As the year draws to a close, SEC enforcement continues to focus on two of its staples for this year, insider trading and investment fund frauds. Last week, the Commission brought an aggressive insider trading case against two French citizens residing in Belgium. The action was based largely on the huge options positions purchased by the defendants shortly before the acquisition announcement as discussed here.

The Commission also brought two more investment fund fraud cases last week. One is SEC v. Rockwell Energy of Texas, LLC, Civil Action No. 4:09-cr-4080 (S.D. Tex. Filed Dec. 23, 2009), an action based on claimed violations of the registration and antifraud provisions of the federal securities laws. The primary defendants are Gregory Shindler, Bradley James and their controlled entities.

From March 2008 through February 2009, two of the funds raised about $5.5 million from 139 investors. According to the complaint, Messrs. Shindler and Bradley sold interests in three unregistered funds which supposedly operated oil and gas properties. Investors were promised a return of 1.5% per month.

The funds claimed to own profitable oil and gas properties. In fact, one fund never purchased any oil and gas properties. Another had a few properties that never generated sufficient revenue to pay investors. For several months, investors were paid what appeared to be the promised royalties. Those payments were made using the funds of other investors as in Ponzi schemes, from sham accounting transactions that had the appearance of generating revenue and from other investments. Portions of the funds were misappropriated by Mr. Shindler, according to the SEC.

The complaint also alleges that defendants Todd Smith, Stuart Rawitt and Brian Walsh violated Section 5 of the Securities Act and Section 15(a) of the Exchange Act while acting as salesmen for the funds. See also Litig. Rel. 21348 (Dec. 23, 2009).

A second investment fund fraud case brought last week is SEC v. Triton Financial, LLC., Civil Action No. A00CA924 (W.D. Tex. Filed Dec. 22, 2009). The defendants in this fraud action are Kurt Barton and his controlled entities. According to the SEC, from 2004 through December 2009 Mr. Barton has raised over $50 million from investors primarily by selling units in Triton. From late July 2008 through October 2009, Triton’s primary fund-raising vehicle was the Triton insurance offering. That investment vehicle raised about $8.4 million from 90 investors to acquire an insurance company. Despite the representations to investors, the funds were not used to acquire that company. Rather, an equipment company was purchased in part from funds solicited from other investors.

During the period the defendants continued to raise funds from investors. A key part of the promotion to investors was the use of NFL football stars who touted the supposed returns. Following an unflattering article on the funds by SPORTS ILLUSTRATED, the Texas State Securities Board began an examination of the fund. During that examination, defendants furnished the Texas state authorities with phony documents to conceal the true number of investors and the amount of the funds raised. This case is also in litigation. See also Litig. Rel. 21346 (Dec. 22, 2009).

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