SEC Freezes Assets of Insider Traders in Nexen Acquisition

Source- http://www.sec.gov/news/press/2012/2012-145.htm

Washington, D.C., July 27, 2012 – The Securities and Exchange Commission today obtained an emergency court order to freeze the assets of traders using trading accounts in Hong Kong and Singapore to reap more than $13 million in illegal profits by trading in advance of this week’s public announcement that China-based CNOOC Ltd. agreed to acquire Canada-based Nexen Inc.

The SEC alleges that Hong Kong-based firm Well Advantage Limited and other unknown traders stockpiled shares of Nexen stock based on confidential information about the deal in the days leading up to the announcement. Well Advantage is controlled by prominent Hong Kong businessman Zhang Zhi Rong, who also controls another company that has a “strategic cooperation agreement” with CNOOC.

The SEC took the emergency action to freeze the traders’ assets within days of the public announcement of the deal and less than 24 hours after Well Advantage placed an order to liquidate its entire position in Nexen. The SEC’s investigation continues.

“Well Advantage and these other traders engaged in an all-too-familiar pattern of misusing inside information to place extremely timely trades and profit handsomely from their illegal acts,” said Sanjay Wadhwa, Deputy Chief of the SEC Enforcement Division’s Market Abuse Unit and Associate Director of the New York Regional Office. “Despite the challenges of investigating misconduct in the U.S. by trading accounts located overseas, we have moved swiftly to freeze the assets of these suspicious traders and will hold them accountable for their actions.”

According to the SEC’s complaint filed in federal court in Manhattan, CNOOC and Nexen announced before the markets opened on Monday, July 23 that CNOOC agreed to acquire Nexen for approximately $15.1 billion. Nexen’s stock subsequently rose sharply that day to close at nearly 52 percent higher than Friday’s closing price.

The SEC alleges that Well Advantage and certain unknown traders were in possession of material nonpublic information about the impending acquisition when they purchased Nexen’s stock in the days leading up to the public announcement. Well Advantage purchased more than 830,000 shares of Nexen on July 19 and had an unrealized trading profit of more than $7 million based on Nexen’s closing price on the day of the announcement. The other unknown traders used accounts located in Singapore to purchase more than 676,000 Nexen shares in the days preceding the announcement. They immediately sold nearly all of the stock once the announcement was made for illicit profits of approximately $6 million.

The emergency court order obtained by the SEC freezes the traders’ assets valued at more than $38 million and prohibits the traders from destroying any evidence. The SEC’s complaint charges Well Advantage and the unknown traders with violating Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. In addition to the emergency relief, the Commission is seeking a final judgment ordering the traders to disgorge their ill-gotten gains with interest, pay financial penalties, and permanently bar them from future violations.

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Lyndon Lydell Parrilla Pleads Guilty to Defrauding Investors Out of More Than $5 Million

Source- http://www.fbi.gov/boston/press-releases/2012/owner-of-foreign-exchange-currency-trading-company-pleads-guilty-to-defrauding-investors-out-of-more-than-5-million

BOSTON—A Los Angeles man pleaded guilty today in federal court to charges that he defrauded investors out of more than $5 million.

Lyndon Lydell Parrilla, 32, pleaded guilty before U.S. District Court Judge George A. O’Toole, Jr., to seven counts of wire fraud and three counts of money laundering for his role in the operation of Green Tree Capital.

Had the case proceeded to trial, the government would have proven that Parrilla, through Green Tree, solicited more than $5 million from customers, purportedly for the purpose of trading in the foreign currency exchange (FOREX) market. Parrilla traded, at most, a small portion of customer funds in FOREX and instead spent most of it on personal expenses for himself and his employees. To hide this fraud, Green Tree continued to e-mail account statements to customers purporting to show trading gains and losses. In many instances, the account statements showed that customers’ accounts had gained value through successful FOREX trading. In fact, Parrilla defrauded the Green Tree customers out of almost all of the more than $5 million they entrusted to him. As part of this prosecution, the government has seized from Parrilla a Mercedes S63, which is subject to forfeiture.

Sentencing is scheduled for October 25, 2012. Parrilla faces up to 20 years in prison on the wire fraud counts and 10 years in prison on the money laundering charges, to be followed by three years of supervised release, and a $250,000 fine.

The Commodity Futures Trading Commission, which conducted a parallel civil investigation, referred the case to the United States Attorney’s Office and cooperated with criminal authorities.

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John Kinnucan Pleads Guilty in Manhattan Federal Court to Insider Trading Charges

Source- http://www.fbi.gov/newyork/press-releases/2012/oregon-based-research-consultant-pleads-guilty-in-manhattan-federal-court-to-insider-trading-charges

NEW YORK—John Kinnucan, the president of Broadband Research LLC, an investment research firm located in Portland, Oregon, pleaded guilty today to conspiracy and securities fraud charges in connection with his participation in an insider trading scheme in which Kinnucan obtained material, non-public information (inside information) about publicly traded companies and sold that information to Broadband’s clients, including hedge funds and money managers (BBR clients), announced Preet Bharara, the U.S. Attorney for the Southern District of New York. Kinnucan pleaded guilty before U.S. District Judge Deborah A. Batts.

