SEC CHARGES INVESTMENT ADVISER WITH USING INVESTOR MONEY TO BUY LONG ISLAND BEACH PROPERTY

The following excerpt is from the SEC website:

SEC Obtains Asset Freeze Against Long Island Investment Adviser Charged with Defrauding Investors
“Washington, D.C., March 6, 2012 – The Securities and Exchange Commission today announced it has charged a New York-based investment adviser with defrauding investors in five offshore funds and using some of their money to buy himself a multi-million dollar beach resort property on Long Island.

The SEC alleges that Brian Raymond Callahan of Old Westbury, N.Y., raised more than $74 million from at least two dozen investors since 2005, promising them their money would be invested in liquid assets. Instead, Callahan diverted investor money to his brother-in-law’s beach resort project that was facing foreclosure, and in return received unsecured, illiquid promissory notes. Callahan also used investor funds to pay other investors and make a down payment on the $3.35 million unit he purchased at his brother-in-law’s real estate project.

According to the SEC’s complaint filed yesterday in federal court in Islip, N.Y., Callahan operated the five funds through his investment advisory firms Horizon Global Advisors Ltd. and Horizon Global Advisors LLC. He used the promissory notes to hide his misuse of investor funds. The promissory notes overstated the amount of money diverted to the real estate project. For instance, in 2011, Callahan received $14.5 million in promissory notes in exchange for only $3.3 million he provided to his brother-in-law. The inflated promissory notes allowed Callahan to overstate the amount of assets he was managing and inflate his management fees by 800 percent or more.

“Callahan misled investors in his funds with false promises, and he enriched himself at their expense when he diverted fund assets for his personal use and pocketed inflated management fees,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement.

According to the SEC’s complaint, Callahan refused to testify in the SEC’s investigation and recently informed investors about the investigation, but gave false assurances that no laws had been broken. Callahan also misled investors by not disclosing that in 2009, the Financial Regulatory Industry Authority barred him from associating with any FINRA member.

The SEC charges Callahan and his advisory firms with violating federal antifraud laws, specifically Sections 17(a)(1), (2) and (3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a), (b) and (c) thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The SEC is seeking preliminary and permanent injunctions against Callahan and his firms, return of ill-gotten gains with interest, and financial penalties.
At the SEC’s request, and after a court hearing yesterday, the court granted a temporary restraining order freezing the assets of Callahan and his advisory firms, enjoining them from violating the antifraud provisions, and granting other emergency relief.

The SEC’s investigation has been conducted by Holly Pal, Linda French, Osman Handoo, Ann Rosenfield, Natalie Lentz and Lisa Deitch of the SEC’s Division of Enforcement. The SEC’s litigation is being led by Dean Conway.

The Commission acknowledges the assistance of the British Virgin Islands Financial Services Commission and the Bermuda Monetary Authority.”

NEW YORK INVESTMENT ADVISER CHARGED WITH FRAUD

The following excerpt is from the SEC website:

Securities and Exchange Commission v. Brian Raymond Callahan, Horizon Global Advisors Ltd. and Horizon Global Advisors, LLC, (United States District Court for the Eastern District of New York, Civil Action No. 12-CV-1065)

SEC CHARGES NEW YORK INVESTMENT ADVISER WITH DEFRAUDING INVESTORS AND SEC OBTAINS EMERGENCY RELIEF

On March 5, 2012, the Securities and Exchange Commission filed charges against a New York investment adviser for defrauding investors in five offshore funds and using some of their money to buy himself a multi-million dollar beach resort property on Long Island.

Brian Raymond Callahan, of Old Westbury, New York, raised more than $74 million from at least two dozen investors since 2005, promising them their money would be invested in liquid assets, the SEC alleged in a complaint filed in federal court in Islip, New York.  Instead, Callahan diverted investors’ money to his brother-in-law’s beach resort and residences project, which was facing foreclosure, and in return received unsecured, illiquid promissory notes, according to the complaint.  Callahan also used investors’ funds to pay other investors and to make a down payment on the $3.35 million unit he purchased at his brother-in-law’s real estate project, the SEC alleged.

