FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
On October 18, 2012, the Securities and Exchange Commission charged Joseph Pacifico, a former President of Carter’s, Inc., the Atlanta-based marketer of children’s clothing, for engaging in financial fraud at Carter’s. The SEC alleges that Pacifico’s misconduct caused Carter’s to materially misstate its net income and expenses in several financial reporting periods between 2004 and 2009.
The SEC’s complaint, filed in the United States District Court for the Northern District of Georgia, alleges that between 2004 and 2009, Carter’s Executive Vice President of Sales, Joseph Elles, who reported to Pacifico, fraudulently manipulated the amount of discounts that Carter’s granted to its largest wholesale customer in order to induce that customer—itself a large national department store—to purchase greater quantities of Carter’s clothing for resale. Elles then concealed his conduct by persuading the customer to defer subtracting the discounts from payments until later periods and creating and signing false documents misrepresenting the timing and amount of those discounts to Carter’s accounting personnel.
After Pacifico discovered Elles’s scheme, the complaint alleges that Pacifico signed a false certification to Carter’s accounting personnel that understated the amount discounts that Carter’s owed to the customer. The complained also alleges that Pacifico signed false internal forms that also misstated that discounts to be paid to the customer related to sales in 2009 when, in fact, the discounts related to prior financial periods. After conducting its own internal investigation, Carter’s was required to issue restated financial results for the affected periods.
The SEC’s complaint alleges that Pacifico violated Section 17(a)(2) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5(b) and 13b2-1 thereunder, and aided and abetted Carter’s violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 10b-5(b),12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The SEC is seeking permanent injunctive relief, financial penalties, and an officer and director bar against Pacifico.
FROM: SECURITIES AND EXCAHNGE COMISSION
On October 18, 2012, the United States Securities and Exchange Commission charged Geoffrey H. Lunn, Darlene A. Bishop and Vincent G. Curry for their roles in making false and misleading statements to investors and misappropriating investors’ money in connection with a $5.77 million investment scheme under the name of Dresdner Financial, a fictitious financial services company purportedly based in Chicago, Illinois.
The SEC’s complaint, filed in the U.S. District Court for the District of Colorado, alleged that between February 2010 and February 2011, the defendants raised $5.77 million from at least 70 investors located throughout the United States and several foreign countries. According to the complaint, Lunn solicited marketers and investors to the scheme by telling them that he was the Vice-President of Dresdner and that Dresdner’s principals had connections to Dresdner Bank (formerly one of Germany’s largest banks). As marketers, Bishop and Curry played significant roles in the scheme by soliciting and lulling investors while receiving payments from the investors’ money. The complaint alleged that Lunn, Bishop and Curry told investors that Dresdner offered 100% guaranteed rates of return through a process involving the lease and monetization of bank instruments. For example, the defendants told investors that by investing $44,000 in Dresdner’s .44 Magnum Leveraged Financing Program, they would receive a payment of $2 million within 10-12 banking days. When they were unable to repay investors after the promised 10-12 days, the defendants perpetuated the scheme by repeatedly postponing the payout dates and claiming that the delays were due to holds placed by banks or the government. In reality, all of these statements were false and Dresdner and its investment programs were nothing more than an elaborate hoax.
According to the complaint, Lunn did not invest any of the investors’ funds as promised. Instead, Lunn began making cash withdrawals from the investors’ money after the very first deposit. Over the course of the scheme, Lunn withdrew over $1 million in cash and Western Union transfers which he claims to have given to Dresdner’s creator, a one-eyed man who used the alias "Robert Perello." Lunn also gave at least $848,500 to three Las Vegas call girls, paid over $1.3 million to marketers (including over $650,000 to Bishop and Curry), paid $1 million to a favored investor in a Ponzi-like payment, and using the remaining investor funds to pay for his personal and business expenses.
The SEC’s complaint alleges that Lunn, Bishop and Curry violated the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933, the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and the broker registration provisions of Section 15(a) of the Exchange Act. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest and civil penalties against all three defendants.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Oct. 18, 2012 — The Securities and Exchange Commission today announced that a Hong Kong-based firm charged with insider trading in July has agreed to settle the case by paying more than $14 million, which is double the amount of its alleged illicit profits. The proposed settlement is subject to the approval of Judge Richard J. Sullivan of the U.S. District Court for the Southern District of New York.
