Securities Fraud

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

September 14, 2015

The SEC charged three men with attempting a pump-and-dump scheme that was thwarted by the SEC’s preemptive action to suspend trading in the company’s securities before secretly-controlled shares could be dumped on unsuspecting investors.  The SEC’s complaint alleges that the three men schemed to conceal their control over 40 million shares of Endeavor Power Corp. and artificially inflate Endeavor’s share price through manipulative trading and a campaign of misinformation.  The scheme was thwarted when the SEC suspended trading in Endeavor’s securities on March 8, 2013.  SEC

September 14, 2015

Ukranian-based Jaspen Partners Limited and its CEO Andriy Suprnonok agreed to pay $30 million to settle SEC allegations that they profited from trading on non-public corporate information hacked from newswire services.  Jaspen and Supranonok were two of the traders alleged to have received stolen data hacked from newswire services and transmitted to a web of international traders.  According to the SEC’s complaint, Jaspen and Supranonok made approximately $25 million buying and selling contracts-for-difference (CFDs) on the basis of hacked press releases.  The SEC’s litigation continues against the remaining 32 defendants charged in the case. SEC

September 10, 2015

The SEC charged New York Global Group (NYGG) and its CEO, Benjamin Wey, with secretly obtaining control and manipulating the stock of Chinese companies they were purportedly guiding through the process of raising capital and becoming publicly-traded in the United States.  The SEC alleges that Wey and NYGG structured reverse mergers between clients and publicly-traded shell companies to secretly obtain ownership interests in the newly listed companies, which they concealed through a vast network of foreign accounts.  The SEC alleges they generated tens of millions of dollars in illegal profits as they sold the securities into artificially inflated markets.  In addition to Wey and NYGG, Wey’s wife and sister, their Switzerland-based broker, and two attorneys have been charged as well.  SEC

September 9, 2015

The SEC charged national audit firm BDO USA and five of its partners with dismissing red flags and issuing false and misleading unqualified audit opinions about the financial statements of staffing services company General Employment Enterprises, after failing to obtain reasonable and coherent explanations about why $2.3 million (approximately half of the company’s assets) had gone missing.  In a related action, the SEC filed fraud charges against Stephen Pence, then General Employment Enterprises’ chairman of the board and majority shareholder, and a former U.S. Attorney and lieutenant government of Kentucky.  BDO agreed to admit wrongdoing and pay disgorgement and penalties of $2.1 million.  BDO’s five partners also settled the charges brought against them and agreed to pay $75,000 in penalties collectively.  The SEC’s litigation with Stephen Pence continues.  SEC

September 8, 2015

The SEC charged former CEO and CFO of now-bankrupt video management company KIT Digital with falsifying financial statements to make the company appear more profitable than it was.  The defendants’ variety of schemes, as alleged by the SEC, included an off-the-books slush fund used to generate payments back to KIT to create the false appearance that the company was being paid for its products.  The U.S. Attorney’s Office for the Southern District of New York brought parallel criminal charges against both men.  SEC

September 8, 2015

Financial publishing company Bankrate Inc. agreed to pay a $15 million penalty to settle accounting fraud charges.  The SEC alleged that Bankrate’s then-CFO, Director of Accounting, and Vice President of Finance, engaged in a scheme to fabricate revenues and avoid booking certain expenses to meet analyst expectations for its adjusted earnings before interest, taxes, depreciation, and amortization, a key financial metric known as “EBITDA.”  The SEC charged the three former executives as well.  SEC

September 8, 2015

Sports supplement and nutrition company MusclePharm agreed to pay a $700,000 penalty for committing a series of accounting and disclosure violations, including the omission or understatement of nearly $500,000 worth of perks bestowed upon company executives.  Three current or former executives and the company’s former audit committee chair also agreed to pay penalties of $210,000 collectively to settle related charges brought against them.  SEC

September 2, 2015

Investment advisory firm Taberna Capital Management will pay $21 million to settle charges that it fraudulently retained fees belonging to collateralized debt obligation (CDO) clients.  An SEC investigation found that Taberna did not inform CDO clients that it was retaining payments known as “exchange fees” obtained in connection with restructuring transactions.  Retention of the exchange fees was not permitted by the CDO’s governing documents or disclosed to investors in the CDOs. SEC

August 25, 2015

The SEC obtained court authorization to freeze the assets of Mr. Lobsang Fargey, a Bellevue, Washington man accused of defrauding Chinese investors seeking U.S. residency through the EB-5 program.  The SEC alleged that Dargey and his “Path America” companies raised at least $125 million for two Washington-based real estate projects, but Dargey diverted $14 million for unrelated real estate projects and $3 million for personal use.  The court’s order also restrains Dargey from soliciting additional investors and requires him to repatriate funds transferred to overseas bank accounts.  SEC