This Week In Securities Litigation

by Dorsey & Whitney LLP
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This week Senator Elizabeth Warren forwarded a 13 page letter to SEC Chair White regarding her performance in office. The letter highlighted what it calls a “significant gap” between the promises of Ms. White at the time she was confirmed and now. In addition, the letter expressed concern over the failure of the agency to address undisclosed corporate campaign contributions, rulemaking that has created large loopholes in Dodd-Frank disclosure rules and its rules for small business capital formation that preempted important state consumer protections. The letter became the subject of a front page article in the Wall Street Journal.

SEC

Testimony: Chair Mary Jo White testified before the Senate Subcommittee on Financial Services (May 5, 2015). Her testimony reviewed the fiscal year 2016 budget (here).

Remarks: Commissioner Michael S. Piwowar delivered remarks titled “Capital Unbound” at the Cato Summit on Financial Regulation, New York, New York (June 2, 2015). His remarks focused on accredited investors and waivers regarding forward looking statements (here).

Remarks: Commissioner Michael S. Piwowar delivered remarks to the Exchequer Club of Washington, D.C. (May 20, 2015). His remarks focused on calls by the federal reserve regarding prudential market regulation (here).

CFTC

Remarks: Chairman Timothy Massad addressed the Global Exchange and Brokerage Conference, New York, New York (June 3, 2015). His remarks reviewed Dodd-Frank, the oversight of swaps dealers, transparent trading and responding to changes in the market (here).

Remarks: Commissioner J. Christopher Giancario delivered remarks tilted “The New Mediocre Is Not Good Enough” at the Cato Summit on Financial Reform, Washington, D.C. (June 2, 2015). His remarks included a discussion of competitive markets, financial derivatives, the impact of uncoordinated regulations and the failure of the FSOC to coordinate them (here).

Remarks: Chairman Timothy Massad addressed the Natural Gas Roundtable, Washington, D.C. (May 26, 2015). His remarks covered addressing concerns of commercial end-users and finishing the remaining rules (here).

Remarks: Commissioner Mark P Wetjen delivered remarks tited “Applying the Insights of Joseph de la Vega’s Confusion de Confusiones to Today’s Derivatives Markets – a Case for More Transparency” to the Global Derivative Trading and Risk Management Conference, Amsterdam, The Netherlands. His remarks centered on the automation of derivatives markets and the new policy considerations that have resulted (here).

SEC Enforcement – Filed and Settled Actions

Statistics: During this period the SEC filed 10 civil injunctive cases and 15 administrative actions, excluding 12j and tag-along proceedings.

False tender offer: SEC v. PTG Capital Partners Ltd. (S.D.N.Y. Filed June 4, 2015) is an action which names as defendant PTG, a company which for which there is “no indication” it is legitimate, according to the complaint; PST Capital, described in similar terms; Nedko Nedev, a resident of Bulgaria; Strategic Capital Partners Muster Limited, a firm whose brokerage account has been routinely accessed from Bulgaria; and Strategic Wealth Investments, Inc., also a firm whose brokerage account has been routinely accessed from Bulgaria. The complaint alleges two false tender offers, used as manipulative devices. First PTG filed a purported tender offer for Avon shares. Mr. Nedev generated about $5,000 in excess profits by selling shares of Avon stock on May 14 at inflated prices after the filing resulted in an increased share price for the stock. The second involved a similar 2014 scheme regarding the shares of Rocky Mountain Chocolate Factory. The complaint asserts claims under Securities Act Section 17(a) and Exchange Act Sections 10(b), 14(e), 20(a) and 20(b). The case is pending.

Insider trading; SEC v. Fishoff (D.N.J. Filed June 3, 2015) is an action which names as defendants Steven Fishoff, Paul Petrello, Ronald Cohernin and Steven Constantin along with entities controlled by the individual defendants engaged in an insider trading scheme. Specifically, the complaint alleges that Mr. Fishoff, and the other individual defendants posed as portfolio managers and induced investment bankers to bring them “over the wall” and share confidential information regarding pending secondary offerings. In each instance there were assurances that the information would remain confidential. In breach of that duty, the defendants traded on the information, shorting the shares. The scheme also included trading in advance of certain positive corporate news announcements regarding confidential negotiations between two large pharmaceutical companies. Overall the defendants had in excess of $4.4 million in profits. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 105. The action is pending. The U.S. Attorney for New Jersey filed parallel criminal charges.

