FORMER SENIOR EXEC AT QUALCOMM SENTENCED FOR INSIDER TRADING

FROM:  U.S. JUSTICE DEPARTMENT
Friday, June 26, 2015
Former Senior Executive of Qualcomm Sentenced to 18 Months and Fined $500,000 for Insider Trading and Money Laundering
The former Executive Vice President and President of Global Business Operations for Qualcomm Inc., was sentenced today to 18 months in prison and fined $500,000 for his role in a three-year insider trading scheme.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Laura E. Duffy of the Southern District of California made the announcement.

“Through his position as a high-ranking executive at Qualcomm, Jing Wang gained unique access to information about the company’s earnings and intended acquisitions and illegally exploited that inside information for personal gain,” said Assistant Attorney General Caldwell.  “He then enlisted the services of others – his stock broker and his brother – to cover up the scheme.  This prosecution demonstrates the Criminal Division’s commitment to holding accountable corporate executives who would undermine the integrity of the financial marketplace.”

“Jing Wang was a powerful insider at one of the world’s top corporations – but he threw it all away to make a few hundred thousand dollars,” said U.S. Attorney Duffy. “While Wang has lost his power, his position and his freedom, the real losers here are investors who play by the rules, and our nation’s financial system, which is diminished with every one of these schemes.”

Jing Wang, 52, of Del Mar, California, pleaded guilty in July 2014 to insider trading, money laundering and obstruction of justice for orchestrating a multi-year scheme to trade on the confidential information of Qualcomm and cover up his criminal conduct.  The sentence was imposed by U.S. District Judge William Q. Hayes of the Southern District of California.

In connection with his plea, Wang admitted that he made three, separate insider trades using a brokerage account in the name of his British Virgin Island (BVI) shell company, Unicorn Global Enterprises.  First, in early 2010, prior to Qualcomm’s announcement of a dividend increase and stock repurchase, Wang bought company stock valued at approximately $277,000.  He also admitted that, in December 2010, while attending Qualcomm’s Board of Directors meeting in Hong Kong, and hours after the Board approved a non-public offer to purchase Atheros, a developer of semiconductors for wireless communications, Wang purchased stock in Atheros.  Wang further admitted that, just a few weeks later, he directed his stockbroker, Gary Yin, to sell the Atheros stock, for approximately $481,000, and purchase Qualcomm stock one day before the company announced record earnings.

Wang also pleaded guilty to money laundering for transferring the illegal proceeds from Unicorn’s account to an account of a new BVI shell company he controlled.  He further admitted to obstructing justice by creating a false cover story in which he and co-conspirator Yin would blame Wang’s brother Bing Wang, who resides in rural China, for the insider trading and ownership of the Unicorn Account.  Among other acts, Wang collected incriminating evidence and provided it to Yin to take to China, and arranged meetings between Yin and Bing Wang during which the two rehearsed the false account.                                                                                              

Yin pleaded guilty to conspiring to obstruct justice and launder money, and currently is scheduled to be sentenced on July 17, 2015.  Bing Wang has been charged in connection with the scheme, and is wanted on an international arrest warrant.

This case was investigated by the FBI’s San Diego Field Office and the Internal Revenue Service-Criminal Investigation’s San Diego Field Division.  The SEC’s Los Angeles Regional Office provided substantial assistance.  The case is being prosecuted by Trial Attorney James P. McDonald of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Eric J. Beste of the Southern District of California.

SEC CHARGES TWO BUSINESSMEN IN CHILE WITH INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged two business associates in Chile with insider trading on nonpublic information that one of them learned while serving on the board of directors of a pharmaceutical company.  The agency obtained a court order to freeze assets in the U.S. brokerage accounts used to conduct the trading.

The SEC alleges that Juan Cruz Bilbao Hormaeche exploited highly confidential information from CFR Pharmaceuticals S.A. board meetings at which a tender offer by Abbott Laboratories was discussed.  In a U.S. brokerage account of which he is the beneficiary, Bilbao caused the purchase of millions of dollars’ worth of American Depositary Shares (ADS) of CFR Pharmaceuticals on the basis of nonpublic information about progressing negotiations between the two companies.  Bilbao used Tomás Andrés Hurtado Rourke to place the trades in the brokerage account, and Hurtado also purchased several hundred thousand dollars’ worth of ADS in his own U.S. brokerage account.  After Abbott Laboratories publicly announced a definitive agreement to acquire CFR Pharmaceuticals and commenced the tender offer, Bilbao and Hurtado tendered the ADS they purchased.  They reaped approximately $10.6 million in illicit profits.

“Bilbao abused his position on a company’s board as he stockpiled ADS on the basis of inside information that a major payday was coming soon on those shares,” said Karen L. Martinez, Director of the SEC’s Salt Lake Regional Office.

The SEC’s complaint filed in U.S. District Court for the Southern District of New York alleges that Bilbao violated Section Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3.  The complaint also alleges Hurtado violated Sections 14(e) and 20(e) of the Exchange Act and Rule 14e-3.  The complaint seeks disgorgement of ill-gotten gains plus prejudgment interest and financial penalties in addition to permanent injunctions against further violations of these provisions of the securities laws.  Bilbao allegedly used an offshore entity to engage in the insider trading, and the SEC seeks to repatriate all illegal profits.

The SEC’s investigation was conducted by William B. McKean and the litigation will be led by Daniel J. Wadley of the Salt Lake Regional Office.

FORMER BOARD CHAIRMAN TO PAY OVER $378,000 TO SETTLE SEC CHARGES OF INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23153 / December 9, 2014

Securities and Exchange Commission v. George H. Holley, et al., Civil Action No. 3:11-cv-00205-MLC-DEA (D.N.J.) filed January 13, 2011; Securities and Exchange Commissionv. Robert J. Hahn-Baiyor, Case No. 3:14-cv-07631-JAP-TJB (D.N.J.) filed December 8, 2014

Court Enters Final Judgment Against Former Chairman of Home Diagnostics, Inc., George H. Holley for Insider Trading; SEC Also Charges Holley's Cousin in Insider Trading Scheme

The Securities and Exchange Commission announced today that on December 8, 2014, the Honorable Douglas E. Arpert of the United States District Court for the District of New Jersey entered a final judgment against defendant George H. Holley, the former Chairman of the Board of Directors of Home Diagnostics, Inc. The final judgment permanently enjoins Holley from violating certain antifraud provisions of the federal securities laws, permanently bars him from acting as an officer or director of a public company, and orders him to pay disgorgement of $66,100 plus prejudgment interest thereon, and a civil penalty in the amount of $312,440.

In its Complaint, the SEC alleged that, in 2010, Holley, who co-founded Home Diagnostics, tipped six of his friends, relatives, and employees with confidential information about the impending acquisition of Home Diagnostics by Nipro Corporation. Each of the tippees subsequently purchased HDI stock on the basis of Holley's tips and, following the public announcement of the acquisition, sold their HDI shares for a combined profit of over $260,000.

On August 8, 2012, Holley pleaded guilty to federal criminal charges of securities fraud in a parallel criminal action before the District Court for the District of New Jersey in United States v. George H. Holley, Crim. No. 11-0066-JAP (D.N.J.). On December 18, 2012, Holley was sentenced to three years of probation and fined $260,000.

The final judgment permanently enjoins Holley from future violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder, the general antifraud and tender offer fraud provisions of the federal securities laws. In addition, the judgment against Holley permanently bars him from acting as an officer or director of a public company, and orders him to pay disgorgement of $66,100, plus prejudgment interest thereon, and a civil penalty in the amount of $312,440. Holley consented to the entry of the final judgment.

The Commission also announced today charges against Holley's first-cousin, Robert J. Hahn-Baiyor, for trading on the basis of inside information about the impending acquisition of Home Diagnostics that was tipped to him by Holley. In a Complaint filed in the United States District Court for the District of New Jersey, the SEC alleges that Hahn-Baiyor violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder,. Without admitting or denying the allegations in the SEC's Complaint against him, Hahn-Baiyor has consented to the entry of a final judgment that permanently enjoins him from future violations of the provisions of the federal securities laws that he is alleged to have violated and requires him to pay a civil penalty of $66,100. Hahn-Baiyor's settlement is subject to approval by the Court.

This concludes the litigation in SEC v. Holley. Previously, the court in SEC v. Holley had entered final judgments against co-defendants Steven V. Dudas and Phairot Iamnaita. In addition, on May 6, 2014, the Commission filed civil injunctive actions against three other tippees of Holley - John Campani, John Mullin, and Alan Posner - each of whom subsequently consented to the entry of final judgments ordering injunctive and monetary relief.

The SEC thanks the U.S. Attorney's Office for the District of New Jersey, the Federal Bureau of Investigation, and FINRA, for their cooperation and assistance in this matter.

FORMER MANAGING DIRECTOR NASDAQ, INSIDE TRADER ORDERED TO DISGORGE NEARLY $900,000 OF PROFITS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 23156 / December 12, 2014
Securities and Exchange Commission v. Donald L. Johnson, et al., Civil Action No. 11-CV-3618 (VM) (S.D.N.Y.)
Court Orders Former Managing Director of the NASDAQ Stock Market to Disgorge More Than $898,000 in Insider Trading Profits

The Securities and Exchange Commission announced today that on November 12, 2014, the Honorable Victor Marrero of the United States District Court for the Southern District of New York entered a final judgment against defendant Donald L. Johnson, formerly a Managing Director of The NASDAQ Stock Market ("NASDAQ"), ordering Johnson to disgorge insider trading profits of $755,066.20, together with prejudgment interest thereon in the amount of $143,041.72, for a total payment of $898,107.92. Johnson consented to the entry of the final judgment. The Court previously had entered a judgment permanently enjoining Johnson for violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, representing the full injunctive relief sought by the SEC in the same civil action.

In its Complaint, filed in May 2011, the SEC had alleged that Johnson had unlawfully traded in advance of nine announcements of material nonpublic information involving NASDAQ-listed companies from August 2006 to July 2009. According to the SEC's Complaint, Johnson took advantage of both favorable and unfavorable information that was entrusted to him in confidence by NASDAQ and its listed companies, shorting stocks on several occasions and establishing long positions in other instances. The SEC alleged that Johnson reaped illicit profits in excess of $755,000 from his illegal trading.

