Securities Fraud Roundup: 6th Circuit Affirms Ruling Affirms Broker’s Liability Over Reverse Merger, Ex-Stockbroker Pleads Guilty to Insider Trading Over IBM’s SPSS Acquisition, & Father and Son Convicted in $50M Real Estate Fraud
6th Circuit Affirms Ruling Affirming Broker’s Liability Over Reverse Merger
The U.S. Court of Appeals for the Sixth Circuit says that a district court was correct in granting summary judgment to the Securities and Exchange Commission over its claim that broker Aaron Tsai made disclosure and registration violations related to a “reverse merger” involving a shell company. The lower court had ordered Tsai to pay about $352,000 in disgorgement and prejudgment interest while barring him from future violations. Affirming that court’s decision, the appeals court said that the broker’s transactions in unregistered stock were not exempt, pursuant to 1933 Securities Act Rule 144(k).
Tsai was the former president and CEO MAS Acquisition XI Company, which had a reverse merger and sold shares on the OTCBB in 2000. After his initial filing was turned down, he moved shares from five former directors who were initial company shareholders, to 28 other shareholders via previously signed stock powers. Tsai then obtained approval to finish up the reverse merger with Blue Point. The SEC filed civil enforcement naming him and other defendants while alleging Securities Act and Exchange Act violations, including failure to register securities before their sale or offering and failure to reveal that he had beneficial ownership of the securities.
Ex-Stockbroker Pleads Guilty to Insider Trading Involving IBM, SPSS Acquisition
In the U.S. District Court for the Southern District of New York, ex-broker Thomas Conradt pleaded guilt to insider trading charges, including securities fraud and conspiracy, involving IBM Corp.'s (IBM) acquisition of SPSS Inc. Conradt’s roommate, co-defendant and equities analyst Trent Martin, allegedly tipped him about the insider news. Prosecutors say that the former then purchased shares of the software manufacturer and tipped colleague David Weishaus about the likely merger. They also allegedly tipped another two co-workers.
Conradt, Weishaus, & Martin, whom prosecutors say made over $1 million, in insider trading profits, are also facing an SEC enforcement action over this alleged misconduct.
$50M Real Estate Fraud Leads to Criminal Convictions for Father and Son
A jury has convicted real estate investment fund BBC Equities LLC founder John Bravata and his son Antonio of securities fraud involving allegations that they bilked investors of over $50 million. Per the indictment, beginning in 2006, Bravata got investors involved in fund while his son became a willful participant in the scam. Bravata told potential investors that BBC was a safe vehicle and that he would not be getting any commissions.
However, as BBC’s manager, Bravata not only got compensation, but also, he paid himself from investors’ money whether or not the fund turned a profit. Only $20.7 million of investors’ money actually went into real estate, while the rest was used as a “general slush fund” for personal spending, bringing in new investors, and making Ponzi-like payments. The SEC sued Bravata over these alleged actions in 2009.
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Former broker pleads guilty to insider trading, Reuters, April 3, 2013
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