Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Saturday, December 11, 2010

SEC & Vitesse Semiconductor Settle Backdating Charges

The SEC filed civil fraud charges against California-based integrated circuit maker Vitesse Semiconductor Corporation and four former senior executives of Vitesse — co-founder and former Chief Executive Officer Louis Tomasetta, former Chief Financial Officer and Executive Vice President Eugene Hovanec, former Controller and Chief Financial Officer Yatin Mody, and former Manager and Director of Finance Nicole Kaplan. The SEC alleges that Vitesse, through the former senior executives, perpetrated fraudulent and deceptive schemes during 1995 to April 2006 to inflate revenue from shipment of Vitesse's products and to backdate stock options to employees and officers by failing to record millions of dollars of compensation expense. The SEC alleges that all four former executives engaged in the revenue recognition fraud from 2001 to 2006 and that Tomasetta and Hovanec orchestrated the options backdating from 1995 to 2006. The four executives left Vitesse in 2006.

Vitesse has settled the matter by agreeing to be permanently enjoined and to pay a $3 million civil penalty. Mody and Kaplan have each agreed to a bifurcated settlement that provides they will be permanently enjoined and ordered to pay disgorgement, and that any civil penalty will be determined later by the district court. Mody has also agreed to be permanently barred from serving as an officer or director of a public company. The SEC's case against Tomasetta and Hovanec is contested.

December 11, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

PCAOB Establishes Office of Outreach and Small Business Liaison

Section 982 of Dodd-Frank authorized the PCAOB to establish, subject to approval by the Commission, auditing and related attestation, quality control, ethics, and independence standards to be used by registered public accounting firms with respect to the preparation and issuance of audit reports to be included in broker-dealer filings with the Commission. In light of this new authority, the PCAOB reassessed its communications and outreach strategy and intends to enhance its outreach function by establishing a new Office of Outreach and Small Business Liaison to act as a liaison between the PCAOB and any PCAOB-registered public accounting firm, or any other person affected by the PCAOB's regulatory activities, including in particular, entities in the small business community, such as the auditors of broker-dealers.

Under the Commission's budget rule, in order to establish this office in 2010, the PCAOB was required to submit a supplemental budget request for Commission approval. Staff from the Commission's Offices of the Chief Accountant and Executive Director reviewed and analyzed the PCAOB's supplemental budget request and did not identify any matters that are inconsistent with Section 109 of the Sarbanes-Oxley Act or the Commission's budget rule. Upon considering the staff's review and analysis, the Commission determined that the PCAOB's request to create this office in 2010 is consistent with Section 109 of the Sarbanes-Oxley Act and the Commission's budget rule.

December 11, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

RAE Systems Settles FCPA Charges Involving Chinese Joint Ventures

On Friday the SEC filed a settled enforcement action against RAE Systems Inc., a San Jose-based company, alleging violations of the anti-bribery, books and records, and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”). RAE has offered to pay approximately $1.2 million as part of its settlement with the SEC. RAE’s proposed settlement offer has been submitted to the Court for its consideration. 

The SEC’s complaint alleges that:

From 2004 through 2008, RAE made illicit payments, through two of its joint venture entities in China, of approximately $400,000, directly or indirectly, to government officials in China to obtain or retain business from Chinese governmental entities. These payments were made primarily by the direct sales force utilized by RAE at its two Chinese joint-venture entities, named RAE-KLH (Beijing) Co., Limited (“RAE-KLH”) and RAE Coal Mine Safety Instruments (Fushun) Co., Ltd. (“RAE-Fushun”). In all, these payments resulted in contracts worth approximately $3 million in revenues and profits of $1,147,800.
RAE KLH and RAE Fushun sales personnel typically made the improper payments by obtaining cash advances from RAE KLH and RAE Fushun accounting personnel. RAE did not impose sufficient internal controls or make any meaningful changes to the practice of sales personnel obtaining cash advances to make the improper payments. In addition, the expenses associated with these cash advances were improperly recorded on the books of RAE-KLH and RAE-Fushun as “business fees” or “travel and entertainment” (T&E) expenses.
While the payments were made exclusively in China and were conducted by Chinese employees of RAE-KLH and RAE-Fushun, RAE failed to act on red flags of this activity, which allowed, at least in part, the conduct to continue at RAE-KLH.

