Securities Law Blog

Former CEO, Daniel Laikin, of entertainment company National Lampoon Inc. has been sentenced to nearly four years in prison for his role in a stock price manipulation scheme. Laikin and several others were charged in December 2008 by the Securities and Exchange Commission (SEC) and the U.S. Attorney for the Eastern District of Pennsylvania.

According to the SEC’s complaint from March 2008 through June 2008 Laikin and his collaborators engaged in “fraudulent schemes to manipulate the market by generating purchases of company stock in exchange for the pre-arranged cash kickbacks.” A witness secretly cooperating with the government was paid at least $68,000 in cash for kickbacks for the purchase of National Lampoon stock to inflate the stock price.

The alleged goal was to create the false appearance of market interest in the National Lampoon stock, induce public purchases of stock and increase the stock’s trading price. Laikin purportedly sought to artificially push National Lampoon’s stock price from under $2 to at least $5 per share to keep the company’s stock price above the minimum listing requirements of the AMEX, and to increase the company’s ability to enter into possible “strategic partnerships” and acquisitions, stated the SEC complaint.

Federal prosecutors dropped a count of securities fraud against Laikin last fall after he agreed to plead guilty to conspiracy. On top of his almost four year sentence, Laikin has been ordered to pay $100,000 fine and has been barred from serving as an officer or director of a publicly traded company.

Unsuitable recommendations for conservative and retirement aged investors has landed Boulder, Colorado-base investment adviser Neal R. Greenberg in hot water with the Securities and Exchange Commission (SEC).

The SEC Division of Enforcement alleges that Greenberg falsely stated that the Agile hedge funds offered and managed by his two investment advisory firms were suitable for investors nearing retirement. According to the SEC, Greenberg was the CEO of his investment advisory firm Tactical Allocation Services LLC that made recommendations to clients, and the head portfolio manager for his other investment advisory firm Agile Group LLC, which managed the Agile hedge funds.

The Agile hedge funds purportedly used leverage and concentrated in a small number of investments. Greenberg allegedly told investors that the Agile hedge funds offered liquidity, immense diversification and minimal risk.

According to the SEC’s order instituting administrative cease-and-desist proceedings, the Agile hedge funds held approximately $174 million of capital from more than 100 investors when Greenberg suspended redemptions in September 2008 after the funds suffered substantial losses.

The SEC Division of Enforcement also claims that the Agile hedge funds improperly collected approximately $2 million in management and performance fees that were not adequately disclosed to investors. The SEC alleges that these fees paid by investors were performance and management fees when one Agile hedge fund invested in another Agile hedge fund.

The SEC’s order seeks to institute administrative and cease-and-desist proceedings against Greenberg.

Since approximately 1997 a NJ-based investment adviser and three of her firms allegedly sold $11 million in fake promissory notes to retirees and other vulnerable investors, according to the Securities and Exchange Commission (SEC).

The SEC charged Sandra Venetis with operating a multi-million dollar offering fraud that promised investors an annual interest of 6 to 11 percent, tax-free, and that the promissory notes were guaranteed by the Federal Deposit Insurance Corporation (FDIC). Venetis allegedly told investors that their money would be used to fund loans to doctors that would be backed by Medicare reimbursement payments to those doctors.

The three entities owned or controlled by Venetis also named are Systematic Financial Associates, Inc., an investment advisor, Systematic Financial Services LLC, an accounting and tax preparation firm, and Systematic Financial Services Inc., an entity Venetis purportedly created to solicit the unregistered securities.

The SEC alleges that the representations made by Venetis were entirely false and the promissory notes were unsupported by any investments, assets or related revenues. Instead Venetis is said to have used the money to pay off her personal debts, home mortgage, purchase a home for her daughter, and pay for exotic trips around the world.

Venetis and the entities have agreed to settle the SEC’s charges, including the entry of a court order enjoining them from future violations of the securities laws, ordering the payment of disgorgement of ill-gotten gains with prejudgment interest, financial penalties, an asset freeze, accountings, and the appointment of an independent monitor.

Venetis and Systematic Financial Associates, Inc. also agreed to settle related administrative actions by the SEC that will bar Venetis from association with any investment advisor or broker or dealer, and revoke the registration of the firm.

The Financial Industry Regulatory Authority (FINRA) has ordered former Rodman & Renshaw LLC biotech analyst Matthew N. Murray to pay his previous employer $10.7 million in damages.

In March 2006, Murray testified before the Senate Finance Committee that he had been wrongfully fired from Rodman & Renshaw after he tried to downgrade the stock of a company that was an investment banking client of the firm. Following his termination, Murray asked for $4 million in compensatory and punitive damages, asserting breach of contract and defamation. According to the award, three arbitrators denied his claim.

In response, Rodman & Renshaw sued Murray, alleging that he had defamed the firm and interfered with its business. FINRA sent the matter to arbitration, which lasted from August 2007 until March 2010, totaling 61 sessions.

The $10.7 million award was reportedly the amount Rodman & Renshaw claimed it lost in delaying a private placement due to negative publicity from the dispute.

An attorney for Murray said he plans to appeal the decision

Former vice president of finance and principal accounting officer, Sujata Sachdeva, of Koss Corporation has been charged by the Securities and Exchange Commission (SEC) with accounting fraud, books-and-records violations, and misconduct relating to her alleged embezzlement of about $34 million from her employer.

Sachdeva allegedly began stealing money from the Milwaukee-based headphone manufacturer in 2004 and continued to do so with the help of Koss senior accountant Julie Mulvaney until December 2009.

According to the SEC’s complaint, the former employees allegedly concealed the theft on Koss’s balance sheet and income statements by overstating assets, expenses, and cost of sales, and by understating liabilities and sales. The approximately $34 million in company funds were embezzled by Sachdeva through cashier’s checks, unauthorized wire transfers and unauthorized payments from petty cash. As a result of the fraudulent records prepared by Sachdeva and Mulvaney, Koss filed materially false current, quarterly, and annual reports with the SEC.

The SEC claims that Sachdeva used the embezzled funds to make millions of dollars in payments on her personal American Express credit card, to purchase designer clothes and accessories, automobiles, airline tickets, and home improvements. In an effort to conceal the identities of check recipients, Sachdeva allegedly used acronyms such as “N.M. Inc.” for Neiman Marcus and “S.F.A. Inc.” for Saks Fifth Avenue.

The fraud was discovered when America Express noticed that a customer’s personal card account balances were being paid using several large wire transfers from a Koss bank account.

On July 27, 2010, Sachdeva entered into a plea agreement with the U.S. District Court for the Eastern District of Wisconsin to settle the criminal charges related to her multi-million-dollar theft. Sachdeva pleaded guilty to six counts of wire fraud and agreed to make full restitution to Koss for the stolen $34 million and faces at least 5 years in prison.

Under the plea agreement, the government will seek a forfeiture order for roughly $270,000 of the equity in Sachdeva’s $800,000 home. Koss will receive the proceeds from the auction of more than 22,000 luxury items including clothing, shoes, jewelry, furs and art. The plea deal also calls for the forfeiture of her 2007 Mercedes-Benz E350 and a time share in Hawaii. Sachdeva has agreed to forfeit her company retirement savings account and her interest in the employee stock ownership plan.

The SEC seeks a permanent injunction, disgorgement of ill-gotten gains and financial penalties against Sachdeva and Mulvaney, and an order barring Sachdeva from serving as an officer or director of a public company.