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SEC Charges CEO With Failing to Disclose Perks: Enforcement

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The Securities and Exchange Commission announced that the former CEO of a marketing company has agreed to pay $5.5 million to settle charges that his perks were not properly disclosed to shareholders.

According to the SEC, public companies must properly disclose perks, benefits and other forms of compensation paid to CEOs and certain other highly compensated executive officers. 

The SEC’s order says that shareholders were informed in annual filings that Miles S. Nadal received an annual perquisite allowance of $500,000 in addition to other benefits as the chairman and CEO of MDC Partners. 

However, the SEC’s investigation found that without disclosing information to investors as required, MDC Partners paid for Nadal’s personal use of private airplanes as well as charitable donations in his name, yacht and sports car expenses, cosmetic surgery and a wide range of other perks. 

All total, Nadal improperly obtained an additional $11.3 million in perks beyond his disclosed benefits and $500,000 annual allowances. He has since resigned and returned $11.3 million to the company.

MDC Partners agreed to a $1.5 million settlement earlier this year for its role in the perk disclosure failures.

“Perks paid to corporate executives should be properly disclosed so that investors can make informed decisions,” said G. Jeffrey Boujoukos, Director of the SEC’s Philadelphia Regional Office, in a statement. “Nadal improperly received and failed to disclose millions of dollars in compensation.”

Nadal consented to the SEC’s order without admitting or denying the findings and agreed to pay $1.85 million in disgorgement plus $150,000 in interest and a $3.5 million penalty. He also agreed to be barred from serving as an officer or director of a public company for five years.

Law Firm Partner and Neighbor Charged in $1 Million Insider Trading Scheme

The SEC charged a former partner at an international law firm and his neighbor with making more than $1 million in illicit profits by insider trading around corporate announcements.

The SEC alleges that Walter C. Little accessed confidential documents on his law firm’s internal computer network related to at least 11 impending announcements involving law firm clients, none of which he personally advised or billed for services. 

According to the SEC, Little then allegedly traded in advance of each announcement and often tipped his neighbor Andrew M. Berke with material nonpublic information so he could similarly trade in company stocks before the announcements were made publicly. According to the SEC’s complaint, the insider trading occurred from February 2015 through February 2016.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Little and Berke.

The SEC’s complaint seeks disgorgement of ill-gotten gains plus prejudgment interest, penalties, and permanent injunctions.

SEC Files Subpoena Enforcement Against Attorney

The SEC filed a subpoena enforcement action in the U.S. District Court for the Central District of California against Andrew T.E. Coldicutt and the Law Offices of Andrew Coldicutt.

The SEC is investigating whether Coldicutt, or others associated with various publicly traded companies, may have engaged in antifraud and securities registration violations by participating in filing registration statements which contain false information about those companies’ control persons or promoters.

The SEC’s court filings also state that Coldicutt is the author of attorney opinion letters that are potentially false and misleading and that may be part of unregistered distributions of securities.

As part of its investigation, the SEC staff served Coldicutt and his law firm with subpoenas requiring the production of documents. According SEC’s application, Coldicutt and his law firm have failed either to produce all responsive documents or provide sufficient information to support withholding various documents on the basis of a legal privilege. The SEC’s application seeks an order from the court compelling Coldicutt and the law firm to provide additional information to support their refusal to produce certain documents on the basis of attorney-client privilege.

The SEC is continuing its fact-finding investigation and, to date, has not concluded that anyone has violated the securities laws.

SEC Obtains Judgments in Grand Empire Palace and Resort Bond Offering Fraud

The SEC announced that it obtained final judgments against Matthew E. White, Rodney A. Zehner, Daniel J. Merandi and their six affiliated corporate entities.

On July 27, 2016, in an emergency action filed in federal court in Atlanta, the SEC alleged that White, Zehner and Merandi fraudulently issued $1 billion in unsecured corporate bonds out of a shell company and claimed the money would be used to fund construction of a resort complex in Georgia called the Grand Empire Palace and Resort.

But, the SEC says, they never came close to raising the funds necessary to start the project, and in the meantime they pocketed the $5.6 million they did raise and used it for extravagant trips and personal purchases at stores such as Saks Fifth Avenue, Gucci, Louis Vuitton, Prada and Versace. The SEC obtained an order freezing the defendants’ cash held in a brokerage account and freezing the bonds held in a separate brokerage account.

