SEC Statement on the Case Against R. Allen Stanford
On February 19, the Securities and Exchange Commission made the following statement regarding its enforcement action against Robert Allen Stanford:
"At the request of the SEC, Special Agents of the Federal Bureau of Investigation's Richmond Division today located and identified Stanford Financial Group chairman Allen Stanford in the Fredericksburg, Va., area. The agents served Mr. Stanford with court orders and documents related to the SEC's civil filing against him and three of his companies. The SEC very much appreciates the outstanding assistance of the FBI in this matter."
The SEC on February 17 charged Robert Allen Stanford and three of his companies, alleging a fraudulent, multi-billion dollar investment scheme. Stanford's companies include Antiguan-based Stanford International Bank (SIB), Houston-based broker-dealer and investment adviser Stanford Group Company (SGC), and investment adviser Stanford Capital Management. The SEC also charged SIB chief financial officer James Davis and Stanford Financial Group chief investment officer Laura Pendergest-Holt in the enforcement action.
The orders and documents that the FBI served on Stanford were the SEC's complaint, the memorandum of law filed with the complaint, the court order freezing assets, and the court order appointing a receiver.
The Honorable Reed O'Connor, U.S. District Court Judge for the Northern District of Texas, granted the SEC's request for emergency relief for investors, and issued the orders freezing assets and appointing a receiver over R. Allen Stanford and other defendants. (Press Rel. 2009-32)
The Commission Suspends Former UnitedHealth Group General Counsel David J. Lubben from Appearing or Practicing Before the Commission
On February 19, the Commission, pursuant to Rule 102(e) of its Rules of Practice, issued an order (the Rule 102(e) Order) suspending former UnitedHealth Group, Inc. General Counsel David J. Lubben from appearing or practicing before the Commission as an attorney for three years. On Jan. 23, 2009, Lubben was permanently enjoined by the United States District Court for the District of Minnesota from violating various federal securities laws, including several antifraud provisions, and was suspended by the Commission on that basis. Lubben consented to the suspension without admitting or denying the Rule 102(e) Order's findings, except he admitted to the U.S. District Court's entry of the injunction.
In its civil action filed in U.S. District Court, the Commission charged Lubben with participating in a stock option backdating scheme at UnitedHealth. According to the Commission's complaint, Lubben or others acting at his direction created false or misleading company records indicating that stock option grants by UnitedHealth had occurred on dates when the company's stock price had been at a low. Lubben personally received numerous backdated grants of options, representing as many as 3.8 million shares of UnitedHealth stock on a split adjusted basis. He exercised approximately 1.8 million of those options for approximately $1.1 million in gains attributable to improper backdating.
Without admitting or denying the allegations, Lubben consented to the entry of an order, which, among other things, permanently enjoins him from violating the antifraud provisions of the federal securities laws and bars him from serving as an officer or director of a public company for a period of five years. The U.S. District Court also ordered Lubben to pay a $575,000 civil penalty. See Litigation Release No. 20836 (Dec. 22, 2008). The Court's Order further provides that Lubben's disgorgement and prejudgment interest would be deemed satisfied by his voluntary repricing of his UnitedHealth stock options, which reduced the value of those options by approximately $2.7 million, and his payment of approximately $630,000 in pending settlements to resolve derivative and shareholder lawsuits related to options backdating filed against Lubben in state and federal courts in Minnesota.
In related actions, the Commission previously filed civil actions against UnitedHealth Group and its former CEO William M. McGuire for engaging in the same stock option backdating scheme. See Litigation Release No. 20836 (Dec. 22, 2008) and Litigation Release No. 20387 (Dec. 6, 2007). Without admitting or denying the allegations, UnitedHealth agreed to settle to charges that it violated the reporting, books and records, and internal controls provisions of the federal securities laws. The Commission's settlement with UnitedHealth Group is pending before the U.S. District Court for the District of Minnesota. On Jan. 28, 2009, the Court entered a final judgment against McGuire permanently enjoining him from violating the antifraud and other provisions of the federal securities laws and barring him from serving as an officer or director of a public company for a period of 10 years. McGuire also was ordered to (i) disgorge ill-gotten gains of $10,997,596 with $1,697,492 in prejudgment interest, (ii) pay a $7 million civil penalty, and (iii) pursuant to Section 304 of the Sarbanes-Oxley Act, reimburse UnitedHealth for all incentive- and equity-based compensation he received from 2003 through 2006, totaling approximately $448 million in cash bonuses, profits from the exercise and sale of UnitedHealth stock, and unexercised UnitedHealth options. (Rel. 34-59423; AAE Rel. 2939; File No. 3-13374)
Securities and Exchange Commission Orders Hearing on Registration Revocation or Suspension Against Six Public Companies for Failure to Make Required Periodic Filings
On February 20, the Commission instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registrations of each class of the securities of six companies for failure to make required periodic filings with the Commission:
In this Order, the Division of Enforcement (Division) alleges that the six issuers are delinquent in their required periodic filings with the Commission.
In this proceeding, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the judge will hear evidence from the Division and the Respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 or 13a-16 thereunder, are true. The judge in the proceeding will then determine whether the registrations pursuant to Exchange Act Section 12 of each class of the securities of these Respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-59426; File No. 3-13375)
SEC Obtains Emergency Relief Against Hedge Fund and its Investment Adviser for Fraud in Minnesota
On February 18, the Commission filed an emergency civil action in the U.S. District Court of Minnesota charging Paramount Partners, LP (Paramount), a hedge fund, Crossroad Capital Management, LLC (Crossroad), Paramount's investment adviser, and John W. Lawton (Lawton), who runs Crossroad, with ongoing fraudulent conduct.
The Commission's complaint alleges that Paramount is a hedge fund in which approximately 50 to 60 investors, many of whom live in Minnesota, have invested as much as $9 million. The complaint alleges that Lawton, a resident of San Francisco, California, and Crossroad have engaged in a fraud in which they misrepresented Paramount's returns and assets to investors. The complaint alleges that the defendants represented to investors that Paramount has produced annual returns of 65% to 19% since 2001. The complaint alleges that in January 2009, defendants sent account statements to investors that reflected investments totaling about $17 million as of Dec. 31, 2008. The complaint alleges that, in fact, Paramount only had $5.3 million of assets in its accounts at that time. The complaint alleges that as of February 13, Paramount's assets amounted to less than $2 million, and that defendants withdrew $900,000 in January. The complaint further alleges that when the Commission requested documents from the defendants to verify defendants' claims about Paramount's assets, the defendants provided account statements showing a false $12 million account balance in a brokerage account that had long been closed.
In an order dated February 19, the Honorable Judge Ann Montgomery entered a temporary restraining order enjoining Paramount, Crossroad, and Lawton from violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)] and the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5 thereunder], and against Crossroad and Lawton with respect to violations of the Investment Advisers Act of 1940 [Sections 206(1), 206(2), and 206(4) and Rule 206(4)-8 thereunder] and aiding and abetting of Crossroad's violations of those provisions by Lawton. The Order, among other things, also freezes assets of Paramount, Crossroad, and Lawton until further order of the court. [SEC v. John W. Lawton, Paramount Partners, LP, and Crossroad Capital Management, LLC, Civil Case No. 09-368 ADM/AJB, USDC, D. Minn.] (LR-20907)
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