Enforcement: Fund Manager Paid Barred Nephew’s Bills With Investor Money, SEC Says

Burrill and his firm agreed to the disgorgement of $4.785 million in stolen investor money, plus a $1 million penalty. He also agreed to be permanently barred from the securities industry. Hebert and Sen also agreed to settle the charges, paying penalties of $185,000 and $90,000, respectively. They also are barred from the securities industry.

All agreed to the settlements without admitting or denying the SEC’s findings. In addition to their industry bars, Burrill, a former audit partner, and Sen are permanently suspended from appearing and practicing before the SEC as accountants, which includes not participating in the financial reporting or audits of public companies. Hebert is permanently suspended from appearing and practicing before the SEC as an attorney.

The SEC’s investigation is continuing.

SEC Charges Biotech Company With Misleading Investors

The SEC has charged Massachusetts-based biotechnology company AVEO Pharmaceuticals and three former executives, Tuan Ha-Ngoc, chief executive officer David Johnston, chief financial officer; and William Slichenmyer, chief medical officer. All are charged with misleading investors about the company’s efforts to obtain Food and Drug Administration (FDA) approval for its flagship developmental drug to treat kidney cancer. According to the agency, AVEO hid the FDA’s level of concern about Tivozanib in public statements to investors, hiding the FDA’s recommendation for a second clinical trial to address concerns about patient death rates during the first trial. AVEO raised $53 million in a public offering of its stock in January 2013 while hiding that FDA recommendation, which was explicitly made during a May 2012 meeting.

Months later, the FDA made that second trial recommendation public, and the company’s stock price dropped 31%. AVEO did design an additional trial and present those designs to the FDA, but it never actually conducted the trial. The FDA later refused to approve Tivozanib.

In corporate communications, AVEO and its officers suggested they intended to satisfy the FDA by presenting new analyses of the data from the previous clinical trial. That masked the level of concern at the FDA about the drug’s impact on patient survival.

Ha-Ngoc and Johnston knowingly approved and certified a press release and public filings that said nothing about a second trial, while Johnston also made public statements during investor conferences suggesting the FDA staff had asked only for an explanation of the survival results.

Slichenmyer misled investors in an investor conference call when he said he could not “speculate” on what the FDA “might be thinking” and “might want [AVEO] to do in the future.” He knew the FDA staff had recommended the second trial.

Without admitting or denying the SEC’s charges, AVEO agreed to pay a $4 million penalty to settle. The case continues against Ha-Ngoc, Johnston and Slichenmyer. The settlement with AVEO is subject to court approval. The SEC seeks disgorgement plus interest and penalties as well as permanent injunctions and officer-and-director bars against Ha-Ngoc, Johnston and Slichenmyer.

Former TV Commentator Settles Fraud Charges

Former market analyst and TV news commentator Tobin Smith has agreed to settle SEC charges that he and his company fraudulently promoted a penny stock to investors.

According to the agency, Smith and NBT Group Inc. were paid to prepare and disseminate emails, online blogs, articles and other communications touting the stock of IceWEB Inc., a data storage company. Smith and NBT did not fully disclose their compensation to investors, hiding the fact that part of Smith’s and NBT’s pay was tied to a sustained increase in IceWEB’s share price. The promotional material also contained false and misleading statements intended to artificially increase the trading volume and share price of IceWEB’s stock.

Smith entered into two separate agreements on NBT’s behalf to promote IceWEB and its stock in exchange for $330,000 in cash and IceWEB stock, with NBT poised to earn incentive fees of more than $250,000 if the marketing campaigns boosted the share price.

Smith and NBT never told investors about the incentive fees they would get if the stock price increased above a certain amount. In fact, Smith and NBT lied to subscribers, claiming Smith discovered IceWEB when he was “searching for a solution” to his own company’s “rapidly growing cloud data storage problem.” The truth was that Smith only “found” IceWEB after he was hired to promote the company, and did not actually use IceWEB for NBT data storage.

Smith and NBT also falsely claimed IceWEB “provides the cheapest storage box and more important the lowest cost/highest performance solution to” public and private data storage centers including “Amazon cloud drive, Dropbox, Evernote, iCloud, Microsoft SkyDrive, Google Drive, SugarSync” and Facebook. Smith didn’t know whether any of these companies were actually IceWEB customers.

Smith claimed he could “easily make the case” for “10X return — $200 million valuation” on IceWEB given “what has been already paid for its competitors.” But he knew IceWEB was in poor financial condition, and also knew no company was considering buying it.

Neither Smith nor NBT admitted or denied the charges, but agreed to settle and be barred from involvement in any future penny stock offerings, as well as to pay disgorgement of $165,900 plus $16,893 in interest. Smith also must pay a $75,000 penalty. The settlement is subject to court approval.

— Check out NASAA to Launch Senior$afe Program to Fight Elder Fraud on ThinkAdvisor.