Articles Posted in SEC Enforcement

To settle administrative charges made by the Securities and Exchange Commission, Banc of America Securities LLC has agreed to paying $26 million in penalties and disgorgement. The SEC says that BAS did not safeguard upcoming research reports and submitted ones that were fraudulent to companies. Without denying or admitting the charges, BAS has agreed to a cease-and-desist order against future violations and to being censured, as well as other remedial measures. It will also work with an independent consultant to assess its internal controls and prevent nonpublic information about forthcoming researched from being misused again.

The SEC says that there was a “breakdown” in internal controls that had been put in place at BAS to stop the firm and its employees from misusing research reports that were forthcoming between January 1999 and December 2001. Because of this breakdown, traders and salespersons at BAS allegedly found out about research changes that were forthcoming, such as downgrades and upgrades.

The SEC claims that BAS had no effective or clear procedures and policies that could allow it to control or manage this kind of information. Because of this, BAS allegedly traded prior to the research reports being issued. The firm is also accused of not taking care of specific conflicts of interest, which compromised the integrity and independence of its analysts. These conflict allegedly led to misleading research reports being published and given to TelCom Semiconductor Inc., Intel Corp, and E-Stamp Corp.

On March 6, 2007, The U.S. District Court for the District of Columbia froze $3 million in an account under the name of a Latvian bank. The SEC said unknown traders used the money last year for a “hi-tech market manipulation scheme”. According to the Commission, the action is the largest freeze secured for an intrusion-related market manipulation scheme.

The SEC says that the assets had been placed in an omnibus brokerage account at Pinnacle Capital Markets LLC. The unidentified account owners are based in Russia, the British Virgin Islands, Latvia, and Lithuania-but the account was under the name of JSC Parex Bank, a Latvian bank that the SEC has named as a relief defendant in the SEC action.

The Commission says that unknown traders hacked into investor accounts at online brokerages, sold off clients’ existing positions, and used the money they made to bid up the market for specific stocks that they wanted to manipulate. These traders made at least $732,000 with their alleged pump-and-dump scheme, costing brokerage firms about $2 million.

Charges by the Securities and Exchange Commission have been dropped against Lewis Daidone and Thomas Jones, two former Ex-Citigroup Officials. The SEC had charged the two men with alleged involvement in a fraud scheme that let Citigroup gain millions of dollars in profits, which should have gone to specific mutual funds.

According to Judge Richard Conway Casey of The U.S. District Court for the Southern District of New York, the SEC’s push for injunctive relief and civil penalties is time-barred. He also said that there is no factual support for the Commission’s disgorgement claim.

The court said that the SEC sought three forms of relief-permanent injunctions, civil penalties, and disgorgement-for one cause of action-aiding and abetting 1940 Investment Advisers Act Section 206 violations. The remedies, according to the judge, are not available. The civil penalties and injunction relief is time-barred (the charges did not meet the 5-year statute of limitations) and the disgorgement request was not supported by enough facts. The SEC filed its suit in 2006, six years after the alleged wrongdoing that took place in 1999.

One of the largest municipal bond insurers in the country has agreed to pay $75 million to settle securities fraud charges. The charges were brought against MBIA Inc. by the SEC, the New York State Insurance Department, and NY Attorney General Andrew M. Cuomo.

In agreeing to pay the charge fees, the New York-based firm is not denying or admitting guilt. MBIA will pay $1 in disgorgement and a $50 million penalty-based on its agreement wit the SEC-the total will be put in a Fair Fund for investors. MBIA will also abide by a cease-and-desist order, as well as work with an independent consultant to look at specific transactions that MBIA took part in.

The firm will also pay $10 million in disgorgement fees to investors and $15 million in penalties to satisfy its agreements with the NY entities. It will also restate all earnings from 1998-2004.

The Securities and Exchange Commission recently filed a lawsuit against Edwin Buchanan Lyon, a hedge fund manager, and seven funds known as the “Gryphon Partners” regarding their alleged role involving 35 PIPE (Private Investments in Public Equities) offerings and Canadian short sales. Lyon is the managing partner and chief investment officer of Gryphon.

A PIPE is the purchase of stock in a company by a mutual fund, investment firm, or other qualified investor at a reduced rate per share for the purpose of raising capital. There are two major kinds of PIPE: traditional and structured. A traditional PIPE is where stock, either common or preferred, is issued at a set price. A structured PIPE issues convertible debt. PIPEs are a popular financing technique because of their relative efficiency in terms of time and cost. A PIPE can offer liquidity to a company in need of funds.

According to the SEC, the defendants allegedly attempted to “improperly realize more than $6.5 million in ill-gotten gains… without incurring market risk.” Three of the ways the defendants allegedly did this was to 1) evade registration requirements related to at least 35 PIPE offerings, 2) make material misrepresentations to PIPE issuers, and 3) engage in insider trading.

Addressing a legal gathering on December 1, Linda Thomsen, the director of the Securities and Exchange Commission’s Enforcement Divison says that the division plans to cover all areas regarding enforcement topics in the coming fiscal year, including:

· Misconduct in over-the-counter securities markets. This often involves fraud victims who are not able to afford their losses.

· Misconduct that affects retail investors.

The SEC (Securities and Exchange Commission) was granted summary judgment in its action charging the principal of 800America.Com Inc., a supposed Internet retailing venture, with securities fraud and other violations. The judge, however, refused to impose penalties on Tillie Ruth Steeples (the principal) to the full extent wanted by the SEC. The liability ruling was issued at the U.S. District Court for the Southern District of New York. In addition to agreeing to and ordering the SEC’s disgorgement request of $2.7 million, the court agreed to impose a penny stock bar on Steeples, but only for five years following her time in prison.

In a reverse merger in July 1999, a publicly registered shell company called World House Entertainment issued 1 million shares of restricted common stock to acquire all of the outstanding common and issued stock of 800America Inc. The shell company was controlled by Rabi and Steeples. They renamed 800America Inc. to 800America.com Inc.

800America.com claimed to be an Internet retailer that sold clothes and connected customers with other Internet retailers. Its common stock was traded on the over-the- counter bulletin board and registered with the SEC.