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SEC Enforcement Actions

The (SEC) is the United States agency with primary responsibility for enforcing federal securities laws. Whistleblowers with knowledge of violations of the federal securities laws can submit a claim to the SEC under the SEC Whistleblower Reward Program, and may be eligible to receive  monetary rewards and protection against retaliation by employers.

Below are summaries of recent SEC settlements or successful prosecutions. If you believe you have information about fraud which could give  rise to an SEC enforcement action and claim under the SEC Whistleblower Reward Program, please contact us to speak with one of our experienced whistleblower attorneys.

September 16, 2016

An SEC investigation found that William J. Sears and his brother-in-law Scott M. Dittman recorded and trumpeted revenues for purported sales of “Pharm Pods” — containers used for growing marijuana sold by their company Fusion Pharm Inc. — which was really just money “round-tripped” from illegal stock sales by hidden affiliates.  An SEC investigation found that Sears orchestrated the scheme while Dittman served as the CEO and sole officer of Fusion Pharm.  They hired Cliffe R. Bodden to help them create fraudulent corporate documents that enabled Fusion Pharm to issue common stock to three other companies controlled by Sears, who then illegally sold the restricted stock into the market for $12.2 million in profits while hiding the companies’ connection to Fusion Pharm.  Sears then transferred some of his illegal proceeds back to Fusion Pharm so the money could be falsely reported as revenue and the company issued press releases and financial reports that misled investors to believe the revenue came from sales of PharmPods.  Sears, Dittman, Bodden, Fusion Pharm, and Sears’ three other companies agreed to settle the SEC’s charges with monetary sanctions to be determined at a later date. 

September 13, 2016

Self-proclaimed “stock trading whiz kid” Manuel E. Jesus and his stock newsletter company Wealthpire Inc. will pay nearly $1.5 million to settle charges they defrauded subscribers through false statements and misrepresentations.  According to the SEC’s complaint, Jesus and his newsletter company used advertising materials and websites touting Jesus as “the untutored prodigy of stock investing” under the alias Manny Backus.  He boasted of a “skyscraping” IQ and claimed to have made millions of dollars before “deciding to help other investors” by starting an alert service that let traders copy his every trading move.  But according to SEC allegations, from at least January 2012 through September 2014, Backus was not trading in the same stocks recommended by his services as he claimed.  In addition, he wasn’t the one making all the recommendations.  For instance, the SEC alleges that Robert C. Joiner was paid by Wealthpire to make all of the stock picks for one alert service without any guidance from Backus on how to choose them. 

September 13, 2016

Portuguese-based telecommunications company  Portugal Telecom SGPS S.A., now known as Pharol SGPS S.A., will pay a $1.25 million penalty for its failure to properly disclose the nature and extent of credit risk involved in its investments in debt instruments issued by companies of Portuguese conglomerate Grupo Espirito Santo.  An SEC investigation found that Portugal Telecom’s 2013 financial statements had multiple disclosure failures.  As a result of these failures, Portugal Telecom’s investors were unable to form an overall picture of the risks arising from the company’s investment in Grupo Espirito Santo debt instruments, investments that constituted 82% of Portugal Telecom’s short-term investments. 

September 9, 2016

A subsidiary of Oklahoma-based BOK Financial Corporation will pay more than $1.6 million to settle charges that it concealed numerous problems and red flags from investors in municipal bond offerings to purchase and renovate senior living facilities.  The SEC also filed a complaint in federal court against a former vice president at BOK, Marrien Neilson, who allegedly was chiefly responsible for the failures of the bank’s corporate trust department while overseeing what turned out to be fraudulent bond offerings managed by Christopher F. Brogdon.  According to the SEC’s order, BOK failed in its gatekeeper role as indenture trustee and dissemination agent for Brogdon’s bond offerings.  BOK and Neilson became aware that Brogdon was withdrawing money from reserve funds for the bond offerings and failing to replenish them and that he had failed to file annual financial statements for the offerings.  BOK and Neilson also knew that the nursing home facilities serving as collateral for one of the offerings had been closed for years.  But Neilson allegedly warned others that disclosing these issues could impair future business and fees from Brogdon, upset bondholders, and cause regulatory issues for bond underwriters.  Therefore, BOK did not inform bondholders as required. 