On May 26, 2011, Johnson pleaded guilty to a federal criminal charge of securities fraud in a parallel criminal action arising out of certain of the conduct underlying the SEC's action. On August 12, 2011, Johnson was sentenced to forty-two months in prison and ordered to forfeit $755,066.

Following the entry of the final judgment against Johnson, which provided for payment of full disgorgement with prejudgment interest, the SEC voluntarily dismissed its relief defendant claim against Johnson's wife, Dalila Lopez. This concludes the SEC's civil action against Johnson.

The SEC acknowledges the assistance of the Fraud Section of the U.S. Justice Department's Criminal Division and the U.S. Postal Inspection Service. The SEC also acknowledges FINRA and NASDAQ for their assistance in this matter.

SEC CHARGES FINANCIAL ANALYST WITH INSIDER TRADING ON EMPLOYER'S CONFIDENTIAL INFORMATION

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced insider trading charges against a Massachusetts man who allegedly tipped his friend with nonpublic information about potential acquisition targets of the pharmaceutical company where he worked.

The SEC alleges that Zachary Zwerko was tasked with evaluating potential acquisitions, and he repeatedly accessed confidential files about his employer’s acquisition targets and passed details onto a friend from business school so he could purchase securities prior to public announcements.  Zwerko accessed and shared information about a deal he was assigned to work on as well as a potential acquisition tasked to others.  The illegal tips enabled his friend to make approximately $683,000 in illicit profits.

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

“Zwerko’s employer entrusted him with confidential information about possible acquisitions, and he was brazen enough to steal that information for his own benefit,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.  “The SEC’s swift enforcement action shows that Zwerko miscalculated the true consequences of his actions.”

The SEC’s complaint was filed after hours on October 10 in U.S. District Court for the Southern District of New York.  The complaint charges Zwerko, who lives in Cambridge Mass., with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

The SEC’s investigation, which is continuing, has been conducted by Dominick D. Barbieri, Neil Hendelman, and Charles D. Riely.  The case has been supervised by Mr. Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, Federal Bureau of Investigation, and Financial Industry Regulatory Authority.

FORMER WELLS FARGO EMPLOYEES ACCUSED OF RATINGS CHANGE ASSOCIATED RESEARCH TO MAKE INSIDER TRADES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Two Former Wells Fargo Employees Charged With Insider Trading in Advance of Research Reports Containing Ratings Changes

09/29/2014 12:05 PM EDT

The Securities and Exchange Commission today announced insider trading charges against two former Wells Fargo employees involved in an alleged scheme to profit by buying or short selling a stock before research analyst reports were published containing a ratings change.

Research analysts typically produce reports with a recommendation or rating of a stock or other security they’ve reviewed.  When an analyst alters a prior view on the prospects of a security, a new report is issued with a ratings change.  The SEC’s Enforcement Division alleges that while Gregory T. Bolan Jr. worked as a research analyst at Wells Fargo, he tipped a trader at the firm, Joseph C. Ruggieri, in advance of several market-moving ratings upgrades or downgrades that he made in certain securities.  The tips enabled Ruggieri to generate more than $117,000 in profits.

“Instead of abiding by firm policies that specifically prohibited trading ahead of published research, Ruggieri used information obtained from Bolan to make profitable trades in advance of six separate research reports,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.  “The repeated nature of these violations demonstrates an utter disregard for our insider trading laws.”

According to the SEC’s order instituting a litigated proceeding before an administrative law judge, Bolan also tipped a close friend with nonpublic information about his upcoming ratings changes.  The friend, who is now deceased, generated approximately $10,000 in profits in a personal brokerage account by trading ahead of three ratings changes.

“Bolan gave two traders a sneak preview into his upcoming ratings changes and provided them an unfair and illegal advantage on the rest of the markets,” said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit.

The SEC’s Enforcement Division alleges that after receiving Bolan’s tips, Ruggieri either purchased the relevant company’s stock ahead of Bolan’s upgrades or sold the stock short ahead of Bolan’s downgrades.  Ruggieri closed his overnight positions in those securities for a profit shortly after Bolan’s ratings changes were made public and the stock prices had moved.  From April 2010 to March 2011, Bolan published a total of eight research reports with a ratings change or initiation of coverage with an “outperform” or “underperform” rating.  Ruggieri traded profitably ahead of six of these reports in a manner that did not fit in his typical trading pattern.  Aside from this trading ahead, Ruggieri had only a handful of overnight positions in securities that had been rated within the six months prior to his trading.

The SEC’s Enforcement Division alleges that by engaging in the misconduct described in the SEC’s order, Bolan and Ruggieri willfully violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The administrative proceeding will determine what relief, if any, is in the public interest against Bolan and Ruggieri, including disgorgement of ill-gotten gains, prejudgment interest, financial penalties, and other remedial measures.

The SEC’s investigation was conducted by Sandeep M. Satwalekar, Charles D. Riely, and John Marino of the SEC’s Market Abuse Unit in New York, as well as Peter A. Lamore and Alexander M. Vasilescu of the New York Regional Office.  The case has been supervised by Mr. Hawke and Mr. Wadhwa.  The SEC’s litigation will be led by Mr. Vasilescu and Mr. Satwalekar.

The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

POST-IT NOTE USER CHARGED BY SEC WITH INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged a Brooklyn man with facilitating a $5.6 million insider trading scheme that typically involved the passing of illegal tips via napkins or post-it notes at Grand Central Terminal.

Earlier this year, the SEC charged a stockbroker and a law firm managing clerk with insider trading and alleged they were connected by a mutual friend who served as a “middleman” in an effort to keep the two unlinked.  In a separate complaint filed today in U.S. District Court for the District of New Jersey, the SEC identifies Frank Tamayo as that middleman.  The SEC alleges that Tamayo received material nonpublic information from Steven Metro about 13 impending corporate deals involving clients of the law firm where Metro worked.  Tamayo then tipped his stockbroker Vladimir Eydelman, who used the confidential information to illegally trade for himself and for Tamayo and other customers.  Tamayo allocated a portion of his ill-gotten profits for eventual payback to Metro for the inside information.

“As the middleman, Tamayo was the firewall between Metro and Eydelman.  Metro had the information, Eydelman did the trading, and Tamayo kept them apart,” said Robert Cohen, Co-Deputy Chief of the SEC Enforcement Division’s Market Abuse Unit.  “But they were wrong in believing that this would stop the SEC from detecting their scheme.”

In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against Tamayo.  The U.S. Attorney previously brought criminal actions against Metro and Eydelman.  Those criminal cases and the SEC’s civil case against Metro and Eydelman are pending.

According to the SEC’s complaint against Tamayo, the scheme was deliberately structured to avoid detection, enabling Eydelman and Tamayo to profit without connecting the trades to an insider source and also allowing Metro to share in the trading proceeds.  For a five-year period, Metro repeatedly accessed confidential information in his law firm’s computer systems and met with Tamayo at bars and coffee shops in New York City to provide tips about firm clients ready to participate in a corporate transaction.  Tamayo typically would then connect with Eydelman near the clock at the information booth at Grand Central, where he would show him a post-it note or napkin on which Tamayo wrote the stock ticker symbol of the company to be acquired.  Tamayo then chewed up and sometimes even ate the post-it note or napkin to destroy evidence of the tip.  Tamayo also conveyed to Eydelman the approximate transaction price and timing of the deal.  After Eydelman returned to his office and gathered research about the target company, he would e-mail Tamayo supposed thoughts about why buying the stock made sense.  Their intent was to create a paper trail of e-mails to make it appear they were making their trading decisions based on research and analysis rather than inside information.

The SEC’s complaint charges Tamayo with violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rule 10b-5 and 14e-3 as well as Section 17(a) of the Securities Act of 1933.

The SEC’s investigation was conducted by Jason Burt and Carolyn Welshhans in the Market Abuse Unit with assistance from John Rymas, Mathew Wong, Daniel Koster, and Leigh Barrett.  The case was supervised by Daniel M. Hawke, Chief of the Market Abuse Unit, and Mr. Cohen.  The SEC’s litigation will be led by Stephan Schlegelmilch and Bridget Fitzpatrick.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of New Jersey, Federal Bureau of Investigation, Financial Industry Regulatory Authority, and Options Regulatory Surveillance Authority.

FORMER QUALCOMM EXECUTIVE PLEADS GUILTY TO INSIDER TRADING, MONEY LAUNDERING

FROM:  U.S. JUSTICE DEPARTMENT 

Monday, July 21, 2014

Former Senior Executive of Qualcomm Pleads Guilty to Insider Trading and Money Laundering

Jing Wang, 51, the former Executive Vice President and President of Global Business Operations for Qualcomm Inc., today pleaded guilty to insider trading in shares of Qualcomm and Atheros Communications Inc.   Wang also pleaded guilty to laundering the proceeds of his insider trading using an offshore shell company.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney L aura E. Duffy of the Southern District of California made the announcement.   Wang pleaded guilty today in federal court in San Diego before U.S. District Judge William Q. Hayes .

“Not satisfied with his lucrative executive position at Qualcomm, Jing Wang traded on insider information about the company’s acquisitions and earnings to gain an illegal advantage in the financial market,” said Assistant Attorney General Caldwell.   “Wang then laundered close to $250,000 in insider trading profits, and created a cover-up story to hide his crimes.   We will continue to prosecute those who believe they can make easy money by breaking the laws that ensure a level playing field in the financial marketplace.”

“Jing Wang blatantly and repeatedly abused the trust placed in him by Qualcomm and the company’s shareholders,” said United States Attorney Duffy.   “To make matters worse, he then misused the financial system to conceal his insider trading profits and enlisted his brother and stock broker to obstruct several investigations.   Wang’s obstructive acts, though ultimately unsuccessful, were serious affronts to the rule of law.   We will continue to use our excellent partnerships with the Criminal Division, the FBI, IRS-CI and our other law enforcement partners to not only prosecute securities fraud, but also disrupt attempts like Wang’s to obscure criminal conduct from the eyes of government investigators.”

