This week the jury began deliberations in the Robert
Allen Stanford Ponzi scheme case without hearing from Mr. Stanford despite
promises to the contrary from defense counsel at the beginning of the trial.
Granger announced an SEC FCPA probe centered on the use of gift cards in China.
The Chairman and three Commissions spoke at the annual
SEC Speaks conference. The topics included a review of recent management
changes and rule writing efforts, issues in failure to supervise cases,
disclosure obligations in the wake of Citizens United and concerns about
the Volker Rule and its impact.
SEC Enforcement announced partial settlements in two high
profile cases. In the long running Nacchio financial fraud action the
Commission settled with one defendant while dropping charges against another.
In an insider trading case centered on expert network Primary Global, the SEC
settled with two former employees of the firm who previously pleaded guilty to
criminal charges and are cooperating with the government and the SEC.
Finally, the Commission brought FCPA charges against
three former employees of Nobel Corporation. One employee settled while the
other two are litigating.
Identity theft: The
SEC, in conjunction with the CFTC, issued a proposed Rule under Section 1088 of
Dodd-Frank regarding identity theft. Specifically, the rule will require SEC
regulated entities to adopt a written identity theft program that would include
reasonable policies and procedures to identify relevant red flags and respond
appropriately. The rule is modeled on one adopted by the FTC in 2007 (here).
Unauthorized Trading: The
Office of Compliance, Inspections and Examinations issued a risk alert
regarding unauthorized trading (here).
SEC Speaks: Remarks
by the Chairman and Commissioners at the annual program included:
David Blass, Chief Counsel, Division of Trading and
Markets, delivered remarks at the recent SIFMA Conference titled Broker-Dealer
Anti-Money Laundering Compliance - Learning Lessons from the Past and Looking
to the Future (February 29, 2012). His comments (here)
SEC Enforcement: Filings and settlements
Insider trading: SEC v. Longoria, Civil
Action No. 11-cv-0753 (S.D.N.Y.) is an action against, among others, Jason
Pflaum and Walter Shimoon. Both defendants were previously employed at expert
network firm Primary Global Research LLC. As to Mr. Pflaum, the complaint
alleges that he obtained inside information regarding several companies and
furnished it to co-defendant Samir Barai who caused his fund Barai Capital,
where Mr. Pflaum was previously employed, to trade. Mr. Pflaum pleaded guilty
previously to criminal charges based on the same scheme and is cooperating with
the government and the SEC. The court entered a final judgment against Mr.
Pflaum which permanently enjoins him from future violations of Securities Act
Section 17(a) and Exchange Act Section 10(b). It orders him to pay disgorgement
of $101,943.00 and prejudgment interest. A civil penalty was not sought in view
of his cooperation. Mr. Pflaum also consented to an order barring him from the
securities business in a separate administrative proceeding.
As to Mr. Shimoon, the complaint alleges that he provided
inside information regarding his former employer, Flextronics International
Ltd., to co-defendant Bob Nguyen, an employee of Primary Global, and to the
firm's clients, who traded. Mr. Shimoon pleaded guilty in a related criminal
case and is cooperating with the government and the SEC. A final judgment was
entered against Mr. Shimoon which enjoins him from violations of Exchange Act
Section 10(b) and orders him to pay disgorgement of $44,175.00 along with
prejudgment interest. It also bars him from serving as an officer or director
of a public company. Based on his cooperation no request for a penalty was
Financial fraud: SEC v. Nacchio,
Civil Action No 05-cv-480 (D. Colo.) is the Commission's long running financial
fraud action centered on events at Qwest Communications from early 1999 through
2002. The defendants are former CEO Joseph Nacchio, CFO Robert Woodruff,
president and COO Afshin Mohebi, director of financial reporting James
Kozlowski and senior manager and then director of financial reporting Frank
The complaint focused on what it called a massive fraud
which concealed the true source and nature of Qwest's revenue and earnings
growth. During the time period Qwest touted its claimed growth in service
contacts that were suppose to provide a continuing revenue stream when in fact
they came from one time sales of assets. Mr. Woodruff settled, consenting to
the entry of a permanent injunction without admitting or denying the
allegations in the complaint, prohibiting future violations of Securities Act
Section 17(a) and Exchange Act Sections 10(b) and 13(b)(5) and from aiding and
abetting violations of Sections 13(a) and 13(b)(2). In addition, he agreed to
pay disgorgement of $1,731,048 along with prejudgment interest and a civil
penalty of $300,000. He will also be barred from serving as a director or
officer of a public company. Mr. Noyes had been charged with violations of each
of the sections cited in Mr. Woodruff's settlement. The Commission dropped all
charges against him.
Investment fund fraud: U.S. v. Wise (N.D.
Ca.) is an action against William Wise and Melinda Haag. It alleges that the
two defendants sold fraudulent certificates of deposit to more than 1,200
individuals. Investors paid over $129.5 million for the CDs which were claimed
to pay returns in some instances of more than 16%. The funds were suppose to be
put in overseas investments. Instead they were diverted to the personal use of
the defendants and to pay other investors. At the time the scheme was shut down
by the SEC more than $75 million had been lost. The indictment charges
conspiracy, mail and wire fraud, money laundering, tax fraud, obstruction of
justice and making false statements.
SEC v. Jackson (S.D.
Tx. Filed Feb. 24, 2012) and SEC v. O'Rourke, (S.D.Tx. Filed Feb. 24,
2012) are FCPA actions against three Nobel Corporation executives. The former
names as defendants Mark Jackson, former CEO of the company and James Ruehlen,
current Director and Division Manager of the firm's subsidiary in Nigeria. The
latter names as a defendant Thomas O'Rourke, former controller and head of
internal audit at Nobel. The focus of the scheme was to permit the company to
keep its drilling equipment in the country and avoid significant import
charges. Specifically, temporary import permits allowed the rigs to be in the
country for one year. Officials could grant up to three extensions of six
months each. After that the rigs had to be exported and then re-imported under
a new temporary permit. This required the payment of sizable duties.
Messrs. Jackson and Ruehlen are alleged to have arranged
and facilitated the payment of bribes to induce Nigerian customs officials to
grant new permits and extend others. The two men arranged to pay hundreds of
thousands of dollars in bribes to obtain eleven illicit permits and twenty-nine
extensions, according to the complaint. Mr. Jackson is also alleged to have
approved the bribe payments and concealed them from the audit committee and
auditors. Mr. Ruehlen prepared false documents for the bribes, according to the
charging papers. The complaint against Messrs. Jackson and Ruehlen alleges
violations of Exchange Act Sections 30A, 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5).
The case is in litigation.
The complaint against Mr. O'Rourke claims that he aided
and abetted violations of the bribery, books and records and internal control
provisions of the FCPA and that he directly violated the internal control and
false records provisions of the Exchange Act. Mr. O'Rourke settled with the
SEC, consenting to the entry of a permanent injunction, without admitting or
denying the allegations in the complaint, which prohibits future violations of
Exchange Act Sections 13(b)(2)(A), 12(b)(2)(B, 12(b)(5) and 30A. He also agreed
to pay a civil penalty of $35,000.
Previously, Nobel Corporation was charged with FCPA
violations. The firm entered into a non-prosecution agreement with the
Department of Justice and settled with the SEC (here).
For more cutting edge commentary on
developing securities issues, visit SEC Actions, a
blog by Thomas Gorman.
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