U.S. Attorney Bharara said, “John Kinnucan engaged in an orchestrated campaign to obstruct a federal investigation into his illegal conduct, the very conduct for which he now stands convicted. Today the truth came out of his own mouth, and he admitted that he is a securities fraudster, and his attempts to obstruct justice in a repugnant and disturbing manner were ultimately fruitless. Briefly a cause célèbre, as some called him, Mr. Kinnucan is now a felon facing sentencing for his insider trading crimes.”

According to the charging documents in the case as well as statements made by Kinnucan during the plea proceedings:

From 2008 through 2010, Kinnucan obtained inside information about publicly traded companies, including quarterly revenue numbers, and sold that information to BBR Clients. The inside information came from co-conspirators who were employed at publicly traded companies, such as F5 Networks Inc., Sandisk Corporation, and Flextronics International Ltd.

In order to develop and maintain his network of public company sources, Kinnucan befriended public company employees and offered to provide some of them with consulting fees and/or other non-monetary consideration. Specifically, Kinnucan paid one of his sources approximately $27,500 for inside information and invested $25,000 in the business of another source.

After he obtained inside information from public company sources, Kinnucan provided it to BBR clients with the understanding that they would use the information to execute securities transactions. For example, in June 2010 and early July 2010, Kinnucan repeatedly sought information about F5’s quarterly financial results for the quarter ending on June 30, 2010, from an F5 employee. In a telephone call on the morning of July 2, 2010, Kinnucan informed the F5 employee that the guidance F5 previously provided to the investment community for the quarter which ended June 30, 2012, was $220 million. The F5 employee then told Kinnucan that the unadjusted revenue number was actually $232 million, confirming that F5 would beat Wall Street’s consensus estimates. Within minutes of the July 2, 2010 conversation with the F5 employee, Kinnucan called numerous BBR clients to provide them with the information. After receiving the F5 inside information from Kinnucan, at least two BBR Clients executed securities transactions in F5 based, in whole or in part, on Kinnucan’s inside information, earning profits and avoiding losses of more than $1.5 million.

In order to attract and retain BBR clients, and in an effort to hide the true identity of his public company sources, Kinnucan lied to existing and prospective BBR clients about the sources of his inside information, including by falsely stating that none of his sources was employed at public companies and that he did not pay his sources.

In an effort to obstruct the ongoing federal criminal investigation, from December 2011 through February 2012, Kinnucan made nearly 25 threatening telephone calls to prosecutors and agents responsible for the investigation of his unlawful activities. In these telephone calls, Kinnucan made repeated references to genocide, sexual and other forms of violence and threatened physical harm to one of the prosecutors handling this matter. He also made multiple telephone calls to one cooperating witness and attempted to contact another in an effort to intimidate and harass them.

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Ward Onsa was Sentenced to 78 Months for Operating a Multi-Million-Dollar Ponzi Scheme

Source- http://www.fbi.gov/newyork/press-releases/2012/hedge-fund-portfolio-manager-sentenced-to-78-months-for-operating-a-multi-million-dollar-ponzi-scheme

BROOKLYN—A hedge fund manager was sentenced today in Brooklyn federal court to serve 78 months in prison for running a Ponzi scheme. Ward Onsa, 60, of Naples, Florida, the manager of New Century Hedge Fund Partners LP, was sentenced by U.S. District Judge Dora L. Irizarry. Onsa pleaded guilty in December 2011 to operating the scheme, which resulted in losses to investors of over $3 million dollars. The court also ordered restitution to be paid to the defendant’s victims.

The sentence was announced by Loretta E. Lynch, U.S. Attorney for the Eastern District of New York.

According to court documents, the defendant operated Ward Onsa & Company, as an investment manager, until 2005, when a series of trading losses and default judgments bankrupted the entity. Onsa then organized the New Century Hedge Fund and, between 2005 and 2010, solicited and received over $5 million in investor funds, primarily from individual retirement accounts. Onsa told the New Century investors that their money would be used to purchase securities, futures contracts, and options designed to profit when the Dow Jones Industrial Average reached 10,748. Onsa’s trading theory was that the market would not go above this level. As the market surged past the 10,748 level, however, the investments that the defendant made with the New Century investors’ retirement money plummeted in value.

The defendant also funneled money from New Century to himself and his earlier Ward Onsa & Company investors. Instead of disclosing the trading losses or the payments to Ward Onsa & Company investors, Onsa issued fake account statements to his investors falsely claiming consistent and steady earnings in the market. The defendant continued to solicit additional money from New Century investors through 2010 and used that new money to pay back the losses of the earlier Ward Onsa & Company investors.

U.S. Attorney Lynch extended her grateful appreciation to the FBI, the lead agency in government’s criminal investigation.

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SEC Charges Ronald Feldstein for Role in Facilitating Fake Investment in Penny Stock Company

Source- http://www.sec.gov/news/press/2012/2012-144.htm

Washington, D.C., July 25, 2012 — The Securities and Exchange Commission today charged a New York man for his role in a scheme to disseminate news of a fake investment to boost a struggling penny stock company.

