FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Former CFO Agrees to Settle Charges of Evading Internal Controls to Pay for Unauthorized Travel and Entertainment Expenses
The Securities and Exchange Commission announced today that Subramanian Krishnan (Krishnan), the former Chief Financial Officer (CFO) of Digi International, Inc. (Digi), has agreed to settle the Commission’s civil action against him. The Commission’s complaint, filed September 28, 2012, in the U.S. District Court for the District of Minnesota, alleges that Krishnan engaged in conduct which resulted in the filing of inaccurate reports and accompanying certifications in Digi’s annual quarterly reports from March 2005 through May 2010. The complaint alleges that Krishnan engaged in a course of conduct, that resulted in corporate funds being used to pay for unauthorized travel and entertainment expenses. Krishnan authorized such expenses for Digi employees, caused the Company to file inaccurate reports, failed to enforce Digi’s internal controls, demonstrated a lack of management integrity, and wrongly certified that Digi’s internal controls were effective.
Simultaneously with the Commission’s complaint, without admitting or denying the allegations in the Commission’s complaint, Krishnan had previously consented to a final judgment permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. Krishnan is also permanently restrained and enjoined from future violations of Sections 13(a) and 13(b)(5) and Rules 12b-20, 13a-1, 13a-13, 13a-14, 13b2-1 and 13b2-2 thereunder of the Exchange Act and from aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.
Under today’s announcement, Krishnan consented to the entry of a judgment prohibiting him from acting as an officer or director of a public company for a period of five years following the date of the filing of the Commission’s complaint and imposing a $60,000 civil penalty. Krishnan also has consented to the issuance of a Commission order, pursuant to Rule 102(e)(3) of the Commission’s Rules of Practice, suspending him from appearing or practicing as an accountant before the Commission with the right to apply for reinstatement after five years.
Jennifer Moore, Justin J. Sutherland, and Karen I. Martinez conducted the Commission’s investigation. Daniel J. Wadley and Thomas M. Melton led the litigation.
FROM: U.S. SECURITES AND EXCHANGE COMMISSION
SEC Charges Three with Insider Trading On Confidential Acquisition Negotiations Between Rohm & Haas and Dow
On July 1, 2013, the Securities and Exchange Commission announced that it charged a former officer of The Dow Chemical Company (Dow), his long-time friend, and a broker with insider trading that generated more than $1 million in illicit profits based on confidential information ahead of Dow's acquisition of Rohm & Haas Co. (Rohm).
The SEC's complaint, filed in the U.S. District Court for the Eastern District of Michigan, charges Mack D. Murrell, of Saginaw, Michigan, David A. Teekell, of Tomball, Texas, and Charles W. Adams, of Conroe, Texas with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also names as a relief defendant Raymond James Financial Services, Inc. (Raymond James) for the purpose of recovering illegal profits in its firm account. Teekell has agreed to settle the SEC's charges and pay approximately $1.1 million in disgorgement, prejudgment interest, and a civil penalty.
The SEC's complaint alleges that Murrell, who was the Vice President of Information Systems for Dow, obtained confidential details about the acquisition of Rohm from his then live-in girlfriend, now wife, who was the administrative assistant to Dow's Chief Financial Officer at the time. Murrell's girlfriend knew about and worked on the pending acquisition. The complaint alleges that the day after learning from his girlfriend of a special Board meeting at which the Rohm acquisition was discussed, Murrell tipped his long-time friend Teekell during a telephone call. Immediately following the telephone call, Teekell called Adams, his broker at Raymond James, and tipped him.
The complaint further alleges that the next business day after learning of the pending acquisition, Teekell and Adams began purchasing common stock and call options in Rohm. In addition to purchasing call options in his own account, Adams purchased stock in two discretionary customer accounts. Teekell's and Adams' purchases continued until the day before the acquisition announcement on July 10, 2008, when the price of Rohm stock jumped 64 percent. Teekell made an illicit profit of $534,526 and Adams and his discretionary customers made illicit profits of $107,043 through the insider trading. Raymond James made illicit profits of $373,497 when Teekell and Adams decided not to keep certain Rohm options that Adams had purchased in Teekell's account.
A call option is a security that derives its value from the underlying common stock of the issuer and gives the purchaser the right to buy the underlying stock at a specific price within a specified period of time. Typically, investors will purchase call options when they believe the price of the stock of the underlying securities is going up. Teekell and Adams invested so heavily in two series of Rohm call options on July 9, 2008 that their investments accounted for over 86 percent and 64 percent of the total options volume for these series on that day.