According to court documents, Wang committed insider trading on three separate occasions over a ten-month period in 2010 and 2011.   In early 2010, Wang purchased approximately $277,739 of Qualcomm stock prior to the company’s unexpected announcement of a dividend increase and stock repurchase program.   In December 2010, while in Hong Kong, Wang purchased Atheros stock hours after Qualcomm’s Board of Directors made a non-public offer to purchase Atheros.   Just a few weeks later, in January 2011, Wang directed his stock broker, Gary Yin, to sell the Atheros stock in a brokerage account held in the name of an offshore entity, Unicorn Global Enterprises, and used the proceeds to purchase Qualcomm stock, one day before Qualcomm announced record earnings results.   In total, Wang illegally gained approximately a quarter of a million dollars from these three illegal transactions.

Wang also pleaded guilty to money laundering resulting from transferring the illegal proceeds in the Unicorn account – over $525,000 – to another nominee brokerage account in the British Virgin Islands for Clearview Resources Ltd.   Wang also admitted in his plea agreement to obstructing justice by conspiring with his brother, Bing Wang, and Yin to fabricate evidence and concoct a false cover story that Bing Wang conducted the illegal stock trades.

Wang was originally indicted in September 2013.   Bing Wang, who is currently believed to reside in China, remains charged and is wanted on an international arrest warrant.   Gary Yin pleaded guilty to conspiring with Jing Wang and Bing Wang to obstruct justice and launder money, and is currently scheduled to be sentenced on Sept. 15, 2014.

The department appreciates the substantial assistance it received from the Securities and Exchange Commission’s Los Angeles Regional Office.

This case was investigated by the FBI’s San Diego Field Office and the Internal Revenue Service-Criminal Investigation’s San Diego Field Division.   The case is being prosecuted by Trial Attorney James P. McDonald of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Eric J. Beste of the Southern District of California.

GOLFING BUDDIES CHARGED BY SEC IN INSIDER TRADING CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged a group of friends, most of them golfing buddies, who made more than $554,000 of illegal profits from trading on inside information about Massachusetts-based American Superconductor Corporation.

In a complaint filed in federal court in Boston, the SEC alleges that Eric McPhail repeatedly provided non-public information about American Superconductor to six others, most fellow competitive amateur golfers.  McPhail’s source was an American Superconductor executive who belonged to the same country club as McPhail and was a close friend.  According to the complaint, from July 2009 through April 2011, the executive told McPhail about American Superconducter’s expected earnings, contracts, and other major pending corporate developments, trusting that McPhail would keep the information confidential.

Instead, McPhail, of Waltham, Massachusetts, misappropriated the inside information about the energy technology company and fed it to his friends, often via email.  The insider-trading ring included a handful of golfing buddies, four of whom live in Massachusetts: Douglas A. Parigian of Lowell, John J. Gilmartin of Andover, Douglas Clapp of Walpole, and James A. “Andy” Drohen of Granville. The fifth, Drohen’s brother, John C. Drohen, is a resident of Cranston, Rhode Island.  In addition to the group of golfers, McPhail tipped a sixth man, his longtime friend Jamie A. Meadows, of Springfield, Massachusetts.  Each of the six traded and profited on the inside information McPhail supplied to them.

“Whether the tips are passed on the golf course, in a bar, or elsewhere, the SEC will continue to track down those who seek an unfair advantage trading stocks,” said Paul G. Levenson, director of the SEC’s Boston Regional Office.  “Working with our partners in law enforcement, we are sending a message to all investors that insider trading does not pay.”

According to the SEC’s complaint, in April 2011, McPhail tipped Parigian and Meadows a few days before American Superconductor announced that it expected fourth-quarter and fiscal year-end results to be weaker due to a deteriorating relationship with its primary customer, China-based Sinovel Wind Group Co., Ltd.  Parigian and Meadows used the information to place bets, through option contracts, that the company’s stock price would decline. When American Superconductor made the announcement, its stock price fell 42 percent and as a result of this one tip alone, Parigian made profits and avoided losses of $278,289, while Meadows made profits of $191,521.

McPhail tipped the various defendants on other occasions, funneling them inside information about American Superconductor’s quarterly earnings announcements in July and September 2009, and again in January 2010.  He also alerted them in the fall of 2009 to a contract worth $100 million, and in November 2010 to a likely drop in American Superconductor’s share’s price, which occurred a few days later when AMSC announced a secondary stock offering.

The complaint charges that McPhail, Parigian, Gilmartin, Clapp, the Drohens, and Meadows violated federal antifraud laws and the SEC’s antifraud rule, and seeks to have them be enjoined, return their allegedly ill-gotten gains with interest, and pay financial penalties of up to three times their gains.  Gilmartin, Clapp, and the Drohens agreed to settle the SEC’s charges, without admitting or denying the allegations, by consenting to the entry of judgments permanently enjoining them from violating the relevant securities laws.  The judgments also order:

Gilmartin to return $23,713 in trading profits plus prejudgment interest of $4,034 and a civil penalty of $23,713, for a total of $51,460
Clapp to return $11,848 in trading profits plus prejudgment interest of $1,767 and a civil penalty of $11,848, for a total of $25,463
Andy Drohen to return $22,543 in trading profits plus prejudgment interest of $3,845 and a civil penalty of $22,543, for a total of $48,931
John Drohen to return $8,972 in trading profits plus prejudgment interest of $1,511 and a civil penalty of $8,972, for a total of $19,455
The SEC’s investigation was conducted by Asita Obeyesekere and Kevin Kelcourse of its Boston Regional Office and by Mike Foster of its Chicago Regional Office, who will lead the SEC’s litigation of this matter.

The SEC appreciates the cooperation and assistance of the U.S. Attorney’s Office for the District of Massachusetts and the Boston Field Office of the Federal Bureau of Investigation in this matter.  The SEC also thanks the Options Regulatory Surveillance Authority and the Financial Industry Regulatory Authority for their assistance.

SEC ANNOUNCES ANOTHER CASE INVOLVING ALLEGED SECURITIES PRICE MANIPULATION IN A MICROCAP COMPANY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23000 / May 22, 2014

The Securities and Exchange Commission announced the latest in a series of cases against microcap companies, officers, and promoters arising out of a joint law enforcement investigation to unearth penny stock schemes with roots in South Florida.

In complaints filed in federal court in Miami, the SEC charged five penny stock promoters with conducting various manipulation schemes involving undisclosed payments to induce purchases of a microcap stock to generate the false appearance of market interest. The SEC also charged a Massachusetts-based microcap company and the CEO with orchestrating a pair of illicit kickback schemes and an insider trading scheme involving the company's stock. A stock promoter in Texas was charged for his role in the insider trading scheme.

The SEC has now charged 48 individuals and 25 companies in this series of penny stock investigations out of the agency's Miami Regional Office, which has worked closely with the U.S. Attorney's Office for the Southern District of Florida and the Federal Bureau of Investigation. The first of the joint enforcement actions was announced in October 2010.

The U.S. Attorney's Office for the Southern District of Florida today announced criminal charges against many of the same individuals charged today by the SEC.

According to the SEC's complaint against Boca Raton, Fla.-based stock promoters Kevin McKnight and Stephen C. Bauer, they engaged in market manipulation fraud involving the penny stock of Environmental Infrastructure Holdings Corp. (EIHC). They generated the appearance of market interest in EIHC to induce investors to purchase the stock and artificially increase the trading price and volume. In a separate complaint against Jeffrey M. Berkowitz of Jupiter, Fla., the SEC alleges that he participated in a market manipulation scheme involving the stock of Face Up Entertainment Group (FUEG) and similarly worked to falsely generate the appearance of market interest in that stock. The SEC's complaint against Eric S. Brown of Brooklyn, N.Y., alleges that he engaged in a pair of market manipulation schemes involving the stock of International Development & Environmental Holdings Corp. (IDEH) and DAM Holdings Inc. (DAMH), the latter of which is now known as Premier Beverage Group Corp. (PBGC). And according to an SEC complaint against Boca Raton, Fla.-based stock promoter Richard A. Altomare, he engaged in a market manipulation scheme involving the stock of Sunset Brands Inc. (SSBN).

The SEC alleges in a separate complaint that North Andover, Mass.-based Urban AG Corp. (AQUM) and its president and CEO Billy V. Ray Jr. of Cumming, Ga., schemed to make an undisclosed kickback payment to a hedge fund manager in exchange for the fund's purchase of restricted shares of stock in the company. In a separate kickback scheme, Ray made an inducement payment to a stock promoter who would purchase shares of Urban on the open market ahead of planned press releases to help him manipulate the stock. Meanwhile, stock promoter Wade Clark participated in Ray's insider trading scheme involving Urban stock by providing the hedge fund fiduciary with an advance copy of a press release containing material nonpublic information about the company so the hedge fund manager would purchase stock prior to the news being issued.

The SEC's complaints allege that Altomare, Bauer, Berkowitz, Brown, Clark, McKnight, Ray, and Urban AG Corp. violated Section 17(a)(1) of the Securities Act of 1933 and/or Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and 10b-5(c). The SEC is seeking financial penalties, disgorgement of ill-gotten gains plus prejudgment interest, and permanent injunctions. The SEC also seeks penny stock bars against all of the individuals charged in these cases as well as an officer-and-director bar against Ray.

The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of Florida and the Miami division of the Federal Bureau of Investigation.

TWO CLINICAL DRUG TRIAL DOCTORS CHARGED BY SEC WITH INSIDER TRADING IN BIOPHARMA STOCK

FROM: U.D.  SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Two Clinical Drug Trial Doctors with Insider Trading

The Securities and Exchange Commission today announced charges against Dr. Franklin M. Chu and Dr. Daniel J. Lama of San Bernardino Urological Associates Medical Group ("SBUA"), San Bernardino, California, for insider trading in the securities of GTx Inc., a biopharmaceutical company based in Memphis Tennessee. The SEC's complaints against Dr. Chu and Dr. Lama were filed in U.S. District Court for the Central District of California.

The SEC alleges that Drs. Chu and Lama were medical investigators in the clinical trials of Capesaris, a drug GTx developed for the treatment of prostate cancer. As alleged in the complaints, the purpose of the clinical trials was to test the safety and efficacy of Capesaris in anticipation of GTx applying for approval of the drug by the Food and Drug Administration ("FDA"). According to the complaints, beginning in early 2011, GTx entered into a series of Clinical Trial Agreements ("CTA") with SBUA, Chu's and Lama's medical practice, pursuant to which GTx paid compensation to SBUA for each patient the practice enrolled in the study. As alleged in the complaints, the CTAs contained strict confidentiality provisions that prohibited Drs. Chu and Lama from using confidential information about the clinical trials for any purpose other than rendering services under the CTAs.

