SEC SETTLES FCPA CHARGES AGAINST PFIZER INC. AND WYETH LLC

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today filed a settled enforcement action in the U.S. District Court for the District of Columbia against Pfizer Inc. for violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries bribed doctors and other health care professionals employed by foreign governments in order to win business.

The SEC alleges that employees and agents of Pfizer’s subsidiaries in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia, and Serbia made improper payments to foreign officials to obtain regulatory and formulary approvals, sales, and increased prescriptions for the company’s pharmaceutical products. They tried to conceal the bribery by improperly recording the transactions in accounting records as legitimate expenses for promotional activities, marketing, training, travel and entertainment, clinical trials, freight, conferences, and advertising.

The SEC filed a separate settled enforcement action in the U.S. District Court for the District of Columbia against another pharmaceutical company that Pfizer acquired a few years ago – Wyeth LLC – for its own FCPA violations. Pfizer and Wyeth agreed to separate settlements in which they will pay approximately $45 million combined in disgorgement and prejudgment interest to the SEC to settle their respective charges. In a related action, Pfizer H.C.P. Corporation, an indirect wholly owned subsidiary of Pfizer, will pay a $15 million penalty to settle FCPA charges brought against it today by the U.S. Department of Justice (DOJ) under a deferred prosecution agreement.

The SEC’s complaint against Pfizer alleges that Pfizer’s misconduct dates back as far as 2001. According to the SEC’s complaint, employees of Pfizer’s subsidiaries authorized and made cash payments and provided other incentives to bribe government doctors to utilize Pfizer products. In China, for example, the SEC’s complaint alleges that Pfizer employees invited "high-prescribing doctors" in the Chinese government to club-like meetings that included extensive recreational and entertainment activities to reward doctors’ past product sales or prescriptions. In addition, according to the SEC’s complaint, Pfizer employees in Croatia created a "bonus program" for Croatian doctors who were employed in senior positions in Croatian government health care institutions. According to the SEC’s complaint, once a doctor agreed to use Pfizer products, a percentage of the value purchased by a doctor’s institution would be funneled back to the doctor in the form of cash, international travel, or free products.

According to the SEC’s complaint, Pfizer made an initial voluntary disclosure of misconduct by its subsidiaries to the SEC and Department of Justice in October 2004, and fully cooperated with SEC investigators. The complaint alleges that Pfizer took such extensive remedial actions as undertaking a comprehensive worldwide review of its compliance program.

The SEC further alleges that Wyeth subsidiaries engaged in FCPA violations, primarily before, but also after, the company’s acquisition by Pfizer in late 2009. For example, according to the SEC’s complaint, starting at least in 2005, subsidiaries marketing Wyeth nutritional products in China, Indonesia, and Pakistan bribed government doctors to recommend their products to patients by making cash payments or in some cases providing BlackBerrys and cell phones or travel incentives. The complaint alleges that Wyeth’s employees often used fictitious invoices to conceal the true nature of the payments.

According to the SEC’s complaint, following Pfizer’s acquisition of Wyeth, Pfizer undertook a risk-based FCPA due diligence review of Wyeth’s global operations and voluntarily reported the findings to the SEC staff. The complaint alleges that Pfizer diligently and promptly integrated Wyeth’s legacy operations into its compliance program and cooperated fully with SEC investigators.

In settling the SEC’s charges, Wyeth neither admitted nor denied the allegations. Pfizer consented to the entry of a final judgment ordering it to pay disgorgement of $16,032,676 in net profits and prejudgment interest of $10,307,268 for a total of $26,339,944. Pfizer also is required to report to the SEC on the status of its remediation and implementation of compliance measures over a two-year period, and is permanently enjoined from further violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. Wyeth consented to the entry of a final judgment ordering it to pay disgorgement of $17,217,831 in net profits and prejudgment interest of $1,658,793, for a total of $18,876,624. As a Pfizer subsidiary, the status of Wyeth’s remediation and implementation of compliance measures will be subsumed in Pfizer’s two-year self-reporting period. Wyeth also is permanently enjoined from further violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. The settlements are subject to court approval.

