Whistleblower Group

July 28, 2014

Peter A. Jensen, former chief operating officer at Harbinger Capital Partners, agreed to pay $200,000 to settle charges he assisted a scheme by the firm and its owner Philip A. Falcone to misappropriate millions of dollars from a hedge fund they managed to pay Falcone’s personal taxes.  Falcone and Harbinger consented to a settlement last year in which they agreed to pay more than $18M and admit wrongdoing.  SEC

July 28, 2014

Massachusetts-based firearm manufacturer Smith & Wesson agreed to pay $2M to settle charges it violated the Foreign Corrupt Practices Act (FCPA) by providing guns and cash to Pakistani police officials in order to win a contract with the Pakistani police department.  SEC

July 25, 2014

Citigroup business unit LavaFlow, Inc., which operates an alternative trading system (ATS), agreed to pay $5M to settle charges of failing to protect the confidential trading data of its subscribers.  The payment includes a $2.85M penalty which is the SEC’s largest to date against an ATS.  SEC

July 24, 2014

Morgan Stanley agreed to pay $275M to settle charges of misleading investors in a pair of residential mortgage-backed securities (RMBS) securitizations it underwrote, sponsored, and issued.  In an asset-backed securities offering, federal regulations under the securities laws require the disclosure of delinquency information for the mortgage loans serving as collateral.  Morgan Stanley allegedly misrepresented the current or historical delinquency status of mortgage loans underlying two subprime RMBS securitizations that came against a backdrop of rising borrower delinquencies and unprecedented distress in the subprime market.  SEC

July 18, 2014

The SEC charged Christopher Plummer, a serial con artist and Lex M. Cowsert, the CEO of penny stock company CytoGenix, with misleading investors in a supposed vaccine development company by issuing false press releases portraying it as a successful venture when it was in fact a failing enterprise.  Specifically, the government alleged that Plummer and Cowsert teamed up to defraud investors with extravagant claims about the company’s revenues flowing from a “shared revenue agreement” with Franklin Power & Light, an electricity provider supposedly operated by Plummer.  However, Plummer’s entity was a complete sham and CytoGenix had actually lost all its vaccine patents and other intellectual property in a lawsuit.  SEC

July 17, 2014

The SEC charged the CEO and president of a supposed merchant banking firm, braxas “A.J.” Discala and Marc E. Wexler, with teaming up with brokers and the CEO of the medical education company CodeSmart, Ira Shapiro, to inflate the price of the company’s stock and profit at the expense of the brokers’ customers.  According to the SEC, they acquired 3 million restricted shares of CodeSmart stock following its reverse merger into a public shell company in May 2013, and improperly flooded the market with the shares as though they were unrestricted.  CodeSmart’s stock price crashed from a peak of nearly $7 per share to where it is currently trading at below 10 cents.  SEC

July 17, 2014

The SEC charged Dennis H. Daugs Jr., owner of Seattle-based investment advisory firm Lakeside Capital Management, with fraudulently misusing millions of dollars in client assets to make loans to himself to buy a luxury vacation home and refinance a rare vintage automobile.  SEC

July 16, 2014

The SEC charged Natural Blue Resources Inc. with concealing from investors that two lawbreakers actually ran the company.  According to the SEC, the company was to create, acquire, or otherwise invest in environmentally-friendly companies.  What investors didn’t know was that two individuals with prior fraud violations — James E. Cohen and Joseph Corazzi — secretly controlled the operational and management decisions of Natural Blue while calling themselves outside “consultants.”  SEC

July 14, 2014

Ernst & Young agreed to pay more than $4M to settle charges of violating auditor independence rules that require firms to maintain their objectivity and impartiality with clients.  The SEC found that an Ernst & Young subsidiary lobbied congressional staff on behalf of two audit clients.  Such lobbying activities were impermissible under the SEC’s auditor independence rules because they put the firm in the position of being an advocate for those audit clients.  Despite providing the prohibited legislative advisory services on behalf of the clients, Ernst & Young repeatedly represented that it was “independent” in audit reports issued on the clients’ financial statements.  SEC

July 2, 2014

The SEC charged five traders for committing short selling violations while trading for themselves and Worldwide Capital Inc.  This is the Long Island, N.Y.-based proprietary firm that in March paid $7.2M, the largest-ever monetary sanction, for Rule 105 violations.  Rule 105 prohibits the short sale of an equity security during a restricted period – generally five business days before a public offering – and the subsequent purchase of that same security through the offering.  SEC