Callahan operated the five funds through his investment advisory firms, Horizon Global Advisors Ltd., and Horizon Global Advisors, LLC, and used the promissory notes to hide his misuse of investor funds, the complaint alleged. The promissory notes overstated the amount of money diverted to the real estate project; for instance, in 2011, Callahan received $14.5 million in promissory notes in exchange for only $3.3 million he provided to his brother-in-law. The inflated promissory notes allowed Callahan to overstate the amount of assets he was managing, and inflate his management fees by 800% or more.

Callahan refused to testify in the SEC’s investigation and recently informed investors about the investigation, but gave false assurances that no laws had been broken.  Callahan also misled investors by not disclosing that in 2009, the Financial Regulatory Industry Authority barred him from associating with any FINRA member, the SEC alleged.

The SEC charges Callahan and his advisory firms with violating federal antifraud laws, specifically Sections 17(a)(1), (2) and (3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a), (b) and (c) thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder.  The SEC is seeking preliminary and permanent injunctions against Callahan and his firms, return of ill-gotten gains, with interest, and civil penalties

At the SEC’s request, and after a court hearing on March 5, 2012, the court granted a temporary restraining order freezing the assets of Callahan and his advisory firms, enjoining them from violating the antifraud provisions and granting other emergency relief. 

The Commission acknowledges the assistance of the British Virgin Islands Financial Services Commission and the Bermuda Monetary Authority.

SEC SUES TWO SERVICE PROVIDERS FOR INSIDER TRADING

The following excerpt is from the SEC website:

March 5, 2012
Securities and Exchange Commission v. John M. Williams, United States District Court for the Eastern District of Pennsylvania, Civil Action No. 12-1126 PBT.
SEC SUES CALIFORNIA INSURANCE BROKER AND PENNSYLVANIA TAX MANAGER FOR INSIDER TRADING
The Securities and Exchange Commission today charged a California-based insurance broker and a Pennsylvania-based tax manager with insider trading on confidential information they obtained while providing their respective services to companies involved in an impending acquisition.

The Commission alleges that William F. Duncan (“Duncan”), 60, of Redondo Beach, Calif., and John M. Williams (“Williams”), 38, of Media, Pa., separately traded illegally in the securities of Hi-Shear Technology Corporation (“Hi-Shear”), a Torrance, Calif.-based manufacturer of products for the aerospace and defense industries. After obtaining nonpublic information about Hi-Shear’s proposed acquisition by Chemring Group PLC (“Chemring”), Duncan and Williams each purchased Hi-Shear stock in breach of their duties to these companies before the public announcement of the sale on Sept. 16, 2009.
Duncan and Williams each agreed to settle the Commission’s insider trading charges by paying $175,649 and $14,226.41 respectively.

According to the Commission’s complaint against Duncan filed in federal court in Los Angeles, Hi-Shear sought quotes in late August 2009 for a “tail policy” from its longstanding insurance agent ISU-Olson Duncan Agency. A tail policy provides ongoing insurance coverage for a company’s officers and directors for claims made after a company is sold. Duncan is president of the insurance brokerage. As Hi-Shear’s point of contact, he knew that Hi-Shear expected him to keep sensitive business information confidential and that he had a duty to avoid self-dealing. However, Duncan traded on the basis of the confidential information concerning Hi-Shear’s need for a tail policy. Duncan realized illicit profits of approximately $85,525 on the purchase and sale of 10,000 shares of Hi-Shear stock.

According to the Commission’s separate complaint against Williams filed in federal court in Philadelphia, Williams obtained the confidential information about Chemring’s impending acquisition of Hi-Shear while working as a tax manager at Deloitte Tax LLP (“Deloitte”), which provided services to Chemring and its subsidiaries. Williams assisted in the tax due diligence for the proposed transaction and was told that Hi-Shear was Chemring’s acquisition target. Williams then traded on the basis of the confidential information and concealed his trades from Deloitte, which required its employees to pre-clear and report their trades. Williams realized illicit profits of approximately $6,803.18 on the purchase and sale of 850 shares of Hi-Shear stock.

