Category Archives: SEC

Three Louisiana Residents Indicted for Insider Trading in Connection with Shaw Group Acquisition

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Wednesday, July 12, 2017

BATON ROUGE, LA – Acting United States Attorney Corey Amundson announced today that three more individuals have been charged with insider trading in connection with the acquisition of the Shaw Group. A federal grand jury sitting in the Middle District of Louisiana has indicted KELLY LIU, age 31, SALVADOR RUSSO, III, age 34, both of Baton Rouge, Louisiana, and VICTORY HO, age 38, of Morgan City, Louisiana, with conspiracy to commit securities fraud (insider trading), in violation of Title 18, United States Code, Section 371, and securities fraud (insider trading), in violation of Title 15, United States Code, Sections 78j(b) and 78ff, and Title 17, Code of Federal Regulations, Sections 240.10b-5 and 240.10b5-1. If convicted, each face significant incarceration, fines, restitution, and supervised release following imprisonment.

The Indictment alleges that from on or before July 18, 2012, and continuing to at least July 30, 2012, LIU and her boyfriend RUSSO, along with associate HO, engaged in a scheme to profit from inside information about the upcoming merger between The Shaw Group (“Shaw”) and Chicago Bridge and Iron Company (“CB&I”).

According to the allegations contained in the Indictment, which was returned by the grand jury earlier today, in mid-2012, Shaw was considering a potential merger opportunity. At the time, LIU was a Shaw employee working in the Financial Planning and Analysis Department. In late July 2012, Shaw and CB&I came to an agreement whereby CB&I acquired all outstanding shares of Shaw stock. The merger between the two companies was publicly announced on July 30, 2012 (“the public announcement”). As a result of the public announcement, Shaw’s stock price rose substantially.

The Indictment alleges that, prior to the public announcement and through her job at Shaw, LIU obtained inside information that Shaw was being acquired by another company and passed the inside information to HO, through another individual, and to RUSSO, for their use in trading Shaw securities. Thereafter, HO and RUSSO allegedly purchased Shaw securities before the public announcement. HO sold his Shaw securities after the public announcement had caused Shaw’s stock price to rise, while RUSSO held his Shaw securities, all at the expense of Shaw shareholders and potential Shaw shareholders who were not privy to the inside information. The Indictment also alleges that HO made over $294,000, and RUSSO over $2,500 in unrealized profits, from their illegal insider trading activities.

Prior to the Indictment announced today, three other individuals have been charged in the Middle and Western Districts of Louisiana with securities fraud offenses related to the Shaw merger. One defendant has pled guilty, and the remaining two are scheduled for trial.

Acting U.S. Attorney Amundson stated: “Insider trading undermines investor confidence in the fairness and integrity of the securities markets, and cheats those honest investors who play by the rules. My office will continue to work aggressively with our excellent partners with the FBI, IRS-Criminal Investigations, the U.S. Secret Service, the Securities and Exchange Commission, the Financial Industry Regulatory Authority, and others to pursue such important matters whenever merited.”

This matter is being handled by the U.S. Attorney’s Office for the Middle District of Louisiana and the Baton Rouge offices of the FBI, Secret Service, and IRS-Criminal Investigation. It is being prosecuted by Assistant United States Attorneys Chris Dippel, Patricia Jones, and Adam Ptashkin.

NOTE: An indictment is an accusation by the Grand Jury. A defendant is presumed innocent until and unless adjudicated guilty at trial or through a guilty plea.

SEC Announces Charges in Massive Telemarketing Boiler Room Scheme Targeting Seniors

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Washington D.C., July 12, 2017—

The Securities and Exchange Commission today brought fraud charges against 13 individuals allegedly involved in two Long Island-based cold calling scams that bilked more than one hundred victims out of more than $10 million through high-pressure sales tactics and lies about penny stocks.

The SEC alleges that the orchestrators of the scheme used boiler room-style call centers to make hundreds of thousands of cold calls that included the use of threatening and deceitful sales techniques to pressure victims – many of whom were senior citizens – into purchasing penny stocks.  For example, as part of one such scam, a boiler room salesman allegedly claimed that the Walt Disney Company was buying into a purported media and internet company and that would cause the penny stock’s price to increase substantially.