The SEC alleges that on Friday February 17, 2012, Chu and Lama each learned material, nonpublic information from GTx that the FDA was placing a hold on the Capesaris clinical trials because of concerns of an increased risk of blood clots in patients participating in the clinical trials. The SEC further alleges that immediately after learning this confidential information, and in breach of their duty to GTx, Chu and Lama each sold shares of GTx stock they held personal accounts. According to the complaints, Chu sold 16,000 shares of GTx stock, and Lama sold 5,400 shares of GTx stock, at an average sale price of $5.82 per share. As alleged in the complaints, on Tuesday February 21, 2012, after GTx publicly announced the FDA hold on the Capesaris clinical trials, the market price of GTx stock dropped over 36% and closed at $3.69 per share. The SEC alleges that as a result of trading on material, nonpublic information about the FDA hold prior to the public announcement, Chu and Lama each avoided trading losses of approximately $34,081 and $11,502, respectively. The SEC further alleges that when later contacted by SEC staff investigating this matter, Lama initially provided false information, including claiming that he had no knowledge of the FDA hold at the time of his trading. To settle the SEC's charges, Dr. Chu and Dr. Lama have each consented to the entry of a final judgment, which are subject to court approval. Dr. Chu has consented to a final judgment that permanently enjoins him from future violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933 ("Securities Act"), and orders him to pay disgorgement of $34,081, plus prejudgment interest of $2,014, and a one-time civil penalty of $34,081. Dr. Lama has consented to a final judgment that permanently enjoins him from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act, and orders him to pay disgorgement of $11,502, plus prejudgment interest of $680, and a three-time civil penalty of $34,506.

BP P.L.C. FORMER EMPLOYEE CHARGED WITH INSIDER TRADING AFTER DEEPWATER HORIZON OIL SPILL

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged a former 20-year employee of BP p.l.c. and a senior responder during the 2010 Deepwater Horizon oil spill with insider trading in BP securities based on confidential information about the magnitude of the disaster.  The price of BP securities fell significantly after the April 20, 2010 explosion on the Deepwater Horizon rig, and the subsequent oil spill in the Gulf of Mexico, resulted in an extensive clean-up effort.

According to the SEC’s complaint, filed in U.S. District Court for the Eastern District of Louisiana, BP tasked Keith A. Seilhan with coordinating BP’s oil collection and clean-up operations in the Gulf of Mexico and along the coast.  Seilhan, an experienced crisis manager, directed BP’s oil skimming operations and its efforts to contain the expansion of the oil spill.  The complaint alleges that within days, Seilhan received nonpublic information on the extent of the evolving disaster, including oil flow estimates and data on the volume of oil floating on the surface of the Gulf.

“Seilhan sold his family’s BP securities after he received confidential information about the severity of the spill that the public didn't know,” said Daniel M. Hawke, chief of the Division of Enforcement’s Market Abuse Unit.  “Corporate insiders must not misuse the material nonpublic information they receive while responding to unique or disastrous corporate events, even where they stand to suffer losses as a consequence of those events.”

The complaint alleges that by April 29, 2010, in filings to the SEC, BP estimated that the flow rate of the spill was up to 5,000 barrels of oil per day (bopd).  The company’s public estimate was significantly less than the actual flow rate, which was estimated later to be between 52,700 and 62,200 bopd.  The information that Seilhan obtained indicated that the magnitude of the oil spill and thus, BP’s potential liability and financial exposure, was likely to be greater than had been publicly disclosed.

According to the complaint, while in possession of this material, nonpublic information, and in breach of duties owed to BP and its shareholders, Seilhan directed the sale of his family’s entire $1 million portfolio of BP securities over the course of two days in late April 2010.  The trades allowed Seilhan to avoid losses and reap unjust profits as the price of BP securities dropped by approximately 48 percent after the sales on April 29 and April 30, 2010, reaching their lowest point in late June 2010.

Without admitting or denying the allegations, Seilhan consented to the entry of a final judgment permanently enjoining him from future violations of federal antifraud laws and SEC antifraud rules.  Seilhan, of Tomball, Texas, also agreed to return $105,409 of allegedly ill-gotten gains, plus $13,300 of prejudgment interest, and pay a civil penalty of $105,409.  The settlement is subject to court approval.

The SEC’s investigation was conducted by Matthew S. Raalf, Brian P. Thomas, John S. Rymas, Kelly L. Gibson, Brendan P. McGlynn, G. Jeffrey Boujoukos, Michael J. Rinaldi, and Christopher R. Kelly in the Philadelphia Regional Office.  The SEC appreciates the assistance of the U.S. Department of Justice’s Deepwater Horizon Task Force.

FRIENDS CHARGED WITH TRADING ON INSIDER INFORMATION

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged two friends with insider trading on confidential information from an investment banker about an impending transaction between engineering and construction companies.

The SEC alleges that Walter D. Wagner of Rockville, Md., and Alexander J. Osborn of Alexandria, Va., illicitly profited by nearly $1 million combined by trading on nonpublic information in advance of the acquisition of The Shaw Group by Chicago Bridge & Iron Company.  Wagner was tipped by his longtime friend John W. Femenia, who worked at a firm that was considering whether to finance the transaction.  Wagner then tipped Osborn with the inside information so they could each trade heavily in Shaw Group securities ahead of the public announcement on July 30, 2012, when the closing stock price jumped approximately 55 percent from the previous day.

Wagner has agreed to settle the SEC’s charges by disgorging his ill-gotten gains plus interest.  Any additional financial penalty will be decided by the court at a later date.  A parallel criminal action against Wagner was announced today by the U.S. Attorney’s Office for the Western District of North Carolina.

The SEC’s litigation continues against Osborn.  The SEC already charged Femenia in a related insider trading case.  He was subsequently barred from the securities industry.

“Wagner and Osborn had never bought stock or call options in The Shaw Group, yet they suddenly spent significant portions of their available cash resources to make sizeable purchases in the weeks preceding the public announcement of the acquisition,” said William P. Hicks, associate director for enforcement in the SEC’s Atlanta Regional Office.  “The SEC is committed to deciphering the stories behind suspicious trades and exposing those who trade on confidential information obtained from corporate insiders.”

According to the SEC’s complaint filed in federal court in Greenbelt, Md., all three attended the U.S. Merchant Marine Academy.  Wagner and Femenia met in college and remained friends after graduating in 2003.  Osborn, who graduated in 2006, became friends with Wagner around 2009 when they worked in the same office building for different government contractors.  The SEC alleges that Femenia collected nonpublic details about the acquisition while at work and communicated them to Wagner via text messages and phone calls in violation of the duty he owed his firm to keep the information confidential.  Wagner knew Femenia was employed in investment banking at Wells Fargo Securities.  Wagner in turn tipped Osborn, who knew that Wagner’s source was employed in the finance industry.  Wagner and Osborn used the nonpublic information to obtain illegal trading profits of approximately $517,784 and $439,830 respectively.

The SEC’s complaint charges Wagner and Osborn with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In addition to the financial sanction of $528,175 in disgorgement and prejudgment interest, Wagner has consented to the entry of a judgment permanently enjoining him from violations of Section 10(b) of the Exchange Act and Rule 10b-5.

The SEC’s investigation was conducted by Monifa F. Wright and supervised by Matthew F. McNamara in the Atlanta Regional Office.  The SEC’s litigation is being handled by Paul T. Kim.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Western District of North Carolina, Federal Bureau of Investigation, Financial Industry Regulatory Authority, and Options Regulatory Surveillance Authority.

SEC CHAIR WHITE'S SPEECH ON ALL-ENCOMPASSING ENFORCEMENT TO POLICE MARKETS

FROM:  SECURITIES AND EXCHANGE COMMISSION 
All-Encompassing Enforcement: The Robust Use of Civil and Criminal Actions to Police the Markets
 Chair Mary Jo White
March 31, 2014

Introduction
Thank you, David Prince, for that kind introduction.  I have participated in this event for many years and have always considered this conference to be all about the compliance and legal issues that are most important to the integrity of our securities markets.  Now, as Chair of the SEC, I would like to thank you for the work you do day in and day out to protect investors and keep our markets robust and safe.

In about a week, I will have completed my first year at the SEC.  It has been quite a year.  We have made very good progress in accomplishing the initial goals I set to achieve significant traction on our rulemaking agenda arising from the Dodd Frank and JOBS Acts, intensify our review of the structure of our equity markets, and enhance our already strong enforcement program.

All-Encompassing Enforcement
Today, I thought I would talk about the SEC’s Enforcement program, and in particular, the importance of all-encompassing enforcement of the securities laws.  By that, I mean the appropriate, but vigorous, use of criminal, civil, and regulatory tools to enforce the securities laws.  Before I begin, let me assure Preet Bharara, one of my very distinguished successors as United States Attorney, that Congress did not give the SEC criminal authority as we were flying in last night.  And, although I often emphasize how essential our examination function is to achieving comprehensive compliance with all of the regulatory requirements, today’s focus will be the SEC’s enforcement function—investigating and bringing cases.

So why am I, the Chair of the SEC, talking about civil and criminal enforcement?  It is because I know, from both my years as United States Attorney working alongside the SEC and now from inside the SEC, that the SEC’s expertise and extensive cooperation and partnership with the criminal authorities is essential to all-encompassing enforcement of the federal securities laws.  So, too, are the much greater number and variety of standalone cases the SEC brings for violations that are not prosecuted criminally.

There are, of course, no more powerful tools than a criminal conviction and the prospect—and reality—of imprisonment.  When they are added to the wider range of actions the SEC brings and the unique remedies available to us, law enforcement can best fulfill its collective obligation to investigate, charge, and address the full range of securities law violations.  And my message today is that a robust combination of criminal and regulatory enforcement of the securities laws is not only appropriate, but also critical to deterring securities violators, punishing misconduct, and protecting investors.

