SEC.gov | Updated Investor Alert: Beware of Companies Using the SEC Seal

SEC.gov | Updated Investor Alert: Beware of Companies Using the SEC Seal

SEC ANNOUNCES COURT IMPOSED JUDGEMENT OF $55 MILLION AGAINST INVESTMENT ADVISER CEO

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23228 / April 2, 2015

Securities and Exchange Commission v. Charles R. Kokesh, Civil Action No. 6:09-cv-1021

Federal Court Imposes $55 Million Final Judgment Against Investment Adviser CEO

On March 30, 2015, the United States District Court for the District of New Mexico entered a final judgment against Charles R. Kokesh, permanently enjoining him from violating federal securities laws and ordering him to pay a civil penalty of $2,354,593 as well as disgorgement and prejudgment interest totaling $53,004,432. The final judgment follows a five-day trial in November 2014, in which the jury found that Kokesh had committed securities fraud by misappropriating and misusing tens of millions of dollars at two registered investment advisers he controlled.

From at least 1995 through July 2007, Kokesh controlled two registered investment-adviser firms, though which he controlled and provided investment advice to four business-development companies ("BDCs"). Together, the BDCs had approximately 21,000 investors located throughout the United States. Through his control over the investment advisers, Kokesh was able to misappropriate investor funds by causing the BDCs to pay illegal distributions, performance fees, bonuses, and expense reimbursements to the investment advisers, which Kokesh then used for his own benefit. Kokesh tried to hide his scheme by directing the investment advisers to distribute misleading proxy statements to investors, and to have the BDCs file false reports with the Commission.

After short deliberations, the jury found that Kokesh had violated Section 37 of the Investment Company Act of 1940. The jury also found that Kokesh had aided and abetted violations of Sections 205, 206(1), and 206(2) of the Investment Advisers Act of 1940, and Sections 13(a) and 14(a) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder.

The case was tried by David Reece, Jennifer Brandt, and Timothy McCole of the Commission's Fort Worth Regional Office. An examination by Kyle Holmberg of the Fort Worth Regional Office and Curtis Kolinek of the San Francisco Regional Office uncovered the misconduct.

SEC BRINGS CHARGES IN CASE INVOLVING ALLEGED MISAPPROPRIATION OF MONEY FROM AN INVESTMENT FUND

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION  

Litigation Release No. 23207 / February 26, 2015

Securities and Exchange Commission v. Daniel Thibeault et al., Civil Action No. 1:15-cv-10050 (D. MA)

CEO of Massachusetts-Based Investment Advisory Companies Indicted On Charges of Fraud, Obstruction of Justice

The Securities and Exchange Commission announced that on February 25, 2015, Daniel Thibeault, the CEO of a group of Massachusetts-based investment advisory companies, was criminally charged by a grand jury in the United States District Court for the District of Massachusetts in connection with the alleged misappropriation of more than $15 million from an investment fund. The SEC previously filed a civil enforcement action against Thibeault and others in January 2015. The criminal indictment charges Thibeault with securities fraud, wire fraud, and aggravated identity theft. The indictment also charges Thibeault with obstruction of justice, alleging that Thibeault sought to obstruct the SEC's prior investigation by intentionally misleading SEC examiners.

The allegations in the criminal indictment stem from the same misconduct underlying the SEC's pending civil enforcement action against Thibeault and the associated entities concerning the alleged misappropriation of money from an investment fund. In a complaint filed in federal court on January 9, 2015, the SEC named Thibeault as a defendant, along with the following entities, all believed to be controlled by Thibeault: Graduate Leverage, LLC; GL Capital Partners, LLC; GL Investment Services, LLC; and Taft Financial Services, LLC. The SEC also charged two other parties as relief defendants based on their alleged receipt of investor funds: GL Advisor Solutions, Inc., a corporation based in the Philippines that is controlled by Graduate Leverage, LLC and Thibeault; and Shawnet Thibeault, who is Daniel Thibeault's wife.

