On October 27, 2016 the Securities and Exchange Commission (“SEC”) charged a Los-Angeles based investment advisory firm and its owner, Marc Broidy with fraudulently overbilling clients and stealing assets from their trusts to pay such personal expenses as his home mortgage, overseas trips, and leases on two Mercedes-Benz vehicles.

The SEC’s complaint alleges that Broidy and his firm Broidy Wealth Advisors obtained more than $1.4 million in ill-gotten gains since February 2011. Broidy allegedly billed clients approximately $643,000 in excess fees And covered it up by altering the amount of management fees recorded on forms issued by brokerage firms before sending the forms to his clients. The SEC further alleges that he fraudulently obtained additional funds to pay his personal expenses by misappropriating approximately $865,000 in assets from clients’ trusts for which he was trustee. Read More

Texas company Southlake Resources Group, LLC and its president Cody Winters have agreed to pay over $5.4 million to settle charges by the Securities and Exchange Commission (“SEC”) that they orchestrated an oil-and-gas fraud. The SEC also charged the president and a company vice president with acting as unregistered brokers in the transactions underlying the fraud.

According to the SEC’s complaint, filed on October 24, 2016, in the U.S. District Court for the Northern District of Texas, Southlake and its founder and president, Winters, raised approximately $5.2 million from more than 70 investors in 12 fraudulent oil-and-gas joint ventures. Winters and Southlake employed sales agents, including vice president Nicholas Hamilton, to offer and sell joint-venture interests to investors in 26 states from approximately June 2010 through September 2014. Read More

The Securities and Exchange Commission (“SEC”) announced a global settlement along with the U.S. Department of Justice and Brazilian authorities that requires aircraft manufacturer Embraer S.A. to pay more than $205 million to resolve alleged violations of the Foreign Corrupt Practices Act (FCPA).

The SEC’s complaint alleges that Embraer made more than $83 million in profits as a result of bribe payments from its U.S.-based subsidiary through third-party agents to foreign government officials in the Dominican Republic, Saudi Arabia, and Mozambique. Embraer allegedly created false books and records to conceal the illicit payments, and also engaged in an alleged accounting scheme in India. Read More

On October 21, 2016 the Securities and Exchange Commission (“SEC”) charged a James Cope, a Tennessee lawyer who served on the executive committee of the board of directors of Nashville-based Pinnacle Financial Partners with insider trading based on nonpublic information he learned about an impending merger.

The SEC alleges that Cope obtained more than $56,000 in ill-gotten gains by purchasing securities in Pinnacle’s acquisition target, Avenue Financial Holdings, prior to the banks’ joint public announcement later that month. According to the SEC’s complaint, Cope learned confidential details about the planned merger during a board executive committee meeting on January 5, 2016, and proceeded to place his first order to purchase Avenue Financial stock while that executive committee meeting was still in progress. Read More

A federal grand jury in the Northern District of Indiana has indicted Christopher Salis, Douglas Miller, and Edward Miller on charges relating to insider trading, money laundering, and structuring currency transactions. The 17-count indictment also charges Douglas Miller with false statements and Edward Miller with obstruction of justice and witness harassment. All three defendants were charged earlier this year in a parallel SEC matter.

According to the indictment, returned October 19, 2016, Salis was employed as a global vice president at SAP America in August 2014 when he obtained material, nonpublic information related to SAP’s intent to acquire Concur Technologies. The indictment alleges that Salis tipped his close friend, Douglas Miller, who in turn, tipped his brother, Edward Miller, and others. The Miller brothers and others allegedly purchased short-term, risky Concur call options, yielding illegal profits exceeding $500,000 after the acquisition was announced publicly on September 18, 2014. In an effort to avoid scrutiny and to evade currency transaction reporting requirements, the Miller brothers allegedly used cash, money orders, and checks to transfer some of these profits to Salis. Read More

On November 2, 2016, the Securities and Exchange Commission (“SEC”) Division of Corporation Finance released two new compliance and disclosure interpretations (“C&DIs”) addressing eligibility to use Form S-3 registration statements and submission of annual reports to the SEC.

Form S-3 Eligibility

New Question 116.25 of the Securities Act Forms C&DIs clarifies that securities registered for resale on Form S-3 registration statements in reliance on Form S-3 Instruction I.B.3 should be counted against the issuer’s available capacity under Instruction I.B.6 of the form.

