Advisor Sent to Prison for Scamming Seniors: Enforcement

The fact of the breach was not disclosed to the investing public until more than two years later, when in 2016 Yahoo was in the process of closing the acquisition of its operating business by Verizon Communications Inc.

“We do not second-guess good faith exercises of judgment about cyber-incident disclosure. But we have also cautioned that a company’s response to such an event could be so lacking that an enforcement action would be warranted. This is clearly such a case,” said Steven Peikin, co-director of the SEC Enforcement Division, in a statement.

The SEC’s order finds that when Yahoo filed several quarterly and annual reports during the two-year period following the breach, the company failed to disclose the breach or its potential business impact and legal implications. Instead, the company’s SEC filings stated that it faced only the risk of, and negative effects that might flow from, data breaches. In addition, the SEC’s order found that Yahoo did not share information regarding the breach with its auditors or outside counsel in order to assess the company’s disclosure obligations in its public filings.

Finally, the SEC’s order finds that Yahoo failed to maintain disclosure controls and procedures designed to ensure that reports from Yahoo’s information security team concerning cyber breaches, or the risk of such breaches, were properly and timely assessed for potential disclosure.

Verizon acquired Yahoo’s operating business in June 2017.  Yahoo has since changed its name to Altaba Inc.

Investment Advisor to Pay Penalty for Defrauding Clients

A federal district court entered a judgment against Scott Newsholme, a New Jersey-based tax preparer and investment advisor, for defrauding his clients of more than $1 million to support his lifestyle and gambling habit.

In its September 2017 complaint, the SEC alleged that Newsholme fabricated account statements, doctored stock certificates and forged promissory notes as part of a scheme in which he convinced clients seeking his financial planning advice to give him their money to invest in various securities.

Instead of investing clients’ money, Newsholme allegedly cashed their investment checks at a check-cashing store and pocketed the funds while assuring clients that their assets were safe and flourishing. The complaint further alleged that Newsholme made Ponzi-like payments to certain investors who asked about their investments and he used investor money for his own purposes, including to gamble and to pay personal expenses.

The judgment orders Newsholme to pay disgorgement, prejudgment interest, and a civil penalty in amounts to be determined at a later date.

In a parallel criminal action, Newsholme pled guilty to wire fraud, aggravated identity theft, and aiding and abetting the filing of false tax returns.

SEC Obtains Judgments Against Execs in Fraudulent Bond Offering

A federal court entered judgments against former Dewey & LeBoeuf, LLP executives Stephen DiCarmine and Joel Sanders in an SEC enforcement action arising from their roles in a fraudulent $150 million bond offering.

In 2014, the SEC filed suit against DiCarmine, Sanders and others in federal district court in Manhattan.

The SEC’s complaint alleged that in 2008 and 2009, Sanders, then the chief financial officer of Dewey & LeBoeuf — in conjunction with other employees — devised a scheme that involved Sanders directing his staff to materially falsify the firm’s financial statements in order to meet lender covenants. The SEC further alleged that DiCarmine, the firm’s executive director, was aware of these efforts.

In March 2010, Dewey & LeBoeuf conducted a $150 million private placement of bonds. According to the SEC’s complaint, Sanders defrauded investors in that offering by, among other things, providing a private placement memorandum to investors that incorporated the fraudulent financial statements. The SEC further alleged that Sanders and DiCarmine participated in a conference call where the firm’s false financial information was provided to investors.

Sanders consented to the entry of a judgment, which prohibits him from acting as an officer or director of a public company. The judgment against Sanders also provides that the payment of disgorgement plus prejudgment interest, and the imposition of civil monetary penalties will be determined by the court at a later date upon motion of the Commission.

DiCarmine also consented to the entry of a final judgment, which orders him to pay a civil monetary penalty of $35,000. The settlement resolves the SEC’s case against DiCarmine.