This Week In Securities Litigation (Week ending September 21, 2018)

The Commission filed a series of civil injunctive actions and administrative proceedings over the course of the week as the end of the government fiscal year draws near. A number of actions were brought against firms making false statements regarding their products. For example, a biopharmaceutical company repeatedly made claims about the effectiveness of a drug that were false; a silicon breast seller closed an offering without disclosing that its sole source manufacturer had a key license suspended; and a firm claimed to have a “design to build” contract for which it recorded revenue despite the fact that the agreement had not been approved.

Other cases involved investment advisers and broker-dealers. Those included false statements by the operator of a dark pool claiming that high frequency traders were not permitted; the use of improper advertising involving testimonials; the making of a prohibited cross-trade; and the failure to disclose conflicts regarding the 12b-1 fees.

SEC

Remarks: Commissioner Robert Jackson delivered remarks titled Unfair Exchange: The State of America’s Stock Markets at George Mason University, Arlington, Va. (Sept. 19, 2018). His remarks were called for additional supervision of the markets which “tax” investors (here).

Remarks: Stephanie Avaklan, Co-Director, Division of Enforcement, delivered remarks tilted Measuring the Impact of the SEC’s Enforcement Program, Dallas Tx. (Sept. 20, 2018). In her remarks the co-director rejected the notion that numbers were key and cited a series of cases as examples; she also discussed ICOs and challenges for the future (here).

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the SEC filed 11 civil injunctive cases and 13 administrative proceedings, excluding 12j and tag-along proceedings.

Financial fraud: In the Matter of Barrett Business Services, Inc., Adm. Proc. File No. 3-18806 (Sept. 20, 2018) names as Respondents the firm, a professional employer services and staffing organization, and Mark Cannon, who joined the firm in 2013 as Controller. The action centers on a financial fraud that took place from 2012 to 2014 conduced by the former CFO, James Miller. The purpose was to mask negative trends in the firm’s workers’ compensation exposure. The fraud involved misclassifying expenses to understate the recorded workers’ compensation expense and to overstate the recorded payroll tax, improperly recognizing certain federal and sate unemployment tax expenses over multiple periods rather than recognizing them in the proper period and intentionally underreporting workers’ compensation liability by about $80 million. In May 2016 the firm filed restated financial statements for 2011 through 2014 and the first three quarters of 2015. The Order alleges violations of Securities Act section 17(a) and Exchange Act sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B). To resolve the proceedings the firm consented to the entry of a cease and desist order based on each of the sections cited in the Order and agreed to pay a penalty of $1.5 million. Mr. Cannon consented to the entry of a cease and desist order based on Exchange Act sections 13(a), 13(b)(2)(A) and 13(b)(2)(B). He will pay a penalty of $20,000. He is also denied the privilege of appearing and practicing before the Commission as an accountant with the right to apply for reinstatement after one year. See also SEC v. Miller, Civil Action No. 3:16-cv-05761 (W.D. WA Filed Sept. 20, 2018)(Action against former CFO James Miller based on the same facts; alleging violations of each subsection of Securities Act section 17(a) and Exchange Act sections 10(b), 13(a), 13(b)(5), 13(b)(2)(A) and 13(b)(2)(B) and asserting a claim under SOX section 304a; the action is pending).

Cherry picking: SEC v World Tree Financial, LLC, Civil Action No. 18-cv-1229 (W.D. LA. Filed Sept. 18, 2018) is an action which names as Defendants: the firm, previously a Commission registered investment adviser until 2012 and thereafter a state registered adviser; Welsey Perkins, a co-founder of the firm; and Priscilla Perkins, Welsey’s wife and also a co-founder of the firm. Over a four year period, beginning in early 2011, Mr. Perkins engaged in a cherry picking scheme in which he misused the firm’s omnibus account. Specifically, he held trades in the account until he could determine the direction of the market and then divided the trades by taking those that were profitable and giving those that were not to client accounts. Defendants also made false representations, claiming that they were not trading in the same securities as firm clients. The complaint alleges violations of Securities Act sections 17(a)(1) and (2) and Advisers Act sections 206(1) and 206(2). The case is pending. See Lit. Rel. No. 24278 (Sept. 20, 2018).

