SEC Charges CR Intrinsic Analyst with Insider Trading

The Securities and Exchange Commission today charged a former analyst at an affiliate of hedge fund advisory firm S.A.C. Capital Advisors with insider trading based on nonpublic information that he obtained about a pair of technology companies. 

The SEC alleges that Ronald N. Dennis got illegal tips from two friends who were fellow hedge fund analysts.  They provided him confidential details about impending announcements at Dell Inc. and Foundry Networks.  Armed with inside information, Dennis prompted illegal trades in Dell and Foundry stock and enabled hedge funds managed by S.A.C. Capital and affiliate CR Intrinsic Investors to generate illegal profits and avoid significant losses. 

Dennis, who lives in Fort Worth, Texas, has agreed to be barred from the securi... Read More

SEC Obtains Asset Freeze Against Promoter Behind Microcap Stock Scalping Scheme

The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze against a promoter behind a platform of affiliated microcap stock promotion websites. The SEC alleges that John Babikian used AwesomePennyStocks.com and its related site PennyStocksUniverse.com, collectively “APS,” to commit a brand of securities fraud known as “scalping.”  The APS websites disseminated e-mails to approximately 700,000 people shortly after 2:30 p.m. Eastern time on the afternoon of Feb. 23, 2012, and recommended the penny stock America West Resources Inc. (AWSRQ).  What the e-mails failed to disclose among other things was that Babikian held more than 1.4 million shares of America West stock, which he had already positioned and intended to sell immediately through a Swi... Read More

SEC Charges Lions Gate With Disclosure Failures While Preventing Hostile Takeover

The Securities and Exchange Commission today charged motion picture company Lions Gate Entertainment Corp. with failing to fully and accurately disclose to investors a key aspect of its effort to thwart a hostile takeover bid.

Lions Gate agreed to pay $7.5 million and admit wrongdoing to settle the SEC’s charges.

According to the SEC’s order instituting settled administrative proceedings, Lions Gate’s management participated in a set of extraordinary corporate transactions in 2010 that put millions of newly issued company shares in the hands of a management-friendly director.  A purpose of the maneuver was to defeat a hostile tender offer by a large shareholder who had been locked in a battle for control of the company for at least a year.  Howev... Read More

SEC Announces Charges Against Brokers, Adviser, and Others Involved in Variable Annuities Scheme to Profit From Terminally Ill

The Securities and Exchange Commission today announced enforcement actions against a pair of brokers, an investment advisory firm, and several others involved in a variable annuities scheme to profit from the imminent deaths of terminally ill patients in nursing homes and hospice care.

Variable annuities are designed to serve as long-term investment vehicles, typically to provide income at retirement.  Common features are a death benefit paid to the annuity’s beneficiary (typically a spouse or child) if the annuitant dies, and a bonus credit that the annuity issuer adds to the contract value based on a specified percentage of purchase payments.  The SEC Enforcement Division alleges that Michael A. Horowitz, a broker who lives in Los Angeles, devel... Read More

SEC Proposes Rules for Systemically Important and Security-Based Swap Clearing Agencies

The Securities and Exchange Commission voted today to propose new rules to enhance the oversight of clearing agencies that are deemed to be systemically important or that are involved in complex transactions, such as security-based swaps.

“Clearing agencies that have been designated as systemically important or that clear security-based swaps are a backbone of the U.S. financial markets,” said SEC Chair Mary Jo White.  “The enhanced regulatory regime proposed today reflects the importance of effective regulation of these entities.”

A securities clearing agency generally acts as a middleman between the parties to a securities transaction, performing a range of services important for the effective operation of the securities markets.  These services include, for exa... Read More

SEC Charges Jefferies LLC With Failing to Supervise Its Mortgage-Backed Securities Desk During Financial Crisis

The Securities and Exchange Commission today charged global investment bank and brokerage firm Jefferies LLC with failing to supervise employees on its mortgage-backed securities desk who were lying to customers about pricing.