The SEC alleges that Ronald Feldstein pretended to be the president of a private company, LED Capital Corp., and entered into an investment agreement with penny stock issuer Interlink-US-Network Ltd. Feldstein in fact held no such position at LED Capital Corp. and was merely being paid by Interlink’s management to play the role of a purported Interlink investor so they could spread news of a much-needed capital infusion. Feldstein then helped Interlink disseminate the false information in an SEC filing.

The SEC charged Interlink last year as part of a complaint against several perpetrators of an alleged green product-themed Ponzi scheme.

“Feldstein was nothing more than a fake president for hire who schemed with a public company to tout news of a sham investment and deceive investors,” said Andrew M. Calamari, Acting Regional Director of the SEC’s New York Regional Office.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Feldstein purportedly committed LED Capital Corp. – which in reality had no operations or assets – to pay $6 million for a minority block of Interlink shares that had an actual market value of less than $1.2 million. Although Feldstein knew the actual owner of LED Capital Corp., he concealed the purported contract committing his company to pay more than a 500 percent premium for a minority block of shares in a penny stock company that had liabilities far exceeding its assets. When SEC investigators spoke with the actual owner, he testified that he has been the sole officer-stockholder of LED Capital Corp. and never had any knowledge of the purported agreement. He testified that Feldstein had no authority or permission to act on behalf of the company, which he said doesn’t and likely never would have $6 million available to it. For his performance as the phony president of LED Capital Corp., Interlink awarded Feldstein shares of its common stock that had a market value of more than $400,000.

The SEC alleges that when Interlink sought to inform the stock market of the remarkable investment, Feldstein offered crucial assistance in developing the substance of a Form 8-K filing with the SEC to disclose the purported agreement. After Interlink’s CFO e-mailed Feldstein a draft Form 8-K for his review, Feldstein responded “Not good” and thereafter discussed the contents with Interlink’s CFO. Based on Feldstein’s comments, the agreement was instead called a “memorandum of understanding.” Feldstein then separately signed a memorandum of understanding on behalf of “LED Capital LLC” – a company similar in name to LED Capital Corp. but that does not actually exist. On Dec. 14, 2010, Interlink filed with the SEC the version of the Form 8-K that reflected Feldstein’s input.

The SEC’s complaint charges Feldstein with aiding and abetting violations by Interlink and its President of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder as well as violations by Interlink of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-11 thereunder. The Commission seeks injunctions from future violations of these provisions, disgorgement of ill-gotten gains, and a monetary penalty.

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SEC Charges Ladislav “Larry” Schvacho with Insider Trading Around Acquisition

Source- http://www.sec.gov/news/press/2012/2012-143.htm

Washington, D.C., July 25, 2012 — The Securities and Exchange Commission has charged the close friend of a CEO with insider trading in the stock of a Houston-based employment services company by exploiting confidential information he learned while they were spending time together.

The SEC alleges that Ladislav “Larry” Schvacho, who lived in Georgia at the time of his illegal trading, made approximately $511,000 in illicit profits by using inside information to trade around the acquisition of Comsys IT Partners Inc. by another staffing company. Schvacho gleaned nonpublic information while the Comsys CEO called other Comsys executives to discuss the acquisition and through confidential, merger-related documents to which Schvacho had access.

“As a result of Schvacho’s time with the CEO, he learned nonpublic details and stockpiled Comsys shares until it became by far the largest stock investment that he’d ever made into a single company,” said William P. Hicks, Associate Regional Director of the SEC’s Atlanta Regional Office. “The Comsys CEO confided in Schvacho, who exploited that trust and stole information for a half-million-dollar payday.”

According to the SEC’s complaint filed late yesterday in U.S. District Court for the Northern District of Georgia, Schvacho first met Larry L. Enterline when they worked for the same company in the 1970s. Enterline went on to become the Comsys CEO in 2006. The two maintained their close friendship even after Enterline moved to Houston to run Comsys, speaking frequently on the phone and maintaining a longstanding tradition of Friday evening dinner and drinks when Enterline visited Atlanta, where he still had a home. The two often shared confidential information with one another.

The SEC alleges that Schvacho purchased approximately 72,000 shares of Comsys stock in the weeks leading up to a public announcement on Feb. 2, 2010, that Comsys was to be acquired by Manpower Inc. Given their close relationship and long history of sharing confidences, Enterline made no significant effort to shield information about the impending acquisition from Schvacho. Rather, Enterline reasonably expected that Schvacho would refrain from disclosing or otherwise misusing the confidential information. For example, during one of their Friday evening dinners at a restaurant in Atlanta on Nov. 6, 2009, Enterline discussed the potential acquisition in Schvacho’s presence during phone conversations with one or more Comsys senior executives. On the very next business day (November 9), Schvacho began purchasing Comsys stock relying on the material, nonpublic information he learned.

