SEC Fraud Actions

SEC
Photo Credit: sec.gov

The Securities and Exchange Commission (SEC) is the United States agency with primary responsibility for enforcing federal securities laws. The SEC oversees the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds. The SEC was created a few years after the market crash of 1929 through passage of the Securities Exchange Act of 1934. The SEC’s mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. The federal securities laws, and the SEC’s efforts to enforce them, focus on achieving these goals by: (1) requiring companies offering securities to the public to tell the truth about their businesses, the securities being sold, and the risks involved in investing; and (2) requiring those who sell and trade securities to treat investors fairly and honestly.

In July 2010, in response to the 2008 financial crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act. One important feature of this legislation was the establishment of the SEC whistleblower program. This program encourages those with knowledge of violations of the federal securities laws to share this information with the SEC by providing both monetary rewards and protection against retaliation by employers.

Below are summaries of the most recent enforcement actions litigated by the SEC. If you believe you have information about securities fraud, please click here to contact one of our experienced whistleblower attorneys.

July 31, 2017 - 

The Securities and Exchange Commission today filed charges against Patrick Muraca to stop an alleged ongoing fraud involving misusing investments intended for the development of cancer diagnostic tests to instead pay personal expenses and fund his fiancée’s restaurant businesses. According to the SEC’s complaint, Muraca established two pharmaceutical development companies and raised nearly $1.2 million by representing to investors that their money would be used to develop products to detect cancer and other diseases.  The SEC has traced the flow of investor funds into Muraca’s personal bank account and alleges that at least $400,000 has been used to pay rent for the restaurants and fund other purchases by Muraca, including payments to a casino, automotive shop, and cigar shop.  The SEC alleges that investors were never informed of the alternative uses of their investments in NanoMolecularDX LLC and MetaboRX LLC, including the fact that Muraca characterized the general character of the businesses as “Serving Food; Restaurant” in separate documents he has filed with the Commonwealth of Massachusetts to do business in the state. SEC

July 31, 2017 - 

The Securities and Exchange Commission today charged four former Atlanta-area brokers with fraudulently inducing federal employees to roll over holdings from their federal Thrift Savings Plan (TSP) retirement accounts into higher-fee, variable annuity products.  The SEC’s complaint charges an entity called Federal Employee Benefits Counselors through which the brokers targeted federal employees nearing retirement with sizable funds invested in the TSP. The four former brokers charged in the SEC’s complaint are Christopher S. Laws, Jonathan D. Cooke, Danny S. Hood, and Brandon P. Long.  The complaint alleges that the brokers misled investors concerning significant details about the recommended variable annuity investment, including the associated fees and guaranteed investment returns.  The brokers allegedly fostered the misleading impression that they were in some way affiliated with or approved by the federal government.  In some instances, investors were led to believe that their funds would be invested in a product that was offered, vetted, or specifically selected by the TSP.  According to the SEC’s complaint, the brokers sent investors incomplete or modified transaction forms as well as written materials they devised that obscured that the investment was a privately issued variable annuity with no connection to the TSP and would be processed through a private brokerage firm with which the brokers were associated.  The brokers sold approximately 200 variable annuities with a total face value of approximately $40 million to federal employees, who used monies rolled over from their TSP accounts to fund their purchases.  The brokers collectively earned approximately $1.7 million in commissions on these sales. SEC

July 27, 2017 - 

The Securities and Exchange Commission today announced a whistleblower award of more than $1.7 million to a company insider who provided the agency with critical information to help stop a fraud that would have otherwise been difficult to detect.  Millions of dollars were returned to harmed investors as a result of the SEC’s ensuing investigation and enforcement action.  ”When whistleblowers tip the SEC, it not only can bring wrongdoers to justice but also relief to investors,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower.  ”This whistleblower’s valuable information enabled us to stop further investor harm and ultimately return money to victims.”  Approximately $158 million has now been awarded to 46 whistleblowers who voluntarily provided the SEC with original and useful information that led to a successful enforcement action. SEC

