The SEC alleges that Scott Newsholme of Farmingdale, New Jersey, fabricated account statements, doctored stock certificates, and forged promissory notes as part of a scheme in which he convinced clients seeking his financial planning advice to give him their money to invest in various securities. Instead of investing clients’ money, Newsholme allegedly cashed their investment checks at a check-cashing store and pocketed the funds while assuring clients that their assets were safe and flourishing. According to the SEC’s complaint, Newsholme used investor money for personal expenses, gambling in Atlantic City, and Ponzi-like payments to clients who sought a return of their funds.
SEC Announces Agenda and Panelists for Small Business Forum
On November 20, 2017, the Securities and Exchange Commission (“SEC”) announced the agenda and panelists for the 36th Annual Government-Business Forum on Small Business Capital Formation.
The November 30 Small Business event will begin at 9 a.m. Central Standard Time (10 a.m. Eastern Standard Time) with opening remarks from the SEC Chairman and Commissioners followed by a morning panel discussion that will explore how capital formation options are working for small businesses. Panelists will include representatives of Texas-based small businesses and advisors to the small business community. Read More
SEC Names Paul Cellupica as Deputy Director
On November 20, 2017, the Securities and Exchange Commission (“SEC”) announced that Paul G. Cellupica has been named Deputy Director of the agency’s Division of Investment Management. Mr. Cellupica will oversee a number of the division’s strategic, rulemaking, and industry engagement initiatives.
“Paul Cellupica’s extensive experience and knowledge of investor needs, and understanding of how the Commission and its staff operate, will be tremendous assets to the agency during a critical period of change and evolution in the investment management industry,” said Ms. Blass. “He is committed to advancing the SEC’s regulatory priorities in a thoughtful and strategic way, in order to promote the long-term interests of investors.” Read More
Randall James Settles Fraud Charges
On October 27, 2017, Randall James, Nashville, Tennessee resident, who isn’t registered to sell investments, has agreed to settle charges that he defrauded investors in his company Global Maximus Productions, which purportedly produced pay-per-view entertainment and concerts.
The SEC alleges that Randall James promised investors significant profits and a return of their principal within a short period of time, claiming he would use their money to produce concerts and other events that would be live-streamed online and generate profits. According to the SEC’s complaint, James instead spent investor funds on his personal living expenses, including personal meals, housing, and payments to his ex-wife. Read More
Osiris Therapeutics Charged With Accounting Fraud
On November 2, 2017, the Securities and Exchange Commission (“SEC”) charged Osiris Therapeutics, a Maryland-based biotech company, and four former top executives with prioritizing revenue growth over lawful accounting and misleading investors in the process.
The SEC alleges that Osiris Therapeutics routinely overstated company performance and issued fraudulent financial statements for a period of nearly two years. According to the SEC’s complaint, the company improperly recognized revenue using artificially inflated prices, backdated documents to recognize revenue in earlier periods, and prematurely recognized revenue upon delivery of products to be held on consignment. Osiris Therapeutics and its executives also allegedly used pricing data that they knew was false and attempted to book revenue on a fictitious transaction, among other accounting improprieties. Read More
SEC Files Subpoena Enforcement Action against Wynn Gustafson
On October 31, 2017, the Securities and Exchange Commission (“SEC”) announced that the SEC filed an action to enforce compliance with a document subpoena issued and served upon Wynn Gustafson in an SEC investigation captioned In the Matter of WAG Trading and Investments Company LLC.
As set forth in the SEC’s papers, Wynn Gustafson is the President of WAG Company LLC, formerly known as WAG Trading and Investment Company LLC (“WAG Trading”). According to documents produced to the SEC, WAG Trading is in the business of conducting international transactions buying, selling, and redeeming so-called “historical bonds” in China, Hong Kong, Ghana, Singapore, and Germany. As set forth in the SEC’s papers, “historical bonds” are often used to perpetuate fraudulent schemes. Read More
Thomas Buck Settles Charges
On October 31, 2017, Thomas Buck, former Merrill Lynch broker, has agreed to pay more than $5 million to settle SEC charges that he fraudulently schemed to increase his personal income by obtaining excessive commissions and fees from investors.
