On October 4, 2011, the Securities and Exchange Commission (SEC) filed a complaint in United States District Court for the Northern District of New York charging StratoComm Corporation, its CEO Roger Shearer, and its former Director of Investor Relations, Craig Danzig, with violating the antifraud provisions of the securities laws and with illegally selling securities in unregistered transactions. On October 3, 2011, the SEC filed a complaint in United States District Court for the Southern District of Florida alleging that attorney Stewart Merkin, StratoComm’s outside counsel, also committed securities fraud.

The SEC’s complaint filed in Albany, New York alleges that StratoComm, acting at Shearer’s direction and with Danzig’s assistance, issued and distributed public statements falsely portraying the company as actively engaged in the manufacture and sale of telecommunications systems for use in underdeveloped countries, particularly Africa. In reality, the company had no product and no revenue. The SEC’s complaint also alleges that StratoComm, Shearer and Danzig sold investors approximately $3 million worth of StratoComm stock in unregistered transactions. Shearer used much of that money for his own purposes, including paying a substantial part of the restitution he owed in connection with his guilty plea in a prior criminal proceeding. Read More

Last fall, we wrote about a highly unusual cash dividend paid by penny stock Calissio Resources Group, Inc. (CRGP).  The payment process was so badly botched it resulted in a Financial Industry Regulatory Authority (FINRA) U3 trading halt that sent the stock to the Grey Market, and prompted a lawsuit by COR Clearing, LLC, which claimed it had been cheated out of $4 million.  Much has happened since that time, and the drama continues.  While some important points have been clarified, others have not, and no resolution is in sight. This debacle comes as no surprise in light of the fact that CRGO was a former dormant ticker that slithered into the public markets without oversight.

To recap:  On June 16, 2015, Calissio, a purported mining company with properties in Mexico, declared two dividends.  One was to be a small stock dividend; the other a large cash dividend that would pay $0.011 a share, or a total of about $1.3 million.  The record and pay dates for both were the same, June 30 and August 17 respectively.  As we explained in our earlier piece, although the company described the cash dividend as a regular quarterly distribution, at all times between the declaration date and the ex dividend date it qualified as a special dividend:  one worth more than 25 percent of the value of CRGP’s stock.

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The Securities and Exchange Commission (SEC) announced that Sanderley Rodrigues de Vasconcelos (“Rodrigues”) of Davenport, Florida, who is charged with promoting a pyramid scheme, was ordered to jail for civil contempt arising from his repeated violations of Court orders obtained by the SEC in its civil action filed in 2014 against Rodrigues.

On April 15, 2014, the SEC filed an emergency civil action against TelexFree, Inc., Rodrigues and several other defendants and obtained from the U.S. District Court in Boston certain preliminary relief, including an order for an asset freeze for Rodrigues. On June 10, 2015, Rodrigues consented to a Court order requiring him to provide an accounting listing all assets and transactions over $500. On August 12, 2015, the SEC asked the Court to hold Rodrigues in contempt, alleging that Rodrigues had transferred or disposed of assets and had failed to provide the Court-ordered accounting. Read More

The Securities and Exchange Commission (SEC) filed a complaint in the United States District Court for the Southern District of Florida against Nicholas Toms seeking enforcement of the SEC Order requiring him to pay disgorgement of $85,918, representing profits gained by Toms’ conduct described in the SEC Order, prejudgment interest to the date of the SEC Order of $16,853.40, and a civil money penalty of $175,000.

On February 11, 2015 Toms, a resident of Boca Raton, Florida and an attorney licensed to practice law in the State of New York and formerly the CEO and president of DecisionPoint Systems, Inc., from 1981 through 1989 beneficially owned and sold more than 2.3 million shares of the firm’s stock. He did this by using his secretary as a nominee for the shares and then making materially false filings with the SEC and certifying to the accuracy of those filings. The Order alleged violations of Exchange Act Section 10(b). Read More

The Securities and Exchange Commission (SEC) announced that the U.S. District Court for the District of Rhode Island denied defendants Anthony Andrade’s and Kenneth Rampino’s motion to dismiss an SEC insider trading action. The SEC’s complaint, filed June 8, 2015, alleges that Andrade, a former bank director at Bancorp Rhode Island, Inc. engaged in insider trading when he illegally tipped three friends and business associates about the bank’s potential acquisition by another bank. The complaint also alleges that Rampino engaged in insider trading by purchasing stock based on Andrade’s illegal tip.

