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Showing posts with label UNREGISTERED SECURITIES. Show all posts
Showing posts with label UNREGISTERED SECURITIES. Show all posts

Wednesday, August 19, 2015

SEC CHARGES COMPANY FOUNDER WITH SELLING UNREGISTERED SECURITIES IN AN ALLEGED FRAUD SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23321 / August 17, 2015
Securities and Exchange Commission v. EnviraTrends, Inc., et al., Civil Action No. 8:15CV1903T27TGW (M.D. Fla., August 17, 2015)
SEC Charges Development Stage Company and Founder in Unregistered Offering Fraud Scheme

On August 17, 2015, the Securities and Exchange Commission filed a settled civil injunctive action against Russell Haraburda, the founder and Chief Executive Officer of EnviraTrends, Inc., a Sarasota, Florida-based development stage company purportedly in the business of selling pet memorial products. The Commission's action also charged EnviraTrends. The Commission's complaint alleges that Haraburda and EnviraTrends engaged in a fraudulent scheme to sell EnviraTrends securities to the public in unregistered offerings based on false and misleading statements regarding the company's activities and financial condition, and the purposes for which investors' funds would be used, while Haraburda misappropriated most of the money raised from investors for his own personal use. The Commission charges Haraburda and EnviraTrends with violating the antifraud, registration, and other provisions of the federal securities laws.

The Commission's complaint, filed in federal court in the Middle District of Florida, also alleges:

From mid-2009 until at least February 2014, Haraburda and EnviraTrends raised over $2.3 million through the sale of EnviraTrends stock to over 100 investors in thirteen states.

In soliciting these funds, Haraburda and EnviraTrends made numerous oral and written misrepresentations, including in filings with the SEC, regarding EnviraTrends' activities, operations, and finances. Haraburda and EnviraTrends repeatedly assured investors that their money would be used to build the company's business, including arranging for EnviraTrends' shares to be listed on a stock exchange or quoted on the OTC Bulletin Board. Contrary to these representations, Haraburda misappropriated $1.8 million, or 78% of the funds obtained from investors, spending it on personal expenses, including his mortgage payments, car and motorcycle payments, alimony, shopping sprees, and personal travel. EnviraTrends never developed or sold a product or service, never generated revenue, and a public market for EnviraTrends shares was never created.

In annual and quarterly reports and other filings EnviraTrends made with the Commission, Haraburda and EnviraTrends falsely stated that Haraburda had loaned funds to the company. But Haraburda did not make any loans to the Company. While there were occasional transfers of small sums from Haraburda's personal bank account to the company's bank accounts, the funds transferred were investor funds that Haraburda had previously misappropriated.

Haraburda further concealed his misappropriations by falsely stating to auditors that the company owed him hundreds of thousands of dollars, thus creating a pretext for his personal use of investor funds.

After the Commission's investigation of this matter began, Haraburda in 2014 created sham promissory notes purporting to show that he intended to repay the amounts he had misappropriated.

Haraburda and EnviraTrends, without admitting or denying the allegations in the complaint, have agreed to the entry of a final judgment providing permanent injunctive relief, barring Haraburda from serving as an officer or director of a public company, barring Haraburda from being associated with any offering of penny stock, and ordering Haraburda and EnviraTrends to disgorge their ill-gotten gains. The final judgment would provide permanent injunctive relief against Haraburda and EnviraTrends under the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5. The final judgment would enjoin Haraburda from violating the registration provisions of Sections 5(a) and (c) of the Securities Act; the certification requirements of Exchange Act Rules 13a-14 and 15d-14; and the prohibition against misrepresentations to auditors in Exchange Act Rule 13b2-2; and from aiding and abetting violations of the reporting provisions of Section 13(a) and 15(d)(1) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 15d-1. The final judgment would further enjoin EnviraTrends from violating Sections 5(a) and (c) of the Securities Act; and Section 13(a) and 15(d)(1) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 15d-1. The final judgment also would order Haraburda and EnviraTrends to jointly pay more than $2.3 million in disgorgement and prejudgment interest, but would waive these payments, except for $150,000, based their financial condition. The proposed settlement is subject to the approval of the District Court.

The SEC's investigation was conducted by Natalie Shioji, Ranah Esmaili, Donato Furlano, and Lisa Deitch, and assisted by Trial Attorney Michael Semler.

The SEC appreciates the assistance of the Florida Office of Financial Regulation.

Monday, August 17, 2015

$50,000 FINE IMPOSED ON FORMER BROKER, SALES AGENT FOR UNLAWFUL PROMOTION/SALE OF SECURITIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 23315 / August 12, 2015

Securities and Exchange Commission v. Inofin, Inc., Michael J. Cuomo, Kevin J. Mann, Sr., Melissa George, Thomas Kevin Keough, David Affeldt, and Nancy Keough, Civil Action No. 1:11-CV-10633 (D. Mass., Complaint Filed April 14, 2011)

Court Imposes $50,000 Civil Penalty On Former Broker and Sales Agent of Massachusetts Company

The Securities and Exchange Commission announced today that the U.S. District Court for the District of Massachusetts has imposed a $50,000 civil penalty against Thomas Kevin Keough ("Kevin Keough") for his role in the unlawful promotion and sale of unregistered securities issued by Inofin, Inc., a subprime auto-financing company. Previously, the Court had entered judgment ordering Kevin Keough (and his wife) to pay a total of over $350,000 in disgorgement of ill-gotten gains.

Kevin Keough was a defendant in a lawsuit brought by the Commission against Inofin, its former executives, and its sales agents alleging they illegally raised at least $110 million from hundreds of individual investors through the sale of unregistered Inofin notes and that Inofin and its executives lied about the company's financial performance and how Inofin was using its investors' money. The Commission alleged that Kevin Keough unlawfully earned commissions by promoting and selling Inofin's unregistered securities and that he concealed his activities from his broker-dealer employers by directing Inofin pay his illegal commissions to his wife, Nancy, who was named as a relief defendant in the Commission's action for the purpose of recovering these funds from her.

In February 2015, Keough agreed to the entry of a consent judgment in partial settlement of the claims against him. Entered by the Court on February 20, 2015, the consent judgment ordered Keough to disgorge $368,430 in illegal commissions, to pay an additional $44,500 in interest and permanently enjoined him from violating Section 15(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act"). In a related action, the Commission issued an Order on March 3, 2015, barring Kevin Keough from certain parts of the securities industry, with the right to apply for reentry to the industry after three years.