Duncan and Williams each consented to the entry of final judgments without admitting or denying the allegations against them. They agreed to pay disgorgement of their trading profits, prejudgment interest, and a penalty equal to the amount of their profits pursuant to Section 21A(a) of the Securities Exchange Act of 1934 (“Exchange Act”). They also agreed to be permanently enjoined them from future violations of the antifraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5. Williams, who has passed the CPA examination, also consented to the entry of an administrative order that suspends him for five years from appearing or practicing before the SEC as an accountant pursuant to Rule 102(e)(3) of the Commission’s Rules of Practice.”

BROOKSTREET CEO ORDERED TO PAY $10 MILLION FINE

The following excerpt is from the U.S. SEC website:

JUDGE ORDERS BROOKSTREET CEO TO PAY $10 MILLION PENALTY IN SEC CASE

On March 1, 2012, a federal judge ordered the former CEO of Brookstreet Securities Corp. to pay a maximum $10 million penalty in a securities fraud case related to the financial crisis.

In December of 2009, the U.S. Securities and Exchange Commission filed a civil injunctive action against Brookstreet Securities Corp. and Stanley C. Brooks, charging them with fraud for systematically selling risky mortgage-backed securities to customers with conservative investment goals. Brookstreet and Brooks developed a program through which the firm’s registered representatives sold particularly risky and illiquid types of Collateralized Mortgage Obligations (CMOs) to more than 1,000 seniors, retirees, and others for whom the securities were unsuitable. Brookstreet and Brooks continued to promote and sell the risky CMOs even after Brooks received numerous warnings that these were dangerous investments that could become worthless overnight. The fraud resulted in severe investor losses and eventually caused the firm to collapse.

On February 23, 2012, the Honorable David O. Carter entered an order granting summary judgment in favor of the Securities and Exchange Commission. He found Brookstreet and Brooks liable for violating Section 10(b) of the Securities Exchange Act of 1934 as well as Rule 10b-5. On March 1, 2012, the court entered a final judgment and ordered the financial penalty sought by the Securities and Exchange Commission. In addition to the $10,010,000 penalty, Brooks was ordered to pay $110,713.31 in disgorgement and prejudgment interest. The court’s judgment also enjoins both Brookstreet and Brooks from violating Section 10(b) of the Exchange Act as well as Rule 10b-5."

FORMER COKE BOTTLING EXEC. CHARGED WITH INSIDER TRADING

The following excerpt was from the SEC website:

“SEC Charges Former Executive at Coca-Cola Bottling Company with Insider Trading
Washington, D.C., March 8, 2012 — The Securities and Exchange Commission today charged a former executive at a Coca-Cola bottling company with insider trading based on confidential information he learned on the job about potential upcoming business with The Coca-Cola Company.

The SEC alleges that Steven Harrold, who was a Vice President at Coca-Cola Enterprises Inc., purchased company stock in his wife’s brokerage account after learning that his company had agreed to acquire The Coca-Cola Company’s bottling operations in Norway and Sweden. The stock price jumped 30 percent when the deal was announced publicly the following day, enabling Harrold to make an illicit $86,850 profit.
“Harrold deliberately flouted the federal securities laws and specific company restrictions in his purchases and trades of Coca-Cola Enterprises stock,” said Rosalind R. Tyson, Director of the SEC’s Los Angeles Regional Office. “His employer entrusted him with critical nonpublic information, and Harrold shattered that trust to bottle up extra cash.”

Coca-Cola Enterprises is one of the world’s largest marketers, producers and distributors of Coca-Cola products, and its stock trades on the New York Stock Exchange under the stock symbol CCE. The Coca-Cola Company (ticker symbol: KO) develops and sells its products and syrup concentrate to Coca-Cola Enterprises and other bottlers.