According to the SEC’s complaint, Merrill Lynch paid financial advisors a portion of the commissions, fees, or other revenue they generated in customer and client accounts. The SEC alleges that Thomas Buck represented to certain customers with commission-based accounts that the total annual commissions they paid would not exceed certain limits, and then he traded in those accounts and generated commissions that exceeded the amounts he promised. Read More
JustInfo LLC Charged for a Futures Trading Scheme
On October 11, 2017, the Securities and Exchange Commission (“SEC”) announced fraud charges against JustInfo LLC, a Kentucky-based entity, a California-based tax preparer who solicited investors on behalf of the entity, and the entity’s majority owner, for lying to investors in a futures trading scheme.
According to the SEC’s complaint, JustInfo LLC pooled investor funds for the ostensible purpose of trading futures contracts. The complaint alleges that David Weddle, the majority owner of JustInfo, and Scott Allensworth, doing business as Capital Growth Group Associates, raised at least $2.84 million from at least 57 investors by selling investment contracts. The complaint further alleges that throughout the period of the offering, Weddle and Allensworth stole at least $1 million for their own use and to make payments of purported returns to prior investors in classic Ponzi-fashion. Weddle allegedly created false trading reports, which Allensworth sent to investors, to cover up JustInfo’s trading losses and maintain the appearance that the investment was profitable. Read More
John Rogicki Charged with Stealing $9 Million
On October 19, 2017, the U.S. Securities and Exchange Commission (“SEC”) charged John Rogicki, a New York-based investment adviser, with defrauding a non-profit charitable foundation out of $9 million.
The SEC alleges that John Rogicki, managing director and chief compliance officer of Train Babcock Advisors LLC, has been stealing funds from the charity for a dozen years to purchase real estate and pay for his own lavish lifestyle. According to the SEC’s complaint, the charitable foundation was established by an elderly woman to donate her estate to health and education causes. John Rogicki has served not only as investment adviser to the charitable foundation but also as its president and a trustee, and he allegedly took advantage of his roles by liquidating securities positions in the foundation’s advisory account and transferring the money for his personal benefit. Read More
Going Public Bootcamp – Securities Lawyer 101
The going public process involves a number of steps that vary depending on the characteristics of the private company wishing to go public, and whether it will become a Securities and Exchange Commission (“SEC”) reporting company. A companies seeking public company status must meet certain SEC requirements before its securities can be publicly traded. This applies to reporting and non-reporting issuers. A going public lawyer can assist the issuer in complying with the SEC’s requirements.
SEC Charges Attorney Marc Celello
On October 5, 2017, the Securities and Exchange Commission (“SEC”) announced that it filed fraud charges against an attorney Marc Celello based on his alleged participation in a Ponzi scheme.
The SEC’s complaint, filed in federal court in Atlanta on October 5, 2017, alleges that Marc Celello who, along with Canton, Ga.-resident James A. Torchia, was a partner in Credit Nation Capital LLC and served as general counsel for the underlying entities, helped orchestrate a Ponzi scheme involving unregistered promissory notes which falsely promised a 9% return. He allegedly prepared offering memoranda and directed sales and marketing representatives to lie to investors that the promissory notes were secure investments “backed by hard assets dollar for dollar.” The complaint further alleges that Marc Celello knew that Credit Nation Capital was insolvent and directed an employee to fabricate a fraudulent balance sheet that made it appear to be profitable. Marc Celello also allegedly helped transfer investor funds from CN Capital to Torchia for Torchia’s personal use. Between 2009 and November 2015, when the SEC obtained a court order stopping the alleged Ponzi scheme, Credit Nation Capital raised at least $30 million from investors. Read More
Richard Cody Indicted for Investment Adviser Fraud and Lying to the SEC
On October 5, 2017, Richard Cody, a former investment adviser and broker representative, whom the Securities and Exchange Commission (“SEC”) has charged with defrauding Massachusetts retirees, has been indicted for deceiving and manipulating his former clients concerning the management of their retirement savings as well as lying to the agency in sworn testimony.
