SEC Charges Two More Gatekeepers

Yesterday, the SEC charged two attorneys in separate actions.  First, the SEC filed an injunctive action in United States District Court for the Southern District of New York against Louis W. Zehil, until recently a partner with the law firm of McGuireWoods LLP, and two entities he controlled.  The SEC alleges that from approximately January 2006 to February 2007, Zehil engaged in a PIPE scheme in violation of Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5.  The complaint alleges that Zehil represented seven public companies in issuing their stock in PIPE transactions and he personally invested in the issuers’ PIPE transactions.  As counsel for the issuers, Zehil sent letters to the issuers’ transfer agents directing the issuance of shares bearing restrictive legends, until the Commission declared the registration statements effective to all of the PIPE subscribers, except the entities Zehil controlled.  Zehil falsely indicated that these entities satisfied legal criteria to be issued without restrictive legend.  Zehil then sold the shares and generated profits of at least $17 million.  With the consent of the parties, Judge Preska entered an order granting a preliminary injunction, an asset freeze, the appointment of a receiver and other relief.  In the enforcement action, the SEC is seeking a permanent injunction from future violations of federal securities laws, and a final judgment ordering disgorgement and civil penalties.  The US Attorney for the Southern District of New York also arrested Zehil and filed charges.  

Second, the SEC charged Kent H. Roberts, the former GC and Corporate Secretary of McAfee, Inc., with securities fraud for wrongfully re-pricing McAfee stock option grants awarded to him and others.  The complaint alleges that Roberts secretly changed the grant date of a February 2000 grant made to him in order to take advantage of McAfee’s then-declining stock price, which increased the potential value of his option grant by approximately $197,500 and then he filed false stock ownership reports and signed a misleading proxy statement.  Additionally, the complaint alleges that in 2002, Roberts, falsified the minutes of a compensation committee meeting, and directed the company to issue a 420,000 share option grant to McAfee’s chief executive a day later than the committee had directed and again he signed a proxy statement that misleadingly described the chief executive’s option grants.  The US Attorney for the Northern District of California also charged Roberts criminally. 

As noted several times in this blog, the SEC is and will continue to view gatekeepers as potential violators and when the facts suggest that the gatekeeper participated in a securities law violation, it will bring an action.