The SEC further alleges that Schvacho learned nonpublic information between December 11 and December 14 while he and Enterline vacationed together in Florida. Enterline again discussed the possible acquisition in Schvacho’s presence during a phone conversation with another Comsys senior executive. During that vacation, Schvacho also had access to Enterline’s merger-related documents. Just days later, Schvacho bought additional Comsys stock. On December 19, Enterline again discussed the impending acquisition in Schvacho’s presence during a phone conversation after Schvacho picked him up from the airport. On the next business day, Schvacho purchased additional Comsys shares.

According to the SEC’s complaint, on or about January 20, Schvacho converted his 401(k) account to create a self-directed account so that he could buy even more Comsys shares based on material, nonpublic information about the deal. In order to purchase his large position in Comsys stock, Schvacho undertook other various unusual steps including using all available cash in his brokerage accounts to purchase Comsys shares. The Comsys stock price increased approximately 31 percent following the public announcement on February 2. Schvacho immediately sold half of his Comsys shares after the announcement was made.

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Investment Advisor Robert G. Bard Indicted for $3 Million Fraud Scheme

Source- http://www.fbi.gov/philadelphia/press-releases/2012/pennsylvania-investment-advisor-indicted-for-3-million-fraud-scheme

The United States Attorney’s Office for the Middle District of Pennsylvania announced that an indictment charging Robert G. Bard, of Warfordsburg, Fulton County, Pennsylvania, was unsealed today following his arrest.

Bard was indicted by the federal grand jury in Harrisburg, on Wednesday, in a 21-count Indictment charging one count of securities fraud, 14 counts of wire fraud, three counts of mail fraud, one count of bank fraud, one count of investment advisor fraud, and one count of making false statements to the FBI.

Bard was arrested today and before a federal magistrate judge in Harrisburg for his initial appearance in court. Bard faces up to 20 years’ imprisonment on the securities fraud charge, up to 20 years’ imprisonment on the wire and mail fraud charges, up to 30 years’ imprisonment on the bank fraud charge, and up to five years’ imprisonment on the investment advisor fraud and false statements charge, as well as substantial fines and penalties if convicted.

According to U.S. Attorney Peter J. Smith, Bard allegedly operated Vision Specialist Group (VSG), a registered investment advisor in Pennsylvania and West Virginia, between December 2004 and August 2009. On July 30, 2009, the Securities and Exchange Commission (SEC) filed a civil complaint against Bard and VSG, and the U.S. District Court for the Middle District of Pennsylvania issued a preliminary injunction against Bard and VSG on August 11, 2009.

In November 2011, the U.S. District Court determined that Bard and VSG violated securities laws and issued a permanent injunction. In February 2012, the court determined that Bard was liable for a civil penalty of $2.5 million, as well as disgorgement of $450,000 in profits that resulted from his fraud.

The indictment alleges that Bard, through VSG, defrauded at least 43 investors of over $3 million by materially misrepresenting and failing to fully disclose the types of investments he made for them and fabricating the performance of their accounts. Bard allegedly created false account statements to conceal millions of dollars in losses his clients sustained as a result of risky and speculative investments he made in penny stocks and other volatile securities.

Bard also allegedly failed to advise his clients that he was terminated from his prior employment as a stock broker for forging customer signatures or that he filed for bankruptcy in July 2005. Rather, he allegedly told clients that he was a deeply religious man who had 18 years of financial success and that they could trust him with their life savings.

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SEC Charges Mizuho Securities USA with Misleading Investors by Obtaining False Credit Ratings for CDO

Source- http://www.sec.gov/news/press/2012/2012-139.htm

Washington, D.C., July 18, 2012 — The Securities and Exchange Commission today charged the U.S. investment banking subsidiary of Japan-based Mizuho Financial Group and three former employees with misleading investors in a collateralized debt obligation (CDO) by using “dummy assets” to inflate the deal’s credit ratings. The SEC also charged the firm that served as the deal’s collateral manager and the person who was its portfolio manager.

According to the SEC’s complaint against Mizuho Securities USA Inc., the firm made approximately $10 million in structuring and marketing fees in the deal. Mizuho agreed to pay $127.5 million to settle the SEC’s charges, and the others charged also agreed to settle the SEC’s actions against them.

The SEC alleges that Mizuho structured and marketed Delphinus CDO 2007-1, a CDO that was backed by subprime bonds at a time when the housing market was showing signs of severe distress. The deal was contingent upon Mizuho obtaining credit ratings it used to market the notes to investors. When its employees realized that Delphinus could not meet one rating agency’s newly announced criteria intended to protect CDO investors from the uncertainty of ratings downgrades, they submitted to the rating firm a portfolio containing millions of dollars in dummy assets that inaccurately reflected the collateral held by Delphinus. Once the firm rated the inaccurate portfolio, Mizuho closed the transaction and sold the notes to investors using the misleading ratings. Delphinus defaulted in 2008 and eventually was liquidated in 2010. Mizuho sustained substantial losses from Delphinus.

“This case demonstrates once again that bankers and market participants who embrace a ‘get the deal done at all costs’ strategy will be identified, charged, and punished,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This is a constant theme throughout the many SEC enforcement actions arising out of the financial crisis, and is one that everyone involved in securities transactions and our financial markets would be well-advised to respect.”

