Spotlight on the SEC: Regulator Sues China Entities for Fraud and Votes to Turn Down Falcone-Related Securities Settlements

Two China Companies Slapped With SEC Securities Lawsuit For Allegedly Fraudulent Scams
In the U.S. District Court for the Southern District of New York, the Securities and Exchange Commission is suing consumer electronic company NIVS IntelliMedia Technology Group Inc., lighting company China Intelligent Lighting and Electronics Inc., and the Chinese companies’ CEOs Tianfu Li and Xuemei Li, who are siblings, for taking part in allegedly fraudulent scams to raise offering proceeds and then divert them. The regulator believes that they lied to auditors and made filings that were materially misleading to hide their purported misconduct.

In a release, the SEC says that NIV and CIL are US issuers that raised about $21.5 million and $7 million, respectively, in public registered offerings in American capital markets in 2010. The siblings then allegedly took most of the funds from the companies’ accounts and diverted the offering proceeds from what the offering documents said they would be used for. The Commission wants disgorgement and prejudgment interest, injunctive relief, civil penalties, and other relief that is deemed appropriate.

SEC Votes to Turn Down Would-Be Securities Settlement With Hedge Fund Manager Philip Falcone
The Commission voted to reject an agreement in principal reached between its staff and Phillip Falcone, as well as several of his firms. The would-be settlements stem from two securities lawsuits filed against the hedge fund giant, his Harbinger Capital Partners LLC, and a number of related entities last year. The SEC contends that the defendants took part in market manipulation and that Falcone misused client money, including authorizing a loan to himself for $113.2 million from one of the funds so he could pay back a tax debt. The regulator says he repaid the money after the agency began an investigation into the matter.

The agreement-in-principal was reached between the parties in May, with the defendants agreeing to pay $18 million in prejudgment interest, disgorgement, and civil penalties. Falcone would be allowed to keep controlling Harbinger Group and continue on as chairman of the board and CEO. However, he was to be barred from associating with an investment adviser, brokerage firm, and other entities that are regulated for two years.

In other Commission-related news, on July 25 and by a 16-14 vote, the Senate Appropriations Committee cleared a bill to fund the SEC and the Commodity Futures Trading Commission for the next fiscal year at the levels sought by the White House. Per the bill, the SEC would get $1.674 billion for FY 2014, which is $353 million more than for this fiscal year. The CFTC would see a $110 million funding jump from this year to $315 million.

Also this month, the House Appropriations Committee moved forward a bill that would give the SEC $1.371 billion in funding for FY 2014, which is $50 million more than the regulator’s enacted level for this fiscal year-albeit $303 million under what the White House is seeking. Last month, the House committee approved a bill that would give the CFTC $194 million for the next fiscal year, which is $10.3 million less than this fiscal year’s enacted level and over $120 million under what President Obama wants for the agency.

If you suspect you may have been the victim, contact our securities fraud law firm today.

SEC Files Fraud Charges Against China Intelligent Lighting and Electronics, Inc.; NIVS Intellimedia Technology Group, Inc.; and Their Sibling CEOs, SEC, July 22, 2013

S.E.C. Rejects Its Own Deal With Hedge Fund Manager, New York Times, July 19, 2013
Senate Panel Clears Bill to Fund SEC at Levels Sought by White House, Bloomberg/BNA, July 26, 2013

More Blog Posts:
Morgan Stanley to Pay New Jersey Regulators $100K for Selling Exotic ETFs to Investors, Including Seniors, Stockbroker Fraud Blog, July 30, 2013

Investor Sues Berthel Fisher Over TNP 2008 Participating Notes Program LLC, Stockbroker Fraud Blog, July 29, 2013
Both Sides Rest in Ex-Goldman Sachs Bond Trader Fabrice Tourre’s Trial For Alleged Mortgage-Backed Securities Fraud, Institutional Investor Securities Blog, July 29, 2013

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