SEC Fraud Actions

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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.

October 31, 2016 - 

The SEC charged Ryan Gilbertson, co-founder of Minnesota-based energy company Dakota Plain Holdings, with manipulating its stock price and concealing his control of the company to attain lucrative financial payouts.  Gilbertson co-founded Dakota Plains with Michael Reger, who has agreed to pay $8 million to settle related charges brought by the SEC.  The SEC alleges that Gilbertson hatched and orchestrated a scheme to secretly siphon millions of dollars from Dakota Plains by installing his father and Reger’s father as figurehead executives of the company, allowing them to secretly wield control of the company and issue millions of shares of stock to themselves, friends, and family.  They allegedly caused the company to enter into an agreement to borrow money from them on generous terms that included extra bonus payments to them based on the price of Dakota Plains stock after 20 days of trading following a reverse merger into a company with publicly-traded shares.  According to the SEC’s complaint, Gilbertson enlisted friends and associates to choreograph extensive sales and purchases of Dakota Plains stock, causing the price to skyrocket from $0.30 to $1.10 per share during the 20-day period.  The inflated stock price obligated Dakota Plains to make bonus payments totaling $32 million to Gilbertson, Reger, and others.  Reger will pay $8 million to settle charges that he obtained illicit payments and skirted public disclosure requirements by spreading his Dakota Plains stock holdings among 10 accounts in different names to conceal that he owned more than one-fifth of the company’s shares.  SEC

October 31, 2016 - 

The SEC announced proceedings against PricewaterhouseCoopers audit partner Adrian D. Beamish for alleged failures in connection with the independent audit of a venture capital fund for which he served as the engagement partner.  The SEC alleges that Beamish failed to scrutinize millions of dollars taken from Burrill Life Sciences Capital Fund III in related party transactions under the guise of “advanced” management fees.  Beamish allegedly failed to determine whether the fund’s adviser had proper authorization and rationale for taking the money and failed to ensure that the transactions were properly disclosed in the fund’s financial statements.  SEC

October 31, 2016 - 

New York-based audit firm PFK O’Connor Davies and a senior partner of the firm, Domenick F. Consolo, will pay $555,000 collectively to settle charges that they issued fraudulent audit reports in connection with municipal bond offerings by the town of Ramapo, N.Y. and its local development corporation.  The SEC’s order finds that PFK and Consolo allowed Ramapo to record a $3.08 million receivable in its general fund for a property sale that Consolo knew had not occurred.  Consolo ignored red flags and relied on false representations by Ramapo officials about certain other receivables, transfers, and liabilities.  PFK failed to take appropriate steps to mitigate the risk of material misstatements even after senior management became aware that Ramapo’s financial statements were the subject of multiple law enforcement investigations and Consolo received complaints about possible fraud.  SEC

October 27, 2016 - 

The SEC charged Los Angeles-based investment advisory firm Broidy Wealth Advisors and its owner Marc D. Broidy with fraudulently overbilling clients and stealing assets from client trust accounts to pay for personal expenses including a home mortgage, overseas trips, and leases on two Mercedes-Benz vehicles.  The SEC alleges that Broidy obtained more than $1.4 million in ill-gotten gains since February 2011.  Broidy allegedly billed clients approximately $643,000 in excess fees and covered it up by altering the amount of management fees recorded on forms issued by brokerage firms before sending the forms to his clients.  The SEC further alleges that Broidy fraudulently took approximately $865,000 from clients’ trust accounts on which he was trustee to pay personal expenses.  SEC

October 24, 2016 - 

Brazilian aircraft manufacturer Embraer S.A. will pay more than $205 million to the SEC, DOJ, and Brazilian authorities to resolve alleged violations of the Foreign Corrupt Practices Act (FCPA).  The SEC’s complaint alleges that Embraer made more than $83 million in profits as a result of bribe payments from its U.S.-based subsidiary through third-party agents to foreign government officials in the Dominican Republic, Saudi Arabia, and Mozambique to secure business in those countries.  Embraer also engaged in an alleged accounting scheme in India, in which $5.76 million was paid to an agent in India in connection with the sale of three highly-specialized military aircraft for India’s air force and the payments were falsely recorded in Embraer’s books and records as part of a consulting agreement that was not legitimate.  SEC

