Securities Roundup: BP Settles for $525M SEC Lawsuit Over Deepwater Horizon Spill Disclosures, Ex-OIG Official Says He Was Fired for Exposing Misconduct, Ex-Merrill Lynch Advisor Accused of Defrauding Elderly Client, & Trader Pleads Guilty to $28M Fraud

BP Plc. has consented to settle for $525 million Securities and Exchange Commission allegations that it gave the agency and investors misleading information about the 2010 Deepwater Horizon oil spill. If approved, this would be the third biggest penalty in SEC history.

According to the Commission, during the crisis the oil giant issued fraudulent statements about how much oil was flowing on a daily basis from the Deepwater Horizon rig into the Gulf of Mexico, including underestimating this rate by up to 5,000 oil barrels a day even though it allegedly had internal data noting that possible flow rates could be up to 146,000 barrels daily. Even after a government task force later determined that 52,700 to 62,200 oil barrels were flowing out a day, BP allegedly never modified the omissions or misrepresentations it made in SEC filings.

In other SEC news, David Weber, one of its ex-Office of Inspector General officials, is suing the agency and Chairman Mary Schapiro for allegedly getting back at him for disclosing misconduct that had been taking place at the Commission. Weber contends that SEC staff spoke about him to the media in a “malicious and defamatory” manner and leaked his personal information because he not only disclosed that ex-SEC Inspector General H. David Kotz had engaged in misconduct that placed several OIG investigations at peril, but also he revealed that there were cyber security breaches at the agency.

Weber claims that the disclosures he made are the reason he was first put on administrative leave and later fired. The Commission says that he intends to respond to the allegations through its court filing.

Meantime, an ex-Merrill Lynch (MER) financial advisor is facing Massachusetts criminal securities fraud charges for allegedly bilking an elderly client. According to prosecutors, Jane E. O’Brien told the woman to invest in thousands of AC Corp. shares but was actually taking the funds to pay for her mortgage and legal fees related to another disagreement involving another client.

In 2009, O’Brien allegedly persuaded the investor to sign a fake promissory note for $500,000 and payments the latter made for this included those in the amounts of $50,000 and $190,000. If convicted, O’Brien could have to pay back $240,000.

In a different criminal securities fraud case, New Jersey stock trader Mark Allen Lefkowitz is facing up to 25 years behind bars and a $250,000 fine for defrauding a company’s shareholders of over $28 million. Per court documents, Lefkowitz and the California-based company’s CEO manipulated the company share price and volume so that insiders would reap the financial rewards while the shareholders suffered. (The company and the CEO have not at this time been charged with committing a crime related to this case.)

Because of the securities fraud, the company issued over 9 billion shares of stock that it failed to register with the SEC. The shares diluted existing shares’ value, which dropped by up to $7 million. Also, contends the SEC, Lefkowitz obtained free-trading shares valued at over $28 million from the company. Prosecutors claim that Lefkowitz and the CEO exploited a provision in securities laws that lets companies put out these unregistered stock shares in order to settle “bona fide” debts.

On the Company’ s behalf, the CEO would get into “purported” loan agreements with different companies under Lefkowitz’s ownership. However, the Company would allegedly intentionally default on the loan agreements and then at least one of Lefkowitz’s companies would file a fake lawsuit against it. The CEO and Lefkowitz would then put together a settlement deal where the Company’s debt would be settled with new, unregistered stock shares worth up to five times (or more) than what was actually owed. The shares were sold to investors who didn’t know that the Company A’s stock was being diluted. Part of the sale proceeds from the new shares would then be kick backed to a Lefkowitz owned-company.

SEC v. BP p.l.c. (PDF)

Weber v. SEC (PDF)

Former Merrill Lynch financial advisor faces securities fraud charge, Boston.com, November 20, 2012

Stock trader guilty of fraud involving San Diego firm, Fox5 San Diego, November 19, 2012

More Blog Posts:
MassMutual Settles for $1.625M SEC Charges Over Failure to Disclose Allegations Related to Complex Investments’ “Cap,” Stockbroker Fraud Blog, November 20, 2012

California Securities Lawsuit Claiming Negligent Misrepresentation Over Allegedly Flawed Bond Offering Documents May Proceed, Says District Court, Stockbroker Fraud Blog, November 13, 2012

FDIC Sues Pricewaterhouse Coopers & Crowe Horwath for Over $1B Over Alleged Failure to Detect Large Fraud That Led to Colonial Bank’s Collapse, Institutional Investor Securities Blog, November 20, 2012