Home Articles SEC Enforcement Actions – Part XI

SEC Enforcement Actions – Part XI


part XI

Navistar International Corp. Ordered To Produce Documents In SEC Investigation

U.S. Magistrate Judge Sidney I. Schenkier issued an order requiring Navistar International Corporation to produce documents the company has claimed to be privileged. The company’s claim came in response to investigative subpoenas issued by the SEC.

navistarAccording to the SEC’s application, the Commission is investigating possible fraud relating to statements made by Navistar during its efforts to obtain a certificate of conformity from the U.S Environmental Protection Agency, certifying that Navistar's engines complied with certain provisions of the Clean Air Act.

Navistar has produced many documents in response to the Commission's subpoenas, but it has redacted and withheld other documents on privilege grounds. In its application, the Commission requested that the court deny Navistar's privilege claims over certain documents that the Commission alleged to involve lobbying and communications firms retained by Navistar, communications among only non-attorneys, and draft documents.

In response to the application, the court reviewed 72 documents that Navistar has redacted and withheld. In its order, the court overruled Navistar's privilege assertions as to 46 documents in their entirety, and overruled Navistar's privilege assertions as to parts of 16 additional documents. The Court also ordered that in addition to the documents that the Court found not to be protected from production, Navistar must produce documents that Navistar in good faith determines not to be protected under the analysis employed by the Court's in its rulings on the subset of documents it reviewed.

The Commission noted that it is continuing to conduct a fact-finding inquiry, and has not concluded that anyone has broken the law.

Oil Company, CEO Charged In Ponzi-Like Scheme And Affinity Fraud

The SEC has charged an oil-and-gas company and its CEO with running a $68 million Ponzi-like Bingqing Yang copyscheme and affinity fraud that targeted the Chinese-American community in California and investors in Asia, including some solicited as part of the EB-5 Immigrant Investor Program.

The SEC alleges that CEO Bingqing Yang knew that Luca International Group was earning no profits and had a mountain of debt. But she made presentations to investors portraying a successful oil-and-gas operation with millions of barrels of oil reserves, and billions of cubic feet in gas reserves. Yang falsely projected investment returns ranging from 20 to 30 percent annually. She allegedly commingled investor funds to prevent the scheme from collapsing, and used money from new investors to make payments to earlier investors.

Yang also allegedly diverted $2.4 million in investor funds through her brother's company in Hong Kong, purportedly for the purchase of an oilrig. However she actually used it and other investor money on personal expenses, including a 5,600-square-foot home in an exclusive gated community in Fremont, Calif.

According to the SEC's complaint filed in federal court in San Francisco, Luca International conducted seminars for investors at the company's offices and hotel conference rooms in California. Besides targeting investors in the Chinese-American community through advertisements in Chinese-language television, radio, and newspaper outlets, Yang and Luca International allegedly pitched Chinese citizens who sought permanent U.S. residence through the EB-5 program, which provides a way for foreign investors to obtain a green card by meeting certain U.S. investment requirements. Yang is alleged to have raised approximately $8 million from EB-5 investors purportedly to finance, through a loan to another Luca entity, jobs and development costs for eight oil-and-gas drilling projects. Yang allegedly told these investors that loan was fully secured, but the Luca entity the EB-5 investors funded was hopelessly in debt, and had no real possibility of ever repaying the loan.

Others charged in the SEC's complaint include Luca International's former vice president of business development, Lei (Lily) Lei, who allegedly sold securities to investors and helped Yang divert investor funds, and Yong (Michael) Chen, who allegedly raised investor funds for Yang through his company, Entholpy EMC, which did business under the name Mastermind College Funding Group. Luca International's former CFO Anthony Pollace agreed to pay a $25,500 penalty to settle charges that he played a small role in the alleged fraud.

As part of a related administrative action, Hiroshi Fujigami and his company Wisteria Global agreed to settle charges that they acted as brokers to illegally sell securities of two Luca entities. Fujigami and Wisteria must pay back allegedly ill-gotten gains of more than $1.1 million, and Fujigami agreed to be barred from the securities industry and from participating in any penny stock offering.

Civil Injunctive Action Filed Against Silverleaf Financial, Dwight Shane Baldwin

The SEC filed a civil injunctive action based on the fraudulent offering of securities by Silverleaf BaldwinFinancial, LLC and its sole principal, Dwight Shane Baldwin.

The Commission's complaint alleges that from June 2010 through late 2011, Baldwin and Silverleaf offered and sold securities in the form of promissory notes and investment contracts, raising at least $8 million from investors. The money was raised to purchase two defaulted loans: one collateralized by property in Oviedo, Florida and the other collateralized by the Trailhead Lodge in Steamboat Springs, Colorado.

The Commission's complaint alleges that in connection with the offer and sale of these securities, Baldwin and Silverleaf made untrue statements regarding material facts, omitted important information, and operated a scheme to defraud investors.

