by T. GormanPosted on Posted in SECActions

In the typical Ponzi scheme unscrupulous individuals induce investors to part with their cash based on a series of misrepresentations about the proposed investment. The investor money is then in part misappropriated and in part used to repay other investors in an effort to perpetuate the scheme. In the Commission’s latest Ponzi scheme case however, the alleged fraudster induced investors to repay other investors directly. SEC v. McCollum, Civil Action No. 7:16-cv-00282 (W.D. Tex. Filed July 27, 2016).

Defendant Jeffery McCollum formed JNL Oilfield Instruments, LLC to provide services to oilfield companies in West Texas. The business struggled, leaving him short of cash. Changing his business model, Mr. McCollum focused on purchasing used oilfield services equipment. The idea was to make a quick resale for a profit. He lacked the capital to implement the business.

Mr. McCollum began soliciting investors to raise the necessary capital. He was more successful at soliciting investors than selling services. From 2009 through mid 2015 he raised over $12 million from about 30 investors. Investors were told that he had specialized knowledge of, and contacts in, the thriving used equipment market in which he was starting a business. He would then identify a specific piece of equipment for sale, telling the investor that if he or she furnished the necessary funds a guaranteed high rate of return could be made – about 13%. The claim was false.

In fact the parts were typically not purchased. Rather, Mr. McCollum just took much of the money. In some instances he directed the investors to make their investment checks payable to a party who supposedly was selling the part. In fact the payee was an earlier investor. Other investors were furnished with false documents about their supposed investment. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b).

The defendants resolved the action, consenting to the entry of permanent injunctions based on the Sections cited in the complaint. They also agreed to pay disgorgement and prejudgment interest in amounts to be determined later and a penalty of $160,000. See Lit Rel. No. 23603 (July 27, 2016).

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by T. GormanPosted on Posted in SECActions

The Commission filed another settled insider trading action. The case centered on a tender offer by Koch Industries, Inc. for Oplink Communications, Inc., announced before the market opened on November 19, 2014. Following the announcement the share price for Oplink increased 14%. In the Matter of Vi Chen, CPA., Adm. Proc. File No. 3-17361 (July 26, 2016).

Respondent Chen is a CPA licensed to practice in California. Prior to joining Oplink she worked as an accountant for a number of publicly-traded firms. In August 2016 she became the controller of Oplink, a firm that sells optical networking components and subsystems. When Ms. Chen joined the firm she signed an acknowledgment indicating that she had received, understood and agreed to comply with the insider trading policy. She was also subject to firm policies regarding trading stock trading by officers, directors and management. Firm policy only permitted trading during certain periods.

By August 2014 Koch and Oplink moved past preliminary discussions and executed a non-disclosure agreement. Over the following months the two companies engaged in due diligence with the assistance of outside advisers. Koch submitted a series of written offers to acquire Oplink.

Ms. Chen first learned about the proposed transaction at an October 13, 2014 meeting with the firm’s CFO. She then worked on the due diligence, participating in meetings and calls with Koch representatives. Ms. Chen prepared deal related work product regarding her employer’s financial condition.

During a blackout period Ms. Chen began purchasing Oplink stock. Specifically, she bought 4,700 shares in two brokerage accounts under the names of relatives. Later in October she purchased additional shares in an account under the name of her sister.

Following the deal announcement Ms. Chen liquidated the shares, realizing profits of $34,678.44. In December 2014 the transaction proceeds were withdrawn from each account. The next month she personally received $28,500 from one of the accounts. The Order alleges violations of Exchange Act Sections 10(b) and 14(e).

To resolve the action Respondent consented to the entry of a cease and desist order based on the Sections cited in the Order. In addition, she will be denied the privilege of appearing and practicing before the Commission as an accountant with the right to request reinstatement after five years. She is also denied the privilege of serving as an officer or director of a public company for five year. Ms. Chen will, in addition, pay disgorgement of $34,678.44, prejudgment interest and a civil penalty equal to the amount of the disgorgement.

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