FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Medlink International and Two Executives with Fraudulent Filing
The Securities and Exchange Commission today announced that it filed a civil injunctive action against MedLink International, Inc., its CEO, Aurelio Vuono, and its CFO, James Rose, accusing them of filing an annual report falsely stating that its audit had been completed and defrauding a MedLink investor. MedLink's principal office is in Hauppauge, New York, and it purports to be a healthcare information technology company. Vuono, age 46 and a recidivist securities law violator, resides in Huntington Station, New York. Rose, age 33, resides in Hauppauge, New York.
The Commission's complaint, filed October 24, 2012 in U.S. District Court in Brooklyn, New York, alleges that on April 25, 2011, MedLink filed with the Commission an annual report on Form 10-K for the year ended December 31, 2010. Included in the filing was an audit report with the electronic signature of MedLink's auditor, which stated that the auditor had conducted an audit of MedLink's financial statements for the years ended December 31, 2009 and 2010. The complaint alleges that the Form 10-K was false and misleading because the audit had not been completed, and the auditor had not authorized MedLink to include the audit report or to use its electronic signature. The complaint also alleges that the Form 10-K was false and misleading because it contained the electronic signature of MedLink's founder and director, even though the director had not reviewed it nor authorized use of his electronic signature.
The complaint further alleges that in approximately April 2011, a MedLink investor agreed to purchase 210,526 shares of MedLink stock for $149,473.50. Vuono promised the investor that MedLink would delay this purchase and not cash the investor's check until the investor had sufficient funds in his checking account. Shortly thereafter, the investor informed Vuono and Rose that MedLink was not authorized to cash the check and instructed MedLink to return it. Instead of returning the check, Rose deposited it in MedLink's bank account. Despite repeated requests, MedLink did not return the investor's money or issue any MedLink stock to the investor.
The Commission's complaint charges: MedLink, Vuono and Rose with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5; MedLink with violations of Section 15(d) of the Exchange Act and Rules 12b-20 and 15d-1; Vuono and Rose with violations of Exchange Act Rule 15d-14; and Vuono and Rose with aiding and abetting MedLink's violations of Section 17(a) of the Securities Act, Sections 10(b) and 15(d) of the Exchange Act and Rules10b-5, 12b-20 and 15d-1. The Commission is seeking against MedLink, Vuono and Rose permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest to be paid jointly and severally, and civil monetary penalties. The Commission is also seeking against Vuono and Rose officer and director and penny stock bars.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Former Silicon Valley Executive to Pay $1.75 Million to Settle Insider Trading Charges
On October 24, 2012, the Securities and Exchange Commission charged a former senior executive at a Silicon Valley technology company for illegally tipping convicted hedge fund manager Raj Rajaratnam with nonpublic information that allowed the Galleon hedge funds to make nearly $1 million in illicit profits.
The SEC alleges that Kris Chellam tipped Rajaratnam in December 2006 with confidential details from internal company reports indicating that Xilinx Inc. would fall short of revenue projections it had previously made publicly. The tip enabled Rajaratnam to engage in short selling of Xilinx stock to illicitly benefit the Galleon funds. Chellam tipped Rajaratnam, who was a close friend, at a time when Chellam had his own substantial investment in Galleon funds and was in discussions with Rajaratnam about prospective employment at Galleon. Chellam was hired at Galleon in May 2007.
Chellam, who lives in Saratoga, Calif., has agreed to pay more than $1.75 million to settle the SEC's charges. The settlement is subject to court approval.
According to the SEC's complaint filed in federal court in Manhattan, Xilinx announced in October 2006 the financial results for the second quarter of its 2007 fiscal year. Xilinx also provided guidance for the third quarter by projecting revenues of approximately $476 million to $490 million. Xilinx said it would update this revenue guidance on Dec. 7, 2006.
The SEC alleges that in the weeks leading up to Xilinx's December 7 update, Chellam received multiple reports indicating that the company's third quarter business results were not going to be as positive as projected in October. Chellam learned on November 21 that the top end of the projected revenue range was being lowered from $490 million to $470 million. He attended a December 4 confidential executive staff meeting where the bottom end of the revenue projection was lowered from $476 million to $455 million. On December 5, Chellam telephoned Rajaratnam and tipped him about Xilinx's worse-than-expected performance. Just minutes after the call, Galleon hedge funds controlled by Rajaratnam sold short Xilinx stock, eventually selling short more than 650,000 shares over the course of that day and the following day.
According to the SEC's complaint, the Galleon hedge funds reaped approximately $978,684 in illegal profits after the December 7 announcement by covering the substantial short position that Rajaratnam had accumulated based on Chellam's tip. Chellam had more than $1 million invested in one of the Galleon hedge funds in which Rajaratnam placed these trades. In May 2007, Chellam became the co-managing partner of the Galleon Special Opportunities Fund, a venture capital fund that focused on investments in late-stage technology companies. Chellam continued to work at Galleon until April 2009 and continued to obtain confidential information about Xilinx's financial performance and pass it along to Galleon colleagues. Chellam earned approximately $675,000 in total compensation during his employment at Galleon.
The SEC's complaint charges Chellam with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 17(a) of the Securities Act of 1933. The proposed final judgment orders Chellam to pay $675,000 in disgorgement, $106,383.05 in prejudgment interest, and a $978,684 penalty. Chellam also would be barred for a period of five years from serving as an officer or director of a public company, and permanently enjoined from future violations of these provisions of the federal securities laws. Chellam neither admits nor denies the charges.
The SEC has now charged 32 defendants in its Galleon-related enforcement actions, which have exposed widespread and repeated insider trading at numerous hedge funds and by other traders, investment professionals, and corporate insiders throughout the country. The alleged insider trading has occurred in the securities of more than 15 companies for illicit profits totaling approximately $93 million.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Oct. 29, 2012 — The Securities and Exchange Commission announced that it has instituted proceedings to determine whether to issue an order that would prevent sales of shares in Caribbean Pacific Marketing, Inc., based on allegations that the company's disclosure is misleading.
"The Division of Enforcement is seeking a stop order to protect investors by preventing any potential sales of stock under a materially misleading and deficient offering document," said Eric I. Bustillo, Director of the SEC's Miami Regional Office.
A stop order prevents a company or its shareholders from selling privately-held shares to the public under a materially misleading or deficient registration statement. If a stop order is issued, no new shares can enter the market pursuant to that registration statement until the company has corrected the deficiencies or misleading information contained in the registration statement.
In proceedings instituted against Caribbean Pacific on October 29, 2012, the SEC's Division of Enforcement alleges that Caribbean Pacific's registration statement is materially misleading because it omits any information about William J. Reilly and his position within the company as a de facto executive officer and control person. The Division of Enforcement alleges that Reilly is a disbarred attorney subject to a court order barring him from any penny stock offering, from serving as a corporate office and director, and from violating certain federal securities laws. In addition, Reilly was suspended from appearing or practicing before the Commission as an attorney, with a right to reapply after three years.
The Commission instituted the proceedings against Caribbean Pacific to determine whether the allegations by the Division of Enforcement are true, to give the company an opportunity to respond to the allegations, and to determine whether a stop order should be issued.
On October 23, the U.S. Attorney's Office for the Southern District of Florida filed a criminal complaint against Reilly, alleging securities fraud.
SEC Senior Counsels Trisha D. Sindler and Michelle I. Bougdanos are conducting the SEC's investigation under the supervision of Assistant Regional Director Chedly C. Dumornay, and Adam Schwartz and Christine Nestor will handle the litigation. All are with SEC's Miami Regional Office. The SEC acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Southern District of Florida and the FBI's Miami Division in this matter.
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