A Florida-based attorney has been ordered by the SEC to pay nearly $4 million that will be returned to investors in an investment scheme he dreamed up, and the agency has followed up a sting operation last week in its pursuit of microcap fraud with charges against another microcap company and four individuals in charge, as well as others in a separate pump-and-dump scheme.
Also, a group of amateur golfers were among those charged in an insider trading ring and Ernst & Young faced charges on lobbying.
SEC Thwarts Insider Trading by Amateur Golfing Group
Golf wasn’t the only game a group of friends was playing when they got together. The SEC has charged the seven, six of them amateur golfers, with profiting off insider information obtained from an executive in the group.
According to the SEC, Eric McPhail got inside information from a close friend and member of the same country club who was an American Superconductor executive. From July 2009 through April 2011, the executive told McPhail about American Superconductor’s expected earnings, contracts, and other major pending corporate developments, expecting that the information would go no further.
However, McPhail instead either told or emailed other friends about the inside information, and together the seven made more than $554,000 of illegal profits from trading on it.
McPhail, who lives in Waltham, Massachusetts, spread the information to Douglas Parigian of Lowell, John Gilmartin of Andover, Douglas Clapp of Walpole, and James “Andy” Drohen of Granville, all also in Massachusetts; Drohen’s brother, John Drohen, of Cranston, Rhode Island; and nongolfer but longtime friend Jamie Meadows, of Springfield, Massachusetts. They all used the information to trade.
in April 2011, McPhail tipped Parigian and Meadows shortly before American Superconductor announced that it expected Q4 and fiscal year-end results to fall due to a deteriorating relationship with its primary customer, China-based Sinovel Wind Group Co., Ltd. Parigian and Meadows bought options to bet on a decline in price, and it paid off when the stock fell 42%. That gave Parigian a boost of $278,289 from gains and avoided losses just on this single tip, while Meadows profited by $191,521.
McPhail passed along other tips to various group members on quarterly earnings announcements in July and September 2009, and again in January 2010. In the fall of 2009, he also told them about a contract worth $100 million, and in November 2010 about a probable drop in AMSC’s share price; the drop happened a few days later when the company announced a secondary stock offering.
McPhail, Parigian, Gilmartin, Clapp, the Drohens, and Meadows are charged with violating federal antifraud laws and the SEC’s antifraud rule. In addition to enjoinment, the SEC is seeking return of ill-gotten gains with interest and financial penalties of up to three times gains. Gilmartin, Clapp and the Drohens agreed to settle, without admitting or denying the allegations, and consented to permanent enjoinment from further violations. 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; and 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.
Ex-Governor of New Mexico, 3 Others Charged in Microcap Scheme
In yet another operation designed to protect investors from being scammed when trying to invest in microcaps, the SEC has charged four individuals and a microcap company for hiding the fact that the company was being run by two lawbreakers.
Toney Anaya, who was CEO of the company for about three years, was a Democratic governor of New Mexico from 1983 to 1987 and the state’s attorney general from 1975 to 1978.
Following its sting operation last week with the FBI, the SEC charged James Cohen, Joseph Corazzi, Toney Anaya and Erik Perry for their involvement in the scheme surrounding the micrpcap Natural Blue Resources Inc.
Natural Blue was purported to create, acquire or otherwise invest in environmentally friendly companies, including an initiative to locate, purify and sell water recovered from underground aquifers in New Mexico and other areas with depleting water resources.
What investors didn’t know, and weren’t told, was that Cohen and Corazzi had previously been in trouble with the law. Cohen had been jailed for financial fraud, while Corazzi had previously been charged with violating securities laws and was permanently barred from acting as an officer or director of a public company.
To top it off, under the guise of serving as outside “consultants,” the two made all the decisions regarding the company’s operations despite the fact that Anaya, a former New Mexico governor and attorney general, and then Perry were nominally in charge of Natural Blue.
In addition, Natural Blue and Perry also made various material misrepresentations about the company, its contracts and its anticipated revenue in a February 2011 press release, as well as on a website and verbally to investors.
Anaya, who was Natural Blue’s CEO from August 2009 to January 2011, has consented to a cease-and-desist order without admitting or denying the charges. He will be barred from participating in any offering of a penny stock for at least five years. Any financial penalties will be determined at a later date.
Perry, who replaced Anaya and served as CEO until June 2011, also consented to a cease-and-desist order without admitting or denying the charges. Perry, who previously resided in Massachusetts and currently lives in Bulgaria, agreed to pay a $150,000 penalty and be permanently barred from serving as an officer or director of a public company and from participating in any offerings of penny stock.
Natural Blue, Cohen, and Corazzi face numerous charges in court.
The FBI assisted in the case, as it did in last week’s sting operation. Federal Judge Fines Attorney $4 Million for Bilking Investors