As part of the February 2015 consent judgment, the Commission and Kevin Keough agreed that the Court should decide whether to impose a civil penalty on him. After briefing and presentation of the evidence by both sides, the Court ruled on August 5, 2015 that Kevin Keough should pay a civil penalty in the amount of $50,000. As a result, on August 12, 2015, the Court supplemented its judgment to impose the additional $50,000 civil penalty upon Kevin Keough.

The Commission previously obtained final judgments by consent against Inofin's former executives Michael J. Cuomo of Plymouth, Massachusetts, Kevin Mann, Sr. of Marshfield, Massachusetts and Melissa George of Duxbury, Massachusetts and against another Inofin sales agent, David Affeldt of Potomac, Maryland. The judgments ordered Cuomo, George, Mann, and Affeldt to pay disgorgement and civil penalties and permanently enjoined them from violating the Exchange Act and the Securities Act. The SEC's action remains pending against bankrupt Inofin.

Thursday, May 7, 2015

MICHIGAN RESIDENT RECEIVES PRISON SENTENCE FOR DEFRAUDING INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23250 / April 30, 2015
Securities and Exchange Commission v. Joel I. Wilson et al., Civil Action No. 12-cv-15062 (E.D. Mich.)
Michigan Businessman Sentenced to Up to 20 Years for Defrauding Investors

The Securities and Exchange Commission announced that on April 24, 2015, the Honorable Joseph K. Sheeran of the Bay County Circuit Court in Bay City, Michigan sentenced Joel Wilson to concurrent prison terms of 105 months to 20 years and 80 months to 10 years on six criminal counts. The Court ordered that he pay $6.5 million in restitution, plus $11,000 to the Michigan Attorney General's Office for the costs of extraditing him from Germany. Wilson, 32, of Saginaw, Michigan, had been previously found guilty by a jury in March 2015 of fraudulent sale of securities, sale of unregistered securities, and continuing a criminal enterprise or racketeering and larceny.

The criminal charges arose out of the same facts that were the subject of a civil enforcement action that the Commission filed against Wilson on November 15, 2012. According to the Commission's complaint, Wilson defrauded investors who bought unregistered securities offered by his company, Diversified Group Partnership Management, LLC, and sold through his brokerage firm, W R Rice Financial Services, Inc. Wilson raised approximately $6.7 million from approximately 120 investors who bought Diversified Group's securities from September 2009 through October 2012, and used the funds to finance his business of buying, renovating, and selling houses in and around Bay City, the Commission alleged.

Although Wilson promised investors that he would invest their money in real estate that would yield returns of 9.9% per year, he used most of it to make unsecured loans to his real estate business, which did not generate enough income to repay the investors. Wilson also diverted $582,000 of investor money to pay personal expenses, including $75,000 he used to buy W R Rice Financial, $46,780 he spent on travel, and $35,000 for his wife's business. In addition, Wilson used investors' money to pay for a sponsorship and tickets to the Saginaw Sting football team and to buy thousands of dollars worth of tickets to the Detroit Red Wings.

The Commission also alleged that Wilson raised additional funds for his real estate business through stock sales for another of his companies, American Realty Funds Corporation, which traded on the OTC Bulletin Board under the symbol ANFDE at the time and is now no longer listed. The complaint alleged that there were misrepresentations and omissions in some of the reports the company filed with the Commission, which Wilson signed, including that American Realty had failed to make loan payments and that its purportedly independent directors have undisclosed personal and business relationships with Wilson.

The Commission's complaint, filed in the U.S. District Court for the Eastern District of Michigan, charged Wilson and Diversified Group with violations of the registration and antifraud provisions of the federal securities laws and American Realty with violations of the antifraud and reporting provisions of the federal securities laws. When Wilson failed to answer the Commission's complaint, the Court granted the Commission's motion for entry of a default judgment against him. On July 26, 2013, the Court entered a Second Amended Final Judgment against Wilson, which permanently enjoined Wilson from future violations of the federal securities laws and ordered him to pay disgorgement of $6,403,580, prejudgment interest of $290,319, and a civil penalty of $7,500 for a total of $6,701,399. The Commission also entered a final administrative order on October 17, 2014, barring Wilson from associating with a broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in an offering of penny stock.

Wednesday, December 3, 2014

SEC ANNOUNCES PRISON SENTENCE FOR JEREMY FISHER FOR MISAPPROPRIATING INVESTOR FUNDS

U.S. SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 23139 / November 24, 2014

Securities and Exchange Commission v. Jeremy Fisher, The Good Life Financial Group, Inc., and The Good Life Global, LLC, Civil Action No. 3:13-cv-00683

Jeremy Fisher Sentenced to 30 Months for Offering Fraud

The Securities and Exchange Commission announced today that on October 27, 2014, the Honorable John E. Steele of the United States District Court for the Middle District of Florida sentenced Jeremy S. Fisher to 30 months in prison, followed by 3years of supervised release and ordered him to forfeit $500,000. The Court has scheduled a hearing to set the amount of restitution to be ordered on December 15, 2014. Fisher, 44, of La Crescent, Minnesota, had previously pled guilty to two counts of wire fraud for his role in stealing over $1 million from 18 victims in an investment scam. The U.S. Attorney's Office for the Central District of Florida filed criminal charges against Fisher on January 14, 2014. Fisher was ordered to surrender on December 1, 2014, to begin serving his prison sentence.

The criminal charges arose out of the same facts that were the subject of a settled civil enforcement action that the Commission filed against Fisher on September 30, 2013. The Commission's complaint alleges that from at least August 2009 through December 2012, Fisher raised approximately $1.04 million from approximately 18 investors who invested in unregistered securities offerings conducted by Fisher through his two companies. Fisher offered investors the opportunity to invest their money through a "special trading platform" that supposedly generated significant returns. Fisher told investors that their money would be deposited in an overseas bank account and used as collateral for the purchase and sale of collateralized debt obligations and medium term notes on the trading platform. However, Fisher instead fraudulently misappropriated and converted investors' funds for his personal use to pay previous investors, to purchase a house and car and to pay his daughter's tuition and other personal and business expenses. Fisher also provided quarterly statements to investors which falsely represented that investors were earning money on their investments. The Commission's complaint alleged that Fisher and his companies violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also alleged Fisher violated Section 15(a) of the Exchange Act.

On October 16, 2013 the Court in the Commission's case entered orders of permanent injunction and disgorgement, plus prejudgment, totaling $936,226 to be paid jointly and severally among Fisher and his companies and ordered Fisher to pay a civil penalty of $150,000. Fisher and his companies consented to the entry of the Court's orders.

