by T. GormanPosted on Posted in SECActions

The Commission brought one civil enforcement action this week. The case centers on a boiler room and the manipulation of a penny stock over a three year period. The action, and the parallel criminal case, are related to similar actions brought earlier this year. The agency also settled with another defendant in a long running insider trading case that traces to the announcement of a 2009 tender offer. One defendant remains. That person was found guilty after trial in the parallel criminal case.

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the SEC filed 1 civil injunctive case and no administrative proceedings, excluding 12j and tag-along proceedings.

Manipulation: SEC v. Burnett, Civil Action No. 2:18-cv-6501 (E.D.N.Y. Filed Nov. 15, 2018) is an action which names as defendants: Mark Burnett, a former floor broker; Jeffrey Miller, a former registered representative; Christian Romandetti, the CEO of First Choice Health Care Solutions; Frank Sarro, who controlled a number of entities involved; Anthony Vassallo, the former CEO of Elite Stock Research, Inc., who has previously been enjoined by the Commission; and Elite Stock Research, a boiler room. The complaint alleges a fraudulent scheme, beginning in September 2013, which unfolded over the next three years to manipulated the share price of First Choice. The fraud began with the accumulations of large blocks of First Choice stock by Defendants Burnett, Miller, Sarro and Vassallo with the assistance of firm CEO Romandetti. Subsequently, various defendants engaged in manipulative trading while Elite Stock Research, a boiler room, rolled out a large scale promotional campaign, touting the stock. The share price increased from less than $1 to over $3. Collectively defendants reaped profits of over $3.3 million while over 100 investors suffered losses. The complaint alleges violations of Securities Act sections 17(a)(1) and (2) and Exchange Act sections 9(a)(1), 9(a)(2) and 10(b). The case is pending. See Lit. Rel. No. 24363 (Nov. 16, 2018); see also SEC v. PowerTradersPress.com, Inc., Civil Action No. CV-04133 (E.D.N.Y.)(related action filed earlier this years). A parallel criminal action was brought by the U.S. Attorney’s Office for the Eastern District of New York.

Insider trading: SEC v. Mazzo, Case No. SACV – 121327 (C.D. Cal. Aug 17, 2012) is a previously filed action. It centered on the tender offer by Abbott Laboratories Inc. for Advanced Medical Optics Inc., announced in 2009. The action named as defendants James Mazzo, David Parker and Eddie Murray. Mr. Mazzo was the Chairman and CEO of Advanced Medical Optics, Inc. and was an executive officer of Abbott Laboratories, Inc. He was also a close friend and neighbor of major league baseball player Doug DeCinces (see below). Mr. Parker was in the private equity business. Eddie Murray was a retired major league baseball player. Mr. Mazzo was alleged to be the source of the inside information furnished to each of the other defendants who traded profitably in advance of the tender offer announcement. The complaint alleged violations of Exchange Act sections 10(b) and 14(e). Mr. Murray settled with the Commission at the time the complaint was filed. He consented to the entry of permanent injunctions based on the sections cited in the complaint. In addition, Mr. Murray paid disgorgement of $235, 324, prejudgment interest of $5,180 and a penalty of $117,657. Messrs. Mazzo and Parker did not settle. Now, almost a decade after the tender offer announcement, Mr. Mazzo has settled with the Commission. On November 13, 2018 he consented to the entry of permanent injunctions based on the two sections cited in the complaint. He also agreed to pay a penalty of $1.5 million and to the entry of an order that bars him from serving as an officer or director for five years. The action brought by the Commission against David Parker continues. See also SEC v. DeCinces, Civil Action No. 11-1168 (C.D. Cal.)(each defendant settled, agreeing to the entry of permanent injunctions and to pay disgorgement, prejudgment interest and penalites); U.S. v. DeCinces, Case No. 8:12-cr-00269 (C.D. CA. )(Messrs. DeCinces and Parker were convicted; the jury hung as to Mr. Mazzo).

Criminal cases

IA – Misappropriation: U.S. v. Fulford, No. 4:16-cr-00551 (S.D. Tx.). Defendant Peggy Ann Fulford was an investment adviser to sports stars from the NBA and NFL. She became the adviser to NBA Players Travis Best and Dennis Rodman. Other clients included NFL players Ricky Williams and Lex Hilliard. Ms. Fulford garnered these clients by representing that she had graduated from Harvard Law School and Harvard Business School. Ms. Fulford also claimed to have made millions on Wall Street buying and selling hospitals and real estate. She did not charge clients a fee – she claimed not to need it. Rather, her concern was that client earnings were properly handled; their investments properly made. To achieve her goal Mr. Fulford requested and apparently received access to client bank accounts. She offered to manage client expenses and invest their funds for retirement. While that may have been the stated plan, it never happened. Rather, the funds were misappropriated. Ms. Fulford pleaded guilty to one count of interstate transportation of stolen property. The Court imposed the maximum sentence on Ms. Fulford: 120 months in prison followed by three years of supervised release. In addition, she was ordered to pay $5,794,870 in restitution to the victims.