The indictment, filed on September 26, 2017 and unsealed on September 28, 2017, charges Richard Cody, of Jacksonville, Florida, with violating the Investment Advisers Act of 1940 and making a false declaration in a court proceeding. The alleged facts underlying the charges in the indictment arise from the same conduct alleged in the SEC’s complaint against Cody, which was filed in federal court in Massachusetts on December 12, 2016. The indictment also alleges that Richard Cody lied to the SEC during a March 2017 sworn deposition in connection with the SEC’s action against Cody. Richard Cody allegedly made false declarations during the deposition when he denied that he had provided fraudulent documents to two investors. Read More
Robert Stewart Receives Final Judgement
On September 28, 2017, the Securities and Exchange Commission (“SEC”) obtained a final judgment against Robert Stewart, the former chief financial officer of a technology company and certified public accountant, who was charged, along with his son, with conducting a serial insider trading scheme involving tips of key nonpublic information in coded e-mail messages disguised as discussions about golf.
The final judgment, entered on September 27, 2017 by the Honorable Analisa Torres of the U.S. District Court for the Southern District of New York, permanently enjoins Robert Stewart from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, orders him liable for disgorgement of $153,675.65, which is the amount of illicit profits he earned as a result of the alleged illegal insider trading, plus $11,240.76 in interest, but provides that the disgorgement and interest obligation will be satisfied by the entry of a forfeiture order in the parallel criminal case. The final judgment also imposes a lifetime officer-and-director bar on Robert Stewart. Read More
Aegerion Pharmaceuticals Lied About Sales Metrics
On September 22, 2017, the Securities and Exchange Commission (“SEC”) filed fraud charges against Aegerion Pharmaceuticals, a Massachusetts-based bio-pharmaceutical company, that exaggerated how many new patients actually filled prescriptions for an expensive drug that was its sole source of revenue.
Aegerion Pharmaceuticals, now a subsidiary of Novelion Therapeutics, has agreed to pay a $4.1 million penalty to settle the charges that it misled investors on multiple occasions in 2013. The SEC’s complaint alleges that Aegerion told investors that the number of unfilled prescriptions for Juxtapid was not material and the “vast majority” of patients receiving prescriptions went ahead and ultimately purchased the drug. The SEC alleges that Aegerion’s records reflect that it was actually around 50 percent of prescriptions that resulted in actual drug purchases. Read More
Woodbridge Ordered to Produce Corporate Documents
On September 21, 2017, the Securities and Exchange Commission (“SEC”) obtained an order requiring the Woodbridge Group of Companies LLC, of Sherman Oaks, California, to produce the corporate documents of several company executives and employees, including the President and CEO.
According to the SEC’s application and supporting papers filed in federal court in Miami on July 17, 2017, the agency is investigating whether Woodbridge and others have violated or are violating the antifraud, broker-dealer, and securities registration provisions of the federal securities laws in connection with Woodbridge’s receipt of more than $1 billion of investor funds from thousands of investors nationwide. As part of the SEC’s ongoing investigation, on January 31, 2017, agency staff in the Miami Regional Office served Woodbridge with a subpoena seeking, among other documents, the production of electronic communications that the company maintained relating to Woodbridge’s business operations. The SEC’s application alleges that although Woodbridge was required to produce these documents to the SEC, the company has failed to produce any relevant communications in response to the subpoena, including those of three high-level Woodbridge officials. Read More
Peter Chang Charged for Insider Trading
On September 20, 2017, the Securities and Exchange Commission (“SEC”) charged Peter Chang, the former CEO of a Silicon Valley-based fiber optics company, with insider trading in company stock by using secret brokerage accounts held in the names of his wife and brother.
The SEC alleges that Peter Chang, who also was the founder and chairman of the board at Alliance Fiber Optic Products, generated more than $2 million in illicit profits and losses avoided by trading on nonpublic information and tipping his brother ahead of two negative earnings announcements and the company’s merger. Read More
Mayank Gupta Settles Insider Trading Charges
On September 13, 2017, the Securities and Exchange Commission (“SEC”) announced that Mayank Gupta, a former auditor, has agreed to settle charges that he tipped his relative with inside information about a client on the verge of a merger.
