Anyone finding him or herself on the receiving end of an SEC administrative enforcement action must wait until that one is over before seeking to raise judicial challenges, even those based on the U.S. Constitution, to the Commission’s proceeding. At least that was the conclusion reached by a panel of the DC Circuit on Tuesday in the case of Jarkesy v. Securities and Exchange Commission, No. 14-5196 (D.C. Cir. Sept. 29, 2015). In that case, the Court affirmed the district court’s dismissal, based on lack of subject-matter jurisdiction, of George Jarkesy, Jr.’s claim for injunctive relief to terminate administrative proceedings pending in front of the SEC.
The SEC’s Administrative Action Against Jarkesy and Others
Jarkesy was the manager of Patriot28, LLC, an unregistered investment advisor and general partner of two hedge funds. The SEC instituted administrative and cease and desist proceedings against Jarkesy, Patriot28 and two other respondents, seeking disgorgement of fees, civil penalties, a cease-and-desist order against all respondents, as well as securities industry and officer-and-director bars against Jarkesy. The SEC alleged that Mr. Jarkesy and Patriot28 (collectively “Jarkesy”) had committed securities fraud in connection with the offer, purchase and sale of securities, and that the other two respondents, John Thomas Financial, Inc. (a broker-dealer) and Anastasios Belesis (the founder and CEO of John Thomas Financial) had aided and abetted.
Prior to the passage of Dodd-Frank in 2010, the SEC could not seek penalties from an unregistered individual like Jarkesy in an administrative proceeding. It could only have brought an administrative proceeding against “regulated persons” or companies. With the changes brought on by Dodd-Frank, the SEC now has the option to decide whether to bring enforcement actions against unregistered individuals in federal court or in an administrative proceeding. The problem cited by many in the position of Jarkesy is that this new playing field is not level, with the tilt in the administrative forum decidedly in favor of the Commission’s enforcement arm. Read More
Articles in this Issue:
1) Veto Power: Babcock & Wilcox Holds That An Insured May Settle Despite The Insurer’s Objection
2) Claim Payments Under Subcontractor Default Insurance V. Surety Bonds – What Are The Differences?
3) OSHA’s New Combined Space Standards For Construction
4) Understanding Wrap-Up Insuance Programs: A Primer
5) Can A Subcontractor Recover In An Action Against A Contractor And Surety Under The PA Contractor And Subcontractor Payment Act On A Public Works Project?
Related Information:
cpc_cle_fall_2015.pdf Read More
A series of recent high profile prosecutions of attorneys or persons affiliated with law firms for insider trading has highlighted the government’s concern about attorneys and law firm personnel misusing information shared by clients. Law firms, particularly those representing public companies, are entrusted on a regular basis with sensitive information regarding proposed mergers, acquisitions and tender offers. Protecting this information from threats inside the organization is a challenge just as critical as protecting it from outside threats.
Attorneys advising or representing highly placed executives or board members in public companies are also frequent recipients of potentially market-moving information. It is correspondingly critical that these individuals restrict their use of this information to those purposes necessary to serve their client and nothing more. When sensitive information regarding public companies is misused for personal gain, those using it can expect the government to come calling. On Monday, the most recent example of this peril came to light when the SEC charged five Florida residents, including two lawyers and an accountant, with insider trading in advance of the acquisition of Pharmasset, Inc. by Gilead Sciences, Inc.
The charges are set forth in a civil complaint filed in the U.S. District in Newark, New Jersey, alleging that attorneys Robert L. Spallina and Donald R. Tescher, as well as accountant Stephen G. Rosen, used information obtained from a mutual client to trade in advance of the sale of Pharmasset to Gilead. According to the complaint, during a meeting on November 8, 2011 regarding year-end personal tax and estate planning, the mutual client, who was a Pharmasset board member, discussed with his advisors the fact that the Pharmasset board was negotiating to sell the company at a significant premium. Three of those advisors, Spallina, Tescher and Rosen purportedly used that information and purchased Pharmasset securities. According to the complaint, Spallina also told a financial advisor, Thomas J. Read More
It is not uncommon in the financial services industry, particularly in matters involving the departure of partners or brokers, for there to be accusations that the departing person has taken with them confidential information. Typically these disputes involve threats of or actual lawsuits and motions for injunctive relief, usually involving client lists and other proprietary data. A recent case in the Southern District of New York demonstrates, however, that when a broker accesses client information without permission, even within their own firm, they may also face criminal charges.
