LAWFUEL – The US Legal Newswire – U.S. Attorney’s Office for Southern District of Florida Announces Parallel Indictments Against Some of Same Defendants and Others
Washington, D.C., Dec. 7, 2007 – The U.S. Securities and Exchange Commission announced today that it filed civil actions alleging securities fraud in five separate kickback schemes uncovered by an FBI sting operation conducted pursuant to a recent cooperation agreement between the FBI and the Commission.
The defendants are insiders or promoters of publicly traded companies who made stock sales to a hedge fund in exchange for illegal kickbacks to an individual whom they believed to be the hedge fund manager, but who was in reality an undercover FBI agent. In related criminal prosecutions, the United States Attorney’s Office for the Southern District of Florida today announced the criminal indictments of 6 individuals involved in the schemes.
“This case illustrates the Commission’s ability to work together with criminal authorities in creative ways to uncover fraudulent schemes and to protect our markets,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement.
David Nelson, Director of the Commission’s Miami Regional Office, added, “The Commission will continue to target corrupt practices in the securities industry in South Florida, and provide resources where necessary to ensure that those who engage in illegal schemes will be found and prosecuted. Our office worked closely with the criminal authorities and provided information and technical assistance throughout the FBI sting operation in order to minimize harm to innocent investors.”
The SEC charged a total of 10 individuals, who reside in South Florida, New York, California, and Nevada, with securities fraud: Vincent Cammarata, Rex A. Morden, Affinity Financial Group, Inc., William L. Haynes, Efrim Gjonbalaj, Real Asset Management LLC, Mark Foglia, Western Financial Services, Inc., Virgil G. Williams, and Sean P. Sheehan. According to the SEC’s complaints, which were filed in the United States District Court for the Southern District of Florida, the five schemes involved sales of securities in publicly traded companies to a purported hedge fund. To make the sales, the defendants agreed to pay kickbacks to the individual managing the hedge fund. In fact, there was no hedge fund and the purported manager was an undercover FBI agent in the sting operation.
The Commission’s complaints allege that, in each case, the undercover FBI agent purporting to be a hedge fund manager told the seller or promoter that the kickback had to be kept secret, because buying stock in exchange for kickbacks would violate his fiduciary obligations to the hedge fund. The FBI agent also told the seller or promoter that he had created a phony consulting company to which the kickback could be paid pursuant to a consulting agreement. The sellers or promoters were told that the consulting entity did not exist, that no actual consulting work would be performed, and that the phony consulting arrangement was simply a means to secretly funnel a kickback to the purported hedge fund manager. All of the defendants agreed to pay a kickback. With one exception, the defendants actually paid the promised kickback after the hedge fund bought the stock defendants were promoting. Every buy transaction had a material effect on the stock trading volume of the companies in question.
The complaints allege that all of the defendants violated the antifraud provisions of the federal securities laws, specifically, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to permanent injunctions, the Commission is seeking an order that defendants Cammarata and Haynes disgorge ill-gotten gains, with prejudgment interest, and an order imposing civil money penalties on all defendants. The Commission is also seeking an officer and director bar against Williams and penny stock bars against all the individual defendants.
Haynes was previously enjoined from further violations of the antifraud and registration provisions of the federal securities laws following his participation in a $7 million offering fraud. See SEC v. Global Asset Partners, Ltd., Case No. 01-8862-CIV-Middlebrooks (S.D. Fla.), LR-17173. In addition, Haynes was previously barred from associating with a broker-dealer based on the entry of the permanent injunction. See In the Matter of William L. Haynes, Exchange Act Release No. 34-45820 (April 25, 2002).
The Commission acknowledges the substantial assistance and cooperation of the United States Attorney’s Office for the Southern District of Florida and the Federal Bureau of Investigation, West Palm Beach division, in investigating this matter. The Commission’s investigation is ongoing.