Statement at Open Meeting Regarding Money Market Fund Reform

Statement at Open Meeting Regarding Money Market Fund Reform

NY INVESTOR RELATIONS FIRM PARTNERY CHARGED WITH INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today charged a partner at a New York-based investor relations firm with insider trading on confidential information he learned about two clients while he helped prepare their press releases. 

The SEC alleges that Kevin McGrath sold his shares in Misonix Inc. upon learning that the company was set to announce disappointing financial results.  The SEC further alleges that McGrath bought stock in Clean Diesel Technologies Inc. when he learned about the company’s impending announcement of positive news, and he profited when its stock price nearly doubled.  McGrath’s illicit profits and avoided losses from insider trading in both companies totaled $11,776. 

McGrath, who lives in Brooklyn, N.Y., and works at Cameron Associates, agreed to settle the charges by paying disgorgement of $11,776, prejudgment interest of $1,492, and a penalty of $11,776, for a total of $25,044. 

“Investor relations firms owe their clients a duty to maintain in strict confidence the important and sensitive information that clients impart for the sole purpose of obtaining help and advice on how best to communicate forthcoming news to investors,” said Andrew M. Calamari, director of the SEC’s New York Regional Office.  “McGrath’s self-centered misconduct betrayed both his own firm and his firm’s clients whose confidential information he exploited for personal gain.”

The settlement also includes a “conduct-based injunction” that permanently requires McGrath to abstain from trading in the stock of any issuer for which he or his firm has performed any investor relations services within a one-year period.  His present or any future firm is required to provide written notice to a client upon any intent to sell shares received as compensation for services performed, and must receive written authorization for the sale from the management of that company.

“McGrath used one hand to help clients draft their press releases while using the other to trade illegally in their stock,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office.  “This settlement imposes additional trading limitations on McGrath in the form of a conduct-based injunction to ensure that he doesn’t commit the same transgression again.”

According to the SEC’s complaint filed in federal court in Manhattan, McGrath purchased Misonix shares in April 2009.  He later performed work on a press release in which Misonix was set to announce disappointing quarterly results.  McGrath ascertained the company’s target date to release the negative news, and sold all of his Misonix shares shortly before the press release was issued on May 11, 2009.  By doing so, McGrath avoided losses of $5,400 when Misonix’s share price subsequently dropped 22 percent.

The SEC alleges that McGrath also performed work on a press release in which Clean Diesel was announcing approximately $2 million in orders it received for certain products.  Merely minutes after finding out on May 24, 2011, that the press release was bound for issuance the following day, McGrath purchased 1,000 shares of Clean Diesel stock.  The stock price rose 95 percent upon the positive news, and McGrath sold all of his Clean Diesel shares on May 27 for illicit profits of $6,376.

The SEC’s complaint charges McGrath with violating Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Without admitting or denying the allegations, McGrath agreed to be permanently enjoined from future violations of these provisions of the federal securities laws.  The settlement is subject to court approval. 

The SEC’s investigation was conducted by Dina Levy, Daniel Marcus, and George O’Kane.  The case was supervised by Mr. Wadhwa and Sharon Binger.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

SEC CHARGES TWO WITH VIOLATING FEDERAL SECURITIES LAWS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION  

SEC Charges Tyson D. Williams and Stanley D. Parrish with Violations of the Federal Securities Laws

On July 10, 2014, the Securities and Exchange Commission filed a civil injunctive action against Tyson D. Williams (Williams) and Stanley D. Parrish (Parrish), alleging that Williams and Parrish violated the federal securities laws in connection with the sale of securities by ST Ventures, LLC (ST Ventures).

In its Complaint, filed in the U.S. District Court for the District of Utah, the Commission alleges that Williams and Parrish raised over $7 million from approximately 50 investors through the fraudulent and unregistered sale of securities in ST Ventures. The Complaint alleges Williams and Parrish told investors that ST Ventures would purchase collateralized mortgage obligations (CMOs) and then leverage the CMOs to produce a large return for the investor within 30 to 90 days. The Complaint further alleges that Williams and Parrish made material misrepresentations and omissions regarding the investment including, among other things, the risk of the investment and the use of investor funds. Williams and Parrish told investors that their investment principal would never be at risk of loss because investing in CMOs is a very safe and liquid investment and that investor funds would be used only to purchase CMOs. Instead of using investors' funds as represented, the Complaint alleges, virtually all payments made to investors, which totaled more than $1.5 million, came from new investor money and Williams and Parrish misappropriated over $3.5 million of investors' proceeds for their personal use.