An SEC investigation found that Jefferies representatives including Jesse Litvak, who the SEC charged with securities fraud last year, lied to customers about the prices that the firm paid for certain mortgage-backed securities, thus misleading them about the true amount of profits being earned by the firm in its trading.  Jefferies’ policy required supervisors to review the electronic communications of traders and salespeople in order to flag any untrue or ... Read More

SEC Charges Animal Feed Company and Top Executives in China and U.S. With Accounting Fraud

The Securities and Exchange Commission today charged an animal feed company and top executives with conducting a massive accounting fraud in which they repeatedly reported fake revenues from their China operations in order to meet financial targets and prop up the stock price.

The SEC alleges that four executives in China orchestrated the scheme at AgFeed Industries Inc., which was based in China and publicly traded in the U.S. before merging with a U.S. company in September 2010 and spreading its operations between the two countries.  With the bulk of its hog production operations in China, the executives used a variety of methods to inflate revenue from 2008 to mid-2011, including fake invoices for the sale of feed and purported sales of hogs that didn’t really ... Read More

SEC Launches Enforcement Cooperation Initiative for Municipal Issuers and Underwriters

The Securities and Exchange Commission today announced a new cooperation initiative out of its Enforcement Division to encourage issuers and underwriters of municipal securities to self-report certain violations of the federal securities laws rather than wait for their violations to be detected.

“The Enforcement Division is committed to using innovative methods to uncover securities law violations and improve transparency in the municipal markets,” said Andrew J. Ceresney, director of the SEC Enforcement Division.  “We encourage eligible parties to take advantage of the favorable terms we are offering under this initiative.  Those who do not self-report and instead decide to take their chances can expect to face increased sanctions for violations.”

SEC Charges Five Executives and Finance Professionals Behind Fraudulent Bond Offering by International Law Firm

The Securities and Exchange Commission today charged five executives and finance professionals with facilitating a $150 million fraudulent bond offering by Dewey & LeBoeuf, the international law firm where they worked.

The SEC alleges that the five turned to accounting fraud when the firm needed money to weather the economic recession and steep costs from a merger.  Fearful that declining revenue might cause its bank lenders to cut off access to the firm’s credit lines, Dewey & LeBoeuf’s leading financial professionals combed through its financial statements line by line and devised ways to artificially inflate income and distort financial performance.  Dewey & LeBoeuf then resorted to the bond markets to raise significant amounts of cash through a pri... Read More

SEC Halts International Pyramid Scheme Being Promoted Through Facebook and Twitter

The Securities and Exchange Commission today announced an emergency enforcement action to stop a fraudulent pyramid scheme by phony companies masquerading as a legitimate international investment firm. The SEC has obtained a federal court order to freeze accounts holding money stolen from U.S. investors by Fleet Mutual Wealth Limited and MWF Financial – collectively known as Mutual Wealth.  The SEC alleges that Mutual Wealth has been exploiting investors through a website and social media accounts on Facebook and Twitter, falsely promising extraordinary returns of 2 to 3 percent per week for investors who open accounts with the firm.  Mutual Wealth purports to invest customer funds using an “innovative” high-frequency trading strategy that allows “capital to be invested into securiti... Read More

SEC Announces Largest Monetary Sanction for Rule 105 Short Selling Violations

The Securities and Exchange Commission today announced the largest-ever monetary sanction for Rule 105 short selling violations as a Long Island-based proprietary trading firm and its owner agreed to pay $7.2 million to settle charges.

Rule 105 prohibits short selling of an equity security during a restricted period – generally five business days before a public offering – and the subsequent purchase of that same security through the offering.  The rule applies regardless of the trader’s intent, and promotes offering prices that are set by natural forces of supply and demand rather than manipulative activity.  The rule therefore prevents short selling from interfering with offering prices. 

According to the SEC’s order instituting settled adminis... Read More

Fee Rate Advisory #4 for Fiscal Year 2014

Pursuant to Section 31(j)(2) of the Securities Exchange Act of 1934, the Commission has determined that a mid-year adjustment to the Section 31 fee rate for fiscal year 2014 is not required. The Section 31 fee rate for fiscal 2014 will remain at the current rate of $17.40 per million through March 17, 2014, and as previously announced, the rate will change to $22.10 per million starting March 18, 2014.  This rate will remain in place until September 30, 2014 or 60 days after the enactment of a regular FY 2015 appropriation, whichever is later.  The Section 31 assessment on round turn transactions in security futures also will remain at $0.0042 per transaction. The Commission will issue further notices as appropriate to keep the public informed of developments relating to fees unde... Read More