This Week In Securities Litigation (March 12, 2010)

Capital Hill continued to debate market reform this week with the introduction of the Volker Rule bill in the Senate. SEC enforcement focused on resolving financial fraud and Ponzi scheme cases, while the appellate section at FINRA reversed a panel decision for a lack of evidence in a failure to supervise case. In private cases, another derivative suit based on option backdating claims reached a tentative resolution. And, in the U.K. the FSA obtained its first insider trading conviction against a market professional.

Market reform

The Volker Rule bill was introduced in the Senate this week. The bill is titled The Protect our Recovery through Oversight of Proprietary Trading Act or PROP Trading Act. Its focus is on banks and their holding companies. If enacted, the bill would bar proprietary trading desks from high risk speculation and impose capital requires and position limits for non-bank financial institutions engaged in speculative trading.

SEC enforcement actions

Financial fraud: In the Matter of Robert John Hipple, Adm. Proc. File No. 3-13543 (Mar. 11, 2010) is an action against the former CEO and CFO of defunct iWorld Projects & Systems, Inc., a business development company. Mr. Hipple, according to the Order, overstated the value of the investment portfolio of the company - its primary asset - in three of the four quarters in 2005. He also misled the auditors regarding whether there was an independent evaluation of the worth of the asset. The Order is based on alleged violations of the antifraud provisions and Section 57(a)(1) of the Investment Company Act, as well as the certification provisions of Sarbanes Oxley. Mr. Hipple consented to the entry of a cease and desist order, a five year officer director bar and an order precluding him from serving with a registered investment company for five years. He also agreed to be denied the right to practice before the Commission as an accountant. The Division of Enforcement was given permission to reopen the proceeding and seek a financial penalty when the Respondent furnishes accurate and complete financial information.

Broker fraud: SEC v. Vianna, Case No. 10 Civ. 1842 (S.D.N.Y. Filed Mar. 10, 2010) is an action against a former registered representative at Maxim Group, Jose Vianna. According to the complaint, Mr. Vianna would place trades for the account of a large institutional client which was a Spanish bank and Creswell Equities, a British Virgin Islands Company. When the bank trades were profitable, they were diverted to the Creswell account. Conversely, when a trade for Creswell was unprofitable it was diverted to the bank. This was done 57 times over a two year period beginning in 2007. The complaint alleges violations of the antifraud provisions. The case is in litigation. See also Litig. Rel. 21446 (Mar. 10, 2010).

Financial fraud: SEC v. Lapine, Case No. C-0103650 (N.D. CA. Filed Sept. 27, 2001) is an action against Jay Lapine, former General Counsel to HBOC and, after its merger with McKesson to the HBOC division of McKesson HBOC. The complaint, based on claims centered in 1998 and 1999, alleges that Mr. Lapine discovered that the company was falsifying its books by improperly recognizing revenue. Rather than halting the scheme, he participated in two transactions used to improperly boost earnings and help the company reach revenue goals. To resolve the case with the Commission, Mr. Lapine consented to the entry of a permanent injunction prohibiting future violations of the antifraud and reporting provisions. He also agreed to the entry of a five year officer/director bar and to pay a $60,000 civil fine. In 2007 other officers of the company settled with the SEC. See also Litig. Rel. 21444 (Mar. 10, 2010).

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