DEFENDANT IN INSIDER TRADING CASE INVOLVING AMATEUR GOLFERS PLEADS GUILTY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23264 / May 18, 2015

Securities and Exchange Commission v. Eric McPhail, et al., Civil Action No. 1:14-cv-12958 (District of Massachusetts, Complaint filed July 11, 2014)

United States v. Eric McPhail and Douglas Parigian, 1:14-cr-10201-DJC (District of Massachusetts filed July 9, 2014).

Defendant in SEC Insider Trading Case Involving Group of Amateur Golfers Pleads Guilty to Criminal Charges

The Securities and Exchange Commission announced that, on May 13, 2015, Douglas Parigian pleaded guilty to criminal charges of conspiracy and securities fraud for his role in an insider trading ring involving trading in the stock of Massachusetts-based American Superconductor Corporation. The criminal charges against Parigian arose out of the same fraudulent conduct alleged by the Commission in a civil securities fraud action filed against Parigian and others in July 2014.

On July 9, 2014, the U.S. Attorney's Office for the District of Massachusetts indicted Parigian and another defendant, Eric McPhail, for conspiracy and securities fraud and, for Parigian only, lying to FBI agents. The U.S. Attorney charged that McPhail had a history, pattern and practice of sharing confidences with a senior executive at American Superconductor. Between 2009 and 2011, the senior executive provided McPhail with material, nonpublic information concerning the company's quarterly earnings and other business activities (the "Inside Information") with the understanding that it would be kept confidential. Instead, McPhail used email and other means to provide the Inside Information to his friends, including Parigian, with the intent that they profit by buying and selling American Superconductor stock and options. Parigian used the Inside Information to profit on the purchase and sale of American Superconductor stock and options.

On July 11, 2014, the Commission filed a civil injunctive against Eric McPhail and six of his golfing buddies, including Parigian, alleging that McPhail repeatedly provided them with material nonpublic information about American Superconductor. According to the Commission's Complaint, McPhail's source of the information was an American Superconductor executive who belonged to the same country club as McPhail and was a close friend. The Complaint further alleged that, from July 2009 through April 2011, the executive told McPhail about American Superconductor's expected earnings, contracts, and other major pending corporate developments, trusting that McPhail would keep the information confidential. McPhail instead misappropriated the information and tipped his friends, who improperly traded on the information. Without admitting or denying the allegations, four defendants settled the SEC's charges by consenting to the entry of judgments permanently enjoining them from violating the antifraud provisions of the Securities Exchange Act of 1934, paying disgorgement and civil penalties. The SEC's case against Parigian, McPhail and another individual, Jamie Meadows, is ongoing.

DEUTSCHE AGREES TO PAY $55 MILLION TO SETTLE SEC CHARGES IT FILED MISSTATED FINANCIAL REPORTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

05/26/2015 11:25 AM EDT

The Securities and Exchange Commission today charged Deutsche Bank AG with filing misstated financial reports during the height of the financial crisis that failed to take into account a material risk for potential losses estimated to be in the billions of dollars.

Deutsche Bank agreed to pay a $55 million penalty to settle the charges.

An SEC investigation found that Deutsche Bank overvalued a portfolio of derivatives consisting of “Leveraged Super Senior” (LSS) trades through which the bank purchased protection against credit default losses.  Because the trades were leveraged, the collateral posted for these positions by the sellers was only a fraction (approximately 9 percent) of the $98 billion total in purchased protection.  This leverage created a “gap risk” that the market value of Deutsche Bank’s protection could at some point exceed the available collateral, and the sellers could decide to unwind the trade rather than post additional collateral in that scenario.  Therefore, Deutsche Bank was protected only up to the collateral level and not for the full market value of its credit protection.  Deutsche Bank initially took the gap risk into account in its financial statements by adjusting down the value of the LSS positions.

According to the SEC’s order instituting a settled administrative proceeding, when the credit markets started to deteriorate in 2008, Deutsche Bank steadily altered its methodologies for measuring the gap risk. Each change in methodology reduced the value assigned to the gap risk until Deutsche Bank eventually stopped adjusting for gap risk altogether.  For financial reporting purposes, Deutsche Bank essentially measured its gap risk at $0 and improperly valued its LSS positions as though the market value of its protection was fully collateralized.  According to internal calculations not for the purpose of financial reporting, Deutsche Bank estimated that it was exposed to a gap risk ranging from $1.5 billion to $3.3 billion during that time period.

