Investor Alert Issued by the Securities and Exchange Commission and FINRA
The Securities and Exchange Commission and FINRA today issued an Investor Alert to warn about stock scams that promise profits from the Gulf oil spill cleanup.
Oil Spill Stock Scams--Don't Get Cleaned Out by False Cleanup Claims
The oil spill in the Gulf of Mexico poses more than an environmental and economic threat to the region. It also poses a financial threat to investors in the form of scams promising financial gains from investments in companies that claim to be involved in cleanup operations.
Millions of dollars are being spent daily on short-term cleanup of the spill, which began in April 2010 with a blowout at an oil-drilling platform off the coast of Louisiana. The cost of long-term remediation remains unknown given the uncertainty about the extent of damage to the environment, the fishing industry and tourism.
The staff of the Securities and Exchange Commission and FINRA are issuing this alert to warn investors about potential scams that exploit the Gulf oil spill and related cleanup efforts. While some of the companies touting their role in the cleanup may be legitimate, others could be bogus operations that are only looking to clean out unsuspecting investors.
In a recent action, on May 25, the SEC suspended trading in shares of ACT Clean Technologies Inc., of Huntington Beach, Calif. The Commission took this action because of questions about the accuracy and adequacy of publicly disseminated information concerning, among other things: (1) British Petroleum's purported expression of interest in using a so-called oil fluidizer technology purportedly licensed to ACT's wholly-owned subsidiary for use in cleanup operations in the Gulf of Mexico; and (2) the purported results of field tests finding that the oil fluidizers are effective for use in cleanup efforts in the Gulf of Mexico.
Spotting Potential Oil Spill Stock Scams
Some companies may issue press releases, or send unsolicited faxes or spam emails that might include:
How to Avoid Getting Scammed
Here are some tips to avoid potential scams:
Investigate before you invest. Never rely solely on information contained in an unsolicited fax, email, text message or tweet--or in a blog post or online thread. It's easy for companies or their promoters to make glorified claims about product effectiveness, lucrative contracts, or the company's revenues, profits or future stock price.
Find out who sent the message. Many companies and individuals that tout stocks are paid to do so by the company being touted. Examine the fine print for any statements indicating payments in cash or in stock for issuing the report or message.
Find out where the stock trades. Most unsolicited fax and spam recommendations involve stocks that do not meet the listing requirements of the major stock exchanges. Instead, they usually are quoted on the OTC Bulletin Board or in the Pink Sheets, which do not impose minimum qualitative standards. Many of the securities quoted on the OTC Bulletin Board or in the Pink Sheets trade infrequently, which can make it difficult to sell your shares. When shares on the OTC Bulletin Board or in the Pink Sheets do trade, they may move up or down in price very rapidly.
Read a company's SEC filings. Most public companies file quarterly and annual reports with the SEC. Check the SEC's EDGAR database to find out if the company is filing reports to the SEC, and read them. Be aware that registering securities and filing reports with the SEC does not mean the company will be a good investment.
Exercise some skepticism. Scammers are very adept at making their pitches appear real, including the use of slick videos and websites. Be extremely wary of any pitch that suggests immediate pay-offs, especially if the investment involves a start-up company or a product or service that is still in development.
The Investor Alert is available at www.sec.gov/investor/alerts/oil.htm.
If you're suspicious about an offer or if you think the claims might be exaggerated or misleading, please contact us:
SEC Office of Investor Education and Advocacy
FINRA Complaint Center
SEC Charges Pequot Capital Management and CEO Arthur Samberg With Insider Trading
The Securities and Exchange Commission today charged Connecticut-based hedge fund manager Pequot Capital Management, Inc., and its Chairman and CEO Arthur Samberg with insider trading in Microsoft Corporation securities. The SEC separately brought an enforcement action against a former Microsoft employee who later worked at Pequot for allegedly tipping the firm and Samberg with nonpublic information about Microsoft's earnings.
Pequot and Samberg agreed to pay nearly $28 million to settle the SEC's charges. The SEC Division of Enforcement's case against the tipper, David Zilkha, will continue in an administrative proceeding before the Commission.
"The cases have two particularly troubling aspects - a hedge fund manager trading on illegal insider information, and his tipper source who withheld crucial information about the scheme during an SEC investigation," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Both are high-priority targets for SEC Enforcement."