Kenneth Lench, Chief of the SEC’s Enforcement Division’s Structured and New Products Unit, added, “Mizuho and its employees undermined the integrity of the rating process by furnishing inaccurate information about the Delphinus portfolio. Investors expect and are entitled to receive legitimate ratings in order to help them assess their investments.”

According to the SEC’s settled administrative proceedings against the three former Mizuho employees responsible for the Delphinus deal, Alexander Rekeda headed the group that structured the $1.6 billion CDO, Xavier Capdepon modeled the transaction for the rating agencies, and Gwen Snorteland was the transaction manager responsible for structuring and closing Delphinus. Delaware Asset Advisers (DAA) served as Delphinus’s collateral manager and the DAA portfolio manager was Wei (Alex) Wei.

According to the SEC’s complaint against Mizuho filed in federal court in Manhattan, all of the collateral assets for Delphinus had been purchased by July 17, 2007, and the transaction was scheduled to close on July 19. However, around noon on July 18, Standard & Poor’s (S&P) issued a press release announcing changes to its CDO rating criteria requiring certain categories of subprime residential mortgage-backed securities (RMBS) to be adjusted downward for purposes of calculating their default probability. The Mizuho employees knew that Delphinus’s actual portfolio contained a substantial amount of RMBS that were subject to the downward ratings, and that Delphinus, as constructed, could not meet its rating targets under these tougher standards. To enable Delphinus to close anyway, the Mizuho employees e-mailed multiple alternative portfolios to S&P that contained dummy assets that were superior in credit quality to the assets that had been actually acquired for the CDO. Once the necessary ratings were secured by the use of dummy assets, the Delphinus transaction closed by mid-afternoon on July 19 and securities were sold based upon these higher ratings. Investors were thus misled to believe that the Delphinus notes had achieved the advertised ratings that the actual closing portfolio would not support.

According to the SEC’s complaint, in connection with Delphinus’s subsequent request for a required rating confirmation from S&P, Mizuho employees provided and arranged for others to provide further inaccurate information about the composition of Delphinus’s assets. Primarily, they misrepresented that Delphinus’s effective date was August 6 rather than July 19. S&P then provided Delphinus with the ratings confirmation using the improper effective date of August 6.

Everyone charged by the SEC agreed to settlements without admitting or denying the charges. Mizuho consented to the entry of a final judgment requiring payment of $10 million in disgorgement, $2.5 million in prejudgment interest, and a $115 million penalty. The settlement, which requires court approval, also permanently enjoins Mizuho from violating Sections 17(a)(2) and (3) of the Securities Act.

In the related administrative proceedings against Rekeda, Capdepon, and Snorteland, the SEC found that Rekeda violated Sections 17(a)(2) and (3) of the Securities Act, and Capdepon and Snorteland violated Section 17(a). Rekeda and Capdepon each agreed to pay a $125,000 penalty while the decision on whether there will be a penalty for Snorteland will be decided at a later date. Rekeda agreed to be suspended from the securities industry for 12 months, Capdepon and Snorteland each agreed to be barred from the securities industry for one year, and all three agreed to cease and desist from further violations of the respective sections of the Securities Act they violated.

The SEC instituted settled administrative proceedings against DAA and Wei based on their post-closing conduct. DAA consented to the entry of an order requiring the firm to pay disgorgement of $2,228,372, prejudgment interest of $357,776, and a penalty of $2,228,372. Wei consented to the entry of an order requiring him to pay a $50,000 penalty and suspending him from associating with any investment adviser for six months. Both DAA and Wei consented to cease and desist from violating Section 17(a)(2) and (3) of the Securities Act and Section 206(2) of the Advisers Act.

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SEC Charges Manouchehr Moshayedi With Insider Trading in Secondary Offering of Company Stock

Source- http://www.sec.gov/news/press/2012/2012-141.htm

Washington, D.C., July 19, 2012 – The Securities and Exchange Commission today charged the chairman and CEO of a Santa Ana, Calif.-based computer storage device company with insider trading in a secondary offering of his stock shares with knowledge of confidential information that a major customer’s demand for one of its most profitable products was turning out to be less than expected.

The SEC alleges that Manouchehr Moshayedi sought to take advantage of a dramatically upward trend in the stock price of STEC Inc. by deciding to sell a significant portion of his stock holdings as well as shares owned by his brother, a company co-founder. The secondary offering was set to coincide with the release of the company’s financial results for the second quarter of 2009 and its revenue guidance for the third quarter. However, in the days leading up to the secondary offering, Moshayedi learned critical nonpublic information that was likely to have a detrimental impact on the stock price. Moshayedi did not call off the offering and abstain from selling his shares once he possessed the negative information unbeknownst to the investing public. Instead, he engaged in a fraudulent scheme to hide the truth through a secret side deal, and proceeded with the sale of 9 million shares from which he and his brother reaped gross proceeds of approximately $134 million each.