During these calls, victims were allegedly harassed and threatened by sales personnel.  When one victim complained about his losses, a sales representative allegedly said, “I am tired of hearing from you.  Do you have any rope at home?  If so tie a knot and hang yourself or get a gun and blow your head off.”  According to the SEC’s complaint, in a typical phone call, telemarketers would direct victims to place trades and tell them how many shares to purchase and at what price.  With this information about the victims’ trades, the orchestrators and the boiler room sales personnel allegedly placed opposing sell orders to dump their own shares, realizing more than $14 million in illegal proceeds while the victims lost millions of dollars, including retirement savings.

SEC investigators learned of the alleged scheme from investor complaints and used technological tools and innovative investigative approaches to build evidence – within a matter of months from receiving the complaints – against the defendants who went to great lengths to evade detection.

“These kinds of scams cause devastating harm to investors,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.  “Investors must beware of the sort of conduct alleged in our complaint – things like unsolicited calls, high-pressure sales tactics, and promises that a no-name stock is going to skyrocket.”

Scott W. Friestad, Associate Director of the SEC’s Enforcement Division, added, “The defendants allegedly used boiler rooms and high-pressure sales tactics to swindle seniors into investing their life savings in microcap securities they were secretly manipulating for their own profit.  But, through a combination of technology and innovative investigative approaches, we were able to unravel the alleged scheme and prevent further investor harm.”

In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York announced criminal charges.

The SEC’s complaint, filed in federal district court in Brooklyn, N.Y., charges all defendants with fraud and nine with market manipulation.  The SEC is seeking permanent injunctions, disgorgement with interest, civil penalties, penny stock bars, and an officer-and-director bar from one of the orchestrators of the scheme.  The complaint also names 27 individuals and entities that received proceeds from the fraud, as relief defendants.

The SEC’s complaint also charges certain defendants with acting as unregistered brokers.  The SEC encourages investors to check the backgrounds of people selling them investments by using the SEC’s investor.gov website to quickly identify whether they are registered professionals.

The SEC’s investigation, which is continuing, has been conducted by Andrew Elliott and Cecilia Connor and assisted by Leigh Barrett.  The investigation was supervised by Scott Friestad and Amy Friedman.  The SEC’s litigation will be handled by Matthew Scarlato and James Smith and supervised by Jan Folena.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority, Federal Bureau of Investigation, U.S. Attorney’s Office for the Eastern District of New York, British Columbia Securities Commission, Ontario Securities Commission, and Oregon Division of Financial Regulation.

The SEC encourages victims of the alleged fraud to contact [email protected] .  The SEC’s Office of Investor Education and Advocacy previously issued an alert warning investors that aggressive stock promotion is a red flag of fraud.

“Investors should be skeptical anytime they receive an unsolicited communication promoting a stock – it could be a part of a boiler room scheme,” said Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy.  “If you receive a phone call from a high-pressure salesperson who uses harassment and threats to get your business, hang up.”

Federal Grand Jury in Chicago Indicts Two Former Tech Executives For Allegedly Conspiring to Obstruct SEC Probe into Sale of Company

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Department of Justice
U.S. Attorney’s Office
Northern District of Illinois
FOR IMMEDIATE RELEASE
Friday, June 30, 2017

CHICAGO — A federal grand jury in Chicago has indicted two former executives of a Florida technology company for allegedly conspiring to obstruct an investigation by the U.S. Securities and Exchange Commission.

CHRISTOPHER YOUNG, the former President of Tampa-based M2 Interactive Group Inc., and JOSHUA CARLUCCI, M2 Interactive’s former Chief Executive Officer, are charged with conspiracy to obstruct, influence, and impede an official proceeding. The pair allegedly conspired with executives from Schaumburg-based Quadrant 4 System Corp. to obstruct an SEC investigation into Quadrant 4’s 2013 purchase of M2 Interactive.

The indictment was returned Thursday in federal court in Chicago. In addition to the conspiracy count, Young, 35, of Norwich, N.Y., and Carlucci, 39, of Tampa, Fla., are also charged with attempting to obstruct, influence, and impede an official proceeding. Carlucci also faces a charge of making false statements to the Federal Bureau of Investigation. The Court will schedule arraignments for Young and Carlucci at a later date.

