FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Dec. 21, 2012 — The Securities and Exchange Commission today charged four securities industry professionals with conducting a fraudulent penny stock scheme in which they illegally acquired more than one billion unregistered shares in microcap companies at deep discounts and then dumped them on the market for approximately $17 million in illicit profits while claiming bogus exemptions from the federal securities laws.
The SEC alleges that Danny Garber, Michael Manis, Kenneth Yellin, and Jordan Feinstein acquired shares at about 30 to 60 percent off the market price by misrepresenting to the penny stock companies that they intended to hold the shares for investment purposes rather than immediately re-selling them. Instead, they immediately sold the shares without registering them by purporting to rely on an exemption for transactions that are in compliance with certain types of state law exemptions. However, no such state law exemptions were applicable to their transactions. To create the appearance that the claimed exemption was valid, they created virtual corporate presences in Minnesota, Texas, and Delaware. The SEC also charged 12 entities that they operated in connection with the scheme.
According to the SEC’s complaint filed in federal court in Manhattan, Garber, Manis, Yellin, and Feinstein all live in the New York/New Jersey area and operated the scheme from 2007 to 2010. They each have previously worked in the securities industry either as registered representatives or providers of investment management or financial advisory services.
"These penny stock purchasers had enough securities industry experience to know that their penny stock trading was not exempt from the securities laws as they claimed," said Andrew M. Calamari, Director of the SEC’s New York Regional Office. "They repeatedly violated the registration provisions and in the process also committed securities fraud. We will continue to fight microcap stock abuses that result in the unregistered distribution of shares without vital information about those companies being known to investors."
The SEC’s complaint alleges that Garber, Manis, Yellin, Feinstein and the named entities violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933; Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC’s complaint seeks a final judgment, among other things, ordering all of the defendants to pay disgorgement, prejudgment interest and financial penalties; permanently enjoining all the defendants from future violations of the securities laws; and permanently enjoining all the defendants from participating in penny stock offerings.
The SEC’s investigation, which is continuing, has been conducted by Michael Paley, Laura Yeu, Elzbieta Wraga, Haimavathi Marlier, Yitzchok Klug and Paul Gizzi of the New York Regional Office. Mr. Gizzi and Ms. Marlier will lead the SEC’s litigation.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission announced today that former Enron senior vice presidents Rex T. Shelby and Scott Yeager and the former chief financial officer of Enron Broadband Services (EBS) Kevin A. Howard have agreed to settle the SEC's pending civil actions against them.
The SEC charged Shelby and Yeager with securities fraud and insider trading on May 1, 2003, amending a complaint previously filed March 12, 2003, which charged Howard and Michael W. Krautz, a former senior director of accounting at EBS, with securities fraud. The SEC’s civil case was stayed by the U.S. District Court while criminal proceedings occurred against these defendants.
To settle the SEC’s action against them, Shelby agreed to pay a civil penalty of $1 million, and Yeager and Howard agreed to pay civil penalties of $110,000 and $65,000, respectively. In addition, they each consented to the entry of a final judgment enjoining them from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and permanently barring them from serving as an officer or director of a public company. Howard also agreed to be permanently enjoined from violating Section 17(a) of the Securities Act of 1933, Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1, and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1 and 13a-13. These settlement agreements are subject to court approval. Separately, Howard also consented to the entry of an Administrative Order, pursuant to Rule 102(e) of the Commission’s Rules of Practice, suspending him from appearing or practicing before the Commission as an accountant.
In the related criminal proceedings, the Department of Justice previously entered into plea agreements with Shelby and Howard on related charges. Shelby and Howard agreed to respectively forfeit $2,568,750 and $25,000 that, along with the Commission's civil penalties announced today, will contribute $3,658,750 for the benefit of injured investors through the Commission's Enron Fair Fund. Yeager was acquitted in a related criminal proceeding.
As alleged in the Commission's complaint, Shelby, Yeager and other EBS executives engaged in a fraudulent scheme to, among other things, make false or misleading statements about the technological prospects, performance, and financial condition of EBS. These statements were made at Enron's annual analyst conference and in multiple press releases during 2000. While aware of material non-public information concerning the true nature of EBS' technological and commercial condition, Shelby and Yeager sold a large amount of Enron stock at inflated prices. In another part of the scheme, Howard engaged in a sham transaction, known as "Project Braveheart," in which Enron improperly recognized $53 million in earnings in the fourth quarter of 2000 and $58 million in earnings in the first quarter of 2001.
The Commission also announced today that it filed notices of voluntary dismissal of its case against Krautz, along with its case against Schuyler M. Tilney and Thomas W. Davis, two former Merrill Lynch executives who were charged on March 17, 2003 with aiding and abetting Enron’s securities fraud. Krautz was acquitted at trial in a related criminal proceeding.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Company based in Massachusetts and Canada and Other Parties in Stock Pump-and-Dump Scheme Involving Fictitious Buyout Offer
The Securities and Exchange Commission filed an enforcement action on December 17, 2012, in federal court in Boston charging Spencer Pharmaceutical Inc., its officers, and several other parties for their roles in a "pump-and-dump" scheme involving Spencer’s stock. The Commission’s complaint alleges that Jean-François Amyot, a Canadian resident who controlled Spencer, orchestrated the scheme and worked with Maximilien Arella and Ian Morrice, Spencer’s officers and directors, as well as IAB Media Inc. and Hilbroy Advisory Inc., two other companies controlled by Amyot, to create and disseminate false press releases, including press releases about a fictitious buyout offer for Spencer, and to otherwise promote Spencer’s stock. The Commission alleges that the promotional campaign pumped up the price of Spencer’s stock, and Amyot benefited by dumping his own Spencer stock at artificially inflated prices.