On September 21, 2015, a private wealth management advisor, Galen Marsh, entered a plea of guilty before U.S. District Judge Kevin Thomas Duffy in the Southern District of New York to a one-count information charging unauthorized access to a computer. In entering the plea, Marsh admitted that he gained access to confidential and private information of hundreds of thousands of his employer’s clients without authorization.
According to the government, Marsh was employed in the private wealth management division of a bank, initially as a customer service associate (CSA) and then as a financial advisor (FA), working as part of a group that provided financial and investment services to private wealth management clients of the bank. There were other similarly structured groups within the wealth management division who provided similar services to the bank’s other wealth management clients.
While Marsh, as an FA and a CSA, was authorized to access the client information of the clients in his group, he was not authorized to access information regarding clients in other groups providing services to other private wealth management clients of the bank. According to the plea entered by Marsh, from June 2011 through December 2014, Marsh used the bank’s computer systems to access confidential information about certain clients serviced by FAs and CSAs outside of his group. Read More
Marc S. Raspanti, Pamela C. Brecht and Michael A. Morse will be speaking at the ABA’s Criminal Justice Section and the White Collar Crime Southeast Region Subcommittee presenting Qui Tam Litigation: A Practitioner’s Symposium. For more information, please visit here. Read More
On Tuesday, Assistant Attorney General Leslie R. Caldwell expanded upon DOJ’s new policy focus on pursuing individuals in connection with the prosecution of corporate wrongdoing. Assistant Attorney General Caldwell, speaking to the Second Annual Global Investigations Review Conference in New York, took the opportunity to throw the spotlight on the policy shift that was previously introduced by Deputy Attorney General (DAG) Sally Quillian Yates in remarks she delivered on September 10, and formalized in a September 9 memorandum to all department attorneys, entitled “Individual Accountability for Corporate Wrongdoing.”
While indicating that the policy announcement by DAG Yates was simply a reinforcement of what the Department has been doing for a long time, Assistant Attorney General Caldwell indicated that the policy shift does forcefully focus all federal prosecutors on pursuing individual accountability for corporate criminal misconduct. She said that “prosecuting the corporate entity, and imposing a fine or other impersonal conditions, simply is not enough – in most instances – to fully punish and, more importantly, deter corporate misconduct.”
Assistant Attorney General Caldwell illustrated how she sees this new focus playing out, citing previous cases settled by the Department, including the resolution of the FCPA matter involving Alstom, S.A., the French power company, in December of 2014. Alstom entered a plea of guilty to violating the FCPA, and agreed to pay a penalty of $772 million. Its Swiss subsidiary pleaded guilty to conspiracy to violate the anti-bribery provision of the FCPA, and two U.S.-based subsidiaries also admitted to conspiring to violate the FCPA and entered into Deferred Prosecution Agreements (DPAs). She added that the Alstom investigation resulted in criminal charges against five individuals, including four corporate executives, in connection with the bribery scheme. She explained that the final global corporate resolution with Alstom was based, at least in part, on what she described as the company’s failure to voluntarily disclose the misconduct and its refusal to cooperate with the investigation until years later, after several company executives had been charged. Read More
On Monday, two former officials and one broker for the now defunct Peanut Corporation of America (“PCA”) were sentenced by Senior U.S. District Judge W. Lewis Sands of the Middle District of Georgia for their roles in a conspiracy to defraud customers by shipping salmonella-positive peanut products. Stewart Parnell, the former owner and president of PCA, was sentenced to serve 336 months (28 years) in prison. Michael Parnell, a food broker who worked on behalf of PCA and is Stewart Parnell’s brother, was sentenced to 240 months, and Mary Wilkerson, who held various positions at PCA, including quality assurance manager, was sentenced to serve 60 months. Judge Sands indicated that he will issue a restitution order at a later date.
The Parnell brothers were convicted by a federal jury on September 19, 2014, of multiple counts of conspiracy, mail and wire fraud and the sale of misbranded food. Stewart Parnell was also convicted of the introduction of adulterated food into interstate commerce. Stewart Parnell and Mary Wilkerson were also convicted of obstruction of justice.
