Securities Law Prof Blog

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

Wednesday, January 4, 2012

SEC Charges Adviser Used Social Media to Sell Phony Securities

The SEC charged Anthony Fields, an Illinois investment adviser, with offering to sell fictitious securities on LinkedIn and issued two alerts in an agency-wide effort to highlight the risks investors and advisory firms face when using social media.  According to the SEC, Fields offered more than $500 billion in fictitious securities through various social media websites. For example, he used LinkedIn discussions to promote fictitious “bank guarantees” and “medium-term notes.” The postings resulted in interest from multiple purported potential buyers.

According to the SEC’s order instituting administrative proceedings against Fields, he made multiple fraudulent offers through his two sole proprietorships – Anthony Fields & Associates (AFA) and Platinum Securities Brokers. Fields provided false and misleading information concerning AFA’s assets under management, clients, and operational history to the public through its website and in SEC filings. Fields also failed to maintain required books and records, did not implement adequate compliance policies and procedures, and held himself out to be a broker-dealer while he was not registered with the SEC.

The SEC also issued an Investor Alert titled “Social Media and Investing: Avoiding Fraud” prepared by the Office of Investor Education and Advocacy. The alert aims to help investors be better aware of fraudulent investment schemes that use social media, and provides tips for checking the backgrounds of advisers and brokers. A new Investor Bulletin titled “Social Media and Investing: Understanding Your Accounts” contains best practices including privacy settings, security tips, and password selection aimed to help social media users protect their personal information and avoid fraud.

January 4, 2012 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Obama Appoints Cordray as CFPB Director

The White House Communications Director posted a blog this morning on the White House website explaining why President Obama moved forward on the appointment of Richard Cordray as Director of the Consumer Financial Protection Bureau:

The President nominated Mr. Cordray last summer.  Unfortunately, Republicans in the Senate blocked his confirmation.  They refused to let the Senate go forward with an up or down vote.  It’s not because Republicans think Cordray isn’t qualified for the job, they simply believe that the American public doesn’t need a watchdog at all.  Well, we disagree.

And we can’t wait for Republicans in the Senate to act.  Now, you might hear some folks across the aisle criticize this “recess appointment.” It’s probably the same folks who don’t think we need a tough consumer watchdog in the first place.  Those critics might tell you that Wall Street should write their own rules.  Or you might hear them say the American people are better off when everyone is left to fend for themselves.  Again, we disagree with those critics.

Here are the facts:  The Constitution gives the President the authority to make temporary recess appointments to fill vacant positions when the Senate is in recess, a power all recent Presidents have exercised.  The Senate has effectively been in recess for weeks, and is expected to remain in recess for weeks.  In an overt attempt to prevent the President from exercising his authority during this period, Republican Senators insisted on using a gimmick called “pro forma” sessions, which are sessions during which no Senate business is conducted and instead one or two Senators simply gavel in and out of session in a matter of seconds.  But gimmicks do not override the President’s constitutional authority to make appointments to keep the government running.  Legal experts agree.  In fact, the lawyers who advised President Bush on recess appointments wrote that the Senate cannot use sham “pro forma” sessions to prevent the President from exercising a constitutional power.

Because of the President’s leadership and decisive action, the American people will have a consumer watchdog fighting tooth and nail on their behalf.  The President knows this is a make or break moment for the middle class and he’ll continue to build an economy that’s based on the values of fairness and shared responsibility.  Today’s announcement is a critical piece to strengthen the economy and restore the economic security for the middle class and those trying to reach it.  Mr. Cordray is the right man for the job and we’re pleased he’s finally in place to continue his important work.


January 4, 2012 in News Stories, Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

SEC Charges Life Settlements Firm with Fraud

The SEC charged Life Partners Holdings Inc. and three of its senior executives for their involvement in a fraudulent disclosure and accounting scheme involving life settlements.  Life Partners is a Nasdaq-traded company that generates virtually all of its revenues from brokering life settlements.

According to the SEC, Life Partners chairman and CEO Brian Pardo, president and general counsel Scott Peden, and chief financial officer David Martin misled shareholders by failing to disclose a significant risk to Life Partners’ business: the company was systematically and materially underestimating the life expectancy estimates it used to price transactions. Life expectancy estimates are a critical factor impacting the company’s revenues and profit margins as well as the company’s ability to generate profits for its shareholders.

The SEC alleges that Life Partners and the three executives were involved in disclosure violations and improper accounting that Life Partners used to overvalue assets held on the company’s books and create the appearance of a steady stream of earnings from brokering life settlement transactions. The SEC further charged Pardo and Peden with insider trading in their shares of Life Partners stock while in possession of material, non-public information indicating that the company had systematically and materially underestimated life expectancy estimates.

In addition to the alleged violations of the antifraud and reporting provisions of the federal securities laws by Life Partners, Pardo, Peden and Martin, the SEC’s complaint also seeks repayment to the company of stock sales profits and bonuses received by Pardo and Martin pursuant to Section 304 of the Sarbanes Oxley Act of 2002.

