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Execs Face Up to 5 Years in Prison for Lying to SEC: Enforcement

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A former employee of a Boston-based biotech company and a friend of the company’s CEO — whom the Securities and Exchange Commission has charged with stock manipulation, making false statements and a scheme to defraud — pleaded guilty in a parallel criminal case to charges of securities fraud and obstructing the SEC’s investigation.

Kenneth Stromsland, the former vice president of investor relations for PixarBio Corp., pleaded guilty to one count of securities fraud, relating to his manipulative trading in the company’s stock, and one count of obstructing an agency proceeding, relating to his false testimony to the SEC during its 2017 investigation.

In testimony, Stromsland falsely denied that he had purchased shares of PixarBio to affect the company’s share price and that he had been instructed to do so by Frank Reynolds, PixarBio’s then CEO, according to the SEC.

Additionally, Jay Herod, a friend of Reynolds, pleaded guilty to the same charges relating to similar conduct, including lying to the SEC about Reynolds directing his participation in the fraud.

In its civil case filed against PixarBio, Reynolds, Herod and Stromsland, the SEC’s complaint alleges that Reynolds and Stromsland misled investors with false claims about PixarBio’s progress in developing a purported method of delivering non-opiate, post-operative pain medication.

The complaint also alleges that Reynolds, Stromsland and Herod engaged in a fraudulent scheme to acquire and merge PixarBio with a publicly traded company and to secretly manipulate the sales of shares in the new entity.

The charges of securities fraud provide for a sentence of no greater than 20 years in prison, three years of supervised release, and a fine of $5 million or twice the gross gain/loss, whichever is greater. The charge of obstruction of an agency proceeding provides for a sentence of no greater than five years in prison, one year of supervised release, and a fine of $250,000.

The SEC’s litigation is pending and seeks permanent injunctions, disgorgement of ill-gotten gains with interest, penny stock bars, officer and director bars, and financial penalties.

Court Orders 2 Pump-and-Dump Schemers to Pay Over $4.6 Million Each

The SEC obtained final judgments against a microcap company and its two undisclosed promoters who were charged with running a $3.3 million microcap fraud.

In September 2017, the SEC charged Jason McDiarmid, Kenneth George Cedric Telford, and Stop Sleep Go Inc., formerly known as Interactive Multi-Media Auction Corp, with running a pump-and-dump scheme in Interactive Multi-Media’s stock.

The complaint alleged that McDiarmid and Telford took Interactive Multi-Media public and then orchestrated a promotional campaign touting its stock while they dumped their shares, selling them through nominees. McDiarmid and Telford made approximately $3.3 million in profits.

The judgments against McDiarmid and Telford bar each of them from serving as an officer or director of a public company and from participating in any offering of a penny stock. The judgment against McDiarmid orders him to pay $3.17 million in disgorgement, $291,035 in prejudgment interest and a civil penalty of $1.64 million. The judgment against Telford orders him to pay $3.3 million in disgorgement, $302,871 in prejudgment interest and a civil penalty of $1.6 million.

SEC Cancels Internet RIA Registration for Failure to Launch

The SEC canceled the advisor registration of a purported internet investment advisor because the registrant failed to launch its website in the three years since registering.

The registrant filed as an RIA under the internet advisor exception, whereby an advisor without assets under management is eligible to register if the advisor provides advice exclusively through an interactive website.

The advisor registered in May 2015 and still has not launched its website due to personal events and product complexity.

According to Cipperman Compliance Services, the registrant argued that the internet advisor exception allows a grace period for development. However, the SEC said that an internet adviser may be allowed some leeway beyond 120 days (the stated time period for new advisors), but three years is “well over any reasonable grace period.”

Additionally, according to Cipperman, the SEC places the burden on the advisor to demonstrate “substantial efforts and progress toward developing an interactive website” in order for the commission to exercise discretion to allow registration beyond the initial 120-day period.

SEC Charges Former Senior Attorney at Apple With Insider Trading

The SEC filed insider trading charges against a former senior attorney at Apple whose duties included executing the company’s insider trading compliance efforts.

The SEC’s complaint alleges that Gene Daniel Levoff, an attorney who previously served as Apple’s global head of corporate law and corporate secretary, received confidential information about Apple’s quarterly earnings announcements in his role on a committee of senior executives who reviewed the company’s draft earnings materials prior to their public dissemination.

Using this confidential information, Levoff traded Apple securities ahead of three quarterly earnings announcements in 2015 and 2016 and made approximately $382,000 in combined profits and losses avoided.

The SEC’s complaint alleges that Levoff was responsible for securities laws compliance at Apple, including compliance with insider trading laws. As part of his responsibilities, Levoff reviewed and approved the company’s insider trading policy and notified employees of their obligations under the insider trading policy around quarterly earnings announcements.

The SEC’s complaint seeks a permanent injunction, disgorgement, prejudgment interest, a civil penalty and an officer and director bar. In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges.

SEC Gets Judgment Against NJ Resident Charged With Ponzi Scheme

The SEC obtained a final judgment against a New Jersey resident who was charged last year by the agency with stealing more than $250,000 in a Ponzi scheme in which his friends and co-workers invested.

The court found that Niket Shah and his company, Spark Trading Group LLC, falsely claimed that Spark Trading was registered with the SEC; that their investments were profitable; that investors’ funds were guaranteed; and that defendants received $250,000 in startup capital, including $200,000 that Shah deposited into a binary options trading account.

The final judgment holds Shah and Spark Trading jointly and severally liable for disgorgement of $299,229 plus interest of $24,742. The judgment also orders Shah to pay a civil penalty of $370,944.

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