December 11, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Thursday, December 9, 2010

What are Federal Prosecutors Doing?

Be sure to read The Feds Stage a Sideshow, While the Big Tent Sits Empty, by Jesse Eisinger, a reporter for ProPublica.  It begins:

You may have noticed that prosecutors are in something of a white-collar slump lately.

December 9, 2010 in News Stories | Permalink | Comments (0) | TrackBack (0)

SEC Obtains Freeze on Trading Proceeds of Wimm-Bill-Dann Foods Securities

On December 8, 2010, the U.S. District Court for the Southern District of New York entered a Temporary Restraining Order freezing assets and trading proceeds of certain Unknown Purchasers of the Securities of Wimm-Bill-Dann Foods OJSC (the “Unknown Purchasers”) and prohibiting the Unknown Purchasers from obtaining the securities or the proceeds from any sale of the securities. The Commission filed a complaint alleging that the Unknown Purchasers engaged in illegal insider trading in the last three days before the December 2, 2010, announcement that PepsiCo, Inc. intended to acquire a 66 percent interest in Wimm-Bill-Dann Foods OJSC (“WBD”) for $3.8 billion, pending required government approvals. WBD, a Russian corporation that manufactures and sells dairy and fruit juice products, has American Depositary Receipts (“ADRs”) that trade on the New York Stock Exchange. The complaint seeks permanent injunctive relief, the disgorgement of all illegal profits, and the imposition of civil monetary penalties.

The Commission’s complaint alleges that, in an account maintained at SG Private Banking (Suisse) SA in Geneva, Switzerland, the Unknown Purchasers placed orders to buy 107,500 ADRs on November 29, 2010; another 132,500 ADRs on November 30, 2010; and an additional 160,000 ADRs on December 1, 2010. The Unknown Purchasers’ buys on November 29th comprised 23 percent of the total trading volume of WBD ADRs that day; their purchases on November 30th comprised 13 percent of that day’s total trading volume of WBD ADRs; and their December 1st purchases comprised 21 percent of that day’s total trading volume of WBD ADRs.

The complaint further alleges that, after the acquisition announcement, the price of WBD ADRs rose approximately 28 percent for the day. As a result, the Unknown Purchasers are in a position to realize total profits of approximately $2.7 million from the sale of the ADRs.

The Court's Temporary Restraining Order prohibits the transfer of the illegally purchased WBD ADRs, or proceeds from their sale, to the Unknown Purchasers. In addition, the Order requires the Unknown Purchasers to identify themselves, imposes an expedited discovery schedule, and prohibits the defendants from destroying documents.

December 9, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Announces Agenda for December 15 Meeting

The SEC released the agenda for its December 15, 2010 Open Meeting:

The Commission will consider whether to propose rule 3Cg-1 under the Exchange Act governing the exception to mandatory clearing of security-based swaps under Section 763(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is available to counterparties meeting certain conditions. The Commission will also consider related matters, including the exemption for banks, savings associations, farm credit system institutions and credit unions contemplated by Section 763(a).
The Commission will consider whether to propose rule and form amendments to establish a process for the submission for review of security-based swaps for mandatory clearing under Section 763(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and for the filing of changes to rules, procedures or operations in accordance with Section 806(e) of Dodd-Frank Wall Street Reform and Consumer Protection Act by clearing agencies that are designated financial market utilities. The Commission also will consider whether to propose a new rule to establish a procedure by which the Commission may stay the mandatory clearing requirement. In addition, the Commission will consider whether to propose a new rule concerning the submission to a clearing agency of a security-based swap for clearing.
The Commission will consider whether to propose rules regarding disclosure and reporting obligations with respect to the use of conflict minerals to implement the requirements of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Commission will consider whether to propose rules regarding disclosure and reporting obligations with respect to mine safety matters to implement the requirements of Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Commission will consider whether to propose rules regarding disclosure and reporting obligations with respect to payments to governments made by resource extraction issuers to implement the requirements of Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