Monday, July 7, 2014

COURT IMPOSES MONETARY JUDGEMENT AGAINST ATTORNEY AND OTHERS FOR ROLES IN UNREGISTERED STOCK SALES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Court Imposes Legal Services Bar Against Attorney, and Penny Stock Bars and Significant Monetary Relief Against All Defendants

On June 27, 2014, the U.S. District Court of Nevada issued an order imposing sanctions against an attorney, Marcus Luna, three other individuals - Nathan Montgomery, Adam Daskivich, and David Murtha - and their businesses for their roles in a multi-million dollar scheme to sell shares of Axis Technologies Group, Inc. stock in a public distribution without registration with the Commission. The Court's order:

Prohibits Luna from providing legal services to anyone in connection with the offer or sales of securities pursuant to, or claiming, an exemption under Regulation D.
Bars Luna, Montgomery, Daskivich and Murtha from participating in any offering of penny stocks.
Imposes disgorgement and prejudgment interest against:
Luna and St. Paul Venture Fund: $4.98 million
Montgomery and Minnesota Venture Capital: $2.51 million
Daskivich and Real Estate of Minnesota: $3.49 million
Murtha and Matrix Venture Capital: $1.72 million
Luna: joint and severally with other defendants: $2.39 million.
Imposes civil penalties against:
Luna and St. Paul Venture Fund: $2.03 million
Montgomery and Minnesota Venture Capital: $1.97 million
Daskivich and Real Estate of Minnesota: $2.73 million
Murtha and Matrix Venture Capital: $1.37 million
The court also denied the SEC's request for permanent injunctions for violations of the registration and fraud provisions of the federal securities laws, holding that the legal services and penny stock bars are sufficient.

The court previously granted the SEC's Motion for Summary Judgment on February 26, 2014, finding no genuine issues of material fact remained that the defendants each violated Section 5 of the Securities Act, and that Luna violated Sections 17(a)(1), (2), and (3) of the Securities Act, Section10(b) of the Exchange Act, and Rule 10b-5. The court then ordered the parties to further brief the issue of what remedies were appropriate given defendants' violations.

The Commission acknowledges the assistance of the Financial Industry Regulatory Authority.

This matter was litigated on behalf of the SEC by Anne Blazek and Timothy Leiman.

Thursday, June 27, 2013

SEC CHARGES COMPANY AND OWNER WITH MAKING MISLEADING STATEMENTS REGARDING FDA APPROVAL



FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Files Charges in Investment Scheme Involving Company Promoting Purported Alzheimer's Treatment
 
The Securities and Exchange Commission announced that it filed a civil lawsuit against Nevada corporation Your Best Memories International Inc. and its president, Robert Hurd, of Los Angeles, California, for misleading investors in Your Best Memories about how their funds would be used and for making misleading statements that one of the products touted to investors had received approval from the U.S. Food and Drug Administration as a treatment for Alzheimer's Disease. Also charged was Kenneth Gross, of Porter Ranch, California, for selling Your Best Memories stock without being registered as a broker-dealer as required by the federal securities laws.


According to the SEC's complaint, Your Best Memories purportedly was in the business of raising money from investors on behalf of Moving Pictures, Inc., a Massachusetts-based company in the business of developing products intended to improve memory function in individuals suffering from Alzheimer's disease, dementia or memory loss. The complaint alleges that, in total, Your Best Memories raised approximately $1.2 million from more than 50 investors in an offering of securities that was not registered with the SEC as required under the federal securities laws.

Specifically, the complaint alleges that investors were told by Hurd and Your Best Memories that their funds would, in large part, fund the development and marketing of Moving Pictures' memory enhancing products. According to the complaint however - unbeknownst to investors and contrary to Hurd and Your Best Memories' representations - a mere 17% of the funds raised by Your Best Memories was forwarded to Moving Pictures for their intended purposes. The SEC alleges that Hurd funneled at least 37% of investor funds to himself, by transferring money to another of his companies, Smokey Canyon Financial, Inc., or simply by making cash withdrawals of investor funds. The SEC named Smokey Canyon as a relief defendant, alleging that it was unjustly enriched by its receipt of investor funds. The SEC also alleges that Hurd and Your Best Memories further defrauded investors by making Ponzi payments (using investors' principal to make payments purporting to be investment returns to other investors) and that Hurd and Your Best Memories misled investors by falsely stating that they had secured FDA approval to sell coconut oil as a treatment for Alzheimer's disease, when in fact the FDA never approved such a claim.

The SEC's complaint charges Hurd and Your Best Memories with violations of Sections 5(a) and (c) and 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and charges Hurd with aiding and abetting violations by Your Best Memories of Section 17(a)(2) of the Securities Act as well as with control person liability under Section 20(a) of the Exchange Act. The complaint also charges Gross with violations of Sections 5(a) and (c) of the Securities Act and Section 15(a) of the Exchange Act. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest and civil penalties against Your Best Memories, Hurd and Gross. The SEC is also seeking disgorgement and prejudgment interest against relief defendant Smokey Canyon.







































 

Sunday, April 7, 2013

SALES AGENT FOR UNREGISTERED SECURITIES MUST PAY FINE AND RESTITUTION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Final Judgement Entered Against Former Sales Agent of Massachusetts Company
The Securities and Exchange Commission announced today that on April 5, 2013, the U.S. District Court for the District of Massachusetts entered final judgment by consent against David Affeldt, a former sales agent of Massachusetts-based Inofin, Inc., in a civil injunctive action filed by the Commission on April 14, 2011. Among other things, the judgment orders Affeldt to pay a total of over $200,000 in disgorgement of ill-gotten gains plus pre-judgment interest and a civil penalty.

The Commission’s complaint alleged that Affeldt promoted the offering and sale of unregistered securities, issued by Inofin, a consumer finance company. As alleged in the complaint, Inofin through its former executives Michael J. Cuomo of Plymouth, Massachusetts, Kevin Mann, Sr. of Marshfield, Massachusetts and Melissa George of Duxbury, Massachusetts illegally raised at least $110 million from hundreds of investors in 25 states and the District of Columbia through the sale of unregistered notes. According to the SEC’s complaint, Inofin, along with Cuomo, Mann and George, materially misrepresented how the Company was using investor money and the Company’s financial performance. Along with Affeldt the SEC charged Thomas K. (Kevin) Keough – alleging that they promoted the offering and sale of Inofin’s unregistered securities. Keough’s wife Nancy Keough is named in the complaint as a relief defendant for the purposes of recovering proceeds she received as a result of the violations.

The final judgment as to Affeldt imposed a permanent injunction prohibiting him from violating Sections 15(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act").