Offering fraud: In the Matter of Michael G. Thomas, Adm. Proc. File No. 3-16573 (June 3, 2015) is a proceeding centered on the efforts of Mr. Thomas to sell interests in a pooled investment vehicle, Michael G. Investments LLC. In soliciting investors Mr. Thomas misrepresented the past performance of the investment and made misstatements about his background and the personnel who would manage the investment. He failed to sell any interests in the vehicle. The Order alleges violations of Securities Act Sections 17(a)(1) and (3). The Respondent entered into an undertaking no to participate for five years in the sale of securities (except for his personal account on a national exchange). In addition, he consented to the entry of a cease and desist order based on the Sections cited in the Order and was barred from the securities business with a right to reapply after five years. He was also ordered to pay a penalty of $25,000.

Offering fraud: In the Matter of Todd M. Schoenberger, Adm. Proc. File No. 3-16572 (June 3, 2015) is a proceeding centered on the sale by Respondent, a radio and TV commentator on investments, of promissory notes issued by LandColt Capital LP, an unregistered investment firm. The notes were to be repaid from management fees from an about to be launched fund. Investors were told that there were firm commitments from a fund and others to invest. About $130,000 was invested by four individuals beginning in early 2013. In fact the representations were false. About half of the funds were diverted to the personal use of Respondent. Mr. Schoenberger resolved the action, consenting to the entry of a cease and desist order based on Securities Act Sections 5(a), 5(c) and 17(a) and Advisers Act Section 206(4). In addition, he is barred from the securities business and was directed to pay disgorgement of $65,000, prejudgment interest. No penalty was imposed based on financial condition.

Market manipulation: SEC v. Lonergan, Civil Action No. 0:15-cv-61148 (S.D. Fla. Filed June 1, 2015) is an action against Mr. Lonergan and Green Planet Group, Inc. The complaint alleges the defendants engaged in market manipulation by paying a stock promoter to purchase shares of the firm in the open market prior to press releases issued as part of the manipulation. The complaint alleges violations of Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 23374 (June 2, 2015).

Misrepresentations: In the Matter of Dickson Lee, CPA, Adm. Proc. File No. 3-15815 (June 1, 2015) is a proceeding centered on a fraudulent scheme by L&L Energy and Respondent designed to create the appearance that the firm had a professional management team and conceal Mr. Lee’s control. L&L is a coal company with its operations in China and Taiwan. For about one year beginning in August 2008 Mr. Lee falsely represented that the firm had certain personnel as part of its management team. Mr. Lee also misled NASDAQ, claiming that the firm had complied with all SOX certifications. As a result the firm was listed on the exchange. The Order alleges willful violations of Exchange Act Sections 10(b) and 13(a) and of Section 302 of Reg. S-T. The action will be set for hearing.

Disclosure: In the Matter of First Bankcorp, Adm. Proc. File No. 3-16569 (June 1, 2015) is a proceeding naming as Respondents the bank, Anna Hollers, its former COO, and Teresa Nixon, its chief loan officer. Over a three year period the bank failed to disclose related party transactions involving family members of Ms. Hollers and Ms. Nixon. Although Ms. Holders was the officer who oversaw the process of identifying related party transactions she failed to do so. The Order alleges willful violations of Exchange Act Sections 13(a) and 13(b)(2)(B). Each Respondent settled. The bank consented to the entry of a cease and desist order based on the Sections cited in the Order. Each individual Respondent consented to a cease and desist order based on Exchange Act Section 13(a). In addition, the bank will pay a penalty of $275,000, Ms. Hollers, $15,000 and Ms. Nixon $20,000.