According to the SEC’s complaint filed in the U.S. District Court for the Central District of California, Harrold was regularly in possession of sensitive, confidential information as an executive at CCE. On numerous occasions, Harrold signed non-disclosure agreements requiring him to keep confidential any information he learned about acquisitions being considered. Harrold also periodically received blackout notices prohibiting him from trading in company stock for a defined period in which he was likely to be in possession of confidential information.

The SEC alleges that Harrold, who lives in Los Angeles and London, was informed in early January 2010 that CCE was considering the acquisition of The Coca-Cola Company’s Norwegian and Swedish bottling operations. He signed a non-disclosure agreement requiring him to maintain the confidentiality of any nonpublic information he learned about the potential transaction. Harrold also received an e-mail from CCE’s legal counsel informing him that he was subject to a blackout period and was prohibited from trading in CCE stock “until further notice.”

Nevertheless, the SEC alleges that Harrold purchased 15,000 CCE shares in his wife’s brokerage account on Feb. 24, 2010, the day before the announcement of the transaction with The Coca-Cola Company. The insider trading was based on certain confidential information that Harrold learned in the days leading up to the announcement, including that the transaction was internally valued at more than $800 million and was viewed as creating significant positive growth opportunities for CCE.

The SEC’s complaint charges Harrold with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder. The complaint seeks a final judgment ordering Harrold to pay a financial penalty and disgorge his ill-gotten gains plus prejudgment interest, preventing him from serving as an officer or director of a public company, and permanently enjoining him from future violations of those provisions of the federal securities laws.
The SEC acknowledges the assistance of FINRA in this matter.

FORMER BOARD CHAIRMAN ALLEN STANFORD CONVICTED OF INVESTMENT FRAUD

The following excerpt is from the Department of Justice website:

Tuesday, March 6, 2012
"Allen Stanford Convicted in Houston for Orchestrating $7 Billion Investment Fraud Scheme
WASHINGTON – A Houston federal jury today convicted Robert Allen Stanford, the former Board of Directors Chairman of Stanford International Bank (SIB), for orchestrating a 20-year investment fraud scheme in which he misappropriated $7 billion from SIB to finance his personal businesses.

The guilty verdict was announced by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney Kenneth Magidson of the Southern District of Texas; FBI Assistant Director Kevin Perkins of the Criminal Investigative Division; Assistant Secretary of Labor for the Employee Benefits Security Administration Phyllis C. Borzi; Chief Postal Inspector Guy J. Cottrell; Special Agent in Charge Lucy Cruz of the Internal Revenue Service-Criminal Investigations (IRS-CI).

Following a six-week trial before U.S. District Judge David Hittner, and approximately three days of deliberation, the jury found Stanford guilty on 13 of 14 counts in the indictment.

Stanford, 61, was convicted of one count of conspiracy to commit wire and mail fraud, four counts of wire fraud, five counts of mail fraud, one count of conspiracy to obstruct a U.S. Securities and Exchange Commission (SEC) investigation, one count of obstruction of an SEC investigation and one count of conspiracy to commit money laundering.  The jury found Stanford not guilty on one count of wire fraud.

At sentencing, Stanford faces a maximum prison sentence of 20 years for the count of conspiracy to commit wire and mail fraud, each count of wire and mail fraud, and the count of conspiracy to commit money laundering, and five years for the count of conspiracy to obstruct an SEC investigation and the count of obstruction of an SEC investigation.

The investigation was conducted by the FBI’s Houston Field Office, the U.S. Postal Inspection Service, the IRS-CI and the U.S. Department of Labor, Employee Benefits Security Administration.  The case was prosecuted by Deputy Chief William Stellmach of the Criminal Division’s Fraud Section, Assistant U.S. Attorney Gregg Costa of the Southern District of Texas and Trial Attorney Andrew Warren of the Criminal Division’s Fraud Section.”