Vinay Kumar Nevatia often was not who he said he was, the SEC says. He wasn't even licensed to trade stock.

Life Partners Holdings Inc. and its officers were not only the target of permanent injunctions, but were also ordered to pay nearly $50 million in disgorgement and penalties after being charged by the SEC in 2012 with running a fraudulent disclosure and accounting scheme.

Also among recent enforcement actions by the SEC were charges against a California resident for selling shares of stock he never actually owned and fraud charges against two former executives of an assisted living provider.

California Man With Many Aliases Charged With Fraudulent Stock Sales

The SEC has charged Vinay Kumar Nevatia with fraudulently selling shares of stock that he never owned himself, but had bought for others several years before.

According to the agency, Kumar, who held himself out as an investment professional and used several aliases, sold $900,000 worth of stock he claimed to own in a privately held information technology company called CSS Corp. Technologies (Mauritius) Limited.

He’d bought the CSS stock in 2008 on behalf of the true owners, claiming to be legitimately able to do so, but then later told the new buyers that the shares were his own. Through a series of secret wire transfers and managing to induce the stock transfer agent into recording the fraudulent sales, he resold the CSS shares that were never his to begin with, and kept the money for himself.

But he didn’t stop there. He sent the original true owners of the stock phony updates on their now-gone holdings for more than a year after he had disposed of their stock in these subsequent sales in 2011 and 2012. The SEC said that Kumar has never been registered with the SEC nor licensed to trade securities.

The SEC has charged Kumar with violating the antifraud provisions of the Securities Act of 1933 and Securities Exchange Act of 1934, and seeks permanent injunctions, the return of ill-gotten gains, and a financial penalty.

 

LPHI Ordered to Pay $50 Million in Final Judgment

Life Partners Holdings Inc. and two of its executives, Brian Pardo and R. Scott Peden, who were charged by the SEC in 2012 with running a fraudulent disclosure and accounting scheme involving life settlements, were permanently enjoined and ordered to pay a total of nearly $50 million in a final judgment.

In the original action, the SEC had said they “misled shareholders by failing to disclose a significant risk to Life Partners’ business: the company was systematically and materially underestimating the life expectancy estimates it used to price transactions.”

According to the order, LPHI was ordered to pay $15 million in disgorgement and a civil penalty of $23.7 million; Peden was ordered to pay a civil penalty of $2 million; and Pardo was ordered to pay a civil penalty of $6,161,843. Former Execs Listed Fake Senior Center Occupants in Lease Deals

The SEC has charged Laurie Bebo and John Buono, then-CEO and then-CFO, respectively, of a Wisconsin-based assisted living provider, with listing fake occupants at some senior residences in order to meet the requirements of a lease to operate the facilities.

According to the agency’s enforcement division, the two put together a scheme involving false disclosures and manipulation of internal books and records when it looked as if their company, Assisted Living Concepts Inc. (ALC), would default on financial covenants in a lease agreement with a Chicago-based real estate investment trust called Ventas Inc., which owned the facilities.

The covenants required minimum occupancy rates and coverage ratios of the company operating the facilities; failure to meet these minimums would constitute a default on the lease. A default would have required ALC to pay the remaining rent amount due for the full term of the lease, which amounted to tens of millions of dollars at the time.

ALC, which has since been sold to a private equity firm, operated more than 200 senior living residences in the U.S. comprising more than 9,000 units. In early 2008, ALC began operating eight facilities owned by Ventas. These facilities had a total of 540 units and were located in Alabama, Florida, Georgia and South Carolina.

Bebo was eager to enter into the lease to operate these Ventas facilities, but certain ALC officers and directors opposed it due to disadvantageous provisions including the financial covenants related to occupancy and coverage ratios. Bebo, however, assured the directors that she was confident that ALC could meet the financial covenants.

But it was less than a year until Bebo realized a financial covenant default was likely. The fraud began in 2009 and continued into 2012. First Bebo came up with the idea of including ALC workers who spent the night at a facility in the covenant calculations. When she asked ALC’s general counsel about it, she was advised that ALC needed to fully disclose the practice to Ventas and obtain written approval for it to be permissible under the lease.

But that was never done. Instead, Bebo and Buono directed ALC accounting personnel calculating the occupancy rates and coverage ratios to include phony occupants in the calculations so the company could meet the numbers required in the covenants. The fake occupants’ identities were determined by Bebo, and included her family members and friends, as well as ALC current and former employees, among others, who did not reside at the senior residences. One of the purported senior residents was just 7 years old. Not only were these fake residents, but some were listed as residents of multiple facilities at the same time. From the third quarter of 2009 to the fourth quarter of 2011, ALC allegedly included between 45 and 103 nonresidents in the covenant calculations.

If Bebo and Buono hadn’t dreamed up the scheme to include fake occupants, the company would have missed the covenant by a significant margin for several consecutive quarters. Instead, Bebo and Buono allegedly certified ALC’s annual and quarterly reports that fraudulently represented that the company was in compliance with the occupancy and coverage ratio covenants included in the lease. Coverage ratio was defined in the lease as cash flow at the facilities divided by the rent payments owed by ALC to Ventas.

The investigation is continuing.

SEC Charges Montana Man in Pump-and-Dump Scheme

Penny stock promoter Matthew Carley of Bozeman, Montana, was charged by the SEC with orchestrating a fraudulent pump-and-dump scheme involving the stock of a Northern Virginia-based company that claims to be in the airport security business.

According to the agency, Carley engineered a reverse merger and gained control of free-trading shares of Red Branch Technologies, located in Ashburn, Virginia. He then orchestrated two blast e-mail campaigns promoting Red Branch stock, timing the e-mails to coincide with the dissemination of materially false and misleading company press releases touting technology related to airport security and homeland security.

Carley knew, however, that Red Branch had no true business operations and no sales revenue. The phony promotions resulted in dramatic boosts in Red Branch’s sale price and trading volume, which Carley immediately took advantage of. He immediately sold several million Red Branch shares for $789,478 in unlawful profits.

Carley agreed to settle with the SEC, which sought to bar him from participating in any future penny stock offering and permanently enjoin him from future violations of the antifraud provisions. Pending court approval, he is liable for disgorgement and prejudgment interest of $921,232 that he is anticipated to pay as part of his obligations in the parallel criminal case announced by the U.S. Attorney’s Office for the Eastern District of Virginia.

The SEC’s investigation is continuing.

— Check out SEC Enforcement: HSBC to Pay $12M Over Cross-Border Breaches on ThinkAdvisor.