All-Encompassing Enforcement on the Rise
As you undoubtedly know, essentially any violation of the federal securities laws and regulations can be a criminal violation if done willfully, that is, with intent to violate the law.[1]  This means that many of the SEC’s investigations can give rise to criminal cases, although obviously not every one of our cases that could be prosecuted criminally is.  But, in the last 20 years, there has been a significant rise in criminal prosecutions of securities cases.

A couple of statistics make the point.  When I became U.S. Attorney in 1993, there were 67 criminal cases that were related to SEC proceedings.[2]  That number now has doubled.[3]  And the number of instances where we grant access to our files to other law enforcement authorities—a rough proxy for the number of cases where we have parallel investigations—has also more than doubled.[4]

And there is more to the story than the numbers.  We now coordinate our efforts with the criminal authorities on many types of securities law offenses that did not garner much, if any, criminal attention in the past.  Insider trading has, of course, been the subject of criminal cases for many years, as have offering frauds and Ponzi schemes.  But accounting fraud prosecutions were relatively rare before Enron, WorldCom, and Adelphia.  More recently, our parallel efforts have also yielded a significant increase in criminal actions in the FCPA space and in other areas, including actions against investment advisers for false valuations, overcharging, and hiding fees.  Although the SEC is certainly not the source of or involved in every securities fraud prosecution, my sense is that many criminal authorities across the country are more willing and better able to pursue these prosecutions because the SEC devotes significant resources to uncovering and building these complex cases, and then working in parallel with the prosecutors to bring our respective cases.

Benefits of a Strong Partnership
In the vast majority of criminal securities fraud prosecutions, the SEC’s Enforcement staff works closely with the criminal authorities, whether it be DOJ, the FBI, or state and local law enforcement.  These parallel investigations are entirely appropriate under the law, as long as we conduct our investigations, as we do, independently, but in cooperation with the criminal authorities.[5]  Criminal investigations unquestionably bring great value—search warrants, wiretaps, and undercover operations are not in the SEC’s toolbox.

In many of these cases, it is the lawyers, accountants, and other professionals from the SEC’s enforcement and exam programs who initially detect the misconduct and put the preliminary case together.  Every day, our staff sorts through dozens of tips, complaints, and whistleblower submissions, pursues leads derived from our exam program and SRO referrals, and analyzes large volumes of transactional data generated from our risk analytic initiatives.  Many of these sources lead to investigations that we pursue.

When we find sufficient evidence of a serious violation to justify criminal involvement, we alert the criminal authorities, and we may conduct parallel investigations.  The criminal authorities will sometimes decide to conduct undercover investigative operations, while we take the lead in documentary review and analysis of records.  As many of you here know, we also often interview witnesses together.

When we work together and bring parallel actions, we will typically file our actions on the same day, unless there is some investigative reason for one of us to act first, such as a need for an emergency asset freeze or to stop a flight risk.  Often, you will see that the SEC action names additional defendants who are not part of the criminal case, including those who did not necessarily act with intent to advance the scheme, such as the gatekeeper who permitted the scheme to proceed[6] or the supervisor who failed to appropriately supervise the wrongdoers. [7]  We charge these additional defendants because it is very important to proceed broadly against other participants in a scheme to ensure that they too are called to account.

Importance of Standalone SEC Actions
The SEC’s partnership with the criminal authorities in parallel cases represents a very important component of our enforcement program, but most of our cases are standalone, as we operate independently under a broad 80-year old statutory mandate to enforce the federal securities laws.  We, for example, often bring cases based on negligence, while most criminal statutes require intent or at least willful blindness.  Some of our statutes are also strict liability, which do not require intent, recklessness, or negligence.  And because of the higher, beyond a reasonable doubt evidentiary standard in criminal cases, the SEC has more flexibility to bring important cases that send a strong message of deterrence when the evidence may not be enough for a criminal case.

In our standalone cases, we also have unique remedies to protect investors, beyond disgorgement of ill-gotten gains and civil monetary penalties.  One of the SEC’s most effective tools is our ability to bar wrongdoers from their particular roles in the securities profession, and, thanks to the Dodd-Frank Act, from the entire securities industry.[8]  So whether it is the broker who charged hidden commissions, or the investment adviser who misused investor funds, we can ensure they are not in a position to abuse the trust of investors again.  We can also seek orders barring the officer of a public company who committed accounting fraud from serving as an officer or director of any public company, and prevent the microcap promoter from being involved in penny stocks.  We also have the authority to prohibit certain professionals who engaged in misconduct from appearing or practicing before the SEC—an accountant can be prohibited from signing an audit report for a public company and an attorney can be prohibited from advising on documents that will be filed with the Commission.[9]

The SEC also has the authority to obtain asset freezes, trading suspensions, and temporary injunctions to stop fraud in its tracks before illicit profits are dissipated or the fraudsters can complete their schemes.  Finally, through our Fair Fund authority, we are able to distribute money recovered through disgorgement and penalties back to harmed investors.

Although standalone criminal prosecutions and parallel actions send important messages of deterrence, our ability, in civil standalone actions, to broadly punish wrongdoing also sends an important and additive message to the market on appropriate standards of conduct.  My strong sense, from all of the different vantage points I have occupied, is that the SEC’s cases are closely watched by industry participants, as well as those in this room who represent them.  As a result of that dynamic, compliance programs are enhanced, training is intensified and behavior changes.  Our efforts thus have a multiplier effect by having meaningful impact on market participants who are not involved in the particular misconduct that has been charged.

All-Encompassing Enforcement in Practice
So how does this all fit together in practice?  I will briefly talk about just three areas—insider trading, microcap fraud, and financial fraud.  Obviously, there are others, such as FCPA and investment adviser fraud, where the same takeaways apply.

Insider Trading

Unlawful insider trading always receives significant enforcement attention and has historically been a staple for both the SEC and criminal prosecutors.  In the last five years,  Preet and his team in the Southern District of New York have done a tremendous job bringing cases against over 75 defendants who have all either pled guilty or been convicted after trial.  This remarkable record and the sheer number of criminal cases send an unmistakable message of strong deterrence.

The SEC’s record in insider trading cases, while not perfect, is also very impressive.  Over the last five years, we have charged over 570 defendants in civil insider trading cases, the vast majority of which have been successfully concluded either through settlement or a finding of liability after trial.

Behind the headlines is the important story of how many of these cases originated and how they are made.  Many insider trading cases, whether criminal, civil or both, start out as a referral to the SEC from FINRA or the Options Regulatory Surveillance Authority (“ORSA”) containing an informational nugget suggesting suspicious trading, or are triggered by our own trade data analytics that identify possible patterns of insider trading.

Some of our newer technologies have augmented our ability to identify suspicious trading.  In addition to our traditional issuer-based approach, we now also use a trader-based approach—focusing on identifying similar trading trends among traders.  SEC staff engage in hours of painstaking trade analysis, detailed electronic scrutiny of phone records, bank records, emails, and texts, and relentlessly dig for evidentiary scraps left behind by these often very careful and sophisticated wrongdoers that are necessary to build a case.

Let me give you one example where we used the trader-based approach and a dogged search for evidence in a parallel action.  A couple of weeks ago, the SEC filed a civil action against a registered representative at a large broker-dealer and the managing clerk at a prominent international law firm.[10]  The SEC charged that the two engaged in a four-year insider trading scheme that generated $5.6 million in trading profits by trading in advance of more than a dozen corporate transactions for which the law firm provided advice.

This action resulted from the efforts of the SEC staff and the U.S. Attorney’s Office for the District of New Jersey and the FBI.  Working together, investigators uncovered illegal tips that allegedly were conveyed, as if from a movie scene, through a middleman who met with the trader at Grand Central Station, showed him hand-written notes of the stocks he should trade, and then ate the notes to cover his trail.  On the same day that the SEC filed its case, the U.S. Attorney’s office announced that they had arrested the trader and his source.

Our insider trading cases are not limited to cases brought in parallel with criminal prosecutions.  Since October 2009, about 20% of the insider trading charges we brought involved a parallel criminal prosecution.  In contrast to many criminal cases, which often have some recording or cooperator testimony, our standalone cases are usually based on more indirect evidence—brokerage records suggesting suspicious trading, phone records indicating contact with an insider close in time to the trading, a chronology detailing material non-public events soon after the trading, and maybe, if we are lucky, cryptic emails or text messages indicating some knowledge of a relevant event or a breach of duty.  In other words, ours are usually highly circumstantial cases.

For that reason, these cases can be very challenging to try and win.  But they are very important because strong deterrence requires that there be punitive consequences for insider trading even if the evidence is insufficient to criminally prosecute and difficult to successfully try civilly.

Another civil tool we have and use in insider trading cases is our ability to freeze assets and obtain temporary injunctions based on suspicious trading so illicit profits do not disappear while we investigate.  We used this tool to great effect in July 2012 when the SEC obtained an emergency asset freeze against unknown traders just days after an announcement of the acquisition of an energy company.[11]  The SEC team moved quickly to file an emergency action after discovering that traders using brokerage accounts in Hong Kong and Singapore stood to make millions in potentially illegal profits.  Once the freeze was in place, SEC investigators carefully scrutinized the trading records to identify the traders, setting the stage for a string of successful settlements against a number of firms and individuals that unfolded over the next year and a half.  Thanks to the staff’s swift action, the SEC recovered nearly $30 million in ill-gotten gains, plus financial penalties from the foreign traders.

Microcap Fraud

Microcap fraud is another area where effective law enforcement requires both extensive cooperation with the criminal authorities and pursuit of many standalone cases.  As you know, these are most often pump-and-dump schemes where the volume and price of the stock are artificially inflated by means of a misleading promotional campaign that lures investors to buy shares.  Then, the wrongdoers sell their stock, the share price plummets, and retail investors are left holding practically worthless stock.

Like insider trading cases, these sorts of cases typically originate with a trading analysis that shows patterns of trading suggestive of illegal activity.  We then need to identify the promotional statements feeding the trading activity, investigate whether and how those statements may be actionable, identify the promoters and other participants orchestrating the scheme, and follow the stock and money, often through nominee entities with complex corporate structures, transfer agents, broker-dealers, banks, and often, off-shore financial institutions.

