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DOL, SEC Enforcement: DOL Wins Settlement for Whistleblowers

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Among recent enforcement actions by the Securities and Exchange Commission, a man targeting Chinese investors seeking U.S. residency had his assets frozen and a former investment bank analyst and two others were charged with insider trading.

Also, the Department of Labor obtained a consent judgment that awards damages to three whistleblowers who experienced retaliation after they spoke up about violations of the Employee Retirement Income Security Act (ERISA).

ERISA Whistleblowers Win Settlement

The U.S. District Court for the Central District of California has ordered 12 trustees of the Los Angeles-based Cement Masons Southern California Trust Funds and its service provider, Zenith American Solutions, to pay $630,000 in lost wages and damages to Cheryle Robbins, Cory Rice and Louise Bansmer. The decision comes in a consent judgement obtained by the U.S. Department of Labor.

Robbins, who was director of the CMSCTF audit and collections department, believed that Scott Brain, a CMSCTF trustee and business manager for Cement Masons Local Union 600, was violating the federal Employee Retirement Income Security Act. She spoke up internally, and in 2011, cooperated with a federal criminal investigation into Brain’s activities. Rice and Bansmer supported her efforts.

When it learned of her cooperation, the joint board of trustees voted to place Robbins on administrative leave. CMSCTF subsequently outsourced her department to Zenith American Solutions, and Robbins was the only employee not hired by Zenith.

An investigation by the DOL’s Employee Benefits Security Administration found that the trustees of the CMSCTF, the trust funds’ counsel Melissa W. Cook, law firm Melissa W. Cook & Associates, Zenith American Solutions, and its account executive Bill Lee had retaliated against Robbins unlawfully. As a result, DOL filed suit on May 21, 2014.

The lawsuit was later amended to allege that Rice and Bansmer were later fired, because of their participation in Robbins’ internal whistleblowing activities or because they refused to cease communicating with her after she was placed on leave.

In addition to the $630,000 paid to the three whistleblowers in lost wages and damages, the order requires the settling trustee defendants to approve pension service credits to Robbins, who previously recovered $200,000 in a private state court action based on her wrongful termination.

The order also asks the settling trustee defendants to call for Scott Brain to resign from any trustee position he currently holds, and to support the adoption of an investigation procedure to address future complaints about trustees. Also, both the settling trustees and Zenith American Solutions, including Lee, are permanently enjoined from retaliating against whistleblowers and the settling trustees and Zenith American Solutions’ employees, including Lee, are required to receive training under ERISA.

The lawsuit continues with respect to four defendants: Brain, Cook, Melissa W. Cook & Associates, and one Local 600 trustee.

Real Estate Investors Misused Chinese Immigrants’ Money, SEC Says

The SEC has announced an asset freeze against Lobsang Dargey of Bellevue, Washington, who is accused of defrauding Chinese investors seeking U.S. residency through the EB-5 Immigrant Investor Pilot Program by investing in his companies.

According to the agency, Dargey and his “Path America” companies have raised at least $125 million for two real estate projects: a skyscraper in downtown Seattle and a mixed-use commercial and residential development containing a farmers’ market in Everett, Washington. But Dargey sidelined $14 million of the money for unrelated real estate projects, and another $3 million went for his own personal use, including the purchase of his $2.5 million home and cash withdrawals at casinos.

Dargey and his companies brought in investments from 250 Chinese investors under the auspices of the EB-5 program, through which foreign citizens may qualify for U.S. residency if they make a qualified investment of at least $500,000 in a specified project that creates or preserves at least 10 jobs for U.S. workers. Path America SnoCo and Path America KingCo operated as regional centers through which EB-5 investments could be made. Dargey told U.S. Citizenship and Immigration Services (USCIS) and EB-5 investors that he would use investor money only for the Seattle skyscraper and Everett projects. Then he and his companies lied to investors about their ability to obtain permanent residency by investing in the Path America projects. He knew, for instance, that if investor money ends up being used for a project that is materially different from the approved business plan presented to USCIS, that agency can deny investors’ residency applications. However, he did not disclose to investors that he and his companies had departed from the business plan by using investor money for personal expenses and unrelated projects.

Not only were Dargey’s assets frozen, but the court also issued an order restraining him and his companies from soliciting additional investors. He’s also required to repatriate money he moved overseas, and forbidden to destroy documents.

SEC Charges Three With Insider Trading

Ashish Aggarwal, a former investment bank analyst who worked in JPMorgan’s San Francisco office, has been charged with insider trading by the SEC — along with a close friend and a friend of the friend, who also used the information.

According to the agency, Aggarwal got sensitive nonpublic information about two acquisition deals advised by JPMorgan from colleagues who were working on them: Integrated Device Technology’s planned acquisition of PLX Technology in 2012 and Salesforce’s acquisition of ExactTarget in 2013.

He then tipped Shahriyar Bolandian, who traded on the information not just in his own accounts but also those of his father and sister. Aggarwal repeatedly communicated with Bolandian before public announcements about the acquisitions were made.

Bolandian also tipped his friend Kevan Sadigh, so Sadigh too could trade on the confidential information. Bolandian worked at Sadigh’s e-commerce company, and together they made more than $672,000 in combined profits from their insider trading. Bolandian and Sadigh bought the same series of call options in PLX Technology and ExactTarget. Their trades were often within hours or even minutes of each other, and typically were 100% of the daily trading volume of those option series.

One of the brokerage accounts used by Bolandian was located in the Bahamas. He opened and funded the account with his credit card a week before the ExactTarget deal was announced. Bolandian also conducted various trades in his accounts on Aggarwal’s behalf in an arrangement that enabled Aggarwal to circumvent JPMorgan’s preclearance rules and potentially share in any profits.

In a parallel action, the U.S. Department of Justice has announced criminal charges against Aggarwal, Bolandian and Sadigh.

The investigation is continuing.

— Check out SEC Finds Shady Practices in BDs’ Structured Product Sales on ThinkAdvisor.