The SEC's complaint against Pequot and Samberg, filed in U.S. District Court in Connecticut, alleges that amid rumors in April 2001 that Microsoft would miss its earnings estimates for the quarter that had just ended, Samberg sought information from Zilkha, a Microsoft employee who had just accepted an offer from Samberg to work at Pequot. Zilkha quickly reached out to a Microsoft colleague, who sent him an e-mail stating that the company would meet or beat its earnings estimates for the quarter.
According to the SEC's complaint, Zilkha then conveyed to Samberg his understanding that Microsoft would meet or beat its earnings estimates. Samberg thereafter traded in Microsoft on behalf of funds managed by Pequot. On April 19, after the market had closed, Microsoft announced that it beat its earnings estimates, driving up the price of Microsoft's stock. As a result of the illegal trading by Pequot and Samberg, the Pequot funds made more than $14 million.
Pequot and Samberg agreed to settle the SEC's charges without admitting or denying the SEC's allegations against them. Pequot and Samberg agreed to pay a total of nearly $18 million in disgorgement of trading profits and prejudgment interest as well as $10 million in penalties. With the exception of certain activities aimed solely at winding down Pequot, Samberg also has agreed to be barred from association with an investment adviser.
In the insider trading enforcement action against Zilkha, the SEC Division of Enforcement also alleges that during a prior investigation into his conduct, Zilkha concealed from the SEC staff that he had received inside information about Microsoft's earnings and then recommended that Samberg buy Microsoft securities on the basis of this information. The Enforcement Division alleges that in 2005 and 2006, Zilkha did not produce nor disclose the existence of the e-mail he had received from a Microsoft colleague concerning Microsoft's earnings, despite subpoenas and direct questions that required him to do so.
In January 2009, the SEC staff first received direct evidence that Zilkha had material, nonpublic information about Microsoft - when staff was provided copies of e-mails that had been located on a computer hard drive that was then in the possession of Zilkha's ex-wife.
The SEC's complaint is attached and the order is available at: http://www.sec.gov/litigation/admin/2010/34-62186.pdf.
For more information about this enforcement action, contact: David P. Bergers, Regional Director, SEC's Boston Regional Office, (617) 573-8927. (Press Rel. 2010-88)
SEC Files Emergency Charges Against New York-Based Financial Advisor for Defrauding Clients
The Securities and Exchange Commission today charged Manhattan-based financial advisor Kenneth Ira Starr with fraud and is seeking an emergency court order to freeze his assets after he stole client money for his personal use, including the purchase last month of a multi-million dollar apartment where he and his wife now reside.
The SEC alleges that Starr and two entities he controls - Starr Investment Advisors LLC and Starr & Company LLC - have made unauthorized transfers of money in client accounts that ultimately wound up in Starr's personal accounts. They violated securities laws pertaining to investment advisers in order to perpetrate the scheme.
Most investment advisers do not maintain physical custody of their clients' assets, and those assets are instead held by qualified third-party custodians such as a regulated bank or a registered broker-dealer. In this case, the SEC alleges that certain client assets were held in a safe in Starr & Company's offices despite the fact that Starr and his firms were not qualified custodians. Their ability to steal client funds was enhanced by the failure of Starr Investment Advisors to comply with asset custody rules that require firms to engage an independent public accountant to perform yearly surprise examinations of client assets in the firm's custody.
"Starr breached his fiduciary duty as an investment adviser in the most egregious manner possible - he stole the funds his clients entrusted to him," said George Canellos, Director of the SEC's New York Regional Office. "Starr betrayed the trust of some clients who have looked to him for years for investment advice and financial guidance."
According to the SEC's complaint, filed in federal court in Manhattan, Starr and his companies transferred $7 million from the accounts of three clients between April 13 and April 16, 2010, without any authorization. The transferred funds were ultimately used to purchase a $7.6 million apartment on the Upper East Side in Manhattan on April 16. When one of the clients detected the unauthorized transfer and demanded the money be returned, Starr reimbursed that client with money siphoned from the account of another client without authorization. The other two investors have not been reimbursed.