The final judgment also orders Affeldt to pay disgorgement of $147,039.00, representing profits gained as a result of the conduct alleged in the Complaint, together with prejudgment interest thereon in the amount of $12,064.48 for a total of $159,103.48 plus a civil penalty in the amount of $50,000.

The Commission previously obtained final judgments by consent as to Cuomo and Mann which included permanent injunctions prohibiting Cuomo and Mann from violating Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and Sections 5 and 17(a) of the Securities Act. The SEC’s action remains pending against Inofin, George, and the Keough

Wednesday, January 30, 2013

MAN CHARGED WITH UNREGISTERED SECURITES OFFER AND STOCK MANIPULATION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Jonathan C. Gilchrist with the Unregistered Offer and Sale of Securities and Stock Manipulation

The Securities and Exchange Commission today filed a civil injunctive action in the U.S. District Court for the Southern District of Texas against Jonathan C. Gilchrist, alleging that he effected the unregistered offer and sale of shares of The Alternative Energy Technology Center, Inc. and engaged in a stock manipulation scheme in violation of the registration and antifraud provisions of the federal securities laws.

The Commission’s complaint alleges that in December 2007, Gilchrist, acting as the president and chairman of Mortgage Xpress, Inc. (subsequently renamed The Alternative Energy Technology Center, Inc.), authorized the unregistered offer and sale of six million company shares at a deep discount to himself and two entities he controlled, improperly maintaining that the offer and sale were exempt from registration under Rule 504 of Regulation D of the Securities Act of 1933. The complaint alleges that the company could not claim a Rule 504 exemption from registration because it was a development stage company which, at the time, planned to merge with another entity. The complaint further alleges that the shares issued to the two entities controlled by Gilchrist should have been subject to restriction on resale based on Gilchrist being an affiliate of the company, but were not. As a result, according to the complaint, the share issuance improperly gave Gilchrist control over at least 94% of the public float.

The complaint further alleges that from January through March 2008, Gilchrist effected 25 wash trades in company securities through brokerage accounts he controlled and, in March 2008, arranged for promoters to tout the company. Gilchrist allegedly thereby drove the per share price from $1.00 per share immediately after the reverse stock split on January 18, 2008 to $3.75 per share on April 1, 2008, the day before the Commission suspended trading in the stock. During this time period, Gilchrist made unregistered sales of 229,661 shares, resulting in illicit proceeds of $692,146.38.

Based on the facts alleged, the Commission charged Gilchrist with violating Sections 5(a), 5(c), 17(a)(1) and 17(a)(3) of the Securities Act, and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder. The Commission is seeking to have Gilchrist permanently enjoined, ordered to pay disgorgement and a civil money penalty, barred from participating in any penny stock offering, and prohibited from serving as an officer or director.

The SEC thanks the Financial Industry Regulatory Authority's (FINRA) Office of Fraud Detection and Market Intelligence for its assistance in this matter

Wednesday, August 29, 2012

CONVICTED PONZI SCHEMER ORDERED TO PAY OVER $18,000,000

FROM: U.S. SECURITIES AND EXCHANGE COMMISSIONThe Securities and Exchange Commission announced today that the United States District Court for the District of Utah entered a final judgment against Jeffrey L. Mowen, ordering Mowen to disgorge $8,041,779 in ill-gotten gains and $1,964,203.67 in prejudgment interest. The Court also ordered Mowen to pay a civil penalty of $8,041,779, for a total of $18,047,761.67. The Court further enjoined Mowen from future violations of Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933.

The SEC Complaint alleged that Mowen operated a Ponzi scheme that was fed through investor funds raised by another defendant, Thomas Fry. Fry, in turn, raised funds through other defendants, Fry’s promoters, via the unregistered offer and sale of high-yield promissory notes. According to the Complaint, the scheme raised over $40 million from over 150 investors in several states, over $18 million of which was funneled to Mowen. Mowen never invested the funds, instead misappropriating over $8 million to support a lavish lifestyle.

On May 4, 2011, Mowen pled guilty to committing wire fraud in a related criminal action and is currently serving a ten year prison sentence. United States of America v. Mowen, Case No. 2:09-cr-00098-DB (D. Utah).

A final judgment ordering disgorgement and penalties against Fry and several of his promoters was entered on June 15, 2012.

Thursday, August 23, 2012

ALLEGED ILLEGAL SALE OF STOCK SHARES IN THE PUBLIC MARKET

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C., Aug. 22, 2012
The Securities and Exchange Commission today charged a New York-based firm and its owner with conducting a penny stock scheme in which they bought billions of stock shares from small companies and illegally resold those shares in the public market.

 

The SEC alleges that Edward Bronson and E-Lionheart Associates LLC reaped more than $10 million in unlawful profits from selling shares they bought at deep discounts from approximately 100 penny stock companies. On average, Bronson and E-Lionheart were able to generate sales proceeds that were approximately double the price at which they had acquired the shares. No registration statement was filed or in effect for any of the securities that Bronson and E-Lionheart resold to the investing public, and no valid exemption from the registration requirements of the federal securities laws was available.

 

"By violating the registration provisions of the securities laws and dumping billions of unregistered shares into the over-the-counter market, Bronson deprived investors of important information about the companies in which they were investing," said Andrew M. Calamari, Acting Director of the SEC’s New York Regional Office.

 

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Bronson lives in Ossining, N.Y. E-Lionheart, which also does business under the name Fairhills Capital, is located in White Plains. Acting at Bronson’s direction, E-Lionheart personnel systematically "cold called" penny stock companies quoted on the OTC Link to ask if they were interested in obtaining capital. If the company was interested, E-Lionheart personnel would offer to buy stock in the company at a rate that was deeply discounted from the trading price of the company’s stock at that time. Typically, Bronson and E-Lionheart immediately began reselling the shares to the investing public through a broker within days of receiving the shares from the company.

 

Bronson and E-Lionheart purported to rely on an exemption from registration under Rule 504(b)(1)(iii) of Regulation D, which exempts transactions that are in compliance with certain types of state law exemptions. However, no such state law exemptions were applicable to these transactions. Bronson and E-Lionheart claimed to rely on a Delaware state law registration exemption, but the transactions in fact had little or no connection to the state of Delaware. The particular Delaware state law exemption claimed by Bronson and E-Lionheart is not an exemption that meets the specific requirements of Rule 504(b)(1)(iii). As a result, investors purchasing these shares did not have access to all of the information that a registration statement would have provided, including in many instances important information concerning the issuance of millions of new shares by the company to Bronson and E-Lionheart.