October 21, 2016 - 

The SEC charged Tennessee-based lawyer James C. Cope with insider trading based on information he obtained through his position on the Board of Directors at Nashville-based Pinnacle Financial Partners.  The SEC alleges that Cope learned confidential details about Pinnacle’s planned merger with Avenue Financial Holdings prior to the banks’ joint public announcement of the merger.  During, and within an hour after, the board meeting at which Cope learned the details of the merger, he placed five orders for securities in Avenue Financial.  Cope allegedly made more than $56,000 through these purchases.  SEC

October 20, 2016 - 

Houston-based technology solutions company FMC Technologies will pay a $2.5 million penalty to settle charges that it overstated profits in one of its business segments.  Former Controller, Jeffrey Favret, and business unit controller, Steven Croft, will pay $40,000 collectively to settle charges that they caused these accounting violations in order to meet internal targets.  The SEC’s order finds that after being pressured to improve performance in the Energy Infrastructure Segment at FMC, Favret and Croft artificially reduced the value of a liability the company recorded for employee paid time off, thus overstating the segment’s pre-tax operating profits by $800,000.  This enabled an internal target to be met for the first quarter of 2013.  The SEC’s order also found that Croft failed to comply with internal accounting controls when he directed that his business unit switch to a new accounting system without taking reasonable steps to ensure that errors would not arise.  Errors did occur, causing the overstatement  of the segment’s results in two consecutive quarters in 2014.  SEC

October 18, 2016 - 

Israel-based Bank Leumi will pay $1.6 million and admit wrongdoing to settle charges that it provided investment advice and induced securities transactions for U.S. customers for more than a decade without registering as an investment-advisor or broker-dealer as required under U.S. securities laws.  The SEC’s order found that Bank Leumi maintained several hundred securities accounts that were beneficially owned by U.S. customers and managed more than $500 million in securities assets for U.S. customers.  To mitigate the risk of violating U.S. laws, Bank Leumi began exiting the U.S. cross-border business in 2008.  But approximately 100 U.S. customer securities accounts remained open with the bank three years later and bank employees continued to have contact with U.S. customers.  The SEC’s order finds that Bank Leumi made about $3.37 million in profits from its U.S. cross-border business.  Bank Leumi disgorged about $3.3 million of those profits in a deferred prosecution agreement with the Department of Justice in 2014.  Bank Leumi will disgorge the remainder to the SEC in addition to paying a $1.5 million penalty.  SEC

October 18, 2016 - 

Ernst & Young will pay more than $11.8 million to settle charges related to failed audits of oil services client Weatherford International.  Weatherford previously paid $140 million to settle charges that it used deceptive income tax accounting to inflate earnings.  The SEC’s order found that despite placing Weatherford audits in a high-risk category, Ernst & Young’s audit team repeatedly failed to detect the company’s fraud until it had been going on for more than four years.  The audit team was aware of post-closing adjustments that Weatherford made to significantly lower its year-end provision for income taxes each year, but it relied on Weatherford’s unsubstantiated explanations for the adjustments rather than performing the required audit procedures to scrutinize the company’s accounting.  The Ernst & Young partner who coordinated the audits, Craig Fronckiewicz, and a tax partner who was part of the audit team, Sarah Adams, agreed to suspensions to settle charges that they disregarded significant red flags during the audits.  SEC

October 17, 2016 - 

Energy services provider Lime Energy Co. will pay $1 million to settle charges for accounting fraud.  The SEC’s complaint alleges that Lime Energy improperly recognized $20 million in revenue from at least 2010 to 2012 – recognizing revenue earlier than appropriate to meet internal targets, and even going so far as to book revenue on jobs that didn’t exist.  Four former company executives – Utility Division President and Vice President of Operations Joaquin Alberto Dos Santos Almeida and Karan Raina, Controller Julianne M. Chandler, and Executive Vice President James G. Smith – will pay $125,000 in collective penalties to settle charges related to their roles in the misconduct.  SEC