Muni registration: In the Matter of Eric Hall & Associates, LLC, Adm. Proc. File No. 3-18803 (Sept. 20, 2018) names as Respondents the firm, which provides consulting services to school districts, and Eric Hall, its CEO and president. In April 2011 the firm registered with the Commission under a then temporary rule as a municipal adviser. The firm never registered under the final rule. Here in 2015 and 2016 the firm and Mr. Hall represented to a California school district that it was in fact a municipal adviser. Even after being contacted by the staff about the failure to register the firm did not. The Order alleges violations of Exchange Act sections 15B(a)(1)(B), 15B(c)(1) and MSRB Rule G-17. To resolve the proceedings each Respondent consented to the entry of a cease and desist order based on the sections and rule cited in the Order. The firm was censured. Mr. Hall is barred from the securities business. Respondents will, on a joint and several basis, pay disgorgement of $35, 520, prejudgment interest of $4,241 and a penalty of $15,000.

Offering fraud: In the Matter of Phillip R. Grogan, Esq., Adm. Proc. File No. 3-18788 (Sept. 19, 2018) names as a Respondent Mr. Grogan, an attorney admitted to practice in Kentucky. Over a three year period beginning in 2013 Mr. Grogan participated in a fraudulent scheme conducted by Leroy Young and his firm, Young Capital Management, LLC. Specifically, Mr. Young raised about $362,000 from 32 investors based on claims that the funds would be used to pay fees associated with the offering of bonds or alternatively a hedge fund. Mr. Young reassured investors that their funds would be held safely until used by being placed in escrow with Mr. Grogan. Although Mr. Grogan told Mr. Young to delete his name from the escrow documents, he took the investor money in and then immediately transferred out to Mr. Young who misappropriated it. The Order alleges violations of Securities Act section 17(a) and Exchange Act section 10(b). To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the sections cited in the Order. He also agreed to pay disgorgement of $3,050, prejudgment interest of $248 and a penalty equal to the amount of the disgorgement. See also In the Matter of Michael L. Lapenna, Adm. Proc. File No. 3-18787 (Sept. 19, 2018)(action against Mr. Lapenna, a Canadian citizen, who operates New World Brokerage LLC, a credit repair and loan brokerage firm in Niagara Falls, N.Y. who aided Mr. Young with his fraudulent investment program; settled with the entry of a cease and desist order based on Securities Act section 17(a) and Exchange Act section 10(b) and the payment of disgorgement of $22,500, prejudgment interest of $583.55 and a penalty equal to the amount of the disgorgement); SEC v. Young, Civil Action No. 18 CV 2170 (S.D. CA Filed Sept. 19, 2018)(action against Leroy Young and his firm, Young Capital Management LLC based on the facts detailed above alleging violations of Securities Act sections 5(a), 5(c) and 17(a) and Exchange Act section 10(b); Defendants each settled, admitting the allegations in the complaint and consented to the entry of permanent injunctions based on the sections cited in the complaint; Mr. Young will pay disgorgement of $336, 450, prejudgment interest of $18,923 and a penalty equal to the amount of the disgorgement). See Lit. Rel. No. 24279 (Sept. 20, 2018).