 

The SEC’s complaint charges E-Lionheart and Bronson with violations of the registration provisions of the federal securities laws, and seeks disgorgement of more than $10 million in ill-gotten gains, penalties. The SEC also seeks penny stock bars against E-Lionheart and Bronson. The complaint also names another entity owned and controlled by Bronson – Fairhills Capital Inc. – as a relief defendant for the purpose of recovering the illegal proceeds it received.

 

The SEC’s investigation was conducted in the SEC’s New York Regional Office by Senior Attorney William Edwards and Assistant Regional Director Wendy B. Tepperman. The SEC’s litigation will be led by Senior Trial Counsel Kevin McGrath.

Monday, August 13, 2012

SEC CHARGES INDIVIDUALS AND ENTITIES IN BOILER ROOM SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Charges Participants in $5 Million Boiler Room Scheme

The Securities and Exchange Commission announced today that it has charged Edward M. Laborio and others for their roles in a boiler room scheme that used high-pressure sales tactics to raise up to $5.7 million from approximately 150 investors through the fraudulent sale of five unregistered securities offerings involving a group of related entities. The scheme ran from approximately December 2006 to August 2009. Laborio, formerly of Boston, Massachusetts, is now a resident of Boca Raton, Florida. The SEC also charged Jonathan Fraiman of Lantana, Florida; Matthew K. Lazar of Westerville, Ohio; and seven entities controlled by Laborio: Envit Capital Group, Inc. (“Envit Group”); Envit Capital, LLC (“Envit LLC”); Envit Capital Holdings, Inc. (“Envit Holdings”); Envit Capital Private Wealth Management, LLC (“Envit Wealth”); Envit Capital Multi Strategy Mixed Investment Fund I LP (“Envit Fund”); Aetius Group PLC (“Aetius PLC”); and Aetius Group LLC (“Aetius LLC”) (collectively, the “Envit Companies”).

According to the Commission’s complaint, filed in the United States District Court for the District of Massachusetts, Laborio and Fraiman made multiple misrepresentations and misleading statements to investors about the Envit Companies’ businesses, revenues, financial projections, uses of investor funds, and historical returns generated by Envit Fund, a purported hedge fund that in reality never conducted any operations. According to the complaint, Laborio also created scripts with sales pitches containing fabricated information. For example, one of Laborio’s scripts allegedly included unfounded claims that investors would receive quarterly dividends and “2-3x return on money.” Laborio also allegedly used investor proceeds to cover gambling losses, to make direct payments to himself, and to cover personal expenses. Fraiman allegedly represented to an investor that Envit Fund, the purported hedge fund, returned 42.9% in 2006 and 43.7% in 2007, even though the hedge fund was not launched until mid-2007 and never conducted any operations. The complaint further alleges that Lazar raised $585,000 from approximately 10 investors through the sale of a PIPE (private investment in public equity) in Envit Group (one of the five unregistered securities offerings) by misrepresenting that the PIPE guaranteed an annual 8.5% dividend, and that it was safe, like a fixed annuity or a CD.

As a result of the conduct described in the complaint, the Commission alleges that all defendants violated Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder; that Laborio, Fraiman, Lazar and Envit Wealth violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 (“Advisers Act”); that Laborio, Fraiman, and Envit Wealth violated Advisers Act Section 206(4) and Rule 206(4)-8 thereunder; that Laborio, Fraiman, and Lazar violated Exchange Act Section 15(a)(1); that Laborio, Envit LLC, Envit Group, Envit Holdings, and Aetius PLC violated Securities Act Sections 5(a) and 5(c); that Laborio violated Exchange Act Section 16(a) and Rule 16a-3 thereunder; and that Envit Fund and Aetius LLC violated Section 7(a) of the Investment Company Act of 1940. The SEC seeks in its action permanent injunctions, disgorgement plus prejudgment interest, civil penalties, penny stock bars against Laborio, Fraiman, and Lazar, and an officer and director bar against Laborio.

The Commission previously suspended trading in the securities of Envit Group in May 2009 and subsequently revoked the registration of the securities of Envit Group in September 2009.

In conducting its investigation, the Commission acknowledges assistance from the U.S. Attorney’s Office for the District of Massachusetts, the Federal Bureau of Investigation, and the State of Florida Office of Financial Regulation.

For further information, see Exchange Act Release No. 34-59900 (May 12, 2009) [Order suspending trading in Envit Group securities]; Initial Decision Release No. 385 (August 13, 2009) [Initial decision revoking registration of Envit Group securities]; Exchange Act Release No. 60658 (September 11, 2009) [Notice of final decision revoking registration of Envit Group securities].

Wednesday, August 8, 2012

SEC CHARGES REAL ESTATE INVESTMENT COMPANY AND ITS PRINCIPALS WITH OFFERING FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
On July 6, 2012 the Securities and Exchange Commission filed a Complaint in federal district court against The Companies (TC), LLC ("The Companies") and its principals, Kristoffer A. Krohn ("Kris Krohn"), Stephen R. Earl ("Earl"), and former officer, Michael K. Krohn ("Mike Krohn") (collectively "Defendants").

The Companies, directly and through related companies and subsidiaries, purchases distressed real estate for investment. The Complaint alleges that to raise money to purchase real estate, The Companies or its subsidiary, Alpha Real Estate Holdings, L.P. ("Alpha LP"), initiated four unregistered offerings of securities from January 2009 to June 2011. Kris Krohn, Earl, and Mike Krohn participated in the offerings by providing content for and approval of the private placement memoranda ("PPMs") used to solicit investors and by directly offering the securities to investors. The four offerings raised a total of approximately $11.9 million from approximately 169 investors. The PPMs contained material misrepresentations and omissions related to, among other things, the value of properties to be purchased or that were owned by the Companies or Alpha LP.

In addition to containing false representations, each of the four offerings relied on the exemption to registration under Regulation D, Rule 506. The offerings did not qualify for the Rule 506 exemption because Defendants solicited investors through general solicitation at meetings that were open to the public.

The Defendants consented to entry of judgments against them without admitting or denying the allegations in the SEC’s complaint. Each of the Defendants consented to a judgment permanently enjoining them from violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933. In addition, The Companies agreed to undertake to inform all investors in writing of the final judgment, provide audited financial statements, and offer return of consideration for investors who choose to return their securities to The Companies after receiving the written disclosures. Kris Krohn, Mike Krohn, and Earl have also agreed to pay civil monetary penalties of $75,000 each.

The SEC’s investigation was conducted by Cheryl Mori and Justin Sutherland; the litigation will be led by Dan Wadley and Tom Melton.