December 9, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

AIG Takes Steps to Repay Taxpayers

American International Group, Inc. (AIG) announced on December 8 that it had filed a Form 8-K announcing the signing of the Master Transaction Agreement among ALICO Holdings LLC, AIA Aurora LLC, the Federal Reserve Bank of New York, the United States Department of the Treasury, the AIG Credit Facility Trust and AIG, regarding a series of integrated transactions to recapitalize AIG, for which trading on the New York Stock Exchange was briefly interrupted.  Regarding the filing of the Master Agreement, AIG issued the following statement:

"Our filing today that we have signed the definitive recapitalization agreement with the government marks an important step forward in our progress toward completely repaying taxpayers. We remain committed to executing the steps and meeting all conditions in the agreement as soon as possible."

In turn, Treasury issued the following statement

This development is the next step in a process that will accelerate the government’s exit from AIG and ensure that we recover our investment.  When this transaction closes, which will occur no later than March 15, 2011, the Federal Reserve loan will be paid off with no expected losses and Treasury’s preferred stock investment will be converted to common shares.  Treasury can then sell those shares publicly in order to recover taxpayer funds over time. 

December 9, 2010 in News Stories | Permalink | Comments (0) | TrackBack (0)

SEC Bars Former Car Czar Rattner from Securities Industry

The SEC barred former Car Czar Steven L. Rattner (who served as managing principal of Quadrangle Group LLC from 2000 until March 2009 and managing principal of Quadrangle Securities LLC, which was a registered broker-dealer from 2000 through 2006, and Quadrangle Equity Management LLC, which was a registered investment adviser in 2006) from association with any broker, dealer or investment adviser with the right to reapply after two years.  The bar follows from the federal district court's recent final consent judgment against Rattner which, inter alia, permanently enjoined him from violating Section 17(a)(2) of the Securities Act of 1933.  The SEC had filed a complaint against Rattner alleging that Rattner violated Section 17(a)(2) by entering into an undisclosed “pay-to play” arrangement in order to secure an investment from the New York Common Retirement Fund (“Retirement Fund”) for Quadrangle. Securities and Exchange Commission v. Steven L. Rattner, Civil Action No. 10-CV-8699.

December 9, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Plans to Review Supervisory Failure Case Involving Broker-Dealer's GC

The SEC  recently declined to affirm summarily an administrative law judge's dismissal of proceedings brought against Theodore W. Urban,  formerly general counsel, executive vice president, and member of the Board of Directors of Ferris Baker Watts, Inc. ("FBW" or the "Firm"), a registered broker-dealer and investment adviser.  In her decision, the law judge concluded that Urban should not be sanctioned, under Sections 15(b)(4)(E) and 15(b)(6) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940,for supervisory failure.  According to the SEC's order:

This case involves allegations that Urban failed to supervise Stephen Glantz, a top-producing FBW salesperson. The law judge found that Glantz violated the antifraud provisions of the securities laws based on various misconduct and that Urban supervised him; however, the law judge declined to hold Urban liable for supervisory failure because she concluded that Urban, who had sought to have Glantz terminated, acted reasonably under the circumstances. In particular, the law judge found that Urban reasonably relied on the Firm's director of retail sales, Louis Akers, to exercise heightened supervision over Glantz once indications of Glantz's misconduct were made known. Moreover, even if reliance on Akers to supervise Glantz was unreasonable, Urban could not be faulted, the law judge found, for failing to raise concerns about Glantz with the Firm's Chief Executive Officer or its Board of Directors because Urban reasonably believed that they would simply defer to Akers, who had opposed Urban's recommendation that Glantz be terminated.


Based on our own preliminary review of the record, and given the important matters of public interest this case presents, summary affirmance does not appear appropriate here. As a general matter, we note that Commission review of the findings and conclusions of an initial decision is conducted de novo.  We note further that, although the Commission grants "considerable weight and deference" to credibility determinations of the law judges, those determinations are not sacrosanct. Moreover, the proceeding raises important legal and policy issues, including whether Urban acted reasonably in supervising Glantz and responded reasonably to indications of his misconduct, whether securities professionals like Urban are, or should be, legally required to "report up," and whether Urban's professional status as an attorney and the role he played as FBW's general counsel affect his liability for supervisory failure.

