by T. GormanPosted on Posted in SECActions

The SEC packaged a group of similar actions, apparently to send a message as it has done in the past. For example, previously the agency packaged a group of custody rule cases together into one announcement, making a point about the custody of customer securities by investment advisers. Similarly, the Commission previously packaged together a group of Rule 105 cases concerning short selling just prior to a secondary offering to fortify the message that this kind of riskless trading is prohibited.

The most recent SEC PR package is a group of thirteen largely administrative actions charging twenty-seven individuals and firms with touting and, in some instances, other violations of the securities laws. Specifically, the SEC claimed that those charged paid others to write articles promoting the issuer in a manner which presented the material as unbiased market reports without disclosing that the author had been paid in violation of Securities Act Section 17(b). Seventeen of those charged agreed to settlements which include disgorgement or penalties ranging from $2,200 to nearly $3 million. Ten others charged are litigating with the Commission.

Examples of the actions brought include:

In the Matter of Manish Singh and Lavos, LLC, Adm. Proc. File No. 3-17920 (April 10, 2017). Mr. Singh was the President and CEO of ImmunoCellular Therapeutics, Ltd., for a time and then the CEO of Lion Biotechnologies, Inc. He also controlled Respondent Lavos, LLC for a period. That firm provided promotional services to issuers, including publishing articles. The Order charged Mr. Singh with being a paid stock-tauter for twelve issuers, frequently using his firm. None of the publications involved disclosed his compensation which totaled at least $1.75 million in cash and equity. The Order alleges violations of Exchange Act Section 10(b) and Securities Act Sections 5(b)(1), 17(a) and (b). To resolve the matter Respondent Singh agreed to implement certain undertakings. In addition, each Respondent consented to the entry of a cease and desist order based the Sections cited in the Order. Mr. Singh was also barred from participating in any penny stock offering with a right to apply for reentry after five years and from serving as an officer or director of an issuer for five years. He will pay disgorgement of $1,750,000, prejudgment interest and a penalty of $1 million.

In the Matter of Cytrx Corporation, Adm. Proc. File No. 3-17919 (April 10, 2017). The biopharmaceutical company is alleged while in registration to: have articles appear on an investment website that were generated by a firm it hired; to have largely written articles transmitted by a third party publisher to subscribers; and to have forwarded an article published by a third party to a large number of potential investors by email. The publications and emails were prospectuses that failed to comply with Securities Act Section 10. The material was not alleged to have been false. The Order alleges violations of Securities Act Section 5(b)(1). To resolve the matter the company agreed to implement certain undertakings and to the entry of a cease and desist order based on Securities Act Section 5(b). Respondent will pay a penalty of $75,000.

In the Matter of Michael A. McCarthy, The DreamTeam Group, LLC, Mission Investor Relations, LLC and Qualitystocks LLC, Adm. Proc. File No. 3-17917 (April 10, 2017). Respondent McCarthy formed and controls Respondent DreamTeam that includes investor relations companies such as the other entity Respondents. Mr. McCarthy, through his firms, is alleged to have paid writers for 39 articles for some of their public company clients. The articles promoted the securities of the firms and purported to have been written by independent authors. The compensation was not disclosed. The Order alleges violations of Securities Act Sections 17(a)(2) and (3) and 17(b). To resolve the proceeding Respondents agreed to implement certain undertakings tied to the underlying conduct. Each consented to the entry of a cease and desist order based on the Sections cited in the Order. Mr. McCarthy will also pay disgorgement of $42,000, prejudgment interest and a penalty of $75,000.

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by T. GormanPosted on Posted in SECActions

William “Billy” Walters rolled the dice against the Manhattan U.S. Attorney’s Office and lost in a high profile insider trading case. U.S. v. Davis, No. 1:16-cr-00338 (S.D.N.Y. Verdict April 7, 2017). Mr. Walters, a well known Las Vegas gambler, was found guilty by a New York jury on two counts of conspiracy, four counts of securities fraud and four counts of wire fraud. The SEC’s parallel case is pending. SEC v. Walters, Civil Action No. 1:16-cv-03722 (S.D.N.Y. Filed May 19, 2016).

Charged in the action were Mr. Walters, and Thomas C. Davis. Mr. Walters is the Chairman and CEO of The Walters Group. He is a professional sports bettor. Mr. Davis was a director of Dean Foods Company and a member of the audit committee. He was also a member of a group of shareholders of Darden Restaurants, Inc. trying to institute change at the company. Mr. Davis pleaded guilty and has been cooperating with the government.

From 2008 through 2012 Mr. Davis repeatedly tipped his friend William Walters in advance of certain corporate events related to Dean Foods, according to facts alleged by the SEC. The tips, for example, came in advance of six quarterly earnings announcements. Mr. Davis also tipped his friend in advance of the spin-off of a profitable Dean Foods subsidiary, The WhiteWave Foods Company. In addition, the director provided Mr. Walter, in 2013, with information he obtained on a confidential basis from a group of investors seeking to institute corporate change at Darden.

As he was tipped Mr. Walters traded profitably. In some instances those trades were placed through one of two entities. One was the Walters Group, a partnership of Mr. Walters and his wife. The other was Nature Development B.V., and off-shore company indirectly controlled by Mr. Walters. Overall the trading netted him at least $40 million in profits. In exchange for the inside information Mr. Walters aided Mr. Davis with his financial difficulties, furnishing him with almost $1 million.

The SEC complaint added professional golfer Philip Mickelson as a relief defendant. The Commission claimed that Mr. Walters tipped the golfer in July 2012 about the Dean Foods spin-off. At the time Mr. Mickelson owed Mr. Walters money from gambling. Mr. Mickelson traded, reaping profits of about $931,000. The SEC did not claim that Mr. Mickelson knew the information furnished to him came from a breach of a duty for a personal benefit. Rather, Mr. Mickelson is named by the SEC only as a relief defendant, along with the Walters Group and Nature Development B.V.

Sentencing for Mr. Walters is scheduled for July 14, 2017.

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