The SEC’s complaint alleges that, through his audit work at PricewaterhouseCoopers LLP, Mayank Gupta learned that San Jose, Calif.-based Cavium was making imminent preparations to acquire Aliso Viejo, Calif.-based QLogic Corp. According to the SEC’s complaint, before the deal was announced to the public, Gupta called his cousin-in-law Pushpendra Agrawal, and told him that Cavium was going to acquire QLogic and that QLogic was a “sure thing.” Upon arriving at work, Agrawal bought 200 QLogic call options, based on Gupta’s tip. During his lunch break, Agrawal bought an additional 50 QLogic call options, again based on Gupta’s tip. After QLogic announced that it would be acquired by Cavium through a tender offer, QLogic’s stock rose by more than 9 percent, and Agrawal profited by more than $23,785 from the illegal trades. Read More
Scott Newsholme Charged with Stealing Investor Funds
On September 6, 2017, the Securities and Exchange Commission (“SEC”) charged Scott Newsholme, a New Jersey-based tax preparer and investment adviser, with stealing more than $1 million from clients to support his gambling habit and other personal expenditures.
Louis Navellier Charged for False Performance Claims
On August 31, 2017, the Securities and Exchange Commission (“SEC”) announced fraud charges against investment adviser Navellier & Associates, Inc. and its founder and chief investment officer, Louis Navellier. The SEC’s complaint, filed in federal court in Boston, Massachusetts, alleges that from 2010 to 2013, Mr. Navellier and his firm defrauded their clients and prospective clients, misleading them about the performance track record of the “Vireo AlphaSector” investment strategies that the firm offered under the “Vireo” brand name. First, Mr. Navellier and his firm allegedly breached their fiduciary duty to clients and prospective clients by ignoring and concealing red flags that should have alerted them that the investment strategies had not performed as advertised. Second, Navellier & Associates allegedly distributed materially false advertisements and client communications about the performance track record of the investment strategies. Third, as Mr. Navellier and his firm realized their misrepresentations could get them in legal trouble, they allegedly sold the Vireo line of business in August 2013 for $14 million, rather than correcting their prior misrepresentations to their clients or informing their clients about their conflicts of interest in selling the Vireo business.
Navellier & Associates’ advertisements claimed that client assets had been invested in the investment strategies from April 2001 to September 2008 and that the strategies had significantly outperformed the S&P 500 Index from April 2001 to September 2008. In fact, no client assets had tracked the strategy from April 2001 through September 2008, and even as a back-test the claimed performance was substantially overstated. Read More
Leon Vaccarelli Charged With Fraud
On August 31, 2017, the Securities and Exchange Commission (“SEC”) charged Connecticut-based broker representative and investment adviser Leon Vaccarelli and his company with fraudulently persuading several elderly customers to invest with him and then spending their money on his own living and business expenses.
The SEC’s complaint alleges that instead of investing the customers’ money in such things as conventional brokerage accounts and so-called separately managed accounts as promised, Leon Vaccarelli deposited customer funds into his personal and business bank accounts. He allegedly commingled the funds with his own money and used them for his own purposes, and in some instances he used customer funds to pay returns to earlier investors. According to the SEC’s complaint, Leon Vaccarelli asked one customer to sign an agreement that she would not provide certain information to FINRA or the SEC. Leon Vaccarelli allegedly sold more than $450,000 in securities that were held in trust for the care and maintenance of a beneficiary and used some of the proceeds to pay business and personal expenses. Read More
Celator Pharmaceuticals Employees Charged With Insider Trading
On August 31, 2017, the Securities and Exchange Commission (“SEC”) charged an accountant and three others with insider trading on market-moving news about Celator Pharmaceuticals, the New Jersey-based pharmaceutical company where the accountant formerly worked.
The SEC’s complaint, filed in federal court in New Jersey, alleges that Evan Kita, a CPA and former accountant at Celator Pharmaceuticals Inc., tipped two of his friends with confidential information about the clinical trial results for Celator’s cancer drug and its acquisition by Dublin-based Jazz Pharmaceuticals Plc almost three months later. Celator’s stock rose more than 400 percent in March 2016 when it announced positive results for its drug to treat leukemia, and Jazz Pharmaceuticals offered to pay a hefty premium in May 2016 to acquire Celator.
