SEC enforcement this holiday shortened week dismissed the remaining defendants in an insider trading case centered on an international take over which had been filed largely on the trading and within days of the announcement. The Court cited discovery difficulties which in part traced to the defendants in granting the Commission’s request for dismissal without prejudice to conduct an investigation. The Commission also brought actions involving investment advisers, illegal offerings and the fraudulent operation of investment funds.

The FSA brought an action against a hedge fund adviser who lost most of the fund’s capital and tried to cover it up. The action seeks to ban the adviser and the largest fine every imposed by the agency in a non market abuse case. Hong Kong regulators announced guilty pleas for illegal short selling.

SEC Enforcement: Litigation

Insider trading: SEC v. Compania International Firanciera S.A., Civil Action No. 11-cv-04904 (S.D.N.Y. Filed July 15, 2011) is an insider trading action filed against Compania International Financiera S.A., Coudree Capital Gestion S.A. and Chartwell Asset Management Services, all based in Switzerland. The case centered on trading prior to the announcement on July 11, 2011 that Swiss based Lonza Group Ltd. would acquire Connecticut based Arch Chemicals, Inc. in a tender offer. Previously, the Commission dismissed without prejudice its claims against Chartwell. Now the Court granted the SEC’s motion to dismiss the remaining defendants without prejudice to permit the agency to conduct an investigation. In its order the Court cited the inability of the Commission to obtain certain evidence and difficulties with the discovery process caused in part by Compania and Coudree.

SEC Enforcement: Filings and settlements

Statistics: This week the SEC filed 6 civil injunctive actions and 2 administrative proceedings (excluding tag-along and 12(j) actions).

Breach of fiduciary duty: In the Matter of Oxford Investment Partners, LLC, Adm. Proc. File No. 3-14899 (May 30, 2012) is an action against the Phoenix based investment adviser and its founder, president and control person, Walter Clarke. The Order centers on two claims. First, when faced with financial difficulties Mr. Clarke sold a 7.5% stake in Oxford to a client based on a price he fraudulently inflated. Second, in two instances Mr. Clark placed groups of clients into investments without informing them that he had a personal interest in the transactions and would benefit. In each instance the clients lost all of their investment. The Order alleges violations of Advisers Act Sections 206(1), (2) and (4). The proceeding will be set for hearing.

Fraudulent sale of securities: SEC v. Lefkowitz, Civil Action No. 8:12-CV-1210 (M.D. Fla. Filed May 30, 2012) is an action against Mark Lefkowitz, Compass Capital Group, Inc., Mark Lopez, Unico, Inc., Steven Peacock, Shane Traveiler and Advanced Cell Technology, Inc. The complaint alleges that the defendants engaged in a scheme to sell shares of penny stock issuers in violation of the registration provisions of the federal securities laws. Specifically, the Commission claims that the defendants devised a strategy to fraudulently secure an order under Section 3(a)(10) of the Securities Act which provides an exemption for securities issued in a bona fide exchange offer under certain circumstances and with court approval. To implement the scheme over fifty lawsuits were filed against the penny stock issuers supposedly for past debts. The suits and debts were then settled for fractions of their claimed value in exchange for shares issued as part of the settlement. The judge who approved the deals was not told that there were side agreements providing that part of the proceeds from the subsequent sale of the shares would be paid to the issuers. The complaint alleges violations of Securities Act Section 5 and Exchange Act Sections 13(a) and 13(d). The case is in litigation.

Misappropriation: SEC v. DeMaria, Civil Action No. 1:12-cv-04145 (N.D. Ill. Filed May 29, 2012) is an action against Richard DeMaria which alleges that he operated a prime bank scheme. Specifically, the complaint alleges that Mr. DeMaria solicited investors to purchase interests in financial instruments for a profit. However, he misappropriated at least $3.8 million in investor funds and used them for himself. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is in litigation.

