by T. GormanPosted on Posted in SECActions

The president and owner of financial advisory firm Gryphon Holdings Inc., Kenneth Marsh, and four employees, Baldwin Anderson, Robert Budion, Jeanne Lada and James Levier were arrested and charged with conspiracy to commit securities and wire fraud. U.S. v. Marsh (E.D.N.Y.). The SEC filed a parallel suit which adds two defendants. SEC v. Gryphon Holdings, Inc., Case No. CV 10-1742 (E.D.N.Y. Filed April 20, 2010).

According to the court papers, since at least January 2007 the defendants defrauded investors of more than $17.5 million paid for fees and investment advisory services. In 2009, for example, the firm obtained $9.6 million from investors and $3 million more in the first two months of 2010 based on misrepresentations.

Gryphon solicited retirees and other investors through unsolicited e-mails, telephone calls and a web site which contained a number of representations including claims that:

• Its two traders ran a billion dollar hedge fund. The two traders were suppose to be graduates of Harvard, Oxford, Columbia and Wharton and former employees of Lehman Brothers and Goldman Sachs. In fact, they are fictional.

• Investors were told that the traders were managing a hedge fund with over one billion in assets. In fact, there was no fund.

• Financier George Soros supposedly praised the trading prowess of the firm. In fact, he did not.

• The firm claimed to have offices on Wall Street and in London and Sydney. In fact, its only office is in a strip mall on Staten Island.

Investors paid fees ranging from $99 to $250,000 to access the firms investment advisory services. Those who followed the advice of the firm not only lost the fees, but suffered additional losses from following its advice. The SEC obtained a temporary freeze order over the assets of the company. See also Litig. Rel. 21494 (Apr. 20, 2010).

by T. GormanPosted on Posted in SECActions

In the wake of filing what is the most significant enforcement action brought in years against Goldman Sachs & Co., discussed here, the Commission obtained what can only be called a face-saving settlement in its action against former OMB director David Stockman arising out of his tenure at Collins & Aikman. SEC v. Collins & Aikman, Civil Action No. 07-CV-2419 (S.D.N.Y. Filed Mar. 27, 2007).

The initial complaint in this case, discussed here, alleged that Mr. Stockman, the former CEO and Chairman of the company, and other senior company officials and board members, engaged in multiple fraudulent schemes and made materially false and misleading statement about the financial condition of the company and its operating results. These actions were alleged to have violated Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) and the pertinent rules thereunder. At the same time, a parallel criminal action was brought by the U.S. Attorney’s Office for the Southern District of New York. That action was subsequently dismissed after Mr. Stockman and his team made an extended presentation to the USAO regarding the accounting issues in the case as discussed here. The SEC, however, persisted with its action.

The settlement with Mr. Stockman and others drops the most significant charges in the Commission’s complaint, while dismissing all charges against several defendants. In the settlement:

• Mr. Stockman, the former CEO and Chairman of the company, Michael Stepp, the former CFO and Vice Chairman of the Board, and David Cosgrove, the former controller, consented to the entry of a permanent injunction prohibiting future violations of Securities Act Sections 17(a)(2) and (3) – negligence based charges – and the reporting, record keeping, internal controls and making false statements to auditors sections of the Exchange Act. The injunctions against Messrs. Stockman and Stepp also include the SOX provisions regarding CEO and CFO certifications.

• Paul Barnada, the former vice president and director of purchasing for a division, consented to the entry of a permanent injunction prohibiting future violations of the reporting, record keeping, internal controls and making false statements to auditors provisions of the Exchange Act.

• Mr. Stockman also agreed to pay approximately $4.2 million in disgorgement and about $2.3 million in prejudgment interest along with $400,000 in civil penalties. Messrs. Stepp and McCallum each agreed to pay a $75,000 civil penalty while Mr. Cosgrove will pay a $40,000 penalty and Mr. Barnada a $20,000 penalty.

• As part of the settlement, the SEC agreed to drop its claims based on Securities Act Section 17(a) and Exchange Act Section 10(b) which are scienter based fraud charges. Mr. Stockman’s obligation to pay disgorgement is offset by up to $4.4 million paid to settle parallel civil actions. In essence, Mr. Stockman will be required to pay a portion of the prejudgment interest which has accrued on the amount of the claimed disgorgement and a civil penalty. See also Litig. Rel. 21491 (Apr. 19, 2010).

The Commission also agreed to dismiss all charges against four defendants: John Galante, the former Treasurer; Christopher Williams the former Vice President of Business Development; Gerald Jones, the former COO; and Thomas Gougherty, the former controller of a company division. The company previously settled with the Commission. See also Litig. Rel. No. 20055 (Mar. 26, 2007).