Tech Exec Gets 9 Years in Prison Over Fraudulent Stock Offering: Enforcement

In other enforcement news, an auditor was charged with insider trading on client’s nonpublic information

Gregory E. Webb, a defendant in an ongoing enforcement action filed by the Securities and Exchange Commission, was sentenced to nine years imprisonment in a parallel criminal action on March 1.

In addition, the court ordered Webb to pay $9 million in restitution.

Webb, 71, of Arlington Heights, Illinois, was the chairman, CEO and President of InfrAegis Inc., a now-defunct company.

On Feb. 28, 2014, a federal grand jury returned an 11-count indictment against Webb and, on July 11, 2016, a federal jury in Chicago found Webb guilty on nine of the 11 counts and found him not guilty on two of the 11 counts.

Webb and InfrAegis are defendants in a SEC civil enforcement action based, in part, on the same conduct alleged in the criminal indictment. The SEC's complaint, filed on Oct. 11, 2011, alleges that, from January 2005 through June 2010, Webb and InfrAegis orchestrated a fraudulent, unregistered offering of stock that raised at least $20 million from at least 395 investors.

According to the SEC's complaint, Webb and InfrAegis made false and misleading claims about the company's commercial success and the existence of contracts for the installation of InfrAegis' products, including certain contracts that were alleged in the criminal indictment. The SEC's litigation, which has been stayed pending the outcome of the criminal case, is ongoing.

Auditor Charged With Insider Trading on Client’s Nonpublic Information

The SEC announced that an auditor based in Silicon Valley has agreed to settle charges that he traded on inside information about a client on the verge of a merger.

The SEC’s order finds that through his work at an independent audit firm, Nima Hedayati learned that Fremont, California-based Lam Research Corp. was making preparations to acquire Milpitas, California-based KLA-Tencor Corp. The two companies manufacture equipment used in the creation of semiconductors. 

According to the SEC’s order, Hedayati proceeded to purchase out-of-the money call options in KLA common stock in his brokerage account as well as his fiancée’s brokerage account, and he also encouraged his mother to purchase KLA common stock. After merger plans were publicly announced, KLA’s stock price increased nearly 20%, and Hedayati and his mother collectively profited by more than $43,000 from the illegal trades. Hedayati’s employer fired him when it discovered his misconduct.

Without admitting or denying the SEC’s findings, Hedayati agreed to pay disgorgement of $43,000 plus $1,200 in interest and a $43,000 penalty for a total of more than $87,000. 

Hedayati agreed to be suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The SEC’s order permits him to apply for reinstatement after five years.

Former Investment Advisor Pleads Guilty in Cherry-Picking Scheme

Massachusetts-based investment advisor Michael J. Breton pleaded guilty on March 3 in federal district court in Massachusetts to one count of securities fraud in connection with an illegal cherry-picking scheme. Breton is scheduled to be sentenced in May.

The criminal charge arises from the same conduct alleged in a related SEC civil enforcement action filed on Jan. 25. The SEC's complaint alleges that Breton and Strategic Capital Management LLC defrauded clients out of more than $1.3 million. Breton allegedly placed trades through a master brokerage account and then allocated profitable trades to himself while placing unprofitable trades into the client accounts, according to the SEC. 

SEC Charges Businessman with Misappropriating EB-5 Investments

The SEC announced fraud charges against a Renton, Washington-based businessman accused of misappropriating money he raised from EB-5 investors.

The SEC's complaint, filed in federal court in Washington, alleges that Andy Shin Fong Chen and his company Aero Space Port International Group Inc. falsely told foreign investors that their $500,000 investments would be used to develop an EB-5 business he formed to develop a parcel of commercial real estate in Moses Lake, Washington. This would qualify the investors for a potential path to permanent U.S. residency through the EB-5 program.

Chen allegedly jeopardized investors' residency prospects when he unlawfully misappropriated virtually all of the approximately $14.5 million he raised from them for his and his family's personal use, ASPI's operating expenses, and several of his other business interests, including other EB-5 projects he operated and personal businesses unrelated to the EB-5 program.

Security Guard Charged With Insider Trading

On March 15, the SEC charged a Kingston, Pennsylvania man with insider trading in the securities of H.J. Heinz Co. in advance of the Feb. 14, 2013 announcement that Heinz would be acquired by Berkshire Hathaway and 3G Capital Partners.

The SEC's complaint, filed in federal court in New York City, alleges that Todd David Alpert, who worked as a security professional at the home of a Heinz board member, misappropriated material nonpublic information about the then-impending acquisition by purchasing Heinz stock and options before the deal was made public.

The complaint specifically alleges that shortly after learning about the potential deal, Alpert breached a duty of trust and confidence by purchasing 1,000 shares of Heinz stock and 30 call options. The morning that the deal was announced, Alpert sold these Heinz securities for total profits of nearly $44,000.

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