July 27, 2017 - 

The Securities and Exchange Commission today charged Halliburton Company with violating the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (FCPA) while selecting and making payments to a local company in Angola in the course of winning lucrative oilfield services contracts. Halliburton, which profited by approximately $14 million from the deals, has agreed to pay more than $29.2 million to settle the SEC’s case.  The company also agreed to obtain an independent compliance consultant to oversee its anti-corruption policies and procedures in Africa.  Halliburton’s former vice president Jeannot Lorenz has agreed to pay a $75,000 penalty for causing the company’s violations, circumventing internal accounting controls, and falsifying books and records. SEC

July 25, 2017 - 

The Securities and Exchange Commission today announced an award of nearly $2.5 million to an employee of a domestic government agency whose whistleblower tip helped launch an SEC investigation and whose continued assistance enabled the SEC to address a company’s misconduct. ”Whistleblowers can provide a wealth of information and ongoing assistance that helps our agency bring enforcement actions quicker and more efficiently,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower.  ”This whistleblower not only helped us open the case, but also provided timely ongoing assistance along with critical documents and testimony that accelerated the pace of our enforcement action.” Approximately $156 million has now been awarded to 45 whistleblowers who voluntarily provided the SEC with original and useful information that led to a successful enforcement action.  No money has been taken or withheld from harmed investors to pay whistleblower awards. SEC

July 12, 2017 - 

The Securities and Exchange Commission today announced insider trading charges against a research scientist who allegedly searched the internet for “how sec detect unusual trade” before making a trade that the agency flagged as suspicious through data analysis. The SEC’s complaint alleges that Fei Yan loaded up on stocks and options in advance of two corporate acquisitions late last year based on confidential information obtained from his wife, an associate at a law firm that worked on the deals.  According to the SEC’s complaint, Yan made approximately $120,000 in illicit profits by selling his holdings in Mattress Firm Holding Corp. and Stillwater Mining Company following public announcements that they would be acquired by other companies. Yan allegedly attempted to conceal his illegal activity by placing the illicit trades in a brokerage account bearing the name of his mother, who lives in China.  Among the internet searches he conducted was “insider trading in an international account.” SEC

July 12, 2017 - 

The Securities and Exchange Commission today brought fraud charges against 13 individuals allegedly involved in two Long Island-based cold calling scams that bilked more than one hundred victims out of more than $10 million through high-pressure sales tactics and lies about penny stocks. The SEC alleges that the orchestrators of the scheme used boiler room-style call centers to make hundreds of thousands of cold calls that included the use of threatening and deceitful sales techniques to pressure victims – many of whom were senior citizens – into purchasing penny stocks.  For example, as part of one such scam, a boiler room salesman allegedly claimed that the Walt Disney Company was buying into a purported media and internet company and that would cause the penny stock’s price to increase substantially. SEC

June 30, 2017 - 

The Securities and Exchange Commission today filed fraud charges against the clandestine founder of a purported Bitcoin platform and a chain of co-working spaces located in former bars and restaurants, alleging that he bilked investors in both companies while hiding his connection given his checkered past with regulators in the U.K.  The SEC alleges that Renwick Haddow, a U.K. citizen living in New York, created a broker-dealer and did not register the firm with the SEC as required under the federal securities laws.  Haddow allegedly used sales representatives to cold call potential investors and sell securities in Bitcoin Store Inc. and Bar Works Inc. According to the SEC’s complaint, offering materials presented to investors in both companies touted the backgrounds of senior executives who do not appear to exist.  The materials also misrepresented other key facts about both companies’ operations.  Haddow allegedly diverted more than 80 percent of the in funds raised by the broker-dealer for the Bitcoin Store, and sent more than $4 million from the Bar Works bank accounts to one or more accounts in Mauritius and $1 million to one or more accounts in Morocco. SEC