Investment adviser fraud: SEC v. Gomez, Civil Action No. 1:12-cv-21962 (S.D. Fla. Filed May 29, 2012) is an action against unregistered investment adviser, Jorge Gomez and Roberto Espinosa, an investment adviser and broker dealer for whom Mr. Gomez acted as a finder. Over a three year period Mr. Gomez misappropriated over $4.3 million from an advisory client who had entrusted him with $10.8 million to invest. The client came to Mr. Gomez based on his false claims about affiliations with Bank of New York Mellon and Pershing LLC as well as his investment strategy. During the relationship Mr. Gomez concealed his illegal acts from the client by furnishing him with false account statements, certificates for fictitious securities and creating a false hot line to take his calls. Mr. Espinosa provided advisory and brokerage services to the client during the time period of his relationship with Mr. Gomez. Although he was aware of the wrongful actions by Mr. Gomez, he failed to inform the client. He also did not disclose certain fees. The complaint alleges as to Mr. Gomez, violations of Exchange Act Section 10(b) and Advisers Act Sections 206(1) and (2). As to Mr. Espinosa, the complaint alleges violations of Exchange Act Section 15(a) and Advisers Act Sections 206(1), (2) and (4). Mr. Espinosa settled with the Commission, consenting to the entry of a permanent injunction prohibiting future violations of the Sections cited in the complaint. He also agreed to pay disgorgement of $855,000 along with prejudgment interest and a civil penalty of $130,000. The case is in litigation as to Mr. Gomez.

Investment adviser fraud: In the Matter of Quantek Asset Management, LLC, Adm. Proc. File No. 3-14893 (May 29, 2012) is a proceeding which names as Respondents Quantek Assent Management, LLC, Bulltick Capital Markets Holdings, L.P., Javier Guerra and Ralph Patino. Quantek, based in Miami, Florida, is a registered investment adviser that was a wholly owned subsidiary of Bulltick, a Scottish limited partnership founded by Mr. Guerra and others. The Order alleges three violations. First, from December 2006 through June 2008 Quantek falsely represented to certain prospective investors that its principals had invested their own money in the Opportunity Funds for which Mr. Guerra served as portfolio manager. Second, from 2007 through 2008 Quantek misled investors about its investment process. Finally, from 2007 through 2010 investors were furnished with inaccurate information about certain related party transactions. The Order alleges violations of Securities Act Sections 17(a)(2) and (3) and Advisers Act Section 206(4) and the pertinent rules. To resolve the proceeding, each Respondent consented to the entry of a cease and desisit order. The orders as to Quantek and Messrs. Guerra and Patino is based on the Sections cited in the Order. The order as to Bulltick is based on the Advisers Act Section and the related Rules cited in the Order. Respondents Quantek and Bulltick were also censured. Respondents Quantek and Guerra agreed to jointly pay over $2.2 million in disgorgement and prejudgment interest along with penalties of, respectively, $375,000 and $150,000. Respondent Bulltick agreed to pay a penalty of $300,000 while Respondent Patio will pay a penalty of $50,000. Finally, Messrs. Guerra and Patino consented to securities industry bars of, respectively, five years and one year.

Fraudulent offering: SEC v. Catledge, Case No. 2:12-cv-00887 (D. Nev. Filed May 24, 2012)(See also Lit. Rel. No. 22382 May 31, 2012) is an action against James Catledge, Derek Elliot and certain of their related entities which alleges an offering fraud. Essentially, the complaint claims that the defendants raised nearly $164 million from investors who were told that the funds would be invested in securities called “Residence” and “Passport” which represented timeshare and ownership interest in resorts in the Dominican Republic. Investors were also told that they would be paid returns of 8% to 12% on the Residence investment and 5% on the Passport investment. The funds were not used to construct the resorts. Rather, portions were used to make payments to investors and pay large fees to the defendants and their affiliates. The complaint alleges violations of Securities Act Sections 5 and 17(a)(1), (2) and (3) and Exchange Act Section 15(b). The case is in litigation.