January 4, 2012 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 3, 2012

Texas Tech Seeks Securities/M&A/Corporate Governance Visitor

Texas Tech University School of Law is looking for visiting professors.  The school's highest priority is to cover business/securities/corporate courses.  Here is the announcement:

Texas Tech University School of Law is seeking applications for one- and two-semester (full time) visitors during the 2012-13 academic year.  Anticipated curricular needs include courses in business entities, business analysis for lawyers, corporate governance, securities regulation, mergers and acquisitions, property, energy law, agricultural law, natural resources law, environmental law, employment law, employment discrimination law, civil procedure, criminal procedure, criminal law, health law, animal law, and law and science.  Applicants with full-time law school teaching experience fitting the curricular needs are especially encouraged to apply, as are women, minorities, and veterans.   Along with a resume (PDF), an applicant should e-mail a single page cover letter (PDF) identifying the two or three courses he or she is best prepared to teach.  Texas Tech University is an Affirmative Action/Equal Opportunity Employer.     Applicants should e-mail Professor Michael Hatfield c/o Michele Thaetig at with “2012-13 Faculty Visitor Application” and the two or three specific courses in the subject line.  Review of applications will begin in mid-January.

January 3, 2012 in Professional Announcements | Permalink | Comments (0) | TrackBack (0)

Atlanta Attorney Settles SEC Charges In Municipal Bond Offering

Chalmer E. Detling, II, an attorney based in Atlanta, settled SEC charges in the offer and sale of municipal bonds.  According to the SEC,  Detling made material misrepresentations and omissions in connection with the 2006 offer and sale of $2.96 million of industrial development revenue bonds. Raleigh County, West Virginia issued the bonds in October 2006 to facilitate Aiken Continental, L.L.C.’s acquisition of Continental Casket, Inc., a casket manufacturing facility located within its jurisdiction. In 2006, Detling served as counsel to Aiken Continental and its sole principal, Charles A. Aiken, for purposes of the acquisition, and simultaneously represented Aiken in an unrelated federal criminal proceeding.

According to the SEC’s complaint, Detling failed to disclose to key participants to the transaction, including the issuer, bond counsel, the underwriter, and the bondholders’ trustee, that Aiken had been indicted for financial fraud in late 2005. Detling also failed to disclose that he was in the process of negotiating a plea agreement for Aiken just before the bonds were issued in October 2006. In addition, Detling failed to disclose material information about a $200,000 loan to Aiken and Aiken Continental from a company that was partially owned by Detling, in order to facilitate the closing of the transaction. This loan required a $100,000 interest payment, and gave the lender a twenty percent equity interest in Aiken Continental if the loan plus interest was not fully repaid within six months. Detling’s failure to disclose details about Aiken’s criminal proceeding and the loan rendered certain statements in the bonds’ Official Statement materially misleading. By reviewing the Official Statement, which was distributed to investors in connection with the transaction, and failing to correct the misstatements and omissions therein, the SEC’s complaint alleges that Detling aided and abetted the violations of Aiken and Aiken Continental.

According to the SEC’s complaint, Aiken served 90 days in federal prison and 90 days of home detention in Georgia following the close of the transaction. Aiken’s six-month absence negatively affected the operations of the casket company and the Raleigh County bonds are now in default, with the entire principal amount and accrued interest due.

The SEC also filed charges against Aiken and Aiken Continental.


January 3, 2012 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Update on SEC v. Citigroup Appeal

Both Judge Rakoff and attorneys for the SEC have worked hard over the holidays! 

On Saturday I reported on Judge Rakoff's Dec. 29 supplemental order in which he expressed his displeasure with the SEC's conduct, stating that the agency, in its filing for a stay and expedited appeal, appeared to have misled both the district court and the Second Circuit as well as disregarding its professional responsibility in not citing relevant authority to the appellate court.

On December 30, the SEC responded to Judge Rakoff's charges, asserting that it has acted in good faith.  Maintaining that the district court is wrong in its conclusion that the Second Circuit lacks appellate jurisdiction to hear the case, it reasserts its position that the appellate court has jurisdiction under 28 U.S.C. 1292(a)(1).  The cases cited by Judge Rakoff are distinguishable, and therefore the SEC did not violate its professional obligation in failing to call them to the Second Circuit's attention.  In addition, according to the SEC, the Second Circuit has jurisdiction because the SEC seeks a writ of mandamus, citing the Second Circuit's 2010 decision in SEC v. Rajaratnam, 622 F.3d 159.  Moreover, the SEC did not mislead the district court when it filed for the emergency relief because it had made clear the urgency of the situation. Download Citigroup. SEC.Supplemental Memorandum12-30-11

The Second Circuit previously sent the matter to a motions panel with a January 17 deadline.  Let's see if the district court and parties plan to wait for a ruling or continue their altercation in the interim.   

January 3, 2012 in SEC Action | Permalink | Comments (0) | TrackBack (0)