The Commission alleges that by engaging in this conduct Williams and Parrish violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks a permanent injunction as well as disgorgement, prejudgment interest and a civil penalty from Williams and Parrish.

INJUNTION ENTERED AGAINST TRANSFER AGENT OWNER WHO ALLEGEDLY MISUSED CLIENT FUNDS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Court Enters Permanent Injunction Against Owner of Illinois-Based Transfer Agent

The Securities and Exchange Commission announced today that on July 9, 2014, the Honorable Rebecca R. Pallmeyer of the United States District Court for the Northern District of Illinois entered a judgment against defendant Robert G. Pearson in SEC v. Robert G. Pearson and Illinois Stock Transfer Company (d/b/a/ ist Shareholder Services), Civil Action No. 1:14-cv-03875 (N.D. Ill.). The Court entered the judgment, to which Pearson consented without admitting or denying the allegations in the Commission's Complaint. The judgment permanently enjoins Pearson from violating Sections 10(b) and 17A(d)(1) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and 10b-5(c), 17Ad-12, 17Ad-13, 17Ad-16, and 17f-1 thereunder. The amount of disgorgement and civil penalties to be ordered of Pearson will be addressed in a future motion to be filed by the Commission.

According to the Complaint, ist Shareholder Services, a registered transfer agent with the Commission under the name of Illinois Stock Transfer Company ("IST"), and its owner, Robert G. Pearson, misappropriated more than $1.3 million belonging to their corporate clients and the clients' shareholders beginning in 2012. The defendants misused those funds in order to fund their own payroll and business obligations. Pearson admitted to the scheme during questioning by SEC examiners. The Commission's complaint also alleges that under Pearson's direction, IST committed multiple violations of the SEC's transfer agent rules, including the failure to safeguard funds and securities and to report lost and stolen securities. The firm also did not file an accurate annual study and evaluation of internal accounting controls, and failed to give notice of assumption and termination of transfer agent services. As a result, the Commission subsequently filed an ex parte emergency action and obtained a temporary restraining order, an asset freeze and the appointment of a receiver over the defendants in May 2014.

SEC ANNOUNCES FRAUD CHARGES AGAINST ALLEGED "RECIDIVIST" VIOLATORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission  announced fraud charges against four individuals and a microcap company for concealing from investors that two lawbreakers ran the company.

According to the SEC’s orders instituting administrative proceedings, the mission of Natural Blue Resources Inc. was to create, acquire, or otherwise invest in environmentally-friendly companies, including an initiative to locate, purify, and sell water recovered from underground aquifers in New Mexico and other areas with depleting water resources.  What investors didn’t know was that two individuals with prior law violations – James E. Cohen and Joseph Corazzi – secretly controlled the operational and management decisions of Natural Blue while calling themselves outside “consultants.”  This arrangement enabled them to be de facto officers of Natural Blue and personally profit from the company without disclosing their past brushes with the law to investors.  Cohen, who lives in Windermere, Fla., was previously incarcerated for financial fraud.  Corazzi, who resides in Albuquerque, N.M., was previously charged with violating federal securities laws and permanently barred from acting as an officer or director of a public company. 

“Cohen and Corazzi concealed their involvement through a so-called ‘consulting’ agreement, but their influence over the issuer spread much further,” said Andrew J. Ceresney, director of the SEC’s Enforcement Division.  “Investors in Natural Blue had a right to know who was running the company behind the scenes.”

The SEC has suspended trading in Natural Blue stock.  The other two individuals charged in the case are Toney Anaya and Erik Perry, who were former chief executive officers at Natural Blue.  The SEC’s orders find that they misled investors by failing to disclose that Cohen and Corazzi were running the company in spite of their criminal or disciplinary histories.

Anaya, who is a former New Mexico governor and attorney general, and Perry each agreed to settle the charges.  Anaya has cooperated extensively with the SEC’s investigation.

“Preventing past law violators from raising money in our markets is critical to preserving investor confidence,” said Paul Levenson, director of the SEC’s Boston Regional Office.  “Natural Blue and its officers attempted an end-run around the rules designed to prevent recidivists from getting their hands on the controls of public companies.”

