by T. GormanPosted on Posted in SECActions

Mark Kurland became the first defendant to be sentenced in the Galleon insider trading cases, discussed here. He had previously pleaded guilty to conspiracy and securities fraud. The court sentenced Mr. Kurland to serve twenty seven months in prison followed by two years of probation. He will also forfeit $900,000. Mr. Kurland argued that he played a minor role in the Galleon insider trading cases and should be sentenced to a term of probation. U.S. v. Kurland, Case No. 10-cr-69 (S.D.N.Y.).

Mr. Kurland is a co-founder of New Castle Partners equity hedge fund and served as its Senior Managing Director. The fund had been operated at Bear Stearns Asset Management and then JPMorgan Chase. Galleon co-defendant Danielle Chiesi also was employed at New Castle.

According to the criminal information, in 2008 and 2009 Mr. Kurland participated in a scheme to trade on inside information pertaining to three companies. The scheme involved trading in the securities of Advanced Micro Devices, Inc., Akamai Technologies, Inc. and Sun Microsystems Inc. Ms. Chiesi obtained the inside information from her sources at Akamai and IBM. Trades were then placed in the shares of ADM, Akamai and Sun by New Castle either by Mr. Kurland or with his approval. Only the Sun trades were profitable.

Mr. Kurland is the only defendant in the Galleon cases to have pleaded guilty and not cooperated with law enforcement. Ms. Chiesi is awaiting trial along with Galleon founder Raj Rajaratnam.

by T. GormanPosted on Posted in SECActions

On Friday, SEC Enforcement Director Robert Khuzami participated in the announcement of the Virginia Financial and Securities Fraud Task Force. That task force will apparently focus at least in part on brining securities fraud actions in the Eastern District of Virginia, a new focal point for such cases. At the same time the Commission announced the initiation of its latest Ponzi scheme case, the new post-market crisis post-Madoff staple of the Enforcement Division.

SEC v. Allen, Case No. 1:10-cv-01143 (N.D. Ohio, Filed May 20, 2010) is an investment fund fraud action against Edward Allen, David Olson and their company A&O Investments, LLC. According to the complaint, beginning in September 2005 and continuing through the end of 2008 the defendants raised approximately $14.8 million from at least 100 investors. Those investors were solicited to purchase promissory notes issued by A&O.

Investors were told that A&O Investments would purchase, rehabilitate and sell real estate. The promissory notes they purchased were supposed to pay a 20% return and be secured by the real estate which would eventually be sold to generate the promised returns.

Messrs. Allen and Olson misrepresented the nature of the investment according to the complaint. In part, A&O was operated as a classic Ponzi scheme. About $4.4 million of investor funds were used to pay interest and, in some instances, principal to some investors. Another $2.2 million was used to pay the personal expenses of Messrs. Allen, Olson and their family members. Although all of the promissory notes issued to investors were supposed to be properly secured by real estate, in fact about $5.5 million were backed by the same parcel of real estate in Lakeland, Florida. That value of that property was grossly inadequate to secure the notes. Likewise, while all of the almost $15 million raised from investors was supposed to be used to purchase and rehabilitate real estate, only about $5.1 million was used for that purpose. The claims that the investments were successful was also false. In fact, those investments only produced revenues of about $952,000.

The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The Commission has not obtained a temporary freeze order in this case. The action is in litigation. See also Litig. Rel. 21529 (May 21, 2010).