Expert evidence at trial showed that tainted food led to a salmonella outbreak in 2009 with more than 700 reported cases of salmonella poisoning in 46 states. The Centers for Disease Control and Prevention (“CDC”), estimated that, based on epidemiological projections, that number translates to more than 22,000 total cases including 9 deaths. Judge Sands found at the time of sentencing that steps taken by the CDC to link reported illness to the specific strain of salmonella found in PCA products established that Stewart and Michael Parnell’s conduct was the proximate cause of the victims’ illnesses.
According to the government, evidence presented at trial established that Stewart and Michael Parnell, along with others, participated in several schemes by which they defrauded PCA customers and jeopardized the quality and purity of their peanut products. Read More
On Friday, September 18, the medical biller for a Chicago-area visiting physician practice was sentenced to 45 months in prison, by U.S. District Judge Gary Feinerman of the Northern District of Illinois, for her role in a $4 million healthcare fraud scheme. Mary Talaga was convicted in May of this year following a jury trial on numerous charges relating to a billing scheme, including conspiracy to commit healthcare fraud. Ms. Talaga was also sentenced to pay approximately $1 million in restitution.
From 2007-2011, Talaga was the primary medical biller for Medicall Physicians Group, Ltd., a physician practice that visited patients in their home and prescribed home healthcare. The primary method of billing fraud that came to light at trial was the billing of Medicare for a service known as “Care Plan Oversight” or “CPO,” which would have indicated that the doctors had provided oversight of patient care plans. In fact, the doctors at Medicall rarely provided the service.
Talaga and her co-conspirators also billed Medicare for other services that were never provided, including services rendered to patients who were deceased, services purportedly provided by medical professionals no longer employed by Medicall and services purportedly provided by medical professionals who, based on billing records would have had to have worked over 24 hours per day. In all, the evidence presented at trial indicated that, through the period of the 5-year conspiracy, Medicall submitted bills to Medicare for more than $4 million in services never provided and Medicare paid more than $1 million on those claims.
Talaga’s co-conspirators, Rick Brown and Roger A. Lucero, Medicall’s former medical director, were also convicted in this matter. Brown was convicted as part of the same trial with Talaga, and has been sentenced to serve more than 7 years in prison. Lucero pleaded guilty and will be sentenced at a later date. Read More
A securities broker pleaded guilty on Wednesday in the U.S. District Court in Trenton to a securities fraud conspiracy that profited from his use of material inside information stolen from the New York office of a global law firm. Contemporaneous with the plea, the government filed the criminal information detailing the charges, which also included one count each of securities fraud and tender offer fraud.
The case arises out of the defendant Vladimir Eydelman’s having trading on material non-public information from 2009-2013, while a broker at Oppenheimer & Co. and later at Morgan Stanley. The inside information was provided to him by his brokerage client, Frank Tamayo. According to the government, Tomayo obtained the inside information from a friend and former law school classmate, Steven Metro, who was the managing clerk of the New York office of Simpson Thacher and Bartlett, LLP. The inside information disclosed by Metro related to corporate transactions, including mergers and acquisitions or tender offers, in which the law firm represented a party or financial advisor to the transaction.
The government charged that Metro collected the inside information by scouring the law firm’s computer systems using search terms relating to corporate transactions, as well as client names and client-matter numbers. Metro would then pass on the information to Tamayo in meetings at restaurants and coffee shops in Manhattan, providing, among other things, the names and/or ticker symbols of the companies whose securities should be purchased, the general timing of the planned deals, and information related to how the deals would affect the issuer’s stock price once announced. After Tamayo received the inside information from Metro, Tamayo would meet with Eydelman and pass the information to him. According to the government, Tamayo would show Eydelman the paper or napkin on which Tamayo had written the ticker symbol of the company whose securities should be purchased. Read More
Marc S. Raspanti and Pamela C. Brecht will present at the 3rd Annual Qui Tam Conference in San Francisco, CA. Marc will speak on the Realtor’s Counsel: Strategic and Practical Considerations for a Successful Practice, and Pamela will speak on Medicare Part D Fraud: False Medicare Claims Involving Prescription Drug Coverage. Read More