The complaint seeks a final judgment ordering disgorgement of ill-gotten gains together with prejudgment interest from the defendants and the relief defendant, and permanent injunctions and penalties against the defendants.
Teekell has consented, without admitting or denying the SEC's allegations, to the entry of a final judgment permanently enjoining him from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Teekell has agreed to pay $534,526 in disgorgement, $105,346 in prejudgment interest, and a penalty of $534,526. The settlement is subject to court approval.
The SEC's investigation was conducted by Philadelphia Regional Office enforcement staff Kingdon Kase and Suzanne C. Abt. The SEC's litigation will be led by John V. Donnelly and G. Jeffrey Boujoukos
FROM: SECURITIES AND EXCHANGE COMMISSION
SEC Sues Texas Oil and Gas Promoters for Securities Fraud
On June 28, 2013, the Securities and Exchange Commission charged Matthew Madison and Dwight McGhee, and their Irving, Texas based company Infinity Exploration, LLC, with conducting a fraudulent offering of oil and gas related investments.
Filed in the United States District Court for the Northern District of Texas, the Commission's complaint alleges that, between March and October 2008, Madison and McGhee raised over $2 million from at least 40 investors from the fraudulent offer and sale of interests in Infinity's two oil and gas joint ventures. Infinity's offering materials misled investors into believing that Infinity's ventures would own the leases and control drilling operations. Indeed, Infinity's communications with investors were peppered with references to as "our wells" and "our crew." The Commission alleges that these claims were false, because Infinity's ventures did not actually have direct interests in any oil and gas leases and no direct involvement in operation of any leases. To the contrary, Infinity's ventures merely owned interests in an unaffiliated joint venture, over which Infinity's ventures could exercise no significant control. The complaint alleges that Madison and McGhee intentionally hid this fact from investors. The complaint further alleges that the defendants' offering materials falsely described Madison as experienced and successful in the oil and gas industry and failed to disclose McGhee's 2007 federal felony conviction.
The complaint alleges that Infinity, Madison, McGhee violated Section 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 permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest and civil penalties against each of the defendants.
The SEC's investigation was conducted by Ronda Blair, Ty Martinez, and Barbara Gunn of SEC's Fort Worth Regional Office. The SEC acknowledges the assistance of the Federal Bureau of Investigation.
FROM: SECURITIES AND EXCHANGE COMMISSION
SEC Obtains Freeze On Proceeds from Unlawful Distribution of Biozoom Securities
The Securities and Exchange Commission today announced charges against eight Argentine citizens who unlawfully sold millions of shares of Biozoom, Inc. in unregistered transactions. The SEC also obtained an emergency order to freeze assets in the U.S. brokerage accounts of the eight defendants and two other Argentine citizens who had Biozoom shares but had not yet sold them. The action follows last week's suspension of trading in Biozoom due to concerns that some shareholders may be unlawfully distributing its securities.
Biozoom, formerly Entertainment Art, Inc., announced in April that it was changing its name and moving from producing leather bags to developing biomedical technology. The SEC's complaint alleges that from March to June 2013, the ten defendants received more than 20 million shares of Entertainment Art, which was one-third of the company's total outstanding shares. In a one-month period beginning in mid-May, eight of them sold more than 14 million shares. The sales yielded almost $34 million, of which almost $17 million was wired to overseas bank accounts. Their U.S. brokerage accounts, which include approximately $16 million in cash, are subject to the asset freeze.
The SEC's complaint, filed in U.S. District Court in Manhattan, charges the eight defendants -- Magdalena Tavella, Andres Horacio Ficicchia, Gonzalo Garcia Blaya, Lucia Mariana Hernando, Cecilia De Lorenzo, Adriana Rosa Bagattin, Daniela Patricia Goldman, Mariano Pablo Ferrari -- along with two others, Fernando Loureyro, and Mariano Graciarena, who received shares but have yet to sell them.
