently prohibited from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5, the books-and-records provisions of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2, and the certification provision of Rule 13a-14 of the Exchange Act. In addition, he agreed to be permanently prohibited from aiding and abetting violations of the reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 and the books-and-records provisions of Sections 13(b)(2)(A) and (B) of the Exchange Act.
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The Securities and Exchange Commission announced on November 15, 2018, the resolution of three actions against the CFO of a Chicago-area information technology company, who was previously charged by the SEC and the U.S. Attorney’s Office. Dhru Desai was ordered, in the SEC’s civil action, to pay approximately $1.63 million in disgorgement, prejudgment interest, and a civil penalty; suspended by the Commission from practicing before the Commission on the basis of his guilty plea in the parallel criminal action; and sentenced to 39 months in prison in the criminal action.
The SEC’s complaint, filed on June 29, 2017 in the U.S. District Court for the Northern District of Illinois, alleged that former chief executive officer Nandu Thondavadi and former chief financial officer Dhru Desai stole more than $4 million from Schaumburg, Illinois-based Quadrant 4 System Corp., for a nearly five-year period. The former executives also allegedly caused Quadrant 4 System to understate its liabilities and inflate its revenues and assets, evading scrutiny by lying to the company’s auditors and providing them with forged and doctored documents. Read More
SEC Announces Settlement in Fraud Case Against OTC Markets IIssuer and Cornelius Peterson
On January 31, 2018, the Commission filed a complaint in the United States District Court for the District of Massachusetts charging Cornelius Peterson and his former colleague, James Polese, with securities fraud for engaging in various schemes to defraud their clients, including fraudulently misappropriating $350,000 of their client’s money, using $100,000 of those funds to make investments in their own names, and directing the remaining $250,000 to James Polese’s personal bank account and investing $100,000 of another client’s funds into an investment in which Cornelius Peterson and James Polese held a financial interest, without informing the client or disclosing their conflict of interest. Read More
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
