Securities Fraud

March 8, 2016

The SEC charged fund manager Steven Zoernack and his firm EquityStar Capital Management with operating without registration, providing false and misleading data to investors, and actively hiding Zoernack’s checkered past, including two felony fraud convictions and a bankruptcy filing.  SEC

March 7, 2016

The SEC charged the Rhode Island state agency now known as the Rhode Island Commerce Corporation and its bond underwriter Wells Fargo Securities with defrauding investors in connection with a municipal bond offering to finance a start-up video game company called 38 Studios.  The Rhode Island agency loaned $50 million in bond proceeds to 38 Studios.  However, the bond offering documents produced by the agency and Wells Fargo failed to disclose that 38 Studios had conveyed it needed at least $75 million in funding to produce a particular video game.  Therefore, investors were not fully informed that 38 Studios faced a funding shortfall even with the loan proceeds.  When 38 Studios was unable to obtain additional financing, the company defaulted on the loan.  The SEC also charged Wells Fargo’s lead banker on the deal and two Rhode Island agency executives with aiding and abetting the fraud.  The SEC’s complaint further alleges that Wells Fargo and the lead banker on the 38 Studios deal failed to disclose that Wells Fargo had a side deal with 38 Studios which enabled it to receive nearly double the amount of compensation disclosed in offering documents.  SEC

March 23, 2016

Gilbert G. Lundstrom, the former CEO of TierOne Bank -- a $3 billion publicly-traded commercial bank formerly headquartered in Lincoln, Nebraska -- was sentenced to 132 months in prison and to pay a $1.2 million fine for orchestrating a scheme to defraud TierOne’s shareholders and to mislead regulators by concealing more than $100 million in losses on loans and declining real estate.  DOJ

March 1, 2016

March 1, 2016 – Telecommunications company Qualcomm Inc. will pay $7.5 million to settle charges that it violated the Foreign Corrupt Practices Act (FCPA) by hiring relatives of Chinese government officials involved with the decision of whether to purchase Qualcomm’s mobile technology products.  An SEC investigation also found Qualcomm provided gifts, travel, and entertainment to officials at government-owned telecom companies in China in an attempt to influence their purchasing decisions.  SEC

February 18, 2016

February 18, 2016 – Telecommunications provider VimpelCom Ltd. will pay $795 million in a global settlement with the SEC, DOJ, and Dutch regulators to resolve allegations that it violated the Foreign Corrupt Practices Act (FCPA) in connection with its business in Uzbekistan.  The SEC alleges that Vimpelcom offered and paid bribes to an Uzbek government official related to the President of Uzbekistan, as the company entered the Uzbek market and sought government-issued licenses, frequencies, channels, and number blocks.  At least $114 million in bribe payments were funneled through an entity affiliated with the Uzbek official.  The SEC’s press release announcing the settlement described VimpelCom’s revenues in Uzbekistan as a result of the improper payments as “massive.”  VimpelCom will pay $167.5 million to the SEC, $230.1 million to the DOJ, and $397.5 million to Dutch regulators.  SEC

February 17, 2016

February 17, 2016 – Former Deutsche Bank research analyst Charles Grom will pay $100,000 and be suspended from the security industry for one year, to settle SEC charges that he certified the rating on a stock that was inconsistent with his personal view.  An SEC investigation found that Grom certified that his March 29, 2012 report about discount retailer Big Lots accurately reflected his own beliefs about the company and its securities.  But in private communications with Deutsche Bank research and sales personnel, Grom indicated that he did not downgrade Big Lots from a “buy” recommendation because he wanted to maintain his relationship with Big Lots management.  SEC

February 16, 2016

February 16, 2016 – Massachusetts-based technology company PTC Inc. and its Chinese subsidiaries will pay more than $28 million to settle civil and criminal actions involving violations of the Foreign Corrupt Practices Act (FCPA).  An SEC investigation found that two Chinese subsidiaries of PTC provided non-business related travel and other improper payments to various Chinese government officials in an effort to win business.  Specifically, the SEC’s order found that from 2006 to 2011, PTC’s subsidiaries provided improper travel, gifts, and entertainment totaling nearly $1.5 million to Chinese government officials.  PTC gained nearly $11.8 million in profits from contracts with state-owned entities whose officials received the improper payments.  PTC will pay about $13.6 million to settle the SEC’s charges and its Chinese subsidiaries will pay $14.54 million in a non-prosecution agreement with the DOJ.  The SEC also announced its first deferred prosecution agreement with an individual in an FCPA case.  The SEC agreed to defer for three years, FCPA charges against Yu Kai Yuan, a former employee of one of PTC’s Chinese subsidiaries, based on his significant cooperation with the SEC’s investigation.  SEC

February 11, 2016

February 11, 2016 – The SEC charged unregistered broker Gregory Ruehle with fraudulently selling purported stock in medical device company ICB International while pocketing investors’ money and using it to pay gambling debts.  The SEC alleges that Ruehle raised approximately $1.9 million from over 100 investors by claiming that he would sell them his personally-owned securities in ICB International.  However, Ruehle sold far more shares than he in fact owned, owned shares that were non-transferable, and fabricated documents purportedly transferring the shares.  In a parallel action, the U.S. Attorney’s Office for the Southern District of California announced criminal charges against Ruehle.  SEC

February 23, 2016

Las Vegas resident Joseph Micelli was sentenced to 60 months in prison and to pay $5.65 million in restitution and to forfeit $505,220 in fraudulent proceeds for his role in an investment fraud scheme that promoted fraudulent investment opportunities and caused more than $5 million in losses to investors.  Micelli admitted he conspired with others in the U.S. and Switzerland to promote investments and loan instruments he knew to be fraudulent.  They did so through a Swiss company known as the Malom Group A.G.  Micelli further admitted he held himself out to investors as an attorney, when in fact he had lost his license to practice law.  DOJ