This week the Commission prevailed in a litigated action, securing the relief it sought against a defendant and his company after prevailing on summary judgment. The agency also brought two insider trading actions, one centered on a financial fraud case, and two investment fraud actions.

The Commission

The Division of Enforcement altered its long standing policy on one of its key settlement terms. Traditionally, the Division has permitted defendants to settle enforcement actions without admitting or denying the allegations in the complaint expect as to jurisdiction. Under a revision to the policy announced the Division will no longer permit those convicted, or who otherwise admitted the facts in a parallel criminal action, to settle with the Commission based on “not admitting or denying” the facts.

SEC Enforcement: Litigation cases

Fraudulent tender offer: SEC v. Weintraub, Case No. 11-21549 (S.D. Fla.) is an action against Allen E. Weintraub and his company AWMS Acquisitions, Inc. The compliant centers on claims that Mr. Weintraub and his company made false tender offers for all of the outstanding stock of AMR Corporation, the parent of American Airlines, and Eastman Kodak Company. At the time of the offers, which were for, respectively, $1.3 billion in case and $3.25 billion in cash, the defendants did not have any ability to enter into the transactions. Mr. Weintraub also failed to disclose key facts about his background including the fact that he had pleaded guilty to criminal charges. The complaint alleged violations of Exchange Act Section 10(b) and 14(e). The court granted summary judgment in favor of the Commission. It also entered permanent injunctions against both defendants and requires the defendants to pay $400,000 in civil money penalties.

SEC Enforcement: Filings and settlements

Insider trading: SEC v. Arrowood, Civil Action No. 1;12-cv-00082 (N.D. Ga. Filed Jan. 11, 2011) is an action against Parker Petit, the former Chairman and CEO of Matria who is alleged to have tipped his friend, Earl Arrowood. At a time when Matria was shopping for strategic alternatives, and several companies were conducting due diligence on the firm, Mr. Petit is alleged to have furnished this information to his friend Earl Arrowood who purchased about 17,500 shares. In January 15, 2008 the company made an announcement stating that it was considering strategic alternatives, including being acquired. The share price rose 20% following the announcement. Mr. Arrowood’s account had unrealized gains of about $94,0000. Ultimately the company was acquired in late January 2008. The Commission’s complaint alleges violations of Section 10(b) of the Exchange Act. It seeks a permanent injunction, disgorgement, prejudgment interest, a civil penalty and an officer and director bar. The case is in litigation.

Financial fraud/insider trading: SEC v. Farha, Civil Action No. 8/12-cv-00047 (M.D. Fla. Filed Jan. 9. 2012) is an action which names as defendants the former CEO of WellCare Health Plans, Inc., Todd Farha, its former CFO Paul Behrens and former General Counsel Thaddeus Bereday. From 2003 through 2007 the three former executives are alleged to have implemented a scheme to deceive the Florida Agency for Health Care Administration and the Florida Healthy Kids Corporation. This permitted them to improperly retain over $40 million in health care premiums that were required by law and contract to be spent on certain health care services or reimbursed to state agencies. As a result of the fraud, the company improperly withhold over $40 million which went to the bottom line. During the course of the scheme the defendants sold about 1.6 million of WellCare stock. Those sales were made by fraudulently amending 10b-5-1 plans. Ultimately the company uncovered the fraud after the initiation of a regulatory inquiry. An internal investigation resulted in a restatement of the financial statements. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and13(b)(2)(B). It seeks a permanent injunction, disgorgement, prejudgment interest, civil penalties, an officer and director bar and the repayment of certain incentive based compensation under SOX Section 304(a). The case is in litigation.

Investment fraud: SEC v. Dobens, Civil Action No. 10-CA-10360 (D. Mass.) is an action against Kathleen Dobens and Charles Dobens and Joseph Roche along with certain entities they used to solicit investments for their alleged real estate ventures. The money, according to the complaint, was diverted to the personal use of the individual defendants. This week the three individuals agreed to settle with the Commission, consenting to the entry of a permanent injunction prohibiting future violations of Securities Act Sections 5and 17(a) and Exchange Act Section 10(b). The three individual defendants agreed to be jointly and severally liable for the payment of disgorgement in the amount of $284,300 plus prejudgment interest. Mr. & Mrs. Dobbens alo agreed to pay a civil money fine of $80,0000. No penalty was impose against Mr. Roche based on his financial condition along with other remedial relief.

Investment fraud: SEC v. Imperiali, Inc., Civil Action No. 9:120 cv 080021 (S.D. Fla. Filed Jan. 9, 2012) is an action against Imperiali, Inc, Daniel Imperato who controlled the company, Charles Fiscina, its CFO and Lawrence O’Donnell, its outside auditor. The complaint alleges that between 2005 and 2008 Daniel Imperato orchestrated a scheme in which he portrayed his controlled company as a successful multinational entity. He then raised about $2.5 million by selling securities to investors. Defendant Fiscina drafted and reviewed at least 16 materially false and misleading registration statements, periodic reports and current reports with the Commission on behalf of the company. The complaint alleges violations of Securities Act Sections 5 and 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) as well as Sections 18(d), 31(a) and 34(b) of the Investment Company Act. Defendant Fiscina settled with the Commission, consenting to the entry of a permanent injunction prohibiting future violations of Securities Act Section 17(a) and Exchange Act Sections 10(g) and 13(b)(5) and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B). No penalty was imposed based on Mr. Fiscina’s financial condition.

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