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Government Enforcement Actions

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September 15, 2014

Tennessee-based animal feed company AgFeed Industries, currently in Chapter 11 bankruptcy, agreed to pay back $18 million in illicit profits from an accounting fraud that resulted in an SEC enforcement action earlier this year.  In March, the SEC charged AgFeed charged along with top company executives for repeatedly reporting fake revenues from the company’s China operations in order to meet financial targets and prop up AgFeed’s stock price.  The company obtained illicit gains in stock offerings to investors at the inflated prices resulting from the accounting scheme.  The $18 million to be paid by AgFeed will be distributed to victims of the company’s fraud.  SEC

September 11, 2014

Delaware-based bank holding company Wilmington Trust Company (which M&T Bank acquired in May 2011) agreed to pay $18.5 million to settle charges of accounting and disclosure fraud.  According to the government, as the real estate market declined in 2009 and 2010 and its construction loans began to mature without repayment or completion of the underlying project, Wilmington Trust did not renew, extend, or take other appropriate action on a material amount of its matured loans.  Instead of fully and accurately disclosing the amount of these accruing loans as required by accounting guidance, Wilmington Trust improperly excluded the matured loans from its public financial reporting.  SEC

September 10, 2014

The SEC charged Massachusetts-based biotech company Advanced Cell Technology and its former CEO Gary H. Rabin with defrauding investors by failing to report his sales of company stock as federal securities laws require to give investors the opportunity to evaluate whether the purchases and sales by an insider could be indicative of the prospects of the company.  Rabin, who left the company earlier this year, agreed to settle the SEC’s charges by paying a $175,000 penalty.  ACT agreed to pay a $375,000 penalty.  SEC

September 10, 2014

The SEC announced charges against 28 officers, directors, or major shareholders for violating federal securities laws requiring them to promptly report information about their holdings and transactions in company stock.  Six publicly-traded companies were charged for contributing to filing failures by insiders or failing to report their insiders’ filing delinquencies.  A total of 33 of the 34 individuals and companies named in the SEC’s orders agreed to settle the charges and pay financial penalties totaling $2.6 million as follows:  Paul D. Arling, CEO and chairman of the board of directors of Universal Electronics Inc. (agreed to pay a $60,375 penalty); Paul C. Cronson, a director of eMagin Corporation (agreed to pay a $47,250 penalty); Bradley S. Forsyth, CFO and chief accounting officer of Willis Lease Finance Corporation (agreed to pay a $25,000 penalty); Stephen Gans, a director and beneficial owner of Digital Ally Inc. (agreed to pay a $100,000 penalty); Sidney C. Hooper, CFO and principal accounting officer of Sutron Corporation (agreed to pay a $34,125 penalty); Edgar W. Levin, a director of Dorman Products Inc. (agreed to pay a $46,300 penalty); Raul S. McQuivey, CEO, chairman of the board of directors, and a beneficial owner of Sutron Corporation (agreed to pay a $60,000 penalty); Donald A. Nunemaker, president of Willis Lease Finance Corporation (agreed to pay a $25,000 penalty); Thomas C. Nord, general counsel and senior vice president of Willis Lease Finance Corporation (agreed to pay a $78,500 penalty); Alan M. Schnaid, principal accounting officer and corporate controller of Starwood Hotels & Resorts Worldwide(agreed to pay a $25,000 penalty); Justin Tang, a director of ChinaCast Education Corporation (agreed to pay a $100,000 penalty); Charles F. Willis IV, CEO, chairman of the board of directors, and a beneficial owner of Willis Lease Finance Corporation(agreed to pay a $75,000 penalty); Stephen Adams, a beneficial owner of Solar Senior Capital Ltd. shares (agreed to pay a $100,000 penalty); Thomas J. Edelman, a beneficial owner of BioFuel Energy Corporation shares (agreed to pay a $64,125 penalty); Neil Gagnon, a beneficial owner of General Finance Corporation and NTS Inc. shares (agreed to pay a $75,000 penalty); Peter R. Kellogg, a beneficial owner ofMercer International Inc., TRC Companies Inc., Evans & Sutherland Computer Corp., and MFC Industrial Ltd. shares (agreed to pay a $100,000 penalty); Gregory M. Shepard, a beneficial owner of Donegal Group Inc.’s Class A common stock (agreed to pay an $80,000 penalty); Brown Brothers Harriman & Co. (agreed to pay a $120,000 penalty); Del Mar Asset Management LP (agreed to pay a $66,000 penalty);Lazarus Management Company LLC (agreed to pay a $60,000 penalty); P.A.W. Capital Partners LP (agreed to pay a $68,000 penalty); Ridgeback Capital Management LP (agreed to pay a $104,500 penalty); RIMA Senvest Management LLC (agreed to pay a $64,000 penalty); The Royal Bank of Scotland Group plc(agreed to pay a $120,000 penalty); Sankaty Advisors LLC (agreed to pay a $68,000 penalty); Security Capital Research & Management (agreed to pay an $88,000 penalty); Trinad Management LLC (agreed to pay a $95,000 penalty); Jones Lang LaSalle Incorporated (agreed to pay a $150,000 penalty); KMG Chemicals Inc.(agreed to pay a $150,000 penalty); Starwood Hotel & Resorts Worldwide Inc.(agreed to pay a $75,000 penalty); Tel-Instrument Electronics Corp. (agreed to pay a $75,000 penalty); Universal Electronics Inc. (agreed to pay a $75,000 penalty); and Willis Lease Finance Corporation (agreed to pay a $150,000 penalty).  SEC