Manipulation: In the Matter of Ronald Lawrence Schuman, Adm. Proc. File No. 3-16566 (June 1, 2015); In the Matter of Barry Hawk, Adm. Proc. File No. 3-16565 (June 1, 2015). Mr. Schuman is the CEO of Conectyx Technologies Corporation, a penny stock company; Mr. Hawk is the CEO of Arctic Enterprises, Inc. and Strategic Rare Earth Metals, Inc. Each was involved in a scheme in which kickbacks were paid to a purported corrupt hedge fund manager who was in fact an undercover agent. The agent was to purchase restricted stock. Each Order alleges violations of Exchange Act Section 10(b). Each Respondent consented to the entry of a cease and desist order based on Section 10(b) and was barred from the securities business. Each Respondent was also charged in a parallel criminal action.

Misrepresentations: SEC v. Sage Advisory Group, LLC, Civil Action No. 10-cv-11665 (D. Mass.); SEC v. Grant, Civil Action No. 11-cv-11538 (D. Mass.). In the first action, which named as defendants the advisory firm and Benjamin Grant, the complaint alleges that Mr. Grant induced his clients to move their accounts to a new firm he established based on a series of misrepresentations. A jury found both defendants liable for violations of the fraud provisions of the Advisers Act. In the second, against John Grant and Sage, the defendants admitted liability. The complaint alleged that Mr. Grant associated with Sage in violation of a prior bar order which precluded him from association with an adviser. The final judgment entered in the first case imposes permanent injunctions based on Advisers Act Sections 206(1), 206(2), 206(4) and 204A. In addition, the defendants will pay, on a joint and several basis, $500,000 in disgorgement and prejudgment interest. Lee Grant was also ordered to pay a civil penalty of $350,000. In the second the injunction is based on Advisers Act Sections 206(1), 206(2) and 207. A penalty of $150,000 was imposed on Lee Grant. Mr. Grant and Sage acknowledged that their conduct violated the federal securities laws in the second case. Lee Grant consented to the entry of a permanent bar in a follow-on administrative proceeding. See Lit. Rel. No. 23272 (June 1, 2015).

Misappropriation: SEC v. Spangler, Civil Action No. 12-cv-856 (W.D. Wash.) is a previously file action against Mark Spangler and The Spangler Group, Inc., an investment adviser. The complaint alleges that the defendants funneled about $47.7 million of client funds into other ventures. Those risky investments were inconsistent with the strategies promised to clients and contrary to their investment objectives. The Spangler Group is now being liquidated by a court appointed receiver who consented on behalf of the firm to the entry of an injunction prohibiting future violations of the securities laws. Mr. Spangler was convicted on 32 counts of wire fraud, money laundering and investment adviser fraud in a parallel criminal case. He was sentenced to serve 16 years in prison and ordered to pay nearly $20 million in restitution. The Court entered a default judgment against him in the SEC action. Mr. Spangler was ordered to pay $4 million in disgorgement, prejudgment interest and civil penalties. See Lit. Rel. No. 23276 (June 3, 2015).

Investment fund fraud: SEC v. Williamson, Civil Action No. 1:15-cv-22080 (S.D. Fla. Filed June 1, 2015) is an action which names as a defendant, unregistered investment adviser Phil Williamson. The complaint alleges that beginning in 2007, and continuing through last year, Mr. Williamson raised over $2 million, largely from public sector retirees, who were induced to invest in his fund which supposedly invested in distressed properties. Investors were assured the fund was safe and would pay returns of 8% or more annually. In fact Mr. Williamson misappropriated much of the money. The complaint alleges violations of Advisers Act Sections 206(1), 206(2) and 206(4). Mr. Williamson agreed to resolve the case, consenting to the entry of a permanent injunction based on the Sections cited in the complaint and agreeing to pay disgorgement o$748,050.01. Parallel criminal charges have been filed.