The SEC filed an emergency action against Well Advantate to freeze its assets less than 24 hours after the firm placed an order to liquidate its entire position in Nexen Inc. The SEC alleged that Well Advantage had stockpiled shares of Nexen stock based on confidential information that China-based CNOOC Ltd. was about to announce an acquisition of Nexen. Well Advantage sold those shares for more than $7 million in illicit profits immediately after the deal was publicly announced. Well Advantage is controlled by prominent Hong Kong businessman Zhang Zhi Rong, who also controls another company that has a "strategic cooperation agreement" with CNOOC.
"If approved by the court, Well Advantage has agreed to give up all of its ill-gotten profits from these trades and pay a substantial penalty on top of that," said Sanjay Wadhwa, Deputy Chief of the SEC Enforcement Division's Market Abuse Unit and Associate Director of the New York Regional Office. "The speedy resolution of this case shows the serious consequences that await traders who engage in insider trading."
Well Advantage has agreed to the entry of a final judgment requiring payment of $7,122,633.52 in illegal profits made from trading Nexen stock, and payment of a $7,122,633.52 penalty. The proposed judgment also enjoins Well Advantage from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. Well Advantage neither admits nor denies the charges.
The SEC's investigation, which is continuing, has been conducted by Michael P. Holland, Simona Suh, Charles D. Riely, and Joseph G. Sansone — members of the SEC's Market Abuse Unit in New York - and Elzbieta Wraga and Aaron Arnzen of the New York Regional Office.
The SEC appreciates the assistance of the Financial Industry Regulatory Authority(FINRA
FROM: U.S SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Oct. 17, 2012 – The Securities and Exchange Commission today charged a former $1 billion hedge fund advisory firm and two executives with scheming to overvalue assets under management and exaggerate the reported returns of hedge funds they managed in order to hide losses and increase the fees collected from investors.
The SEC alleges that New Jersey-based Yorkville Advisors LLC, founder and president Mark Angelo, and chief financial officer Edward Schinik enticed pension funds and other investors to invest in their hedge funds by falsely portraying Yorkville as a firm that managed a highly-collateralized investment portfolio and employed a robust valuation procedure. They misrepresented the safety and liquidity of the investments made by the hedge funds, and charged excessive fees to the funds based on the fraudulently inflated values of the investments.
This is the seventh case arising from the SEC’s Aberrational Performance Inquiry, an initiative by the Enforcement Division’s Asset Management Unit that uses proprietary risk analytics to identify hedge funds with suspicious returns. Performance that is flagged as inconsistent with a fund’s investment strategy or other benchmarks forms a basis for further investigation and scrutiny.
"The analytics put Yorkville front and center on our radar screen," said Bruce Karpati, Chief of the SEC Enforcement Division’s Asset Management Unit. "When we looked further we found lies to investors and the firm’s auditors as well as a scheme to inflate fees by grossly overvaluing fund assets. We will continue to pursue hedge fund managers whose success is based on fiction rather than fact."
According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Yorkville, Angelo, and Schinik defrauded investors in the YA Global Investments (U.S.) LP and YA Offshore Global Investments Ltd hedge funds.
The SEC alleges that Yorkville and the two executives:
Failed to adhere to Yorkville’s stated valuation policies.
Ignored negative information about certain investments by the funds.
Withheld adverse information about fund investments from Yorkville’s auditor, which enabled Yorkville to carry some of its largest investments at inflated values.
Misled investors about the liquidity of the funds, collateral underlying the investments, and Yorkville’s use of a third-party valuation firm.
The SEC alleges that by fraudulently making Yorkville’s funds more attractive to potential investors, Angelo and Schinik enticed more than $280 million in investments from pension funds and funds of funds. This enabled Yorkville to charge the funds at least $10 million in excess fees based on the inflated values of Yorkville’s assets under management.
The SEC’s complaint charges Yorkville with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5. Yorkville also is charged with violating Sections 206(1), (2) and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8. Angelo is charged with violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5, and Sections 206(1), (2) and (4) of the Advisers Act and Rule 206(4)-8. He also is charged with aiding and abetting Yorkville’s violations of the Exchange Act and Advisers Act. Schinik is charged with violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5, and with aiding and abetting Yorkville’s violations of the Exchange Act and Advisers Act.
The SEC’s Aberrational Performance Inquiry is a joint effort among staff in its Division of Enforcement, Office of Compliance, Inspections and Examinations, and Division of Risk, Strategy and Financial Innovation. The SEC’s investigation was conducted by Stephen B. Holden, Brian Fitzpatrick, and Kenneth Gottlieb with the support of Frank Milewski under the supervision of Valerie A. Szczepanik and Ken Joseph. The SEC’s litigation is being led by Todd Brody.
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