by T. GormanPosted on Posted in SECActions

The Commission continues to focus on microcap fraud actions with two new manipulation cases involving penny stocks. In one a former registered representative acted as an unregistered broker and then engaged in a series of wash sales. In the Matter of Paul J. Pollack, Adm. Proc File No. 3-16316 (December 16, 2014). In the other an oil and gas company and five executives manipulated the share price of the company. SEC v. Blackburn, Civil Action No. 4:14-cv-00812 (E.D. Tex. Filed December 15, 2014).

Mr. Pollack and his controlled entity, Montgomery Street Research LLC, are Respondents in an action centered on alleged violations of Exchange Act Sections 10(b) and 15(a). While Mr. Pollack was a registered representative, he has never been registered with the Commission as a broker. Montgomery claims to provide equity research and consulting services.

In March 2010 Montgomery entered into a three year Letter Agreement with Company A to provide general advice on growth strategies and “position within the public capital markets.” The focus of the undertaking was to raise money in the capital markets and introduce potential investors to the company. From November through April 2011 Respondents helped effect transactions for the company in its common stock. As a result of efforts by Respondents, nine investors purchased $445,000 of the company’s common stock. This represented about 74% of the total offering.

Later in 2011 Respondents again solicited prospective investors for the firm, this time to acquire shares of preferred stock. About $5.2 million was raised in the offering. Approximately 40% came from the efforts of Respondents. At the conclusion of this offering it was agreed that Respondents would be paid 5% of the value of the preferred stock.

Mr. Pollack also controlled about 665,000 shares of the firm’s common stock through the Letter Agreement. From December 2010 through October 2012 he had exclusive trading authority over ten online brokerage accounts at five brokers. During the period he used the accounts to purchase about 5.3 million shares of the company while selling about 5.6 million. These transactions yielded over $800,000 in net proceeds. Over a period of 300 trading days Mr. Pollack conducted 4,341 transactions. On some days accounts under his control accounted for over 90% of the reported trading volume.

During the period July 2011 through June 2012 eight of the accounts controlled by Mr. Pollack engaged in wash trading. The creation of this false activity created upward pressure on the share price. None of the 100 wash trades by various controlled entities resulted in a change of beneficial ownership. The transactions resulted in net trading proceeds of about $369,686.23. The proceeding will be set for hearing.

Blackburn centers around a scheme created by convicted felon Ronald Blackburn, Treaty Energy Corporation and its executives – Andrew Reid, CEO, Bruce Gwyn, co-CEO, Michael Mulshine, corporate secretary and Lee Schlesinger, CIO, each named as a defendant. Samuel Whitley, outside securities counsel is also named as a defendant.

The company was formed in December 2008 through a reverse-merger of a private oil and gas company and a dormant public shell by Mr. Blackburn. Its shares, 86% of which were controlled by Mr. Blackburn, were quoted on the OTC Bulletin Board. While the other defendants were appointed to various positions at the company, Mr. Blackburn controlled the firm behind the scenes – a fact not disclosed in its Commission filings.

In April 2010, through a joint venture agreement, Treaty obtained the drilling rights in Belize . Press releases were issued touting the merits of the program in July 2011. Later that year the company hired a stock promoter to post misleading information on message boards. The hype regarding the drilling program culminated in January 2012 with a press release announcing that Treat stuck Oil. The press release claimed the well had an estimated 5 to 6 million barrels of recoverable oil. The stock price shot up by 79.3% in one day. The announcement was false, according to the complaint. The same day the release was issued, a government agency in Belize published a release refuting the claim of the company. Nevertheless, Mr. Blackburn and the company officers continued to tout the claimed oil strike. A second release by the company again touting the strike halted the share price decline. The price did not return to pre-announcement levels for a months.

Between 2009 and 2013 Mr. Blackburn and others sold shares of the company in an unregistered public offering and using a Form S-8 to distribute shares to ineligible persons. About $3.6 million was raised from 90 investors.

