Egan-Jones and its Founder Agree to 18-Month Bars from Rating Asset-Backed and Government Issuers

Posted on January 22, 2013 by BraunHagey & Borden

In the Matter of Egan-Jones Ratings Company and Sean Egan, Admin Proc. No. 3-14856. On January 22, 2013, the SEC announced that Egan-Jones Ratings Company (“EJR”) and its president Sean Egan have agreed to settle charges that they made misleading statements when registering with the SEC to become a Nationally Recognized Statistical Rating Organization (“NRSRO”) for asset-backed securities and government securities.  Egan and his firm were charged by the SEC for misstating on EJR’s application to the SEC the number of outstanding asset-backed securities (“ABS”) issuer ratings and outstanding government issuer ratings it had issued. According to the SEC, EJR had not issued any ABS or government issuer ratings, and as a result, EJR did not meet the requirements for registration as a NRSRO.  Continue reading →

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SEC Files Settled Insider Trading Case Against John Darden III

Posted on January 18, 2013 by BraunHagey & Borden

SEC v. John M. Darden III, Case No. 1:13-cv-00138-ODE (D. Ga.).  On January 17, 2013, the SEC announced it filed a settled insider trading case against John M. Darden III.  The SEC alleges that Darden obtained inside information about a pending merger from a board member of AirTran Holdings, Inc. (“AirTran”).  Based on the inside information, Darden bought 40,000 common shares and 200 out-of-the-money call options a few days before the public announcement that Southwest Airlines Company and AirTran had entered into a definitive merger agreement.  Darden made $159,160 in profits.  Without admitting or denying the charges, Darden agreed to settle with the SEC by agreeing to entry of a final judgment permanently enjoining him from violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  He also agreed to pay disgorgement of $159,160, prejudgment interest of $9,387, and a civil monetary penalty of $159,160.

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SEC Files Settled Insider Trading Case Against Eric Rogers

Posted on January 18, 2013 by BraunHagey & Borden

SEC v. Eric D. Rogers, Case No. 13-CV-0374 (S.D.N.Y.).  On January 17, 2013, the SEC announced it filed a settled insider trading case against Eric D. Rogers.  Rogers used to be a trader for Spectrum Trading, LLC, a registered broker-dealer.  The SEC previously charged nine other defendants in connection with the insider trading scheme.  According to the SEC, Arthur Cutillo and Brien Santarlas, who used to be attorneys at the law firm Ropes & Gray, acquired inside information at their law firm about upcoming corporate transactions, including a deal involving 3Com.  Cutillo tipped the inside information to Zvi Goffer, who then tipped the inside information to his brother Emanuel. Continue reading →

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SEC Obtains Summary Judgment In Offering Fraud

Posted on January 16, 2013 by BraunHagey & Borden

SEC v. Francis E. Wilde, Steven E. Woods, Mark A. Gelazela, Bruce H. Haglund, Matrix Holdings LLC, BMW Majestic LLC, IDLYC Holdings Trust LLC, and IDLYC Holdings Trust, et al., Case No. SACV 11-315 DOC (AJWx ) (C.D. Cal.).  On January 15, 2013, the SEC announced it obtained summary judgment against all defendants and relief defendants in a fraud case alleging “prime bank” schemes in which investors lost more than $11 million.  The SEC alleged that Wilde conducted two fraudulent investment schemes.  The first scheme involved Wilde getting a U.S. Treasury bond with a market value of nearly $5 million from an investor by promising excessive returns.  Continue reading →

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SEC Charges Volt Information Sciences, Debra Hobbs and Jack Egan With Securities Fraud

Posted on January 14, 2013 by BraunHagey & Borden

SEC v. Jack J. Egan, Jr., Case No. 13-CV-236 (S.D.N.Y.); SEC v. Volt Information Sciences, Inc. and Debra L. Hobbs, Case No. 13-CV-237 (S.D.N.Y.).  On January 10, 2013, the SEC filed enforcement actions alleging securities fraud against Volt Information Sciences, its former CFO, Jack Egan, Jr., and Debra Hobbs, the CFO at the Volt subsidiary where the fraud allegedly originated.  According to the SEC, Egan was involved in a scheme to overstate revenue.  He signed and filed financial statements reporting $7.55 million of revenue that had not been earned and was not recognizable under Generally Accepted Accounting Principles, thus causing Volt’s net income to be materially overstated.  Continue reading →

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Eli Lilly Settles SEC FCPA Case By Agreeing to Pay $29 Million