The Commission's complaint alleges that Silverleaf and Baldwin violated the Securities Act of 1933 and the Securities Exchange Act of 1934. The Commission's complaint is seeking permanent injunctions against future violations of the Securities Act and the Securities Exchange Act.

Goyal Sentenced To Six Years In Prison; Ordered To Pay More Than $9.2 Million

The SEC announced that former Chicago, Illinois investment fund manager, Neal Goyal, has been sentenced to six years in federal prison for operating a Ponzi-type scheme since 2006. In addition, goyal copythe court ordered Goyal to pay more than $9.2 million in restitution to the victims of his fraud.

In 2014 the U.S. Attorney's Office of the Northern District of Illinois filed criminal charges against Goyal based on a scheme in which he fraudulently obtained more than $11.3 million from more than 40 investors who invested in private funds under his control. Among other things, the criminal charges alleged that Goyal misused the funds to support his lavish lifestyle, to pay business expenses, and to open and support two baby clothing boutiques. Goyal also used funds from new investors to make Ponzi-type payments to other investors. Goyal concealed his fraud from investors by creating and distributing phony account statements. In February, 2015, Goyal entered a guilty plea to one count of wire fraud.

The Commission's case against Goyal is based on the same events. Its complaint alleged that Goyal, along with Caldera Advisors and Blue Horizon Asset Management violated the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940.

In May, 2014, the court entered an order, pursuant to Goyal's consent, permanently enjoining him from further violations of the antifraud provisions of the federal securities laws, freezing his assets along with the assets of Caldera Advisors, LLC and Blue Horizon Asset Management, LLC, and ordering him to pay back ill-gotten gains and civil penalties in amounts to be determined in a separate hearing. In June, 2014, the court appointed Kevin B. Duff of Rachlis, Duff, Adler, Peel & Kaplan, LLC as the receiver over Goyal, Caldera Advisors, LLC, Blue Horizon Asset Management, LLC, and Caldera Investment Group, Inc.  

SEC Obtains Preliminary Injunction Order Against Companies Charged In Avon Market Manipulation Scheme

The SEC announced that a federal court has:

  1. granted ― in part ― the commission’s motion for a preliminary injunction,
  2. continued the freeze of over $2 million in assets in brokerage accounts in the name of defendants Strategic Capital Partners Master Limited and Strategic Wealth Investments, Inc.
  3. extended a previously obtained temporary restraining order against defendant Nedko Nedev.

Judge Lewis A. Kaplan of the United States District Court for the Southern District of New York imposed the preliminary injunction order, made findings of fact and conclusions of law against Strategic Capital and Strategic Wealth.

The SEC’s complaint and emergency application allege that Nedev, Strategic Capital, and Strategic Wealth engaged in a scheme to manipulate the stocks of Avon Products, Inc., Tower Group International, Ltd., and Rocky Mountain Chocolate Factory, Inc., by filing false tender offers on EDGAR, the SEC's public database, and issuing a fraudulent press release. The SEC alleges that defendants executed the scheme in an attempt to drive up the price of the stock of the three companies so that they could sell their positions, which had been losing value, at artificially-inflated prices.

SEC Announces Settlement In Grand Central Post-It Notes Insider Trading Case

The SEC announced a settlement with a Brooklyn man who helped the agency mount evidence in an insider trading scheme, in which nonpublic information was passed via napkins or post-it notes at Grand Central Terminal.

post-itIn 2014 the SEC charged a law firm clerk and a stockbroker with insider trading in a scheme that used a mutual friend to pass nonpublic information from the law firm's computer systems about clients' pending corporate transactions. The SEC identified that middleman as Frank Tamayo in a subsequent complaint filed in federal court in New Jersey.

The SEC alleged that after receiving the tips from the law firm clerk, Tamayo typically met the stockbroker near the clock at the information booth at Grand Central. He would chew up or eat post-it notes or napkins after using them to show the stockbroker the ticker symbol of the company that would be acquired. The stockbroker then traded for himself, Tamayo, and other customers.

For his extensive cooperation in the SEC's investigation, Tamayo will not face a monetary penalty from the SEC. In the proposed final judgment, which is subject to court approval, Tamayo would be ordered to pay back more than $1 million of his ill-gotten gains from the scheme, but that payment would be deemed satisfied by the entry of orders of forfeiture or restitution in the parallel criminal case, in which he has pled guilty.

Under the terms of the agreement, Tamayo must continue to cooperate as a witness in the SEC's ongoing case against the law firm clerk, Steven Metro of Katonah, N.Y., and the stockbroker, Vladimir Eydelman of Colts Neck, N.J. The SEC seeks payment of ill-gotten gains plus prejudgment interest, financial penalties, and injunctions against them.

SEC Charges Attorney With Insider Trading In Advance of Merger Announcement

The SEC has charged a Pennsylvania attorney with insider trading in the stock of Harleysville Group, Inc. in advance of the 2011 announcement of a $760 million merger of Harleysville and Nationwide Mutual Insurance Company.

