Category Archives: SEC News

The SEC charged Robert W. Kwok, Yahoo’s former Senior Director of Business Management, and Reema D. Shah, a former mutual fund manager at a subsidiary of Ameriprise Financial Inc., with insider trading.  The SEC alleged that Kwok provided Shah with information about Yahoo, including whether Yahoo’s quarterly financial performance was expected to be in line with market estimates, and confirming a partnership between Yahoo and Microsoft Corporation.  In turn, Shah provided Kwok with information she learned through the course of her work, and he used it to help make personal investment decisions.

In January 2008, Shah and Kwok began discussing their respective lines of work.  Shortly thereafter, Shah told Kwok that she had learned of the acquisition of Moldflow Corporation by Autodesk, Inc.  Based on this confidential non-public information, Kwok purchased 1,500 shares of Moldflow in his personal account.  Autodesk and Moldflow announced the acquisition on May 1, preceding Moldflow’s 11% stock increase.  Kwok sold his position for a profit of $4,754.  The SEC alleged that in July 2009, Shah reached out to Kwok seeking material non-public information about a reported partnership between Yahoo and Microsoft.  Kwok breached his fiduciary duty to Yahoo when he tipped Shah about Yahoo and Microsoft’s announcement.   Consequently, Shah prompted certain funds she helped manage to purchase 700,300 shares of Yahoo.  The shares were sold twelve days later, for a profit of approximately $389,000.

The SEC stated, “[w]hen corporate executives and mutual fund professionals misuse their access to confidential information, they undermine the integrity of our markets and violate the trust placed in them by investors.”  In a parallel criminal case, the U.S. Attorney’s Office for the Southern District of New York filed criminal charges against Kwok and Shah.  Kwok has pled guilty to conspiracy to commit securities fraud, and Shah has pled guilty to both a primary and conspiracy charges.

The Securities and Exchange Commission (“SEC”) charged Seattle-based financial advisor, Mark Spangler, and his firm with defrauding clients by secretly investing $47.7 million in two risky start-up companies he co-founded.  In 1990, Spangler founded The Spangler Group (“TSG”), an advisory firm that at one point managed approximately $100 million in assets with more than 50 clients.  Spangler founded the firm, served as its president, and made all of its investment decisions.

According to the SEC, between 1998 and 2011, Spangler raised more than $56 million for the private investment funds he managed.  Unbeknownst to his clients, beginning in 2003, Spangler funneled money from the private funds into two companies in which he had significant interest.  Spangler liquidated assets in the private funds and used the proceeds to invest in TeraHop and Tamarac, two of his own start-up companies.

The SEC alleged that by the summer of 2011, Spangler had invested almost $42 million in TeraHop and over $6 million in Tamarac.  These investments were inconsistent with his clients’ investment objectives.  Spangler failed to disclose to the funds’ clients that he had diverted 90% of the fund’s money into two illiquid, private companies.  Spangler did not seek his clients’ approval or consent to change their investment strategies.  Furthermore, TSG had received $830,000 in fees from TeraHop and Tamarac as “financial and operation support.”  These fees were charged on top of the advisory fees paid by TSG’s clients for Spangler’s management of their assets.

The SEC stated, “Spangler assured his clients he was investing them in publicly-traded equities and bonds, not risky start-ups in which he had a personal interest,” and “[f]or an investment adviser to put his self-interest above the best interests of his clients is a disturbing abuse of trust.”   According to the SEC’s complaint, when Spangler filed for personal and business receivership in June 2011, his clients learned the truth about how he had invested their money.  In a parallel action, the U.S. Attorney’s Office for the Western District of Washington announced it was filing criminal charges against Spangler.

The Securities and Exchange Commission (“SEC”) charged Martin Currie, Inc. (“MCI”) and Martin Currie Investment Management Ltd. (“MCIM”) with fraudulently using one of its U.S. fund clients to rescue another client.  MCI and MCIM are investment adviser firms headquartered in Scotland.  According to the SEC complaint, MCI and MCIM managed many accounts including the China Fund, Inc. (“China Fund”) and the Martin Currie China Hedge Fund L.P. (“Hedge Fund”) side by side under the direction of a single portfolio management team based in Shanghai, China.

According to the SEC, by November 2008 the Hedge Fund had invested $17 million in a Chinese printer cartridge recycling company (“Jackin.”)  As the global financial crisis deepened, the Hedge Fund and Jackin started to developed liquidity issues.  In April 2009, MCI and MCIM fraudulently caused the China Fund to make a $22.8 million convertible bond investment in a Jackin subsidiary, Ugent Holdings Ltd.  Ugent, in turn, used the proceeds to redeem $10 million of the Hedge Fund’s bonds and used the remaining $12.8 million to keep Jackin alive.

The SEC alleged that MCI and MCIM officials were aware that the China Fund’s involvement presented a direct conflict of interest and may have been unlawful.  MCI and MCIM advised the China Fund’s board to value the convertible bonds at cost while failing to disclose information that was relevant for the board to fairly value the bonds.