New and expanded criminal charges were also filed Thursday against the two Quadrant 4 executives, NANDU THONDAVADI and DHRU DESAI. A criminal information filed in federal court in Chicago charged them with wire fraud. Arraignments for Thondavadi, 63, of North Barrington, and Desai, 55, of Barrington, have been scheduled for July 6, 2017, at 10:00 a.m., before U.S. District Judge Charles Norgle.

The charges were announced by Joel R. Levin, Acting United States Attorney for the Northern District of Illinois; and Michael J. Anderson, Special Agent in Charge of the Chicago office of the FBI. The Chicago office of the SEC provided valuable assistance.

M2 Interactive was a technology company that developed applications for mobile devices and conducted business under the name Momentum Mobile. Quadrant 4 provides software products, platforms and consulting services to customers in the healthcare and education sectors. As a public company, Quadrant 4 is required to provide to the SEC a detailed report of its financial condition.

In 2015 the SEC launched an investigation of Quadrant 4 based on indications that the firm may have violated federal securities laws. The FBI initiated an investigation of Quadrant 4 in 2016. As set forth in the information against Thondavadi and Desai, the investigation revealed that Thondavadi and Desai engaged in a wide-ranging scheme to defraud Quadrant 4’s shareholders by misappropriating more than $3 million from the company, fraudulently inflating Quadrant 4’s revenue, and regularly concealing Quadrant 4’s liabilities. The information charges that Thondavadi and Desai certified false SEC reports, including Quadrant 4’s 2014 Form 10-K, in which the defendants fraudulently inflated Quadrant 4’s revenue by more than $4.2 million – nearly 10% of Quadrant 4’s reported income that year.

The fraud scheme also involved numerous misrepresentations related to Quadrant 4’s acquisitions, including misrepresentations about the terms of Quadrant 4’s purchase of Momentum Mobile in 2013. Quadrant 4 purchased Momentum Mobile for $100,000 in cash and 250,000 shares of Quadrant 4 stock, plus assumption of approximately $165,000 in Momentum Mobile liabilities, according to the indictment against Young and Carlucci. Federal authorities discovered that Thondavadi and Desai later concealed the true terms of the deal from Quadrant 4’s auditor and its shareholders, according to the charges. The pair furnished the auditor with a fictitious agreement that Thondavadi created, the charges state. The bogus document inflated the purchase price and failed to mention the liabilities Quadrant 4 assumed, according to the charges.

As set forth in the charges, the investigation further revealed that Thondavadi and Desai attempted to obstruct the SEC’s investigation of Quadrant 4 as it related to the Momentum Mobile acquisition. In July 2016 SEC attorneys sought to question Young and Carlucci, who were unaware of the fictitious acquisition agreement that Thondavadi created. Carlucci notified Thondavadi and Desai of the SEC’s inquiry, and the Quadrant 4 executives responded by striking a deal with Young and Carlucci to pay them cash in exchange for their agreement to send Thondavadi an e-mail falsely stating that Momentum Mobile had previously authorized the terms of the fictitious agreement, according to the charges. The defendants attempted to disguise the payments – $102,900 to Young and $60,000 to Carlucci – as “consulting” fees, the charges state.

The public is reminded that charges are not evidence of guilt. The defendants are presumed innocent and entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

The conspiracy, obstruction and wire fraud charges are each punishable by up to 20 years in prison, while making false statements to the FBI is punishable by up to five years. If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory U.S. Sentencing Guidelines.

SEC Obtains Final Judgments Against Investment Adviser and CEO for Failure to Disclose Fees to Clients

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U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23847 / May 26, 2017
Securities and Exchange Commission v. Momentum Investment Partners LLC (D/B/A Avatar Investment Management) and Ronald J. Fernandes, No. 16-cv-00832 -VLB (D. Conn. filed May 31, 2016)

The Securities and Exchange Commission today announced that it obtained final judgments by consent against Connecticut-based investment adviser Momentum Investment Partners LLC (doing business as Avatar Investment Management) (“Avatar”), and its CEO, Ronald J. Fernandes, for failing to disclose to some of Avatar’s advisory clients certain fees they were being charged. Among other things, the judgments order the defendants to pay a total of over $230,000.

