ONE TRADER IN INSIDER TRADING CASE FOUND LIABLE, ANOTHER FOUND NOT LIABLE

The following excerpt is from the SEC website:
March 12, 2012
JURY FINDS DEFENDANT ALBERTO PEREZ LIABLE AND DEFENDANT SEBASTIAN DE LA MAZA NOT LIABLE FOR INSIDER TRADING IN VIOLATION OF THE SECURITIES AND EXCHANGE ACT OF 1934.
The Commission announced that on June 13, 2011 after a two week trial against Defendants Alberto Perez and Sebastian De La Maza, a jury found Alberto Perez liable for insider trading of Neff Corporation securities before an April 7, 2005 announcement of Neff’s acquisition by Odyssey Investment Partners in violation of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (“Exchange Act”). The commission will file a motion with the court to determine the amount of disgorgement, pre-judgment interest and civil penalty to be levied upon Perez. The same jury found Defendant Sebastian De La Maza not liable of the same charge.

The Commission also announced that on December 22, 2010, and December 23, 2010, the United States District Court for the Southern District of Florida entered a Final Judgment of Permanent Injunction by consent, against Defendants Kevan D. Acord, Jose G. Perez and Philip C. Growney enjoining the Defendants from violations of Section 10(b) and Rule 10b-5 of the Exchange Act. United States District Judge Adalberto Jordan ordered the Defendants to pay disgorgement, prejudgment interest and a civil penalty. The Court ordered Defendant Acord to pay a total of $176,533.95 which includes disgorgement of $154,292.48, pre-judgment interest of $6,801.85 and a civil penalty of $15,439.62 pursuant to Section 21A of the Exchange Act. The Court ordered Defendant Growney to pay a total of $26,479.98 which includes disgorgement of $12,954.45, pre-judgment interest of $571.08 and a civil penalty of $12,954.45 pursuant to Section 21A of the Exchange Act. The Court ordered Defendant Perez to pay disgorgement, pre-judgment interest and a civil penalty pursuant to Section 21 A of the Exchange Act, the amount to be determined upon motion of the Commission.

The Commission commenced this action by filing its Complaint on July 15, 2009, against six individuals for insider trading in the securities of Neff Corporation before an April 7, 2005, announcement of its acquisition.

INVESTMENT ADVISER CHARGED BY SEC WITH GIVING INVESTORS BOGUS AUDIT REPORT

The following excerpt is from the SEC website:
Washington, D.C., March 15, 2012 – The Securities and Exchange Commission today charged a San Francisco-area investment adviser with defrauding investors by giving them a bogus audit report that embellished the financial performance of the fund in which they were investing.

The SEC alleges that James Michael Murray raised more than $4.5 million from investors in his various funds including Market Neutral Trading LLC (MNT), a purported hedge fund that claimed to invest primarily in domestic equities. Murray provided MNT investors with a report purportedly prepared by independent auditor Jones, Moore & Associates (JMA). However, JMA is not a legitimate accounting firm but rather a shell company that Murray secretly created and controlled. The phony audit report misstated the financial condition and performance of MNT to investors.

“An independent financial audit is one of the best protections available to investors,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office. “Murray conjured up an accounting firm and deliberately faked the audit to induce investors into believing the fund was in better shape than it actually was.”

The U.S. Attorney’s Office for the Northern District of California also has filed criminal charges against Murray in a complaint unsealed yesterday.

According to the SEC’s complaint filed in federal court in San Francisco, Murray began raising the funds from investors in 2008. The following year, MNT distributed the phony audit report to investors claiming the audit was conducted by a legitimate third-party accounting firm. However, JMA is not registered or licensed as an accounting firm in Delaware, where it purports to do business. JMA’s website was paid for by a Murray-controlled entity and listed 12 professionals with specific degrees and licenses who supposedly work for JMA. However, at least five of these professionals do not exist, including the two named principals of the firm: “Richard Jones” and “Joseph Moore.” Murray has attempted to open brokerage accounts in the name of JMA, identified himself as JMA’s chief financial officer, and called brokerage firms falsely claiming to be the principal identified on most JMA documents.

The SEC alleges that the bogus audit report provided to investors understated the costs of MNT’s investments and thus overstated the fund’s investment gains by approximately 90 percent. The JMA audit report also overstated MNT’s income by approximately 35 percent, its member capital by approximately 18 percent, and its total assets by approximately 10 percent.