Concealed information: In the Matter of Sientra, Inc., Adm. Proc. File No. 3-18795 (Sept. 19, 2018) names as a Respondent the manufacturer of silicon breast implants. Those implants were made for the firm by Silimed Industria de Implantes Ltda of Brazil. Shortly before the firm closed a $60 million follow-on offering in September 2015, the its president, Hani Zeini, learned from the head of Silimed that the firm’s CE certification, a sign of regulatory compliance required to sell products in the EU, had been suspended. Rather than disclose the fact Mr. Zeini concealed it from the underwriters and the firm’s General Counsel. The offering closed. Later when the facts were disclosed the share price dropped 52.6% from $20.58 to $9.70. The Order alleges violations of Securities Act section 17(a) and Exchange Act section 10(b). The company agreed to an undertaking requiring it to cooperate with any related Commission proceedings. In view of the fact that the company self-reported and fully cooperated with the staff investigation the Commission accepted its offer of settlement. To resolve the proceedings the firm consented to the entry of a cease and desist order based on the sections cited in the Order. See also SEC v. Zeini, Civil Action No. 2:18-cv-08103 (C.D. Cal. Filed Sept. 19, 2018)(action against former president of firm alleging violations of each subsection of Securities Act section 17(a) and Exchange Act section 10(b); the case is pending). See Lit. Rel. No. 24275 (Sept. 19, 2018).

False statements: SEC v. Covis Oncology, Inc., Civil Action No. 1:18-cv-02381 (D. CO. Filed Sept. 18, 2018) is an action which names as defendants the firm, a biopharmaceutical company, Patrick Mahaffy, its CEO and Erle Mast, the CFO. A key product of the firm during the period July 8, 2015 to November 16, 2015 was rociletinib or Roci, a lung cancer drug. When introduced, a key competitor drug had an objective response rate of about 63% — the percentage of patients who saw their cancer reduced while using the drug. Roci was initially touted as having a 60% rate at the end of May 2015. By the middle of the next month, however, internal data showed that the rate was significantly lower. Nevertheless, the firm and its two executives continued to tout the drug by citing the 60% figure. This continued in July 2015 when the company conducted a $298 million offering. Subsequently, the firm, which had submitted the drug with the internal numbers to the FDA, was told by the agency that in fact the rate was in the 20s. Yet on November 10, 2015 the firm participated in an investor conference and cited the 60% figure. The next day Clovis disclosed the true percentage. Its stock price fell 70%. The complaint alleges violations of Securities Act section 17(a)(2) and Exchange Act section 13(a). Defendants settled the action. The firm agreed to pay a $20 million penalty while Messrs. Mahaffy and Mast will pay, respectively, $250,000 and $100,000. Mr. Mast will also pay disgorgement and prejudgment interest totaling $454,145 tied to his sale of stock while the price was inflated. See Lit. Rel. No. 24273 (Sept. 18, 2018).

False statements – impact of events: SEC v. SeaWorld Entertainment, Inc., Civil Action No. 1:18-cv-08480 (S.D.N.Y. Filed Sept. 18, 2018) names as defendants the theme park and James Atchison, its CEO. From mid-December 2013, following the release of the film Blackfish, to August 13, 2014, defendants made false statements regarding the impact of the film. Specifically, Blackfish detailed the firm’s abuse of its Orcas or killer whales. Over the period the film had a significant impact on the company. Nevertheless, the firm continued to deny the impact in filings made with the Commission, including a Form S-1 registration statement. During the period Mr. Atchison sold shares of the company through a 10(b_-1 plan at inflated prices. The complaint alleges violations of Securities Act sections 17(a)(2) and (2) and Exchange Act sections 13(a) and 20(a). To resolve the action the firm agreed to pay a penalty of $4 million while Mr. Atchison will pay $850,183 in disgorgement and prejudgment interest and a civil penalty of $150,000. See also SEC v. Jacobs, Civil Action No. 1:18-cv-08482 (S.D.N.Y. Filed Sept. 18, 2018)(action against Frederick Jacobs, the former v.p. of communications of the firm, alleging violations of Securities Act section 17(a)(2); settled with the payment of $99,155 in disgorgement and prejudgment interest but no penalty in view of Defendant’s substantial assistance in the staff investigation). See Lit. Rel. No. 24272 (Sept. 18, 2018).