Reg SHO: In the Matter of Merrill Lynch, Pierce, Fenner & Smith Inc., Adm. Proc. File No. 3-16567 (June 1, 2015) is a proceeding which names as Respondents the broker dealer and its subsidiary, Merrill Lynch Professional Clearing Corporation. The Order alleges that because of a glitch in its systems regarding Easy to Borrow, lists for covering short sales, its trading platforms frequently used day old information which continued to show securities as being on the list when in fact they should have been removed. The Order alleged violations of Rule 203(b) of Regulation SHO. To resolve the matter Respondents admitted violating the federal securities laws and agreed to certain undertakings which included the retention of a consultant not unacceptable to the staff. They also agreed to the entry of a cease and desist order based on Rule 203(b) of Regulation SHO and a censure. In addition, Respondents will pay disgorgement of $1,566,245.67, prejudgment interest and a civil penalty of $9 million.

Misappropriation: In the Matter of William Quigley, Adm. Proc. File No. 3-16560 (May 28, 2015) is a proceeding which names as a Respondent the Director of Compliance of Trident Partners Ltd., a registered broker-dealer. From 2003 through 2012 Mr. Quigley is alleged to have used his position at the firm to solicit clients to open accounts. The clients deposited their funds in accounts controlled by Mr. Quigley. The funds were either wired to a bank account in the Philippines or withdrawn in small amounts. The securities were not purchased. The Order alleges violations of each subsection of Securities Act Section 17(a) and Exchange Act Section 10(b). The action will be set for hearing.

Trading ahead: In the Matter of Gregory T. Bolan, Jr., Adm. Proc. File No. 3-16178 (May 28, 2015) is a proceeding which names as Respondents Mr. Bolan, a former research analyst at Wells Fargo Securities, LLC, and Joseph C. Ruggieri, a trader at the firm. In March 2010 Mr. Ruggieri traded ahead of a ratings change by selling stock short ahead of a downgrade by Mr. Bolan. This generated profits for the firm. The Order alleges violations of Securities Act Section 17(a)(3). To resolve the action Mr. Bolan consented to the entry of a cease and desist order and will pay a penalty of $75,000. He was also ordered to pay $24,944, the gains on the trade, along with prejudgment interest.

Manipulation: SEC v. Taxon, Civil Action No. 15-cv-3587 (D.N.J. Filed May 28, 2015) is an action which names as defendants Mike Taxon and Itamar Cohen, partners in penny stock promotion business, Maxwell Network Group, Inc. in Ontario, Canada. The action centers on two manipulation schemes which are variations on a theme. In the first, involving Raven Gold Corporation, a gold and silver exploration company, the defendants were retained by company insiders and paid to manipulate the stock. The scheme involved a retained Trader who placed trades designed to mimic actual market activity which was bolster by a glossy promotional “newsletter” designed to hype the stock. In the second a Trader was retained to promote the shares of Kentucky USA Energy, Inc., a natural gas production firm. This scheme also involved manipulative trading and a false mailer to solicit potential investors. It took place from 2007-2008 while the first scheme was conducted in 2007. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The two defendants partially resolved the action with monetary sanctions to be assessed by the Court. Parallel criminal charges were filed by the U.S. Attorney’s Office for the District of New Jersey. See Lit. Rel. No. 23271 (May 28, 2015).

Manipulation: SEC v. Chang, Civil Action No. 14-4132 (S.D.N.Y.) is a previously filed action against Luis Chang and his controlled firm, Everbright Development Overseas, Ltd. The complaint alleged that Mr. Chang falsely announced a tender offer by his firm for Allied Nevada Gold Company after sending a letter to management. At the time he held over 5% of the firm’s stock, a fact not disclosed. The position was sold into the falsely inflated market. This week the defendants settled, consenting to the entry of permanent injunctions based on Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(d)(10 and 14(e). In addition, they will pay disgorgement of $2,890,507, prejudgment interest and a penalty of $2,890,507. See Lit. Rel. No. 23270 (May 28, 2015).