Defendants Andrade and Rampino challenged the sufficiency of the complaint by claiming that the SEC had not alleged the elements of an insider trading action and in particular, had not alleged that Andrade personally benefitted from providing the tip or that Rampino knew about that benefit. In denying the motion, the Court noted, “[i]t is hard to imagine a case with better alleged circumstantial evidence of insider trading,” including allegations that the traders purchased Bancorp RI stock soon after talking with Andrade, and that none of the traders had any legitimate business justification to know about the proposed bank merger. The Court also concluded that the complaint described the type of meaningful and close personal relationship between Andrade and Rampino in which the benefit to Andrade from tipping his friend could be inferred. The Court also found that the complaint sufficiently pled that Rampino knew about the benefit Andrade received, especially in light of the history of personal favors described in the complaint. Read More

The Securities and Exchange Commission (SEC) filed a complaint against Robert Crowe, a law firm partner who worked as a fundraiser and lobbyist for State Street Bank and Trust Company. The complaint alleges that Crowe participated in a pay-to-play scheme to win contracts to service Ohio pension funds.

The SEC’s complaint alleges that Crowe repeatedly caused concealed campaign contributions to be made on behalf of State Street to the Ohio State Treasurer to influence the Treasurer to select and retain State Street to provide securities custody work. Read More

The Securities and Exchange Commission (SEC) obtained a jury verdict in its favor in a federal district court trial in Philadelphia against Nan Huang, who the agency charged with insider trading on information he illegally obtained from his employer Capital One Financial Corporation.

In its complaint filed in Pennsylvania on January 21, 2015, the SEC alleged that Huang worked for Capital One, a large credit card issuer, as a data analyst in the fraud department. While employed there, Huang and another individual searched their employer’s nonpublic database that recorded the credit card activity for millions of customers at numerous, predominantly consumer retail corporations. Huang conducted hundreds, if not thousands, of keyword searches of this database. Read More

The Securities and Exchange Commission (SEC) announced that on January 8, 2016, the United States District Court for the Southern District of New York entered a judgment against defendant Steven Davis. The judgment resolves all issues of liability against Davis arising from the SEC’s filing of a civil complaint against him on March 6, 2014. A permanent injunction against Davis was entered prohibiting him from future violations of certain SEC antifraud provisions of the federal securities laws and bars Davis from serving as an officer or director of a publicly traded company. Read More

On December 30, 2015, the Securities and Exchange Commission (“SEC”) published a notice that it was soliciting comments for a proposed rule change submitted by The Depository Trust Company (“DTC”) filed a pursuant to section 19(b)(3)(A) of the Act and Rule 19b-4(f)(2) thereunder. DTC’s proposed rule was effective upon submission to the SEC.

DTC’s proposed rule change consists of a change to DTC’s Fee Schedule (“Fee Schedule”) to add a new DTC eligibility fee that would be charged to the transfer agent of any DTC-eligible issue when the transfer agent notifies DTC of a corporate action event (“Corporate Action”) that requires a new CUSIP to be made DTC-eligible. The types of actions that require a new CUSIP must be submitted to The Financial Industry Regulatory Authority (“FINRA”) pursuant to Rule 6490. Under these circumstances, DTC conducts a review of the issuer’s shares in street name. Issuers must demonstrate the “free trading” nature of their shares in street name by providing DTC with a legal opinion. Corporate Actions requiring a new CUSIP include forward and reverse stock splits, name changes, and certain recapitalizations. These types of transactions require FINRA and DTC to spend significant time and effort in their review.

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On December 17, 2015, the Securities and Exchange Commission (SEC) charged Martin Shkreli, former CEO of pharmaceutical company Retrophin, with committing fraud during a 5-year period when he also was working as a hedge fund manager. He is notoriously known for raising the cost of the antiparasitic drug Daraprim and raising its price by 5,556 percent.

The SEC alleges that Martin Shkreli misappropriated money from two hedge funds he founded and made material misrepresentations to investors among other widespread misconduct. The SEC also charged Retrophin’s former outside counsel and corporate secretary Evan Greebel with aiding and abetting certain aspects of Shkreli’s alleged fraud. Read More

On December 10, 2015, the Securities and Exchange Commission (SEC) filed a complaint that charged Oxford City Football Club, Inc. and its CEO, Thomas Anthony Guerriero, with securities fraud and other violations of the federal securities laws. The Court issued a temporary restraining order, asset freeze, and other emergency relief against Oxford City, Guerriero, and relief defendant GCE Wealth, Inc., an entity that Guerriero owned and controlled.

