TWO CORPORATE OFFICERS CHARGED WITH INFLATING VALUES OF ENERGY PROPERTIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

08/06/2015 10:00 AM EDT

The Securities and Exchange Commission today announced charges alleging that Miller Energy Resources Inc., its former chief financial officer, and its current chief operating officer inflated values of oil and gas properties, resulting in fraudulent financial reports for the Tennessee-based company.  The audit team leader at the company’s former independent auditor also was charged in the matter.

In an order instituting administrative proceedings, the SEC’s Division of Enforcement alleges that after acquiring oil and gas properties in Alaska in late 2009, Miller Energy overstated their value by more than $400 million, boosting the company’s net income and total assets.  The allegedly inflated valuation had a significant impact, turning a penny-stock company into one that eventually listed on the New York Stock Exchange, where its stock reached a 2013 high of nearly $9 per share.

“Financial statement information is the cornerstone of investment decisions.  We’ve charged that Miller Energy falsified financial statement information and grossly overstated the value of its Alaska assets and that the company’s independent auditor failed to conduct an audit that complied with professional standards,” said William P. Hicks, Associate Regional Director of the SEC’s Atlanta office.  “The SEC will aggressively prosecute such conduct.”    

Knoxville-based Miller Energy paid $2.25 million and assumed certain liabilities to purchase the Alaska properties.  It later reported them at a value of $480 million, according to the SEC’s Division of Enforcement.  While accounting standards required the company to record the properties at “fair value,” then-CFO Paul W. Boyd allegedly relied on a reserve report that did not reflect fair value for the assets, and he also is alleged to have double-counted $110 million of fixed assets already included in the reserve report.  The report by a petroleum engineering firm allegedly contained expense numbers that were knowingly understated by David M. Hall, the CEO of Miller Energy’s Alaska subsidiary and Miller Energy’s chief operating officer since July 2013.  Hall, of Anchorage, Alaska, also is alleged to have altered a second report to make it appear as though it reflected an outside party’s estimate of value.

The Division of Enforcement alleges that the fiscal 2010 audit of Miller Energy’s financial statements was deficient due to the failure of Carlton W. Vogt III, the partner in charge of the audit.  Vogt, of Warwick, New York, was then at Sherb & Co LLP, a now defunct firm that was suspended by the SEC in 2013 for conduct unrelated to its work for Miller Energy.  Vogt issued an unqualified opinion of Miller Energy’s 2010 annual report and is alleged to have falsely stated that the audit was conducted in accordance with the standards of the Public Company Accounting Oversight Board and that Miller Energy’s financial statements were presented fairly and conformed with U.S. generally accepted accounting principles.

As a result of their conduct, Miller Energy, Boyd, and Hall are alleged to have violated anti-fraud provisions of U.S. securities laws and a related SEC anti-fraud rule.  The company also is alleged to have violated books and recordkeeping and internal controls requirements, with Boyd and Hall in some cases causing or aiding and abetting those alleged violations.  The SEC’s Division of Enforcement is seeking to obtain cease-and-desist orders, civil monetary penalties, and return of allegedly ill-gotten gains from the company, Boyd, and Hall.  It also is seeking to bar Boyd and Hall from serving as public company officers or directors and to bar Boyd and Vogt from public company accounting.  The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.

The SEC’s investigation was conducted in its Atlanta Regional Office by William Uptegrove and John Nemeth under the supervision of Assistant Regional Director Peter Diskin.  The Enforcement Division’s litigation will be led by Robert Schroeder, Edward Sullivan, William Uptegrove, and M. Graham Loomis of the Atlanta Regional Office.

SEC.gov | Dissenting Statement at an Open Meeting to Adopt the “Pay Ratio” Rule

SEC.gov | Dissenting Statement at an Open Meeting to Adopt the “Pay Ratio” Rule

Statement on Pay Ratio Disclosure

Statement on Pay Ratio Disclosure

SEC CHARGES MAN WITH OPERATING $114 MILLION PONZI SCHEME BASED ON ANTI-DROWSY DRIVING TECHNOLOGY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

08/03/2015 02:25 PM EDT

The Securities and Exchange Commission charged a Houston-area businessman with operating a $114 million Ponzi scheme that defrauded investors, some of whom were told that their money would fund technology to prevent accidents caused by drowsy driving.

