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Regulation and Compliance > Federal Regulation > SEC

SEC Halts 3-Time Offender in Scheme to Defraud Small Businesses: Enforcement

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The Securities and Exchange Commission charged three-time recidivist Steven Muehler with operating an unregistered broker-dealer, facilitating an unregistered securities offering, and defrauding small businesses, while promising to help them raise money from investors.

Three companies under Muehler’s control; Muehler’s wife, Claudia Muehler; and his associate, Koorosh “Danny” Rahimi, were also charged. Because the scheme is ongoing, the SEC is also seeking a preliminary injunction to stop Muehler’s ongoing violations of the securities laws, pending trial of the action.

The SEC’s complaint also charges Muehler with violating a cease-and-desist order issued by the Commission in 2016 barring Muehler from associating with any broker-dealer.  The SEC has filed a parallel action to enforce that order.

According to the SEC’s complaint, Muehler’s companies are not registered as broker-dealers. But since at least November 2015, Muehler and his companies have nonetheless agreed to provide broker-dealers services to more than 20 small businesses, including identifying and soliciting investors and utilizing a purportedly proprietary online securities exchange to help raise funds from investors.

In return, Muehler and his companies received fees, the right to a percentage of any funds raised from investors, and the right to an equity stake in each small business customer.

“As alleged in our complaint, Muehler tells small businesses that he runs a successful broker-dealer enterprise that can raise millions of dollars from investors. In truth, Muehler is a repeat securities-law violator who already admitted to defrauding small businesses the last time the Commission brought an enforcement action against him,” Michele Wein Layne, director of the SEC’s Los Angeles regional office, said in a statement.

The SEC alleges that in offering broker-dealer services, Muehler and his companies made numerous fraudulent claims to potential customers, including that Muehler and his companies had $50 million on-hand to invest in their customers’ securities, that they had previously helped customers raise millions of dollars, and that their proprietary online exchange was registered with the SEC.

They also concealed that Muehler is subject to a Commission cease-and-desist order and has been sanctioned by California and Minnesota securities regulators.

The SEC’s complaint alleges that Claudia Muehler and Danny Rahimi helped Muehler carry out this scheme.

The complaint seeks permanent injunctions, disgorgement plus interest, and penalties.

Insider Trader to Pay SEC Penalty Three Time His Profits

A former Merck & Co. employee who bought stock in a company that Merck was preparing to acquire in a tender offer agreed to pay a penalty equal to three times his illegal insider trading profits to settle an SEC action.

According to the SEC’s complaint, Yang Xie, then-director of Global Health Outcomes Research for Merck, received an email from a Merck attorney discussing a contemplated merger between Merck and Cubist Pharmaceuticals Inc. The email sent on Nov. 20, 2014 at 4:04 p.m. included an attachment advising recipients not to trade in Cubist’s stock until a full trading date had elapsed after a public announcement of the acquisition.

The complaint alleges that Xie replied to the email approximately six minutes later and acknowledged receiving it. Approximately 14 minutes after he received the Merck attorney’s email, Xie bought 80 shares of Cubist stock. On Jan. 21, 2015, the date the tender offer was completed, Xie sold his Cubist stock and realized illegal profits of approximately 39%.

During the SEC’s investigation that followed, Xie allegedly denied learning about Merck’s proposed acquisition of Cubist until the night before it was publicly announced.

Without admitting or denying the SEC’s allegations, Xie has agreed to the entry of permanent injunctions as well as to pay disgorgement of $2,287, which represents Xie’s trading profits, plus prejudgment interest and a $6,681 civil penalty of three times his trading profits. The settlement is subject to court approval.

SEC Charges Penny Stock Company for Filing False Reports and Selling Unregistered Securities

The SEC announced fraud charges against Canadian-based penny stock company Analytica Bio-Energy Corp., a shareholder controlling its affairs, and a former officer for filing false reports with the SEC and for the controlling shareholder’s fraudulent scheme to sell unregistered shares to the public.

The SEC’s complaint alleges that from 2013 to 2014, Douglas Murdock, who was an undisclosed control person of Analytica, orchestrated a scheme to fraudulently procure Analytica shares and sell them in unregistered transactions.

Murdock also fraudulently induced Analytica’s transfer agent to remove the restrictive legend from company shares. While Murdock conducted this scheme, he and Luiz Brasil, Analytica’s former president, substantially assisted Analytica’s filing of numerous misleading periodic reports with the SEC.

Without admitting or denying the SEC’s allegations, Murdock and Brasil agreed to the entry of judgments permanently enjoining them from future violations of the charged sections of the federal securities laws; imposing penny stock bars and officer-and-director bars; and providing that, upon the SEC’s motion, the court shall determine whether it is appropriate to order disgorgement of ill-gotten gains and/or a civil penalty.

In a related matter, the SEC also filed an application seeking a court order requiring Analytica’s accountant, Marvin Winick, to comply with an SEC suspension order from 2006.

SEC Charges Texas Companies and Individuals in Oil-and-Gas Offering Fraud

The SEC charged three Plano, Texas-based oil and gas companies and their principals, together with an accountant and compliance coordinator, for their roles in operating an $11.7 million offering fraud for oil drilling and operations projects allegedly located in Kentucky.

The SEC alleges that AmeraTex Energy, Inc., Lewis Oil Corp., Lewis Oil Company, Thomas Lewis (the CEO of all three entities), and former AmeraTex President, William Fort, sold unregistered securities and made numerous misleading statements to more than 150 investors concerning the use of investor proceeds. These statements included false information about prospect wells; false statements about sales commissions; and false guarantees regarding the commingling and loaning of funds.

To conceal the growing number of investor and employee complaints that appeared online, the SEC’s complaint says, Lewis and Fort used services to suppress internet search results that would otherwise have cautioned potential investors about the nature of the fraudulent offering. This scheme enabled Lewis to misappropriate more than $1 million.

The SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil monetary penalties against all defendants.

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