by T. GormanPosted on Posted in SECActions

The Commission appears to have made the typical year end push to file cases. Yesterday Part I of this series reviewed a number of those actions, primarily civil injunctive actions filed on the last day of the fiscal year. This segment reviews a second group of the cases largely filed on the second to last business day of the Government fiscal year.

Loss contingency: SEC v. Mylan N.V., Civil Action No. 1:19-cv-02904 (D.D.C. Filed Sept. 27, 2019) is an action which names the global pharmaceutical firm as a defendant. The case centers on a DOJ inquiry into whether the firm classified its EpiPen product properly and may have under paid Medicaid. Specifically, the DOJ conducted a two-year probe into whether the firm properly paid certain rebates tied to the product. Mylan classified the drug as a “generic.” The product is used to treat severe allergic reactions. It is one of the largest revenue and profit drivers for the firm. When sold to Medicaid the firm was paid from taxpayer funds. Mylan was required to rebate a portion of the revenues to the Government. By classifying the drug as a generic the firm rebated a much lower amount of the price. During the period Mylan raised the price about 500%. Over the course of the investigation Mylan received multiple subpoenas. The company also furnished the DOJ with damage estimates. Yet Mylan failed to disclose the potential loss. Even after being told by the DOJ that the pens were misclassified Mylan only disclosed that it “may” need to reclassify. By failing to disclose the loss contingency, which eventually became a $465 million settlement, the firm’s disclosures were false and misleading. The company also made false statements regarding the probe. The complaint alleged violations of Securities Act Sections 17)(a)(2) and (3) and Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B). To resolve the action Mylan consented to the entry of a permanent injunction based on the sections cited in the complaint and agreed to pay a $30 million penalty.

False statements: In the Matter of Herbalife Nutrition Ltd., Adm. Proc. File No. 3-19536 (Sept. 27, 2019) is a proceeding which names as a Respondent the LA based multi-level sales firm. Herbalife operates in about 90 countries using essentially the same multi-level marketing system. China is the firm’s largest revenue source. Over a four-year period, beginning in 2012, Herbalife asserted in its public filings that its method of operations and compensation in that country differed significantly from those typically used. In fact, those repeated disclosures are false statements. The company used essentially the same compensation model used in other countries. The Order alleges violations of Securities Act Sections 17(a)(2) and (3). To resolve the proceedings the Herbalife consented to the entry of a cease and desist order based on the sections cited in the Order and agreed to pay a $20 million penalty.

FCPA: In the Matter of Westport Fuel Systems, Inc., Adm. Proc. File No. 3-19543 (Sept. 27, 2019) names as Respondents the Vancouver based manufacturer of clean fuel systems, and its COO, Nancy Gougraty. The action centers on a transaction which began in 2012 and continued for the next several years. It focused on efforts by the company to secure a larger payment from the joint venture it had with a China state owned entity. In seeking to obtain a larger payment Westport agreed to transfer a number of its shares at a low valuation to venture where a Government official was located. It was believed that official could influence the amount of the payment and execute a framework agreement. The order alleges violations of Exchange Act Section 30A, 13(b)(2)(A) and 13(b)(2)(B). The order as to Ms. Gougraty also included Exchange Act Section 13(b)(5). To resolve the proceedings Westport agreed to implement certain undertakings. Each Respondent consented to the entry of a cease and desist order based on the section cited in the Order. The firm also agreed to pay disgorgement of $2,350,000, prejudgment interest of $196,000 and a penalty of $1.5 million. Ms. Gougarty agreed to pay a penalty of $150,000.

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by T. GormanPosted on Posted in SECActions

It appears that the Commission made a year-end effort to push the cases out the door. Last week the agency filed about 30 actions. On Friday and Monday the drive continued. Today’s post will revisit a portion of the cases filed over the last two days. The post tomorrow will review a number of other cases filed as the year end drive drew to a close.

Offering fraud: SEC v. Bluepoint Investment Counsel, LLC, Civil Action No. 19-cv-809 (W.D. Wis. Filed Sept. 30, 2019) is an action which names as defendants the fund, a registered investment adviser until earlier this year, Michael Hull, a principal and investment adviser to the firm, Christopher Nohl, the co-manager of a related fund, and two additional related entities. Over a five year period, beginning in April 2014, about $52.783 million was raised for the fund complex. Investors were told that they were investing in an “income” fund. In fact, most of the fund’s holdings were in hard assets. Investors were also told that the fund had increased in value by over $46 million as of December 31, 2015 which was incorrect. Investors were not told that Messrs. Hull , Nohl and their related entities were enriching themselves at the expense of the fund. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4)-8. The case is pending. See Lit. Rel. No. 24632 (Sept. 30, 2019).

