U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23082 / September 12, 2014
Securities and Exchange Commission v. Edward Henderson and Paul Desjourdy, Civil Action No. 11-cv-12116 (D. Mass. Dec. 1, 2011)
Judgment Entered Against Former CEO in Securities Kickback Scheme
The Securities and Exchange Commission announced that on September 11, 2014, the federal court in Boston, Massachusetts entered judgment by consent against Paul Desjourdy of Medfield, Massachusetts, the former President, Chief Executive Officer, Chief Financial Officer, General Counsel, Treasurer and a director of Massachusetts corporation Symbollon Pharmaceuticals, Inc., in a fraud action that was filed in December 2011. The fraud involved a kickback scheme that was exposed by an undercover operation of the Federal Bureau of Investigation's Boston office. Desjourdy was permanently enjoined from violating an antifraud statute, held liable for disgorgement of $54,000 of ill-gotten gains, and was permanently barred from serving as an officer or director of public companies or participating in offerings of penny stock.
Desjourdy is one of several parties charged on December 1, 2011 by both the Commission and the U.S. Attorney for the District of Massachusetts, alleging that they used kickbacks and other schemes to trigger investments in various thinly-traded stocks. According to the Commission's complaint, the schemes involved secret kickbacks to an investment fund representative in exchange for having the investment fund buy stock in certain companies; the kickbacks were to be concealed through the use of sham consulting agreements. What the participants in the scheme did not know was that the purported investment fund representative was actually an undercover agent of the FBI.
The Commission's complaint alleged that in May 2011, Desjourdy met with an individual who purported to be a Boston, Massachusetts-based representative of a major hedge fund. In fact, the hedge fund representative was an undercover FBI agent. The complaint alleged that Desjourdy and the hedge fund representative agreed to a scheme whereby the hedge fund would purchase $5 million of Symbollon stock in return for the payment of kickbacks to the hedge fund representative. Desjourdy and the hedge fund representative agreed to structure the transaction in such a way that it would avoid detection by the hedge fund's compliance personnel and securities regulators. Among other things, they agreed to structure the transaction into smaller "tranches" of securities purchases, and to make the kickback payments to the hedge fund representative through a shell corporation pursuant to a consulting agreement to make it appear that the kickback payments were compensation for consulting services. The complaint alleged that, in May and June 2011, Desjourdy followed through by entering agreements whereby the hedge fund purchased a total of $108,000 worth of Symbollon stock and kickbacks totaling $54,000 were funneled back to the hedge fund representative.
In the related criminal action, Desjourdy was sentenced on January 16, 2014 to 18 months of probation and was ordered to forfeit $54,000 after pleading guilty on January 11, 2012 to one count of mail fraud and one count of conspiracy. On February 28, 2014, based on his felony conviction in the criminal action, Desjourdy also was forthwith suspended from appearing or practicing before the Commission pursuant to Rule 102(e)(2) of the Commission's Rules of Practice.
The judgment in the Commission's action, to which Desjourdy consented, permanently enjoins him from violating Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The judgment further holds Desjourdy liable for $54,000 in disgorgement, but deems his disgorgement satisfied by the forfeiture order for the same amount of money in the related criminal action. The judgment also prohibits Desjourdy from acting as an officer or director of any issuer that has a class of securities registered under Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act, and prohibits Desjourdy from participating in any offering of penny stock, pursuant to Section 21(d)(6) of the Exchange Act.
The Commission suspended trading in the stock of Symbollon on December 1, 2011, and, on June 6, 2014, instituted proceedings to determine whether Symbollon's securities registration should be suspended or revoked based on its failure to file required periodic reports with the Commission since 2011. On July 14, 2014, the ALJ issued an Initial Decision on Default finding Symbollon in default and revoking registration of each class of its registered securities. On August 26, 2014, the Initial Decision became final.
The Commission's cases remain pending against Edward Henderson, James Wheeler, and MicroHoldings US, Inc., also charged on December 1, 2011 as a result of the FBI undercover operation. Judgments by consent were entered again Michael Lee and ZipGlobal Holdings, Inc. on September 4, 2014.
For further information, see Litigation Release No. 22177 (December 2, 2011) (Complaints); Exchange Act Release No. 65857 (December 1, 2011) (trading suspensions); Exchange Act Release No. 71639 (February 28, 2014) (forthwith suspension pursuant to Rule 102(e)(2)); Litigation Release No. 23002 (May 23, 2014) (Desjourdy and others sentenced in parallel criminal actions); Exchange Act Release No. 72341 (June 6, 2014) (order instituting proceedings against Symbollon); Initial Decision Release No. 636 (July 14, 2014) (initial decision revoking registration of Symbollon securities); Exchange Act Release No. 72913 (August 26, 2014) (notice that initial decision has become final); Litigation Release No. 23078 (September 4, 2014) (judgment by consent against Lee and ZipGlobal).