Sam and Charles Wyly, of Dallas, made more than $550 million in undisclosed profits through 13 years of insider trading, according to a complaint filed in New York by the SEC this week. The SEC alleged that the brothers used an elaborate network of offshore entities to conceal their buying and selling of shares in companies on whose boards they served. If the SEC proves its allegations, the case would rank as one of the biggest insider-trading scandals in history. The Los Angeles Times says Sam Wyly, a member of the Forbes 400 list of richest Americans, and his brother are known for their support of conservative candidates and causes — both Presidents Bush received campaign donations. Sam Wyly”s net worth was estimated at $950 million in the latest Forbes rankings. The SEC’s suit also listed as defendants the brothers’ attorney, Michael C. French, and their broker, Louis J. Schaufele III.
Lawyers for the agency apparently are arguing that a barely-noticed portion of the new financial reform act–signed last week by President Obama–exempt it from virtually all requests for public records under the Freedom of Information Act. Fox Business Network said in an article today that it had sued the SEC in 2009 seeking access to records of the agency’s failed investigations into Bernie Madoff and R. Allen Stanford. The SEC had turned down its initial FOIA requests. Fox Business Network said the agency has indicated that it will block further requests by invoking the new law, which says it can withhold records from the public pertaining to “surveillance, risk assessments, or other regulatory and oversight activities.”
“Certainly, the prospect of a cash bounty could result in the SEC’s being inundated with tips, valid or not,” says Sarah Johnson at CFO.com. Navigating the new law will be tricky for public companies, she added. They should remind their employees how to report suspicions internally, so that potential problems can be dealt with before the SEC gets involved, Johnson wrote. However, public companies should also be careful to not discourage reporting to the feds at the same time because it could end up being fodder for lawyers in later litigation. || More from Compliance Week on the new bounty program
Gregory Vincent Cronin, of Innovative Investment Advisors Inc., told investors he was buying them blue-chip stocks, but instead was using the money to buy and sell stock index options. He lost $6.8 million but kept the scheme going by paying out previous investors with funds from new ones. He was sentenced in federal court this week to more than 12 years in prison for securities and mail fraud.
Several Supreme Court decisions generally bar investors from suing third-parties in federal court securities fraud cases. But with many mortgage lenders now out of business, investors hurt by the housing market crash are increasingly turning toward the banks and Wall Street firms that packaged and sold mortgage-backed securities, and they’re finding some successes in state courts, says Gretchen Morgenson of the New York Times.
The Securities and Exchange Commission complaint says Songkram Sahachaisere sent emails to millions of people through his California-based company, Investsource Inc., promoting penny stocks without disclosing that he was being compensated by the companies in question. The complaint also said that Sahachaisere was selling shares of some of those companies at the same time he was recommending them to investors. The SEC says Sahachaisere’s alleged fraud netted him $276,000 in illegal profits.
David Fein is new to the job, having just started as U.S Attorney for Connecticut in May. But he plans to make financial fraud prosecutions a top priority. “David and his team are determined to bring this district’s pursuit of white collar crime to the next level,” Attorney General Eric Holder said at his swearing in at Yale Law School Monday (July 12), according to Bloomberg Business Week.
Cambridge Place Investment Partners, a fund based in Boston, has sued about a dozen banks over subprime loans, in what could become a test case for investors seeking to recover mortgage losses. “Driven to profit from the lucrative securitisation business, the defendants demanded enormous volumes of loans, leading to erosion in lending standards,” the lawsuit says, according to the London Telegraph.
A ruling handed down recently in Morrison v. National Australia Bank found that non-U.s. investors who buy securities on foreign exchanges can’t sue in U.S. courts, even if the securities also are listed here. That’s a good thing, according to a letter published in The American Spectator. “With the recent economic downturn and accompanying drop in stock prices, the plaintiffs’ bar is lining up to file new lawsuits accusing companies of fraud. The last thing the judicial system needs is a wave of additional litigation over foreign securities clogging the U.S. courts,” says Douglas Smith, a Senior Lecturer in Residence at Loyola University Chicago School of Law and adjunct scholar at the American Enterprise Institute.
Robert Miller — who’d pleaded guilty to conspiracy to commit securities fraud just a few months ago — told the judge at sentencing he was too drunk to know he was participating in any kind of fraud. Instead of 20 years, he got two of supervised release. “Miller … deserves a prize for his performance in court the other day,” says Business Insider’s Courtney Comstock.