SEC Files Action Based on Misappropriation of Pre-IPO Shares

The SEC filed a fraud action based on the misappropriation of shares of a private firm held by investors through an LLC. The shares were then resold and reissued to other investors. SEC v. Kumar, Civil Action No. 23145 (N.D. Cal. Filed December 2, 2014). Defendant Vinay Kumar Nevatia solicited real...

How Falsifying Compliance With a Lease Became Securities Fraud

The CEO and CFO of a successful senior living firm sought to expand the business by acquiring the operations of another firm and leasing its facilities. Despite warnings that the lease terms were far to onerous, the deal was concluded. The result was securities fraud, according to a proceeding filed...

This Week in Securities Litigation (December 5, 2014)

The SEC filed a series of actions in the last two weeks which included a break for the Thanksgiving holiday. One action focused on a Swiss investment firm giving advise in the U.S. without registering with the Commission. That case was resolved in a settlement that included admissions of violating the...

Bank, CFO Settle Accounting Charges with SEC

The SEC filed settled accounting actions with a financial institution and its CFO, keyed to a restatement. The accounting issue focused on deferred tax assets and the failure to have the related reserve. In the Matter of Hampton Roads Bankshares, Inc., Adm. Proc. File No. 3-16296 (Dec. 5, 2014); In the...

SEC Charges Eight Audit Firms Charged With Independence Violations

The broken windows approach of filing groups of actions together which center on common theme is expanding to auditor independence. The Commission grouped proceedings naming as Respondents eight audit firms. Each Order alleges violations of the independence rules. In each instance the audit firm conducted...

Forum Selection For SEC Cases – District Court or Administrative Proceeding?

In late September the SEC filed a settled insider trading case against an associate of an unregistered investment adviser. In the Matter of Richard O’Leary, Adm. Proc. File No. 3-16166 (September 25, 2014). The next week the agency filed another settled insider trading case as an administrative...

The Second Circuit Defines Tippee Liability and the Personal Benefit Test

Todd Newman and Anthony Chiassons, remote tippees, three to four steps removed from the source of the inside information about pending earnings announcements for Dell, Inc. and NVIDIA, were convicted of insider trading. In reviewing their convictions for insider trading, the Second Circuit stated: “...

This Week In Securities Litigation (December 12, 2014)

The Second Circuit took center stage this week, handing down a decision which reversed the insider trading convictions of two remote tippees. The decision circumscribes tippee liability by defining the elements of a claim and resurrecting the personal benefit test crafted by the Supreme Court in Dirks...

SEC Brings Microcap Fraud Actions Against Unregistered Broker, Oil and Gas Company Executives

The Commission continues to focus on microcap fraud actions with two new manipulation cases involving penny stocks. In one a former registered representative acted as an unregistered broker and then engaged in a series of wash sales. In the Matter of Paul J. Pollack, Adm. Proc File No. 3-16316 (December...

This Week in Securities Litigation (December 19, 2014)

The Commission brought two FCPA cases this week, one of which was in conjunction with the DOJ. Both centered on the payments for gifts and travel in China. In addition, the SEC filed three manipulation cases, an action centered on a boiler room, three offering fraud actions, a proceeding centered...

This Week in Securities Litigation (Holiday Wrap-Up Edition)

Through the holidays (Dec. 19 – 31, 2014) the Department of Justice and the SEC continued to file securities enforcement actions. The Department brought an FCPA case which is now number two on the top ten list for amounts paid to resolve corruption charges. Alstom and certain subsidiaries pleaded...

This Week in Securities Litigation (The Week Ending January 9, 2015)

FCPA enforcement was the focus this first week of the new year. The DOJ brought FCPA and Travel Act charges against an individual alleged to have repeatedly bribed an official of the European Bank of Reconstruction and Development to secure contacts for clients by funneling the payments to the sister...

SEC Inspection Staff Uncovers a Possible Fraud

The SEC claims that an individual that controlled several entities including an investment fund created phony consumer loans to funnel investor cash to his faltering financial operations rather than investing the money in actual loans in accord with the representations made to investors. The complaint...

SEC Brings Action Against Exchanges Centered on Order Types

There was a time when orders for securities were straight forward – buy, sell, limit and perhaps a few variations. Now, however, there is a multiplicity of order types as Michael Lewis points out in his book “Flash Boys.” Just what each of those order types is and does is probably unknown...

SEC-USAO File Actions On “Old Fashioned” Spoofing Scheme

Spoofing or layering is typically associated these days with computers and high speed trading. It is a form of market manipulation in which the trader places a series of fictitious orders on one side of the market to draw interest from would-be investors who believe they are real, legitimate orders....

This Week in Securities Litigation (The Week Ending January 16, 2015)

The Commission brought cases related to HFT this week, but not against those traders. One action involved the operations of one of the largest dark pools. A second involved two exchanges. Each action involved specific types of orders which gave advantages to select groups of traders who were familiar...

Tipper in Serial Insider Trading Ring Indicted

Criminal insider trading charges were filed against the former managing clerk of Simpson Thacher & Bartlett, Steven Metro. U.S. v. Metro (D. N.J. Jan. 15, 2015). Mr. Metro was indicted by a grand jury on one count of conspiracy to commit securities fraud, one count of securities fraud and one count...

Personal Benefit Test Does Not Apply to Misappropriation Theory of Insider Trading — USAO

In U.S. v. Newman, Nos. 13-1837-cr, 13-1917, 2014 U.S. App. LEXIS 23190 (2 nd Cir. Decided Dec. 10, 2014) the Second Circuit handed prosecutors perhaps the only defeat they have suffered in recent years in an insider trading cases [ an enhanced version of this opinion is available to lexis.com subscribers...

S&P to Pay More Than $58M to Settle Claims in SEC Enforcement Action

WASHINGTON, D.C. — (Mealey’s) Credit ratings agency Standard & Poor’s (S&P) will pay more than $58 million and accept a one-year ban on rating conduit fusion commercial mortgage-backed securities (CMBS) as part of a settlement agreement reached today with the Securities and...

Standard & Poor’s Resolves Three SEC Actions, Makes Admissions

Standard & Poor’s Ratings Services was named as a Respondent in three settled administrative proceedings by the SEC. Each is tied to the Rating Services’ role in the conduit/fusion Commercial Mortgage Backed Securities market after the market crisis. In resolving one action S&P admitted...

This Week in Securities Litigation (Week ending January 23, 2015)

The SEC named ratings giant Standard & Poor’s in three actions this week and one of its senior executives in another. The firm settled all three actions, admitting to a series of facts but not violations of the law in one action. The proceeding involving the executive will be set for hearing...

The SEC Increases Focus on Digital Currencies

It is clear that the SEC has been focusing on securities fraud involving digital currencies. In July 2013 , the SEC charged Trendon T. Shavers, the founder and operator of Bitcoin Savings and Trust, with defrauding investors in a Ponzi scheme involving Bitcoin. In June 2014 , the SEC charged a Bitcoin...

This Week in Securities Litigation (Week ending January 30, 2015)

The SEC settled another action this week based on admissions of fact and that the Federal securities laws were filed, this time involving Oppenheimer. The action was based on the fact that the firm permitted an off-shore and non-U.S. broker to use its account to engaged securities transactions with its...