According to the SEC's complaint, Herbert K. Sudfeld illegally traded on the news that sent Harleysville's stock price up 87 percent when the merger of the two insurance companies was announced in September 2011. At the time, Sudfeld was a real estate partner at a law firm in Philadelphia that advised Harleysville on the merger. Sudfeld was not involved in the merger and learned that the announcement of it was imminent from a conversation between an attorney working on the transaction and their shared legal assistant.

Sudfeld allegedly acted on the inside information and purchased Harleysville stock in his and his wife's accounts. Once the merger was announced, Sudfeld sold all the shares he had purchased, realizing approximately $79,000 of illegal profits.

In a parallel action, the U.S. Attorney's Office for the Eastern District of Pennsylvania announced criminal charges against Sudfeld.

Two Defendants Admit Liability In Pyramid Scheme Targeting Asian-Americans

The SEC announced that the U.S. District Court for the Eastern District of New York entered settled judgments against defendants Rayla Melchor Santos and Chih Hsuan "Kiki" Lin, two of 16 CKBdefendants charged with conducting CKB, a worldwide pyramid scheme.

In settling the SEC's charges against her, Santos admitted that CKB was a pyramid scheme, and that she was one of its three primary founders. Santos also admitted that she travelled to the United States and worked with other CKB founders and promoters to convince investors to join CKB. Investors were falsely told that CKB was a legitimate multi-level marketing company that sold online education courses for children. In fact, Santos knew that CKB sold its products only to investors and had no significant retail sales.

In settling the SEC's charges against her, Kiki Lin admitted that CKB was an unlawful scheme and that she worked with CKB's founders and others to promote CKB to investors across the United States. Kiki Lin also admitted that she made false and misleading statements to investors and potential investors in order to induce them to join CKB. For instance, Kiki Lin admitted that she falsely told investors and potential investors that they would receive profit reward points ("Prpts") with a value in U.S. dollars that would increase exponentially over time when, in fact, she knew that Prpts could not be converted to actual money.

Defendants Santos and Kiki Lin have agreed to pay back ill-gotten gains, prejudgment interest, and civil penalties in amounts to be determined at a later date by the court. Kiki Lin has also agreed that her wholly-controlled company, USA Trade Group, Inc., will pay back ill-gotten gains and prejudgment interest in amounts to be determined at a later date by the court.

As part of the settlement, Kiki Lin also agreed to the issuance of a Commission order that permanently bars her from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or national recognized statistical rating organization, and from participating in any offering of a penny stock.

Enea Sentenced To Two Years In Prison For Wire Fraud, Filing A False Tax Return

U.S. District Court Judge Charles N. Clevert has sentenced Michael R. Enea to two years in federal prison, and ordered him to pay $756,000 in restitution for operating a Ponzi scheme from 2006 to 2013.

credit-card-machineIn an action that paralleled the Commission's securities fraud case against Enea, a criminal case was filed against Enea alleging that he raised $2.1 million from more than 10 investors by representing that he would purchase "credit card processing portfolios."

The criminal case alleges that Enea represented to investors that the credit card processing portfolios entitled investors to periodic "residual payments,” which were based on the fees merchants paid to process credit card transactions. The case also alleges that investors were told that the investments would earn annual returns ranging from 20 to 35 percent. Enea, however, never used the funds to purchase the credit card processing portfolios and, instead, used the funds to pay his own personal expenses and to repay other investors. As a result, the investors suffered net losses of more than $750,000. In March, Enea entered a guilty plea to one count of wire fraud and to one count of filing a false federal income tax return.

The Commission's case against Enea is based on the same conduct as the criminal case. The court entered an order, pursuant to Enea's consent, that permanently enjoins him from further violations of the securities registration, antifraud, and broker-dealer registration provisions of the federal securities laws and ordering him to pay $843,120 in ill-gotten gains and prejudgment interest to be secured by Enea's personal residence located in Menomonee Falls, Wisconsin. The Commission also entered an order barring Enea from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock.

SEC Settles Civil Action Against Former Bank Senior Vice President

The SEC announced that on July 10 a final judgment was entered against Thomas Yu, a former bankSenior Vice President at United Commercial Bank, a wholly owned subsidiary of UCBH Holdings, Inc., a publicly-traded holding company.

The Commission's complaint alleges that Yu and other defendants concealed losses on loans and other assets from the bank's auditors, and delayed the proper reporting of those losses. The Commission's complaint further alleges that Yu committed securities fraud by causing UCBH to materially understate losses in connection with its 2008 annual report, and misleading the bank's independent auditors.

Yu consented to the entry of a final judgment that permanently enjoins him from violating the Securities Exchange Act of 1934 and the Securities Act of 1933. The judgment also bars Yu from acting as an officer or director of a public company.

In a parallel criminal proceeding, Yu pleaded guilty in October, 2014 to one count of conspiracy to commit false bank entries, reports and transactions.