Texas Businessman Used Investor Funds to Pay for Russian Bride Dating Site: Enforcement

The Securities and Exchange Commission filed charges against Texas resident James VanBlaricum and six others for running an oil and gas Ponzi scheme.

The SEC's complaint alleges that VanBlaricum was the driving force behind the scheme – and a company called Texas Energy Mutual, LLC (formerly known as Texas Energy Management). Because he was a securities fraud recidivist with a history of running deceptive schemes, the complaint also alleges that VanBlaricum convinced two other individuals – Rodney Pope and Chet Inglis – to serve as the face of the company. Together, they enlisted more people - including Robert Gilliam, Matthew Leaverton, William Hill, and Erik Rhodes – to solicit investors. The complaint alleges that the defendants raised more than $10 million by guaranteeing investment returns and promising investors that their funds would be used to drill oil wells.

Instead, the defendants used investor money for a variety of personal expenditures. VanBlaricum used investor funds to pay for an online dating website for Russian brides, vacations, international travel, automobiles, and startup costs for his son's unrelated business. Similarly, Pope used investor funds to pay for his son's wedding.

According to the complaint, VanBlaricum created a "special needs" program to keep dissatisfied investors from discovering the fraudulent conduct. The defendants allegedly lulled investors with cash Ponzi payments that purported to be a return on their investment or rolled over investors from a failed drilling program to a newer one.

In addition to the SEC action, VanBlaricum, Pope, Inglis, Leaverton, and Gilliam were charged in a parallel criminal case by federal authorities and have each pleaded guilty and were sentenced to prison terms ranging from 30-84 months, and ordered to pay between $1.8 million and $32 million in restitution.

Former Equifax Manager Charged With Insider Trading

The SEC charged a former Equifax manager with insider trading in advance of the company's September 2017 announcement of a massive data breach that exposed Social Security numbers and other personal information of approximately 148 million U.S. customers.

This is the second case the SEC has filed arising from the Equifax data breach. In March, the former chief information officer of Equifax's U.S. business unit was charged with insider trading.

In a complaint filed in federal court in Atlanta today, the SEC charged that Equifax software engineering manager Sudhakar Reddy Bonthu traded on confidential information he received while creating a website for consumers impacted by a data breach.

According to the complaint, Bonthu was told the work was being done for an unnamed potential client, but based on information he received, he concluded that Equifax itself was the victim of the breach.

The SEC alleges that Bonthu violated company policy when he traded on the non-public information by purchasing Equifax put options. Less than a week later, after Equifax publicly announced the data breach and its stock declined nearly 14%, Bonthu sold the put options and netted more than $75,000, a return of more than 3,500% on his initial investment.

Bonthu was terminated from Equifax in March after refusing to cooperate with an internal investigation into whether he had violated the company's insider trading policy.

To settle the SEC's civil charges, Bonthu has agreed to a permanent injunction and to return his allegedly ill-gotten gains plus interest. The settlement is subject to court approval.

In a parallel proceeding, the U.S. Attorney's Office for the Northern District of Georgia filed criminal charges against Bonthu.

SEC Charges Credit Ratings Analyst with Insider Trading

The Securities and Exchange Commission charged a credit ratings agency employee with tipping two friends about The Sherwin-Williams Co.'s confidential plans to acquire The Valspar Corp., which he learned of through his work.

The SEC also charged the two friends with trading on the illicit tips, which reaped them substantial profits. According to the SEC's complaint, Sebastian Pinto-Thomaz, an analyst in the credit ratings agency's New York office, learned of the acquisition when Sherwin-Williams consulted the agency about the potential effect of the transaction on its credit rating.

The SEC alleges that soon after, Pinto-Thomaz tipped his friends, who bought Valspar securities before the merger was announced. Valspar's shares rose 23% on the news and the friends – Abell Oujaddou, a co-owner and co-manager of an upscale New York hair salon, and Jeremy Millul, a New York jeweler – sold their holdings and respectively made approximately $192,000 and $107,000 in profits. "As alleged in our complaint, Pinto-Thomaz's tips violated his obligations to his employer and allowed his friends to reap nearly $300,000 in illicit trading profits," said Joseph G. Sansone, Chief of the SEC Enforcement Division's Market Abuse Unit. "Employees of credit ratings agencies often receive confidential corporate information ahead of mergers, acquisitions, and other market-moving events, and, similar to investment bankers, attorneys, and other corporate advisors, must not abuse this access by trading on the information or by tipping others." The SEC's complaint, filed in federal district court in Manhattan, charges Pinto Thomaz, Oujaddou, and Millul with fraud and seeks disgorgement of ill-gotten gains, prejudgment interest, penalties, and injunctive relief. In a parallel action, the U.S. Attorney's Office for the Southern District of New York today announced criminal charges against Pinto-Thomaz, Oujaddou, and Millul.

Washington-Based Investment Advisor Settles Charges of Multi-Million Dollar Scheme

A federal district court entered a final consent judgment against a Washington-based investment advisor who misappropriated investors' funds.

According to the SEC's complaint, Ronald Fossum, Jr. misappropriated hundreds of thousands of dollars of investor funds he raised through unregistered securities offerings of three investment funds he owned and controlled: Accelerated Asset Group, LLC; Smart Money Secured Income Fund, LLC; and Turnkey Investment Fund, LLC.

The complaint alleged, among other things, that Fossum used fraudulent statements and material omissions to induce more than 100 investors to invest in his funds, and that he repeatedly breached his fiduciary duties to the funds by indiscriminately commingling fund assets to satisfy the funds' liquidity needs.

The final judgment against Fossum orders him to disgorge $840,729, plus prejudgment interest of $110,823, orders him to pay a civil penalty of $320,000, and imposes a conduct-based injunction that enjoins him from participating in the issuance, purchase, offer, or sale of any security other than for his own personal account.

Separately, the SEC instituted settled administrative proceedings against Fossum, based on the final judgment entered against him, pursuant to which Fossum, without admitting or denying the SEC's findings, agreed to be barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.

Fossum also agreed to be barred from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock.

SEC Obtains Final Judgment Against Attorney in Ticket Brokering Pump and Dump Scheme

A federal district court in Massachusetts entered a final judgment against Richard Weed, formerly a partner in a Newport Beach, California law practice, for his role in defrauding investors in a Massachusetts-based ticket brokering business.

The final judgment imposes a permanent injunction against future violations of the antifraud provisions of the federal securities laws, a penalty of $150,000, and permanently bars Weed from serving as an officer or director of a public company and from participating in penny stock offerings.

In its complaint filed in 2014, the SEC alleged that Weed helped structure the ticket brokering business CitySide Tickets Inc. into a publicly traded company through reverse mergers, created backdated promissory notes and authored false legal opinion letters that enabled two co-conspirators to obtain millions of purportedly unrestricted shares of stock in the company.

The co-conspirators later sold those shares to unsuspecting investors after touting the company with false hype as a budding national leader in the ticket selling industry, realizing illicit proceeds of approximately $3 million.

In parallel criminal proceedings, Weed was convicted of criminal charges in May 2016, sentenced to four years in prison and three years of supervised release and ordered to pay a fine of $100,000 and to forfeit $90,000. His conviction was upheld in October 2017 by the First Circuit Court of Appeals, and his petition for writ of certiorari was denied by the U.S. Supreme Court in May 2018.