On May 31, 2016, the Commission filed a complaint in federal court in Hartford, Connecticut, alleging that Avatar and Fernandes failed to disclose material conflicts of interest in connection with investments Avatar made in new mutual funds that it created and managed. Specifically, the complaint alleges that Avatar and Fernandes failed to disclose that moving clients’ assets into these newly-created mutual funds would increase the clients’ total advisory fees paid to Avatar without changing the clients’ investment strategy. The complaint alleges that between May 2013 and March 2014, Avatar’s clients paid almost $111,000 in additional fees, including approximately $61,000 that was ultimately paid to Avatar, for no additional services.

The final judgments, entered by the Honorable Vanessa L. Bryant of the U.S. District Court for the District of Connecticut on May 26, 2017, permanently enjoin Avatar and Fernandes from violating Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 (“Advisers Act”), Avatar from violating Sections 204, 206(4) and 207 of the Advisers Act and Rules 204-1 and 206(4)-7 thereunder, and Fernandes from aiding and abetting violations of Sections 204, 206(4) and 207 of the Advisers Act and Rules 204-1 and 206(4)-7 thereunder. The judgments also order the defendants to disgorge, on a joint and several basis, $61,275.52 in ill-gotten gains plus $7,400.85 in prejudgment interest, for a total of $68,676.37, and order Avatar to pay a civil penalty of $125,000 and Fernandes to pay a civil penalty of $40,000. The defendants neither admit nor deny the allegations in the SEC’s complaint.

CFO of Public Computer-Services Company Pleads Guilty to Federal Fraud Charge

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Department of Justice
U.S. Attorney’s Office
Northern District of Illinois
FOR IMMEDIATE RELEASE
Friday, May 19, 2017

CHICAGO — The former chief financial officer of a public computer-services company admitted in federal court today that he participated in a scheme to defraud a global telecommunications provider out of at least $3 million.

ANTHONY ROTH, 52, of Upton, Mass., pleaded guilty to one count of wire fraud. The conviction carries a maximum sentence of 20 years in prison. U.S. District Judge Amy J. St. Eve did not immediately set a sentencing date.

The guilty plea was announced by Joel R. Levin, Acting United States Attorney for the Northern District of Illinois; and Michael J. Anderson, Special Agent-in-Charge of the Chicago office of the Federal Bureau of Investigation. The U.S. Securities and Exchange Commission provided valuable assistance.

Roth served as the chief financial officer of ContinuityX Solutions Inc., a computer-services company based in Metamora, Ill. Roth stated in a plea agreement that he and ContinuityX’s former chief executive officer, DAVID GODWIN, approached certain companies to buy services from an international telecommunications firm that the companies did not need or intend to use. Godwin and Roth promised these companies that they would not have to pay for the services because he had arranged separate side deals with other companies to fund and use the services, according to Roth’s plea agreement. Roth and Godwin then created false financial information to fraudulently inflate the financial condition of the companies, the plea agreement states. They did all of this so that the telecommunications firm would approve the sales to these companies and pay ContinuityX hundreds of thousands of dollars in commissions for purportedly having brought new customers to the telecommunications company, the plea agreement states.

In 2011 and 2012 Roth and Godwin fraudulently caused ContinuityX to receive approximately $3 million in commission payments from the telecommunications company, according to Roth’s plea agreement. The commissions were paid upfront, and Godwin provided some of the money to the companies that signed up for the services, the plea agreement states.

Godwin, 55, of Germantown Hills, Ill., and a third defendant, former ContinuityX sales representative JOHN COLETTI, 56, of Canyon Country, Calif., are also charged in the case. Godwin has pleaded not guilty to 14 counts of wire fraud, while Coletti has pleaded not guilty to five counts of wire fraud and one count of making false statements to the FBI. Godwin and Coletti are scheduled for a jury trial on Sept. 25, 2017.

The public is reminded that charges are not evidence of guilt. Godwin and Coletti are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

The government is represented by Assistant U.S. Attorneys Steven Dollear, Brian Wallach and John Mitchell.

DEFENDANTS IN SEC CASE INVOLVING LOANS TO PROFESSIONAL ATHLETES SENTENCED CRIMINALLY

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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23768 / March 3, 2017

Securities and Exchange Commission v. Capital Financial Partners, LLC et al., No. 15-cv-11447-IT (D. Mass. filed Apr. 7, 2015)

United States of America v. Will D. Allen and Susan C. Daub, No. 15-cr-10181 (D. Mass. filed June 15, 2015)

Defendants in SEC Case Involving Loans to Professional Athletes Sentenced Criminally

On March 1, 2017, William D. Allen and Susan C. Daub, both defendants in a parallel SEC enforcement action, were each sentenced to six years imprisonment and ordered to pay $16.8 million in restitution for their role in an investment scheme involving fraudulent loans to professional athletes.