Misrepresentations: SEC v. Romer, Civil Action No. 18-cv-12927 (E.D. MI Filed Sept. 18, 2018) names as a defendant Ernest Romer, III, a registered representative at CoreCap Investments, Inc. Over a two year period, beginning in 2014, Mr. Romer persuaded about 30 customers of his firm to transfer their funds totaling about $2.7 million to either P&R Capital LLC or CoreCap Solutions, LLC. Investors were lead to believe that their funds would be invested and that they would obtain a better return. In fact the two entities were not affiliated with the broker-dealer. Rather, they were controlled by Mr. Romer who proceeded to misappropriate their funds. The complaint alleges violations of each subsection of Securities Act section 17(a) and Exchange Act section 10(b). The case is pending. See Lit. Rel. No. 24274 (Sept. 18, 2018).

Testimonials: In the Matter of Creative Planning, Inc., Adm. Proc. File No. 3-18779 (Sept. 18, 2018) is a proceeding which names as Respondents the registered investment adviser and its president and majority owner, Peter Mallouk. Beginning in August 2015 the firm engaged a local radio station to air live and pre-recorded advertisements through two radio hosts in the Kansas City area. In January 2016 one of the hosts became a client. Shortly thereafter that host began giving personal testimonials on the air. That continued until October 2017. Earlier in 2017 the radio station recorded and aired advertisements that contained testimonials. They aired until October 2017. Although the firm’s policies and procedures required the firm to pre-approve and maintain copies of all advertisements, the firm did not monitor the live or pre-recorded advertisements and did not maintain a copy of the live statements. From July 2013 through November 2015 Mr. Mallouk also failed to report securities holdings and transactions from three personal securities accounts over which he exercised control in contravention of the firm’s Code of Ethics. The Order alleges violations 204, 204A and 206(4). To resolve the proceedings the firm consented to the entry of a cease and desist order based on each section cited in the Order and to a censure. Mr. Mallouk consented to the entry of a similar order based on section 204A. The firm will pay a civil penalty of $200,000 while Mr. Mallouk will pay $50,000.

Offering fraud: SEC v. Caufield, Civil Action No. 3:18-cv-02468 (N.D. Tx. Filed Sept. 17, 2018) is an action which names as a defendant, Thomas Caufield. Defendant is a former registered representative and during the period operated DAT Capital, a state registered investment adviser, and a franchise operation. Over a four year period, beginning in 2013, Mr. Caufield raised over $6 million marketing high yield promissory notes to his advisory clients as well as others. The notes allegedly paid between 10% and 18%. Investors were not told that the franchise operation could not meet its current obligations, that the notes were not secured and that investor funds would be used to pay Defendant’s obligations on past due notes. The notes also were not registered with the Commission. The complaint alleges violations of Securities Act sections 5(a), 5(c) and 17(a), Exchange Act section 10(b) and Advisers Act sections 206(1) and 206(2). Mr. Caufield settled, consenting to the entry of a permanent injunction based on the sections cited in the complaint. He also agreed to pay disgorgement of $614,815.14, prejudgment interest of $126,032.11 and a civil penalty of $160,000. The disgorgement and prejudgment interest obligations will be satisfied by the proceeds paid to investors from the sale of the franchise. See Lit. Rel. No. 24270 (Sept. 17, 2018).

False financial filings: In the Matter of Lane J. Castleton, Adm. Proc. File No. 3-18772 (Sept. 17, 2018) is a proceeding which names as a Respondent Mr. Castleton, the vice president, CFO, secretary and treasurer of Abtech Holdings, Inc., a firm which provides services that included storm water management and oil and gas water treatment. In the firm’s third quarter 2014 filing and annual report for that fiscal year, it claimed to have a “design-build” contract with Nassau County New York. Respondent drafted, reviewed and signed the filings. The claim was false since the New York Legislature had not approved such an agreement and without that approval the county could not enter into such an agreement. Without that approval over 80% of the revenue recognized under the installment method in its financials could not be recognized. The Order alleges violations of Securities Act section 17(a)(2) and Exchange Act section 13(a). To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the sections cited in the Order. He will also pay a penalty of $35,000. See also In the Matter of Abtech Holdings, Inc., Adm. Proc. File No. 3-18770 (Sept. 17, 2018)(action against the firm based on the same facts, resolved with the entry of a cease and desist order based on the same sections and the payment of a $100,000 penalty); In the Matter of Glenn R. Rink, Adm. Proc. File No. 3-18771 (Sept. 17, 2018)(proceeding against the founder of the firm who reviewed, edited and signed the filings; settled with the entry of a cease and desist order based on the same sections and the payment of a $60,000 penalty).