October 13, 2016 - 

New York-based Forcerank LLC will pay a $50,000 penalty for illegally offering complex derivatives products to retail investors through mobile phone games described as “fantasy sports for stocks.”  According to the SEC’s order, Forcerank ran mobile phone games where players predicted the order in which 10 securities would perform relative to each other.  Players won points and some received cash prizes based on the accuracy of their predictions.  Forecerank kept 10% of the entry fees and maintained a data set about market expectations it hoped to sell to hedge funds.  Forerank’s agreements with players were security-based swaps because they provided for a payment that was dependent on an event associated with a potential financial, economic, or commercial consequence and based on the value of individual securities.  An SEC investigation found that Forcerank failed to file a registration for what constituted a security-based swap offering and failed to sell the contracts through a national securities exchange.  Both are requirements under the Dodd-Frank Act to ensure information about an offering is fully transparent to retail investors and the transactions are limited to platforms subject to the highest level of regulation.  SEC

October 13, 2016 - 

San Francisco-based hedge fund advisory firm Artis Capital Management will pay about $8.9 million to settle charges of failing to maintain adequate policies and procedures to prevent insider trading at the firm.  Artis failed to respond appropriately to red flags that should have alerted it to misconduct by employee Matthew Teeple.  Teeple’s supervisor, Michael W. Harden, will pay $130,000 and is suspended from the securities industry for 12 months for his role in the misconduct.  SEC

October 12, 2016 - 

Deutsche Bank Securities will pay a $9.5 million penalty for failing to properly safeguard material non-public information generated by its research analysts.    Deutsche encouraged its equity research analysts to communicate frequently with customers and Deutsche sales and trading personnel, but lacked adequate policies and procedures to prevent analysts from disclosing yet-to-be-published views and analysis, changes in estimates, and short-term trade recommendations.  The SEC order also found that Deutsche improperly published a research report with a “buy” rating for discount retailer Big Lots, even though the analyst who prepared and certified the report held the personal view that the stock should have been downgraded.  Deutsche was also unable to represent that it had recovered and produced to the SEC all communications on Deutsche’s internal messaging system “DB Chat” because the firm had failed to properly preserve them in an accessible place.  SEC

October 5, 2016 - 

Credit Suisse AG will pay a $90 million penalty and admit wrongdoing to settle charges that it misrepresented how it determined a key performance metric of its wealth management business.  Rolf Bӧgli, former Chief Operating Officer of Credit Suisse’s Private Banking Division, will pay an $800,000 penalty to settle charges he was the cause of Credit Suisse’s violations.  An SEC investigation found that Credit Suisse veered from its publicly disclosed methodology for determining net new assets (NNA), a metric valued by investors in financial institutions to measure success in attracting new business.  Disclosures stated that Credit Suisse was individually assessing assets based on each client’s intentions and objectives.  But Credit Suisse at times instead took an undisclosed results-driven approach to determine NNA.  According to the SEC’s orders, Bӧgli pressured employees to classify certain high net worth and ultra-high net worth client assets as NNA despite concerns raised by employees most knowledgeable about a particular client’s intent.  SEC

October 4, 2016 - 

The SEC announced fraud charges against Laurence I. Balter and his Hawaii-based firm Oracle Investment Research.  The SEC alleges that Balter and Oracle purchased equities and options in an omnibus account and waited to allocate the trades until after they were executed and Balter knew whether they were profitable.  Balter then allocated profitable trades to his own accounts and unprofitable trades to his client accounts.  The SEC further alleges that Balter falsely told clients invested in his affiliated mutual fund they would not pay both advisory fees and fund management fees, but charged both fees anyway.  Balter also allegedly made trades for the mutual fund that deviated from two of its fundamental investment limitations and ultimately resulted in a non-diversified portfolio that caused significant losses to investors.  SEC

September 29, 2016 - 

The SEC charged Robert Gadimian, former Senior Director of Regulatory Affairs for Puma Biotechnology, with insider trading ahead of the company’s news announcement about its drug to treat breast cancer.  The SEC alleges that Gadimian pocketed more than $1.1 million in illicit profits by secretly purchasing Puma stock and short-term call options based on nonpublic information he learned about positive developments in two clinical trials for Puma’s drug, neratinib.  SEC