“Moshayedi put his own self-interest ahead of his responsibility to lead a public company, and shareholders who placed their trust in him suffered as a result,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. “Company insiders are strictly prohibited under the securities laws from exploiting corporate dealings for private gain, particularly in the secretive and manipulative manner that Moshayedi did.”

According to the SEC’s complaint filed in U.S. District Court for the Central District of California, STEC’s stock price increased more than 800 percent from January to August 2009 as the company reported higher revenues, sales, and margins for its products, particularly its flagship flash memory product called “ZeusIOPS,” a solid state drive (SSD). The stock rise also came on the heels of STEC’s July 2009 announcement of a unique agreement with its largest customer, EMC Corporation, which agreed to buy $120 million worth of ZeusIOPS in the third and fourth quarter of 2009. Moshayedi touted the sales growth of ZeusIOPS and said the agreement with EMC was “part of the expected growth” for STEC going forward.

The SEC alleges that as the Aug. 3, 2009 date for the secondary offering approached, Moshayedi learned in the course of his CEO duties two critical pieces of nonpublic information indicating that EMC’s actual demand for the ZeusIOPS was lower than previously expected. First, Moshayedi learned that EMC’s actual demand for the ZeusIOPS product in the third quarter would only be approximately $34 million – not nearly enough to ensure that STEC’s third quarter revenue guidance could meet or exceed consensus analyst estimates. Analysts had increased STEC’s revenue guidance estimates for the third quarter after STEC announced the agreement with EMC. Second, EMC informed Moshayedi that it would never again enter into a similar agreement with STEC.

According to the SEC’s complaint, Moshayedi responded by entering into a secret side deal with EMC in order to meet third quarter consensus revenue estimates. Moshayedi convinced EMC on July 29 to take $55 million of ZeusIOPS product in the third quarter – far more than it actually needed – in exchange for an undisclosed additional $2 million price discount on the product in the fourth quarter. After securing this deal, STEC announced the orchestrated guidance figures that amounted to approximately $21 million more than EMC’s actual forecasted demand for the quarter. And even though EMC unequivocally informed Moshayedi on the morning of August 3 that it would not make further volume commitments, he withheld this critical information from investors prior to his secondary offering while at the same time touting in public documents the future growth of the ZeusIOPS product and the importance of the STEC-EMC $120 million agreement.

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Anil Kumar Sentenced in Manhattan Federal Court for Illegal Insider Trading

Source- http://www.fbi.gov/newyork/press-releases/2012/former-mckinsey-senior-partner-anil-kumar-sentenced-in-manhattan-federal-court-for-illegal-insider-trading

Preet Bharara, the United States Attorney for the Southern District of New York, announced that Anil Kumar, a former senior partner at McKinsey & Company (“McKinsey”), was sentenced today to two years of probation and ordered to forfeit $2,260,000 for his participation in an insider trading scheme in which he provided material, non-public information (“inside information”) stolen from McKinsey and its clients to Raj Rajaratnam, the head of Galleon Group (“Galleon”), who then traded based, in part, on the inside information. Kumar pled guilty in January 2010 to one count of conspiracy to commit securities fraud and one count of securities fraud. He was sentenced today in Manhattan federal court by U.S. Circuit Judge Denny Chin.

According to the information, statements made during Kumar’s guilty plea proceeding, and Kumar’s testimony during the criminal trials of Rajaratnam and Rajat Gupta, the former chairman of McKinsey and former member of the board of directors of Goldman Sachs and Procter & Gamble:

From 2004 through 2009, Kumar provided inside information relating to corporate transactions, revenue, and other financial information of McKinsey’s clients to Rajaratnam in anticipation that Rajaratnam would trade based, in part, on that information. Upon receipt of the inside information from Kumar, Rajaratnam executed and caused others to execute securities trades. In return for the inside information, Rajaratnam paid Kumar nearly $2 million. By providing the inside information to Rajaratnam, Kumar violated his fiduciary and other duties of confidentiality to McKinsey and its clients.

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Jon R. Latorella was Sentenced to Five Years in Prison for Conspiring to Commit Securities Fraud and Other Crimes

Source- http://www.fbi.gov/boston/press-releases/2012/former-ceo-of-beverly-company-sentenced-to-five-years-in-prison-for-conspiring-to-commit-securities-fraud-and-other-crimes-1

BOSTON—A Marblehead man was sentenced yesterday in federal court for conspiring to commit securities fraud, defraud company auditors, make false statements in filings with the U.S. Securities and Exchange Commission (SEC), and commit aggravated identity theft.

Jon R. Latorella, 48, was sentenced by U.S. District Judge Douglas P. Woodlock to five years in prison, to be followed by three years of supervised release and the payment of restitution to his victims. Latorella pleaded guilty on March 5, 2012.

