SEC.gov | Statement on WKSI Waivers

SEC.gov | Statement on WKSI Waivers

Dissenting Statement in the Matter of The Royal Bank of Scotland Group, plc, Regarding Order Under Rule 405 of the Securities Act of 1933, Granting a Waiver From Being an Ineligible Issuer

Dissenting Statement in the Matter of The Royal Bank of Scotland Group, plc, Regarding Order Under Rule 405 of the Securities Act of 1933, Granting a Waiver From Being an Ineligible Issuer

SEC FILES INSIDER TRADING CHARGES AGAINST FORMER NVIDIA CORP. ACCOUNTING MANAGER

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission filed insider trading charges against a former accounting manager at Nvidia Corp. who tipped a friend with confidential company information that set in motion a chain of tipping and illegal trading among a network of hedge fund traders who reaped millions of dollars in illicit gains.

The SEC alleges that Chris Choi of San Jose, Calif., tipped his friend Hyung Lim with nonpublic information about Nvidia’s financial performance in advance of the technology company’s quarterly earnings announcements in 2009 and 2010.  Lim relayed Choi’s information to a fellow poker player Danny Kuo, who was a hedge fund manager at Whittier Trust Company.  Kuo illegally traded on the inside information for his firm and passed it along to analysts at such other firms as Diamondback Capital Management, Level Global Investors LP, and Sigma Capital Management, which is an affiliate of S.A.C. Capital Advisors LP.  The analysts relayed Choi’s information to their portfolio managers who caused funds to conduct insider trading in Nvidia securities.

Choi, who agreed to settle the SEC’s charges, is the 45th defendant charged by the SEC in its ongoing investigation into the activities of expert networks.  The investigation has exposed widespread insider trading by investment professionals, hedge funds, and corporate insiders for illicit profits of approximately $430 million.  The SEC previously charged Choi’s tippees, including Lim as well as Kuo, Diamondback, and Level Global and Sigma Capital.  The expert networks investigation arose out of the SEC’s inquiry into Galleon Management and Raj Rajaratnam – a case in which the SEC has charged an additional 35 defendants whose insider trading generated illicit profits of more than $96 million.

“Insiders at public companies who are entrusted with confidential information are duty bound to protect it,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office.  “Choi violated that sacred duty by regularly tipping his friend with nonpublic financial data that hedge fund traders exploited for millions of dollars in illegal profits.”

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Choi’s illegal tips enabled hedge funds to reap approximately $16.5 million in illicit profits and avoided losses.  Choi routinely provided Lim with nonpublic information about Nvidia’s highly confidential calculations of its revenues, gross profit margins, and other financial metrics ahead of its quarterly earnings announcements.

The SEC’s complaint charges Choi 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.  Choi has agreed to pay a $30,000 penalty and be barred from serving as an officer or director of a public company for five years.  Without admitting or denying the allegations, Choi agreed to be permanently enjoined from future violations of these provisions of the federal securities laws.  The settlement is subject to court approval.

The SEC’s investigation, which is continuing, has been conducted by Stephen Larson and Daniel Marcus of the Enforcement Division’s Market Abuse Unit in New York along with Matthew Watkins, Diego Brucculeri, James D’Avino, and Neil Hendelman of the New York Regional Office.  The case has been supervised by Sanjay Wadhwa and Joseph G. Sansone, deputy chief of the Enforcement Division’s Market Abuse Unit.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.

SEC ISSUES STOP ORDER, PREVENTS IPO DUE TO FALSE, MISLEADING INFORMATION ON REGISTRATION STATEMENT

FROM:  SECURITIES AND EXCHANGE COMMISSION 

Securities and Exchange Commission issued a stop order to prevent a Northern California-based company from issuing stock after including false and misleading information in its amended registration statement for an initial public offering (IPO).

Stop orders prevent the sale of privately held shares to the public under a registration statement that is materially misleading or deficient.  If a stop order is issued, no new shares can enter the market under that registration statement until the company has corrected the deficiencies or misleading information.

According to the SEC’s stop order against Comp Services Inc., its registration statement fails to disclose the identity of the control person and promoter behind the company, and falsely states that Comp Services earned revenue for providing computer services even though the company has never earned any revenue.  The registration statement has been amended 10 times, most recently in December 2013.

“Comp Services gave investors a false and misleading portrayal of the company as they were deciding whether or not to invest,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office.  “This stop order ensures that Comp Services stock cannot be sold in the public markets under this misleading registration statement.”

Comp Services consented to the issuance of the stop order, which also triggers the bad actor disqualifications to prohibit Comp Services from engaging or participating in any unregistered offering conducted under Rule 506 of Regulation D for a five-year period.

The SEC’s investigation, which is continuing, has been conducted by Roberto Tercero and Spencer Bendell in the Los Angeles office.

PROSECUTORS CHARGE ALLEGED PONZI SCHEMER WITH VIOLATING SEC OBTAINED COURT ORDERS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Federal Prosecutors Charge Massachusetts Resident with Criminal Contempt Based On Violations of Court Orders Obtained by the SEC

The Securities and Exchange Commission announced today that, on April 10, 2014, the United States Attorney's Office for the District of Massachusetts charged Steven Palladino with 25 counts of criminal contempt based on his repeated violations of Court orders obtained by the Commission in its civil action against Palladino and his Massachusetts-based company, Viking Financial Group, Inc. (collectively, "Defendants"). The Commission's action charged that Defendants were operating a fraudulent Ponzi scheme. The charging document filed by the United States Attorney's Office alleges that Palladino "knowingly and wilfully disobey[ed]" Court orders in the Commission's action that froze all of Defendants' assets, required that Defendants deposit all funds in their possession into a court-ordered escrow account, and required Palladino to purge himself of a prior order of civil contempt. If convicted, Palladino, who is currently serving a prison sentence based on convictions in state court for the same Ponzi scheme activity, could face additional incarceration.