Allen and Daub were arrested in June 2015 on criminal charges of conspiracy, wire fraud, and charging a money transaction in connection with specified unlawful activity. The criminal complaint against Allen and Daub alleged that they collected funds from investors for certain fictitious or oversubscribed loans to professional athletes and created the false impression that athletes were repaying certain fictitious or oversubscribed loans on schedule by making scheduled monthly payments to investors from new investor funds. They pled guilty to the criminal charges in November 2016.

In the SEC’s parallel enforcement action, filed in federal court in April 2015, the SEC’s complaint alleges that Allen and Daub, and three corporate entities they owned or controlled – Florida-based Capital Financial Partners Enterprises LLC, and Boston-based Capital Financial Partners LLC and Capital Financial Holdings LLC – operated a Ponzi scheme that raised almost $32 million from investors who were promised profits from loans to professional athletes. The SEC’s complaint charges Allen, Daub and the three corporate entities with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC’s complaint also named WJBA Investments LLC, Insurance Depot of America LLC, Simplified Health Solutions LLC, and Simplified Health Solutions 2 LLC. – entities owned or controlled by Allen, Daub, or both – as relief defendants for the sole purpose of recovering investor funds received as a result of the alleged Ponzi scheme.

On April 28, 2015, the SEC obtained a preliminary injunction that continued an asset freeze against Allen, Daub, the defendant corporate entities, and relief defendants, restrained the defendants from accepting additional investor funds, and prevented the defendants from destroying or concealing documents related to the alleged Ponzi scheme.

The SEC’s litigation against Allen, Daub, and the corporate defendants and relief defendants is continuing. The SEC seeks permanent injunctions, disgorgement and prejudgment interest, and civil penalties.

SEC Charges Shell Factory Operators With Fraud

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The Microcap Fraud Task Force Activities have clearly been gaining momentum…

The Securities and Exchange Commission today announced fraud charges against a California stock promoter and a New Jersey lawyer who allegedly were creating sham companies and selling them until the SEC stopped them in their tracks.

The SEC alleges that Imran Husain and Gregg Evan Jaclin essentially operated a shell factory enterprise by filing registration statements to form various startup companies and misleading potential investors to believe each company would be operating and profitable.  The agency further alleges that their secret objective all along was merely to make money for themselves by selling the companies as empty shells rather than actually implementing business plans and following through on their representations to investors.

Moving quickly to protect investors based on evidence collected even before its investigation was complete, the SEC issued stop orders and suspended the registration statements of the last two created companies – Counseling International and Comp Services – before investors could be harmed and the companies could be sold.

“Issuers of securities offerings must make truthful disclosures about the company and its business operations so investors know what they’re getting into when they buy the stock,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.  “We allege that Husain drummed up false business plans and created a mirage of initial shareholders while Jaclin developed false paperwork to depict emerging companies that later sold as just empty shells.”

According to the SEC’s complaint filed in federal court in Los Angeles:

  • Husain and Jaclin created nine shell companies and sold seven using essentially the same pattern.
  • Husain created a business plan for each company that would not be implemented beyond a few initial steps, and then convinced a friend, relative, or acquaintance to become a puppet CEO who approved and signed corporate documents at Husain’s direction.
  • Jaclin supplied bogus legal documents that Husain used to conduct sham private sales of a company’s shares of stock to “straw shareholders” who were recruited and given cash to pay for the stock they purchased plus a commission.  Some of the recorded shareholders were not even real people.
  • Husain and Jaclin filed registration statements for initial public offerings and falsely claimed that a particular business plan would be implemented.  Deliberately omitted from the registration statements were any mention of Husain starting and controlling the company.
  • Husain and Jaclin filed misleading quarterly and annual reports once a company became registered publicly, providing much of the same false information depicted in the registration statements.
  • Husain obtained about $2.25 million in total proceeds when the empty shell companies were sold, and Jaclin and his firm received nearly $225,000 for their legal services.

The SEC’s complaint charges Husain and Jaclin with violating or aiding and abetting violations of the antifraud, reporting, and securities registration provisions of the federal securities laws.  The SEC seeks disgorgement of ill-gotten gains plus interest and penalties, permanent injunctions, and penny stock bars.  The SEC also seeks an officer-and-director bar against Husain.