Instruction I.B.6 allows an issuer with less than a $75 million public float to use a Form S-3 registration statement for a primary offering such as an Initial Public Offering (“IPO) so long as the issuer sells no more than one-third of its public float within a 12-month period. Read More

On October 17, 2016 the Securities and Exchange Commission (“SEC”) charged Lime Energy Co., an energy services provider and four of its executives for their roles in an accounting fraud in which the company recognized revenue earlier than allowed in order to meet internal targets.

Lime Energy areed to pay $1 million to settle the charges, and its four now-former executives also agreed to settlements.

The SEC’s complaint alleges that Lime Energy improperly recognized $20 million in revenue from at least 2010 to 2012. Two then-executives in the company’s utilities division — vice president of operations Joaquin Alberto Dos Santos Almeida and director of operations Karan Raina — developed procedures to enable the company to recognize revenue on newly signed contracts based on documentation received before year-end 2010. But when documentation did not arrive in time, they allegedly went ahead and booked the revenue anyway.

According to the SEC’s complaint, Almeida and Raina became even more aggressive in 2011 and 2012 as they further recognized revenue earlier than allowed by accounting principles as they faced increasing pressure to produce results. They eventually went so far as to direct internal accountants to book revenue on jobs that didn’t exist. The SEC further alleges that Lime Energy’s then-corporate controller Julianne Chandler accepted new accounting entries to book millions of dollars in additional 2011 revenue well after the year-end close. And in February 2012 when Lime Energy still needed $500,000 to meet its 2011 revenue target, the company’s then-executive vice president James Smith suddenly sent Chandler new entries that provided the company with even more additional revenue to improperly recognize. Read More

On October 26, 2016, the Securities & Exchange Commission (the “SEC”) adopted  amendments to Rule 147 of the Securities Act of 1933, as amended (“Securities Act”) to modernize the exemptions for intrastate securities offerings. According to the SEC, the amendments are intended to assist smaller companies with their capital raising efforts. Amended Rule 147 and new Rule 147A will become effective 150 days after publication in the Federal Register. The Rule 147 amendments expand the existing Rule 147 safe harbor under Section 3(a)(11) of the Securities Act and create Rule 147A under the Securities Act, a new intrastate offering exemption.

In October of last year, the SEC announced proposed amendments to Rule 147. As amended Rule 147 is substantially the same as the proposed rule amendments except that the existing Rule 147 safe harbor under Section 3(a)(11) is identical to the new exemption created by Rule 147A except that issuers relying on the Rule 147 safe harbor:

• May not offer securities to out-of-state residents, and
• Must be incorporated or organized in the state in which the offering is conducted.

Read More

On September 29, the Honorable Sam R. Cummings of the United States District Court for the Northern District of Texas entered final judgments against Defendants Paul Downey, Jeffry Downey, and John Leonard. The judgments followed summary-judgment rulings in the SEC’s favor in July 2016, in which the court found that the Downeys raised $4.9 million from investors in a fraudulent oil-and-gas investment program and Leonard made $405,698 in commissions while serving as an unregistered broker.

Judge Cummings found the Downeys’ misconduct to be “extremely egregious,” describing it as “knowingly deceiving investors about virtually every aspect of the investment.” The court ordered them to disgorge $4.9 million plus $1.1 million in interest and to pay a civil penalty of $178,156 apiece. Read More

On September 29, 2016, the Securities and Exchange Commission (“SEC”) charged five individuals for engaging in a fraudulent scheme to illegally profit by manipulating the market and price for the stock of Ecoland International, Inc. (now known as Novus Robotics, Inc.), a penny stock company whose securities were quoted on the OTC Bulletin Board.

The SEC’s complaint, filed in the U.S. District Court for the Eastern District of Pennsylvania, alleges that Louis Buonocore, Jeremy Draper, Frank Morelli III, currently incarcerated in Philadelphia, Pennsylvania, Berardino “Dino” Paolucci, Jr., and Don Rose participated in a scheme to obtain an OTCBB company with a large block of unrestricted stock and conduct a fraudulent promotional campaign through which they could sell their shares of stock. During the summer of 2011, the defendants allegedly acquired over 90% of Ecoland’s stock and began the process of merging Paolucci’s father’s company, D&R Technology, Inc., into it, thereby obtaining total control over Ecoland’s 22 million shares of unrestricted stock and influence over the majority of its restricted stock. Read More

On September 30, 2016 the Securities and Exchange Commission (“SEC”) charged an attorney and three others in California with defrauding investors out of $13.6 million in a penny stock pump-and-dump scheme.