The SEC's complaint alleges that the unauthorized transfers in April 2010 were not the only instances when Starr misappropriated client funds. In August 2009, Starr and his entities began transferring approximately $1.7 million from the personal account of a client and from the account of a charity run by this client. These were all unauthorized transfers. In April 2010, an additional transfer of $750,000 was attempted from an account belonging to this client. But this time, Starr's plans were frustrated because the bank alerted the client, who then halted the transfer. The client then reviewed the account transactions and uncovered the unauthorized $1.7 million transfers in 2009. When confronted about these transactions, Starr gave improbable explanations before eventually reimbursing the client with money that appears to have come from the bank account of another unrelated party.
The SEC's complaint names two relief defendants in order to recover client assets now in their possession:
The SEC's complaint charges each of the three defendants with violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and, further, charges Starr Investment Advisors with violations of Section 206(4) of the Advisers Act and Rule 206(4)-2(a)(1) thereunder. In addition to the emergency relief, the SEC's complaint seeks permanent injunctions barring future violations of the charged provisions of the federal securities laws, disgorgement of the defendants' and relief defendants' ill-gotten gains plus pre-judgment interest, and financial penalties from the defendants.
Sanjay Wadhwa, Robert Murphy, Timothy Casey, Sandeep Satwalekar, and George O'Kane of the New York Regional Office conducted the SEC's investigation, which is continuing. The SEC's litigation effort will be led by Todd Brody. The SEC thanks the U.S. Attorney's Office for the Southern District of New York, the New York County District Attorney's Office, and the New York Office of the Internal Revenue Service's Criminal Investigation Division for their assistance in this matter.
For more information about this enforcement action, contact:
George S. Canellos Director, SEC's New York Regional Office (212) 336-1020
Sanjay Wadhwa Assistant Director, SEC's New York Regional Office (212) 336-0181 (Press Rel. 2010-89)
Brian T. Croteau Named Deputy Chief Accountant for Professional Practice in SEC Office of the Chief Accountant
The Securities and Exchange Commission today announced the appointment of Brian Croteau as Deputy Chief Accountant for the Professional Practice Group in the agency's Office of the Chief Accountant (OCA). Mr. Crouteau previously served in OCA as a Senior Associate Chief Accountant.
"I am pleased that Brian has agreed to again serve with us. His expertise, wisdom and insight will be an important addition as we continue to improve audit quality," said Jim Kroeker, SEC Chief Accountant.
Mr. Croteau said, "I'm honored and delighted to be returning to the SEC at such an important time to work with the talented and dedicated staff in the Office of the Chief Accountant on behalf of the investing public. I look forward to applying my recent auditing and regulatory experiences to the continuous improvement of audit quality and financial reporting to enhance the reliability and usefulness of information provided to investors."
Prior to joining the staff, Mr. Croteau served as an Assurance Partner in the Auditing Services Group of PricewaterhouseCoopers LLP's national office where his responsibilities have included providing consultation and support regarding implementation, application, and development of auditing policies and standards. During his previous tenure in OCA, Mr. Croteau was instrumental in addressing a number of challenging auditing and internal control reporting related matters.
As Deputy Chief Accountant for the Professional Practice Group, Mr. Croteau will play a key role in nearly all aspects of the Commission's work related to overseeing the activities of the Public Company Accounting Oversight Board (PCAOB), managing the resolution of audit independence issues and ethical matters, and monitoring audit and independence standard-setting internationally. He replaces Paul Beswick who was named in November 2009 as Deputy Chief Accountant for the Accounting Group in OCA.
Mr. Croteau received his Bachelor of Business Administration, with a major in accounting, from the University of Massachusetts in Amherst. (Press Rel. 2010-90)
Jeff Heslop Named SEC Chief Operating Officer
The Securities and Exchange Commission today announced that Jeff Heslop has been named the agency's first-ever Chief Operating Officer (COO) for information technology, financial reporting, and records management.
Mr. Heslop comes to the SEC from Capital One Financial Corporation, where he was responsible for the company's information and resiliency risk management. As Managing Vice President for Information Risk Management, Mr. Heslop developed and implemented risk policies, standards and practices, and internal controls.
"The creation of the Chief Operating Officer position will enhance our ongoing effort to refocus our resources and make this agency more efficient and effective," said SEC Chairman Mary L. Schapiro. "Jeff brings a great depth of private sector experience with technology development and management assessment, and he has developed the expertise necessary to ensure seamless oversight of our wide-ranging technology improvements and other operational functions of the agency."