Had the case proceeded to trial, the government’s evidence would have proven that, starting in about 2001, Latorella, the former president and CEO of Locateplus Holdings Corporation, and another man who worked at Locateplus, pursued several fraudulent schemes to artificially inflate the company’s assets and revenues, including:

Fabricating a loan transaction with a fake company called Andover Secure Resources, which included using the identity of a man who died in 1985 as the head of Andover and manipulating funds to create the appearance that Andover was paying down a fictitious debt to Locateplus;

Falsifying revenue streams to make it appear that another entity, Omni Data Services, was paying Locateplus under the terms of a contract, when, in fact, Omni Data had no independent existence and the contract was fake;

Deceiving the SEC and other regulatory authorities to avoid registering securities being sold by a company called Paradigm Tactical Products, including using the identities of Latorella’s acquaintances, girlfriends, and two dead men as Paradigm investors;

Routinely deceiving company auditors and the SEC about the nature of Locateplus’s revenues and assets in order to keep these fraudulent schemes going and to attract investment in Locateplus.

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Short Selling Brothers Jeffrey A. Wolfson and Robert A. Wolfson Agree to Pay $14.5 Million to Settle SEC Charges

Source-  http://www.sec.gov/news/press/2012/2012-137.htm 

Washington, D.C., July 17, 2012 – The Securities and Exchange Commission today announced that two options traders who the agency charged earlier this year with short selling violations have agreed to pay more than $14.5 million to settle the case against them.

An SEC investigation found that brothers Jeffrey A. Wolfson and Robert A. Wolfson engaged in naked short selling by failing to locate shares involved in short sales and failing to close out the resulting failures to deliver. SEC rules require short sellers to locate shares to borrow before selling them short, and they must purchase securities to close out their failures to deliver by a specified date. The Wolfsons made approximately $9.5 million in illegal profits from their naked short selling transactions.

Additional Materials
Order as to Robert A. Wolfson and Golden Anchor Trading II, LLC
Order as to Jeffrey A. Wolfson

“The Wolfsons attempted to game short-selling restrictions in order to win millions of dollars in illegal profits. This settlement deprives them of those profits and more,” said Andrew M. Calamari, Acting Director of the SEC’s New York Regional Office.

According to the SEC’s orders settling the administrative proceedings against the Wolfsons, they made illegal naked short sales from July 2006 to July 2007. Jeffrey Wolfson, who lives in the Chicago area, conducted illegal naked short sales while working as a broker-dealer himself and later as the principal trader at a Chicago-based brokerage firm that is no longer in business. Robert Wolfson, who lives in Massachusetts, conducted illegal naked short sales while trading in an account at New York-based broker-dealer Golden Anchor Trading II LLC, which also was charged by the SEC and agreed to the settlement. Jeffrey Wolfson generated approximately $8.8 million in net illicit trading profits, and Robert Wolfson and Golden Anchor made more than $700,000.

The Wolfsons and Golden Anchor settled the SEC’s administrative proceedings without admitting or denying the findings. Jeffrey Wolfson is required to pay $13.425 million, which includes a $2.5 million penalty in addition to disgorgement and prejudgment interest. Robert Wolfson and Golden Anchor are required to collectively pay $1.1 million in disgorgement, prejudgment interest, and penalties. Jeffrey Wolfson is suspended from working in the securities industry for 12 months, and Robert Wolfson is suspended for four months. Golden Anchor has been censured, and along with the Wolfsons is subject to a cease and desist order from committing or causing violations of the short sale rules they violated.

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SEC Charges Orthofix International With FCPA Violations

Source- http://www.sec.gov/news/press/2012/2012-133.htm

Washington, D.C., July 10, 2012 – The Securities and Exchange Commission today charged Texas-based medical device company Orthofix International N.V. with violating the Foreign Corrupt Practices Act (FCPA) when a subsidiary paid routine bribes referred to as “chocolates” to Mexican officials in order to obtain lucrative sales contracts with government hospitals.

The SEC alleges that Orthofix’s Mexican subsidiary Promeca S.A. de C.V. bribed officials at Mexico’s government-owned health care and social services institution Instituto Mexicano del Seguro Social (IMSS). The “chocolates” came in the form of cash, laptop computers, televisions, and appliances that were provided directly to Mexican government officials or indirectly through front companies that the officials owned. The bribery scheme lasted for several years and yielded nearly $5 million in illegal profits for the Orthofix subsidiary.

Orthofix agreed to pay $5.2 million to settle the SEC's charges.

“Once bribery has been likened to a box of chocolates, you know a corruptive culture has permeated your business,” said Kara Novaco Brockmeyer, Chief of the SEC Enforcement Division’s Foreign Corrupt Practices Act Unit. “Orthofix’s lax oversight allowed its subsidiary to illicitly spend more than $300,000 to sweeten the deals with Mexican officials.”

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of Texas, the bribes began in 2003 and continued until 2010. Initially, Promeca falsely recorded the bribes as cash advances and falsified its invoices to support the expenditures. Later, when the bribes got much larger, Promeca falsely recorded them as promotional and training costs. Because of the bribery scheme, Promeca’s training and promotional expenses were significantly over budget. Orthofix did launch an inquiry into these expenses, but did very little to investigate or diminish the excessive spending. Later, upon discovery of the bribe payments through a Promeca executive, Orthofix immediately self-reported the matter to the SEC and implemented significant remedial measures. The company terminated the Promeca executives who orchestrated the bribery scheme.

