Misrepresentations

November 5, 2015

The SEC filed securities fraud charges against Scottish trader James Alan Craig based on false “tweets” authored by Craig which caused sharp drops in the stock prices of two companies.  Craig created fake twitter accounts designed to look like the twitter accounts of well-known securities research firms.  His false tweets, claiming that the target companies were under investigation, caused the share price of Audience, Inc. to fall 28% and the share price of Sarepta Therapeutics, Inc. to fall 16%.  Craig bought and sold shares of the two companies in a largely unsuccessful attempt to profit from the sharp price swings.  SEC

October 19, 2015

UBS advisory firms, UBS Willow Management LLC and UBS Fund Advisor LLC, agreed to pay $17.5 million to settle SEC charges arising from a failure to disclose a change in investment strategy used by UBS Willow Fund, a closed-end fund they advised.  UBS Willow Fund was marketed as one that primarily invested in distressed debt, a strategy predicated on the debt increasing in value.  In 2008, instead of focusing on investments in debt, UBS Willow Management had the fund purchase large quantities of credit default swaps, a strategy predicated on the debt decreasing in value.  Due to this change in strategy, the fund started incurring large losses and was liquidated in 2012.  UBS Willow Management did not provide adequate disclosure of the change in investment strategy to the fund’s investors or board of directors.  UBS Fund Advisor, which retained ultimate control over the fund, was aware of the change in investment strategy and failed to provide appropriate supervision by allowing the change without adequate disclosure.  SEC

October 13, 2015

UBS AG will pay $19.5 million to settle charges that it made false or misleading statements and omissions in offering materials provided to U.S. investors in structured notes linked to a proprietary exchange trading strategy.  This is the first case by the SEC involving misstatements and omissions by an issuer of structured notes, a complex financial product that typically consists of a debt security with a derivative tied to the performance of other securities, commodities, currencies, or proprietary indices.  The return on the structured note is linked to the performance of the derivative over the life of the note.  UBS, one of the largest issuers of structured notes in the world, settled the SEC’s charges that it misled U.S. investors in structured notes tied to the V10 Currency Index with Volatility Cap by falsely stating that the investment relied on a “transparent” and “systematic” currency trading strategy using “market prices” to calculate financial instruments underlying the index, when, in fact, undisclosed hedging trades by UBS reduced the index price by about 5%.  SEC

October 1, 2015

The SEC announced fraud charges and an asset freeze against the operator of a worldwide pyramid scheme.  California resident Steve Chen and 13 California-based entities, including USFIA Inc. are at the center of the alleged scheme.  According to the SEC’s complaint, USFIA and Chen’s other entities have raised more than $32 million from investors in and outside the U.S. since at least April 2013.  The SEC alleges that Chen and his companies misled investors about a lucrative public offering for USFIA that never happened and about ownership of amber deposits worth billions of dollars.  In addition, the SEC alleges that investors were told their holdings had been converted into “Gemcoins,” a virtual currency supposedly backed by the company’s amber holdings, but which were actually worthless.  SEC

September 30, 2015

Focus Media Holding Limited and its CEO Jason Jiang will pay $55.6 million to settle charges of inaccurate disclosures about the company’s partial sale of subsidiary Allyes Online Media Holdings Ltd. to insiders, including Jiang.  In March 2010, Focus Media sold a 38 percent stake in Allyes to company insiders such as Jiang.  The sales price to these insiders represented an implied value of $35 million for the entire subsidiary and was claimed to be based on an independent third-party valuation.  However, unknown to shareholders, before the sale was finalized, a private equity firm had begun discussions with Allyes about acquiring the company for $150 million to $200 million.  The SEC alleges that Allyes asked the potential acquirer to “hold off the deal” until the insiders’ purchase was finalized.  Three months after the insider sale, Focus Media announced that Allyes had been sold to the private equity firm for an amount that valued it at $200 million.  SEC

September 30, 2015

The SEC charged David Godwin and Anthony Roth, former executives of ContinuityX, a now bankrupt company that claimed to sell internet services to businesses, with financial fraud.  The SEC alleges that Godwin and Roth engineered a scheme to inflate ContinuityX’s revenues.  ContinuityX reported revenues of $27.2 million from April 2011 to September 2012, but the SEC alleges that 99 percent came from fraudulent and fictitious sales.  Godwin and Roth used the allegedly fraudulent SEC filings to raise millions of dollars from investors in a private offering of ContinuityX securities.  SEC

September 25, 2015

The SEC charged four former SMF Energy Corp. officers with financial fraud by vastly inflating SMF Energy’s revenues through a fraudulent billing scheme.  The SEC alleges that SMF Energy overbilled certain mobile fueling customers, including the U.S. Postal Service, by charging for fuel that was not delivered and adding surcharges that the customers’ contracts did not permit.  As a result, the SEC alleges that SMF Energy materially overstated its revenues, profit margins, shareholders’ equity and net income.  According to the SEC’s complaint, the overbilling began in 2004 as a minor contributor to SMF Energy’s financial performance but later made the difference between the company being profitable and posting net losses. SEC

September 23, 2015

The SEC announced and settled charges against two Philadelphia-area men, William Fretz and John Freeman, and their investment advisory firm, Covenant Capital Management Partners, L.P., for defrauding their friends and family in connection with their private equity fund, Covenant Partners, L.P.  The men sold partnership interests in the fund to family and friends but rather than investing the money as promised, they used it to benefit themselves and a failing business, Keystone Equities Group L.P.  Under the settlement, the respondents will owe approximately $6.8 million to the SEC which will distribute collected money to harmed investors.  SEC

September 18, 2015

An attorney, two audit firms, and seven audit professionals have agreed to settle SEC charges filed in January alleging that they engaged in a microcap scheme that the agency stopped in its tracks when it suspended the registration statements used for sham offerings in 20 purported mining companies.  SEC

September 17, 2015

The SEC settled charges brought against four former officials of clearing firm Penson Financial Services.  The SEC investigation found that Penson’s publicly-traded holding company, Penson Worldwide, provided customers nearly $100 million in margin loans secured by risky, unrated municipal bonds which became impaired during the financial crisis.  Instead of liquidating the collateral, accounting for its losses, and disclosing the situation to investors, Penson extended more loans to these customers in violation of federal margin regulations.  The eventual accounting and disclosure of the resulting $60 million in loan losses contributed to Penson’s bankruptcy in 2013.  The four Penson officials collectively agreed to pay $175,000 in penalties.  SEC