The SEC's complaint alleges that GL Capital Partners, LLC and its principal, Daniel Thibeault, were the investment advisers to a fund called the GL Beyond Income Fund, and that they misappropriated money that belonged to this fund. The GL Beyond Income Fund's assets consisted primarily of individual variable rate consumer loans. The SEC alleges that beginning in 2013 or earlier, Thibeault and the other defendants engaged in a scheme to divert investor money from the GL Beyond Income Fund by creating fake loans and reporting those fake loans as assets of the GL Beyond Income Fund, using the names and personal information of individuals who were unaware that loans were being originated. The complaint further alleges that the GL Beyond Income Fund disbursed millions of dollars to fund these fictitious loans, but the borrowed money did not go to the purported borrowers whose names appeared on the documentation; instead, the SEC alleges, it was transferred to Thibeault and the other defendants who used the money for personal expenses and to run businesses other than the GL Beyond Income Fund, and used it to conceal and perpetuate the scheme by making "interest payments" on fake loans.

Thibeault was originally charged by a criminal complaint and was arrested on December 11, 2014. The SEC's action against Thibeault and the other defendants, which is pending, seeks disgorgement of ill-gotten gains plus pre-judgment interest and penalties and permanent injunctions against further violations of the securities laws. On January 21, 2015, the United States District Court for the District of Massachusetts imposed an asset freeze against Thibeault and the other defendants and relief defendants and ordered certain other preliminary relief.

For further information, see Litigation Release No. 23171 (January 9, 2015) [Civil Complaint]; Litigation Release No. 23178 (January 22, 2015).

SEC CHARGES FRIENDS WITH INSIDER TRADING REGARDING COOPER TIRE COMPANY ACQUISITION

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

04/02/2015 12:30 PM EDT

The Securities and Exchange Commission charged two longtime friends who illegally profited from insider trading on news of a proposed acquisition of Cooper Tire and Rubber Company by Apollo Tyres Ltd.

In a complaint filed in U.S. district court in Connecticut, the SEC filed fraud charges against Amit Kanodia, of Brookline, Massachusetts, an entrepreneur and private equity investor, and Iftikar Ahmed, of Greenwich, Connecticut, a general partner at a venture capital firm.  The SEC named Rakitfi Holdings LLC, a company owned by Ahmed, and Lincoln Charitable Foundation, a supposed charity operated by Kanodia, as relief defendants.  The SEC is seeking to have the defendants return their allegedly ill-gotten gains with interest and pay civil monetary penalties.

The U.S. Attorney’s Office for the District of Massachusetts announced parallel criminal charges against Kanodia and Ahmed.

The SEC alleges that by April 2013, India-based Apollo Tyres was engaged in serious negotiations to acquire Cooper Tire, of Findlay, Ohio.  Although the acquisition was never completed, the complaint alleges that Cooper Tire’s stock price jumped 41 percent when the acquisition was announced in June 2013.  The SEC alleges that Kanodia tipped Ahmed and another friend prior to the acquisition announcement after learning of the deal from his wife, then the general counsel at Apollo who was intimately involved in Apollo’s efforts to acquire Cooper Tire.

According to the SEC’s complaint, Kanodia shared the highly confidential information with Ahmed who began buying significant amounts of Cooper Tire stock and options.  Once news of the deal was public, Ahmed immediately liquidated his Cooper Tire holdings, reaping more than $1.1 million of ill-gotten profits, according to the complaint.  Ahmed later paid Kanodia a kickback by transferring $220,000 to Lincoln Charitable Foundation, a supposed charity that Kanodia controlled and used to mask the kickback, the complaint alleges.

A second close friend of Kanodia, identified in the complaint as Tippee 1, also profited by trading on the confidential information provided by Kanodia and paid a portion of his illicit gains to Kanodia using the same supposed charity, the SEC’s complaint further alleges.

“We allege that Kanodia gave inside information to two close friends who then kicked back a portion of their insider trading profits to a supposed charity that Kanodia controlled,” said Joseph G. Sansone, Co-Deputy Chief of the SEC Enforcement Division’s Market Abuse Unit.  “Despite Kanodia’s attempts at concealment, the SEC staff was able to uncover and unravel the scheme.”

The SEC’s complaint charges Kanodia and Ahmed with violating federal anti-fraud laws and a related SEC ant-fraud rule. Rakitfi Holdings and Lincoln Charitable Foundation are named as relief defendants in the SEC’s complaint for the purpose of recovering ill-gotten gains from the trading.