FinCEN

The agency issued a revised Geographic Targeting Order. It requires U.S. title insurance companies to identify natural persons behind shell companies used in all-cash purchases of residential real estate. The threshold amount is now set at $300,000 for each covered metropolitan area. It also applies to purchases using virtual currencies.

Australia

Remarks: John Price, Commissioner, Australian Securities and Investment Commission, delivered remarks at the FINSIA “the Regulators’ panel event.” Melbourne, Australia (Nov. 15, 2018). His remarks focused on the vision of the agency which is based on a strong and efficient financial system for Australia centered on implementing new supervisory approaches, close monitoring and strengthening supervision and enforcement (here).

Program: The Fifth Annual Dorsey Federal Enforcement Forum will be held on December 5, 2018. The program, centered on a tech theme and SEC enforcement, includes a keynote address on artificial intelligence and its impact on the legal profession, panels analyzing critical issues facing SEC enforcement, the question of broker protocols, trends in investment adviser inspections, how to conduct an ICO and concludes with an address on cyber-security and internal controls. A holiday party follows. The program, and registration for it and the party, are here or separate registration for the holiday party only here.

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by T. GormanPosted on Posted in SECActions

In Kokesh the Supreme Court held that the statute of limitations applies to disgorgement in SEC enforcement actions. Accordingly, if the agency fails to initiate its action in a timely fashion requests for disgorgement may be time barred. No such time limit applies, however, once the case is brought. To the contrary, the action may continue for years. The point is well illustrated by a case the Commission recently partially settled which traces to 2009.

SEC v. DeCinces, Civil Action No. 11-1168 (C.D. Cal. Filed August 4, 2011) and SEC v. Mazzo, Case No. SACV – 121327 (C.D. Cal. Aug 17, 2012) are actions centered on the tender offer by Abbott Laboratories Inc. for Advanced Medical Optics Inc., announced in 2009. The former named as defendants former major league baseball player Doug DeCinces and three of his friends, physical therapist Joseph Donohue, real estate attorney Fred Jackson and businessman Roger Wittenbach.

Mr. DeCinces was alleged to have built a portfolio of 83,700 shares in the shares of Advanced Medical prior to the announcement of the tender offer. Following the announcement he had profits of about $1.3 million. He was also alleged to have tipped his co-defendant friends. No corporate insider was named in this action.

Each defendant consented to the entry of permanent injunctions prohibiting future violations of Exchange Act sections 10(b) and 14(e). In addition, Mr. DeCinces agreed to pay disgorgement of $1,282,691 along with prejudgment interest and a penalty of $1,197,998. Defendant Joseph Donahue agreed to pay disgorgement of $75,570, prejudgment interest and a penalty of $37,785. Defendant Fred Jackson agreed to pay disgorgement of $140,259 along with prejudgment interest and a penalty of $140,259. Defendant Roger Wittenbach agreed to pay disgorgement of $201,692 along with prejudgment interest and a penalty of $214,906.

The latter action – Mazzo — brought about one year after DeCinces, named as defendants James Mazzo, David Parker and Eddie Murray. Mr. Mazzo was the Chairman and CEO of Advanced Medical Optics, Inc. and was an executive officer of Abbott Laboratories, Inc. He was also a close friend and neighbor Mr. DeCinces. Mr. Parker was in the private equity business. Eddie Murray was a retired major league baseball player. Mr. Mazzo was alleged to be the source of the inside information. The complaint alleged violations of Exchange Act sections 10(b) and 14(e).

Mr. Murray settled with the Commission at the time the complaint was filed. He consented to the entry of permanent injunctions based on the sections cited in the complaint. In addition, Mr. Murray paid disgorgement of $235, 324, prejudgment interest of $5,180 and a penalty of $117,657. Mr. Mazzo did not settle. Mr. Parker did not settle.

Parallel criminal charges were also filed. Named as defendants were Messrs. DeCinces, Parker and Mazzo. U.S. v. DeCinces, Case No. 8:12-cr-00269 (C.D. CA. ). Following a 28 day trial in 2017 Mr. DeCinces was convicted on fourteen counts of insider trading. The jury was unable to reach a verdict on 18 additional counts. David Parker was also found guilty. The jury was unable to reach a verdict as to James Mazzo.

Now, almost a decade after the tender offer announcement, Mr. Mazzo has settled with the Commission. On November 13, 2018 he consented to the entry of permanent injunctions based on the two sections cited in the complaint. He also agreed to pay a penalty of $1.5 million and to the entry of an order that bars him from serving as an officer or director for five years. The action brought by Commission against David Parker continues.

Program: The Fifth Annual Dorsey Federal Enforcement Forum will be held on December 5, 2018. The program, centered on a tech theme and SEC enforcement includes a keynote address on artificial intelligence and its impact on the legal profession, panels analyzing critical issues facingSEC enforcement, the question of broker protocols, trends on investment adviser inspections, how to conduct an ICO and concludes with an address on cyber-security and internal controls. A holiday party follows. The program and registration for it and the party are here or separate registration for the party here.

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