by T. GormanPosted on Posted in SECActions

A trend toward increased telecommuting has been developing for years. Many firms have adopted the practice, permitting some employees to perform all, or at least part of their duties at home. The practice can have significant benefits for employees and firms in an era of rising real estate prices. The practice depends, however, on the employee actually rendering services. That does not seem to be the case in the SEC’s most recent enforcement action where the CFO is apparently missing. The person listed as the CFO for a Texas oil firm with offices in New York City apparently lived in Shanghai, China and there was little evidence that she ever visited the company. SEC v. Simeo, Civil Action No. 1:19-cv-08621 (S.D.N.Y. Filed September 17, 2019).

Defendant Tom Simeo is the CEO, Treasurer, Director and Chairman of the Board of Viking Energy Group, Inc. whose shares are listed on the OTC Markets Group’s OTCQB. The firm is engaged in the acquisition, exploration, development and production of oil and natural gas properties.

Mr. Simeo’s former wife introduced him to Guangfang “Cecile” Yang in Shanghai, China in 2013 when he was operating Viking as an incubator for Chinese companies. He retained Ms. Yang as the CFO shortly after the introduction.

In February 2013 Ms. Yang was announced as the CFO and a member of the board of directors of Viking in a Form 8-k filed with the Commission. Subsequent filings represented that Ms. Yang had worked at an audit firm from 1998 to 2006 and furnished services for certain companies that conducted initial public offerings. She received a business degree from an international business school, according to Viking. The information apparently was taken from her resume, furnished to the General Counsel of Viking by Mr. Simeo.

Over a two-year period, beginning in 2014, that Ms. Yang was held out in a number of firm filings as its CFO. The CFO represented in SOX certifications filed during the period that she was in fact the CFO. Nevertheless, there is no evidence that she performed any work over the two-year period. Few company documents reference her. Those that do suggest she had no role at the company. No written communications with Ms. Yang were produced to the staff. One document did state that someone named “Cecile” would forward Mr. Simeo her written signature to affix to a management representation letter for Viking’s auditor. In fact, here electronic signature appears on each of the eight annual and quarterly reports that Viking filed over the period.

In a Form 8-k, filed in July 2016, Viking stated that Ms. Yang had resigned. Prior to that date the firm raised about $2 million from investors in an offering. Throughout the offering Ms. Yang was represented to be the CFO of the company. The complaint alleges violations of Securities Act Section 17(a)(1) and (3) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 24599 (Sept. 17, 2019).

Tagged with: ,

by T. GormanPosted on Posted in SECActions

The Investment Company Act contains a number of provisions which limit, restrict or prohibit registered entities from participating in certain types of transactions. In some instances, the provisions give the Commission the authority to grant an exemption. It would seem prudent if a request is made for an order granting an exemption to wait for the ruling and, if it obtained, comply with its directives. That is not always the case, however. In the Matter of Garrison Investment Group, LP, Adm. Proc. File No. 3-19452 (September 13, 2019).

Respondents Garrison Investment and Garrison Capital Advisers LLC are each registered investment advisers. The private fund clients of GIG invest in debt securities and loans of U.S. based firms. The investments are allocated among the funds based on their investment mandate. If the firm does not have the capital to fund the investment, third party co-investors are sought. Typically, the co-investors’ participate through two GIG affiliates. At one point those vehicles were owned by one of the private funds. Later an affiliated special purpose vehicle was used.

On November 21, 2012 Respondents filed an application with the Commission requesting an order that would permit GIG’s Sole Client, a publicly-listed business development company, to participate in certain commercial loan transactions with the private funds and co-investor. While the application was pending, Sole Client participated in nine co-investment transactions. In each the borrowers paid an origination or closing fee that was distributed pro-rata among the lending entities based on the percentage each contributed to the commercial loan. The private funds and Sole Client each received their pro-rata share. The transactions were originated by GIG.

By effecting transactions that involved the business development fund client and advisory affiliates as joint participants, Respondents engaged in prohibited transactions. Investment Company Act Rule 17d-1 prohibits any affiliate of a registered investment firm from participating with the registered company in or effecting any joint enterprise, arrangement or profit-sharing plain unless an order is first obtained from the Commission. Here the agency had not issued such an order prior to the transactions.

On December 11, 2014 Respondents submitted their final Application for an order to the Division of Investment Management. It stated in part that all “existing entities that currently intend to rely on the Order have been named in the applications.” Not included, however, were the co-investment vehicles. The application also did not state that GIG would receive upfront fee revenue from the transactions.

On January 12, 2015 the Commission issued the Co-Investment Order that permitted the parties to participate in joint transactions. The transactions were limited to the terms of the orders. One condition limited the type of compensation that could be received. Here that limitation was disregarded. Later the CCO discovered the non-compliance and instituted remedial action. GIG also violated the custody rule because when it first registered with the Commission since it failed to conduct a surprise exam. The Order alleges violations of Investment Company Act Sections 57(a) and 34(b) and Rule 17d-1 as well as Advisers Act Section 206(4) and Rule 206(4)-2.

To resolve the proceedings Respondents consented to the entry of a cease and desist order based on the sections and rules cited in the Order and to a censure In addition, Respondents will pay, on a joint and several basis, a penalty in the amount of $250,000.

Tagged with: , ,