According to the SEC’s orders, Cohen and Corazzi created Natural Blue so they and other entities they controlled could receive money and stock from the company and profit by hundreds of thousands of dollars.  While Natural Blue was ostensibly led by Anaya and subsequently Perry, management decisions made by Cohen and Corazzi resulted in no revenues or viable business operations for the company.  Anaya and Perry each deferred to Cohen and Corazzi in derogation of their responsibilities.  Natural Blue and Perry also made various material misrepresentations about the company, its contracts, and its anticipated revenue in a February 2011 press release as well as on a website and verbally to investors.

Anaya, who served as Natural Blue’s CEO from August 2009 to January 2011, has signed a cooperation agreement with the SEC in which he has consented to the entry of a cease-and-desist order without admitting or denying the charges.  He will be barred from participating in any offering of a penny stock for at least five years.  Any financial penalties will be determined at a later date.

Perry, who replaced Anaya and served as CEO until June 2011, agreed to settle the case by consenting to the entry of a cease-and-desist order without admitting or denying the charges.  Perry, who previously resided in Massachusetts and currently lives in Bulgaria, agreed to pay a $150,000 penalty and be permanently barred from serving as an officer or director of a public company and from participating in any offerings of penny stock. 

  

The SEC’s orders charge Natural Blue, Cohen, and Corazzi with violations of Section 17(a)(1) and (a)(3) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and 10b-5(c).  The orders also charge Natural Blue with violations of Section 17(a)(2) for misrepresentations made to investors in press releases and public filings, and violations of Section 15(d) of the Exchange Act and Rules 15d-1 and 15d-13 by failing to make required SEC filings.

The SEC’s investigation was conducted by Thomas Rappaport, Amy Gwiazda, Sofia Hussain, and Rua Kelly in the Boston Regional Office.  Rua Kelly and Mayeti Gametchu will handle the litigation.  The SEC appreciates the assistance of the Federal Bureau of Investigation.

SEC ANNOUNCES $1.5 MILLION IN DISGORGEMENT, PENALTIES FROM INVESTMENT ADVISER AND OWNER

FROM:  SECURITIES AND EXCHANGE COMMISSION 

SEC Obtains an Officer and Director Bar and Over $1.5 Million in Disgorgement and Penalties from Chicago Area Investment Adviser and Its Owner for Fraud

The United States Securities and Exchange Commission (Commission) announced today that on July 14, 2014, Judge Charles P. Kocoras of the United States District Court for the Northern District of Illinois entered a judgment imposing $715,700 in disgorgement plus prejudgment interest of $166,476 against Oakbrook, Illinois resident Patrick G. Rooney (Rooney) and his company Solaris Management, LLC (Solaris) and a $715,700 civil penalty against Rooney. Judge Kocoras also barred Rooney from operating a private investment fund and from serving as an officer or director of any public company, expect for Positron Corporation (Positron), for which Rooney currently serves as Chief Executive Officer and Chairman of the Board.

According to the SEC's complaint filed on November 16, 2011, Rooney and Solaris radically changed the investment strategy of the Solaris Opportunity Fund LP (the Fund), contrary to the Fund's offering documents and marketing materials, by becoming wholly invested in Positron, a financially troubled microcap company. The SEC alleges that Rooney, who has been Chairman of Positron since 2004 and received salary and stock options from Positron since September 2005, misused the Fund's money by investing more than $3.6 million in Positron through both private transactions and market purchases. Many of the private transactions were undocumented while other investments were interest-free loans to Positron. Rooney and Solaris hid the Positron investments and Rooney's relationship with the company from the Fund's investors for over four years. Although Rooney finally told investors about the Positron investments in a March 2009 newsletter, the SEC's complaint alleges he falsely told them he became Chairman to safeguard the Fund's investments. These investments benefited Positron and Rooney while providing the Fund with a concentrated, undiversified, and illiquid position in a cash-poor company with a lengthy track record of losses.

On December 19, 2013, Judge Kocoras entered an order of permanent injunctions enjoining Rooney and Solaris Management from violating Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-8(a)(1) and (a)(2) thereunder; Section 17(a) of the Securities Act of 1933; and Sections 10(b) and 13(d)(1) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13d-1 thereunder.

For additional information see Litigation Releases Number 22895 (Dec. 23, 2013) and 22167 (Nov. 22, 2011) and Press Release Number 2011-252 (Dec. 1, 2011).