The SEC's proposed settlement is subject to court approval. Orthofix consented to a final judgment ordering it to pay $4,983,644 in disgorgement and more than $242,000 in prejudgment interest. The final judgment would permanently enjoined the company from violating the books and records and internal controls provisions of the FCPA. Orthofix also agreed to certain undertakings, including monitoring its FCPA compliance program and reporting back to the SEC for a two-year period.

Orthofix also disclosed today in an 8-K filing that it has reached an agreement with the U.S. Department of Justice to pay a $2.22 million penalty in a related action.

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SEC Charges Five Physicians With Insider Trading in Stock of Medical Professional Liability Insurer

Source- http://www.sec.gov/news/press/2012/2012-132.htm

Washington, D.C., July 10, 2012 – The Securities and Exchange Commission today charged five physicians with insider trading in the securities of an East Lansing, Mich.-based holding company for a medical professional liability insurer.

The SEC alleges that Apparao Mukkamala learned confidential information from board meetings and other communications about the anticipated acquisition of American Physicians Capital Inc. (ACAP) by another insurance company. Mukkamala in turn shared the nonpublic information with fellow physicians and friends Suresh Anne, Jitendra Prasad Katneni and Rao A.K. Yalamanchili as well as his brother-in-law Mallikarjunarao Anne. The five physicians each purchased ACAP stock based on confidential information about the impending sale in the months leading up to a public announcement. Collectively, they made more than $623,000 in illegal profits on their ACAP stock following the announcement.

The physicians agreed to pay a combined total of more than $1.9 million to settle the SEC’s charges.

“These physicians made numerous purchases of ACAP shares that were detected as highly unusual when compared to their past trading patterns,” said Robert J. Burson, Senior Associate Regional Director of the SEC’s Chicago office. “Board chairmen and other insiders should never choose greed over duty when possessing confidential information about the companies they serve.”

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of Michigan’s Southern Division, Mukkamala is a resident of Grand Blanc, Mich., and served as a member of ACAP’s board since its formation in July 2000. He became its chairman in May 2007. At a meeting on March 12, 2010, ACAP’s board confidentially discussed whether it should consider a potential sale of ACAP and instructed company management to evaluate whether or not to continue as an independent, stand-alone company.

The SEC alleges that as ACAP’s board and management continued undertaking definite steps toward a sale, Mukkamala routinely disclosed material nonpublic information along the way to the other four physicians. Between April 30 and July 7, 2010, they illegally purchased nearly $2.2 million of ACAP stock based on the confidential information that Mukkamala shared. Mukkamala himself made a trade in the trading account of Chinmaya Mission West, a charitable organization for which he was then serving as president. On July 8, the acquisition of ACAP by Napa, Calif.-based insurer The Doctors Company was publicly announced, and ACAP shares closed approximately 28 percent higher than the previous day’s closing price.

Without admitting or denying the allegations in the SEC’s complaint, the five physicians consented to the entry of final judgments ordering them to pay disgorgement, prejudgment interest, and financial penalties, and permanently enjoining them from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Mukkamala further agreed to be barred from acting as an officer or director of a public company.

Specifically, Mukkamala agreed to pay approximately $631,000. Mallikarjunarao Anne, a resident of Chicago, agreed to pay approximately $253,000. Suresh Anne, a resident of Grand Blanc, Mich., agreed to pay approximately $697,000. Katneni, a resident of Fenton, Mich., agreed to pay approximately $22,000. Yalamanchili, a resident of Staten Island, N.Y., agreed to pay approximately $298,000. The proposed settlement is subject to court approval.

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Brendan Coughlin and Henry Harrison Were Indicted in $485 Million Investment Fraud Scheme in East Texas

Source-  http://www.fbi.gov/dallas/press-releases/2012/dallas-men-indicted-in-485-million-investment-fraud-scheme-in-east-texas 
PLANO, TX—Two Dallas men have been indicted in connection with a $485 million investment fraud scheme in the Eastern District of Texas, announced U.S. Attorney John M. Bales today.

Brendan Coughlin, 46, and Henry Harrison, 47, both of Dallas, have been charged with one count of conspiracy to commit mail fraud and 10 counts of mail fraud. The indictment was returned by a federal grand jury on July 11, 2012.

According to the indictment, Coughlin and Harrison, on behalf of Provident Royalties LLC, conspired with others to defraud investors in an oil and gas scheme that involved over $485 million and 7,700 investors throughout the United States. Specifically, beginning in approximately September 2006, Coughlin, Harrison, and other individuals made materially false representations and failed to disclose material facts to their investors in order to induce the investors into providing payments to Provident. Among these false representations were statements that funds invested would be used only for the oil and gas project for which those funds were raised; among the omissions of material fact were the facts that another of Provident founders, Joseph Blimline, had received millions of dollars of unsecured loans; that Blimline had been previously charged with securities fraud violations by the state of Michigan; and that funds from investors in later oil and gas projects were being used to pay individuals who invested in earlier oil and projects.

If convicted, Coughlin and Harrison face up to 20 years in federal prison.

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