This methodical work can serve as the genesis for a parallel criminal case.  And these cases are uniquely conducive to criminal methods, where cooperators and undercover agents can interact with the wrongdoers and collect very powerful evidence.  We, in fact, used these methods when I was United States Attorney and were able to bring cases, along with the SEC, against over 120 defendants on a single day in connection with what we called Operation Uptick.[12]

These kinds of joint efforts continue today.  A number of our regional offices have been conducting parallel investigations with the FBI and various U.S. Attorneys to uncover penny stock schemes and involving corporate insiders, stock promoters, gatekeepers, and issuers.  In one office alone, since 2009, we have brought actions against 41 individuals and 24 companies, obtaining injunctive and other relief against all of them.  The U.S. Attorney’s Office has secured criminal convictions against 40 of the same defendants.

Parallel investigations only tell part of the microcap fraud story.  Here, too, our standalone actions have significant consequences for those trying to manipulate thinly-traded stocks for their own profit.  We often bring Section 5 charges under the Securities Act—a strict liability offense—against microcap fraud participants, suing them for directly or indirectly transacting in unregistered securities or aiding and abetting such violations.  We can bring cases against not only the issuers, but also the promoters, attorneys, auditors, broker-dealers, and others who give life to and facilitate these elaborate schemes.  If they commit fraud, we bring those charges too.[13]

We also rely on our temporary suspension authority to stop trading in securities that are the objects of pumps-and-dumps.  Just last month, we suspended trading in 255 companies, any one of which might have been the next vehicle for stock manipulators.[14]  There were more than 1,000 similar suspensions over the last two years.[15]  These trading suspensions perform a critical investor protection function—not only do they stop trading in the company’s stock for ten days, but they also have the effect of preventing market makers from displaying quotes in those securities until the company updates its public disclosures.  We also have been using our trading suspension authority more frequently to cut off trading while the pump-and-dump is in progress.

Obtaining emergency asset freezes is another essential tool in the battle against microcap schemers.  Just a couple of weeks ago, the SEC obtained an asset freeze at the outset of a case against a promoter who was charged with directing a sophisticated, international microcap stock promotion operation.[16]  We were able to demonstrate a complex series of movements of funds and securities through various foreign and domestic investment and bank accounts and obtain an order to freeze $2.5 million that had just been received from the sale of the alleged wrongdoer’s interest in a private jet that was about to be transferred to an off-shore account.

Financial Reporting Fraud
The last area of parallel cases I will mention is financial reporting fraud.  Here, we add another layer of expertise—that of our outstanding accountants.  The Enforcement Division has over 100 accountants, each of whom has unique and important expertise that is critical to these cases.  Knowledgably sifting through accounting records and audit work papers is not always glamorous work, but it is essential to making these cases, which are often based on specific and complex GAAP violations.

Just recently, we worked with the Manhattan District Attorney’s Office to bring such a case against the former chairman, executive director, and several accounting personnel from another prominent international law firm.[17]  This case required sophisticated analyses of the firm’s accounting systems.  Among the accounting misstatements alleged were the treatment of salaried partners as equity partners so that payments to them would not be treated as expenses; reclassifying uncollectible receivables and disbursements as collectible; and treating loans from partners as income received from clients.

Good financial reporting and vigilant auditing obviously go to the heart of the integrity of our markets and strong investor protection—which is why we have again intensified our focus on this area.  Last year, we created the Financial Reporting and Audit Task Force, whose objective is to focus on trends or patterns of conduct that are risk indicators for financial fraud, including in areas like revenue recognition, asset valuations, and management estimates, and through their work identify potential cases for investigation.  Our Cross-Border Working Group also has been focused on accounting fraud cases against foreign issuers whose shares trade on U.S. exchanges.  Nearly all of these cases have been standalone SEC cases.  Through this initiative, the SEC has thus far filed fraud actions against over eighty issuers, officers, and directors; instituted proceedings against auditors; revoked the registration of more than sixty issuers; suspended trading in the securities of seven issuers; approved enhancements to listing standards at the three major exchanges; and issued a related investor bulletin.[18]  This is all part of the SEC’s all-encompassing internal effort to address serious securities law violations.

Conclusion
Let me stop here.  Hopefully, I have given you a bit of an inside baseball glimpse into what enforcement looks like at the SEC, and how we go about making our cases, both on our own and with the criminal authorities.  The SEC lawyers, accountants, and other professionals that make and bring these cases are truly impressive.  They are deeply committed to the mission of the agency and make tremendous contributions not only to the cases that we bring but also to the cases brought by our criminal law enforcement partners.  That approach unquestionably gives us stronger and broader coverage that is good for investors, good for the markets, and good for the industry.

Thank you.


[1] See Section 24 of the Securities Act of 1933, 15 U.S.C. § 77x; Section 32(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78ff(a); Section 49 of the Investor Company Act of 1940, 15 U.S.C. § 80a-48; and Section 217 of the Investor Advisor Act of 1940, 15 U.S.C. § 80b-17.  In the criminal context, the Court of Appeals for the Second Circuit “has defined willfulness as ‘a realization on the defendant's part that he was doing a wrongful act’ under the securities laws, in a situation where the ‘the knowingly wrongful act involved a significant risk of effecting the violation that has occurred.”  United States v. Cassese, 428 F.3d 92, 98 (2d Cir. 2005) (internal citations omitted).

[2] See U.S. Securities and Exchange Commission 1993 Annual Report, at 1, available at http://www.sec.gov/about/annual_report/1993.pdf.

[3] The average for the five most recent fiscal years is 136.  See Select SEC and Market Data for Fiscal Years 2009-2013, available at http://www.sec.gov/about/secreports.shtml.

[4] The number of such requests in 1993 was 205.  See U.S. Securities and Exchange Commission 1993 Annual Report, at 1, available at http://www.sec.gov/about/annual_report/1993.pdf.  The average for the three most recent fiscal years is 535.  See U.S. Securities and Exchange Commission FY 2013 Annual Performance Report, at 150, available at http://www.sec.gov/about/reports/sec-fy2013-annual-performance-report.pdf.

[5] See United States v. Kordel, 397 U.S. 1, 11 (1970); see also SEC v. Dresser Indus., Inc., 628 F.2d 1368, 1377 (D.C. Cir. 1980); United States v. Stringer, 535 F.3d 929, 939 (9th Cir. 2008).

[6] See “SEC Files Anti-Bribery Charges Against Former Finance Executives and Senior Employees Of Global Tobacco Company” (Apr. 29, 2010) (alleging that a controller formalized the accounting methodology used to record bribes made in violation of the FCPA), available at https://www.sec.gov/litigation/litreleases/2010/lr21509.htm.

[7]See In the Matter of Ronald S. Rollings, Admin. Proc. File No. 3-15392 (Jul. 29, 2013) (finding that a Chief Compliance Officer failed properly to supervise an associated person who was convicted of misappropriating assets from client accounts), available at http://www.sec.gov/litigation/admin/2013/34-70058.pdf; In the Matter of Comprehensive Compliance Mgmt., Inc., Admin. Proc. File No. 3-15393 (Jul. 29, 2013) (finding that the investment advisory firm also failed to supervise the associated person), http://www.sec.gov/litigation/admin/2013/ia-3636.pdf .

[8] See Dodd-Frank Wall Street Reform and Consumer Protection Act, Section 925 (providing for collateral bars in Sections 15, 15B, and 17A of the Exchange Act and Section 203 of the Investment Advisers Act).

[9] 17 CFR § 201.103(f)(2); 17 CFR § 205.2(a)(1)(iii).

[10] Press Release No. 2014-55, “SEC Charges Stockbroker and Law Firm Managing Clerk in $5.6 Million Insider Trading Scheme,” (Mar. 19, 2014) available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541172895.

[11] See Press Release No. 2012-145, “SEC Freezes Assets of Insider Traders in Nexen Acquisition (Jul. 27, 2012), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171483502 ; Press Release No. 2014-26, Two Hong Kong-Based Firms to Pay $11 Million for Insider Trading Ahead of Nexen Acquisition by Company in China (Feb. 11, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540775561

[12] See, e.g., “Feds nab 120 for fraud: Mob members, securities dealers, charged with bilking victims of more than $50 million,” (Jun. 14, 2000), available at http://money.cnn.com/2000/06/14/companies/fraud/

[13] See Press Release No. 2013-249 “Penny Stock Financier Agrees to Pay $1.4 Million to Settle SEC Charges” (Nov. 25, 2013), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540410863; Press Release No. 2013-155, “SEC Announces Charges Against Florida-Based Penny Stock Schemes” (Aug. 14, 2013), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539776014; Press Release No. 2013-114, “SEC Charges San Diego-Based Promoter in Penny Stock Scheme,” (Jun. 18, 2013) available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171605883; Press Release No. 2013-39, “SEC Charges San Diego Lawyers and Others in an International Market Manipulation Scheme” (Mar. 13, 2013) available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171513254.

[14] See Press Release No. 2014-21, “SEC Continues Microcap Fraud Crackdown, Proactively Suspends Trading in 255 Dormant Shell Companies,” (Feb. 3, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540714936.

[15] The SEC suspended trading in 371 issuers in fiscal year 2013, and 651 issues in fiscal year 2012.  See Select SEC and Market Data for Fiscal Years 2012-2013, available at http://www.sec.gov/about/secreports.shtml.

[16] See Press Release No. 2014-52, “SEC Obtains Asset Freeze Against Promoter Behind Microcap Stock Scalping Scheme,” (Mar. 13, 2014), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541128311

[17] See Press Release No. 2014-45, “SEC Charges Five Executives and Finance Professionals Behind Fraudulent Bond Offering by International Law Firm,” (Mar. 6, 2014) available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540889964.

[18] See, e.g., Press Release No. 2014-47, “SEC Charges Animal Feed Company and Top Executives in China and U.S. With Accounting Fraud,” (Mar. 11, 2014) available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541102314; (Nov. 7, 2013); Press Release No. 2013-205, “SEC Charges New Jersey-Based Accounting Firm and Founding Partner for Failed Audits of China-Based Company,” (Sep. 30, 2013) available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539849819;  Lit. Release No. 22755, “SEC Files Fraud Charges Against China Intelligent Lighting and Electronics, Inc.; NIVS Intellimedia Technology Group, Inc.; and Their Sibling CEOs,” (Jul. 22, 2013) available at http://www.sec.gov/litigation/litreleases/2013/lr22755.htm.

