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SEC Enforcement Actions

The Securities and Exchange Commission (SEC) is the United States agency with primary responsibility for enforcing federal securities laws. Whistleblowers with knowledge of violations of the federal securities laws can submit a claim to the SEC under the SEC Whistleblower Reward Program, and may be eligible to receive  monetary rewards and protection against retaliation by employers.

Below are summaries of recent SEC settlements or successful prosecutions. If you believe you have information about fraud which could give  rise to an SEC enforcement action and claim under the SEC Whistleblower Reward Program, please contact us to speak with one of our experienced whistleblower attorneys.

October 15, 2014

The SEC announced an enforcement action against former Wells Fargo Advisors compliance officer Judy K. Wolf for allegedly altering a document before it was provided to the SEC during an investigation and then lying about it.  The SEC previously charged Wells Fargo in the case, and the firm agreed to pay $5M settle the charges.  Prior to the enforcement action, Wells Fargo placed Wolf on administrative leave and ultimately terminated her employment.  SEC

October 9, 2014

The SEC brought an enforcement action against current and former brokerage subsidiaries of E*TRADE Financial Corporation that failed in their gatekeeper roles and improperly engaged in unregistered sales of microcap stocks on behalf of their customers.  Specifically, the SEC found that E*TRADE Securities and E*TRADE Capital Markets sold billions of penny stock shares for customers during a four-year period while ignoring red flags the offerings were being conducted without an applicable exemption from the registration provisions of the federal securities laws.  E*TRADE Securities and E*TRADE Capital Markets (now G1 Execution Services) agreed to settle the SEC’s charges by paying back more than $1.5 million in disgorgement and prejudgment interest from commissions they earned on the improper sales.  They also must pay a combined penalty of $1 million.  SEC

September 30, 2014

The SEC charged two individuals for insider trading on a prominent hedge fund manager’s announcement that his hedge fund had formed a negative view of Herbalife Ltd. and taken a $1 billion short position in its securities.  Specifically, the SEC’s orders find that Filip Szymik of New York City and Jordan Peixoto of Toronto engaged in insider trading in Herbalife securities in advance of hedge fund manager William Ackman’s December 20, 2012 announcement of the views of his hedge fund, Pershing Square Management, L.P.  SEC

September 29, 2014

Bank of America Corporation agreed to pay a $7.65 million penalty for violating internal controls and recordkeeping provisions of the federal securities laws after it assumed a large portfolio of structured notes and other financial instruments as part of its acquisition of Merrill Lynch.  SEC

September 29, 2014

The SEC charged former Vision Broadcast Network CEO Erick Laszlo Mathe and consultant Ashif Jiwa with defrauding investors in a purported startup television network and production company by providing false information about its revenues and future prospects, including that former basketball star Michael Jordan planned to invest in the company.  Specifically, the SEC alleges the two raised at least $5.7 million in startup capital from approximately 100 investors by  misrepresenting that Vision Broadcast owned low-power television stations as well as 70 broadcast licenses to operate additional low power television stations estimated to be worth $400 million once the television stations became operational.  Vision Broadcast meanwhile funneled hundreds of thousands of dollars in investor funds to companies controlled by Mathe or Jiwa in the form of purported professional and consulting services that were never provided.  SEC

September 26, 2014

The SEC charged Charles S. Wang, Qian Cathy Zhang and Francis Y. Yuen, operators of Hong Kong-based eAdGear Holdings Limited and California-based eAdGear, Inc., with running an international pyramid scheme that raised more than $129 million from investors worldwide, primarily in the U.S., China, and Taiwan.   According to the SEC, even though eAdGear claimed to be a successful Internet marketing company, nearly all of its revenue was generated by investors, not its products or services and eAdGear’s operators used money from new investors to pay earlier investors as well as to repay a personal loan and purchase million-dollar homes for themselves. SEC

September 25, 2014

Scottsdale, Arizona-based software company JDA Software Group Inc. agreed to pay a $750,000 penalty for having inadequate internal accounting controls over its financial reporting, which resulted in misstated revenues in public filings.  Specifically, the SEC found the company failed to properly recognize and report revenue from certain software license agreements it sold to customers because its internal accounting controls failed to consider information needed for determining a critical component of revenue recognition for software companies.  SEC

September 25, 2014

The SEC suspended trading for the following nine penny stocks as part of an ongoing enforcement initiative to combat microcap fraud: All Grade Mining Inc. (HYII); Bluforest Inc. (BLUF); DHS Holding Co. (DHSM); Essential Innovations Technology Corp. (ESIV); Global Green Inc. (GOGC); Inova Technology Inc. (INVA); mLight Tech Inc. (MLGT); Solar Thin Films Inc. (SLTZ); and Xumanii International Holdings Corp. (XUII).  SEC

September 24, 2014

The SEC charged Silicon Valley-based software company Saba Software, and two former Saba executives Patrick Farrell and Sajeev Menon, with accounting fraud involving falsified timesheets to hit quarterly financial targets.  An SEC investigation found that Farrell and Menon were atop a scheme at Saba in which managers based in the US directed consultants in India to either falsely record time they had not yet worked, or purposely fail to record hours worked during certain pay periods to conceal budget overruns from management and finance divisions.  This enabled Saba to achieve its quarterly revenue and margin targets by improperly accelerating and misstating virtually all its professional services revenue.  Saba agreed to pay $1.75 million to settle the SEC’s charges.  SEC

September 23, 2014

The SEC charged a Florida-based penny stock company Heathrow Natural Food & Beverage Inc. and its CEO Michael S. Pagnano with defrauding investors by issuing false and misleading press releases proclaiming large sales and fantastic revenue projections while the purported health food company actually was a failing enterprise.  According to the SEC, Heathrow touted sales of natural health food products that the company had not even manufactured as well as non-existent distribution agreements with major retail chains.  Meanwhile, Pagnano was prompting the illegal, unregistered distribution of billions of shares of company stock to several people or entities, including himself.  SEC
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