Dark pools – HTF: In the Matter of Citigroup Global Markets, Inc., Adm. Proc. File No. 3-18766 (Sept. 14, 2018). Respondent Citigroup Global Markets is an indirect, wholly owned subsidiary of Citigroup, Inc., and is a registered broker-dealer. Citi Order Routing and Execution, LLC, also named as a Respondent and known as CORE, is an indirect subsidiary of Citigroup and a registered broker-dealer. CORE was acquired by a Citigroup subsidiary in 2007. At the time the firm was engaged in the equity market making business. It then launched a new trading product called I-Match which catered to institutional users. The product allowed users to place resting orders to trade against retail order flow purchased by the CORE market maker before the market maker had an opportunity to trade against the orders. Later in 2007 CORE rebranded the new product as Citi Match. Marketing for Citi Match stated that it was a dark pool for institutional investors that was separate from CORE’s market maker operations. Citi Match was also depicted as a “premium” and “exclusive” dark pool. The quality of the order flow in Citi Match was emphasized. Premium fees were charged. During the period Citi Match was marketed as not permitting high-frequency trading firms or HFT to enter orders in the dark pool. Nevertheless, from at least July 2011 through September 2012 at least two HFT firms traded in the venue. During that period about 17% of all executions based on dollar volume were with one of those firms. Those executions represented about $8.4 billion in notional value. During the same period traders were also not adequately informed that in fact Citi Match routed orders to more than twenty different external venues. In 2013, for example, 37% of Citi Match executions took place in external venues. In 2014 about 54% of the executions were in external venues. Finally, CORE acted as an unregistered exchange in its provision of Citi Match despite the dictates of section 5 of the Exchange Ac. The aforementioned conduct constituted violations of Securities Act section 17(a)(2) and Exchange Act section 5. To resolve the proceedings Citi Group Markets consented to the entry of a cease and desist order based on the Securities Act section cited in the order and to a censure. The firm will also pay disgorgement of $4,718,784.59, prejudgment interest of $718,690.47 and a penalty of $6.5 million. CORE consented to the entry of a cease and desist order based on the Exchange Act section cited in the Order and to a censure. The firm will also pay a civil penalty of $1 million.

Prohibited cross-trade: In the Matter of Cushing Asset Management, L.P., Adm. Proc. File No. 3-18767 (Sept. 14, 218) which names as a Respondent the firm, a registered investment adviser since June 2004. In late December 2012 the adviser decided to sell 1,565,786 units of a master limited partnership (the “Securities”) on behalf of a hedge fund client on December 20, 2012. On that date the units, which were thinly traded, would become unrestricted. The adviser also determined that on the sale date it would purchase the same number of unrestricted units for closed and open ended funds it advised (collectively “Registered Funds”). To avoid the prospect of a prohibited cross-trade the adviser consulted legal counsel. Counsel, in privileged advise, advised Respondent. Instructions were then given to the traders orally. The traders did not seek clarification of the instructions. They also failed to follow the instructions in material respects. Those failures resulted in the sale of the securities by the adviser being crossed with the purchase by the Registered Funds. As a result the adviser caused the hedge fund to sell securities to the Registered Funds in violation of section 17(a)(1) of the Investment Company Act. That section prohibits an affiliated person of a registered investment company from selling any security to such a registered firm unless an exemption has been granted by the Commission. To resolve the proceedings, Respondent consented to the entry of a cease and desist order based on the section cited in the Order. Respondent will also pay a penalty of $100,000.

