SEC Partially Resolves One Action, Concludes Another
The SEC announced the partial resolution of one action last week and the conclusion of another. One centered on the collapse of Dewey & LeBoeuf, LLP. The other concluded an insider trading action involving inside information gleaned from the credit card files of Capital One Financial Corporation .
First, in SEC v. Davis (S.D.N.Y. Filed March 6, 2014) the Court entered a final judgment by consent against Francis Canellas, the former finance director of firm. The court entered a permanent judgment prohibiting future violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The judgment also provides for the payment of disgorgement, prejudgment interest and a financial penalty in amounts to be determined later.
The initial action was brought against five executives and finance professionals formerly with the collapsed law firm. In addition to Mr. Canellas, the defendants are: Attorney Steven Davis, chairman of the firm; attorney Stephen DiCarmine, executive director; Joel Sanders, CFO; and Thomas Mullikin who held several accounting positions. The complaint alleges that in connection with a $150 million private bond offering in 2010 the firm and the defendants engaged in financial fraud, furnishing purchasers a PPM with false financial information. In fact, the financial fraud traced back to 2008 when the firm began falsifying its books. Bond purchasers were also furnished with quarterly financial information which was false. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). See Lit. Rel. No. 23475 (February 26, 2016).
The second action is SEC v. Huang, Civil Action No. 15-cv-269 (E.D. Pa.). There the court issued a memorandum opinion and final judgment against Nan Huang who was found liable for insider trading following a jury trial. The court entered a permanent inunction and directed the payment of $4,403,545 in disgorgement, prejudgment interest and a penalty of $8,807,090.
The complaint alleged insider trading based on the misappropriation theory against two former employees of the financial institution, Bonan Huang and Nan Huang. From November 2013 through January 2015 the two defendants were alleged to have misappropriated material inside information from their employer and used it not to trade in the shares of Capital One but those of retail establishments reflected in the credit card statements of firm card holders. Specifically, the defendants, employed as data analysts, were tasked with analyzing transactions for possible fraudulent credit card activity. As such the two men had access to customer data held by the Capital One. That included details on numerous consumer purchase transactions. The two men used their access to gather information regarding purchases and analyze potential sales trends at various retail establishments. The results of the analysis were then employed to trade in shares of the firms prior to earnings announcements. The scheme generated over $2.8 million in trading profits in one of their accounts. See Lit. Rel. No. 23476 (February 26, 2016).
Defendant Bonan Huang settled with the Commission shortly before trial, consenting to the entry of a permanent injunction based on Exchange Act Section 10(b), and agreeing to pay disgorgement, prejudgment interest and penalties totaling over $4.7 million. See Lit. Rel. No. 23438 ( December 23, 2015).