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As the Galleon insider trading trial draws to a close and the Lindsey FCPA trial moved forward in the Central District of California, one of the few senior executives charged in a market crisis case was found guilty by a jury after a ten day trial. SEC enforcement brought actions based on an undisclosed related party transaction, obtained the appointment of a receiver in an investment fund fraud action and settled with the remaining defendants in an insider trading case which began as an action against unknown investors. Finally, FINRA indefinitely suspended a firm and its president.
Related party transactions: SEC v. Phillips, Civil Action No. 1:11 CV 422 (E.D. Va. April 20, 2011) is a settled action against Terry Phillips, the chairman of the board of SouthPeak Interactive Corporation which develops and publishes video games for a number of video game platforms including the PlayStation, xBox and Wii devices. According to the complaint in February 2009 the company ordered additional units from a video game manufacturer but lacked sufficient funds to pay for the purchase. Mr. Phillips advanced $304,440 of his personal funds to pay for the units. In doing so he failed to bring it to the attention of the audit committee. The transaction was not disclosed as a related party transaction in the 10Q for the quarter ended March 31, 2009. Mr. Phillips also signed an management letter representing to the outside auditors that all related party transactions had been disclosed when they had not.
To settle the case Mr. Philips consented to the entry of a permanent injunction prohibiting future violations of Exchange Act Rule 13b2-2 which prohibits officers and directors from making false statements to the auditors and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B). He also agreed to pay a civil penalty of $50,000 and to the entry of an order requiring him to comply with a cease and desist order entered May 2007 which requires him not to violate certain provisions of the securities laws.
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