The SEC’s complaint charges Murray with violating an SEC rule prohibiting fraud by investment advisers on investors in a pooled investment vehicle. The complaint seeks injunctive relief and financial penalties from Murray.

The SEC’s investigation was conducted by Karen Kreuzkamp and Robert S. Leach of the San Francisco Regional Office following an examination of MNT conducted by Yvette Panetta and Doreen Piccirillo of the New York Regional Office’s broker-dealer examination program. The SEC’s litigation will be led by Robert L. Mitchell of the San Francisco Regional Office. The SEC thanks the U.S. Attorney’s Office for the Northern District of California and the U.S. Secret Service for their assistance in this matter.

SEC FILES CIVIL INJUNCTIVE ACTION AGAINST THORNBURG MANAGEMENT SENIOR MANAGEMENT

The following excerpt is from the SEC website:
March 13, 2012
SEC Files Civil Injunctive Action Against Senior Management of Thornburg Mortgage, Inc. for Alleged Fraudulent Overstatement of Thornburg’s Income
On March 13, 2012, the Securities and Exchange Commission filed securities fraud charges in the United States District Court for the District of New Mexico against Larry Goldstone, the former chief executive officer and president, Clarence Simmons, the former chief financial officer and senior executive vice-president, and Jane Starrett, the former chief accounting officer of Thornburg Mortgage, Inc. (“Thornburg”), currently TMST, Inc., for allegedly materially misrepresenting the financial condition and liquidity of Thornburg, formerly the country’s second largest independent mortgage company. Goldstone, Simmons, and Starrett reside in Santa Fe, New Mexico.

The Complaint alleges that Thornburg, through Goldstone, Simmons, and Starrett, fraudulently overstated its quarterly income by more than $420 million in its 2007 annual report filed with the Commission. As a result, the Complaint alleges that Thornburg fraudulently reported a profit rather than a loss for the quarter. According to the Complaint, in the two weeks leading to the filing of its annual report, Thornburg received more than $300 million in margin calls from its lenders that severely drained its liquidity. The Complaint further alleges that, unable to meet its margin calls on a timely basis, Thornburg violated three of its lending agreements, and received a reservation of rights letter from one lender in which the lender reserved its right to declare Thornburg in default at any time. Accordingly, the Complaint alleges that in the days before Thornburg filed its annual report, the collateral it used for its lending agreements, adjustable rate mortgage (“ARM”) securities, was subject to being seized and sold by its lenders. According to the Complaint, given the circumstances of Thornburg’s liquidity crisis, circumstances that were misrepresented to, and concealed from, the company’s auditor, Goldstone, Simmons, and Starrett each knew, or was reckless in not knowing, that Thornburg did not have the intent or ability to hold its ARM securities until maturity or until their value recovered in the market. The Complaint concludes that the individual defendants also knew, or were reckless in not knowing, that this meant Thornburg was required to recognize on its income statement approximately $428 million of losses associated with the company’s ARM securities, and that the proper accounting treatment for these securities would have resulted in Thornburg reporting a loss rather than a profit for the quarter.

The Complaint claims that, based on this conduct, the defendants violated or aided and abetted the violation of, or in the case of Goldstone and Simmons are liable as control persons under Section 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) for Thornburg’s violation of, Section 17(a) of the Securities Act of 1933, and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13b2-1, and 13b2-2 thereunder. The Complaint also claims that Goldstone and Simmons violated Rule 13a-14 of the Exchange Act. As part of this action, the Commission seeks against each of the defendants an injunction against future violations of the provisions set forth above, officer and director bars, and third tier civil money penalties.

SEC SETTLES JAMDAT MOBILE, INC., INSIDER TRADING CASE

The following excerpt is from the SEC website: 

March 12, 2012

SEC Settles With Former Wall Street Professional for Insider Trading Relating to the Acquisition of Jamdat Mobile, Inc.The Securities and Exchange Commission today announced that on March 9, 2012, Judge Katherine B. Forrest of the United States District Court in Manhattan, entered a final judgment against Alissa Joelle Kueng (“Kueng”), the last-remaining defendant in an insider trading action involving tipping and trading prior to an announcement that Jamdat Mobile Inc. (“Jamdat”), a software company that designed games for cell phones, would be acquired by Electronic Arts, Inc. (“Electronic Arts”). The final judgment permanently enjoins her from violating Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and orders her to pay a $25,000 civil penalty. Kueng consented to the entry of the final judgment, without admitting or denying the allegations against her in the complaint.

