Government Enforcement Actions

August 26, 2014

The SEC charged Michael Anthony Dupre Lucarelli, a director of market intelligence at a Manhattan-based investor relations firm, with insider trading ahead of impending news announcements by more than a dozen clients.  According to the government, Lucarelli repeatedly accessed clients’ draft press releases stored on his firm’s computer network prior to public announcements and then routinely purchased stock or call options in advance of favorable news and sold short or bought put options ahead of unfavorable news, garnering nearly $1 million in illicit profits.  SEC

August 22, 2014

The SEC charged California-based telecommunications equipment company AirTouch Communications and its former CEO and CFO with orchestrating a fraudulent revenue recognition scheme under which they improperly recognized as revenue more than a million dollars’ worth of inventory that was shipped to a Florida warehouse but not actually sold.  They’re also accused of defrauding an investor from whom they secured a $2 million loan for the company based on misstatements and omissions associated with the inventory shipments.  SEC

August 21, 2014

Bank of America agreed as part of its record-breaking $16.65 billion mortgage fraud settlement to pay $245 million for failing to inform investors during the financial crisis about known uncertainties to future income from its exposure to repurchase claims on mortgage loans.  SEC

August 18, 2014

The SEC charged Patrick O’Neill, former senior vice president at Eastern Bank in Massachusetts, with insider trading in advance of the bank’s acquisition of Wainwright Bank & Trust Company.  SEC

August 15, 2014

The SEC charged Andrew I. Farmer and his Houston-based penny stock company Chimera Energy for a pump-and-dump scheme that misled investors to believe the company was on the brink of developing revolutionary technology to enable environmentally friendly oil-and-gas production.  According to the SEC, Chimera issued around three dozen press releases in a two-month period about its supposed licensing and development of technology to extract shale oil without the perceived environmental impact of hydraulic fracturing known as fracking.  However, Chimera Energy did not actually license or even possess the technology it touted and had not achieved the claimed results in commercially developing it.  While the stock was being pumped by the false claims, entities controlled by Farmer dumped more than 6 million shares on the public markets for illicit proceeds of more than $4.5M.  SEC

August 14, 2014

The SEC charged New York-based brokerage firm Linkbrokers Derivatives LLC with unlawfully taking secret profits of more than $18M from customers by adding hidden markups and markdowns to their trades.  According to the SEC, Linkbrokers defrauded customers by purporting to charge them very low commission fees, but in reality extracting fees that in some cases were more than 1,000 percent greater than represented.  The scheme was difficult for customers to detect because the brokers charged the markups and markdowns during times of market volatility in order to conceal the false prices they were reporting to customers.  Linkbrokers agreed to pay $14M to settle the SEC’s charges.  SEC

August 11, 2014

As part of its nationwide review of municipal bond offerings, the SEC charged the state of Kansas with failing to properly disclose material pension liabilities and other risks to investors.  According to the SEC’s cease-and-desist order, the state’s offering documents failed to disclose the state’s pension system was significantly underfunded and created a repayment risk for investors in those bonds.  The SEC previously sanctioned New Jersey for failing to disclose to investors that it was underfunding the state’s two largest pension plans.  It also charged Illinois last year for its misleading pension disclosures.  SEC

August 8, 2014

The SEC charged Bahamas-based brokerage firm Alliance Investment Management Limited (AIM) and its president Julian R. Brown with misrepresenting themselves as the “custodian” for assets under the management of hedge fund manager Nikolai Battoo when they did not have such custody.  They also allowed Battoo to create false account statements on AIM letterhead that vastly overstated the value of investors’ assets by more than $150 million.  Brown and AIM then routinely provided the false account statements to auditors and others acting on behalf of Battoo’s investors.  SEC

August 8, 2014

The SEC charged New York-based brokerage firm Crucible Capital Group and its founder Charles “Chuck” Moore for allegedly violating net capital requirements and falsifying books and records to conceal the capital deficiencies.  According to the SEC, they attempted to disguise the firm’s extensive net capital insufficiencies by improperly off-loading its liabilities onto the books of an affiliated firm and improperly treating non-marketable stock as an allowable asset.  Moore went so far as to try to hide Crucible’s true financial condition from SEC examiners by providing them doctored invoices that sought to mask the extent of those liabilities.  SEC

August 7, 2014

The SEC charged Anthony G. Blumberg, the former CEO of a broker-dealer subsidiary of ConvergEx Group LLC, with deceiving brokerage customers with hidden fees to buy and sell securities.  According to the SEC, the scheme entailed concealing the practice of routing orders to an offshore affiliate in Bermuda to add mark-ups or mark-downs.  The hidden fees known as “trading profits” were in addition to and often much higher than the commissions paid by customers to have their orders executed.  The charges against Blumberg follow those announced in December by the SEC against three ConvergEx subsidiaries that agreed to pay more than $107 million and admit wrongdoing to settle the matter.  SEC