Mr. Heslop added, "I'm honored to be selected for the position by Chairman Schapiro. She has crafted a compelling vision to revitalize the agency, and I am very excited about the opportunity to work with her and my colleagues on the SEC staff to help realize that goal."
Mr. Heslop joined the agency on May 17. As COO, he will report directly to Chairman Schapiro and will oversee:
Mr. Heslop, 55, worked at Capital One for 12 years, including the last five as the Managing Vice President of Information Risk Management at Capital One. From 2000 to 2005, he was Chief of Staff for the Chief Information Officer and executed day-to-day operations of the company's information technology department and managed the interactions of the information technology senior leadership team. He was previously the Director of the company's Information Technology University.
Mr. Heslop served in the United States Army from 1976 to 1998, rising to the rank of Lieutenant Colonel. From 1992 to 1994, he was an Assistant Director of the Army Pentagon Staff, and later was Battalion Commander and Professor of Military Science at the University of Richmond ROTC Program. He received his BA from Davidson College and his MBA from the College of William & Mary. (Press Rel. 2010-91)
In the Matter of James E. Otto
On May 26, 2010, the Commission issued an Order Making Findings and Imposing Remedial Sanctions and Cease-and-Desist Order Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 and Sections 203(f) and 203(k) of the Investment Advisers Act of 1940 (Order).
The Order finds that Otto willfully violated Section 15(a) of the Exchange Act by acting as an unregistered broker-dealer in connection with numerous investor accounts at TD Ameritrade and another registered broker-dealer. The Order also finds that Otto willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by using PIN numbers and other information provided him by account holders to access their accounts at TD Ameritrade and effect securities transactions after TD Ameritrade had barred him from accessing any TD Ameritrade account or allowing others to access those accounts on his behalf. The Order additionally finds that Otto willfully violated Sections 206(1) and (2) of the Advisers Act by impersonating an advisory client in communications with TD Ameritrade without the Advisory Client's specific authorization.
Without admitting or denying the findings in the administrative proceedings, Otto consented to the issuance of the Order, which bars him from association with any broker, dealer, or investment adviser and orders him to cease and desist from committing or causing any violations and any future violations of Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act. (Rel. 34-62180; IA-3030; File No. 3-13674)
In the Matter of Lydia Capital, LLC
On May 26, 2010, the Commission an Order Instituting Administrative Proceedings Pursuant to Section 203(e) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions (Order) against Lydia Capital, LLC (Lydia Capital), a registered investment adviser located in Boston, Massachusetts.
The Commission's Order included findings that on May 18, 2010, a final judgment was entered by consent against Lydia Capital, permanently enjoining it from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, in a civil action entitled Securities and Exchange Commission v. Lydia Capital, LLC, et al., Civil Action No. 07-CV-10712-RGS, in the United States District Court for the District of Massachusetts. The Order finds that the Commission's amended complaint alleged, among other things, that Lydia Capital, through its principals, sold limited partnership interests and retained investors in Lydia Capital Alternative Investment Fund LP (Fund), a hedge fund located in Boston, Massachusetts, through a series of material misrepresentations and omissions, including but not limited to: (1) materially overstating, and in some instances completely fabricating the Fund's performance; (2) inventing business partners, offices, and investors in an attempt to legitimatize the firm and concealing the truth as to why key vendors and banks ceased relationships with the Respondent; (3) making material misstatements and omissions about the significant criminal history of one of Lydia Capital's partners and principals, and failing to disclose a February 2007 criminal asset freeze in England; (4) making material misstatements and omissions about how the Fund planned to address certain material risks and failing to disclose others; and (5) misstating the nature of the Fund's assets and its investment process. In addition, the Commission's amended complaint alleged that Lydia Capital, through its principals, took approximately $4.7 million of Fund assets to which they were not entitled.
In view of these findings, the Commission found it appropriate and in the public interest to revoke Lydia Capital's registration as an investment adviser. Lydia Capital consented to the issuance of the Order without admitting or denying any of the findings, except as to jurisdiction and the final judgment against it, which are admitted. (Rel. IA-3031; File No. 3-13912)
In the Matter of ULH Corp. (n/k/a UniHolding Corp.), Unapix Entertainment, Inc., UniComp, Inc., and UNIDYNE Corp.