The SEC’s investigation, which is continuing, has been conducted by Jay A. Scoggins and Jeffrey E. Oraker of the Market Abuse Unit in the Denver Regional Office with assistance from Patrick A. McCluskey of the Market Abuse Unit in the Philadelphia Regional Office.  The case has been supervised by Daniel M. Hawke, Chief of the Market Abuse Unit, and Mr. Sansone, and the litigation will be led by Nicholas P. Heinke and Mark L. Williams of the Denver Regional Office.  The SEC appreciates the assistance of the U.S. Attorney’s Office in Boston, the U.S. Attorney’s Office in Connecticut, the Federal Bureau of Investigations, and FINRA, the Financial Industry Regulatory Authority.

Statement on Jury Verdict in Trial Of George Levin Who Raised $157 Million for Scott Rothstein’s Ponzi Scheme

Statement on Jury Verdict in Trial Of George Levin Who Raised $157 Million for Scott Rothstein’s Ponzi Scheme

SEC CHARGES BROKERAGE FIRM WITH FAULTY UNDERWRITING REGARDING REVIEWING MATERIAL TO PREVENT FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23222 / March 27, 2015

Securities and Exchange Commission v. Macquarie Capital (USA) Inc. et al., Civil Action No. 15-CV-02304

SEC Charges New York-Based Brokerage Firm with Faulty Underwriting of Public Offering by China-Based Company

The Securities and Exchange Commission today announced charges against a New York-based brokerage firm responsible for underwriting a public offering despite obtaining a due diligence report indicating that the China-based company's offering materials contained false information.

Macquarie Capital (USA) Inc., a wholly owned subsidiary of global financial services firm Macquarie Group Limited, has agreed to settle the SEC's charges by paying $15 million and separately covering the costs of setting up a Fair Fund to compensate investors who suffered losses after purchasing shares in the public offering by Puda Coal. The SEC previously charged the Puda Coal executives behind the offering fraud at the company, which is no longer in business.

The SEC also charged former Macquarie Capital managing director Aaron Black and former investment banker William Fang for failing to exercise appropriate care in their due diligence review. Black agreed to pay $212,711 and Fang agreed to pay $35,000 to settle the charges.

According to the SEC's complaint filed in federal court in Manhattan, Macquarie Capital was the lead underwriter on a secondary public stock offering in 2010 by Puda Coal, which traded on the New York Stock Exchange at the time and purported to own a coal company in the People’s Republic of China (PRC). In the offering documents, Puda Coal falsely told investors that it held a 90-percent ownership stake in the Chinese coal company. Macquarie Capital repeated those statements in its marketing materials for the offering despite obtaining a report from Kroll Associates showing that Puda Coal did not own any part of the coal company. According to corporate registry filings in the PRC that Kroll accessed in its due diligence review, Puda Coal's chairman had transferred ownership of the coal company to himself and then sold nearly half of his interest to the largest state-owned investment firm in the PRC. As a result, Puda Coal no longer had any ownership stake or source of revenue.

According to the SEC's complaint, Kroll provided its report to Fang, who read it but failed to act on the information revealing that Puda Coal no longer owned the coal company. Instead, Fang circulated the report to other members of the Puda Coal deal team and stated in the e-mail that "no red flags were identified." Black, who served as one of the transaction directors on the Puda Coal deal, received the report from Fang and read portions stating that Puda Coal's chairman owned 50 percent of the coal company of which Puda Coal was claiming to own 90 percent. Black likewise failed to act on the information.

The SEC alleges that Macquarie Capital made a net profit of $4.17 million as lead underwriter on the Puda Coal offering, which sold stock to investors at a price of $12 per share. When reports about Puda Coal's false claim appeared on the Internet based on the same PRC filings that Kroll Associates accessed for its report, Puda Coal's stock price plunged as low as pennies per share.

The SEC's complaint charges Macquarie Capital, Black, and Fang with violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. They agreed to settle the charges and accept permanent injunctions without admitting or denying the allegations. The settlement is subject to court approval. In addition to the monetary penalties, Black has agreed to be barred from supervisory positions in the securities industry and Fang has agreed to be barred from the securities industry, both for at least five years.