Manipulation: SEC v. Gottbetter, Civil Action No. 2:15-cv-03528 (D. N.J. Filed May 26, 2015) is an action which names as defendants attorney Adam Gottbetter along with Michell Adam and David Stevenson. The complaint claims that attorney Gottbetter planned and implemented the manipulation of the shares of Kentucky USA Energy, Inc., Dynastar Holdings, Inc. and HBP Energy Corporation. In each instance he arranged for the purchase of a public shell, recruited traders and planned or approved promotional campaigns touting the shares. In the third scheme he was assisted by defendants Adam and Stevenson, veteran stock promoters. The first scheme yielded $12 million in profits. The third collapsed when Mr. Stevenson was arrested by the FBI before it was launched. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). Messrs. Gottbetter and Stevenson resolved the action. Mr. Gottbetter agreed to pay $4.6 million. A parallel action was filed by the U.S. Attorney’s Office for the District of New Jersey. See Lit. Rel. No. 23269 (May 28, 2015).

Offering fraud: In the Matter of David B. Havanich, Jr., Adm. Proc. File No. 3-16354 (May 26, 2015) is a previously filed proceeding which names as Respondents David Havanich, Jr., cofounder of Diversified Energy Group, Inc. and president of St. Vincent de Paul Children’s Foundation Inc. and others. The action, and the other Respondents, are discussed in detail here. This week Respondents Carmine DellaSala, Matthew Welch and David Havanich settled. Each consented to the entry a cease and desist order based on Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). In addition, Respondent Della Sala will pay disgorgement of $630,000 along with prejudgment interest and a penalty of $150,000; Respondent Welch will pay disgorgement of $276,000, prejudgment interest and a penalty of $150,000; and Respondent Havanich will pay disgorgement of $603,000, prejudgment interest and a penalty of $150,000.

Accounting fraud: SEC v. Geswein, Civil Action No. 5: 10-cv-01235 (N.D. Ohio) is a previously filed action against Gregory Geswein, the former CFO of Diebold, Inc., Kevin Krakora, the former controller of the firm and Sandra Miller, the former director of corporate accounting. The complaint was based on a financial fraud at the company. Mr. Geswein settled with the Commission, agreeing to pay disgorgement of $680,000 and a civil penalty of $170,000 while Mr. Krakora agreed to pay disgorgement of $400,000 and a penalty of $100,000. Both men barred barred from serving as an officer or director of a public company for three years as part of the settlement. In addition, Mr. Krakora was prohibited from appearing or practicing before the Commission as an accountant with a right to apply for reinstatement after three years. Ms. Miller consented to the entry of a permanent injunction based on Securities Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B). She was ordered to pay disgorgement of $29,057 which, along with a penalty, was waived based on financial condition. See Lit. Rel. No. 23268 (May 27, 2015).

Financial fraud: In the Matter of Deutsche Bank AG, Adm. Proc. File No. 3-16557 (May 26, 2015) is an action alleging that the bank overvalued certain Leveraged Super Senior trades during the financial crisis. As a result its financial statements for 2008 and the first quarter of 2009 were incorrect. The bank acquired LSS trades with a notional value of $98 billion, reflecting credit protection for the firm. Initially the instruments were leveraged. This created risk that the bank’s value of the full notional trade would exceed the value of the collateral, exposing it to “gap risk.” Beginning in 2008 the bank used changing methodologies to measure the gap risk, each of which had the impact of reducing the value assigned to it. In October 2008 the bank stopped adjusting for gap risk. Its failure to have adequate internal controls to account for this risk resulted in the misstatement of its financial statements. The Order alleges violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B). The bank consented to the entry of a cease and desist order based on the Sections cited in the order and agreed to pay a $55 million penalty to resolve the matter.

Misrepresentations: In the Matter of Gray Financial Group, Inc., Adm. Proc. File No. 3-16554 (May 21, 2015) is a proceeding which names as Respondents the firm, a registered investment adviser, Laurence Gray, its CEO until July 2013, and Robert Hubbard, the COO until July 2013 and subsequently its CEO. Beginning in July 2012 Respondents recommended and sold investments in certain instruments to four Georgia public pension clients despite the fact that they did not comply with the requirements of state law which limited the type of investments that could be acquired. Indeed, with respect to one instrument Respondents made specific material misrepresentations regarding its compliance of the investment with Georgia law. The Order alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4)-8. The matter will be set for hearing.