September 29, 2016 - 

Casino-gaming company International Game Technology (IGT)  will pay a $500,000 penalty for firing an employee with several years of positive performance reviews because he reported to senior management and the SEC that the company’s financial statements might be distorted.  The SEC found that the employee was removed from significant work assignments within weeks of raising concerns about the company’s cost accounting model.  He was terminated approximately three months later.  SEC

September 29, 2016 - 

Och-Ziff Capital Management Group will pay nearly $200 million to settle civil charges of violating the Foreign Corrupt Practices Act (FCPA).  Och-Ziff CEO  Daniel S. Och and Och-Ziff CFO Joel M. Frank will pay nearly $2.2 million to settle charges that they caused certain violations.  The SEC detected the misconduct while proactively scrutinizing the way that financial services firms were obtaining investments from sovereign wealth funds overseas.  The SEC’s subsequent investigation of Och-Ziff found that the fund used intermediaries, agents, and business partners to pay bribes to high-level government officials in Africa.  According to the SEC’s order, the illicit payments induced the Libyan Investment Authority sovereign wealth fund to invest in Och-Ziff managed funds.  Other bribes were paid to secure mining rights and corruptly influence government officials in Libya, Chad, Nigeria, Guinea, and the Democratic Republic of the Congo.  As part of its settlement agreement with the SEC, Och-Ziff acknowledged that it expected to enter into a deferred prosecution agreement with the Justice Department in a parallel criminal proceeding and its subsidiary OZ Africa Management GP LLC agreed to enter into a plea agreement.  Och-Ziff is expected to pay a criminal penalty of $213 million.  SEC

September 28, 2016 - 

The SEC charged attorney Nino Coppero del Valle who worked for Canadian-based HudBay Minerals Inc., and his friend and fellow attorney Julio Antonio Castro Roca with material nonpublic information about a tender offer HudBay had submitted to acquire the shares of Augusta Resource Corp., whose principal business involved a copper mine near Tucson, Arizona.  Castro allegedly traded on the inside information through a brokerage account held by a shell company he set up in the British Virgin Islands in an attempt to avoid having the trades traced back to him and Coppero.  According to the SEC’s complaint, Castro and Coppero made more than $112,000 in illicit profits from these unlawful trades.  The SEC further alleges that Coppero tipped acquaintance Ricardo Carrion when seeking his advice about making illegal traced untraceable.  Carrion exploited the inside information and caused his brokerage firm to purchase Augusta Resource shares ahead of the tender offer announcement.  Carrion’s firm obtained $73,000 in alleged profits.  SEC

September 28, 2016 - 

UBS Financial Services will pay more than $15 million to settle charges that it failed to adequately educate and train its sales force about critical aspects of certain complex financial products it sold to retail investors.  The SEC’s order finds that UBS failed to educate and train UBS registered representatives in connection with the sale of reverse convertible notes (RCNs) so that they could form a reasonable basis to make recommendations.  RCNs are complex securities that feature embedded derivatives whose performance is driven by the concept of implied volatility.  Without adequate education and training, certain registered representatives made unsuitable recommendations in the sale of RCNs to certain retail customers in light of their investment profiles.  UBS sold approximately $548 million in RCNs to more than 8,700 relatively inexperienced retail customers.  SEC

September 28, 2016 - 

Anheuser-Busch InBev will pay $6 million to settle charges that it violated the Foreign Corrupt Practices Act (FCPA) and chilled a whistleblower who reported the misconduct.  An investigation found that the company used third-party sales promoters to make improper payments to government officials in India to increase the sales and production of Anheuser-Busch products in the country.  The SEC’s order further found that Anheuser-Busch improperly chilled whistleblower activity by entering into a separation agreement that stopped an employee from continuing to voluntarily communicate with the SEC about potential FCPA violations by imposing substantial financial penalties for violating strict non-disclosure terms.  SEC

