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SEC Enforcement Actions

					
The  (SEC) is the United States agency with primary responsibility for enforcing federal securities laws. Whistleblowers with knowledge of violations of the federal securities laws can submit a claim to the SEC under the SEC Whistleblower Reward Program, and may be eligible to receive 聽monetary rewards and protection against retaliation by employers.


Below are summaries of recent SEC settlements or successful prosecutions. If you believe you have information about fraud which could give 聽rise to an SEC enforcement action and claim under the SEC Whistleblower Reward Program, please contact us to speak with one of our experienced whistleblower attorneys.

				

			

			
						
					
			

	
		
		

			

				
				
March 10, 2017

				 The SEC announced fraud charges against Ukraine-based trading firm Avalon FA Ltd. for manipulating the U.S. markets hundreds of thousands of times, and against New York-based brokerage firm Lek Securities and its owner Samuel Lek for allegedly assisting in the fraud.聽 The SEC鈥檚 complaint alleges that Avalon touted itself to traders as a destination to engage in layering, a scheme in which orders are placed but later canceled after tricking others into buying or selling stocks at artificial prices, resulting in illicit profits.聽 Avalon allegedly made more than $21 million in the layering scheme involving U.S. stocks during a five-year period.聽 According to the SEC鈥檚 complaint, Avalon also made more than $7 million in illicit profits through a cross-market manipulation scheme in which the firm bought and sold U.S. stocks at a loss in order to manipulate the prices of the stock and its corresponding options so that it could then profitably trade at artificial prices.聽 The SEC further alleges that Lek Securities and Samuel Lek made the schemes possible by providing Avalon with access to the U.S. markets, approving the cross-market trading scheme, and improving its trading technology to assist Avalon鈥檚 trading.聽 According to the SEC鈥檚 complaint, Lek also relaxed its layering controls after Avalon complained.聽 The SEC鈥檚 complaint also describes fraud charges against Avalon鈥檚 named owner Nathan Fayyer and Sergey Pustelnik who allegedly kept his controlling interest in Avalon undisclosed and embedded himself at Lek Securities as a registered representative, using his position to facilitate the scheme.聽				 					 

						
Tagged in:
													  Market Manipulation and Trading Violations, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 10, 2017

				 The SEC charged two former executives at credit card processing company iPayment with masterminding a fraudulent scheme to steal millions of dollars through phony expense reimbursements, inflated invoices, and other improper accounting tactics.聽 The SEC鈥檚 complaint alleges that iPayment鈥檚 then Senior Vice President of Sales and Marketing Nasir N. Shakouri and then-Executive Vice President and Chief Operating Officer Robert S. Torino routinely reimbursed themselves for payments that were never actually made to third-party vendors using their personal credit cards.聽 They also allegedly conspired with vendors to inflate invoices and receive kickbacks from the overpayments, and claimed improper commissions and bonuses related to other corporate funds they improperly diverted in various ways.聽 The SEC鈥檚 complaint also charges three other iPayment executives 鈥� Bronson L. Quon, John S. Hong, and Jonathan K. Skarie 鈥� with participating in the scheme and helping Shakouri and Torino falsify books and records to hide the theft of corporate funds.聽 Quoon, Hong, and Skarie were allegedly rewarded for their assistance with missapropriated iPayment funds.聽 According to the SEC鈥檚 complaint, the scheme caused approximately $11.6 million in damages.聽				 					 

						
Tagged in:
													  Accounting Fraud, 
													  Misrepresentations, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 9, 2017

				 California-based marijuana 鈥渃onsulting鈥� company Medbox and its founder Vincent Mehdizadeh will pay $12 million to settle allegations of falsely touting 鈥渞ecord鈥� revenue numbers to investors and claiming to be a 鈥渓eader鈥� in the marijuana industry while some of the company鈥檚 earnings came from sham transactions with a secret affiliate.聽 According to the SEC鈥檚 complaint, Medbox claimed to sell vending machines capable of dispensing marijuana on the basis of biometric identification.聽 The SEC alleges that Mehdizadeh created a shell company called New-Age Investment Consulting, installed his then-fianc茅, Yocelin Legaspi, as its CEO, and caused it to carry out illegal stock sales and used the proceeds from those sales to boost Medbox鈥檚 revenue.聽 Medbox allegedly issued press releases headlining the phony revenues as record earnings to legitimize itself as a viable commercial operation when in fact nearly 90 percent of the company鈥檚 revenue in the first quarter of 2014 stemmed from sham transactions with New-Age.聽 The SEC also charged Medbox鈥檚 then-CEO Bruce Bednick with being complicit in the scheme and personally profiting.聽 The SEC also charged New-Age and Legaspi with unlawfully selling unregistered securities.聽 The SEC鈥檚 litigation against Bedrick, Legaspi, and New-Age continues.聽				 					 