June 30, 2017 - 

The Securities and Exchange Commission has charged Chicago-area information technology company Quadrant 4 System Corp. (QFOR) and two former top executives in an accounting fraud scheme that misled investors and allowed the former executives to siphon millions from the firm for their personal benefit. The SEC’s complaint, filed yesterday in the U.S. District Court for the Northern District of Illinois, alleges that former chief executive officer Nandu Thondavadi and former chief financial officer Dhru Desai stole more than $4 million from Schaumburg, Illinois-based QFOR over a nearly five-year period. The former executives also are alleged to have caused QFOR to understate its liabilities and inflate its revenues and assets, evading scrutiny by lying to the company’s auditors and providing them with forged and doctored documents. According to the SEC’s complaint, the alleged scheme continued until November 2016, when Thondavadi and Desai were arrested and criminally charged with fraud.  QFOR announced their resignations in December 2016 and disclosed that the company’s financial reports could no longer be relied upon and required a restatement. SEC

 

June 28, 2017 - 

The Securities and Exchange Commission today charged a Canadian-based oil and gas company and three of its former top finance executives for their roles in an extensive, multi-year accounting fraud. The SEC’s complaint alleges that Penn West Petroleum Ltd., which has since been renamed Obsidian Energy Ltd., fraudulently moved hundreds of millions of dollars in expenses from operating expense accounts to capital expenditure accounts. This alleged fraudulent movement caused Penn West to artificially reduce its operating costs by as much as 20 percent in certain periods, which falsely improved reported metrics for oil extraction efficiency and profitability. Penn West was one of Canada’s largest oil producers at the time. According to the SEC’s complaint, the fraud was orchestrated by the company’s former CFO Todd Takeyasu, former vice president of accounting and reporting Jeffery Curran, and former operations controller Waldemar Grab. The SEC alleges that they manipulated the company’s operating expenses in order to lower a key publicly reported metric concerning the cost of oil extraction and processing needed to sell a barrel of oil. Penn West allegedly created an internal budget target representing the amount it would improperly move in its publicly-reported financial statements and gave the illusion that it was spending less money to get oil of out the ground. In fact, the SEC alleges, the company historically struggled to keep its operating costs under control, and Takeyasu, Curran, and Grab managed operating expenses to meet the budget target. According to the SEC’s complaint, they frequently met this target to the dollar by having the company record large, round number, and unsupported adjusting journal entries. Within the company, this practice was referred to as “reclass to capital.” SEC

June 22, 2017 - 

The Securities and Exchange Commission today announced additional charges in an enforcement investigation involving the improper handling of American Depositary Receipts (ADRs) by a Wall Street firm’s securities lending desk. The SEC’s order finds supervisory failures by Anthony Portelli, a former managing director and head of operations at broker-dealer ITG Inc.  Portelli supervised ITG’s securities lending operations and was responsible for the firm’s compliance with “pre-release agreements” for ADR transactions.  ADRs are U.S. securities that represent foreign shares of a foreign company.  Before obtaining a “pre-released ADR” to lend to a customer, brokers like ITG must own, or determine that a customer owns, the number of foreign shares that corresponds to the number of shares the ADR represents.  Under Portelli’s watch, personnel on ITG’s securities lending desk failed to take reasonable steps to determine whether the proper amounts of foreign shares were owned and held by ITG’s customers.  This failure opened up the possibility that the ADRs could be used improperly for short selling or dividend arbitrage. SEC

June 5, 2017 - 

The Securities and Exchange Commission today charged  a Salt Lake City-based brokerage firm with securities law violations related to its alleged practice of clearing transactions for microcap stocks that were used in manipulative schemes to harm investors. To help detect potential securities law and money laundering violations, broker-dealers are required to file Suspicious Activity Reports (SARs) that describe suspicious transactions that take place through their firms.  The SEC’s complaint alleges that Alpine Securities Corporation routinely and systematically failed to file SARs for stock transactions that it flagged as suspicious.  When it did file SARs, Alpine Securities allegedly frequently omitted the very information that formed the bases for Alpine knowing, suspecting, or having reason to suspect that a transaction was suspicious.  As noted in the complaint, guidance for preparing SARs from the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) clearly states that “[e]xplaining why the transaction is suspicious is critical.” SEC