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Lek Securities Motion to Dismiss Denied
On August 25, 2017, the Honorable Denise L. Cote of the U.S. District Court for the Southern District of New York denied a motion by Lek Securities Corporation and its Chief Executive Officer, Samuel Lek, to dismiss the SEC’s claims in an ongoing market manipulation litigation. The SEC’s complaint, filed in March 2017, alleges that Lek Securities and Samuel Lek aided and abetted manipulative trading schemes by one of Lek Securities’ customers, Ukraine-based trading firm Avalon FA Ltd, Avalon’s owner Nathan Fayyer, and its alleged undisclosed control person, Sergey Pustelnik.
The Court denied the Lek defendants’ motion to dismiss in its entirety, rejecting their arguments that the trading schemes at issue in the Complaint were not manipulative. The SEC’s complaint alleges two types of manipulative trading, layering and cross-market manipulation. Layering involves the entry of “non-bona fide” orders (orders that the trader allegedly does not intend to execute and that have no legitimate economic reason) to trick others into trading at artificial prices. The cross-market manipulation involves buying and selling stocks at a loss, allegedly for the purpose of moving the prices of corresponding options, so that Avalon could make a profit by trading those options at artificial prices. Read More
Deerfield Management Company Agrees to Settle Charges
On Aug. 21, 2017, the Securities and Exchange Commission (“SEC”) announced that hedge fund advisory firm Deerfield Management Company L.P. has agreed to pay more than $4.6 million to settle charges that it failed to establish, maintain, and enforce policies and procedures reasonably designed to prevent the misuse of inside information, including information about confidential government decisions.
The case relates to insider trading charges that the SEC recently filed against current and former Deerfield analysts, a political intelligence analyst who passed them information, and an employee at the Centers for Medicare and Medicaid Services (CMS).
Jeremy Drake Charged With Fraud
On Aug. 22, 2017, the Securities and Exchange Commission (“SEC”) charged investment adviser Jeremy Drake with defrauding two clients, a high profile professional athlete and the athlete’s wife, by deceiving them about the investment advisory fees they were paying. The SEC alleges that Jeremy Drake went to elaborate lengths to conceal his fraud, including creating and sending false documents and masquerading as another person to corroborate his lies.
The SEC alleges that Drake, then with Los Angeles-based HCR Wealth Advisors, deceived the clients for more than three years, telling them that they paid a special “VIP” annual rate of 0.15 to 0.20 percent of their assets under management when in fact they paid 1 percent. Jeremy Drake’s deception led the clients to pay $1.2 million more in management fees than Jeremy Drake represented. Jeremy Drake personally received approximately $900,000 of incentive-based compensation based on the fees paid by the clients during the course of his deception.
Beaumont Financing Authority Settles Charges
On Aug. 23, 2017, the Securities and Exchange Commission (“SEC”) announced that Beaumont Financing Authority, a municipal financing authority in Beaumont, California, and its then-executive director have agreed to settle charges that they made false statements about prior compliance with continuing disclosure obligations in five bond offerings.
Also settling charges are the underwriting firm behind those offerings and its co-founder for failing to conduct reasonable due diligence on the continuing disclosure representations.
Adesh Tyagi Receives Final Judgement
On August 21, 2017, the Securities and Exchange Commission (“SEC”) has obtained a final judgment against Adesh Tyagi, the former CEO of a penny stock company charged with making false claims in press releases and engaging in manipulative trading in company stock.
The final judgment, entered by consent on August 17, 2017 by the Honorable Jeffrey S. White of the U.S. District Court for the Northern District of California, permanently enjoins Adesh Tyagi from violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(d) and 16(a) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5, 13b-1 and 16a-3 and imposes a conduct based injunction and officer-and-director and penny stock bars. In addition, the final judgment orders Adesh Tyagi to pay approximately $294,000 in disgorgement and interest. Read More
Vergeous LLC, et al. Charged with Offering Fraud
On August 16, 2017, the Securities and Exchange Commission (“SEC”) announced that Vergeous LLC and Dream Team Partners LLC, two Florida-based video game development companies, and their principal have agreed to pay approximately $293,000 for misleading investors in video game projects.