						
Tagged in:
													  Misrepresentations, 
													  Regulatory Violations, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
March 3, 2017

				 Mexico-based homebuilding company Desarrolladora Homex S.A.B. de C.V. has agreed to settle charges that it reported fake sales of more than 100,000 homes to boost its claimed revenues by more than 355% (about $3.3 billion) over a three year period.聽 The SEC used satellite imagery to help uncover the accounting scheme and illustrate its allegation that Homex had not even broker ground on many of the homes for which it reported revenue.聽 According to the SEC鈥檚 complaint, Homex filed for the Mexican equivalent of bankruptcy protection in April 2014 and emerged in October 2015 under new equity ownership.聽 The SEC separately issued a trading suspension in the securities of Homex.聽 As part of the settlement, Homex has agreed to be prohibited from offering securities in the U.S. markets for at least five years.聽				 					 

						
Tagged in:
													  Accounting Fraud, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
February 14, 2017

				 The SEC charged California-based penny stock company Terminus Energy, Inc. and four of its corporate officers with misleading investors about the research, development, and profitability of their purported business to manufacture power generation products such as fuel cells.聽 The SEC alleges that while raising approximately $7.9 million from investors, Terminus and its officers claimed to have a viable prototype capable of being sold and earning revenue.聽 In fact, Terminus did not have the fuel cell technology or the funding to match their claims.聽 Rather, the officers were allegedly converting substantial amounts of investor funds to their own use.聽 According to the SEC鈥檚 complaint, the company failed to disclose to investors that Terminus鈥� operations manager George Doumanis is a convicted felon who went to prison for securities fraud and was secretly acting as an officer of the company despite being barred from participating in penny stock offerings.聽 In addition, Emanuel Pantelakis served on the Terminus board of directors despite having been permanently barred by the Financial Industry Regulatory Authority.聽 Also charged are Terminus鈥� CEO Danny B. Pratte and its former president, director, and legal counsel Joseph L. Pittera.聽 Terminus also allegedly used unregistered brokers to sell its securities and paid them more than twice as much in commissions as was disclosed to investors in offering documents.聽 Joseph Alborano is charged with soliciting and selling investments for which he received more than $1 million in commissions.聽 				 					 

						
Tagged in:
													  Misrepresentations, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
February 14, 2017

				 The SEC announced two enforcement actions involving disclosure violations that deprived investors of material information during battles for corporate control of publicly traded companies.聽 In one case, the SEC鈥檚 order found that Texas-based oil refinery CVR Energy made inadequate disclosures in SEC filings about 鈥渟uccess fee鈥� arrangements with two investment banks retained by the company to fend off a hostile takeover bid.聽 Shareholders were consequently unaware of potential conflicts of interest that stemmed from the fee arrangements, namely that the banks could still earn success fees even if the hostile bidder secured control of the company.聽 CVR will not pay a penalty due to its remedial acts and extensive cooperation with the investigation.聽 In the other case, the SEC鈥檚 order found that groups of investors failed to properly disclose ownership information during a series of five campaigns to influence or exert control over microcap companies.聽 Jeffry E. Eberwein and Charles M. Gillman collaborated with mutual fund adviser Heartland Advisors in some of these campaigns.聽 Others involved Lone Star Value Management, a hedge fund adviser headed by Eberwein, or Boston Avenue Capital, a private fund advised by Gillman.聽 In each of these campaigns, the groups collectively owned more than five percent and sometimes even more than 10 percent of the companies鈥� outstanding stock, yet the required ownership filings to disclose that information to the investing public were either incomplete, untimely, or altogether absent.聽 Eberwein, Gillman, Lone Star, and Heartland will collectively pay penalties of $420,000.聽 				 					 