Under the circumstances, it appears appropriate to consider the record and the parties' arguments as part of the normal appellate process rather than the abbreviated process involved with a summary affirmance. We will therefore deny Urban's motion, though our denial should not be construed as suggesting any view as to the outcome of this case.

December 9, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 8, 2010

SEC Charges Baltimore Business Consultant and Uncle with Insider Trading

The SEC today charged a Baltimore-based business consultant and his uncle with insider trading in the stock of two biotechnology companies based on material, nonpublic information that he obtained from his fraternity brother.  The SEC alleges that Brett A. Cohen received coded e-mails referencing the movie Wall Street from his fraternity brother, who was being tipped with inside information by his own brother, a patent agent for San Diego-based Sequenom, Inc. Cohen subsequently made phone calls from an outdoor pay phone to tip his uncle David V. Myers of Cleveland, who then traded on the illegally obtained inside information and garnered more than $600,000 in illicit profits.

In a parallel criminal proceeding, the U.S. Attorney's Office for the Southern District of California today filed criminal charges against both Cohen and Myers.

December 8, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

FINRA Foundation Releases Results of Financial Capability Survey

The FINRA Investor Education Foundation (FINRA Foundation) today launched an interactive Web resource to display the results of America's first State-by-State Financial Capability Survey, which was also released today. The new website displays a clickable map of the United States that permits comparison of the financial capabilities of Americans in every state and across geographic regions. The State-by-State Financial Capability Survey, which surveyed more than 28,000 respondents, was developed in consultation with the U.S. Department of the Treasury and the President's Advisory Council on Financial Literacy.

The state-by-state survey found a significant disparity in financial capability across state lines and demographic groups:

  • Citizens of New York, New Jersey and New Hampshire are the most financially capable. Those states ranked in the top five among all states in at least three of five measures of financial capability.
  • Kentucky and Montana stood out as having lower financial capability when compared to other states. Citizens of both states were among the least financially capable in at least three of five measures of financial capability.
  • Young Americans nationally were more likely to be less financially capable than older Americans, and they were significantly more likely to engage in non-bank borrowing.

The state-by-state survey echoed several of the findings of a smaller-scale national survey released in 2009, finding:

  • Over half of all Americans are living paycheck-to-paycheck. 55 percent of Americans report spending more than or about equal to their household income.
  • A significant majority of Americans (60 percent) do not have a "rainy day" fund to cover three months of unanticipated financial emergencies.
  • More than one in five Americans (24 percent) have engaged in some form of higher cost non-bank borrowing during the last five years, including taking out a payday loan or getting an advance on a tax refund.
  • Americans, on average, were able to correctly answer just three of five questions about fundamental financial concepts.

The study was developed in consultation with the U.S. Department of the Treasury and the President's Advisory Council on Financial Literacy.  The data were collected through an online survey of 28,146 respondents (approximately 500 per state, plus D.C.), over a five-month period, June – October 2009. Within each state, data were weighted to match 2008 American Community Survey (ACS) distributions on age category by gender, ethnicity and education. All data in the surveys are self-reported by the respondents themselves

December 8, 2010 in Professional Announcements | Permalink | Comments (1) | TrackBack (0)

Supreme Court Addresses Primary vs. Secondary Liability in Janus Market-Timing Oral Argument

Yesterday the U.S. Supreme Court heard oral argument in Janus Capital Group, Inc. v. First Derivative Traders, 566 F.3d 111 (4th Cir. 2009) and once again dealt with the difficulty issue of distinguishing primary and secondary liability under Rule 10b-5.  Plaintiff in the case represent shareholders of Janus Capital Group (JCG), the asset management firm that sponsors the Janus funds.  They sued JCG and its subsidiary, Janus Capital Management (JCM), the investment adviser to the funds, alleging they were responsible for statements appearing in prospectuses for a number of the Janus funds that represented that the funds' managers did not permit market-timing and took measures to prevent market-timing.  Plaintiffs allege that they purchased JCG shares at inflated prices and suffered damages when the funds' market-timing practices became known.  The Fourth Circuit, reversing the district court, held that plaintiff's Rule 10b-5 primary liability claim againsst JCM and its 20(a) control person claim against JCG were sufficiently pled to overcome defendant's motion to dismiss.