September 9, 2014

The SEC charged Belize residents Robert Bandfield and Andrew Godfrey, who manage IPC Corporate Services, with helping clients evade U.S. securities laws by concealing their ownership of certain microcap stocks.  SEC

September 8, 2014

The SEC charged Minneapolis-based hedge fund manager Steven R. Markusen and his investment advisory firm Archer Advisors LLC with bilking investors in two hedge funds out of more than $1 million under the guise of research expenses and fees.  According to the SEC, Markusen routinely caused the funds to reimburse Archer for fake research expenses, and he eventually routed much of that money to his personal checking account and spent it on country club dues, boarding school tuition, and a Lexus among other luxury items.  SEC

September 3, 2014

The SEC charged Los Angeles-based immigration attorney Justin Moongyu Lee along with his wife Rebecca Taewon Lee and law firm partner Thomas Edward Kent with conducting an investment scheme to defraud foreign investors trying to come to the U.S. through the EB-5 Immigrant Investor Program.  According to the SEC, they raised nearly $11.5 million from two dozen investors seeking to participate in the EB-5 program, which provides immigrants an opportunity to apply for U.S. residency by investing in a domestic project to create jobs for U.S. workers.  The Lees and Kent informed investors that they would be EB-5 eligible if they invested in an ethanol production plant they would build and operate in Ulysses, Kansas.  However, investors’ money was misappropriated for other uses and the plant was never built and the promised jobs never created.  SEC

September 2, 2014

The SEC charged Houston-based investment advisory firm Robare Group Ltd. with recommending that clients invest in particular mutual funds without disclosing a key conflict of interest:  the firm was in turn receiving compensation from the broker offering the funds.  Therefore, unbeknownst to investors, Robare Group and its co-owners Mark L. Robare and Jack L. Jones Jr. had an incentive to recommend these funds to clients over other investment opportunities and generate additional revenue for the firm.  SEC

August 29, 2014

The SEC announced a whistleblower award of more than $300,000 to a company employee who performed audit and compliance functions and reported wrongdoing to the SEC after the company failed to take action when the employee reported it internally.  It is the first award for a whistleblower with an audit or compliance function at a company.  This particular whistleblower award recipient reported concerns of wrongdoing to appropriate personnel within the company, including a supervisor.  But when the company took no action on the information within 120 days, the whistleblower reported the same information to the SEC.  SEC

August 28, 2014

Lynn R. Blodgett and Kevin R. Kyser, the former CEO and CFO of Dallas-based information technology company, Affiliated Computer Services (now owned by Xerox Corporation), agreed to pay roughly $675,000 to settle charges that they mischaracterized resale transactions to inflate the company’s reported revenue. SEC
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