“At the height of the financial crisis, Deutsche Bank’s financial statements did not reflect the significant risk in these large, complex illiquid positions,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “Deutsche Bank failed to make reasonable judgments when valuing its positions and lacked robust internal controls over financial reporting.”

In addition to the $55 million penalty, the SEC’s order requires Deutsche Bank to cease and desist from committing or causing any violations or future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-16.  Deutsche Bank neither admits nor denies the SEC’s findings in the order.

The SEC’s investigation was conducted by Amy Friedman, Michael Baker, Eli Bass, and Kapil Agrawal.  The case was supervised by Scott Friestad, Laura Josephs, Ms. Friedman, and Dwayne Brown.  The SEC appreciates the assistance of the German Federal Financial Supervisory Authority and the United Kingdom Financial Conduct Authority.

MICROSOFT EMPLOYEE AND FRIEND RESOLVE ALLEGATIONS OF INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation ReleaSe No. 23261 / May 14, 2015

Securities and Exchange Commission v. Brian D. Jorgenson, et al., Civil Action No. 13-cv-02275 (W.D. Wash.)

Former Microsoft Employee and His Friend Resolve Insider Trading Case

The Securities and Exchange Commission today announced that a former Microsoft employee and his friend have agreed to settle insider trading charges filed in 2013 alleging that they unlawfully traded based on material nonpublic information misappropriated from Microsoft.

In consent judgments approved by the U.S. District Court for the Western District of Washington, Brian D. Jorgenson, a former Senior Portfolio Manager in Microsoft's corporate finance and investments division, and Sean T. Stokke, Jorgenson's long-time friend and business partner, admitted their unlawful conduct and consented to the entry of orders holding them jointly and severally liable for over $400,000 in ill-gotten gains realized from their illegal trading as well as prejudgment interest. Both men are enjoined from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Jorgenson is also barred from acting as an officer or director of a public company.

Both men previously pled guilty to criminal charges arising out of the same conduct. Jorgenson was sentenced to 24 months in jail and Stokke was sentenced to 18 months in jail.

The SEC's litigation has been led by John V. Donnelly III and G. Jeffery Boujoukos of the SEC's Philadelphia Regional Office. The SEC's investigation was conducted by Brendan P. McGlynn, Patricia A. Paw, John S. Rymas, and Daniel L. Koster.

The SEC appreciates the assistance of the US Attorney's Office for the Western District of Washington, Federal Bureau of Investigation, Options Regulatory Surveillance Authority, and Financial Industry Regulatory Authority.

Effective Regulatory Oversight and Investor Protection Requires Better Information

Effective Regulatory Oversight and Investor Protection Requires Better Information

SEC CHARGES BHP BILLITON WITH VIOLATING FOREIGN CORRUPT PRACTICES ACT

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today charged global resources company BHP Billiton with violating the Foreign Corrupt Practices Act (FCPA) when it sponsored the attendance of foreign government officials at the Summer Olympics.

BHP Billiton agreed to pay a $25 million penalty to settle the SEC’s charges.

An SEC investigation found that BHP Billiton failed to devise and maintain sufficient internal controls over its global hospitality program connected to the company’s sponsorship of the 2008 Summer Olympic Games in Beijing.  BHP Billiton invited 176 government officials and employees of state-owned enterprises to attend the Games at the company’s expense, and ultimately paid for 60 such guests as well as some spouses and others who attended along with them.  Sponsored guests were primarily from countries in Africa and Asia, and they enjoyed three- and four-day hospitality packages that included event tickets, luxury hotel accommodations, and sightseeing excursions valued at $12,000 to $16,000 per package.

“BHP Billiton footed the bill for foreign government officials to attend the Olympics while they were in a position to help the company with its business or regulatory endeavors,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.  “BHP Billiton recognized that inviting government officials to the Olympics created a heightened risk of violating anti-corruption laws, yet the company failed to implement sufficient internal controls to address that heightened risk.