In the fraud complaint, the SEC claims that Guerriero used deceptive tactics and a boiler room of salespeople to raise over $6.5 million primarily obtained from inexperienced investors who were misled to believe that the company was a thriving conglomerate of sports teams, academic institutions, and real estate holdings. However, the company was actually losing millions of dollars each year and turning zero profit from its two lower-division soccer teams in the U.K. Read More

The United States Securities and Exchange Commission (SEC) announced that, on December 4, 2015, the Court for the Southern District of New York issued a final judgment, on consent of defendant Timothy Quintanilla, which permanently enjoined him from violating the antifraud provisions of the federal securities laws and ordered him to pay a $100,000 civil penalty. Quintanilla was the former outside auditor of Electronic Game Card Inc. (EGMI). This final judgment fully resolves the enforcement action before Judge Sullivan, in which final judgments were previously entered against three other defendants, former CEO Kevin Donovan, Lee Cole (Donovan’s predecessor as CEO), and Linden Boyne (EGMI’s former CFO), who the SEC charged with violations of the securities laws’ antifraud provisions and other violations. Read More

The Securities and Exchange Commission (SEC) announced that on December 15, 2015, it filed charges against Vu Le a/k/a Vinh Le and his company, TeamVinh.com LLC (“TeamVinh”), in connection with their fraudulent raising of more than $3 million from over 5,600 investors throughout the United States and in various foreign countries.

According to the SEC’s complaint filed in federal court in Minnesota:

• Vinh Le, who previously had been convicted of forgery and barred from offering or selling securities by state authorities in Minnesota and Wisconsin, and TeamVinh lured people into buying memberships in a program that Le and TeamVinh claimed to be a referral network that investors could use to earn an income from multi-level marketing companies without the investors having to do any work.
• Vinh Le and TeamVinh sold investment contracts in TeamVinh itself, promising investors a percentage of TeamVinh’s profits.
• Vinh Le and TeamVinh sought investments in a purported commodities trading platform run by Le, with Le guaranteeing investors 5% weekly returns.

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The Securities and Exchange Commission (SEC) charged Edward Durante, a recidivist securities law violator with operating a multi-year offering fraud that targeted investors in New England, Ohio and California. The SEC’s complaint alleges that between 2012 and 2014, Durante defrauded at least 50 relatively unsophisticated investors of at least $11 million through the sale of securities of VGTel, Inc., a shell company he controlled. Read More

The U.S. capital markets have long been a desired goal for foreign companies that are interested in raising funds or establishing a trading market for their securities.

Two of the most important laws applicable to companies seeking to go public in the U.S. capital markets are the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”). The Securities Act requires foreign companies that want to offer and sell securities in the United States to register the transaction with the Securities and Exchange Commission (SEC) or to follow the requirements of an exemption from the registration requirements. The Exchange Act requires companies to register classes of equity securities in order to list these securities on a US national securities exchange unless certain asset and shareholder thresholds are met. The Exchange Act also requires companies to make periodic filings with the SEC to disclose information about their business operations, financial condition, and management.

In the discussion that follows, this overview outlines several things to be considered by foreign companies that want to raise profits or establish a presence for their securities in the United States, specifically with reference to foreign private issuers. Read More

The Securities and Exchange Commission (SEC) announced that on February 1, 2016, the Honorable Richard Seeborg of the United States District Court for the Northern District of California entered final judgments against defendants eAdGear Holdings Limited, eAdGear, Inc., Charles Wang, Francis Yuen, Qian Cathy Zhang, and relief defendant Laurata Chan. The final judgments order the defendants and relief defendant to pay a total of $26,539,280 in disgorgement, penalties, and prejudgment interest.

The SEC’s complaint, filed on September 24, 2014, together with a request to the court for emergency relief, charged the defendants with operating an international pyramid scheme to fraudulently raise more than $129 million from investors, in violation of the federal securities laws. The complaint alleged that defendants used money from new eAdGear investors to pay earlier investors, as well as to repay a personal loan and purchase million-dollar homes for the individual defendants. Read More

The Securities and Exchange Commission (SEC) announced that on January 28, 2016, a jury in the federal court in Boston Massachusetts, returned a guilty verdict against Watertown real-estate developer Robert Bray in a criminal trial prosecuted by the Massachusetts U.S. Attorney. The jury convicted Bray of engaging in insider trading, a type of securities fraud. U.S. District Court Judge William G. Young scheduled sentencing for May 4, 2016.The SEC previously charged Bray and Patrick O’Neill with insider trading in a civil action filed on August 18, 2014.

The criminal case is based on the same conduct underlying the SEC’s action. The SEC’s complaint alleged that O’Neill, a former senior vice president at Eastern Bank Corporation, learned through his job responsibilities that his employer was planning to acquire Wainwright Bank & Trust Company (“Wainwright”) and he then tipped Bray, a friend and fellow golfer with whom he socialized at a local country club. In the criminal trial, the government proved that the tip was passed on a napkin that O’Neill slipped to Bray over drinks at the country club bar two weeks before a public announcement about the planned acquisition. Read More

On December 14, 2015 the Securities and Exchange Commission (SEC) charged a Pittsboro, North Carolina-based startup energy company and two executives with defrauding investors in an unregistered stock offering as they purported that a big influx of capital was on the way from a major investor.