According to the SEC's complaint, when the defendants deposited the Biozoom stock into their U.S. brokerage accounts, they claimed to have acquired the bulk of the shares in March 2013 from Entertainment Art shareholders who purchased them in private placements that began in 2007. Each of the defendants provided stock purchase agreements between them and the former shareholders purportedly signed by the defendants and those shareholders. The SEC alleges that the documents were false because the Entertainment Art investors had sold all of their stock in the company in 2009, almost four years earlier. The defendants' shares of Biozoom were deposited into their accounts as shares that purportedly could be freely traded and the defendants sold them even though no registration
In addition to the temporary restraining order and asset freeze granted by the court, the SEC is seeking preliminary and permanent injunctions, return of the selling defendants' allegedly ill-gotten sale proceeds, and civil penalties. The SEC also seeks preliminary and permanent injunctions against the non-selling defendants, Graciarena and Loureyro, because of the likelihood that both defendants will offer or sell their Biozoom shares to the public in violation of the registration requirements of U.S. securities law.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22740 / July 2, 2013
SEC Charges Armand R. Franquelin and Martin A. Pool with Violations of the Federal Securities Laws
On, July 2, 2013, the Securities and Exchange Commission filed a civil injunctive action against Armand R. Franquelin (Franquelin) and Martin A. Pool (Pool), alleging that Franquelin and Pool violated the federal securities laws in connection with the sale of securities by The Elva Group, LLC (Elva Group). Judith E. Franquelin, wife of Armand R. Franquelin, was named as a relief defendant.
In its Complaint, filed in the U.S. District Court for the District of Utah, the Commission alleges that from at least January 2006 through August 2010, Franquelin and Pool engaged in a Ponzi scheme and acted as unregistered broker-dealers by offering and selling more than $12 million in Elva Group securities to approximately 130 investors. The Complaint alleges Franquelin and Pool encouraged investors to convert funds held in Individual Retirement Accounts (IRAs) into self-directed IRAs through Destiny Funding, LLC, another company owned by Franquelin and Pool, before investing those funds with Elva Group. Franquelin and Pool claimed to use investor funds to develop real estate and guaranteed returns ranging from 10% to 240% per year. Instead of using investor funds as represented, it is alleged that Franquelin and Pool misappropriated investor money for their personal use, to make "interest" payments to earlier investors, and to pay for continuing Elva Group expenses.
The Commission alleges that by engaging in this conduct Franquelin and Pool violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 (Securities Act) and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint seeks a permanent injunction as well as disgorgement, prejudgment interest and a civil penalty from Franquelin and Pool. The complaint also seeks disgorgement and prejudgment interest from Judith Franquelin.
Without admitting or denying the allegations in the Commission’s complaint, Pool has consented to the entry of a final judgment permanently enjoining him from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. Pool has also consented to pay disgorgement of $970,510.00, plus prejudgment interest of $418,935.05, but payment of disgorgement and prejudgment interest will be waived and no civil penalty will be imposed based on Pool’s current financial condition.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., July 1, 2013 - The Securities and Exchange Commission today announced that Timothy B. Henseler has been named as Director of the agency's Office of Legislative and Intergovernmental Affairs, effective immediately.
Mr. Henseler was formerly the Deputy Director of the office and has served as its Acting Director since July 2012. He advises the Chair, Commissioners, and SEC staff on legislative matters, provides technical assistance on securities-related legislation to congressional committees and staff, and assists in preparing SEC testimony for congressional hearings.
"Tim has a firm grasp of the legislative process and a deep appreciation for the role that Congress plays," said Mary Jo White. "In the short time I have served as Chair of the Commission, I have benefited from his wise counsel and his broad knowledge of the securities laws."
Mr. Henseler added, "I am honored to have the opportunity to continue to work with Chair White, the Commissioners, and the expert staff at the SEC. I look forward to continuing to help the agency in fulfilling its critical mission."
Mr. Henseler began his career at the SEC in its Boston office, where he was an enforcement counsel from 2003 to 2009. He also has experience on Capitol Hill, having served as a legislative assistant to Sen. Carl Levin from 2001 to 2003, working on tax, budget, accounting, securities, and banking policy. In addition, he conducted witness interviews and analyzed complex structured finance transactions as part of the Senate Permanent Subcommittee on Investigations examination of Enron Corp.
Before working as a Senate staffer, Mr. Henseler was an associate with the law firm of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C., in Boston. From 1998 to 1999, he was a law clerk for the Honorable George O'Toole, Jr., in the U.S. District Court for the District of Massachusetts.
Mr. Henseler received his J.D. from the Catholic University of America's Columbus School of law in 1998, graduating summa cum laude and first in his class. While attending law school he worked as an intern for Rep. Patrick J. Kennedy and as an extern for the Honorable Royce C. Lamberth in the U.S. District Court for the District of Columbia. He received his B.A. from Brandeis University in 1995, with majors in history and American studies.
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