BROTHERS FOUND GUILTY OF INSIDER TRADING

FROM:  SECURITIES AND EXCHANGE COMMISSION 
Jury in Cleveland Finds Brothers Engaged in Insider Trading

The Securities and Exchange Commission has obtained a favorable verdict from a jury in the Northern District of Ohio finding that Andrew W. Jacobs of Lancaster, Pa., and his brother Leslie J. Jacobs II of Cleveland, Ohio, committed insider trading in connection with the December 2009 tender offer for Chattem Inc., a Chattanooga, Tenn.-based distributor of pharmaceutical products.

In its complaint, the SEC alleged that A. Jacobs provided L. Jacobs material nonpublic information about the tender offer and that L. Jacobs then traded on the basis of the information he received from his brother.  A. Jacobs learned of the tender offer in a confidential conversation with his brother-in-law, who at the time was a Chattem executive.  The executive, with whom A. Jacobs had been friends since business school, requested that A. Jacobs keep their discussion confidential, and he agreed to do so.  Nonetheless, the next day, A. Jacobs called his brother L. Jacobs and told him that Chattem was going to be acquired.  A few days later, L. Jacobs purchased 2000 shares of Chattem, and he sold those shares after the public announcement of the acquisition for an illicit profit of $49,457.21.

After a six-day trial, the jury yesterday found in favor of the SEC on the claims under Section 14(e) of the Securities Exchange Act of 1934 and Rule 14e-3 thereunder.  These provisions prohibit insider trading in connection with a tender offer.  The jury found in favor of the defendants on the claims under Sections 10(b) of the Exchange Act and Rule 10b-5 thereunder.

The trial was presided over by U.S. District Judge Solomon Oliver Jr.  The court will now decide what remedies are warranted based on the jury’s verdict.  In its complaint, the SEC sought permanent injunctions, disgorgement with prejudgment interest, and civil monetary penalties pursuant to Section 21A of the Exchange Act.  The SEC also sought an officer and director bar against A. Jacobs, who was a high-level executive of a public company at the time of the tip.  The case was tried by Kristin B. Wilhelm and Joshua A. Mayes of the SEC’s Atlanta Regional Office and Stephan J. Schlegelmilch of the SEC’s headquarters in Washington, D.C.

SEC CHARGES INVESTMENT BANKER WITH INSIDER TRADING FOR ALMOST $1 MILLION IN PROFITS

FROM:  SECURITIES AND EXCHANGE COMMISSION 
The Securities and Exchange Commission today announced an emergency action against a New York City-based investment banker charged with insider trading for nearly $1 million in illicit profits.

The SEC alleges that while working on Wall Street, Frank “Perk” Hixon Jr. regularly logged into the brokerage account of Destiny “Nicole” Robinson, the mother of his young child.  He executed trades based on confidential information he obtained on the job, sometimes within minutes of learning it.  Illegal trades also were made in his father’s brokerage account.  When his firm confronted him about the trading conducted in these accounts, Hixon Jr. pretended not to recognize the names of his father or his child’s mother.  However, text messages between Hixon Jr. and Robinson suggest he was generating the illegal proceeds in lieu of formal child support payments.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Hixon Jr.

“Hixon Jr. violated the trust of his employer and clients by abusing his special access to nonpublic market-moving information,” said David Woodcock, director of the SEC’s Fort Worth Regional Office.  “Hixon Jr. went to great lengths to hide his wrongdoing and even denied knowing his father or the mother of his child.”

A federal judge has granted the SEC’s request and issued an emergency order freezing Robinson’s brokerage account, which the SEC alleges contains the majority of proceeds from Hixon Jr.’s illegal trading with a balance of approximately $1.2 million.

According to the SEC’s complaint unsealed today in federal court in Austin, Texas, Hixon Jr. illegally tipped or traded in the securities of three public companies.  He traded ahead of several major announcements by his client Westway Group in 2011 and 2012.  He traded based on nonpublic information he learned about potential client Titanium Metals Corporation ahead of its merger announcement in November 2012.  And Hixon even illegally traded in the securities of his own firm Evercore Partners prior to its announcement of record earnings in January 2013.  Hixon Jr. generated illegal insider trading profits of at least $950,000.

According to the SEC’s complaint, when Hixon Jr.’s employer asked him in 2013 whether he knew anything about suspicious trading in accounts belonging to Destiny Robinson and his father Frank P. Hixon Sr., who lives in suburban Atlanta, Hixon Jr. denied recognizing either name.  When later confronted with information that he did in fact know these individuals, Hixon Jr. continued his false claims, saying he didn’t know Robinson as “Destiny” and asserting in a sworn declaration that when approached he didn’t recognize the name of the city where his father lived for more than 25 years.  Hixon Jr. was subsequently terminated by his employer.

The SEC’s complaint alleges that Hixon Jr. violated the antifraud provisions of the Securities Exchange Act of 1934.  In addition to the asset freeze, the complaint seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.  Hixon Sr. and Robinson have been named as relief defendants for the purposes of recovering the illegal trading profits held in their accounts.

The SEC’s investigation has been conducted by Tamara McCreary, Ty Martinez, and Jonathan Scott of the Fort Worth Regional Office.  The SEC's litigation will be led by Timothy Evans and David Reece.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, Federal Bureau of Investigation, and Financial Industry Regulatory Authority.

FINAL JUDGEMENT ANNOUNCED IN GLOBAL EDUCATION INSIDER TRADER CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Obtains Final Judgment Against Yonghui Zhang in Global Education Insider Trading Case

The Securities and Exchange Commission announced that on December 20, 2013 it obtained a final judgment against Yonghui Zhang, the remaining defendant in an insider trading case involving the securities of Beijing-based Global Education and Technology Group, Ltd. The case, which was originally filed in the U.S. District Court in Chicago on December 5, 2011, charged eight defendants, including Zhang, with insider trading after they reaped more than $2.8 million in profits by trading in advance of a publicly announced merger between Global Education and London-based Pearson plc.

The SEC’s first amended complaint, filed on December 13, 2011, alleged that Yonghui Zhang, a Global Education employee and brother of David Zhang, CEO of Global Education, purchased 7,900 shares of Global Education on the last trading day before the merger announcement. The first amended complaint also alleged that Pearson and Global Education each announced before trading began on November 21, 2011 that Pearson agreed to acquire all of Global Education’s outstanding stock for $294 million. Global Education’s stock price increased 97 percent that day, from $5.37 to $10.60. The SEC alleged that Zhang profited by more than $40,000 from his illegal trading.

Zhang consented to the entry of a final judgment enjoining him from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, ordering Zhang to pay disgorgement of $40,494, and ordering a civil penalty against Zhang in the amount of $40,494. The relief obtained concludes the litigation in SEC v. All Know Holdings Ltd, et al.

FORMER MICROSOFT PORTFOLIO MANAGER AND BUSINESS PARTNER CHARGED WITH INSIDER TRADING BY SEC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged a senior portfolio manager at Microsoft Corporation and his friend and business partner with insider trading ahead of company announcements.

The SEC alleges that Brian D. Jorgenson, who lives in Lynwood, Wash., obtained confidential information about upcoming company news through his work in Microsoft’s corporate finance and investments division.  Jorgenson tipped Sean T. Stokke of Seattle in advance of the Microsoft announcements, the most recent occurring in October.  After Stokke traded on the inside information that Jorgenson provided, the two equally split the illicit profits in their shared brokerage accounts.  They made joint trading decisions with the goal of generating enough profits to create their own hedge fund.

In a parallel action, the U.S. Attorney’s Office for the Western District of Washington today announced criminal charges against Jorgenson and Stokke.

“Abusing access to Microsoft’s confidential information and generating unlawful trading profits is not a wise or legal business model for starting a hedge fund,” said Daniel M. Hawke, chief of the SEC Enforcement Division’s Market Abuse Unit and director of the SEC’s Philadelphia Regional Office.  “We thwarted the misguided plans of Jorgenson and Stokke as they sought to illegally profit at others’ expense.”

According to the SEC’s complaint filed in U.S. District Court for the Western District of Washington, Jorgenson and Stokke made a combined $393,125 in illicit profits in their scheme, which began in April 2012.

The SEC alleges that Stokke first traded in advance of a public announcement that Microsoft intended to invest $300 million in Barnes & Noble’s e-reader business.  Jorgenson learned of the impending transaction after his department became involved in the financing aspects of the deal.  Jorgenson tipped Stokke so he could purchase approximately $14,000 worth of call options on Barnes & Noble common stock.  Following a joint public announcement on April 30, Barnes & Noble’s stock price closed at $20.75 per share, a 51.68 percent increase from the previous day.  Jorgenson and Stokke made nearly $185,000 in ill-gotten trading profits.

The SEC alleges that Stokke later traded in advance of Microsoft’s fourth-quarter earnings announcement in July 2013.  As part of his duties at Microsoft, Jorgenson prepared a written analysis of how the market would react to the negative news that Microsoft’s fourth quarter earnings were more than 11 percent below consensus estimates.  He estimated that Microsoft’s stock price would decline by at least six percent.  Jorgenson tipped this confidential information to Stokke, who purchased almost $50,000 worth of Microsoft options.  After Microsoft’s announcement on July 18, its stock price declined more than 11 percent the next day from $35.44 to $31.40 per share.  Jorgenson and Stokke realized more than $195,000 in illicit profits.

According to the SEC’s complaint, Stokke traded in advance of another Microsoft announcement on Oct. 24, 2013.  Jorgenson was aware that the company would be announcing first quarter 2014 earnings that were more than 14 percent higher than consensus estimates.  Rather than purchase Microsoft securities directly, Jorgenson and Stokke purchased more than $45,000 worth of call options on an exchange-traded fund in which Microsoft comprised more than eight percent of the fund’s holdings.  Following the announcement, Microsoft’s share price increased nearly six percent and the price of the ETF increased 0.51 percent.  Jorgenson and Stokke made approximately $13,000 in illegal trading profits.

Jorgenson and Stokke are charged with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, both directly and pursuant to 20(d) of the Exchange Act.  The SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and financial penalties against Jorgenson and Stokke as well as an officer-and-director bar against Jorgenson.