September 27, 2016 - 

Oil services company Weatherford International will pay a $140 million penalty to settle charges that it inflated earnings by using deceptive income tax accounting.  According to the SEC’s order, Weatherford fraudulently lowered its year-end provision for income taxes by $100 million to $154 million each year so the company could better align its earnings results with its earlier-announced projections and analysts’ expectations.  James Hudgins, Weatherford’s Vice President of Tax, and Darryl Kitay, tax manager, made numerous post-closing adjustments to fill gaps and meet the previously disclosed effective tax rate.  Weatherford regularly touted its favorable effective tax rate to analysts and investors as one of its key competitive advantages, and the fraud created the misperception that Weatherford’s designed tax structure was far more successful than reality.  Weatherford was forced to restate its financial statements on three occasions in 2011 and 2012.   Hudgins and Kitay will pay about $365,000 collectively to settle charges that they were behind the scheme.  SEC

September 26, 2016 - 

Merrill Lynch will pay a $12.5 million penalty for failure to maintain effective trading controls, thus failing to prevent erroneous orders from being sent to the markets and causing mini-flash crashes.  An SEC investigation found that Merrill Lynch caused market disruptions on at least 15 occasions from late 2012 through mid-2014 and violated the Market Access Rule because its internal controls in place to prevent erroneous trading orders were set at levels so high that it rendered them ineffective.  The erroneous orders caused certain stock prices to plummet and then suddenly recover within seconds.  SEC

September 26, 2016 - 

The SEC charged former microcap company CEO Craig V. Sizer and “boiler room” operator Miguel “Michael” Mesa with defrauding seniors and other investors who were pressured to invest in a pair of penny stock companies and promised lucrative profits.  The SEC alleges Sizer founded Sanomedics Inc. and Fun Cool Free Inc., purportedly in the business of selling, respectively, non-contact infrared thermometers and software applications, and hired Mesa to help him attract and defraud investors in both companies.  Sizer allegedly provided Mesa with a list of pitch points for use by boiler room agents hired by Mesa to sell shares of the stocks based on misrepresentations that investor funds would be used for research and development and no sales commissions would be paid out of investor funds.  According to the SEC’s complaint, Sizer and Mesa misappropriated approximately 90% of the funds raised from investors, enriching themselves and paying commissions to boiler room agents.  Several hundred investors nationwide were allegedly defrauded out of a total of approximately $20 million.  SEC

September 23, 2016 - 

The SEC charged three company executives — Manu Kumaran, founder and former chairman and CEO of startup movie production company Medient Studios and later Moon River Studios, Jake Shapiro, his successor CEO, and Roger Miguel, CEO of a separate successor public company called Fonu2 that also operated under the name Moon River Studios — with defrauding investors in a purported project to construct the largest movie studio in North America at a suburban location outside Savannah, Georgia.  Kumaran and Shapiro allegedly made an assortment of false and misleading statements in press releases and corporate filings, claiming that construction of the “Studioplex” was under way and projecting dates by which the studio would be operational while knowing that they did not have anywhere near sufficient funding to begin building the studio.  In addition, Kumaran, Shapiro, and Miguel allegedly backdated and falsified promissory notes as part of a scheme to issue common stock in exchange for financing.  The StudioPlex never materialized and the company eventually shuttered without releasing a single movie or video game.  But Kumaran and Shaprio nevertheless enriched themselves in the process.  According to the SEC’s complaint, Kumaran spent an average of $1,700 per day of company funds on his globetrotting travel and personal expenses from April 2014 through June 2014 after claiming publicly that he did not draw a salary and all funds were being used to benefit the company.  Shapiro allegedly misappropriated company funds for personal use after becoming CEO and lived in a house worth nearly a million dollars that was paid for by the company.  Three company directors who are not alleged to have participated in the fraud were separately charged with violating federal securities laws by failing to timely report their stock transactions in the company while serving on its board.  Former New York Governor David A. Paterson and music producer Charles A. Koppelman each agreed to pay $25,000 to settle the charges against them.  An administrative proceeding was instituted against Matthew T. Mellon II, a businessman and former chairman of the New York Republican Party Finance Committee.  SEC