Investment fund fraud: SEC v. Konior, Civil Action No. 1:12-CV-04145 (S.D.N.Y. Filed May 24, 2012) is an action against Jason Konior, Absolute Fund Advisors, LLC and Absolute Fund Management, LLC. Defendant Konior sold interests in Absolute Fund, LP, promising hedge fund investors a “first loss” trading program. In that program Absolute would, investors were told, allocate capital of up to nine times the amount of their investment and put the funds in a sub-account at a broker where the investor could trade securities. Any trading losses would be allocated first to the investors contributed amount while profits would be shared. For at least the last four investors who put in $2 million, the program was never set up. Rather, the funds were used to pay redemptions to other investors and for the personal and business expenses of Mr. Konior. The complaint alleges violations of Exchange Act Section 10(b). It also asserts that Mr. Konior is liable under Exchange Act Section 20(a). The case is in litigation.

Criminal cases

Investment fund fraud: U.S. v. Shew-A-Tjon, Case No. 1:11-cr-00596 (E.D. Va.). is an action in which Stanley Shew-A-Tjon previously pleaded guilty to securities fraud. The action was based on allegations that Mr. Shew-A-Tjon from 2005 through 2008 solicited investors for a fund that supposedly invested in a range of opportunities including gold, foreign currency exchanges and private placements. Investors were to be paid returns of 5% to 18% per month. Over the course of the scheme over 900 investors entrusted the defendant with about $16 million. While returns were paid, they were from other investor funds. Account statements given to investors were false. Many investors lost all of their money. Mr. Shew-A-Tjon was sentenced to serve 96 months in prison.


The agency brought an action against Alberto Micalizzi, alleging that he has failed to satisfy the threshold conditions and is not fit and proper. Mr. Micalizzi was the CEO of Dynamic Decisions Capital Management LLC, a hedge fund based in London. According to the FSA, from October 1, 2008 through December 31 of that year the master fund managed by DDCM lost about 85% of its value. Mr. Micalizzi concealed the losses by making false statement to investors. The FSA also claims that he entered into certain purchase and resale transactions regarding bonds which were not genuine. Rather, they were used to record fictitious profits which concealed the true financial condition of the fund. He also continued to solicit new investors while covering up the losses. The FSA is seeking to ban Mr. Micalizzi from the securities business and a ₤3 million fine which would be its largest in a non market abuse case.

Hong Kong

The Securities and Futures Commission announced that three retail investors pleaded guilty to four counts of illegal short selling. The charges relate to trading in the shares of Bao Yuan on December 17, 2010. At the time the defendants did not, and could not, have had reasonable grounds to believe that they had a presently exercisable and an unconditional right to sell the shares. That constitutes illegal short selling. A fourth investor has pleaded not guilty. His case has been adjourned to June 28, 2012.

ABA Program: The New Era of FCPA Enforcement and the Collapse of the Africa Sting Cases: Time to Reevaluate? Tuesday June 5, 2012, 12:00 PM to 1:30 PM EST, Live in Washington, DC and webcast.

Moderators: Thomas O. Gorman, Partner, Dorsey & Whitney LLP, Washington, D.C. and Frank C. Razzano, Partner, Pepper
Hamilton, LLP, Washington, D.C.

Panel: John D. Buretta, Deputy Asst. AG, Criminal Division, DOJ, Washington, D.C.; Charles E. Cain, Deputy Chief FCPA Unit, SEC, Washington, D.C.; France Chain, Senior Legal Analyst, Anti-Corruption Division, OECD, Paris, France; Prof. Mike Koehler, Butler University, Indianapolis, Ind.; Hon. Stanley Sporkin, Washington, D.C.; Greg D. Andres, Partner, Davis Polk, New York, New York; Eric Bruce, Partner, Kobre & Kim, New York, New York. Live Presentation from Washington, DC.

Co-hosted by Dorsey & Whitney LLP and Pepper Hamilton, LP at Penthouse at Hamilton Square, 600 Fourteenth St., N.W. Washington, D.C. Click here for more information (here)

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