The question presented, as framed by petitioners, was:

There is no aiding-and-abetting liability in private actions brought under Section 10(b)
of the Securities Exchange Act of 1934. Central Bank of Denver, N.A. v. First Interstate
Bank of Denver, N.A., 511 U.S. 164 (1994). Thus, a service provider who provides
assistance to a company that makes a public misstatement cannot be held liable in a
private securities-fraud action. Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc.,
128 S. Ct. 761 (2008). In the decision below, however, the Fourth Circuit held that an
investment adviser who allegedly "helped draft the misleading prospectuses" of a
different company, ''by participating in the writing and dissemination of [those]
prospectuses," can be held liable in a private action "even if the statement on its face is
not directly attributed to the [adviser]." App., infra, 17a-18a, 24a (emphases added).
The questions presented are: 1. Whether the Fourth Circuit erred in concluding-in direct
conflict with decisions of the Fifth, Sixth, and Eighth Circuits-that a service provider can
be held primarily liable in a private securities fraud action for "help[ing]" or
"participating in" another company's misstatements. 2. Whether the Fourth Circuit
erred in concluding-in direct conflict with decisions of the Second, Tenth, and Eleventh
Circuits-that a service provider can be held primarily liable in a private securities-fraud
action for statements that were not directly and contemporaneously attributed to the
service provider.

    The attorney for the petitioners established his theme in his opening sentences:  "Affirming the judgment below would authorize private securities fraud class actions against every service provider that participates in the drafting of a public company's prospectus.  It is therefore nothing less than a frontal assault on this Court's decisions in Central Bank and Stoneridge."  Justice Sotomayor wanted to know how these facts differed from the situation  where a company, through market analysts, disseminates misleading statements to the marketplace.  Petitioners' attorney emphasized throughout his argument that the funds whose prospectuses contained the misstatements were separate legal entities from JCM, the investment adviser that allegedly violated the market-timing policy.  The Justices explored the separateness of the legal entities as a practical matter, asking a number of questions about whose lawyers wrote the relevant statements, who paid their salaries, were the officers of the funds also employees of JCM.  The import of the Fourth Circuit's opinion, according to Justice Ginsburg, was that "JCM was in the driver's seat.  It was running the show."  Petitoners' attorney reiterated that there are no cases imposing liability on an investment adviser for statements in the fund prospectuses.

    The attorney for respondents was immediately asked by Justice Scalia about the scope of the question the Court was to decide -- wasn't it to decide whether a "service provider" could be held primarily liable for helping or participating in another company's misstatements?  No, that was too broad -- this case deals only with the primary liability of JCM, which was responsible for the prospectuses in all their aspects.  There was again considerable back-and-forth over the allocation of responsibilites between the funds and the investment adviser and the role of the funds' independent  trustees.  Finally, Justice Breyer raised the fundamental question -- how do we distinguish an aider and abettor from the principal violator.  The Justices did not appear to be satisfied that this question was answered.

Indeed, the distinction between primary , secondary and control person liability was the issue that Justice Sotomayor immedately raised with the government attorney, who appeared as amicus curiae in support of respondent, and, in particular, how those definitions would exclude lawyers, auditors and other corporate advisers.  This was clearly a crucial question for the Justices, and it does not appear that they found a solution in the government attorney's answers.

Taking advantage of this, in his rebuttal the attorney for petitioners hammered home the message that this is an area that needs bright lines.  He also emphasized that the shareholders in the funds had received compensation from an SEC settlement; the plaintiffs here were investors in the parent company that were seeking damages for misstatements contained in fund prospectuses.

Of course, it's probably foolhardy to predict how Justices will come out based on oral argument, but it was clear that the Justices remain troubled about expanding Rule 10b-5 liability in private actions.  This may well continue the message of Central Bank and Stoneridge.

