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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by T. GormanPosted on Posted in SECActions

An analysis of the SEC Enforcement Division’s workload over the last several years clearly reflects and increasing focus on investment advisers. The trend traces back beyond the current Commission and ties to the development of a close working relationship between Enforcement and OICI cultivated over years. For all the cases brought, however, seldom has there been one where the amount of the investor money misappropriated was “all of it.” Yet that is precisely the amount the spouse of one victim testified was stolen by an investment adviser to professional athletes. U.S. v. Fulford, No. 4:16-cr-00551 (S.D. Tx.).

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. At her sentencing Kristin Williams, the former wife of Heisman trophy winner Ricky Williams testified along with Rebekah Hilliard, wife of former NFL player Lex Hilliard. The testimony detailed how Ms. Fulford’s theft devastated the victims and their families financially. When the Court as Ms. Williams how much of Ricky Williams’ NFL money Ms. Fulford took, she replied “All of it.”

During the sentencing hearing a New Orleans man testified that he knew Ms. Fulford as Peggy Jones. Ms. Jones convinced him to invest $25,000 in a medical company in Arizona. The company was bogus. At the time Ms. Fulford/Jones was out of jail on bail.

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.

Save the date: On December 5, 2018 the Dorsey Federal Enforcement Forum will present six presentations detailing critical trends regarding SEC enforcement followed by a Holiday Party at Dorsey & Whitney, LLC, 1401 New York Avenue, Washington, D.C. 20005. The program is live in Washington and, in addition, live streamed and webcast.

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