According to the SEC’s order instituting a settled administrative proceeding, BHP Billiton required business managers to complete a hospitality application form for any individuals they sought to invite to the Olympics, including government officials.  However, the company did not clearly communicate to employees that no one outside the business unit submitting the application would review and approve each invitation.  BHP Billiton failed to provide employees with any specific training on how to complete forms or evaluate bribery risks of the invitations.  Due to these and other failures, a number of the hospitality applications were inaccurate or incomplete, and BHP Billiton extended Olympic invitations to government officials connected to pending contract negotiations or regulatory dealings such as the company’s efforts to obtain access rights.

“A ‘check the box’ compliance approach of forms over substance is not enough to comply with the FCPA,” said Antonia Chion, Associate Director of the SEC’s Division of Enforcement. “Although BHP Billiton put some internal controls in place around its Olympic hospitality program, the company failed to provide adequate training to its employees and did not implement procedures to ensure meaningful preparation, review, and approval of the invitations.”

The SEC’s order finds that BHP Billiton violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.  The settlement, in which the company neither admits nor denies the SEC’s findings, reflects BHP Billiton’s remedial efforts and cooperation with the SEC’s investigation and requires the company to report to the SEC on the operation of its FCPA and anti-corruption compliance program for a one-year period.

The SEC’s investigation was conducted by Dmitry Lukovsky and Devon Leppink Staren, and the case was supervised by Alec Koch.  The SEC appreciates the assistance of the Department of Justice’s Fraud Section, the Federal Bureau of Investigation, and the Australian Federal Police.

SEC ALLEGES INVESTMENT PRO COMMITTED FRAUD AND SELF-DEALING WHILE AT VENTURE CAPITAL FIRM

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23260 / May 13, 2015

Securities and Exchange Commission v. Ifitikar Ahmed, et al., Civil Action No. 3:15-cv-00675-JBA (D.Ct., filed May 6, 2015)

SEC Charges Connecticut-Based Investment Professional with Fraud and Self-Dealing

The Securities and Exchange Commission today announced it has obtained an asset freeze and other emergency relief against a Greenwich, Connecticut, investment professional charged with fraud and self-dealing at the venture capital firm where he was employed, Oak Investment Partners.

In a complaint filed in U.S. District Court in Connecticut on last Wednesday and unsealed today, the SEC alleges that Iftikar Ahmed illegally profited by having funds managed by Oak Investment Partners pay inflated prices for two e-commerce investments and by failing to disclose his beneficial interest in a company that the fund transacted with. The complaint alleges that Ahmed transferred approximately $27.5 million in illegal profits to accounts under his control at the expense of investors in the Oak funds, including public pension investors.

According to the SEC's complaint, Ahmed had Oak funds pay $20 million for a $2 million stake in an Asian e-commerce joint venture in December 2014, pocketing the $18 million difference for himself. It alleges that in another investment in August 2014, an Oak fund overpaid for shares in a China-based e-commerce company, allowing Ahmed to pocket $2 million. In a third transaction, the complaint alleges that in 2013, Ahmed advised an Oak fund to invest $25 million in a U.S.-based e-commerce company without disclosing his interest in I-Cubed Domains LLC, which had a significant stake in the same company. The following year, at Ahmed's advice, the Oak fund paid $7.5 million to I-Cubed to buy shares in the company that I-Cubed had acquired for $2 million. The complaint alleges that Ahmed again failed to disclose his ties to I-Cubed, violating his duty to act in the best interest of the Oak fund investors and avoid self-dealing.

The SEC's complaint charges Ahmed with violating federal antifraud laws and related SEC antifraud rules. The SEC is seeking a preliminary injunction to continue the freeze of Ahmed's assets and seeks to have Ahmed return his allegedly ill-gotten gains with interest and pay civil monetary penalties. The complaint names two firms allegedly controlled by Ahmed, Iftikar Ali Ahmed Sole Prop and I-Cubed Domains LLC, as relief defendants for the purpose of recovering allegedly ill-gotten gains.

The emergency court order obtained by the SEC freezes up to $55,089,446 million of Ahmed's assets, prohibits him from destroying evidence and orders expedited discovery.

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. The case has been supervised by Daniel M. Hawke, Chief of the SEC Enforcement Division's Market Abuse Unit, and Joseph G. Sansone, Co-Deputy Chief of the Market Abuse Unit. Nicholas P. Heinke and Mark L. Williams of the Denver Regional Office will lead the SEC's litigation. The SEC appreciates the assistance of the U.S. Attorney's Office in Boston, the U.S. Attorney's Office in Connecticut, and the Federal Bureau of Investigations.