The SEC’s investigation was conducted by Roberto A. Tercero and Spencer E. Bendell as part of the Microcap Fraud Task Force.  The litigation will be led by Amy J. Longo and supervised by John Berry.  The SEC appreciates the assistance of the FBI and the U.S. Attorney’s Office for the Northern District of California.

GreenScam–SEC: Co. Misled Investors About Green Tech

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The Securities and Exchange Commission today announced fraud charges against a Texas-based technology company and its founder accused of boosting stock sales with false claims about a supposedly revolutionary computer server and big-name customers purportedly placing orders to buy it.

Also charged in the SEC’s complaint is Texas Attorney General Ken Paxton and a former member of the company’s board of directors for allegedly recruiting investors while hiding they were being compensated to promote the company’s stock.

The SEC alleges that Servergy Inc. and William E. Mapp III sold $26 million worth of company stock in private offerings while misleading investors to believe that the Cleantech CTS-1000 server (the company’s sole product) was especially energy-efficient.  They said it could replace “power-hungry” servers found in top data centers and compete directly with top server makers like IBM, Dell, and Hewlett Packard.  However, neither Mapp nor Servergy informed investors that those companies were manufacturing high-performance servers with 64-bit processors while the CTS-1000 had a less powerful 32-bit processor that was being phased out of the industry and could not in reality compete against those companies.

The SEC further alleges that when Servergy was low on operating funds, Mapp enticed prospective investors by falsely claiming well-known companies were ordering the CTS-1000, and he specifically mentioned an order purportedly received from Amazon.  In reality, an Amazon employee had merely contacted Servergy because he wanted to test the product in his free time for personal use.

Servergy has since cut ties with Mapp, who served as CEO.  The company agreed to pay a $200,000 penalty to settle the SEC’s charges.  The litigation continues against Mapp in U.S. District Court for the Eastern District of Texas.

“We allege that Mapp deceived investors into believing that Servergy’s groundbreaking technology was generating lucrative sales to major customers when it was technologically behind its competitors and made no actual sales,” said Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office.

While serving in the Texas House of Representatives, Paxton allegedly reached an agreement with Mapp to promote Servergy to prospective investors in return for shares of Servergy stock.  According to the SEC’s complaint, Paxton raised $840,000 in investor funds for Servergy and received 100,000 shares of stock in return, but never disclosed his commissions to prospective investors while recruiting them.  Similarly, former Servergy director Caleb White allegedly raised more than $1.4 million for Servergy and received $66,000 and 20,000 shares of Servergy stock while never disclosing these commissions to investors.  White has agreed to settle the SEC’s charges by paying $66,000 in disgorgement and returning his shares of Servergy stock to the company.  The SEC’s litigation continues against Paxton.

“People recruiting investors have a legal obligation to disclose any compensation they are receiving to promote a stock, and we allege that Paxton and White concealed the compensation they were receiving for touting Servergy’s product,” Mr. Shipchandler said.

The SEC’s complaint charges Servergy, Mapp, Paxton, and White with violating Sections 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934.  Servergy, Mapp, and White also allegedly violated Sections 5(a) and (c) of the Securities Act, and Paxton and White allegedly violated Section 17(b) of the Securities Act and Section 15(a) of the Exchange Act.

Servergy and White neither admitted nor denied the SEC’s charges in their settlements.

The SEC’s investigation was conducted by Samantha S. Martin and Carol J. Hahn and supervised by Jessica B. Magee and David L. Peavler in the Fort Worth office.  The SEC’s litigation will be led by Matthew J. Gulde and Ms. Magee.

SEC Announces Whistleblower Award of More Than $325,000

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FOR IMMEDIATE RELEASE
2015-252

Washington D.C., Nov. 4, 2015 —

The Securities and Exchange Commission today announced a whistleblower award totaling more than $325,000 for a former investment firm employee who tipped the agency with specific information that enabled enforcement staff to open an investigation and uncover the extent of the fraudulent activity.

The whistleblower provided a detailed description of the misconduct and specifically identified individuals behind the wrongdoing to help the SEC bring a successful enforcement action.  The whistleblower waited until after leaving the firm to come forward to the SEC, however, and agency officials say the award could have been higher had this whistleblower not hesitated.

