Category Archives: SEC News

The SEC approved the Municipal Securities Rulemaking Board’s (“MSRB”) revised definition of a Sophisticated Municipal Market Professional, or SMMP, to include individuals and other investors with assets of at least $50 million.  Previously, SMMPs were limited to entities with at least $100 million invested in municipal securities.

The MSRB states that the new definition will maintain consistency with Financial Industry Regulatory Authority (“FINRA”) rules.  Pursuant to new Rule 2111, a FINRA member’s customer-specific suitability obligation to an institutional customer will be considered satisfied if the member has a reasonable basis to believe that the institutional customer is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies.  Members’ suitability obligations are not satisfied unless an investor “affirmatively indicates” independent judgment in evaluating recommendations.  The MSRB noted that investors have greater access to municipal market information, including disclosures, transaction data, market statistics, and educational material offered for free on its EMMA system, compared to 2002, when the initial definition was originated.  The Restated SMMP Notice and FINRA Rule 2111 will become effective on July 9, 2012.

According to the MSRB, SMMPs are experienced municipal bond investors who do not require the same protection as other investors.  The new definition exempts dealers from requirements to make certain disclosures to institutional customers that they must make to other investors.  The revised Notice states that a SMMP can be a customer with an “institutional account” which can include individuals, corporations, partnerships and trusts with total net assets of at least $50 million.  The assets do not need to be in municipal securities.  However, the dealer must have “a reasonable basis to believe [institutional investors are] capable of evaluating investment risks and market value independently, both in general and with regard to particular transactions in municipal securities.”  The MSRB clarifies that when determining a “reasonable basis,” dealers should consider “the amount and type of municipal securities owned or under management by the institutional customer,” and that an SMMP must “affirmatively indicate,“ orally or in writing, to a dealer that they are exercising independent judgment in evaluating recommendations.

The SEC charged John A. Geringer, a California investment advisor, who ran a private investment fund in a Ponzi-like manner.  According to the SEC, since 2005 Geringer raised over $60 million by misrepresenting the performance strategy of the GLR Growth Fund, L.P.  Geringer used false and misleading marketing materials to deceive investors into believing that his fund was successful when it was actually losing money.  To conceal his misrepresentations, Geringer used the money he raised from new investors to pay back earlier investors.

The SEC alleged that Geringer created and distributed marketing materials suggesting that the fund was able to achieve annual returns between 17 and 25 percent from 2001 to 2011, when in reality the fund was created in 2003 and experienced losses throughout.  Geringer claimed that in 2008, in the midst of the financial crisis that caused the S&P 500 to decrease almost 38.5%, the GLR fund had an annual return of nearly 24%.  Geringer deceived investors by falsifying documents such as brokerage account statements and year-end summaries, and misrepresenting the fund’s asset allocation.

The SEC stated, “Geringer painted the picture of a successful fund weathering America’s financial crisis through a diversified, conservative investment strategy… [t]he reality, however, was the complete opposite.  Geringer lost millions of dollars in the market, tied up remaining investor funds in a pair of illiquid private companies, and lied about it in phony account statements.”

It is unclear at this time whether the FINRA Arbitration process will be appropriate for Geringer’s investors.  Any investor interested in speaking with a securities attorney may contact David A. Weintraub, P.A., 7805 SW 6^th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

The SEC charged George G. Levin and Frank J. Preve with inducing investors to purchase fraudulent legal settlements from now-convicted Ponzi schemer, Scott Rothstein.   The SEC alleged that from July 2008 to October 2009, Levin and Preve raised more than $157 million from 173 investors to fund the Ponzi scheme, becoming Rothstein’s largest source of capital.   The Rothstein Ponzi Scheme, one of South-Florida’s largest ever, began in 2005 with Rothstein offering others the opportunity to purchase legal settlements at a discount.  Rothstein falsely claimed to represent plaintiffs who had reached confidential settlements in different actions and were willing to assign their structured-settlement payments from Rothstein, Rosenfeldt and Adler trust accounts in exchange for a discounted, immediate cash payment.  In reality, there were never any legal settlements and the plaintiffs and defendants did not exist.

According to the SEC, after personally investing more than $1.7 million in Rothstein’s settlements, Levin used one of his dormant legal entities, Banyon 1030-32 to offer investors promissory notes with the stated purpose of purchasing discounted legal settlements from Rothstein.  Preve handled the paperwork related to these purchases.  Levin and Preve marketed the notes to investors as a minimal risk investment promising large returns.  Levin and Preve distributed to investors offering materials which stated that Banyon 1030-32 had procedural safeguards to ensure the safety of the investments.  Despite their representations, Preve often purchased settlements from Rothstein prior to receiving confirmation that the settlement funds had been wired into an RRA trust account.

The SEC stated, “Levin and Preve fueled Rothstein’s Ponzi Scheme with the false sense of security they gave investors.”  Scott Rothstein is currently serving a 50-year prison sentence.  In a joint statement, attorneys for Levin and Preve said that their clients were “two of the biggest victims of the Rothstein Ponzi scheme.”  They noted that Levin was “the person who first” reported Rothstein’s suspected crime to authorities in October 2009.  The defense attorneys added that Levin and Preve have been “cooperating with the SEC” since December 2009, including testifying and providing documents

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.