September 8, 2016

SEC investigations found that St. Petersburg, Florida-based Raymond James & Associates and Milwaukee-based Robert W. Baird & Co. failed to establish policies and procedures necessary to determine the amount of commissions their clients were being charged when sub-advisers “traded away” with a broker-dealer outside the client’s wrap fee program.  As a result, the firms’ financial advisors were unable to provide information to their clients about the magnitude of these costs and failed to consider these costs when determining whether the sub-advisers or the wrap fee programs were suitable for clients.  Certain clients were not even aware that they were paying additional costs beyond the single wrap fee they paid for bundled investment services.  Raymond James will pay a $600,000 penalty to settle the charges against it.  Baird will pay a $250,000 penalty. 

September 8, 2016

The SEC charged two former accounting executives with American Realty Capital Properties (ARCP), now known as VEREIT Inc., with overstating the financial performance of ARCP’s publicly-traded real estate investment trust (REIT).  According to the SEC’s complaint, Brian Block, then ARCP’s CFO, and Lisa McAlister, then ARCP’s Chief Accounting Officer, manipulated the calculation of ARCP’s adjusted funds from operations (AFFO), a key non-GAAP financial metric used by analysts and investors to assess the company’s performance.  Allegedly, after warnings from internal accounting staff that AFFO was incorrectly calculated in ARCP’s 2014 first quarter financial results, Block, with McAlister’s knowledge, falsified the company’s AFFO presentation in the final hours before filing the company’s second quarter results, to make it appear that the company had met second-quarter estimates when in fact it had fallen short. 

September 6, 2016

The SEC charged Scott Fraser, CEO of sexual health products retailer Empowered Products, Inc., his newsletter publishing business, Contrarian Press, and Nathan Yeung, a paid promoter, with orchestrating fraudulent promotional campaigns to tout the company’s stock.  The SEC alleges that Fraser used Contrarian Press and hired Yeung to promote Empowered Products through online articles purportedly authored by independent authors.  In fact, Fraser and Yeung authored, authorized, and distributed the articles touting Empowered Products, working under pseudonyms and hiring other promoters to disseminate their promotional materials without disclosing that Empowered and Fraser had approved and paid for the advertisements. 

September 1, 2016

The SEC charged Alabama attorney Donald Watkins and his companies, Watkins Pencor LLC and Masada Resource Group LLC, with defrauding professional athletes and other investors out of millions of dollars, much of which he spent on his girlfriend and to cover other personal expenses.  The Commission’s complaint alleges that Watkins falsely told investors that their funds would be invested in waste-to-energy ventures, and that Waste Management Inc., a large waste treatment company, was seriously considering acquiring Watkins Pencor and Masada in a multi-billion dollar transaction. 

August 31, 2016

Financial advisor RBC Capital Markets will pay $2.5 million to settle allegations it caused materially false and misleading disclosures by Rural/Metro Corporation.  Rural/Metro, a medical transportation company, paid RBC $500,000 to prepare a “fairness opinion” which would be presented to Rural/Metro’s board in conjunction with Rural/Metro’s potential sale to a private equity firm.  The SEC found that RBC’s presentation contained materially false and misleading statements which made the bid look more attractive.  RBC’s information was included in the proxy statement Rural/Metro used to solicit shareholder approval for the sale. 

August 30, 2016

The SEC announced that awards to whistleblowers surpassed $100 million.  The SEC’s press release stated that enforcement actions resulting from whistleblower tips have resulted in orders for more than $500 million in financial remedies. 
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