“Corporate insiders who become aware of securities law violations are encouraged to come forward without delay in order to prevent misconduct from continuing unabated while investors suffer more harm,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.  “Whistleblowers are afforded significant incentives and protections under the Dodd-Frank Act and the SEC’s whistleblower program so they can feel secure about doing the right thing and immediately reporting an ongoing fraud rather than letting time pass.”

Sean X. McKessy, Chief of the SEC’s Office of the Whistleblower, added, “This award recognizes the value of the information and assistance provided by the whistleblower while underscoring the need for whistleblowers to report information to the agency expeditiously.”

Since its inception in 2011, the SEC’s whistleblower program has paid more than $54 million to 22 whistleblowers who provided the SEC with unique and useful information that contributed to a successful enforcement action.  Whistleblowers are eligible for awards that can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.  All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators.  No money is taken or withheld from harmed investors to pay whistleblower awards.

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.

Bio-Rad Laboratories Resolves Foreign Corrupt Practices Act Investigation and Agrees to Pay $14.35 Million Penalty

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A California-based medical diagnostics and life sciences manufacturing and sales company, Bio-Rad Laboratories Inc. (Bio-Rad), has agreed to pay a $14.35 million penalty to resolve allegations that it violated the Foreign Corrupt Practices Act (FCPA) by falsifying its books and records and failing to implement adequate internal controls in connection with sales it made in Russia.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and Special Agent in Charge David J. Johnson of the FBI’s San Francisco Field Office made the announcement.

“Public companies that cook their books and hide improper payments foster corruption,” said Assistant Attorney General Caldwell.  “The department pursues corruption from all angles, including the falsification of records and failure to implement adequate internal controls.   The department also gives credit to companies, like Bio-Rad, who self-disclose, cooperate and remediate their violations of the FCPA.”

“The FBI remains committed to identifying and investigating violations of the Foreign Corrupt Practices Act,” said Special Agent in Charge Johnson.  “This action demonstrates the benefits of self-disclosure, cooperation, and subsequent remediation by companies.”

According to the company’s admissions in the agreement, Bio-Rad SNC, a Bio-Rad subsidiary located in France, retained and paid intermediary companies commissions of 15-30 percent purportedly in exchange for various services in connection with certain governmental sales in Russia.  The intermediary companies, however, did not perform these services.  Several high-level managers at Bio-Rad, responsible for overseeing Bio-Rad’s business in Russia, reviewed and approved the commission payments to the intermediary companies despite knowing that the intermediary companies were not performing such services.  These managers knowingly caused the payments to be falsely recorded on Bio-Rad SNC’s and, ultimately, Bio-Rad’s books.  Bio-Rad, through several of its managers, also failed to implement adequate controls, as well as adequate compliance systems, with regard to its Russian operations while knowing that the failure to implement such controls allowed the intermediary companies to be paid significantly above-market commissions for little or no services.

The department entered into a non-prosecution agreement with the company due, in large part, to Bio-Rad’s self-disclosure of the misconduct and full cooperation with the department’s investigation.  That cooperation included voluntarily making U.S. and foreign employees available for interviews, voluntarily producing documents from overseas, and summarizing the findings of its internal investigation.  In addition, Bio-Rad has engaged in significant remedial actions, including enhancing its anti-corruption policies globally, improving its internal controls and compliance functions, developing and implementing additional due diligence and contracting procedures for intermediaries, and conducting extensive anti-corruption training throughout the organization.

In addition to the monetary penalty, Bio-Rad agreed to continue to cooperate with the department, to report periodically to the department for a two-year period concerning Bio-Rad’s compliance efforts, and to continue to implement an enhanced compliance program and internal controls designed to prevent and detect FCPA violations.

In a related matter, the U.S. Securities and Exchange Commission (SEC) today announced that it had entered into a cease and desist order against Bio-Rad in which the company agreed to pay $40.7 million in disgorgement and prejudgment interest in connection with the company’s sales in Russia, as well as in Thailand and Vietnam.

The department acknowledges and expresses its appreciation for the assistance provided by the SEC’s Division of Enforcement.

The case is being investigated by the FBI’s San Francisco Field Office.  The case is being prosecuted by Trial Attorney Andrew Gentin of the Criminal Division’s Fraud Section.