December 8, 2010 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 7, 2010

SEC & CFTC Publish Proposed Swaps Definitions

The CFTC and the SEC jointly, and in consultation with the Board of Governors of the Federal Reserve System, are proposing rules and interpretative guidance under the Commodity Exchange Act and the Securities Exchange Act of 1934 to further define the terms “swap dealer,” “security-based swap dealer,” “major swap participant,” “major security-based swap participant,” and “eligible contract participant.”  These proposals are pursuant to Section 712(d)(1) of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”).

December 7, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Charges IT Manager at Law Firm with Insider Trading

The SEC today charged a former information technology manager at a Delaware law firm and his brother-in-law with insider trading on confidential information about impending mergers and acquisitions by the law firm’s clients.  According to the SEC's complaint, Jeffery J. Temple, a former Information Systems and Security Manager at a Wilmington, Del.-based law firm, accessed material nonpublic information in the course of his employment and then traded in advance of at least 22 merger and acquisition public announcements involving 20 companies that retained his former employer as counsel in some capacity. Temple also tipped his brother-in-law, Benedict M. Pastro, who traded in concert with Temple in advance of twelve public announcements. The pair reaped over $182,000 in illegal profits during their insider trading scheme. Temple was terminated from his position on Oct. 11, 2010, once law enforcement authorities revealed that they had uncovered his illegal scheme.


December 7, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Banc of America Securities Settles SEC Bid-Rigging Charges

The SEC today charged Banc of America Securities, LLC (BAS) with securities fraud for its part in an effort to rig bids in connection with the investment of proceeds of municipal securities.  To settle the SEC's charges, BAS has agreed to pay more than $36 million in disgorgement and interest. In addition, BAS and its affiliates have agreed to pay another $101 million to other federal and state authorities for its conduct.  (BAS is now known as Merrill Lynch, Pierce, Fenner & Smith Incorporated.)

When investors purchase municipal securities, the municipalities generally invest the proceeds temporarily in reinvestment products before the money is used for the intended purposes. Under relevant IRS regulations, the proceeds of tax-exempt municipal securities must generally be invested at fair market value. The most common way of establishing fair market value is through a competitive bidding process, whereby bidding agents search for the appropriate investment vehicle for a municipality.

In its Order, the SEC found that the bidding process was not competitive because it was tainted by undisclosed consultations, agreements, or payments and, therefore, could not be used to establish the fair market value of the reinvestment instruments. As a result, these improper bidding practices affected the prices of the reinvestment products and jeopardized the tax-exempt status of the underlying municipal securities, the principal amounts of which totaled billions of dollars.

According to the Commission's Order, certain bidding agents steered business from municipalities to BAS through a variety of mechanisms. In some cases, the agents gave BAS information on competing bids (last looks), and deliberately obtained off-market "courtesy" bids or purposefully non-winning bids so that BAS could win the transaction (set-ups). As a result, BAS won the bids for 88 affected reinvestment instruments, such as guaranteed investment contracts (GICs), repurchase agreements (Repos) and forward purchase agreements (FPAs).

In return, BAS steered business to those bidding agents and submitted courtesy and purposefully non-winning bids upon request. In addition, those bidding agents were at times rewarded with, among other things, undisclosed gratuitous payments and kickbacks. The Commission also found that former officers of BAS participated in, and condoned, these improper bidding practices.

December 7, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Monday, December 6, 2010

SEC Charges Florida Stock Promoters with Microcap Fraud

The SEC today charged penny stock promoters Joshua Konigsberg and Louis Fischler with securities fraud for their roles in various illicit schemes to manipulate the volume and price of four microcap stocks and illegally generate stock sales. The SEC also charged microcap company MediSys Corp., of which defendant Konigsberg is the president and chief executive officer, in connection with one of those schemes.

The SEC worked closely with the U.S. Attorney's Office for the Southern District of Florida and the Federal Bureau of Investigation as the schemes were uncovered through FBI undercover operations. The U.S. Attorney today announced criminal charges against the same two individuals facing SEC civil charges.

The SEC's complaint, filed in the United States District Court for the Southern District of Florida, alleges that Konigsberg and Fischler sought to manipulate the volume and price of four different microcap stocks and to generate stock sales through the payment of illegal kickbacks and bribes. Konigsberg and Fischler thought they were paying-off a corrupt pension fund employee, stockbroker, and middlemen. In reality, the pension fund employee and the stockbroker were fictitious persons, and the middlemen were an undercover FBI agent and a cooperating witness.