May 24, 2017 - 

The Securities and Exchange Commission today announced charges in an alleged insider trading scheme involving tips of nonpublic information about government plans to cut Medicare reimbursement rates, which affected the stock prices of certain publicly traded medical providers or suppliers. The SEC’s complaint alleges that David Blaszczak, a former government employee turned political intelligence consultant, obtained key confidential details about upcoming decisions by the Centers for Medicare and Medicaid Services (CMS) from his close friend and former colleague at the agency, Christopher Worrall.  According to the SEC’s complaint, Worrall serves as a health insurance specialist in the Center for Medicare and tipped Blaszczak about at least three pending CMS decisions that affected the amount of money that companies receive from Medicare to provide services or products related to cancer treatments or kidney dialysis. SEC

May 19, 2017 - 

The Securities and Exchange Commission today filed fraud charges against Robert W. Murray a Virginia-based mechanical engineer accused of scheming to manipulate the price of Fitbit stock by making a phony regulatory filing. According to the SEC’s complaint, Murray purchased Fitbit call options just minutes before a fake tender offer that he orchestrated was filed on the SEC’s EDGAR system purporting that a company named ABM Capital LTD sought to acquire Fitbit’s outstanding shares at a substantial premium.  Fitbit’s stock price temporarily spiked when the tender offer became publicly available on Nov. 10, 2016, and Murray sold all of his options for a profit of approximately $3,100. The SEC alleges that Murray created an email account under the name of someone he found on the internet, and the email account was used to gain access to the EDGAR system.  Murray then allegedly listed that person as the CFO of ABM Capital and used a business address associated with that person in the fake filing.  The SEC also alleges that Murray attempted to conceal his identity and actual location at the time of the filing after conducting research into prior SEC cases that highlighted the IP addresses the false filers used to submit forms on EDGAR.  According to the SEC’s complaint, it appeared as though the system was being accessed from a different state by using an IP address registered to a company located in Napa, California. SEC

May 15, 2017 - 

The Securities and Exchange Commission today charged James Im and Kee Chan a pair of former head traders who ran the commercial mortgage-backed securities (CMBS) desk at Nomura Securities International Inc. with deliberately lying to customers in order to inflate the profits of the CMBS desk and line their own pockets as a result. The SEC alleges that Im and Chan each misrepresented price information while acting as intermediaries on trades with Nomura’s customers who sought to buy and sell CMBS on the secondary market.  In certain instances, Im and Chan allegedly pretended they were still negotiating bond purchases with a third-party seller at higher prices when Nomura had already acquired the bonds at a lower price. The SEC alleges that in one instance, Im bragged about his purposeful deception of a customer, and Chan once altered an email to a customer to prop up his lie about the bid price for a bond.  According to the SEC’s complaints, Chan and Im fraudulently generated more than $750,000 in extra trading profits for the CMBS desk, and they received substantial bonuses based largely on the desk’s performance. SEC

May 11, 2017 - 

The Securities and Exchange Commission today charged Walter C. Little a former partner at an international law firm and his neighbor Andrew M. Berke with making more than $1 million in illicit profits by insider trading around corporate announcements. The SEC alleges that Little accessed confidential documents on his law firm’s internal computer network related to at least 11 impending announcements involving law firm clients, none of which he personally advised or billed for services.  Little then allegedly traded in advance of each announcement and often tipped Berke with material nonpublic information so he could similarly trade in company stocks before the announcements were made publicly.  According to the SEC’s complaint, the insider trading occurred from February 2015 to February 2016. “As alleged in our complaint, Little used highly-confidential information about his law firm’s clients to make more than $1 million for himself and his neighbor through illegal insider trading and tipping,” said Stephanie Avakian, Acting Director of the SEC’s Enforcement Division. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Little and Berke. SEC

May 11, 2017 - 

Public companies must properly disclose perks, benefits, and other forms of compensation paid to CEOs and certain other highly compensated executive officers.  The Securities and Exchange Commission today announced that Miles S. Nadal the former CEO of a marketing company has agreed to pay $5.5 million to settle charges that his perks were not properly disclosed to shareholders.