Independence: In the Matter of Mayer Hoffman McCann, P.C., Adm. Proc. File No. 3-16171 (May 21, 2015) is a proceeding which names the audit firm as a Respondent. The firm was associated with CBIZ, Inc., a public company, through a business model which is an alternative practice structure. Through an administrative service agreement CBIZ leased the audit firm virtually all of its human capital. Tradebot, a registered broker dealer filed reports with the SEC. Its auditor was Mayer Hoffman. Tradebot periodically invested in the shares of CBIZ. Therefore the audit firm was not independent. MHM settled, consenting to the entry of a cease and desist order based on Section 17(a) of the Exchange Act. In addition, the firm agreed to pay disgorgement of $65,245 prejudgment interest and a penalty of $675,000.

Financial fraud: SEC v. China Valves Technology, Inc., Civil Action No. 1:14-cv-01630 (D.D.C.) is a previously filed action against the company, its Chairman, Siping Fang and its CFO, Renrul Tang. The action alleged that the defendants intentionally misled investors about the nature of the firm’s 2010 acquisition of Watts Valve Changsha Co., Ltd. to conceal its prior investigation for FCPA violations. It also claims the firm materially overstated income and understated liabilities for a wholly owned subsidiary. The defendants resolved the claims, consenting to the entry of a permanent injunction based on the anti-fraud, reporting, record keeping and internal control provisions of the federal securities laws. China Valves and Messrs. Fang and Tang will pay, respectively, civil penalties of $575,000, $75,000 and $40,000. Messrs. Fang and Tank will also be barred, respectively, from serving as an officer or director of a public company for five and three years. Mr. Tang is barred from appearing and practicing before the SEC as an accountant with a right to apply for reinstatement after three years. See Lit. Rel. No. 23266 (May 20, 2015).

Offering fraud: In the Matter of Randy E. Olshen, Adm. Proc. File No. 3-16549 (May 20, 2015) is a proceeding which centers on fraudulent conduct in the unregistered offering of the shares of Innovative Health Solutions, LLC, a manufacturer and seller of sports hydration drinks. Mr. Olshen, the founder of the company, solicited investors using materials which contained misrepresentations regarding the actual and forecasted sales and receivables of the firm and which failed to disclose that he had filed for bankruptcy. Over $7 million was raised in the offering. The Order alleges violations of Exchange Act Sections 10(b) and 15(a). Mr. Olshen resolved the action, consenting to the entry of a cease and desist order based on the Sections cited in the Order. In view of the fact that he pleaded guilty in a parallel criminal action and will pay restitution of $7,799,266.05, the Commission did not seek disgorgement or a penalty.

Offering fraud: SEC v. DePalo, Civil Action No. 15 CV 3877 (S.D.N.Y. Filed May 20, 2015) is an action which names as defendants: Arjent US, a registered broker dealer; Arjent UK, a UK registered broker dealer; Excalibur Asset Management LLC, a firm whose sole officer was defendant DePalo; Pangaea Trading Partners LLC, a holding company which owned Arjent US and Arjent UK (collectively, “the group”); Robert DePalo, CEO and indirect owner of Arjent US who held other positions with the group; Joshua Gladtke, a registered representative at Arjent US who also held other positions with the group; and Gregg Lerman, a registered representative at Arjent US who also held other positions with the group. As Arjent approached insolvency, Defendant DePalo attempted to keep the firm in business and maintain his life style by selling shares in a holding company, Pangaea Trading Partners. With the assistance of Mr. Gladtke, shares were sold to the public based on misrepresentations about the financial condition of the firm and the use of the proceeds, the first $2.3 million of which was siphoned off to the personal use of Mr. Gladtke. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 20(a). Mr. Lerman, who was named only in one count alleging a violation of Securities Act Section 17(a)(3), agreed to settle with the SEC, consenting to the entry of a permanent injunction based on the Sections cited in the complaint with the amount of disgorgement and any penalty to be determined by the Court. The other defendants did not settle. See Lit. Rel. No. 23272 (May 29, 2015).

