Federal Securities Law Blog : Federal Securities Lawyer & Attorney : Porter Wright Law Firm : Securities Exchange Law : Serving Ohio, Washington DC, Florida

Regulation FD requires companies to disseminate material information about itself in a manner reasonably designed to reach the general public broadly and non-selectively.  By utilizing social media as a means to receive questions, Zillow is further advancing the use of social media in corporate communications.  As we wrote before, companies should tread carefully with regard to social media usage.

As an affiliate of SAC Capital, one of the nation's largest investment firms, the ongoing investigation of CR Intrinsic was highly publicized.  There were speculations that the investigation's true target was SAC Capital CEO Steve Cohen. SAC was eventually named as a relief defendant in the case, putting them on the hook directly to pay back profits earned from the scheme. 

The settlement, which requires $274 million in disgorged profits, another $274 million as a penalty, and $52 million in interest, dwarfs the SEC’s previous high-water mark for insider trading, the $157 million paid by Raj Rajaratnam.  Another SAC affiliate, Sigma Capital, settled insider trading charges earlier in the week for $14 million, bringing the total fine levied on the SAC group to $616 million.   For more, The Economist's blog wonders about the wider implications. 

Oppenheimer & Co. Fund Managers Charged With False Valuations

Two investment advisers of Oppenheimer & Co. were charged with false representations in connection with private equity funds they manage. On quarterly reports, the managers falsely used their own internal valuations to claim that their largest holding had seen improved underlying performance.  Oppenheimer agreed to settle the claims for over $740,000 in penalties, and returned $2.3 million to investors. 

Redondo Beach, California Real Estate “Ponzi-like” Scheme Charged, Assets Frozen

The SEC charged Alvin R. Brown with running a Ponzi-like scheme focused on senior citizen investors, claiming high returns for investments in real estate and rental properties in California and other western states. Brown used new investments to make payments to previous investors and withdrew cash for personal use. The investment’s website featured the seals of various financial and regulatory entities, including the SEC, NYSE, NASDAQ and the state of California, falsely implying their endorsement of the investment. The full, very colorful complaint is worth a read.

Twin British Brothers Settle Charges of Penny Stock “Pump-and-Dump”

Alexander and Thomas Hunter, twin brothers from Great Britain, settled charges this week of developing and disseminating software advertised as a “stock-picking robot” that analyzed market data and suggested stocks to subscribers. The twins developed the first version of the software at the age of 16. The brothers then marketed to penny stock promoters, who paid them to rig the software and promote their penny stocks. They settled for $175,000 in penalties. 

California Lawyer Charged For Fraudulent “Opinion Mill”     

The SEC charged Brian Reiss, a lawyer in Huntington Beach, California, with fraudulently issuing legal opinions about penny stock offerings. Mr. Reiss is alleged to have set up an “opinion mill” through his website, 144letters.com, offering computer-generatedopinion letters used to justify lifting restrictions on a desired stock.  The SEC alleged that Mr. Reiss offered a “volume discount” rate for bulk orders of letters. In churning out opinion letters, Mr. Reiss allegedly made multiple false and misleading statements about various stocks.

Penny Stock Promoter Charged With Misleading Newsletter Subscribers

Colin McCabe, a Canadian stock promoter, was charged with misleading subscribers to his investment advice newsletters.  Mr. McCabe, who recommended penny stocks to subscribers through his newsletter Elite Stock Report, allegedly made false claims about the methodology of his research, failed to disclose he was being paid to promote stocks he recommended, and misrepresented the assets of one issuer he represented. The SEC said that Mr. McCabe claimed his advice was the work of a team of expert researchers, when in fact he conducted only cursory online research alone. In addition, Mr. McCabe is alleged to have accepted more than $16 million in promotion fees for stocks before recommending them to subscribers.  

Trader Using “Free-Riding” Scheme Given $640k Judgment

A district court in New Jersey entered final judgment in the SEC’s case against Scott Kupersmith. Mr. Kupersmith was charged with operating a “free-riding” scheme, quickly buying and selling stocks between two brokerage accounts without having enough securities or cash to cover the trades. The scheme netted Mr. Kupersmith $640,000 in illicit profits, which the court ordered to be disgorged. In addition, Mr. Kupersmith’s scheme caused roughly $2 million in losses to the victim broker-dealers. 

