by T. GormanPosted on Posted in SECActions

The SEC is clearly bringing more cases as administrative proceedings. To be sure, many of its “broken windows” actions are brought in that forum. At the same time, it is brining other cases which are traditionally brought as civil injunctive actions as administrative proceedings. While the agency traditionally brings insider trading cases in Federal Court, since September 2014, the SEC has filed five insider trading cases as administrative proceedings (here). Now the number is six with the filing of In the Matter of Michael S. Geist, Adm. Proc. File No. 3-16269 (November 12, 2014).

Michael Geist is employed at ViaSat, Inc. as a Government Sales Manager. Previously he worked for Comtech Telcommunications, Inc. Brent Taylor, also named as a Respondent, is the former COO and Executive V.P of a subsidiary of Comtech Telecom. He left the firm in 2004 and is now employed at his firm, Rationa-3, LLC, which works on various government satellite communications contracts. He wife at the time relevant to this proceeding was employed as the bookkeeper at Rationa-3.

This action centers on the award of a U.S. Army contract, Blue Force Traking-2, to ViaSat in 2010. The original Blue Force Tracking production contact was awarded to Comtech in the early 2000s. Mr. Taylor was employed at the firm during that time and was thus familiar with the contract.

In April 2009 the program manger for the Blue Force Tracking program posted a request for information, indicating that it would solicit bids for the next generation of Blue Force Tracking through a request for proposal in the near future. Mr. Grist worked on assembling information for the bid. During that period he met with Mr. Taylor and sought to learn specifics about the original contract. He also sought to establish a working relationship with Mr. Taylor which included brining him on as a consultant for the firm’s SATCOM business and contract solicitation.

In December 2009 a request for proposal was officially solicited by the U.S. Army to produce the Blue Force Tracking-2. Only ViaSat and Comtech submitted bids. Most market analysts believed that Comtech would receive the award.

Two days prior to the announcement of the award on July 21, 2010, the Army contracting officer for the program sent an e-mail to ViaSat informing the firm that it had been selected for the award. The communication noted that the award was subject to Congressional approval and that it had not been publically announced. That evening Mr. Grist called Mr. Taylor. On the evening of July 19, 2010 Mr. Geist also logged into his online brokerage account and purchased put option contracts on Comtech stock and calls on ViaSat shares.

The next day, July 20, Mr. Taylor returned the call of Mr. Geist. The two men had a series of short calls. Mr. Taylor called his broker at one point and asked if there was any news about Comtech. There was none. That evening Mr. Geist placed an order to sell the Comtech Telecom and ViaSat options he had purchased.

On the morning of July 21 the Army’s Deputy General Manager on the program advised an engineer at a defense contractor for who Mr. Taylor served as a subcontractor that ViaSat had won the contract. The Director of Business Development telephoned Mr. Taylor and told him the news. Mr. Taylor called his broker. When the broker again told him that there was no news about the contract, Mr. Taylor sold 4,000 shares of Comtech Telecom, stating he hear about the award from a friend. He also asked the broker to sell shares of the firm held in his then wife’s account. The broker refused. Subsequently, the wife called and sold the shares. Mr. Taylor also called another broker and sold additional Comtech Telecom shares from another account.

Later that morning Comtech Telecom announced that it had not obtained the award. Within fifteen minutes of the release, the stock dropped almost 28%. ViaSat’s shares rose modestly. The Taylor sell orders were executed just before the Comtech announcement, except for a portion of Mr. Taylor’s order at the second broker which was executed prior to the press release. The sell orders placed the evening before by Mr. Geist were executed one minute after the press release.

Mr. Taylor knew, or had reason to know, that Mr. Geist breached his fiduciary duty to his employer by tipping him. Alternatively, he misappropriated information from the defense contractor for whom he worked as a subcontractor, according to the Order. That Order alleges violations of Exchange Act Section 10(b).

Both Respondents settled with the Commission, consenting to the entry of cease and desist orders based on the Section cited in the Order. In addition, Mr. Geist agreed to pay disgorgement of $27,303.85, prejudgment interest and a penalty in an amount equal to the disgorgement. Mr. Taylor agreed to pay disgorgement of $46,828.86, prejudgment and, within 120 days of the entry of the Order, disgorgement in the same amount along with post judgment interest. Mr. Taylor will also pay a penalty of $46,828.86. Each Respondent is prohibited from serving as an officer or director for a period of five years.

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by T. GormanPosted on Posted in SECActions

Raising capital through crowd-funding is one of the key provisions of the JOBS Act. It is supposed to facilitate raising small amounts of capital for start-up operations. An off-shore crowd-funding site that sold unregistered securities to U.S. citizens, however, ran afoul of the registration provisions of the Securities Act. In the Matter of Eureeca Capital SPC, Adm. Proc. File No. 3-146265 (November 10, 2014).

Eureeca Capital, a Cayman Islands company, operates an online, securities-based crowd-funding platform. It has never been registered with the SEC. The firm initiated its online, securities-based platform in May 2013. Through the platform issuers are connected with investors to raise funds in exchange for equity. The securities offered are from non-U.S. based issuers.

The securities offered are reviewed by Eureeca which has an applications committee and a third party compliance agency, according to the site. Information about the issuers is available on the site. For example, an informational video about the offering is available as well as data regarding the amount of the offering being made by the issuer. Visitors to the side can review this information. Those who register have access to additional information. Registration only requires basic information about the person such as name, address, date of birth and similar data. There are no financial requirements such as those for being an accredited investor under U.S. law.

The site specifies that the securities are not being offered to U.S. persons. The firm did not have any compliance procedures designed to prevent U.S. persons from registering. As of May 2014 about 50 U.S. persons were registered on the site, according to the Order.

To purchase securities through the site, the funds had to be wired to Eureeca. If the offering was not fully funded, the investor funds were returned, according to the site. If the offering funded the transaction was completed – the investor cash went to the company and the investor received securities. The site received a percentage of the funds.

In 2013 Eureeca accepted funds from three U.S. persons for offerings. Each investor provided verification of citizenship and residence. While Eureeca did not take steps to verify that the investors were accredited, two of the U.S. investors certified that fact in e-mail prior to the offerings.

The three U.S. persons invested about $20,000 in four separate offerings through the website. The Order alleges violations of Securities Act Sections 5(a) and 5(c) and Exchange Act Section 15(a).

To resolve the proceeding, Eureeca consented to the entry of a cease and desist order based on the Sections cited in the Order. In addition, the firm agreed to pay a civil penalty of $25,000. In resolving the proceeding, the Commission considered the prompt voluntary cooperation of the company and its remedial actions.

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