According to the SEC’s order, shareholders were informed in annual filings that Nadal received an annual perquisite allowance of $500,000 in addition to other benefits as the chairman and CEO of MDC Partners.  But the SEC’s investigation found that without disclosing information to investors as required, MDC Partners paid for Nadal’s personal use of private airplanes as well as charitable donations in his name, yacht and sports car expenses, cosmetic surgery, and a wide range of other perks.  All total, Nadal improperly obtained an additional $11.285 million in perks beyond his disclosed benefits and $500,000 annual allowances.  He has since resigned and returned $11.285 million to the company. SEC

May 10, 2017 - 

The Securities and Exchange Commission today announced an enforcement action requiring Barclays Capital to refund advisory fees or mutual fund sales charges to clients who were overcharged. In a settlement of more than $97 million, Barclays agreed to settle three sets of violations that resulted in clients being overbilled by nearly $50 million.  The SEC’s order finds that two Barclays advisory programs charged fees to more than 2,000 clients for due diligence and monitoring of certain third-party investment managers and investment strategies when in fact these services weren’t being performed as represented.  Barclays also collected excess mutual fund sales charges or fees from 63 brokerage clients by recommending more expensive share classes when less expensive share classes were available.  Another 22,138 accounts paid excess fees to Barclays due to miscalculations and billing errors by the firm. SEC

May 9, 2017 - 

The Securities and Exchange Commission today charged David R. Humphrey, a former SEC employee, with securities fraud in connection with his trading of options and other securities. The SEC’s complaint alleges that David R. Humphrey, who worked at the SEC from 1998 to 2014, concealed his personal trading from the SEC’s ethics office and later misrepresented his trading activities to the SEC’s Office of Inspector General when questioned during an investigation.  “As alleged in our complaint, Humphrey never sought pre-clearance for his prohibited options trades and he filed forms that falsely represented his securities holdings,” said Gerald W. Hodgkins, Associate Director in the SEC’s Division of Enforcement.  SEC employees are subject to rigorous rules regarding securities transactions to guard against even the appearance of using public office for private gain.  The ethics rules specifically prohibit trading in options or derivatives.  The rules also require staff to disclose their securities holdings and transactions to the agency’s ethics office in annual filings. According to the SEC’s complaint, Humphrey violated the rules by engaging in transactions involving derivatives, failing to obtain pre-clearance before trading non-prohibited securities, and failing to hold securities for the required period. SEC

May 4, 2017 - 

The Securities and Exchange Commission today announced that Verto Capital Management and William Schantz III have agreed to pay more than $4 million to settle charges that they used new investor money to repay earlier investors in Ponzi-like fashion and tapped investor funds for the CEO’s personal use. According to the SEC’s complaint, Verto Capital Management and Schantz  raised approximately $12.5 million selling promissory notes to purportedly fund Verto Capital’s purchase and sale of life settlements, which are life insurance policies sold in the secondary market.  The SEC alleges that they misrepresented to investors that Verto Capital was a profitable company and investor funds would be used for general working capital purposes.  Verto Capital and other Schantz businesses had been unprofitable for several years, according to the SEC’s complaint, and Schantz resorted to taking disproportionately large distributions of investor funds for himself and using new investor money to repay earlier investors.  Verto Capital and Schantz also allegedly made misrepresentations to investors about the safety of the notes and collateral underlying them.  The SEC alleges that the promissory notes were primarily sold through a group of insurance brokers in Texas, and religious investors were targeted. “As alleged in our complaint, investors were told that the life settlement-backed notes were short-term investments with an unlikely event of default.  Schantz and Verto misled investors about the company’s past performance and the value of the collateral, and they diverted significant investor funds for Schantz’s personal use,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. SEC

May 2, 2017 - 

The Securities and Exchange Commission today announced that a company insider has earned a whistleblower award of more than $500,000 for reporting information that prompted an SEC investigation into well-hidden misconduct that resulted in an SEC enforcement action. “This company employee saw something wrong and did the right thing by reporting what turned out to be hard-to-detect violations of the securities laws,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower.  “Company insiders are in a unique position to provide specific information that allows us to better protect investors and the marketplace.  We encourage insiders with information to bring it to our attention.” The whistleblower award is the second announced by the SEC in the past week.  Approximately $154 million has now been awarded to 44 whistleblowers who voluntarily provided the SEC with original and useful information that led to a successful enforcement action. SEC