The SEC’s case filed in federal court in Houston charged Frederick Alan Voight of Richmond, Texas with defrauding more than 300 investors in multiple offerings of promissory notes issued by two partnerships he owns, F.A. Voight & Associates LP and DayStar Funding LP.  While Voight’s latest offering promised investors returns as high as 42 percent a year from loans to small public companies, most of the funds went to pay earlier investors, the complaint alleges.  Approximately $22 million of Voight’s allegedly ill-gotten gains remain unaccounted for to date.

“Voight wooed investors with promises of outsized returns and once-in-a-lifetime investment opportunities.  But, like all Ponzi schemes, we allege that this one collapsed when Voight couldn’t find enough new money to keep up with his false promises,” said David L. Peavler, Acting Regional Co-Director of the SEC’s Fort Worth Regional Office.

According to the SEC’s complaint, Voight recently raised $13.8 million that he said would be loaned to a startup named InterCore Inc. to fund its deployment of a “Driver Alertness Detection System,” or DADS.  Starting in October 2014, Voight allegedly wrote to prospective investors about a “tremendous” opportunity to help InterCore install the DADS technology into “several million trucks and buses,” which he said was enough for the company to pay the 30 to 42 percent annual interest rates on the promissory notes “many, many times over.”

Voight knew the claims were false because he served on InterCore’s board and was aware that the Delray Beach, Florida public company was financially troubled and had no means to pay back the loans, the complaint alleges.  The SEC alleges that Voight used funds from the DADS investors to make Ponzi payments to earlier investors or funneled them to InterCore through two of his other partnerships, Rhine Partners LP and Topside Partners LP.  The complaint alleges that InterCore sent the funds to its Montreal-based subsidiary, InterCore Research Canada, Inc., where the funds seemingly disappeared.  By routing funds through Rhine and Topside, Voight is alleged to have garnered benefits – including fees and InterCore stock warrants – that he never disclosed to the DADS investors.

The SEC’s complaint charges Voight and DayStar with securities fraud and with conducting unregistered securities offerings.  Voight and Daystar, without admitting or denying the allegations, agreed to settle the SEC’s complaint by consenting to permanent injunctions against committing these violations in the future.  They also agreed to asset freezes and other emergency relief, and to pay civil penalties and return allegedly ill-gotten gains with interest in amounts to be set later by the court.  Voight also consented to being barred from serving as a public company officer or director and to be barred permanently from participating in the offer, purchase, or sale of any security except for his own personal account.

The SEC named F.A. Voight & Associates, Rhine, Topside, InterCore, and InterCore Research Canada as relief defendants for the purpose of recovering any allegedly ill-gotten gains they received from the fraud.  F.A. Voight & Associates, Rhine, and Topside have agreed to asset freezes and other emergency relief and to return allegedly ill-gotten gains in amounts to be set by the court.  The SEC will litigate its claims against relief defendants InterCore and InterCore Research.

The SEC’s investigation was conducted by Senior Counsel Jeff Cohen, Senior Staff Accountant Keith Hunter and Assistant Regional Director Jessica Magee of the Fort Worth office.  The SEC’s litigation will be led by Jennifer Brandt.

STOCK PRICE SPIKE INDICATED STOCK RISE SCAM ACCORDING TO SEC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

07/31/2015 04:30 PM EDT

The Securities and Exchange Commission charged a Canadian citizen with conducting a scheme to conceal his control and ownership of a microcap company whose price quickly spiked last year.  The SEC suspended trading in the stock, Cynk Technology Corp., before the alleged schemer, Phillip Thomas Kueber, could profit on the gains from the stock’s rise to more than $21 from less than 10 cents per share.

The SEC alleges that Kueber was behind a false and misleading registration statement filed by Cynk and enlisted a small group of straw shareholders and sham CEOs to conceal his control of purportedly non-restricted shares in Cynk stock.  The complaint alleges that the straw shareholders – mainly Kuber’s family members and associates in British Columbia and California – never received the shares they “purchased.”  Kueber allegedly transferred the shares to brokerage accounts and offshore shell companies he secretly controlled and misled broker-dealers about his ownership of the shares to create the false appearance of a company with publicly held shares.

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of New York, Kueber was unable to cash in on selling his Cynk shares when the SEC suspended trading in Cynk on July 11, 2014 amid suspicious activity surrounding the company’s stock.  Once trading resumed, the share price fell, closing at 60 cents per share on July 28, 2014.

“We allege that Kueber used straw shareholders, offshore dummy corporations, and puppet corporate officers to gain and conceal control over the majority of Cynk shares,” said Michael Paley, Co-Chair of the SEC Enforcement Division’s Microcap Fraud Task Force.  “Law enforcement has again pierced through the layers of deceit to hold an alleged wrongdoer accountable, in this case before he could liquidate his shares in the open market and realize ill-gotten profits.”

