Among recent enforcement actions, the SEC has charged the owner and CEO of a North Carolina business with fraud; a brokerage firm with faulty underwriting of a China-based company’s public offering; the former CEO of Polycom Inc. with hiding perks from investors; and two friends with insider trading.
Former Exec Charged by SEC with Hiding Perks From Investors
Andrew Miller, the former CEO of Silicon Valley-based technology firm Polycom Inc., has been charged by the SEC with using nearly $200,000 in corporate funds for personal perks that were not disclosed to investors.
According to the agency, Miller created hundreds of false expense reports with bogus business descriptions for his personal use of company dollars to pay for meals, entertainment and gifts. He also used company money to pay for travel with friends and his girlfriend to luxurious international resorts, claiming that the trips were business-related site inspections in advance of company sales retreats.
He hid the costs by directing a travel agent to bury them in fake budget line items. In 2012 alone, Miller charged Polycom for more than $115,000 in personal expenses despite publicly reporting that he received less than $35,000 in perks that year.
Miller spent more than $80,000 for personal travel and entertainment disguised as legitimate business expenses; more than $10,000 for clothing and accessories and more than $5,000 worth of spa gift cards he claimed were given as gifts to customers and employees; more than $10,000 for tickets to professional baseball and football games he claimed to have attended with clients; and more than $5,000 for plants and a plant-watering service at his apartment that he claimed were for the company’s San Francisco office.
The SEC separately charged Polycom in an administrative order, finding that the company had inadequate internal controls and failed to report Miller’s perks to investors. Without admitting or denying the SEC’s findings, Polycom agreed to pay $750,000 to settle the charges. The case against Miller continues in federal court.
Brokerage Firm Charged With Faulty Underwriting
New York-based Macquarie Capital (USA) Inc., a wholly owned subsidiary of global financial services firm Macquarie Group Ltd., was charged by the SEC for underwriting a public offering despite obtaining a due diligence report indicating that the China-based company’s offering materials contained false information.
The SEC also charged former Macquarie Capital managing director Aaron Black and former investment banker William Fang for failing to exercise appropriate care in their due diligence review.
According to the agency, Macquarie Capital was the lead underwriter on a secondary public stock offering in 2010 by Puda Coal, which traded on the New York Stock Exchange at the time and claimed to own a coal company in the People’s Republic of China (PRC). Offering documents said that Puda Coal held a 90% ownership stake in the Chinese coal company. Macquarie Capital included that information in its marketing materials for the offering, despite having a report from Kroll Associates showing that Puda Coal owned no part of the coal company. In its due diligence review, Kroll accessed corporate registry filings in China that said Puda Coal’s chairman had transferred ownership of the coal company to himself, then sold nearly half his interest to the largest state-owned investment firm. So Puda Coal had no ownership stake or source of revenue.
Kroll provided its report to Fang. He read it, but instead of taking action on the news that Puda Coal no longer owned the coal company, he circulated the report to other members of the deal team and said in the email that “no red flags were identified.” Black, who served as one of the transaction directors on the Puda Coal deal, also read the report, including portions stating that Puda Coal’s chairman owned 50% of the coal company, knowing it claimed to own 90%. He also did nothing.
Macquarie Capital made a net profit of $4.17 million as lead underwriter on the offering, which sold stock at $12 per share. Once the news came out about the report Kroll had found, Puda Coal’s stock price plunged to pennies per share. Puda Coal is no longer in business; the executives responsible for the offering fraud were previously charged by the SEC.
While none have admitted or denied the charges, Macquarie Capital, Black and Fang have all agreed to settle with the SEC. Macquarie Capital has agreed to pay $15 million and separately cover the costs of setting up a Fair Fund to compensate investors who lost money. Black will pay $212,711 and Fang $35,000. In addition, Black has agreed to be barred from supervisory positions in the securities industry and Fang has agreed to be barred from the securities industry, both for at least five years.
SEC Accuses 2 Friends of Insider Trading, Kickbacks