May 1, 2017 - 

The Securities and Exchange Commission today announced that MagnaChip Semiconductor Corp. a South Korea-based semiconductor manufacturer and its former CFO Margaret Sakai have agreed to settle charges related to an accounting scheme to artificially boost revenue and manipulate the financial results reported to investors. The SEC’s order finds that MagnaChip overstated revenues for nearly two years in response to immense pressure placed on employees each quarter to meet revenue and gross margin targets that had been communicated to the public.  Then-CFO Sakai directed or approved several fraudulent accounting practices to make it falsely appear the company had met those targets.  For example, MagnaChip recognized revenue on sales of incomplete or unshipped products, and the company delayed booking obsolete or aged inventory to manipulate its reported gross margin.  MagnaChip also engaged in roundtrip transactions to manipulate accounts receivable balances, and concealed from auditors that there were side agreements with distributors to induce them to accept products early. “MagnaChip engaged in a panoply of accounting tricks to artificially meet its financial targets,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.  “Companies that sell stock in the U.S. markets should prioritize a robust accounting culture that is entirely truthful with investors.” SEC

April 28, 2017 - 

The Securities and Exchange Commission today announced charges against David Pruitt and Mark Wentlent two former executives at a government contractor that was the subject of an SEC enforcement action earlier this year and paid a $1.6 million penalty for accounting failures. The SEC Enforcement Division alleges that Pruitt, the then-vice president of finance in the Army Sustainment Division of L3 Technologies Inc., circumvented internal accounting controls and caused L3 to improperly recognize $17.9 million in revenue from a contract with the U.S. Army by creating invoices that were not actually delivered at the same time that the revenue was recorded.  The extra revenue allegedly enabled employees in that division to barely satisfy an internal target for management incentive bonus payments. The SEC Enforcement Division further alleges that Pruitt, a CPA, took steps on several occasions to conceal from L3’s corporate office and external auditor the fact that the invoices were not delivered.  The matter against Pruitt will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating what, if any, remedial actions are appropriate. The SEC separately instituted an order against Wentlent, the former president of L3’s Army Sustainment Division, finding that he failed to follow up on red flags that Pruitt had caused L3 to improperly recognize revenue.  Wentlent consented to the order without admitting or denying the findings, and he agreed to pay a $25,000 penalty.  The bonus payment that Wentlent received as a result of the misconduct already has been rescinded by L3. SEC

April 25, 2017 - 

The Securities and Exchange Commission today announced an award of nearly $4 million to a whistleblower who tipped the agency with detailed and specific information about serious misconduct and provided additional assistance during the ensuing investigation, including industry-specific knowledge and expertise. “Not only did this whistleblower step forward and report suspicious conduct, but continued to help after we opened our investigation,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower.  “Whistleblowers with specialized experience or expertise can help us expend fewer resources in our investigations and bring enforcement actions more efficiently.” Approximately $153 million has now been awarded to 43 whistleblowers who became eligible for an award after voluntarily providing the SEC with original and useful information that led to successful enforcement actions. SEC enforcement actions from whistleblower tips have resulted in more than $953 million in financial remedies against wrongdoers. SEC

April 24, 2017 - 

The Securities and Exchange Commission today announced fraud charges against Kevin J. Amell, a Massachusetts-based portfolio manager accused of diverting at least $1.95 million to his personal brokerage account from a fund over which he had trading authority. The SEC’s complaint alleges that Amell carried out a fraudulent matched-trades scheme in which he prearranged the purchase or sale of call options between his own account and the brokerage accounts of the fund at prices that were disadvantageous to the fund and advantageous to him.  In one series of trades involving Amazon securities, for example, Amell allegedly generated a $23,000 profit for himself in less than 23 minutes at the fund’s expense. “As alleged in our complaint, Amell abused his trading authority at least 265 times by matching trades between the fund and his personal account at prices that he intentionally and fraudulently skewed to benefit himself,” said Joseph G. Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit. In a parallel action, the U.S. Attorney’s Office for the District of Massachusetts today filed criminal charges against Amell. SEC