The SEC’s investigation was conducted by Brendan P. McGlynn, Patricia A. Paw, John S. Rymas, and Daniel L. Koster of the Philadelphia Regional Office.  The SEC’s litigation will be led by John V. Donnelly and G. Jeffery Boujoukos.

The SEC appreciates the assistance of the U.S. Attorney’s Office for the Western District of Washington, Federal Bureau of Investigation, Options Regulatory Surveillance Authority, and Financial Industry Regulatory Authority.

SEC CHARGES TRADER WITH INSIDER TRADING OF STOCK IN A CHINESE COMPANY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
The Securities and Exchange Commission charged a Miami-based trader with insider trading in the stock of a Chinese company and conducting illegal short sales in the securities of three other companies.

The SEC alleges that Charles Raymond Langston III learned confidential information in advance of a public announcement that significantly decreased the value of AutoChina International’s stock.  Langston was solicited by placement agents to invest in a secondary offering of AutoChina stock.  Despite agreeing to keep information confidential and not trade on it, he promptly sold short 29,000 shares of AutoChina stock in advance of the company’s public announcement that it had completed the secondary offering.  To avoid detection, Langston made the trades through an entity he owned using a different broker and different account than he used to purchase shares in AutoChina’s initial offering.  Langston made $193,108 in illegal profits by trading on the inside information.

“Langston agreed to keep confidential the information he learned from AutoChina’s placement agent and abstain from trading on it.  Yet he chose to place personal greed ahead of the integrity of the securities markets,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.

The SEC’s complaint filed in federal court in Miami further alleges that Langston and two of his companies, Guarantee Reinsurance and CRL Management, violated Rule 105 of Regulation M, which prohibits the short sale of an equity security during a restricted period – generally five business days before a public offering – and the purchase of that same security through the offering.  The rule addresses illegal short selling that can reduce offering proceeds received by companies by artificially depressing the market price shortly before the company prices its public offering.  The SEC alleges that Langston through Guarantee Reinsurance and CRL Management made short sales in advance of separate secondary offerings by Wells Fargo, Mitsubishi UFJ Financial Group, and Alcoa.  He purchased shares in the same offerings.  Langston and his companies’ violations of Rule 105 resulted in unlawful gains of more than $1.3 million.

“During restricted periods, Langston and his companies executed short sales that gamed the system and resulted in illegal profits,” said Glenn S. Gordon, associate director for enforcement in the SEC’s Miami Regional Office.  “The SEC is resolutely committed to pursuing those who violate Rule 105.”

Langston has agreed to settle the insider trading charges by paying disgorgement of $193,108, prejudgment interest of $22,204, and a penalty of $193,108.  Langston and the two companies also agreed to be enjoined for the short selling violations with monetary sanctions to be determined by the court at a later date.  Langston neither admits nor denies the allegations that he violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Rule 105 of Regulation M of the Exchange Act.

The SEC’s case against Langston and his companies was investigated by Andre J. Zamorano and Kathleen Strandell in the Miami office, and supervised by Thierry Olivier Desmet.  The SEC’s litigation is being led by Christopher E. Martin.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

FORMER QUALCOMM EXECUTIVE CHARGED WITH INSIDER TRADING BY SEC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Charges Former Qualcomm Executive and His Financial Advisor with Insider Trading Through Secret Offshore Accounts

The Securities and Exchange Commission today charged a former executive vice president at Qualcomm Inc. and his former financial advisor with insider trading ahead of major announcements by the San Diego-based wireless technology company for more than a quarter-million dollars in profits.

The SEC alleges that Jing Wang, a former executive vice president and president of global business operations at Qualcomm, used a secret offshore brokerage account to make illegal trades based on confidential information that he learned on the job.  Gary Yin, a former registered representative at Merrill Lynch, helped Wang set up the account.  Yin also created a secret offshore account of his own and traded on the non-public information gleaned from Wang.  When Wang eventually realized that insider trading in the offshore accounts still may be discovered by the SEC or other regulators, he concocted a plan to conceal his trading activity by claiming the trades were made by his brother.  Wang even convinced Yin to travel to China and go over the account statements with Wang’s brother so he could explain the trades if asked by investigators.

In a parallel action, the U.S. Attorney’s Office for the Southern District of California today announced criminal charges against Wang and Yin.

According to the SEC’s complaint, Wang and Yin became friends in 2005 as members of the same church.  When Wang learned that Yin was a financial advisor at Merrill Lynch, he asked Yin to manage his money and opened a number of brokerage accounts at the firm’s San Diego branch office.  Each account was disclosed to Qualcomm because, as a company officer, Wang was restricted in his ability to trade Qualcomm stock and required to pre-clear all Qualcomm trades with the company.

The SEC alleges that in early 2006, Wang approached Yin about hiding cash transactions.  Yin suggested that Wang create an entity registered in the British Virgin Islands (BVI) and use the name of a non-U.S. citizen family member as the beneficial owner.  Then he could open a brokerage account in the newly created entity’s name.  Yin then helped Wang set up a secret account in the name of a BVI company called Unicorn Global Enterprises, and Wang’s older brother was listed as the owner.  Yin similarly created his own BVI-registered entity named Pacific Rim and put it in his mother-in-law’s name.  Yin opened a Merrill Lynch brokerage account for Pacific Rim and used it to hide funds that he was using for investments.

The SEC alleges that Wang and Yin used their secret offshore accounts to trade on material, non-public information that Wang learned as an executive at Qualcomm.  In early 2010, Wang was aware that Qualcomm executives were planning a board proposal to increase Qualcomm’s quarterly dividends and request authority to initiate a stock repurchase program.  Qualcomm informed Wang and all executives that they would not be permitted to trade Qualcomm stock.  On March 1, Wang attended a Qualcomm board meeting where the quarterly dividend increase and stock repurchase were approved.  Wang immediately instructed Yin to use all of the funds in the offshore Unicorn account to purchase Qualcomm stock.  Yin knew that Wang did not pre-clear these trades and realized that the purchase was out of character for Wang because he previously never purchased Qualcomm stock on the open market in his Merrill Lynch accounts.  Within the hour of executing the trades for Wang, Yin himself bought Qualcomm stock on the basis of the material, non-public information.  The stock price increased 6.7 percent after Qualcomm publicly announced the quarterly cash dividend and stock repurchase program.  Wang and Yin profited when they sold all of their shares.
 
According to the SEC’s complaint, Wang used the funds from that sale to conduct insider trading again – this time in the shares of San Jose-based Atheros Communications, which was the highly confidential target of a planned acquisition by Qualcomm. Wang was regularly briefed on the transaction internally tabbed as “Project Tango” to protect its confidentiality.  Wang instructed Yin to sell all of his Qualcomm stock in the Unicorn account on Dec. 2, 2010, and prepare to buy as many shares of Atheros stock as possible with the funds in that account.  He told Yin that he was leaving on a trip to China and would contact him to execute the Atheros trade.  On December 6, Wang attended a Qualcomm board meeting in Hong Kong and a resolution was passed to pursue the acquisition. Wang learned that Qualcomm planned to acquire Atheros at $45 per share.  Wang and Yin immediately communicated several times through phone calls and a text message, and Wang then purchased the maximum number of shares he could purchase with the existing funds in the Unicorn account at prices between $34 and $35 per share.  At Wang’s encouragement, Yin also purchased Atheros stock for himself in his offshore account.  When the news became public in early January, Atheros stock increased more than 20 percent.  Yin sold all of his Atheros shares in the Pacific Rim account on January 12, and Wang sold his Atheros shares in the Unicorn account on January 25.

According to the SEC’s complaint, Wang took his next insider trading step merely four minutes after selling the Atheros stock, using the proceeds to purchase Qualcomm shares in advance of a company announcement that it would raise its revenue and earnings guidance for the 2011 fiscal year.  Wang had learned the confidential information prior to the board meeting he attended in Hong Kong, where Qualcomm’s better-than-expected first quarter financial performance was further discussed.  Wang learned that Qualcomm planned to announce its earnings results on January 26, and thus purchased his Qualcomm shares the day before the announcement.  After Qualcomm issued a press release to announcing its positive first quarter results, Qualcomm’s stock increased 5.9 percent.

The SEC alleges that Wang made more than $244,000 in illegal profits through the insider trading scheme, and Yin realized gains of more than $27,000.  Wang eventually realized that his illegal trading may be detected by Merrill Lynch or others.  Wang first asked Yin to delete records of the trades in the Unicorn account, but because they were permanent records in Merrill Lynch’s systems they could not be erased.  Around January 2012, Wang directed Yin to establish a new BVI corporation named Clearview Resources and open a new account at Merrill Lynch to which they transferred the insider trading proceeds in the Unicorn account to further distance Wang from the suspicious trades.  A few months later, Wang informed Yin that the trades may have been detected because the SEC had subpoenaed his e-mails.  So Wang devised a cover story and convinced Yin if ever questioned to say that the Atheros trades were made by Wang’s brother.  Because Yin had never communicated with Wang’s brother, Wang instructed him to travel to China with the Unicorn account statements and review the trades with his brother so he could explain the trading if asked.  Yin did so in May 2012.  To further hide Wang’s ownership of the Unicorn account and his link to the Atheros trades, Yin removed the Unicorn account from Wang’s “household” in Merrill Lynch’s computer system in July 2012. “Householding” is a function used by Merrill Lynch to link related accounts.  

The SEC's complaint charges Wang, who lives in Del Mar, Calif., with violating Sections 10(b) and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5 and 16a-3.  Yin, who lives in San Diego, is charged with violating Section 10(b) of the Exchange Act and Rule 10b-5.  The SEC’s complaint seeks disgorgement of ill-gotten gains plus prejudgment interest, financial penalties, and permanent injunctions.  The SEC also seeks an officer-and-director bar against Wang.

The SEC’s investigation has been conducted by Ann C. Kim, Wendy E. Pearson, Nina Yamamoto, and Finola H. Manvelian of the Los Angeles Regional Office.  The SEC’s litigation will be led by Sam Puathasnanon.  The SEC appreciates the assistance of the Department of Justice’s Criminal Division, the U.S. Attorney’s Office for the Southern District of California, and the Federal Bureau of Investigation.