The Commission’s civil complaint, filed in October 2009, alleged that Kueng, a former sales specialist at J.P. Morgan Securities Inc., in December 2005, had conveyed to a J.P. Morgan trader and two institutional customers, highly specific material, nonpublic information regarding Jamdat’s impending acquisition by Electronic Arts that she had received from a friend in the securities brokerage industry. The trader and the institutional customers invested in Jamdat stock on the basis of that information and realized profits totaling approximately $350,000. The Commission further asserted that given the specificity of the information Kueng had received, which included the price per share and the timing of the acquisition, she knew or should have known that the information had been obtained in breach of a duty to Jamdat. Also, in October 2009, the Commission filed a civil action in federal district court in Northern California charging four other defendants, including a Jamdat insider, with insider trading for tipping and/or trading on the basis ofmaterial, nonpublic information regarding Jamdat. Those defendants settled the charges against them.

Kueng also has agreed to the issuance of an administrative order, based on the entry of the permanent injunction against her, barring her from association with a broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, with a right to reapply for association in a non-supervisory capacity after ten years and barring her from participating in the offering of a penny stock, with the right to apply for re-entry after ten years.

PRIVATE INVESTMENT FUND MANAGERS CHARGED BY SEC WITH MISLEADING INVESTORS

The following excerpt is from the SEC website:
SEC Announces Charges from Investigation of Secondary Market Trading of Private Company Shares
Washington, D.C., March 14, 2012 — The Securities and Exchange Commission today charged two managers of private investment funds established solely to acquire the shares of Facebook and other Silicon Valley firms with misleading investors and pocketing undisclosed fees and commissions. The SEC alleges that the fund managers collectively raised more than $70 million from investors.

Separately, the SEC charged SharesPost, an online service that matches buyers and sellers of pre-IPO stock, with engaging in securities transactions without registering as a broker-dealer.
The charges stem from the SEC’s yearlong investigation of the fast-growing business of trading pre-IPO shares on the secondary market.

“While we applaud innovation in the capital markets, new platforms and products must obey the rules and ensure the basic fairness and disclosure that are the hallmarks of sound financial regulation,” said Robert Khuzami, Director of the SEC's Division of Enforcement.

“Fund managers must fully disclose their compensation and material conflicts of interest. Investors deserve better than the kind of undisclosed self-dealing present in these cases,” said Robert Kaplan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.

SEC v. Frank Mazzola, Felix Investments LLC, and Facie Libre Management Associates LLC
The SEC alleges that Mazzola, who lives in Upper Saddle River, N.J., and his firms created two funds to buy securities of Facebook and other high profile technology companies. However, Mazzola and his firms engaged in improper self-dealing — earning secret commissions above the 5 percent disclosed in offering materials on the funds’ acquisition of Facebook stock and on re-sales of fund interests to new investors. The hidden charges essentially raised the prices paid by their investors for Facebook stock because it created a disincentive for Mazzola and his firms to negotiate a lower price for fund investors. They also sold Facie Libre fund interests despite knowing the funds lacked ownership of certain Facebook shares.

According to the SEC’s complaint filed in federal court in San Francisco, Mazzola and his firms also made false statements to investors in other funds they created to invest in various pre-IPO companies. For instance, they misled one investor into believing a Felix fund had successfully acquired stock of Zynga. They also made false representations about Twitter’s revenue to attract investors to their Twitter fund.

The SEC’s lawsuit against Mazzola, Felix Investments, and Facie Libre seeks court orders prohibiting them from engaging in securities fraud and requiring them to disgorge their ill-gotten gains and pay financial penalties.

In the Matter of EB Financial Group LLC and Laurence Albukerk
According to the SEC’s administrative proceeding against Laurence Albukerk, who lives in San Francisco, he and his firm hid from investors significant compensation earned in connection with two Facebook funds they managed. In written offering materials for the funds, Albukerk told investors he charged only a 5 percent fee for an initial investment and a 5 percent fee when the shares were distributed to fund investors upon a Facebook IPO. However, Albukerk obtained additional compensation by using an entity controlled by his wife to purchase the Facebook stock and then buying interests in that entity for the EB Funds while charging investors a mark-up. Albukerk also earned a brokerage fee on the acquisition of Facebook shares from the original stockholders. As a result of the fee and mark-up, investors in Albukerk’s two Facebook funds ultimately paid significantly more than the fees disclosed in the offering materials.

Without admitting or denying the SEC’s findings, Albukerk and EB Financial consented to entry of a SEC order finding that they violated Section 17(a)(2) of the Securities Act of 1933 and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Albukerk and EB Financial also agreed to pay disgorgement and prejudgment interest of $210,499 and a penalty of $100,000.