Thursday, February 9, 2012

SEC CHARGES ILLINOIS MAN WITH SECURITIES SCHEME

The following excerpt is from the SEC website:

“On February 6, 2012, the Securities and Exchange Commission charged Glencoe, Illinois resident Kenneth A. Dachman with misappropriating over $1.8 million in investor funds and making false and misleading statements to investors in offerings for three companies for which he was the Chairman – Central Sleep Diagnostics, LLC (Central Sleep), Central Sleep Diagnostics of Florida, LLC (Central Sleep Florida), and Advanced Sleep Devices, LLC (Advanced Sleep). The SEC also charged Scott A. Wolf and his company, Stone Lion Management, Inc., the brokers for the three offerings, for their roles in selling unregistered securities to investors.

Filed in the U.S. District Court for the Northern District of Illinois, the SEC’s complaint alleges that between July 2008 and June 2010, Dachman raised at least $3,594,709 from investors located in 13 states and 12 foreign countries on behalf of Central Sleep, a purported provider of outpatient diagnostic sleep studies. Between December 2008 and April 2010, Dachman raised an additional $567,399 on behalf of Central Sleep Florida, a purported expansion of Central Sleep into Florida, and Advanced Sleep, a purported provider of medical devices. According to the complaint, Dachman made numerous misrepresentations to investors in each of the companies, including misrepresentations about how their funds would be used and his academic and business backgrounds. Dachman also failed to tell investors that he misappropriated at least $1,875,739 of their funds, over 45% of the total funds raised. According to the SEC’s complaint, among other things, Dachman used investor funds to rent-to-own a 10,000 square foot home, to pay for family vacations to Alaska, Europe and elsewhere, to purchase a new Range Rover, books, collectibles and antiques, and for personal expenses and credit card bills. Dachman also diverted investor funds to a tattoo parlor that he co-owned with his son-in-law.

The SEC’s complaint further alleges that Wolf and Stone Lion acted as unregistered brokers in selling unregistered securities to investors without qualifying for an exemption from the SEC’s registration provisions. The SEC alleges that Dachman violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and that Wolf and Stone Lion violated Sections 5(a) and 5(c) of the Securities Act and Section 15(a)(1) of the Exchange Act. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, civil penalties, and penny stock bars.

Wolf and Stone Lion each have agreed to settle the SEC’s charges without admitting or denying the allegations against them. Wolf and Stone Lion have consented to the entry of final judgments permanently enjoining them from violating Sections 5(a) and 5(c) of the Securities Act and Section 15(a)(1) of the Exchange Act. Wolf also has agreed to pay disgorgement of $335,216, prejudgment interest of $16,268, and a penalty of $20,000, and to be barred from participating in an offering of penny stock for one year. The proposed settlements are subject to the approval of the District Court.
The SEC thanks the U.S. Attorney’s Office for the Northern District of Illinois and the Federal Bureau of Investigation for their assistance in this matter.”


Tuesday, November 29, 2011

MAN MAKES OVER $1.2 MILLION IN ALLEGED UNREGISTERED SECURITES BUT, SEC SEEKS DISGORGEMENT

The following excerpt is from the SEC website: November 23, 2011 “The Securities and Exchange Commission filed a civil injunctive action against Myron Weiner, relating to his unregistered sale of shares of Spongetech Delivery Systems, Inc. (“Spongetech”) in 2009. In its complaint, the Commission alleges that Weiner purchased the shares from a Spongetech affiliate at a discounted price of 5 cents, and then sold the shares into the public market less than three months later for 20 cents, for a profit of $1,215,057. The Commission’s complaint alleges that Weiner’s sales were not registered with the Commission, and no exemption from the registration requirements of the federal securities laws applied. The Commission’s complaint seeks a final judgment: (1) enjoining Weiner from violating Section 5 of the Securities Act of 1933 (registration provisions); (2) requiring the payment of disgorgement of $1,215,057, plus prejudgment interest of $80,135; (3) requiring payment of a civil penalty of $50,000; and (5) barring Weiner for one year from participating in the offering of any penny stock. The U.S. Attorney’s Office for the Eastern District of New York filed a related forfeiture action. The Commission wishes to thank the U.S. Attorney’s Office, the Federal Bureau of Investigation and the Internal Revenue Service for their assistance in connection with this matter.”

Sunday, November 27, 2011

UNREGISTERED SECURITIES FRAUD NETS GOVERNMENT MILLIONS FROM FINES AND DISGOGEMENTS

The following is an excerpt from the SEC web site: November 15, 2011 “The Securities and Exchange Commission announced today that on November 8, 2011, the U.S. District Court for the Northern District of Texas ruled that Timothy Page, of Malibu, California, and his company Testre LP are liable for violating the registration provisions of the federal securities laws. The Court ordered Page to pay $2.49 million in disgorgement and $400,284 in prejudgment interest. The Court also ordered three relief defendants - Reagan Rowland and Rodney Rowland, of Los Angeles, California, and John Coutris, of Irving, Texas - to pay back their ill-gotten gains. The Commission's complaint alleged that Page and Testre violated the registration provisions of the federal securities laws when they engaged in an unregistered public offering of ConnectAJet.com, Inc., a reverse-merger company that claimed it would "revolutionize the aviation industry" by creating a real-time, online booking system for private jet travel. The Commission alleged that Page and his collaborators purchased tens of millions of shares directly from ConnectAJet.com, Inc. for pennies per share, under a purported registration exemption under the Securities Exchange Act of 1933, Regulation D, Rule 504. The Commission alleged that Page then touted the stock to investors through a national marketing campaign and dumped his shares into the public market when no registration statement was filed or in effect. The Court ruled that Page and Testre violated Section 5 of the Securities Act of 1933. In addition to the monetary relief granted by the Court, the Commission continues to seek the following additional relief against Page and Testre: civil penalties, penny stock bars, and injunctions from future violations of Section 5 of the Securities Act of 1933. Reagan Rowland and Rodney Rowland were ordered to pay $138,219 and John Coutris was ordered to pay $281,840 in ill-gotten gains they received from Ryan Reynolds, one of Page's collaborators. The Commission acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in this matter.”