Undisclosed conflicts: In the Matter of Capital Analysts, LLC, Adm. Proc. File No. 3-18765 (Sept. 14, 2018). The firm has been a registered investment adviser since 2012. It has approximately $4.75 billion in assets under management in a wholly-owned subsidiary of Lincoln Investment Capital Holdings, LLC. The adviser breached its obligations in two key respects during the period: First, from April 2013 through March 2016, the adviser purchased mutual fund shares with 12b-1 fees rather than the lower cost shares available. At the time its affiliated broker dealer received the fees based on the transactions. The adviser failed to adequately disclose the conflict of interest in its Form ADV and to obtain best execution. Second, from April 2013 through March 2017 the firm failed to disclose that it obtained compensation from a third-party broker and the related conflicts. The broker shared with the adviser fees it was paid on the transactions related to clearing. Those fees totaled $691,125. Finally, the firm failed to adopt and implement written compliance polices and procedures reasonably designed to prevent violations of the Advisers Act. The Order alleges violations of Advisers Act sections 206(2), 206(4) and 207. In determining to accept the offer of Respondent the Commission considered the adviser’s remedial acts. To resolve the proceedings, Respondent consented to the entry of a cease and desist order based on the sections cited in the Order and to a censure. Respondent will pay disgorgement of $936,181 and prejudgment interest of $113,692. This is tied to the 12b-1 fees. This amount shall be deposited into a distribution fund. In addition, Respondent shall pay disgorgement of $691,125 along with prejudgment interest of $79,351 and a penalty of $300,000.

Concealed control: In the Matter of Cecil Gregory Earls, Adm. Proc. File No. 3-18768 (Sept. 14, 2018) names as Respondents: Mr. Earls, who has previously been convicted of criminal violations of the securities laws and sentenced to serve about ten years in prison and has also been found liable for violating the securities laws and barred from serving as an officer or director of a public company; and Thomas Caggiano, Mr. Earls’ friend, who held the title of Managing Member of Kandax Capital Management LLC, an unregistered hedge fund adviser and Fincastle GP, LLC, the general partner of Kandax’s affiliated hedge fund, Fincastle Fund. Just prior to his release from prison Respondent Earls formed an advisory entity and investment fund. He began soliciting investors. Over a three year period beginning in 2015 he made false statements to potential investors claiming that Respondent Caggiano and others were the management team when in fact they had nominal roles since he was in control. Mr. Caggiano also opened brokerage accounts for the firm since Mr. Earls could not, falsely claiming that he alone controlled the account. The Order alleges violations of Exchange Act section 10(b) and Advisers Act section 206(4). To resolve the proceedings each Respondent consented to the entry of a cease and desist order based on the sections cited in the Order. Each also agreed to be barred from the securities business. A penalty was not imposed as to Mr. Earls based on an affidavit demonstrating an inability to pay. Mr. Caggiano will pay a penalty of $25,000.

Offering fraud: SEC v. Steele, Civil Action No. 1:18-cv-02838 (S.D. Ind. Filed Sept. 14, 2018) names as defendants Tamara Steele and Steele Financial, Inc. Ms. Steele is the CEO of Steele Financial, an unregistered investment adviser. Over a three year period beginning in December 2016 Defendants sold over $13 million in the extremely risky securities of Behavioral Recognition Systems, Inc., a private company that is the subject of a Commission enforcement action. In making the sales Defendants did not disclose to purchasers the fact that they were being paid commissions that ranged from 8% to as high as 18% by the firm. As part of the scheme Defendants concealed from many of their own clients, as well as from the broker-dealer where Ms. Steele was employed, the transactions. The complaint alleges violations of Securities Act section 17(a), Exchange Act sections 10(b) and 15(a) and Advisers Act sections 206(1), 206(2) and 206(3). The case is pending.