Net capital: In the Matter of Richard Krill, Adm. Proc. File No. 3-16543 (May 19, 2015) is a proceeding centered on errors committed by Respondent when calculating the net capital of former registered broker-dealer Lighthouse. Those errors resulted in the net capital of the firm being overstated by 350%. The Order alleges violations of Exchange Act Section 17(a). A hearing will be held to determine remedies based on the agreement of Respondent.

Offering fraud: SEC v. Sethi Petroleum, LLC, Civil Action No. 4:15-CV-338 (E.D. Tex. Filed May 19, 2015) is an action which names as defendants the firm and its present Sameer Praveen Sethi. The complaint alleges that since January 2014 the defendants have raised about $4 million through the fraudulent offer and sale of interests in Sethi-North Dakota Drilling Fund-LVIII Joint Venture. The defendants used a series of misrepresentations about partnering with major oil companies and regarding the use of the offering proceeds, much of which was diverted to personal projects. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 20(a) and 20(b). The Court entered a temporary freeze order and approved the appointment of a receiver. See Lit. Rel. No. 23265 (May 19, 2015).

Inspections/errors: In the Matter of Trust & Investment Advisors, Inc., Adm. Proc. File No. 3-16542 (May 18, 2015) is a proceeding which names as Respondents the registered investment adviser and its CEO, Larry Pitts, and CFO, George Prugh. It centers on the failure of the Respondents to: Correct violations based on not developing a compliance manual; and to correct misrepresentations in its marketing materials. Those errors were cited during inspections in 2004 and 2005. Despite promises the errors would be corrected they continued. The Order alleges violations of Advisers Act Sections 206(2) and 206(4). Respondents resolved the matter, consenting to the entry of a cease and desist order, based on the Sections cited in the Order, and to a censure. In addition, the firm and Mr. Pitts will pay a civil penalty of $50,000.

Financial fraud: In the Matter of Thomas A. Neely, Jr., Adm. Proc. File No 3-15945 is a previously filed action which named as a Respondent Thomas Neely, Jr., an E.V. P. of Regions Bank. The Order alleged that in the first calendar quarter of 2009 the special asset department initiated procedures to place about $168 million of commercial loans into non-accrual status. Mr. Neely circumvented the banks controls and, without supporting documentation, took steps to keep the loans in accrual status. His actions prevented Regions from appropriately measuring impairment in accordance with GAAP. As a result Regions failed to maintain a system of internal accounting controls sufficient to provide reasonable assurances that the loans were recorded as necessary to permit preparation of financial statements in conformity with GAAP. The bank also failed to keep books, records and accounts in reasonable detail, which accurately and fairly reflected the loans. Since those books, records and accounts were incorporated into Regions’ consolidated financial statements for the quarter ended March 31, 2009, the income before taxes for that quarter was overstated by $16 million and net income was overstated by $11 million. Earnings per share were overstated for the quarter by $0.02 per share. Those results were incorporated into filings made with the Commission. The Order alleged violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and 20(b). Mr. Neely resolved the charges after initially contesting them, consenting to the entry of a cease and desist order based on the Sections cited in the Order. In addition, he agreed to the entry of an officer and director bar for a period of five years and will pay a civil penalty of $100,000.

Hong Kong

Misappropriation: The Securities and Futures Commission banned Yu Chun Chieh, a former registered representative with Zavori Securities (Asia) Ltd., for life. The action was based on the misappropriation of $3.9 million of client funds.

Reporting: BNP Paribas Securities (Asia) Limited was fined $11 million for failing to report over 4,400 cross trades to the Hong Kong Stock Exchange over a period from December 2002 through January 2013. During the period the firm failed to have the proper resources and procedures for conducting its business.

U.K.

Corruption: The Serious Frauds Office announced that three employees of Swift Technical Solutions Ltd. were acquitted of corruption charges tied to the operations of the firm’s Nigeria subsidiary. The jury was unable to reach a verdict on one count. The SFO will not seek a retrial of that count. The three are: Bharat Sodha, the former international tax manager; Nidhi Vyas, the former financial controller; and Trevor Bruce, the former area director for Nigeria. The charges centered on claims that the defendants conspired to make corrupt payments to officials of two Nigerian Boards of Internal Revenue.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

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