The SEC alleges that Marcus Luna and Norell Walker orchestrated the scam, which entailed setting up boiler rooms of telemarketers to tout a pair of companies that Luna and Walker secretly controlled. Walker’s business associates, Paul Gomez and Dustin Smith, ran boiler rooms in Beverly Hills and Costa Mesa, respectively. Telemarketers trained and supervised by Walker, Gomez, and Smith cold-called investors and urged them to purchase penny stocks they claimed would soar as high as $11 per share. As investors entered orders to purchase the stock out of their personal brokerage accounts, Walker would contact Luna so he could contact an offshore brokerage to fill the orders with Luna’s own shares. Luna, a California attorney, split the proceeds with Walker. Read More

On September 30, 2016, the Securities and Exchange Commission (“SEC”) filed fraud charges against cannabis company Infinex Ventures, Inc. and its CEO Ronald Salem.

According to the SEC’s complaint filed in the U.S. District Court for the District of Colorado, Salem incorporated a new entity, Marijuana Funding Inc. in March 2014, and then caused Infinex to release a series of three press releases in May and June 2014 announcing its negotiations with, and ultimate acquisition of, Marijuana Funding, Inc. In those press releases, Infinex and Salem described Marijuana Funding, Inc. as a private company that specialized in funding companies in the marijuana industry. Read More

On September 28, 2016, a federal court jury in New York, New York convicted Gary Hirst, the former CEO and President of Gerova Financial Group Ltd., of securities fraud, wire fraud and conspiracy charges. The criminal action was prosecuted by the U.S. Attorney’s Office for the Southern District of New York, and the trial was presided over by U.S. District Judge P. Kevin Castel.

The conviction follows guilty pleas on securities fraud and related charges by four other defendants in the matter: Jason Galanis, John Galanis, Derek Galanis and Gavin Hamels. Jared Galanis pled guilty to misprision of felony. A seventh defendant, Ymer Shahini, remains at large.

On September 24, 2015, the SEC filed a civil action in federal court in Manhattan, charging John Galanis, his sons Jason Galanis, Derek Galanis, and Jared Galanis, along with Hirst and investment adviser Hamels based on the same conduct alleged in the criminal case. According to the SEC’s complaint, in early 2010, Jason Galanis and Hirst orchestrated a scheme to secretly issue $72 million of unrestricted Gerova shares to a Galanis family friend in Kosovo. Jason Galanis, his father, and his brothers allegedly directed sales of the shares from the Kosovo friend’s brokerage accounts and had the proceeds wired to them and their associates who collectively realized approximately $20 million in illicit profits. Read More

On September 29, 2016, the Securities and Exchange Commission (“SEC”) charged Aegis Oil, LLC and its President and CEO Patrick Reagan Beason with defrauding investors in oil and gas projects managed by Aegis.

According to the SEC’s complaint filed in the U.S. District Court for the Southern District of Florida, from at least October 2010 through October 2015, Aegis and Beason raised approximately $35million from approximately 250 investors nationwide through a series of unregistered offerings in 15 oil and gas projects. The SEC alleges that Aegis and Beason made material misrepresentations and omissions orally and in written offering materials concerning the use of investor proceeds, the projected oil production and income from the investment, and Beason’s disciplinary history. The SEC also alleges that Aegis used an independent network of sales agents to solicit potential investors, and that Aegis paid commissions as high as 35% of investor funds to these sales agents. Read More

The Securities and Exchange Commission (“SEC”) today charged the former senior director of regulatory affairs for Puma Biotechnology with insider trading ahead of the company’s news announcements about a drug to treat breast cancer.