MCI and MCIM agreed to pay a total of nearly $14 million to the SEC and the United Kingdom’s Financial Services Authority (FSA.)

The Securities and Exchange Commission (“SEC”) charged David Blech and his wife with running a complex market manipulation scheme involving biopharmaceutical stocks.  According to the SEC, at various points in 2007 and 2008, Blech, who in December 2000 was permanently barred from the securities industry for fraud, manipulated the stocks of Pluristem Therapeutics Inc. and Intellect Neurosciences Inc.

The SEC alleged that Blech had control of over 50 brokerage accounts in the names of family members, friends, and a private religious institution.  Blech used the accounts to engage in a complex scheme in which he bought and sold significant amounts of stock in two biopharmaceutical companies.  Blech allegedly established the illusion of an active and liquid market, in otherwise thinly traded securities, thus inflating their stock prices.  Blech also acted as an unregistered broker-dealer by soliciting investors to invest in various companies, including the two biopharmaceutical companies.

The SEC stated that “Blech hoped to avoid scrutiny by devising a complex scheme using accounts ostensibly belonging to family members and friends to place highly manipulative trades through different broker-dealers.  This enforcement action demonstrates the SEC’s ability to dissect such trades and lay bare their true economic substance.”  In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced it was filing criminal charges against Blech.

The Securities and Exchange Commission (“SEC”) charged Mohammed Mark Amin, a Hollywood movie producer, and five of his close acquaintances, with insider trading in DuPont Fabros Technology (“DFT”). DFT owns, develops, operates and manages facilities that maintain computer servers for companies such as Yahoo!, Facebook, Microsoft, and Google. 

The SEC alleged that Mr. Amin, who served on DFT’s board of directors since 2007, along with two of his relatives and three friends, used material non-public information to purchase and ultimately illegally profit in DFT securities. As a member of the board of directors, Mr. Amin attended a special board meeting on December 22, 2008 and participated in a telephone conference call with DFT’s CEO, on January 7, 2009. During these meetings, Mr. Amin acquired inside information.

According to the SEC’s complaint, after his telephone conference with DFT’s CEO, Mr. Amin tipped his cousin and asked him to purchase $100,000.00 of DFT shares. Between January 8 and February 10, 2009, Mr. Amin and his acquaintances purchased 405,150 shares of DFT shares, generating more than $618,000.00 in illicit profits. On February 11, 2009, DFT released its 2008 earnings report, disclosing the previously non-public information, causing DFT’s stock to increase 36%.

The SEC said, “Mark Amin disregarded his board responsibilities and betrayed shareholders at DuPont Fabros in favor of giving his circle of relatives and friends an inside scoop to trade on nonpublic information.”  Mr. Mark Amin resigned from DFT’s board of directors in February 2011. Without admitting or denying the allegations, the Defendants agreed to collectively pay nearly $2 million in disgorgement, interest and penalties.

The Securities and Exchange Commission (“SEC”) charged Angela Milliard, a former paralegal for Semitool, Inc., with trading on confidential information regarding the acquisition of Semitool by Applied Materials.

According to the SEC, in October 2009 Ms. Milliard learned through her employment at Semitol, of Applied Materials’ tender order to acquire Semitool.  The tender offer of $11 per share presented a significant premium above Semitool’s then trading price of $7.83.  This information was material and confidential.

The SEC’s complaint alleged that Ms. Miller, in an effort to conceal her trades, wired money to her boyfriend’s brokerage account and used it to secretly buy Semitool stock.   Between October 28 and November 16, 2009, Ms. Milliard purchased 5,700 Semitool shares in her and her boyfriend’s brokerage accounts.  At the same time, she tipped confidential information about the merger to her father.  Her father and other family members purchased 14,800 Semitool shares.  On the morning of November 17, 2009, after Applied Materials announced its acquisition, Ms. Milliard, her father and certain family members sold their shares for profits of $68,160.11.

The SEC stated, “Angela Milliard exploited her access to confidential merger and acquisition information to illicitly enrich herself and her family.”  And “[a]s a member of a legal department entrusted with sensitive deal documents, she had a duty to safeguard that information, not trade on it.”

Ms. Milliard and her father agreed to settle the SEC’s charges by paying $175,367.01 in disgorgement, interest and penalties.

The Securities and Exchange Commission (“SEC”) charged SW Argyll Investments, LLC (“Argyll”) and two of its senior executives for allegedly operating an illegal stock-based lending service scam.  The complaint alleged that Argyll, through its agents, deceived borrowers into pledging publicly traded stock, at a discount, promising the return of the securities at the end of the loan term.  Instead, the collateralized securities were sold within days to fund the loans.