The SEC’s complaint alleges that Kueber violated the antifraud provisions of federal securities laws and related SEC antifraud rules.  The SEC is seeking to impose a civil monetary penalty, to bar Kueber from serving as a public company officer or director or participating in a penny-stock offer, and to be subject to a court-ordered injunction against future antifraud violations.

The SEC’s continuing investigation has been conducted by Joshua R. Geller, Joseph G. Darragh, and Michael Paley of the Microcap Fraud Task Force along with Wendy Tepperman of the New York office.  The litigation will be conducted by Preethi Krishnamurthy and Mr. Geller.  The case is being supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York, Federal Bureau of Investigation, Internal Revenue Service, Department of Homeland Security, and Financial Industry Regulatory Authority.

FOREIGN CURRENCY PONZI SCHEMERS ORDERED TO PAY $76 MILLION

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

Court Orders $76 Million in Civil Monetary Penalties against Keith F. Simmons, Deanna Salazar and Their Companies in Connection with Foreign Currency Ponzi Scheme

In Related Criminal Actions, Simmons Sentenced to 40 Years’ and Salazar Sentenced to 4.5 Years’ Incarceration and Ordered to Pay in Total $40 Million in Criminal Restitution

Both Simmons and Salazar Currently are Serving Their Prison Sentences

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Robert J. Conrad, Jr. of the U.S. District Court for the Western District of North Carolina entered separate Consent Orders (Orders) against Defendants Keith F. Simmons and his company, Black Diamond Capital Solutions, LLC, and Deanna Salazar and her companies, Life Plus Group, LLC and Black Diamond Holdings, LLC, imposing a total of $76 million in civil monetary penalties in connection with a foreign currency exchange (forex) scheme in violation of the Commodity Exchange Act (CEA). The Orders also impose permanent trading and registration bans on the Defendants and prohibit them from further violations of the anti-fraud provisions of the CEA, as charged.

Simmons was a resident of West Jefferson, North Carolina, and Salazar was a resident of Yucca Valley, California.

The Orders arise out of a CFTC Complaint, filed on January 13, 2011, charging Simmons, Salazar, and their companies with fraudulent solicitation and misappropriation of customer funds in connection with a Ponzi-style scheme involving forex trading (see CFTC Press Release and Complaint 5985-11, February 16, 2011). Also charged in the CFTC complaint are Bryan Coats of Clayton, North Carolina and his company, Genesis Wealth Management, LLC, and Jonathan Davey of Newark, Ohio and his companies, Divine Circulation Services, LLC, Divine Stewardship, LLC, Safe Harbor Ventures, Inc., Safe Harbor Wealth Investments, Inc., and Safe Harbor Wealth, Inc. The CFTC’s litigation against these Defendants is ongoing.

The Orders find that from at least April 2007 through at least 2009, Simmons and Salazar, acting through their companies and with others, fraudulently solicited and accepted at least $35 million from at least 240 individuals to engage in off-exchange forex trading through a trading platform known as Black Diamond. In fact, according to the Orders, no forex trading was ever conducted through the Black Diamond trading platform, and the Black Diamond trading platform never existed. Rather, Simmons and Salazar misappropriated millions of dollars of customer funds to make purported profit payments to customers, as is typical of a Ponzi scheme, and for personal and unrelated business expenses, according to the Orders. The Orders further find that to conceal their fraud, Simmons, with the assistance of Salazar, issued false customer account statements reflecting the promised returns or more based on Black Diamond’s purportedly successful forex trading.

In a related criminal action brought by the U.S. Attorney’s Office for the Western District of North Carolina, Simmons was convicted on December 16, 2010, on charges of securities fraud, wire fraud, and money laundering. Simmons was sentenced to 40 years’ incarceration and ordered to pay criminal restitution of $35 million. On December 7, 2010, Salazar pleaded guilty to charges of investment fraud conspiracy and tax evasion. Salazar was sentenced to 4.5 years’ incarceration and ordered to pay $5 million in criminal restitution. Both Simmons and Salazar are still serving their sentences.

CFTC Division of Enforcement staff members responsible for this case are Alan Edelman, Maura Viehmeyer, James H. Holl III, Gretchen L. Lowe, and Rick Glaser. The Division would like to thank the U.S. Attorney’s Office for the Western District of North Carolina and the Federal Bureau of Investigation for their cooperation in this matter.