The Securities Investor Protection Corp. announced another settlement in the Madoff case that, on approval, will bring the total recovery to more than $10 billion.
In addition, among recent enforcement actions by the SEC were charges against a real estate business owner and a former stockbroker for offering fraud; the CEO of a penny stock company in a pump-and-dump scheme and against three promoters in coordinated pump-and-dump schemes; and sanctions against two former government contractor employees for violations of the Foreign Corrupt Practices Act (FCPA).
SIPC Announces $10 Billion Madoff Recovery Milestone
The Securities Investor Protection Corp. (SIPC) has announced that, once it has been approved by the U.S. Bankruptcy Court for the Southern District of New York, a new settlement involving $497 million with the Herald Fund and Primeo Fund will increase the total recovery to date in the Bernard L. Madoff Investment Securities LLC (BLMIS) liquidation proceeding to $10.3 billion. The two feeder funds were primarily invested in BLMIS.
Thus far, the BLMIS trustee has allowed 2,528 claims related to 2,198 Madoff accounts. Of these accounts, 1,131 accounts — or all allowed claims totaling $925,000 or less — now have been fully satisfied in the amount of nearly $6 billion.
The nearly $6 billion in BLMIS distributions to date includes approximately $816.2 million in committed advances by SIPC to satisfy Madoff customers. Since SIPC bears all of the costs of administration, such as legal and accounting fees in the liquidation, all of the assets recovered in litigation and settlements go directly to customers.
Business Owner, Former Broker Spent Investor Money on Ravens Tickets: SEC
Wilfred Azar III, owner of a Maryland-based real estate company, was charged by the SEC with conducting an offering fraud and spending investor money on such personal expenses as his mortgage, country club dues, and season tickets to the Baltimore Ravens. The agency also charged Joseph Giordano, a former stockbroker, for participating in the scheme.
According to the agency, Azar sold investors purported bonds in his company Empire Corp., which he claimed was successful, profitable and with the resources to pay 10% annual returns.
Along with Giordano, Azar and his company raised more than $7 million on such claims, which exaggerated the safety of the bonds. However, Empire Corp. was functionally insolvent.
In addition, Azar used investors’ money to pay personal expenses as well as thousands of dollars to Giordano for participating in the fraud.
For his part, Giordano also steered a mutual fund that he managed into purchasing the bonds, even though he knew the company was nearly broke. The scheme collapsed when they ran out of new investors to keep the company going and repay existing investors — who, of course, never got promised returns and in fact lost nearly all their money. The SEC seeks disgorgement plus prejudgment interest and penalties as well as permanent injunction, and is also seeking an officer-and-director bar against Azar. In a parallel case, the U.S. Attorney’s Office for the District of Maryland announced criminal charges against Azar.
The SEC’s investigation is continuing.
Penny Stock CEO Charged by SEC in Pump-and-Dump
Joseph Noel, CEO of San Francisco-based YesDTCHoldings, a penny stock company, was charged by the SEC with defrauding investors by means of phony press releases that depicted his so-called marketing and infomercial company as successful. That drove the stock price up so he could secretly sell millions of shares into the public market for more than $300,000 in illicit profits.
According to the agency, the deceptive press releases about the company touted exclusive distribution rights, licensing agreements, and certain products supposedly certified by the government. They spiked the stock price and enabled Noel to dump the shares.
To top it off, to evade disclosure of the fact that he was selling them, Noel sold the shares through a company he created in his teenage daughter’s name.
The SEC seeks disgorgement of ill-gotten gains plus prejudgment interest and a financial penalty as well as a permanent injunction. The SEC also is seeking an officer-and-director bar and a penny stock bar against Noel. In addition, it has suspended trading in the stock and instituted an administrative proceeding to revoke its registration.
Three Penny Stock Promoters Charged in Pump-and-Dump Scheme
Anthony Thompson, Jay Fung and Eric Van Nguyen were charged by the SEC with conducting pump-and-dump schemes involving stocks they were touting in their supposedly independent newsletters.
According to the agency, Thompson, Fund and Van Nguyen coordinated their efforts to gain control of a large portion of microcap company shares. Then they pushed them in newsletters they sent out to prospective investors. Once they created enough demand to increase the price, they sold out and moved on, leaving the stock prices to collapse and their investors to face significant losses.
The three promoters conducted five separate schemes that brought them more than $10 million in ill-gotten gains. The penny stocks they manipulated were Blast Applications Inc., Smart Holdings Inc., Blue Gem Enterprise Inc., Lyric Jeans Inc., and Mass Hysteria Entertainment Co. Inc.
Thompson, of Bethesda, Maryland, distributed several electronic penny stock promotion newsletters with such names as FreeInvestmentReport.com and OxofWallStreet.com. Fung, of Delray Beach, Florida, distributed his newsletters at such websites as PennyPic.com, and Van Nguyen was typically based in Canada and distributed electronic penny stock promotion newsletters on such websites as UnrealStocks.com and InsanePicks.com.
While the three coordinated their campaigns, they said they “may” or “might” sell shares of those companies, but all along their intent was always to dump the shares—and in some cases they were already doing so. They also neglected to mention all the compensation they got for pushing the stocks, and naturally hid their efforts to boost the prices for their own benefit.
Thompson, Fung, and Van Nguyen are charged with violating the antifraud and anti-touting provisions of the federal securities laws and related rules. The SEC is seeking disgorgement of ill-gotten gains from the schemes plus prejudgment interest and penalties, as well as permanent injunctions against further violations of the securities laws.