The complaint alleged that since 2009, on at least 9 different occasions, Argyll scammed affiliates to stock-collateralized loans, under false promises that the shares would be returned to borrowers upon repayment of the loans.  The purported business began with the issuance of a “Loan Offer,” the SEC alleged.  Upon the victim’s acceptance of a Loan Offer, the victims received a “Loan Package” containing a “Loan Agreement,” a “Pledge Agreement,” a “Promissory Note,” and other documents.  The Loan Package did not permit Argyll to sell the collateral except in the event of default.

The SEC stated that Argyll’s senior executives “thought they had devised a foolproof way to make substantial risk-free profits, but their purported business model was nothing more than an illegal get-rich-quick scheme.”  Since the loans were generally valued at only 30% to 50% of the pledged stock’s market value, plus interest, Argyll received more than $8 million in unlawful gains.

The Securities and Exchange Commission (“SEC”) charged three mortgage executives at Thornburg Mortgage, Inc. (“Thornburg”), formerly the nation’s second largest independent mortgage company after Countrywide Financial Corporation.  According to the SEC, the executives made fraudulent misrepresentations and omissions about Thornburg’s financial condition, margin call activity and liquidity.

In August 2007, Thornburg was late in meeting margin calls from at least three lenders, thereby placing it at risk of being declared in default of its lending agreements.  Subsequently, Defendants allegedly misrepresented to Thornburg’s auditor that the firm had not experienced any non-compliance issues with its contractual obligations.  By concealing its margin crisis and making arrangements to make late payments on the defaulted margin calls, the executives mislead its auditor and the investing public.  On February 28, 2008, just a few hours after making the final late payment on its margin calls, Thornburg timely filed its annual report.  By filing timely, Thornburg avoided disclosing additional margin calls.  The annual report overstated the company’s income by more than $400 million, and falsely recorded a profit rather than an actual loss for the fourth quarter.  The executives’ intention was “to keep the current situation quiet while we deal with it.”

Thornburg eventually disclosed its problems to the SEC, and on March 11, 2008, filed an amended annual report.  By this time, Thornburg’s stock price had collapsed by more than 90 percent.  Thornburg filed for bankruptcy on May 1, 2009.

The Securities and Exchange Commission (“SEC”) charged Coca-Cola Enterprises’s (“CCE”) former Vice President with insider trading.  The SEC complaint alleges that the Defendant had access to sensitive non-public information, including CCE’s proposed acquisition of The Coca-Cola Company’s Norwegian and Swedish bottling operations.

In the complaint, The Coca-Cola Company (“CCC”) is defined as a licensor, marketer, producer and distributor of various non-alcoholic beverage brands.  CCE is described as a marketer, producer, and distributor of CCC beverage products.

The SEC alleged that in early January 2010, the Defendant learned that CCE was considering the acquisition of CCC’s Norwegian and Swedish bottling operations.  Pursuant to CCE’s internal policies, on January 8, 2010 Defendant signed a Non-Disclosure Agreement that required him to maintain the confidentiality of any non-public information he learned about the transaction.  Additionally, the complaint states, that on February 16, 2010, CCE’s legal counsel sent an email to Defendant advising him that he was subject to a black-out period relating to the transaction at issue.

The complaint goes on to state that on February 18, 2010, Defendant was part of an internal CCE meeting, categorized as “Strictly Private & Confidential,” which discussed the status of the transaction, including the significant positive growth opportunities for CCE, as well as the fact that the transaction was internally valued at over $800 million.  On February 24, 2010, Defendant allegedly purchased 15,000 shares of CCE stock at $19.30 per share, in his wife’s TD Ameritrade brokerage account.  The next day, Defendant’s CCE position was allegedly sold at approximately $25.09 per share, enabling the Defendant to make an illicit $86,850 profit.

On September 16, 2010, Defendant was terminated by CCE in connection with his trades.  The SEC charged Defendant with violations of Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder.

The Securities and Exchange Commission (“SEC”) charged hedge fund manager Douglas F. Whitman and his California based firm, Whitman Capital, LLC, with making $980,000 illegally in connection with an insider trading ring connected to Raj Rajaratnam and hedge fund advisory firm Galleon Management.

The SEC complaint stated that Whitman and his firm illegally traded Polycom, Inc. and Google, Inc. based on tips of material non-public information that Whitman obtained from an individual investor.  During 2006 and 2007, the tipper, a one-time associate of Raj Rajaratnam, provided Whitman with material non-public information on Polycom and Google.  In January 2006, the tipper, who was Whitman’s neighbor at the time, illegally tipped Whitman with information about Polycom’s quarterly financial results.  Whitman Capital accumulated 132,263 shares of Polycom stock, and then after the company announced its results, Whitman Capital liquidated its entire Polycom position for a profit of more than $360,000.  The SEC further alleged that the tipper illegally tipped Whitman with inside information about Google’s quarterly financial results before they went public, leading Whitman Capital to purchase 2,761 Google put option positions and generated ill-gotten profits of more than $620,000.

The complaint seeks a final judgment permanently enjoining the defendants from future violations of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay financial penalties.