On May 27, 2010, an Administrative Law Judge issued an Order Making Findings and Imposing Remedial Sanctions by Default (Default Order) as to ULH Corp. (n/k/a UniHolding Corp.), Unapix Entertainment, Inc., UniComp, Inc., and UNIDYNE Corp. in UHL Corp., Admin. Proc. 3-13866. The Default Order finds that each Respondent failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 13a-1 and 13a-13 because it failed to make periodic filings with the Commission for a number of years. Based on these findings, the Default Order revoked the registrations of each class of registered securities of each Respondent. (Rel. 34-62185; File No. 3-13866)
Court Enters Final Judgments in SEC v. John M. Donnelly, et al.
The Securities and Exchange Commission announced that on May 26, 2010, the Honorable Judge Glen E. Conrad, United States District Judge for the Western District of Virginia, entered a final judgment against John M. Donnelly (Donnelly) and three entities that he controlled, Tower Analysis, Inc., Nasco Tang Corp., and Nadia Capital Corp. The final judgment permanently enjoins Donnelly and the other defendants from violating the antifraud provisions of the federal securities laws and orders them, along with two entity relief defendants controlled by Donnelly, to pay disgorgement and prejudgment interest totaling $3,929,003.
The Commission's civil injunctive action was filed on March 11, 2009, against Donnelly and the three defendant entities that he controlled, as well as three relief defendants, Blue Logic Operating Partners LP, Nadia Capital Operating Partners LP, and Deborah Donnelly. In its amended complaint, the Commission alleges that from at least 1998, Donnelly fraudulently raised at least $11 million from as many as thirty-one investors through the sale of securities in the form of limited partnership interests in three investment funds. The Commission further alleged that Donnelly orchestrated the scheme through three entities, Tower Analysis Inc., Nasco Tang Corp., and Nadia Capital Corp. Donnelly told investors that he would pool their funds to invest in, among other things, stock and bond index derivatives. However, Donnelly engaged in almost no securities trading. The Commission further alleged that Donnelly instead used investor funds to repay other investors, and paid himself approximately $1 million in salary and fees during the last three years of the scheme. The Commission alleges that the relief defendants received funds that were derived from profits obtained by Donnelly as a result of his fraudulent conduct.
Donnelly and the three entity defendants consented to the entry of a final judgment without admitting or denying the allegations in the Commission's complaint. The final judgment permanently enjoins them from future violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, which are general anti-fraud provisions of the federal securities laws. The final judgment also orders them, along with relief defendants Blue Logic Operating Partners LP and Nadia Capital Operating Partners LP, to disgorge $3,838,790 together with prejudgment interest of $90,213, with payment of that amount to be deemed satisfied by an order of restitution that was entered in the parallel criminal case against John Donnelly. In the criminal case, Donnelly pled guilty to charges of wire fraud, securities fraud, fraud in connection with futures contracts, and impeding administration of internal revenue laws, and was sentenced to ninety months in prison and ordered to pay restitution of $5.435 million. U.S. v. John Donnelly, No. 03:09-CR-00015 (W.D. Va.).
The Court also entered a final judgment against Donnelly's wife, relief defendant Deborah Donnelly. The judgment, to which Ms. Donnelly consented, orders her to relinquish her interest in certain assets and to pay a portion of the proceeds from the sale of the Donnellys' home towards the restitution order in the criminal case. In addition, the Court approved the Commission's motion to amend the complaint to add Samuel P. Fleming and Fleming-AOD, Inc. as relief defendants. Fleming and Fleming-AOD consented to the entry of a final judgment ordering them to pay jointly and severally disgorgement of $613,617, plus prejudgment interest of $65,717.89. The Commission's amended complaint does not allege that the relief defendants committed violations of the federal securities laws. All of the funds collected pursuant to these settlements will be distributed to harmed investors through the restitution fund established in the parallel criminal case.
The Commission acknowledges the assistance of the United States Attorney's Office for the Western District of Virginia, the Federal Bureau of Investigation, the Internal Revenue Service, the U.S. Department of Justice Tax Division, and the U.S. Commodity Futures Trading Commission. [SEC v. John M. Donnelly, et al., Civil Action No. 03:09CV0015 (W.D. Va.)] (LR-21538)
SECURITIES ACT REGISTRATIONS
RECENT 8K FILINGS