The SEC alleges that Robert Gadimian pocketed more than $1.1 million in illicit profits by secretly purchasing Puma stock and short-term call options based on nonpublic information he learned about positive developments in two clinical trials for Puma’s drug, neratinib. Gadimian allegedly bought Puma securities before the results from the first trial were announced in December 2013, and again before the results of the second trial were announced in July 2014. Read More

On September 28, 2016 the Securities and Exchange Commission (“SEC”) announced charges and an emergency asset freeze against former stockbroker Peter Kohli for defrauding investors in his failing mutual fund business.

The SEC’s complaint, filed in federal court in Philadelphia, Pennsylvania, alleges that, from 2012 through 2015, Kohli fraudulently raised more than $3.2 million from at least 120 investors. The complaint alleges that, among other things, Kohli filed false mutual fund registration statements with the SEC, misappropriated investor funds, and made false and misleading statements when selling securities in a company controlled by Kohli. At the time of his misconduct, Kohli was a registered representative and investment adviser representative associated with a dually-registered broker-dealer and investment adviser. Read More

On September 26, 2016 the Securities and Exchange Commission (“SEC”) charged a former microcap company CEO and a boiler room operator with defrauding seniors and others who were pressured to invest in a pair of penny stock companies and promised lucrative profits.

The SEC alleges that Craig V. Sizer founded Sanomedics Inc. and Fun Cool Free Inc., which were purportedly in the business of selling non-contact infrared thermometers and software applications respectively, and he hired Miguel “Michael” Mesa to help him attract and defraud investors in both companies. Sizer allegedly provided Mesa with a list of pitch points for use by boiler-room agents hired by Mesa to sell shares of the stocks based on misrepresentations that investor funds would be used for research and development and no sales commissions would be paid out of investor funds. Read More

The Securities and Exchange Commission (“SEC”) announced on September 27, 2016 that a former IT executive at the Commonwealth Bank of Australia (CBA) has agreed to settle charges that he participated in a scheme to defraud Computer Sciences Corporation (CSC) of approximately $98 million.

According to the SEC’s complaint, filed in federal court in Los Angeles, California, CSC’s former Executive Vice President of Cloud Computing (the CSC executive) bribed Hunter to have CBA enter into contracts with CSC in 2013 and 2014 so that the CSC executive could receive an earn-out payment. The alleged purpose of entering into the CBA contracts was to meet a $20 million revenue threshold before a certain date that was required for Service Mesh, Inc. (SMI), a Santa Monica, California cloud computing company, to earn an additional $98 million earn-out payment from CSC’s November 2013 acquisition of SMI. Read More

On September 26, 2016, the Securities and Exchange Commission charged Texas-based Mard, Inc., formerly known as KiOR, Inc., and its former CEO and President Fred Cannon for failing to disclose important assumptions about the yield that KiOR had claimed to have achieved through the company’s proprietary process of converting wood and other biomass into crude oil – a key metric that was critical to the company’s viability.

According to the SEC’s complaint filed in Houston federal court, beginning in April 2011 with the filing of KiOR’s registration statement for its initial public offering, KiOR and Cannon claimed that the company had “achieved” a yield of 67 gallons of fuel per ton of biomass. But they did not disclose that this yield was based on significant assumptions about technologies that remained under development. Read More

On September 26, 2016, the Honorable Nathaniel M. Gorton of the United States District Court for the District of Massachusetts entered a final judgment against Daniel Thibeault, of Framingham, Massachusetts.

Thibeault is a defendant in an SEC enforcement action filed in January 2015 alleging that he misappropriated money from an investment fund that he was managing. The final judgment imposes on Thibeault permanent injunctions against future violations of certain antifraud provisions of the federal securities laws and orders him to pay disgorgement of $15.3 million, which will be deemed satisfied by the restitution order in the parallel federal criminal case against him. Thibeault was also recently sentenced to nine years in prison in the criminal case.

In its complaint, filed on January 9, 2015, the SEC alleged that Thibeault, GL Capital Partners, LLC, and other related entities engaged in securities fraud and fraud by an investment adviser. Specifically, the SEC alleged that GL Capital Partners, LLC and its principal, Thibeault, were the investment advisers to a fund called the GL Beyond Income Fund, and that they misappropriated at least $15 million of the money that belonged to this fund. The GL Beyond Income Fund’s assets consisted primarily of individual variable rate consumer loans. Read More

On September 21, 2016, North Star Finance LLC, G. Thomas Ellis, and Yasuo Oda entered consents to settle the SEC’s charges against them.