SEC CHARGES REAL ESTATE INVESTMENT COMPANY AND ITS PRINCIPALS WITH OFFERING FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
On July 6, 2012 the Securities and Exchange Commission filed a Complaint in federal district court against The Companies (TC), LLC ("The Companies") and its principals, Kristoffer A. Krohn ("Kris Krohn"), Stephen R. Earl ("Earl"), and former officer, Michael K. Krohn ("Mike Krohn") (collectively "Defendants").

The Companies, directly and through related companies and subsidiaries, purchases distressed real estate for investment. The Complaint alleges that to raise money to purchase real estate, The Companies or its subsidiary, Alpha Real Estate Holdings, L.P. ("Alpha LP"), initiated four unregistered offerings of securities from January 2009 to June 2011. Kris Krohn, Earl, and Mike Krohn participated in the offerings by providing content for and approval of the private placement memoranda ("PPMs") used to solicit investors and by directly offering the securities to investors. The four offerings raised a total of approximately $11.9 million from approximately 169 investors. The PPMs contained material misrepresentations and omissions related to, among other things, the value of properties to be purchased or that were owned by the Companies or Alpha LP.

In addition to containing false representations, each of the four offerings relied on the exemption to registration under Regulation D, Rule 506. The offerings did not qualify for the Rule 506 exemption because Defendants solicited investors through general solicitation at meetings that were open to the public.

The Defendants consented to entry of judgments against them without admitting or denying the allegations in the SEC’s complaint. Each of the Defendants consented to a judgment permanently enjoining them from violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933. In addition, The Companies agreed to undertake to inform all investors in writing of the final judgment, provide audited financial statements, and offer return of consideration for investors who choose to return their securities to The Companies after receiving the written disclosures. Kris Krohn, Mike Krohn, and Earl have also agreed to pay civil monetary penalties of $75,000 each.

The SEC’s investigation was conducted by Cheryl Mori and Justin Sutherland; the litigation will be led by Dan Wadley and Tom Melton.

FINAL JUDGEMENTS ENTERED AGAINST INOFIN EXECUTIVES IN $110 MILLION UNREGISTERED NOTES CASE

FROM: SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission announced today that final judgments were entered on July 23 and 24, 2012, respectively in its civil injunctive action against Kevin Mann, Sr., and Michael J. Cuomo, filed in the United States District Court of Massachusetts.
The Commission’s complaint alleged that Inofin and its executives, Cuomo, of Plymouth, Massachusetts, Mann of Marshfield, Massachusetts, and Melissa George of Duxbury, Massachusetts, illegally raised at least $110 million from hundreds of investors in 25 states and the District of Columbia through the sale of unregistered notes. According to the SEC’s complaint, Inofin, along with Cuomo, Mann and George, materially misrepresented how the Company was using investor money and the Company’s financial performance. The SEC also charged two sales agents – David Affeldt and Thomas K. (Kevin) Keough – alleging that they promoted the offering and sale of Inofin’s unregistered securities. Keough’s wife Nancy Keough is named in the complaint as a relief defendant for the purposes of recovering proceeds she received as a result of the violations.
Without admitting or denying the allegations in the complaint, Cuomo and Mann consented to entry of a permanent injunction against violations of Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Rule 10b-5 promulgated thereunder, and Sections 5 and 17(a) of the Securities Act of 1933 (the "Securities Act").
The final judgment as to Cuomo orders him pay disgorgement of $1,272, 914.57, representing profits he gained as a result of the conduct alleged in the Complaint, together with prejudgment interest thereon in the amount of $440,181.42 for a total of $1,713,095.90, plus a civil penalty in the amount of $150,000.
The final judgment as to Mann orders him to pay disgorgement of $733,944, representing profits he gained as a result of the conduct alleged in the Complaint, together with prejudgment interest thereon in the amount of $170,762 for a total of $904,706, plus a civil penalty in the amount of $150,000.
The SEC’s action remains pending against Inofin, George, Affeldt and the Keoughs.