December 6, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Charges Three with Promoting Fraudulent Forex Offering

The SEC announced the filing of a civil injunctive action in Salt Lake, Utah on November 30, 2010 alleging that Clifton K. Oram, Don C. Winkler and William R. Michael engaged in fraud by offering and selling investments in a foreign currency exchange trading ("Forex") program issued by a Mexican entity known as MexGroup or MexBank.  According to the SEC's complaint, at least 2007, Oram, Winkler and Michael collectively raised tens of millions from investors nationwide for MexGroup's Forex trading program. The defendants attracted investors by, among other things, touting impressive monthly returns posted on MexGroup's web site. In early December 2008, however, investors learned that their accounts were virtually wiped out in the previous month. MexGroup gave a number of explanations, eventually blaming allegedly illegal conduct by a Swiss Forex trading firm through which it executed trades.

This action arose from a joint SEC cooperative enforcement investigation with the Federal Bureau of Investigation (FBI), the Internal Revenue Service (IRS) and the U.S. Commodities Futures Trading Commission (CFTC). On November 30, 2010, the CFTC filed a complementary action in the U.S. District Court for the District of Utah, entitled CFTC v. MXBK Group S.A. de C.V., which alleges violations of U.S. federal commodities laws by MXBK and MBFX, associated entities of MexGroup.

December 6, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Treasury Plans to Sell Remaining Citigroup Common Stock

The U.S. Department of the Treasury announced today that it is commencing an underwritten public offering of approximately 2.4 billion shares of Citigroup Inc. common stock.  Treasury said that completion of the offering would depend on whether it receives an acceptable price for the shares. 

Treasury received approximately 7.7 billion shares of Citigroup common stock from the exchange offers in July 2009 for the $25 billion in preferred stock received in connection with Citigroup’s participation in the Capital Purchase Program.  The exchange was part of exchange offers conducted by Citigroup to strengthen its capital base.  Treasury has disposed of approximately 5.3 billion shares to date in at-the-market sales.  This proposed offering would dispose of Treasury's remaining shares of Citigroup common stock.

If the offering is completed, Treasury would continue to hold warrants for Citigroup’s common stock that were also issued as part of Citigroup’s participation in Treasury programs.  It is also entitled to receive up to $800 million in TruPS® held by the FDIC that the FDIC is required to turn over to Treasury unless it incurs any losses on debt of Citigroup guaranteed by the FDIC under the Temporary Liquidity Guarantee Program.

Morgan Stanley will act as bookrunning manager for this offering. 

A preliminary prospectus supplement relating to the offering was filed with the SEC on December 6, 2010.

December 6, 2010 in News Stories | Permalink | Comments (1) | TrackBack (0)

SEC & CFTC Staff Schedule Roundtable on Capital and Margin Requirements for Swap Participants

Staff from the CFTC and the SEC will hold a public roundtable on Dec. 10, 2010, to discuss issues related to capital and margin requirements for swap dealers, security-based swap dealers, major swap participants, and major security-based swap participants. The roundtable will assist the agencies in the rulemaking process to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The agenda is posted at the SEC's website.

December 6, 2010 in SEC Action | Permalink | Comments (0) | TrackBack (0)

House Financial Services Committee Schedules Hearing on Reg A

The House Financial Services Committee will hold a hearing on “A Proposal to Increase the Offering Limit under SEC Regulation A” on Wednesday, December 8, 2010.  Here is the Witness List:

Panel one
• The Honorable Anna G. Eshoo, Member of Congress

Panel two
• Mr. William R. Hambrecht, Founder, Chairman, and Chief Executive Officer, WR Hambrecht + Co.
• Mr. Michael Lempres, Assistant General Counsel and Practice Head, SVB Financial Group
• Mr. Scott Cutler, Executive Vice President and Co-Head of U.S. Listings and Cash Execution, NYSE Euronext


December 6, 2010 in News Stories | Permalink | Comments (0) | TrackBack (0)