Offering fraud-Ponzi scheme: SEC v. Merrill, Civil Action No. 1:18-cv-02844 (D. Md. Filed Sept. 13, 2018) names as defendants Kevin Merrill, Jay Ledford, Cameron Jezierski and five controlled entities. Over a five year period beginning in 2013 Defendants, using their controlled entities, and about 30 others, raised over $345 million from 230 investors. Investors were told that their funds would be put into portfolios of consumer debt that would yield substantial returns. In fact the offering was a Ponzi scheme. Much of the money raised was misappropriated by the individual defendants. Other portions were used to repay early investors. The complaint alleges violations of Securities Act section 17(a) and Exchange Act section 10(b). The court granted a temporary freeze order when the complaint was unsealed. The U.S. Attorney’s Office for the District of Maryland filed parallel criminal changes against the individual defendants. The case is pending.

Insider trading: SEC v. Chen, Civil Action No. 2:18-cv-07840 (C.D. Cal. Filed Sept. 10, 2018) is an action which names as a defendant Rong Chen. The case centers on two transaction. The first involved the acquisition of RDM Microelectronics, Inc. by Tsinghau Unigroup Ltd., announced on November 11, 2013. At the time of the transaction Mr. Chen was the Vice President of Investments for Tsinghau and worked on the deal. Prior to the deal announcement he opened a brokerage account in his wife’s name and purchased RDA securities. Following the deal announcement he had profits of over $79,500. The second centered on the purchase of securities in 58.com Inc., a Chinese firm that engaged Mr. Chen as an investment consultant. The firm purchased a large stake in a rival company. Prior to the April 2015 purchase Mr. Chen bought out-of-the money call options on a U.S. exchange. Following the deal announcement he had trading profits of $94,400. The complaint alleges violations of Exchange Act section 10(b). The case is pending. See Lit. Rel. No. 24269 (Sept. 14, 2018).

Criminal cases

Offering fraud: U.S. v. Connerton, No. 3:17-cr-00047 (D. Conn.) is an action against Thomas Connerton in which a jury found him guilty on 12 counts of wire fraud, one count of mail fraud, 16 counts of securities fraud, four counts of money laundering and one count of tax evasion. The charges center on a scheme involving the sale of interests in Safety Technologies, LLC, founder in 2006. Defendant claimed the firm would commercialize a highly durable puncture and cut resistant material that would be used in surgical gloves and marketed for other uses. Beginning in 2009 Mr. Connerton induced investors to purchase interests in the firm based on claims that the funds would be used for the development of the product and that no investor would lose money. Several of the victims were women who Mr. Connerton lured to the scheme through a popular dating site. In fact much of the investor money was diverted to his personal use. The date for sentencing has not been set. See also SEC v. Connerton, Civil Action No. 3:16-cv-00882 (D. Conn.).

Anti-corruption/FCPA cases

U.S. v. Castilo, (S.D.Tx.) is an action in which Juan Carlos Castillo Rincon, pleaded guilty to one count of conspiracy to violated the FCPA. The guilty plea is based on a corrupt scheme that took place over a two year period beginning in 2011. In connection with that scheme Mr. Castillo, the manager of a Huston based logistics and freight forwarding firm, conspired with others to bribe a Petroleos de Venezuela S.A. or PDVSA official to obtain business. He is scheduled to be sentenced on February 21, 2019. Charges have been brought against 18 individuals tied to this scheme with 14 having pleaded guilty to date.

Hong Kong

The Securities and Futures Commission banned Ngo Win Chun, a former relationship manager of Hongkong and Shanghai Banking Corporation from the securities business. On his last day of employment at the firm in November 2015 Mr. Ngo emailed the personal data of 995 customers of HSBC to two personal email accounts. The customer data was detected by the firm’s email monitoring system before Mr. Ngo joined another bank the next day. His conduct breached the firm’s internal policies and the Personal Data (Privacy) Ordinance and the SFC’s Code of Conduct.