Posted on December 21, 2012 by BraunHagey & Borden

SEC v. Eli Lilly and Company, Case No. 1:12-cv-02045 (D.D.C.).  On December 20, 2012, the SEC announced charges against Eli Lilly and Company for violations of the Foreign Corrupt Practices Act (“FCPA”) for unlawful payments made to government officials in Russia, Brazil, China and Poland.  According to the SEC’s complaint, Eli Lilly’s Russian subsidiary used offshore “marketing agreements” to pay money to third parties selected by government customers or distributors.  These third parties did not provide services and occasionally helped send money to government officials in exchange for business.  The company did not scrutinize these transactions for possible FCPA violations.  Continue reading →

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SEC Charges Investment Advisory Firms and Portfolio Managers For Collapse of Mutual Fund

Posted on December 19, 2012 by BraunHagey & Borden

In the Matter of Claymore Advisors, LLC, Admin. Proc. File No. 3-15139; In the Matter of Mohamed Riad and Kevin Timothy Swanson, Admin. Proc. File No. 3-15141; In the Matter of Fiduciary Asset Management, LLC, Admin. Proc. File No. 3-15140.  On December 19, 2012, the SEC announced charges against Claymore Advisors, Fiduciary Asset Management, Mohammed Riad and Kevin Swanson.  The SEC’s Orders Instituting Proceedings Found that a Fiduciary/Claymore mutual fund had strategies to enhance returns.  One was to write out-of-the money put options and the other was to short variance swaps.  As a result, the fund was exposed to risks that were not disclosed to investors and which caused the fund to lose more than $45 million over a two-month period, which was about 45% of the fund’s assets.  Continue reading →

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SEC Charges Hedge Fund Manager Peter Eichler, Jr. With Fraud Steering Winning Trades To Select Clients

Posted on December 17, 2012 by BraunHagey & Borden

SEC v. Aletheia Research and Management, Inc. and Peter J. Eichler, Jr., Case No. 12-cv-10692-JFW (RZx) (C.D. Cal.).  On December 14, 2012, the SEC announced charges against Hedge Fund Manager Peter Eichler and his firm Aletheia Research and Management, Inc.  The SEC alleges Eichler his firm unfairly allocated losing trades to the accounts of two hedge funds managed by the firm, resulting in financial losses for investors.  At the same time, they allocated winning trades to accounts owned by Eichler and firm employees as well as accounts belonging to certain clients.  The SEC alleges that by improperly allocating trades, Aletheia and Eichler violated the fiduciary duties they owed to their advisory clients.  Also, Aletheia failed to implement policies that could have prevented the cherry-picking scheme from occurring.  In addition, the SEC alleges that the firm breached its fiduciary duties when it did not disclose financial difficulties to clients until just before filing for bankruptcy.  The SEC has charged Aletheia with violations of Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder, and Sections 204, 204A, 206(1), 206(2), 206(4), and 207 of the Investment Advisers Act and Rules 204-1(a)(2), 204A-1(a), 206(4)-7(a), and 206(4)-8(a) thereunder.  The SEC charged Eichler with violating Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder, and Sections 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-8(a) thereunder. The SEC seeks injunctive relief , disgorgement plus pre-judgment interest, and civil monetary penalties.

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SEC Settles Fraud Claims Against Hedge Fund Manager Steven Hart For $1.3 Million

Posted on December 14, 2012 by BraunHagey & Borden

SEC v. Steven B. Hart, Case No. 12-CIV-8986 (S.D.N.Y).  On December 11, 2012, the SEC announced it filed a settled fraud action against hedge fund manager Steven Hart for engaging in trading schemes.  According to the SEC, Hart caused the fund he managed, Octagon Capital Partners LP, to buy stock in small, thinly traded issuers at the going market price.  He would then sell the same stock a day later to his employer’s fund at a price that was higher than the market price.  Then, Hart would direct the employer’s fund to sell the stock on the open market at a loss.  The SEC also alleges Hart engaged in insider trading.  Continue reading →

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SEC Files Settled Offering Fraud Case Against Rodney Ratheal

Posted on December 13, 2012 by BraunHagey & Borden

SEC v. Premco Western, Inc. and Rodney Scott Ratheal, Case No. 2:12-cv-01120-BSJ (D. Utah).  On December 10, 2012, the SEC announced it filed a settled fraud action against Premco Western, Inc., an oil and gas company that drills on land leased by the Bureau of Land Management, and its principal Rodney Ratheal.  The SEC alleges that Premco, through Ratheal, mislead investors by telling them that a company geologist and a geologist at the U.S. Geological Survey discovered a “super giant” oil and gas field under land Premco leased which would yield five to ten million barrels of oil.  Continue reading →

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