by Nicholas & Butler, LLP on September 3, 2010
On September 2, 2010, the Securities and Exchange Commission charged a Branchburg, N.J.-based investment adviser and three of her firms with operating a multi-million dollar offering fraud involving the sale of phony promissory notes to investors, many of whom are retired or unsophisticated in investments.
The SEC alleges that Sandra Venetis told some investors that the promissory notes were guaranteed by the Federal Deposit Insurance Corporation and would earn interest of approximately 6 to 11 percent per year that would be tax-free due to a loophole in the tax code. She also told investors that she would use their money to fund loans to doctors that would be backed by Medicare reimbursement payments to those doctors. Instead of making investments, Venetis looted investor funds to pay business debts and personal expenses accrued from international travel, gambling, and home mortgages and property taxes. She also funneled cash to her relatives.
Venetis and the entities have agreed to settle the SEC’s charges and consent to a court order that freezes their assets and requires monetary payments including financial penalties to be determined at a later date. Venetis also agreed to an SEC administrative action that bars her from future association with any investment adviser or broker-dealer.
“Venetis abused her position of trust to target older investors who were the most vulnerable to her egregious lies and misrepresentations,” said Bruce Karpati, Co-Chief of the SEC’s Asset Management Unit. “The SEC’s enforcement action and the settlement reached ensure that she will never work in the securities industry again.”
by Nicholas & Butler, LLP on August 27, 2010
On August 24, 2010, the Securities and Exchange Commission has charged two residents of Madrid, Spain with insider trading and obtained an emergency court order to freeze their assets after they made nearly $1.1 million in illegal profits by trading in advance of last week’s public announcement of a multi-billion dollar cash tender offer by BHP Billiton Plc to acquire Potash Corp. of Saskatchewan Inc.
The SEC alleges that Juan Jose Fernandez Garcia and Luis Martin Caro Sanchez purchased — on the basis of material, non-public information about the impending tender offer — hundreds of “out-of-the-money” call option contracts for stock in Potash in the days leading up to the public announcement of BHP’s bid on August 17. Garcia is the head of a research arm at Banco Santander, S.A. — a Spanish banking group advising BHP on its bid. Garcia and Sanchez jointly spent a little more than $61,000 to purchase the contracts in U.S. brokerage accounts. Immediately after BHP’s offer was announced publicly on August 17, Garcia and Sanchez sold all of their options for illicit profits of nearly $1.1 million.
“Garcia and Sanchez tried to move off-shore highly suspicious trading profits made just a few days before. When abusive market practices occur, as in the case against Garcia and Sanchez, we will act swiftly and decisively to deny wrongdoers the profits of their illegal activity,” said Daniel M. Hawke, Chief of the Enforcement Division’s Market Abuse Unit.
According to the SEC’s complaint filed Friday in U.S. District Court for the Northern District of Illinois and unsealed by the court today, BHP made an unsolicited $38.6 billion offer to purchase all of the stock of Potash for $130 per share in cash. The acquisition share price represented a 16 percent premium above Potash’s closing price of $112.15 on August 16. Potash, based in Saskatoon, Canada, is the world’s largest producer of fertilizer minerals and its stock trades on the New York Stock Exchange. BHP, based in Melbourne, Australia, is the world’s largest mining company.
by Nicholas & Butler, LLP on August 19, 2010
On July 29, 2007, the U.S. Securities and Exchange Commission filed a complaint against Citigroup, Inc. (NYSE: C) for Citigroup’s “series of material misstatements about its investment bank’s exposure to sub-prime mortgages.” Allegedly, Citigroup represented that it had reduced its sub-prime exposure from $24 billion at the end of 2006 to about $13 billion. In reality, according to the SEC, Citigroup was holding over $50 billion in toxic debts when factoring in some of the more exotic “super senior” tranches of sub-prime CDOs and “liquidity puts.”
To read the SEC’s original Complaint click here.
Citigroup and two of its executives agreed to settle the SEC’s charges for $75 million around the same time that the SEC filed its complaint. However, on August 16, 2010, Federal Judge Ellen Segal Huvelle declined to approve that settlement. During a 90-minute hearing on the merits of the settlement, Judge Huvelle said:
“I look at this and say, ‘why would I find this fair and reasonable?’” “You expect the court to rubber-stamp, but we can’t.”
Judge Huvelle added that she was “baffled” by the proposed deal. The ball, presumably, is now in the SEC and Citigroup’s court to come up with a more fair settlement.
by Nicholas & Butler, LLP on August 13, 2010
New Century Financial Corp., formerly out of Irvine, CA, was one of the largest sub-prime lenders during the recent real estate boom years. They then became one of the largest lenders to collapse during the mortgage meltdown.
A group of plaintiffs, led by the New York State Teachers’ Retirement System, Albany, brought a civil action against New Century and many of its individual officers and directors for, among other things, violations of the securities laws. The parties’ settlement, though, was preliminarily approved by the court – the U.S. District Court for the Central District of California, Los Angeles and includes a $125 million payment, plus interest, from multiple defendants including Auditor KPMG, LLP, various underwriters, and former officers and directors.
Bernstein Litowitz Berger & Grossman was lead plaintiffs’ counsel, representing the NY Teachers’ Retirement System.
by Nicholas & Butler, LLP on August 5, 2010
On August 4, 2010, the Securities and Exchange Commission charged a former Deloitte and Touche LLP partner and his son with insider trading in the securities of several of the firm’s audit clients.
The SEC alleges that Thomas P. Flanagan of Chicago traded in the securities of Deloitte clients, often while serving as a liaison between those companies’ management teams and Deloitte’s audit engagement teams. In this role, Flanagan had access to advance earnings results and other nonpublic information from Deloitte’s audit engagements with Best Buy, Sears, and Walgreens as well as the firm’s consulting engagement with Motorola. Flanagan made trades in the securities of these and other companies while in possession of the confidential information, and also tipped his son Patrick T. Flanagan who then traded on the basis of the nonpublic information. The Flanagans agreed to pay more than $1.1 million to settle the SEC’s charges.
“Flanagan’s insider trading violated one of the most fundamental rules of public accounting,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “All audit firms should learn from this unfortunate episode and employ vigorous controls designed to ensure compliance with the SEC’s auditor independence rules.”
Merri Jo Gillette, Director of the SEC’s Chicago Regional Office, said, “Thomas Flanagan repeatedly betrayed his ethical responsibilities and his clients’ trust by trading on confidential information to enrich himself and his family.”