Tuesday, November 22, 2011

SEC ALLEGES CANADIAN RESIDENT USED BUSINESS AS PONZI SCHEME

The following excerpt is from the SEC website: November 17, 2011 “The Securities and Exchange Commission announced that, on November 16, 2011, it charged a New Hampshire business directed by a Canadian resident with obtaining over $1.3 million from investors in a fraudulent Ponzi scheme. The SEC also announced that Judge Joseph N. Laplante of the U.S. District Court in New Hampshire has issued a temporary restraining order that, among other things, freezes the assets of the company and its principal and prohibits them from continuing to solicit or accept investor funds. In its complaint, the SEC alleges that Henry Roche, a Canadian resident, through New Futures Trading International Corporation has been engaged in an ongoing unregistered offering of securities in the United States through operations in New Hampshire and Ontario, Canada. According to the Complaint, since December 2010 Roche has raised over $1.3 million from at least 14 investors in nine states through the offer and sale of high yield promissory notes purportedly yielding either 5-10% per month, or a 200% return within 14 months. The Complaint alleges that Roche represented to some investors that funds supplied would be invested in bonds, Treasury notes and/or 10-year Treasury note futures contracts, and to others that the funds would be invested directly in New Futures, an on-line futures day-trading training business Roche was operating from Canada. According to the complaint, instead of using the funds for either purpose, Roche used approximately $937,000 provided by New Futures investors to make Ponzi “interest” payments to investors in prior Roche-controlled entities. The Complaint also alleges that Roche misappropriated at least another $359,000 to support his lifestyle, to operate a horse breeding venture, Majestic Horses, and to buy horses. The Complaint alleges that Roche’s present activity through New Futures appears to be the continuation of an ongoing investment scheme Roche has been operating over the past three years under a series of entity names, including Masters Palace, Inc., and Third Realm Institute (a/k/a Third Realm, Inc.). The Commission’s complaint charges Roche and New Futures Trading International Corporation with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission acknowledges the assistance of the Ontario Securities Commission and the New Hampshire Bureau of Securities in this matter.”

Thursday, November 3, 2011

COURT ORDERS INJUCTION AND CIVIL PENALTIES AGAINST ENERGY CO. EXECUTIVE

October 17, 2011 The following excerpt is from the SEC website: “The Securities and Exchange Commission announced that on October 14, 2011, the United States District Court for the Middle District of Florida entered by consent a final judgment against Daniel W. Nodurft permanently restraining and enjoining him from future violation of Section 5 and Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (“Securities Act”). The Court also ordered Nodurft to pay a civil penalty in the amount of $50,000. The Commission’s complaint alleged that Nodurft, a resident of Louisiana and the former vice-president and general counsel of Aerokinetic Energy Corporation (“Aerokinetic”), a Sarasota-based company purportedly in the business of developing and marketing alternative power technologies and products, violated the registration and antifraud provisions of the securities laws in connection with Aerokinetic’s fraudulent unregistered securities offering. On July 24, 2008, the U.S. District Court for the Middle District of Florida issued a temporary restraining order against Aerokinetic and its then president, Randolph E. Bridwell in a related case (Securities and Exchange Commission v. Aerokinetic Energy Corporation, Case No. 8:08-cv-1409-T27TGW). On January 19, 2011, the Court entered a final judgment against Aerokinetic and Bridwell imposing disgorgement of ill-gotten proceeds, jointly and severally, in the amount of $555,000, plus prejudgment interest in the amount of $59,571.09. Additionally, Aerokinetic and Bridwell were ordered to pay civil penalties of $250,000 and $130,000, respectively. Aerokinetic’s judgment was upheld on appeal to the Eleventh Circuit Court of Appeals.”

Wednesday, September 21, 2011

SEC COMPLAINT ALLEGES FRAUDULENT AND UNREGISTERED OFFERINGS

The following excerpt is from the SEC website: September 15, 2011 The Securities and Exchange Commission announced the filing of a complaint in federal district court against James O’Reilly (O’Reilly), James P. McAluney (McAluney), and Martin Cutler (Cutler) (collectively, “Defendants”). The complaint alleges that O’Reilly, McAluney, and Cutler were the managers and control persons involved in a series of fraudulent and unregistered offerings in Shale Synergy, LLC (Shale), Shale Synergy II, LLC (Shale II), and Ranch Rock Properties, LLC (Ranch Rock). The Complaint alleges that from at least December 2007 until July 2009, Defendants solicited funds from investors through a series of Rule 506 Regulation D offerings of membership interests in Shale, Shale II and Ranch Rock. The Defendants raised approximately $16 million from about 130 investors. The companies were to generate returns of from 7.5% to 9% a quarter from investments in oil and gas interests purchased by Shale, Shale II and Ranch Rock. However, instead of purchasing oil & gas assets, approximately $13 million of the funds raised from investors were transferred to Joseph S. Blimline (Blimline) and various Blimline-controlled entities. Throughout Defendants’ solicitations, Blimline acted as a secret partner. Defendants never disclosed Blimline’s involvement and control, or his past securities disciplinary action to investors. According to the Commission’s complaint filed in U.S. District Court for the Eastern District of Texas, the Defendants falsely represented to investors that Shale would acquire the promissory notes issued by two Blimline entities and acquire substantially all of the entities’ underlying assets. The Complaint alleges that, the defendants failed to disclose that investor funds of Shale, Shale II, and Ranch Rock would be commingled to pay expenses, and that Blimline would be making all investment decision. The Complaint further alleges that although Shale failed to make its December 2008 investor distributions, the Defendants continued to solicit investors for Shale II and Ranch Rock without disclosing the financial difficulties at Shale. The Commission’s complaint seeks to enjoin the defendants from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and civil penalties.”

Monday, May 30, 2011

SUBPRIME AUTO LOAN EXECUTIVES CHARGED WITH FRAUD

It seems like the allegations against sub-prime lenders will never stop. Although it might be a good thing that the SEC et. al. have been agresively pursuing these cases it is very sad that there are so many of them. The following is an alleged fraud scheme which has been excerpted fromt SEC web site:

April 14, 2011
"The Securities and Exchange Commission announced that it filed a civil injunctive action today in federal district court in Massachusetts charging Massachusetts-based subprime auto loan provider Inofin Inc. and three company executives with misleading investors about their lending activities and diverting millions of dollars in investor funds for their personal benefit. The SEC also charged two sales agents with illegally offering to sell company securities without being registered with the SEC as broker-dealers.
The SEC alleges that Inofin executives Michael Cuomo of Plymouth, Mass., Kevin Mann of Marshfield, Mass., and Melissa George of Duxbury, Mass., illegally raised at least $110 million from hundreds of investors in 25 states and the District of Columbia through the sale of unregistered notes. Investors in the notes were told that Inofin would use the money for the sole purpose of funding subprime auto loans. As part of the pitch, Inofin and its executives told investors that they could expect to receive returns of 9 to 15 percent because Inofin loaned investor money to its subprime borrowers at an average rate of 20 percent. But unbeknownst to investors, and starting in 2004, approximately one-third of investor money raised was instead used by Cuomo and Mann to open four used car dealerships and begin multiple real estate property developments for their own benefit.
Inofin is not registered with the SEC to offer securities to investors.
According to the SEC’s complaint filed in federal court in Boston, Inofin and the executives materially misrepresented Inofin’s financial performance beginning as early as 2006 and continuing through 2011. Inofin had a negative net worth and a progressively deteriorating financial condition caused not only by the failure of Inofin’s undisclosed business activities, but also by management’s decisions in 2007, 2008, and 2009 to sell some of its auto loan portfolio at a substantial discount to solve ever-increasing cash shortages that Inofin concealed from investors. Nonetheless, Inofin and its principal officers continued to offer and sell Inofin securities while knowingly or recklessly misrepresenting to investors that Inofin was a profitable business and sound investment.
The SEC further alleges that beginning in 2006 and continuing to April 2010, Inofin’s executives defrauded investors while maintaining Inofin’s license to do business as a motor vehicle sales finance company by preparing and submitting materially false financial statements to its licensing authority, the Massachusetts Division of Banks. The SEC’s complaint charges Cuomo, Mann, and George with violating the antifraud and registration provisions of the federal securities laws, and seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties.
The SEC’s charges against the two sales agents — David Affeldt and Thomas K. (Kevin) Keough — allege that they promoted the offering and sale of Inofin’s unregistered securities. They were unjustly enriched with more than $500,000 in referral fees between 2004 and 2009. Affeldt and Keough are charged with selling the unregistered Inofin securities and failing to register with the SEC as a broker-dealer, and the SEC seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties. Keough’s wife Nancy Keough is named in the complaint as a relief defendant for the purposes of recovering proceeds she received as a result of the violations.
The Commission’s complaint alleges that Inofin, Cuomo, Mann, and George violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and that Kevin Keough, and David Affeldt violated Sections 5(a), and 5(c) of the Securities Act and Section 15(a) of the Exchange Act. The Commission seeks the entry of a permanent injunction, disgorgement of ill-gotten gains plus pre-judgment interest, and the imposition of civil monetary penalties against Inofin, Cuomo, Mann, George, Kevin Keough, and David Affeldt. Keough’s wife Nancy Keough is named in the complaint as a relief defendant for the purposes of recovering proceeds she received as a result of the violations.
The SEC appreciates the assistance of the Secretary of the Commonwealth of Massachusetts William F. Galvin, who today filed charges against Inofin, Cuomo, Mann, George, Affeldt, Kevin Keough, and Nancy Keough based on the same conduct. The SEC also appreciates the assistance of the Massachusetts Division of Banks, which previously took action requiring Inofin to surrender its license to operate as a subprime auto lender in Massachusetts.”

Thursday, April 21, 2011

SEC ALLEGES SUBPRIME AUTO LENDER WITH FRAUD
The Securities and Exchange Commission has found fraud in the sub prime housing market and this next case involves alleged fraud in the sub prime auto loan industry. The following case is an excerpt from the SEC web site:

“ Washington, D.C., April 14, 2011 — The Securities and Exchange Commission today charged Massachusetts-based sub prime auto loan provider Inofin Inc. and three company executives with misleading investors about their lending activities and diverting millions of dollars in investor funds for their personal benefit. The SEC also charged two sales agents with illegally offering to sell company securities without being registered with the SEC as broker-dealers.


The SEC alleges that Inofin executives Michael Cuomo of Plymouth, Mass., Kevin Mann of Marshfield, Mass., and Melissa George of Duxbury, Mass., illegally raised at least $110 million from hundreds of investors in 25 states and the District of Columbia through the sale of unregistered notes. Investors in the notes were told that Inofin would use the money for the sole purpose of funding subprime auto loans. As part of the pitch, Inofin and its executives told investors that they could expect to receive returns of 9 to 15 percent because Inofin loaned investor money to its subprime borrowers at an average rate of 20 percent. But unbeknownst to investors, starting in 2004 approximately one-third of investor money raised was instead used by Cuomo and Mann to open four used car dealerships and begin multiple real estate property developments for their own benefit.
Inofin is not registered with the SEC to offer securities to investors.
“Whether selling stock or notes, public and private companies alike must play it straight with investors or be held accountable for their misconduct,” said David Bergers, Director of the SEC’s Boston Regional Office. “Inofin and some top executives violated investors’ trust by misusing their funds to bankroll their personal business ventures.”
According to the SEC’s complaint filed in federal court in Boston, Inofin and the executives materially misrepresented Inofin’s financial performance beginning as early as 2006 and continuing to 2011. Inofin had a negative net worth and a progressively deteriorating financial condition caused not only by the failure of Inofin’s undisclosed business activities, but also by management’s decisions in 2007, 2008, and 2009 to sell some of its auto loan portfolio at a substantial discount to solve ever-increasing cash shortages that Inofin concealed from investors. Inofin and its principal officers continued to offer and sell Inofin securities while knowingly or recklessly misrepresenting to investors that Inofin was a profitable business and sound investment.
The SEC further alleges that beginning in 2006 and continuing to April 2010, Inofin’s executives defrauded investors while maintaining Inofin’s license to do business as a motor vehicle sales finance company by preparing and submitting materially false financial statements to its licensing authority, the Massachusetts Division of Banks. The SEC’s complaint charges Cuomo, Mann, and George with violating the antifraud and registration provisions of the federal securities laws, and seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties.
The SEC’s charges against the two sales agents — David Affeldt and Thomas K. (Kevin) Keough — allege that they promoted the offering and sale of Inofin’s unregistered securities. They were unjustly enriched with more than $500,000 in referral fees between 2004 and 2009. Affeldt and Keough are charged with selling the unregistered Inofin securities and failing to register with the SEC as a broker-dealer, and the SEC seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties. Keough’s wife Nancy Keough is named in the complaint as a relief defendant for the purposes of recovering proceeds she received as a result of the violations.
The SEC appreciates the assistance of the Secretary of the Commonwealth of Massachusetts William F. Galvin, who today filed charges against Inofin, Cuomo, Mann, George, Affeldt, Kevin Keough, and Nancy Keough based on the same conduct. The SEC also appreciates the assistance of the Massachusetts Division of Banks, which previously took action requiring Inofin to surrender its license to operate as a subprime auto lender in Massachusetts.”

Although it is difficult to find many sub prime mortgage loans being offered today it there are still sub prime auto loans being promoted. Of course repossessing an automobile is much less time consuming than repossessing a house: that is if the automobile can be located and the delinquent purchaser is literally not gunning for a fight.