MAN CHARGED WITH INSIDE TRADING ON FRIEND'S INSIDER KNOWLEDGE

FROM:  SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission announced today that it has filed a complaint against Joseph McVicker, of Wayland, Massachusetts. The complaint alleges that McVicker engaged in insider trading in shares of Cambridge-based Art Technology Group, Inc. in advance of an announcement on November 2, 2010, that Art Technology would be acquired by California-based Oracle Corporation. McVicker has agreed to settle these charges by, among other things, paying over $88,000 in disgorgement of trading profits and a civil penalty.

The Commission’s complaint alleges that on October 30, 2010, McVicker learned of the pending acquisition of Art Technology from a close friend at a social event. The complaint further alleges that McVicker understood that the information was material, nonpublic information and that he should not use it to trade. According to the Commission’s complaint, however, on November 1, 2010, McVicker used the information to purchase 24,400 shares of Art Technology. On November 2, 2010, before the market opened, Art Technology announced that Oracle had agreed to acquire Art Technology for $6 per share. Art Technology’s stock closed that day at $5.95 per share, a 45% increase from the previous trading day’s closing price, earning McVicker an ill-gotten gain of $44,268. The complaint alleges that McVicker violated Section 10(b) of the Securities Exchange Act and Rule 10b5 thereunder.

Without admitting or denying the allegations in the complaint, McVicker consented to the entry of a final judgment which enjoins him from future violations Section 10(b) of the Securities Exchange Act and Rule 10b5 thereunder. McVicker also agreed to pay disgorgement of $44,268, prejudgment interest of $365, and a civil penalty of $44,268.

INVESTMENT MANAGER AND OTHERS CHARGED BY SEC WITH SECURITIES LAW VIOLATIONS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., July 30, 2012 – The Securities and Exchange Commission charged New York-based investment manager Peter Siris and two of his firms with a host of securities law violations mostly related to his activities with a Chinese reverse merger company, China Yingxia International Inc.

The SEC alleges that Siris, an active investor in Chinese companies and former newspaper money columnist, misled investors in his two hedge funds through which he invested $1.5 million in China Yingxia. Siris understated his involvement with the company particularly after it went out of business, and used his insider status to make illegal trades based on nonpublic information as he received it. In an attempt to circumvent the registration provisions of the securities laws, Siris also received shares from the China Yingxia CEO’s father and improperly sold them without any registration statement in effect. Siris further engaged in insider trading ahead of 10 confidentially solicited offerings for other Chinese issuers.

Siris and his firms agreed to pay more than $1.1 million to settle the SEC’s charges. The SEC also separately charged five individuals and one firm for securities law violations related to China Yingxia.

“Siris operated by his own set of rules in his dealings with China Yingxia and other Chinese issuers,” said Andrew M. Calamari, Acting Director of the SEC’s New York Regional Office. “He was the go-to person when Chinese reverse merger companies wanted to raise capital or needed advice about operations, but he used his prominence and reputation in this area to illegally game the system to his advantage.”

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Siris and his firms Guerrilla Capital Management LLC and Hua Mei 21st Century LLC became involved with China Yingxia in 2007 and their misconduct continued until 2010. Along with being one of three “consultants” that improperly raised money for China Yingxia, Siris and Hua Mei acted as advisers to the purported nutritional foods company.