The Commission’s complaint, filed in the U.S. District Court for the District of Massachusetts, alleges that beginning in November 2010, Spencer, a purported pharmaceutical company with addresses in Boston, Massachusetts, and Canada, disseminated false and misleading press releases claiming that it had received an unsolicited buyout offer from a Mideast company for $245 million when, in fact, the purported buyout offer was not real. The complaint further alleges that Arella and Morrice worked with Amyot to create and disseminate the fraudulent press releases. According to the complaint, while Spencer was issuing the press releases, the defendants were conducting a promotional campaign using Internet websites and newsletters to tout Spencer’s stock and the bogus buyout offer, and the false press releases and promotional campaign were successful in pumping up the price of Spencer’s stock. For example, after Spencer publically announced that the Mideast company proposed to pay $245 million for Spencer, the price of Spencer stock more than doubled in two days – opening at $0.25 per share on November 10, 2010 and closing at $0.60 per share on November 12 – and the daily trading volume for Spencer’s stock reached almost six million shares on November 11, compared to a daily average trading volume of less than 50,000 shares during the previous three months. During the time the buyout offer was being promoted, Amyot sold approximately 36 million Spencer shares for gross proceeds of approximately $5.8 million. Each of the defendants are charged by the Commission with violating various antifraud provisions of the federal securities laws. The complaint further charges Spencer, Amyot, and Arella with violating securities registration provisions of the securities laws. According to the complaint, Amyot and Arella were involved in a series of transfers involving 12 million Spencer shares that were done to evade the securities registration requirements and move the shares into an account controlled by Amyot.
The Commission also suspended trading in Spencer securities on December 17, 2012, 34-68447. Securities of Spencer were quoted on OTC Link operated by OTC Markets Group Inc.
The Commission alleges that Spencer, Amyot, Arella, and Morrice violated Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder; that IAB Media and Hilbroy violated Sections 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c); and that Arella, Morrice, IAB Media, and Hilbroy aided and abetted the violations by Spencer of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5. The Commission also alleges that Amyot is liable for Spencer’s violations of Section 10(b) and Rule 10b-5 as the company’s control person and that Spencer, Amyot, and Arella violated Sections 5(a) and 5(c) of the Securities Act. The Commission is seeking permanent injunctions, disgorgement plus prejudgment interest, and civil penalties against Spencer, Amyot, Arella, Morrice, IAB Media, and Hilbroy. It also seeks an order prohibiting Amyot, Arella, and Morrice from serving as an officer or director of a public company and from participating in the offering of a penny stock.
The Commission acknowledges the assistance of the Quebec Autorité des Marchés Financiers in this matter.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today charged Eli Lilly and Company with violations of the Foreign Corrupt Practices Act (FCPA) for improper payments its subsidiaries made to foreign government officials to win millions of dollars of business in Russia, Brazil, China and Poland.
The SEC alleges that the Indianapolis-based pharmaceutical company’s subsidiary in Russia used offshore "marketing agreements" to pay millions of dollars to third parties chosen by government customers or distributors, despite knowing little or nothing about the third parties beyond their offshore address and bank account information. These offshore entities rarely provided any services, and in some instances were used to funnel money to government officials in order to obtain business for the subsidiary. Transactions with off-shore or government-affiliated entities did not receive specialized or closer review for possible FCPA violations. Paperwork was accepted at face value and little was done to assess whether the terms or circumstances surrounding a transaction suggested the possibility of foreign bribery.
The SEC alleges that when the company did become aware of possible FCPA violations in Russia, Lilly did not curtail the subsidiary’s use of the marketing agreements for more than five years. Lilly subsidiaries in Brazil, China, and Poland also made improper payments to government officials or third party entities associated with government officials. Lilly agreed to pay more than $29 million to settle the SEC’s charges.
As alleged in the SEC’s complaint filed in federal court in Washington D.C.:
Lilly’s subsidiary in Russia paid millions of dollars to off-shore entities for alleged "marketing services" in order to induce pharmaceutical distributors and government entities to purchase Lilly’s drugs, including approximately $2 million to an off-shore entity owned by a government official and approximately $5.2 million to off-shore entities owned by a person closely associated with an important member of Russia’s Parliament. Despite the company’s recognition that the marketing agreements were being used to "create sales potential" with government customers and that it did not appear that any actual services were being rendered under the agreements, Eli Lilly allowed its subsidiary to continue using the agreements for years.
Employees at Lilly’s subsidiary in China falsified expense reports in order to provide spa treatments, jewelry, and other improper gifts and cash payments to government-employed physicians.
Lilly’s subsidiary in Brazil allowed one of its pharmaceutical distributors to pay bribes to government health officials to facilitate $1.2 million in sales of a Lilly drug product to state government institutions.
Lilly’s subsidiary in Poland made eight improper payments totaling $39,000 to a small charitable foundation that was founded and administered by the head of one of the regional government health authorities in exchange for the official’s support for placing Lilly drugs on the government reimbursement list.
Lilly agreed to pay disgorgement of $13,955,196, prejudgment interest of $6,743,538, and a penalty of $8,700,000 for a total payment of $29,398,734. Without admitting or denying the allegations, Lilly consented to the entry of a final judgment permanently enjoining the company from violating the anti-bribery, books and records, and internal controls provisions of the FCPA, Sections 30A, 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act. Lilly also agreed to comply with certain undertakings including the retention of an independent consultant to review and make recommendations about its foreign corruption policies and procedures. The settlement is subject to court approval.
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