By June 2013 Treaty depleted all of its authorized shares. Subsequently, the firm began offering investors oil and gas working interests in a well located in West Texas. Investors were told that the well had an initial production rate of 62 barrels per day with a life span of 20 years and that the investment was low risk. In reality the well produced far less. Nevertheless, 19 investors paid about $565,000 for interests. While the investors were told the funds would be invested in current oil and gas filed development much of the money was misappropriated.

The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Sections 10(b), 13(a) and 16(a). The case is in litigation. See Lit. Rel. No. 23158 (December 15 2014).

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by T. GormanPosted on Posted in SECActions

A “world tour” was at the center of FCPA violations by two employees of FLIR Systems, Inc., In the Matter of Stephen Timms, Adm. Proc. File No. 3-16281 (Nov. 17, 2014). Travel was also the focus of the Commission’s latest FCPA case, In the Matter of Bruker Corporation, Adm. Proc. File No. 3-16314 (December 15, 2014).

Bruker Corporation, based in Billerica, Massachusetts, manufactures and markets analytical tools and life science and materials research systems. The firm manages its China operations through the Shanghai and Beijing representative offices of the Asia-based subsidiaries of four divisions.

From 2005 through 2008 the Bruker China offices paid about $119,710 to fund 17 trips for Chinese government officials. For the most part the trips were not related to any legitimate business. The trips were recorded as business expenses. The firm had about $1,131,740 in profits from contracts obtained from the state owned enterprises whose officials participated in the rips. Examples of the trips include:

  • In 2006, as part of a sales contract with a state owned enterprise, the China offices paid for training expenses for a Chinese government official who executed the sales contracts for the SOEs. The so-called training expenses included payment for sightseeing, tour tickets, shopping and other leisure activities in Frankfurt and Paris.
  • In 2007 the China offices paid for three Chinese government officials to visit Sweden for a conference. The payments also covered several days of sightseeing in Sweden, Finland and Norway.
  • In 2009 the China offices paid for two Chinese government officials to travel to New York where the firm does not have any offices and Los Angeles where the firm does have facilities but the expenses included sightseeing activities. During the year the China offices also paid for three Chinese government officials to visit destinations in Europe for sightseeing.
  • In 2010 the China offices paid for three Chinese officials to visit Frankfurt, Heidlberg, Stutgart, Munich, Salzburg, Liz, Graz and Vienna.
  • In 2011 those offices paid for officials from seven state owned enterprises to go on sightseeing visits to destinations which included Austria, France, Switzerland, Italy and the Czech Republic.

From 2008 through 2011 the China offices also paid $111,228 to Chinese government officials through 12 Collaboration Agreements. The agreements were executed with a Chinese official who, in certain instances, was paid directly. Generally those agreements provided that the state owned enterprise was to provide research on Bruker products or use them in their demonstration labs. In fact no work was provided. The firm had profits of about $583,112 from contracts obtained from the state owned enterprises.

Throughout the period the firm had inadequate internal controls and FCPA compliance procedures, according to the Order. The firm failed to monitor and supervise its senior executives, did not have an independent compliance staff or an internal audit function that had authority to intervene into management decisions and take appropriate action. When the company distributed its training presentations, code of conduct and FCPA policy it failed to translate the documents into the local language.

Bruker discovered the improper payments in 2011. The firm promptly initiated an investigation, self-reported to the SEC and the DOJ and initiated a broad review of the China operations. Bruker also initiated remedial actions which included terminating senior staff at each China office, revising its compliance program and updating and enhancing its financial accounting controls. Throughout the process the firm provided what the Commission called “extensive, through and real-time cooperation.”

The Order alleges violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B).

To resolve the matter the company consented to the entry of a cease and desist order base on the Sections cited in the Order. In addition, the firm will pay disgorgement of $1,714,852, prejudgment interest and a civil penalty of $375,000.

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