Insider Trading and Illegal Short Selling

The SEC alleges that in February and March 2009, Siris sold China Yingxia stock while in possession of material, nonpublic information about problems at China Yingxia that he learned directly from the CEO. This confidential information included that she had engaged in illegal fundraising activities in China and that a company factory had shut down. Siris immediately began selling hundreds of thousands of shares of China Yingxia stock prior to any public disclosure by China Yingxia about these issues. Siris learned additional material, nonpublic information during the late afternoon of March 3, 2009, when he received a draft press release and notice that China Yingxia planned to publicly disclose the problems. Siris increased his orders to sell over the next couple of days before China Yingxia issued its press release publicly on March 6. Siris, through his funds, sold 1,143,660 China Yingxia shares in a matter of weeks for ill-gotten gains of approximately $172,000.

According to the SEC’s complaint, Siris and Guerrilla Capital Management also engaged in illegal insider trading ahead of 10 offering announcements for other Chinese issuers and made approximately $162,000 in ill-gotten gains. After expressly agreeing to go “over-the-wall,” which included a prohibition on trading, Siris traded ahead of the offering announcements in breach of his duty not to trade on such information.

The SEC further alleges that Siris sold short the securities of two Chinese companies prior to participating in firm-commitment offerings.

Fraudulent Representations in a Securities Purchase Agreement

The SEC alleges that in order to induce at least one issuer to sell securities to his funds, Siris falsely represented in a securities purchase agreement that his funds had not engaged in any trading after being contacted in confidence about a particular deal, when in fact his funds had effected sales in that issuer’s securities. Siris directed short sales of a Chinese issuer on Dec. 9, 2009, despite going “over-the-wall” in original solicitation discussions, and nevertheless Siris signed a securities purchase agreement later that afternoon that misrepresented he had not traded in those securities. The following morning, Siris directed additional sales of the company’s shares before the public announcement of the offering. Siris realized illegal insider trading gains.

Materially Misleading Disclosures to Fund Investors

The SEC alleges that Siris generally disclosed that he and his consulting firm Hua Mei, may provide services to Chinese issuers, but he did not disclose the depth of his involvement in China Yingxia. Investors were not informed that Siris and his firm provided drafting assistance for press releases and SEC filings, translation services, management preparation in advance of conference calls, and officer recommendations. By omitting key facts and making misrepresentations about his role with the company, Siris deprived his investors of material information that could have impacted their continued investment decisions with his funds. Furthermore, when China Yingxia later collapsed, Siris wrote to his investors and placed blame on others he claimed were responsible for the SEC filings and key hiring decisions while omitting his significant role in these very same tasks.

Acting as an Unregistered Securities Broker

The SEC alleges that Siris, who was not registered as a broker or dealer nor associated with a registered broker-dealer, acted as an unregistered broker during China Yingxia’s second securities offering, as he raised more than $2 million worth of investments. In a backdated consulting agreement, Siris through Hua Mei in fact received transaction-based fees for leading fundraising efforts for China Yingxia and not for providing consulting services. No disclosures were made to potential or actual investors concerning payments to three so-called consultants including Siris, who sold China Yingxia securities.

Improper Unregistered Sale of Securities

The SEC alleges that Siris and Hua Mei improperly sold securities that Hua Mei received from China Yingxia in a sham agreement intended to hide the fact that they were shares from a person controlled by the company. China Yingxia agreed to pay Siris for due diligence he conducted in connection with his lead investment in the company’s July 2007 PIPE offering. The company transferred shares to Siris with the appearance that they came from a shareholder to reimburse him for services performed for that shareholder. In fact, the sham agreement was simply a means for China Yingxia to provide Hua Mei with shares believed to be immediately eligible for sale, because had the company issued the shares directly to Hua Mei, they would have been restricted stock subject to holding period and other requirements for resale. The shareholder and source of the shares was later revealed to be the father of China Yingxia’s CEO – someone who was in fact a person directly or indirectly controlled by the issuer.