Offering fraud: SEC v. Booth, Civil Action No. 3:19-cv-01535 (D. Conn. Filed Sept. 30, 2019) is an action which names James Booth as a defendant. Over a five year period Defendant defrauded about 40 investors out of almost $4 million. Investors were promised that their funds would be invested in securities. In fact, Mr. Booth simply stole the funds. To conceal the scheme he created elaborate account statements. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1) and 206(2). The case is pending. See Lit. Rel. No. 24629 (Sept. 30, 2019).

Misappropriation: SEC v. Beam, Civil Action No. 1:19-cv-06458 (N.D. Ill. Filed Sept. 30, 2019) is an action against Marcus Beam. Over a two year period he solicited investors through his advisory. Mr. Beam promised potential clients that he would invest their funds and teach them how to trade. In fact he misappropriated about $207,000 from the clients. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Section s 206(1), 206(2) and 206(4). The case is pending. See Lit. Rel. No. 24628 (Sept. 30, 2019).

Offering fraud: SEC v. Ray, Civil Action No. 1:19-cv-02789 (D. Colo. Filed Sept. 30, 2019) names as defendants Mark Ray, previously barred from the securities business by the State of Illinois, Ron Throgmartin, the CEO of a marijuana business, Reva Sachniw, a retired nurse, Custom Consulting and Product Services, a firm used to solicit investors, RM Farm and Livestoc, LLC, another firm used to solicit investors purportedly backed by cattle trading and the Marijuana operations, and other controlled entities. The case centers on a cattle Ponzi scheme. Since 2014 Defendants have raised millions of dollars trading inventories or cattle-trading opportunities that Mr. Ray had identified. In fact, the business did little cattle trading. To the contrary, it was a Ponzi scheme which offered unregistered securities sold largely by word of mouth. By mid-March 2019 Mr. Ray and his operations ran out of cash, and the scheme collapsed. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). While certain of the entity defendants consented to the entry of permanent injunctions, the defendants named above did not. The case is pending. See Lit. Rel. No. 24627 (Sept. 30, 2019).

Offering fraud: SEC v. Bradley, Civil Action No. 3:10-cv-00490 (W.D. N.C. Filed Sept. 30, 2019) is an action which names as defendants, Dana J. Bradley, Marlin S. Hershey, D. Bradley Inc., Bryant Boys, LLC, Distressed Lending Fund, LLC, Erndit LLC, Hershey Enterprises Inc., MW Enterprises, LLC, Performance Holdings, Inc. and Performance Retire on Rentals, LLC. The complaint alleges that Dana Bradley and Martin Hershey, through two entities, over a period of about eight years beginning in 2009, raised over $5 million from investors who were lead to believe their funds would be used to acquire and rehabilitate residences. In fact, much of the money was used to pay commissions and for other matters. In addition, Defendants knew that the third party entity for which the funds were to be used to acquire rehabilitation projects was in default and no longer accepting funds. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(a). The case is pending. See Lit. Rel. No. 24624 (Sept. 30, 2019).

Binary options: SEC Sechovicz, Civil Action No. 1:19-cv-12027 (D. Mass. Filed Sept. 27, 2019) is an action in which David Sechovicz and Peter Szatmari marketed binary options over a two year period beginning in 2014. The two men created and disseminated numerous internet marketing campaigns regarding binary options that were designed to induce investors to open accounts. The two men worked for overseas brokers that were not registered with the Commission. Each time a new investor referred by them made a desposit for trading binary options they were paid. Defendant worked with a Partner who was an affiliated marketer. Defendant and Partner solicited investors by sending or paying others to send millions of emails. They also distributed videos which supposedly showed people living a lavish life style and trading binary options in real time. In fact, the videos were made by actors. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). Defendant resolved the action, consenting to the entry of permanent injunctions based on the sections cited in the complaint. He was also ordered to pay disgorgement of $1,899,837, prejudgment interest of $83,571 and a penalty of $949,918. See Lit. Rel. No. 24631 (Sept 30, 2019); see also SEC v. Szatmari, Civil Action No. 1:19-cv-12028 (D. Mass. Filed Sept. 27, 2019)(same as above; matter is pending).

Unregistered securities: SEC v. Ajzenman, Civil Action No. 24623 (E.D.N.Y. Filed Sept. 26, 2019) is an action which names as defendants Michael Ajzenman and Cutting Edge Business Services, Inc. Beginning in January 2014, and continuing for about one and one half years, Mr. Azzenman, acting through his controlled firm, Cutting Edge, secured two notes that were fraudulent at a deep discount and sold them to investors. The notes were not registered. Defendant obtained profits of about $200, 000 on the sale of the notes. The complaint alleges violations of Securities Act Sections 5(a) and 5(c). The case is pending. See Lit. Rel. No. 24632 (Sept. 30, 2019).

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