						
Tagged in:
													  Misrepresentations, 
													  Securities Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
February 14, 2017

				 Purported real estate investment manager James P. Toner, Jr. of Scottsdale, Arizona will pay more than $500,000 to settle charges that he pocketed investor money in an investment scheme.聽 The SEC alleges that Toner siphoned $51,000 from investors who were falsely told that he would personally manage some of the real estate projects in which they were purchasing interests.聽 The stated purpose of each investor offering was to purchase a residential property in the Phoenix area, renovate the property, and then sell it for a profit.聽 According to the SEC鈥檚 complaint, Toner took $31,000 in undisclosed management fees even though he did not manage any of the offerings, and stole $20,000 directly from an investor.聽 Without conducting any due diligence, Toner allegedly entrusted the management of the investments to a real estate broker who subsequently squandered investor funds.聽 According to the SEC鈥檚 complaint, the real estate broker was later imprisoned for other crimes.聽 				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
February 14, 2017

				 Morgan Stanley Smith Barney will pay an $8 million penalty and admit wrongdoing to settle charges related to single inverse ETF investments it recommended to advisory clients.聽 The SEC鈥檚 order finds that Morgan Stanley did not adequately implement its policies and procedures to ensure that clients understood the risks involved with purchasing inverse ETFs.聽 Among the order鈥檚 findings, Morgan Stanley failed to obtain from several hundred clients a signed client disclosure notice, which stated that single inverse ETFs were typically unsuitable for investors planning to hold them longer than one trading session unless used as part of a hedging strategy.聽 Morgan Stanley solicited clients to purchase single inverse ETFs in retirement and other accounts, the securities were held long-term, and many clients experienced losses.聽 The SEC鈥檚 order further found that Morgan Stanley failed to follow through on another key policy and procedure requiring a supervisor to conduct risk reviews to evaluate the suitability of inverse ETFs for each advisory client.聽 Finally, the SEC鈥檚 order found that Morgan Stanley failed to monitor the single ETF positions on an on-going basis and did not ensure that certain financial advisers completed single inverse ETF training.聽 				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
													  Financial Institution Fraud, 
													  Regulatory Violations, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
February 13, 2017

				 New York-based brokerage firm Sidoti & Company LLC will pay a $100,000 penalty to settle charges of compliance and trading surveillance failures.聽 Federal securities laws require firms to enforce policies and procedures to prevent the misuse of material, nonpublic information to which their employees routinely have access.聽 Sidoti鈥檚 hedge fund, by design, invested in issuers covered by Sidoti鈥檚 research department and, additionally, some of the issuers for which Sidoti provided investment banking services.聽 Yet, according to the SEC鈥檚 order, for a period of more than eight months, from November 3, 2014 (when the hedge fund commenced trading) until July 10, 2015, Sidoti had no written policies or procedures in place to prevent the misuse of material, nonpublic information by its founder and CEO or any other associated persons that had the authority to or otherwise participated in making investment decisions for the hedge fund.聽 				 					 

						
Tagged in:
													  Financial and Investment Fraud, 
													  Financial Institution Fraud, 
												
						

					
	
							
	
		
		
	


 			




	
		
		

			

				
				
February 10, 2017

				 The SEC announced fraud charges against Shaohua (Michael) Yin for allegedly reaping more than $29 million in illegal profits based on insider trading in advance of the announcement of Comcast Corp.鈥檚 acquisition of DreamWorks Animation SKG in April 2016.聽 The SEC also obtained an emergency court order freezing brokerage accounts alleged to contain these profits.聽 The SEC alleges that in the weeks leading up to the announcement, Yin amassed more than $56 million of DreamWorks stock in the U.S. brokerage accounts of five Chinese nationals, including his elderly parents.聽 DreamWorks stock price rose 47.3% once the acquisition was announced. 聽Yin, a partner at Summitview Capital Management Ltd., a Hong Kong-based private equity firm, allegedly did not trade in DreamWorks stock through his own account but instead traded through five accounts from addresses in Beijing and Palo Alto and on a computer that was also used to access Yin鈥檚 email accounts.聽 				 					 

						
Tagged in:
													  Insider Trading, 
												
						

					
	
							
	
		
		
	


 			


											

						

								

									
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