Without admitting or denying the allegations in the SEC’s complaint, North Star, Ellis, and Oda consented to a judgment permanently enjoining them from violations of Sections 5(a), 5(c), and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder, with the amounts of any disgorgement, prejudgment interest, and civil penalties to be determined by the court on the SEC’s motion. The settlement remains subject to court approval.

On May 11, 2015, the SEC charged North Star, Ellis, and Oda, together with several other individuals and entities, for defrauding dozens of investors in an advance fee loan scam involving bogus prime bank instruments. Many of these investors were solicited from the National Association of Home Builders (“NAHB”). Read More

The Securities and Exchange Commission (“SEC”) announced charges on September 22, 2016 against Sheren Tsai and Colin Whelehan for insider trading in advance of the acquisition of a home security company based on confidential information tipped to the trader by her live-in boyfriend. Both individuals, who were securities professionals during the relevant period, have agreed to settle the SEC’s charges.

In a complaint filed in the U.S. District Court for the Southern District of New York, the SEC alleges that Tsai, who then worked at an investment advisory firm, traded in the securities of ADT Corp. on the basis of tips of material nonpublic information that she received from her romantic partner, Whelehan. The complaint alleges that Whelehan, who was then a Senior Associate at a different investment advisory firm, provided Tsai with inside information that he obtained in the course of his employment regarding an impending acquisition of ADT by funds managed by affiliates of Apollo Global Management, LLC. Read More

On September 16, 2016, the Honorable William J. Martini of the United States District Court for the District of New Jersey entered a judgment against defendant Lee Vaccaro that imposed permanent injunctions and an officer and director bar.

The SEC’s complaint, filed on May 4, 2016, alleged that Vaccaro and James Trolice pocketed the approximately $6 million they raised from more than 100 investors for limited liability companies they owned and controlled that purportedly held warrants to purchase the common stock of a technology startup company. Vaccaro and Trolice created a false sense of urgency and exclusivity around the offering, claiming that only a limited amount of warrants were available and that they eventually could be exercised at a very profitable price. The complaint alleged that Vaccaro spent at least a quarter-million dollars in investor funds at Las Vegas casinos. Read More

The Securities and Exchange Commission (“SEC”) announced on September 21, 2016 that the Honorable Haywood S. Gilliam of the U.S. District Court for the Northern District of California entered a final judgment against defendants Saleem Khan and Roshanlal Chaganlal ordering the payment of more than $16 million in disgorgement, penalties, and prejudgment interest. The SEC’s action charged Khan and Chaganlal with insider trading in Ross Stores securities based on nonpublic sales information leaked by Chaganlal while he was a Ross employee. Two other defendants who were Khan’s work colleagues settled the SEC’s charges against them in September 2015 without admitting or denying the SEC’s allegations. Read More

A federal court in Boston, Massachusetts, recently entered final judgments by consent against six defendants in an ongoing enforcement action filed by the Securities and Exchange Commission (“SEC”) in February 2015. The SEC charged two Portuguese companies operating under the name Wings Network, along with three company officers and 12 promoters behind an international pyramid scheme targeting Latino communities in the U.S.

The judgments obtained by the SEC were against six promoters of the scheme. Final judgments were entered against Vinicius Romulo Aguiar and Thais Utino Aguiar, formerly of Marlborough, Massachusetts on September 8, 2016; and against Geovani Nascimento Bento and Priscilla Bento of Auburn, Massachusetts, and Dennis Arthur Somaio and Elaine Amaral Somaio of Marlborough, Massachusetts on September 16, 2016. Read More

On September 14, 2016 Steven Metro, a former Simpson Thacher & Bartlett employee, was sentenced to 46 months in federal prison. Metro previously pleaded guilty to criminal charges arising from his role in a long running insider trading scheme that involved trading in advance of more than a dozen pending corporate transactions. As part of this scheme, Metro provided material, nonpublic information relating to these transactions to a friend, Frank Tamayo, via napkins or post-it notes at Grand Central Terminal. Tamayo then passed the information to his stockbroker, Vladimir Eydelman. The illegal trading resulted in approximately $5.6 million in profits. Read More