The SEC’s complaint against Siris and his entities alleges violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, Rule 105 of Regulation M, and Section 206(4) of the Investment Advisers Act of 1940, and Rule 206(4)-8 thereunder. Without admitting or denying the allegations, Siris and his firms agreed to pay $592,942.39 in disgorgement and $70,488.83 prejudgment interest. Siris agreed to pay a penalty of $464,011.93. They also consented to the entry of a judgment enjoining them from violations of the respective provisions of the Securities Act, Exchange Act, and Advisers Act. The settlement is subject to court approval.

Also charged for securities law violations related to China Yingxia:

• Ren Hu – the former CFO of China Yingxia made fraudulent representations in Sarbanes-Oxley (SOX) certifications, lied to auditors, failed to implement internal accounting controls, and aided and abetted China Yingxia’s failure to implement internal controls.
• Peter Dong Zhou – engaged in insider trading and unregistered sales of securities and aided and abetted unregistered broker-dealer activity while assisting China Yingxia with its reverse merger and virtually all of its public company tasks. Without admitting or denying the charges, Zhou agreed to pay $20,900 in disgorgement, $2,463.39 in prejudgment interest, and a penalty $50,000. He agreed to a three-year collateral bar, penny stock bar, and investment company bar.
• Alan Sheinwald and his investor relations firm Alliance Advisors LLC – were retained as “consultants” to China Yingxia and acted as unregistered securities brokers while raising money for China Yingxia and at least one other issuer.
• Steve Mazur – acted as an unregistered securities broker while selling away from his firm the securities of China Yingxia and one other issuer. Without admitting or denying the charges, Mazur agreed to pay $126,800 in disgorgement, $25,550.01 in prejudgment interest, and a penalty of $25,000. He agreed to a two-year collateral bar, penny stock bar, and investment company bar.
• James Fuld, Jr. – involved in the unregistered sales of securities. Without admitting or denying the charges, he agreed to pay $178,594.85 in disgorgement and $38,096.70 in prejudgment interest.

Mr. Calamari said, “With these charges, the SEC continues to make good on its commitment to hold accountable those who enable some Chinese reverse merger firms to take unfair advantage of investors in the U.S. capital markets.”

The SEC’s investigation, which is continuing, was conducted in the New York Regional Office by Celeste Chase, Eduardo A. Santiago-Acevedo, and Osman Nawaz, with assistance from Frank Milewski. Paul Gizzi and Osman Nawaz will lead the SEC’s litigation team. The SEC acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in this matter.

SEC CHAIRMAN SPEAKS ON KNIGHT CAPITAL GROUP AND THE FLASH CRASH

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Aug. 3, 2012 — Securities and Exchange Commission Chairman Mary Schapiro today made the following statement:

The apparent trading error by Knight Capital Group on Wednesday reflects the type of event that can raise concerns for investors about our nation’s equity markets — markets that I believe are the most resilient, efficient, and robust in the world.

Reliance on computers is a fact of life not only in markets everywhere, but in virtually every facet of business. That doesn’t mean we should not endeavor to reduce the likelihood of technology errors and limit their impact when they occur.

While Wednesday’s event was unacceptable, I would note that several of the measures we instituted following the Flash Crash helped to limit its impact. Recently-adopted circuit breakers halted trading on individual stocks that experienced significant price fluctuations, and clearly defined rules guided the exchanges in determining which trades could be broken giving the marketplace certainty.
In addition, existing rules make it clear that when broker-dealers with access to our markets use computers to trade, trade fast, or trade frequently, they must check those systems to ensure they are operating properly. And, naturally, we will consider whether such compliance measures were followed in this case.

As with every significant incident of volatility that occurs in our markets, we will continue to review what happened and determine if any, additional measures are needed. That process has already begun.

In particular, I have asked the staff to accelerate ongoing efforts to propose a rule to require exchanges and other market centers to have specific programs in place to ensure the capacity and integrity of their systems. And I have directed the staff to convene a roundtable in the coming weeks to discuss further steps that can be taken to address these critical issues.