In general, any foreign company is free to list its securities on U.S. exchanges so long as it complies with the securities laws like a domestic company. But certain foreign companies can enjoy a special set of rules, some of which relax reporting and registration requirements, if they qualify as a “foreign private issuer.” The SEC’s handbook explains the basic standard for eligibility under Regulation C and Rule 3b-4, the two-pronged “shareholder test” and “business contacts test.”

The handbook also describes the benefits of qualifying as a “foreign private issuer,” including exemption from some proxy rules, exemption from the disclosure requirements of Regulation FD, and autonomy over accounting standards and reporting forms. Foreign private issuers nevertheless must report and register their securities, and the handbook outlines the individualized rules that apply. Because foreign companies may be unfamiliar with U.S. securities laws, the SEC offers the option to submit “confidential” filings that will be reviewed by the staff and returned with comments. The handbook also discusses the standard forms for foreign issuers, the process of deregistration, and exemptions for offerings made outside the U.S.

Former Stanford Financial Group Executives Sentenced to 20 Years

The last two defendants in the case against Allen Stanford’s $7.2 billion ponzi scheme were each sentenced this week to 20 years in prison. Gilbert Lopez and Mark Kuhrt, the group’s chief accountant and controller, were found guilty by a jury in a Houston federal court of wire fraud and conspiracy. Allen Stanford, the primary defendant in the case, received a 110-year prison sentence in March 2012. More from Reuters.

Trader Settles “Cherry-Picking” Charges for $7 Million

Howard Berger and his wife agreed to a consent judgment with the SEC, settling charges that Berger “cherry-picked” profits from his hedge funds. The SEC alleged that Berger had engaged in “cherry-picking,” skimming profitable trades from his hedge fund and transferring them into his wife’s brokerage account. The scheme reaped an alleged $6.8 million in profit for the couple, who settled for around $7 million.

Insider Trading: SEC Wins Judgment In Healthcare Tipping Ring

A federal court in New York awarded final judgment to the SEC in connection with their charges against three members of a tipping ring. Alexander Vorobieva, Igor Poteroba, and Aksey Koval all benefitted from information about healthcare related transactions including acquisitions and tender offers. The ring began with Poteroba, who learned of upcoming transactions in his capacity as an investment banker in UBS’ Global Healthcare Group. Poteroba then informed Koval, who tipped Vorobieva. The final entry included a judgment against Vorobieva of over $2 million. 

 SEC Wins Summary Judgment Against Matrix Holdings For Fraudulent Investment Schemes

Francis E. Wilde, his company Matrix Holdings, Inc., and other individuals were ordered to pay over $13 million after a California federal court granted the SEC’s summary judgment motion. The SEC alleged that the defendants orchestrated two fraudulent investment schemes. In one, Wilde, through Matrix Holdings, used a fraudulently obtained Treasury bond to open a line of credit and pay personal expenses, creditors, and debt holders of Matrix. In the other scheme, Wilde and the others induced investors to contribute to a “bank guarantee funding” program, stealing the investor deposits through undisclosed fees and Ponzi-style payments to old investors.

Read the SEC Release here.

Insider Trading: Former Trader Settles Charges in Connection with 3Com Corp Acquisition

Eric Rogers, former trader at Spectrum Trading LLC, has agreed to settle charges of insider trading.  Rogers was a tippee at the end of the scheme, which began when two attorneys at Ropes & Gray LLP misappropriated information about an upcoming acquisition of 3Com Corp.   Rogers’ initial penalty of over $127,000 in penalties was waived due to his personal financial condition.  

Read the SEC release here.

Insider Trading: Georgia Resident Settles Charges In Connection With Southwest-AirTran Merger

The SEC announced it has charged John Darden, a resident of Georgia, with insider trading in connection with the 2010 merger agreement between Southwest Airlines Company and Airtran Holdings, Inc.  Darden purchased 40,000 common shares of the company after learning of the merger from an AirTran board member. Darden agreed to pay approximately $330,000 in disgorged profits and civil penalties. 

Read the SEC complaint here.

Enforcement Chief Kuzami Rumored to Leave

Last week, both Bloomberg and the Wall Street Journal reported that SEC Enforcement Division director Robert Khuzami was stepping down from his post. No official announcement has been made, but if true this would be the third director to leave in the last month (with Meredith Cross, Division of Corporation Finance, and  General Counsel Mark Cahn), not to mention Chairman Mary Schapiro’s retirement.