According to the SEC’s complaint, through a series of unregistered securities offerings during a three-year period, Vergeous LLC, Dream Team Partners LLC, and Paul E. Renfroe raised about $1.2 million from approximately 33 investors in several states, many of whom were elderly clients of Renfroe’s other businesses. The SEC alleges that Vergeous and Renfroe told investors that their money would be used to develop “free-to-play” video game projects. Instead, the SEC alleges that more than $150,000 raised from investors was used to pay undisclosed company debts and back salaries to Renfroe and others. Renfroe also allegedly touted his experience as a “long time financial advisor” and told investors that he “voluntarily” gave up his securities licenses because placing customers’ investments at risk “caused a real conflict of conscience.” In reality, as alleged in the complaint, Renfroe was permanently barred from the securities industry by the NASD (now FINRA) for misusing customer funds. The SEC also alleges that Vergeous and Renfroe misled investors by failing to disclose that Dream Team held complete control over all intellectual property rights associated with any joint video game projects and that Renfroe had a 30 percent ownership stake in Dream Team, despite stating that “no conflicts of interest exist.” Read More
Banca IMI Securities to Pay $35 Million
On Aug. 18, 2017, the Securities and Exchange Commission (“SEC”) announced that broker Banca IMI Securities Corp, an indirect, wholly-owned U.S. subsidiary of Italian bank Intesa Sanpaolo SpA, has agreed to pay more than $35 million to settle charges that it violated federal securities laws when it requested the issuance of and received American Depositary Receipts (ADRs) without possessing the underlying foreign shares.
ADRs are U.S. securities that represent shares of a foreign company, and for all issued ADRs there must be a corresponding number of foreign shares held in custody at a depositary bank. Under “pre-release agreements,” brokers such as Banca IMI Securities may obtain ADRs without depositing corresponding foreign shares provided the broker owns or takes reasonable steps to determine that the customer owns the number of foreign shares that corresponds to the number of shares the ADR represents.
Daniel Rivas Center of Insider Trading Scheme
On August 16, 2017, the Securities and Exchange Commission (“SEC”) announced insider trading charges against seven individuals, Daniel Rivas being one, who generated millions in profits by trading on confidential information about dozens of impending mergers and acquisitions. Data analysis allowed the SEC’s enforcement staff to uncover the illicit trading despite the traders’ alleged use of shell companies, code words, and an encrypted, self-destructing messaging application to evade detection.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York unsealed criminal charges against the same seven individuals.
KPMG Charged with Audit Failures
On Aug. 15, 2017, the Securities and Exchange Commission (“SEC”) announced that KPMG has agreed to pay more than $6.2 million to settle charges that it failed to properly audit the financial statements of an oil and gas company, resulting in investors being misinformed about the energy company’s value. KPMG’s engagement partner in charge of the audit also agreed to settle charges against him.
According to the SEC’s order, KPMG was hired as the outside auditor for Miller Energy Resources in 2011 and issued an unqualified audit report despite grossly overstated values for key oil and gas assets. KPMG and the engagement partner John Riordan failed to properly assess the risks associated with accepting Miller Energy as a client and did not properly staff the audit, which overlooked the overvaluation of certain oil and gas interests that the company had purchased in Alaska the previous year. Among other audit failures, KPMG and Riordan did not adequately consider and address facts known to them that should have raised serious doubts about the company’s valuation, and they failed to detect that certain fixed assets were double-counted in the company’s valuation.
DiMaria and Gamsey Receive Final Judgements
On August 16, 2017, the Securities and Exchange Commission (“SEC”) announced that it has obtained final judgments against DiMaria and Gamsey, two former executives of Bankrate Inc.
In September 2015, the SEC charged the two executives, Edward DiMaria and Matthew Gamsey, with fraudulently manipulating the company’s financial results to meet analyst expectations. The SEC also alleged that DiMaria sold Bankrate stock at a price that was artificially inflated because of the accounting manipulation. The final judgments, entered on August 16, 2017 by the Honorable Gregory Woods of the U.S. District Court for the Southern District of New York permanently enjoin: Read More