According to the SEC’s complaint against CAUSwave Inc. and its principals Jeffrey Riggs and Diane Baldwin:

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On December 9, 2015 the Securities and Exchange Commission (SEC) obtained a court order in its subpoena enforcement action against respondent Steve Karroum that requires Mr. Karroum to sign a written consent for the release of his e-mails from his internet service provider. On May 11, 2015 the SEC filed a subpoena enforcement action against Virginia-based FX & Beyond Corporation and its president, Mr. Karroum. After a hearing on the matter, on August 5, 2015 the Hon. Magistrate Judge Deborah Robinson issued an order requiring Mr. Karroum to, among other things, sign a consent for the release of his e-mails from his internet service provider to the SEC. On August 10, 2015 Karroum filed objections to the Magistrate Judge’s order. Read More

On December 2, 2015, the Securities and Exchange Commission (SEC) charged Robert Seibert with operating a multi-year offering fraud that targeted elderly investors.

According to the SEC’s complaint:

• Seibert, who was previously charged by the SEC in 1993 with securities fraud and who has been convicted multiple times for securities-related offenses, owned and operated a Nevada limited liability company called Universal Stock Transfer (“UST”) out of Palm Desert, CA.
• Using the alias “John Grey,” Seibert, who has never been registered with the SEC, together with sales agents who identified themselves as “Ron Woods” and “Sebastian Wilson,” cold-called investors who ranged in age from 56 to 95 and encouraged them to buy from them a variety of stocks quoted on OTC Link, an inter-dealer quotation system for over-the-counter securities.
• Seibert and the UST agents told the elderly investors that the stocks they were selling would significantly increase in value shortly after purchase. Read More

The Securities and Exchange Commission (SEC) charged a California-licensed attorney and a stock promoter behind a pump-and-dump scheme that defrauded investors in Greenway Technology, a Las Vegas-based company purporting to operate resorts for gay and lesbian travelers.

The SEC alleges that Jehu Hand and Antonio Katz and three additional participants carried out the scheme by, among other things, using one or more backdated debt assignments, or convertible promissory notes, to cause the issuance of millions of unrestricted shares of Greenway stock to entities and individuals under their control. Hand (or an attorney associated with him) then wrote and sent false legal opinion letters to brokerage and other firms transacting in Greenway stock to facilitate the issuance, depositing, and, ultimately, sale of the stock. These opinions represented, among other things, that Greenway was not a shell company. According to the complaint, all of the false opinion letters that Hand authored were designed to clear the way for Greenway stock held by the scheme participants to be sold, without restriction, to unsuspecting investors in the market. Read More

The Securities and Exchange Commission (SEC) obtained a summary judgment against former Enron president, COO, and CEO Jeffrey Skilling to conclude its civil case that was stayed by the court starting in 2004 until the outcome of criminal proceedings and appeals.

The Honorable Judge Melinda Harmon of the United States District Court for the Southern District of Texas issued an order finding that as a result of the collateral estoppel effect of Skilling’s criminal convictions and statement of non-opposition to the SEC’s motion for summary judgment, Skilling committed and was liable for each claim alleged against him in the SEC’s complaint filed in July 2004. Read More

It’s that time of year again when companies filing reports with the Securities and Exchange Commission (“SEC”) that have a December 31st year end, must file their annual report on Form 10-K. Recent enforcement actions against SEC filers and insiders for failure to comply with their SEC reporting obligations. It has become routine for the SEC to suspend issuers who become inactive and miss their annual 10-K or quarterly 10-Q filing deadlines. This is especially true for new SEC late filers who are unfamiliar with SEC reporting after their going public transactions.

The obligation to file Form 10-K annually and Form 10-Q quarterly reports originates from Section 13 or 15(d) of the Securities Exchange Act, and Rule 13a-1 and Rule 13a-13 promulgated there under. Late SEC filers receive only one automatic extension per filing so it is important that the late reports be filed within the required extension period. In the absence of extraordinary circumstances, as determined in the SEC’s sole discretion, no additional extensions are available to issuers.  The SEC has the ability to enforce periodic filing requirements by instituting enforcement actions against a delinquent SEC filer and/or its officers and directors seeking monetary or other penalties, including revoking the filer’s registration pursuant to Section 12(j) of the Exchange Act.  In the absence of egregious and/or repeated violations, or inferences of fraud, however, the SEC will not likely take action.

If you are a SEC reporting issuer missing a SEC filing deadline for a periodic report, these are some of the important issues that you should consider: Read More