Misrepresentations

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

September 18, 2014

Investment advisory firm Strategic Capital Group LLC agreed to pay nearly $600,000 to settle SEC charges it engaged in hundreds of principal transactions through its affiliated broker-dealer without informing clients or obtaining their consent.  The SEC also charged the company with distributing false and misleading advertisements to investors.  SEC

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 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

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 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 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