Bloomberg: SEC Enforcement Chief Khuzami Said To Leave Agency 

Insider Trading: Rajaratnam Settles Civil Charges for $1.5 Million

Raj Rajaratnam, former CEO of Galleon Group LLC, was convicted of criminal charges in May 2011 of operating a massive insider trading scheme and sentenced to 11 years in prison. In addition, the SEC filed civil charges of insider trading. Rajaratnam agreed to pay $1.5 million to settle the civil charges. 

WSJ: Rajaratnam Pays $1.45 Million Over Gupta Insider Tips

Insider Trading: Wells Fargo Investment Banker Tips Friend

A banker at Wells Fargo was the catalyst for an insider-trading scheme resulting in more than $11 million in profits, the SEC charged this week. According to the complaint, John W. Femenia used his position at the bank to gain nonpublic, material information about various impending mergers and tipped off friends and family. The SEC alleges 10 people were involved in the scheme, as well as two companies, Coram Real Estate Holdings Inc. and GoldStar P.S. 

See the complaint here.

Insider Trading: Brazilian Settles Charges of Trading Burger King Stock

Brazilian citizen Igor Cornelsen will settle charges of insider trading in connection with the 2010 acquisition of Burger King (NYSE: BKW) by New York private equity firm 3G Capital Partners Ltd. Cornelsen obtained the nonpublic information from a fellow Brazilian working in the Miami office of Wells Fargo, who was charged with insider trading in September. Cornelsen and his previous firm, Bainbridge Group, agreed to pay over $5.1 million to settle.  

See the complaint here.

General Counsel Mark Cahn To Leave SEC

This week Mark Cahn, the General Counsel for the SEC, announced he will return to the private sector at the end of the year. Cahn, previously a partner at Wilmer Hale, served as General Counsel since February 2011.  Like Mary Schapiro, the departing SEC Chair, Mr. Cahn served during a time of intense regulatory activity in the SEC. He oversaw successful appellate defenses of SEC actions, provided advice on rulemaking, and advised the SEC on rules adopted pursuant to the Dodd-Frank reforms.

Read the SEC Press Release here.

Misleading Investors: Fund Director Failed to Disclose Fund Was Failing

Joseph Hennessy and his investment advising firm Resources Planning Group defrauded investors by failing to inform that the fund was failing. In its complaint the SEC alleges that Hennessy raised $1.3 million in funds by promising high returns and misrepresenting that the fund was viable. He then used the funds to repay promissory notes to earlier investors. Additional charges include misappropriating client funds and forging documents in order to pay past debts.

For more, read the SEC Release.

Insider Trading: Two Brokers Charged in Connection with IBM-SPSS Merger

Two Connecticut-based brokers were charged with insider trading after using nonpublic information about IBM’s purchase of SPSS Inc. According to the complaint, one broker learned of the upcoming merger from his roommate, who learned it from an attorney working on the deal. The broker then shared the information with a friend, eventually leading to more downstream tips. The two brokers purchased common stock and call options, resulting in more than $1 million in profits. The SEC investigation turned up instant messages between the two brokers where they speak openly about the scheme, saying “i don’t want to go to jail” and “this is gonna be sweet.”

For more, read the SEC Release. 

Insider Trading: Former Chief Information Officer Charged

John Pamplin Jr., the former CIO of the Atlanta-based TurboChef Technologies, Inc., was charged with trading on nonpublic information in connection with TurboChef’s merger into the Illinois-based The Middleby Corporation. Pamplin was terminated by TurboChef in 2008 but allegedly used his contacts in the company to gain nonpublic information. He then bought $100,000 worth of call options on TurboChef stock, resulting in $68,000 in profit. 

For more, read the SEC Release.

Broker-Dealer Registration: Four India-based Brokers Agree to Settle Over Violations

The SEC charged four broker-dealers based in India for providing financial services to US investors without complying the SEC registration rules. The firms - Ambit Capital Private Limited, Edelweiss Financial Services Limited, JM Financial Institutional Securities Private Limited, and Motilal Oswal Securities Limited – settled the charges for a combined $1.8 million. The firms engaged in multiple activities – including sponsoring conferences, travelling to the US to meet with clients, and trading India-based securities on behalf of US clients – that require registration with the SEC. 

For more, read the SEC Release.