On April 30, 2013, the Commission filed an emergency action against Defendants in federal district court in Massachusetts. In its complaint, the Commission alleged that, since April 2011, Defendants misrepresented to at least 33 investors that their funds would be used to conduct the business of Viking - which was purportedly to make short-term, high interest loans to those unable to obtain traditional financing. The Commission also alleged that Palladino misrepresented to investors that the loans made by Viking would be secured by first interest liens on non-primary residence properties and that investors would be repaid their principal, plus monthly interest at rates generally ranging from 7-15%, from payments that borrowers made on the loans. The complaint alleged that Defendants actually made very few real loans to borrowers, and instead used investors' funds largely to pay earlier investors and to fund the Palladino family's lavish lifestyle.

When the Commission first filed its action, it moved the Court for a temporary restraining order, asset freeze, and other emergency relief. On April 30, 2013, the Court issued a temporary restraining order, which included the asset freeze, and set the matter for further hearing on May 3, 2013. On May 3, 2013, the Court issued a revised restraining order, which included the same asset freeze. On May 15, 2013, the Court issued the order that Defendants deposit all funds in their possession into an escrow account. The asset freeze and escrow order have remained in effect at all times since April 30, 2013 and May 15, 2013, respectively.

Since September 2013, the Commission has filed four motions for civil contempt against Palladino. The Commission's first motion for contempt, filed on September 4, 2013, alleged that Palladino violated the asset freeze by transferring three vehicles that he owned (solely or jointly with his wife) into his wife's name and using the vehicles as collateral for new loans - effectively cashing out the equity in these vehicles. The motion also alleged that Palladino violated the escrow order by failing to deposit the funds he received from this cashing-out process into the escrow account. On November 15, 2013, the Court held Palladino in contempt and ordered that he restore ownership of the vehicles that he had transferred into his wife's name. Subsequently, Palladino reported to the Court that he had repaid all the new loans and restored ownership of two of the vehicles (but had failed to restore ownership of one vehicle). The Commission alleges that, in truth, the checks used to repay the new loans on the vehicles were all returned for insufficient funds. According to the Commission's allegations, to date, Palladino has not purged the civil contempt order against him. The Commission also filed three other contempt motions against Palladino charging that (i) he obtained a loan for $6,750 from a Viking investor and failed to deposit this amount into the escrow account; (ii) he sold a truck owned by him for $9,500 and failed to deposit this amount into the escrow account; and (iii) he opened new credit cards and ran up charges for cash advances, gold coins, luxury merchandise and fine dining and failed to deposit the cash and other assets obtained into the escrow account - all in violation of the asset freeze and escrow order. These three motions remain outstanding. The United States Attorney's Office's criminal charges arise from these same violations, as well as Palladino's alleged refusal to comply with the civil contempt order.

On July 15, 2013, the Court held that Defendants' conduct violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act. On November 18, 2013, the Court entered orders that enjoined Defendants from further violations of the antifraud provisions of the securities laws and ordered them to pay disgorgement of $9,701,738, plus prejudgment interest of $122,370. On January 14, 2014, Palladino pled guilty in Suffolk Superior Court to various state criminal charges based on the same conduct alleged by the Commission in its case. Palladino is currently serving a 10-12 year prison sentence for his state court convictions.

The Commission acknowledges the continued assistance of Suffolk County (Massachusetts) District Attorney Daniel F. Conley's Office, whose office referred Palladino's and Viking's conduct to the Commission.

SEC FILES ACTION AGAINST IMPRISONED FORMER STOCK PROMOTER

FROM:  SECURITIES AND EXCHANGE COMMISSION 

SEC Files Action Against Former Stock Promoter Now in Prison for Lying to SEC Investigators

On April 23, 2014, the Securities and Exchange Commission filed suit in United States District Court for the Southern District of Florida against defendants Robert J. Vitale ("Vitale") and Realty Acquisitions & Trust, Inc. ("RATI"), and relief defendant Coral Springs Investment Group, Inc. ("CSIG"). The Commission's complaint alleges that between 2004 and 2010, Vitale and RATI fraudulently raised at least $8.7 million from investors through four real estate securities offerings. According to the complaint, Vitale and RATI made numerous materially false and misleading statements and omissions concerning, among other things, the credentials and experience of Vitale and other purported RATI officers, Vitale's supposed reputation for honesty in the investment world, the safety of investing in RATI, and the ownership of the properties purchased with RATI investor proceeds. The complaint further alleges that Vitale also effected transactions in securities for the account of others without being registered as a broker in connection with his RATI activities, and, by so doing, violated both the unregistered-broker statute and a 2006 Commission Order that barred him from association with any broker or dealer. The complaint further alleges that no registration statement was on file with the Commission or in effect with respect to any of the RATI offerings or sales.

The Commission charges Vitale and RATI with violating Sections 5 and 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. The Commission also charges Vitale with violating Sections 15(a) and 15(b)(6)(B) of the Exchange Act. The Commission seeks disgorgement of the ill-gotten gains related to these violations with prejudgment interest from Vitale, RATI, and relief defendant CSIG, and civil money penalties against Vitale and RATI.

Vitale is currently an inmate at the Federal Detention Center in Miami. He was sentenced in September 2013 to two years in prison after being convicted of obstruction of justice and providing false testimony in the investigation that led to the SEC case filed today.

The Commission acknowledges the assistance of the United States Attorney's Office, the Federal Bureau of Investigation, and the Florida Office of the Attorney General in this matter.