In the Matter of SharesPost Inc. and Greg Brogger
According to the SEC’s administrative proceeding against SharesPost and its CEO Greg Brogger of Park City, Utah, the online platform facilitated securities transactions without registering with the SEC as a broker-dealer. SharesPost engaged in a series of activities that constituted the business of effecting securities transactions and thus were required to register as a broker-dealer. SharesPost held itself out to the public as an online service to help match buyers and sellers of pre-IPO stock and allowed registered representatives of other broker-dealers to hold themselves out as SharesPost employees and earn commissions on transactions they facilitated through the SharesPost platform. SharesPost and affiliated broker-dealers also created a commission pool that was distributed by an executive to employees who were representatives of these broker-dealers. The company also collected and published on its website third-party information concerning issuers’ financial metrics, SharesPost-funded research reports, and a SharesPost-created valuation index. Additionally, the SharesPost platform was used to create an auction process for interests in funds managed by a SharesPost affiliate and designed to buy stock in pre-IPO companies.

“The newly emerging secondary marketplace for pre-IPO stock presents risk for even savvy investors,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office. “Broker-dealer registration helps ensure those who effect securities transactions can be relied upon to understand and faithfully execute their obligations to customers and the markets. SharesPost skirted these important provisions.”

SharesPost and Brogger consented to an SEC order finding that SharesPost committed and Brogger caused a violation of Section 15(a) of the Exchange Act of 1934. They agreed to pay penalties of $80,000 and $20,000 respectively. Subsequent to the SEC’s investigation, SharesPost acquired a broker-dealer and its membership agreement was approved by the Financial Industry Regulatory Authority (FINRA).

These cases were investigated by Michael E. Liftik, Erin E. Schneider and Robert S. Leach of the San Francisco Regional Office. Ms. Schneider and Mr. Leach are members of the SEC’s Asset Management Unit. Fred Jolivet of the San Francisco Regional Office’s broker-dealer program conducted an examination relating to the SharesPost matter. The SEC’s litigation effort will be led by Robert L. Mitchell and Robert L. Tashjian of the San Francisco Regional Office.

The SEC thanks FINRA for its assistance in this matter.

ONE FOUND LIABLE ONE FOUND NOT LIABLE FOR INSIDER TRADING

The following excerpt is from the SEC website:

March 12, 2012

JURY FINDS DEFENDANT ALBERTO PEREZ LIABLE AND DEFENDANT SEBASTIAN DE LA MAZA NOT LIABLE FOR INSIDER TRADING IN VIOLATION OF THE SECURITIES AND EXCHANGE ACT OF 1934.

The Commission announced that on June 13, 2011 after a two week trial against Defendants Alberto Perez and Sebastian De La Maza, a jury found Alberto Perez liable for insider trading of Neff Corporation securities before an April 7, 2005 announcement of Neff’s acquisition by Odyssey Investment Partners in violation of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (“Exchange Act”). The commission will file a motion with the court to determine the amount of disgorgement, pre-judgment interest and civil penalty to be levied upon Perez. The same jury found Defendant Sebastian De La Maza not liable of the same charge.

The Commission also announced that on December 22, 2010, and December 23, 2010, the United States District Court for the Southern District of Florida entered a Final Judgment of Permanent Injunction by consent, against Defendants Kevan D. Acord, Jose G. Perez and Philip C. Growney enjoining the Defendants from violations of Section 10(b) and Rule 10b-5 of the Exchange Act. United States District Judge Adalberto Jordan ordered the Defendants to pay disgorgement, prejudgment interest and a civil penalty. The Court ordered Defendant Acord to pay a total of $176,533.95 which includes disgorgement of $154,292.48, pre-judgment interest of $6,801.85 and a civil penalty of $15,439.62 pursuant to Section 21A of the Exchange Act. The Court ordered Defendant Growney to pay a total of $26,479.98 which includes disgorgement of $12,954.45, pre-judgment interest of $571.08 and a civil penalty of $12,954.45 pursuant to Section 21A of the Exchange Act. The Court ordered Defendant Perez to pay disgorgement, pre-judgment interest and a civil penalty pursuant to Section 21 A of the Exchange Act, the amount to be determined upon motion of the Commission.

The Commission commenced this action by filing its Complaint on July 15, 2009, against six individuals for insider trading in the securities of Neff Corporation before an April 7, 2005, announcement of its acquisition.