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. http://sec.gov/litigation/litreleases/2007/lr20021.htm  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.