Among recent enforcement actions by the Securities and Exchange Commission were charges against a company and its former CEO for misleading investors, and against four for fraud perpetrated against investors, including seniors, in a “free dinner” scheme.
In addition, the Financial Industry Regulatory Authority censured and fined Merrill Lynch for inadequate employee background checks.
SEC Charges Four on ‘Free Dinner’ Fraud
The SEC has filed fraud charges against four individuals who solicited seniors at “free dinner” investment seminars in Florida.
According to the agency, Philadelphia residents Joseph Andrew Paul and John Ellis Jr. lied about the track record of their investment advisory firm and recruited James Quay of Atlanta and Donald Ellison of Palm Bay, Florida, to lure potential victims with promises of big returns. A large portion of the money the four drew in was never invested, but was split among them instead.
Paul and Ellis made up fraudulent marketing materials, including some with performance numbers that were “cut and pasted” from another firm’s website, the SEC said. Quay and Ellison then used these materials to deceive seniors who responded to their mass-mailing offer of a free dinner at a Tampa restaurant.
Quay, who was convicted of tax fraud in 2005 and found liable for securities fraud in a 2012 SEC enforcement action, used the alias “Stephen Jameson” to hide his true identity — and history — from potential victims.
“Jameson” was not registered as an investment professional during the relevant period of fraudulent conduct, and Ellison also was not registered for the majority of that period.
Navistar, Ex-CEO Charged With Lying About Truck Technology
The SEC has charged Lisle, Illinois-based Navistar International Corp. with misleading investors about its development of an advanced technology truck engine that could be certified to meet U.S. emission standards. The agency also separately charged former Navistar CEO Daniel Ustian with misleading investors and with aiding and abetting violations by Navistar.
According to the agency, Navistar and Ustian failed to fully disclose the company’s difficulties obtaining Environmental Protection Agency (EPA) certification of a truck engine able to meet stricter EPA Clean Air Act standards that took effect in 2010.
In addition, Navistar and Ustian are alleged to have repeatedly deceived investors about Navistar’s development of the engine, which used exhaust-gas-recirculation (EGR) technology. Navistar later abandoned the effort and adopted the selective catalytic reduction (SCR) technology used by its competitors.
In early 2011, Navistar tried to reassure investors about its emissions control strategy by applying for certification of an engine it knew wasn’t ready for production and sale, even if the EPA certified it. The EPA didn’t approve the application; by summer 2011, Navistar decided to abandon it. Late in the same year, Navistar started on another EPA certification application. But four days after EPA staff told Navistar in a meeting that its proposed engine didn’t meet certification requirements, the company filed its 2011 annual report on Form 10-K. In the report, Navistar said it planned to apply for EPA certification and believed the engine met EPA requirements.