SEC Fraud

Summary: According to the Press Release dated August 13, 2001, the lawsuit asserts claims under Section 11, 12 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated by the SEC thereunder and seeks to recover damages. The complaint further alleges that E-Loan, Inc. and certain of its officers and directors violated the federal securities laws by issuing and selling E-Loan common stock pursuant to the initial public offering without disclosing to investors that at least one of the lead underwriters and two of the other underwriters of the IPO had solicited and received excessive and undisclosed commissions from certain investors. The complaint further alleges that defendants violated the Securities Act of 1933 because the Prospectus distributed to investors and the Registration Statement filed with the SEC in order to gain regulatory approval for the E-Loan offering contained material misstatements regarding the commissions that the underwriters would derive from the IPO and failed to disclose the additional commissions and laddering scheme discussed above.

The Associated Press reports that the Securities and Exchange Commission has suspended trading of NeoTactix Corp., Graystone Park Enterprises Inc., and Younger America Inc. for 10 days pending an investigation into their finances and operations. The concern is that the stocks were being promoted through YouTube online videos and the companies had “inadequately disclosed their assets and financial conditions and are still under investigation. Trading suspensions can sometimes be followed by securities fraud charges.”

This is all part of a push by the SEC to decrease the amount of stock pump & dump email scams, which the SEC claims has decreased the number of complaints by 68% since the program started.

Source: AP

According to a Press Release dated November 29, 2001, the complaint alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On or about August 13, 1999, Quest commenced an initial public offering of 4,400,000 of its shares of common stock at an offering price of $14 per share (the Quest IPO). In connection therewith, Quest filed a registration statement, which incorporated a prospectus (the Prospectus), with the SEC. The complaint further alleges that the Prospectus was materially false and misleading because it failed to disclose, among other things, that: (i) the Underwriters had solicited and received excessive and undisclosed commissions from certain investors in exchange for which the Underwriters allocated to those investors material portions of the restricted number of Quest shares issued in connection with the Quest IPO; and (ii) the Underwriters had entered into agreements with customers whereby the Underwriters agreed to allocate Quest shares to those customers in the Quest IPO in exchange for which the customers agreed to purchase additional Quest shares in the aftermarket at pre-determined prices.

The SEC announced today that it would be investigating an unusual surge in “put” options trading leading up to last week’s monumental collapse of Bear Stearns. A “put” option is a bet that a stock will go down, so a significant uptick in the purchase of those prior to something as surprising as that collapse is very questionable. With a “put,” a trader buys the right to sell shares at a specified price. If the shares fall, then a profit can be made.

How usual was the trading? The number of open put options went from 167,439 to 465,820 and the SEC wants to know why. The prior week the number of open put contracts was around 155,000. The SEC wants to know if people had insider knowledge because that increase is phenomenal.

Source: Wall Street Jornal Law Blog

What is the Securities & Exchange Commission? The SEC’s mission is to “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” [Source: SEC.gov] In that role, the SEC investigates persons and organizations that may seek to violate basic laws and rules that govern the operation of the markets. A prime example of this is the latest release, dated March 20th, 2008, in which the SEC filed charges against AB Volvo for improper payments to Iraq under the U.N. Oil for Food Program, a charge that AB Volvo settled for $12.6M. The charges alleged that between 1999 and 2003, AB Volve made improper kickback payments and additional payments of nearly $8.5M.

The SEC was created with the Securities Exchange Act of 1934, which built upon the Securities Act of 1933, based on the findings of a committee that investigated the crash in 1929. (this was during the peak of the Great Depression) This act was meant to give investors, of which there were very few left, confidence that the markets would provide more reliable information and establish rules for honesty. The acts were based on these two basic premises:

• Companies publicly offering securities for investment dollars must tell the public the truth about their businesses, the securities they are selling, and the risks involved in investing.
• People who sell and trade securities – brokers, dealers, and exchanges – must treat investors fairly and honestly, putting investors’ interests first.

To learn more about the SEC, please review their about page.