The final judgments prohibit the defendants from participating in the future issuance, offer or sale of any security, except for trading in their own personal accounts. The judgments also order the defendants to disgorge approximately $6 million in ill-gotten gains and prejudgment interest and order White, Zehner and Merandi to pay combined civil penalties of $450,000. The defendants neither admit nor deny the allegations in the SEC’s complaint.

SEC Announces Charges in Real Estate Investment Scheme

The SEC charged Carl Keith Battie with orchestrating a multiyear fraudulent real estate investment scam that victimized at least 70 investors.

According to the SEC’s complaint, Battie raised nearly $9 million between 2008 and 2014 through two investment programs tied to single and multi-family real estate.

Battie, a British citizen who resided in Decatur, Georgia until his arrest in January 2015, concealed his identity from investors by using a now-deceased Dallas-based pitchman to market the investments, the SEC says.  

The SEC alleges that Battie falsely described both investments as “Truly Passive and Guaranteed” and asserted that they would generate returns ranging from 16% to 35% per year.

Offering materials further falsely claimed that Battie’s organization had a “team” of professionals operating thousands of properties. Investors in the second program were falsely told that they were buying so-called “mortgage notes,” which were promissory notes purportedly secured by residential real estate, at sharp discounts to the value of the properties securing them, which supposedly locked in “instant profit,” and that all payments on the note were guaranteed “regardless of any default” by the properties’ tenants or mortgagees.

But, as the SEC alleges, almost nothing told to investors was true. There was no “team” with thousands of properties; just Battie and a couple of administrative assistants, and fewer than 150 properties. And these properties bore little resemblance to those described in offering materials and sales pitches. Nearly all were highly distressed, having been acquired by Battie out of foreclosure.

In a parallel federal criminal case, Battie pleaded guilty to one charge of conspiracy to commit wire fraud, and has been sentenced to 10 years in prison and ordered to pay restitution of $11.4 million.

Battie has consented to a permanent injunction against future violations of all of these provisions. Battie is liable for disgorgement, plus prejudgment interest, of more than $10 million, which is deemed satisfied by the criminal restitution order. The SEC is not imposing a civil penalty due to Battie’s prison sentence.

SEC Names Additional Defendants in Nonko Trading Fraud Case

The SEC filed an amended complaint in its pending action against operators of the “phony day-trading firm” Nonko Trading – charging Yaniv Avnon of Haifa, Israel; Ran Armon of Thornhill, Ontario, Canada; and Avnon’s entity G Six Trading Y.R Ltd. with fraud and broker-dealer registration violations in connection with their roles in the scheme.

The SEC’s original complaint, filed on December 21, 2016, charged Naris Chamroonrat of Bangkok, Thailand, and Adam L. Plumer of Las Vegas, Nevada, in connection with the scheme. The SEC alleges that the defendants pocketed more than $1.4 million in deposits from hundreds of defrauded investors worldwide.

The SEC’s amended complaint alleges that Armon, Avnon and G6 – together with the previously charged defendants Chamroonrat and Plumer – lured investors to day-trade through Nonko Trading, an unregistered brokerage firm, with promises of generous leverage, low trading commissions and low minimum deposit requirements.

According to the SEC’s complaint, rather than using a live securities trading platform, Nonko Trading provided certain investors with training accounts that merely simulated the placement and execution of trade orders. So when these investors sent funds to Nonko Trading and proceeded to place trade orders, the orders were never actually routed to the markets, according to the SEC.

The SEC alleges that investor money was instead used to fund defendants’ personal expenses, pay associates and make Ponzi-like payments to investors who asked to close their accounts.

According to the SEC’s complaint, the scheme deliberately targeted investors who were inexperienced and more likely to place unprofitable trades, making them less likely to ask to withdraw funds from their accounts.

In a parallel action, the U.S. Attorney’s Office for the District of New Jersey announced criminal charges against Avnon and Armon. In May 2017, Chamroonrat entered a guilty plea in the parallel criminal case.

The SEC is seeking injunctions and the disgorgement of ill-gotten gains plus interest and penalties.

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