Articles Posted in Securities Fraud

John H. Whittier, a former hedge fund manager and the founder of Wood River Partners LP and its offshore company in the Cayman Island, has pled guilty to carrying out a securities fraud scheme that cost investors $88 million. Whittier had been charged with four counts of securities fraud for his part in the scheme that mislead investors into thinking that he was keeping risks minimal while pursuing a broad and diverse investment strategy when in fact, he was doing the opposite.

He knowingly failed to make the mandatory public filings that would have revealed his concentrated holdings with one stock. In addition, after acquiring 80% of Endwave Corp’s common stock, he hid any interest earned by not making beneficial-ownership disclosures to the SEC. He also placed 80% of his U.S. hedge fund’s $127 million portfolio in Endwave, instead of placing the money in different investments as he had promised investors. He had vowed that only 10% of the fund’s money would be invested in an one stock.

Aside from owning the hedge funds in the U.S. and abroad, Whittier also owned and controlled a capital management company, which served as the investment adviser to the funds.

William S. Lerach, a prominent plaintiffs’ attorney, met with SEC staff members last week to try to convince the agency to support investor lawsuits filed against banks accused of helping corporate executives engage in fraud.

Recently, the U.S. Supreme Court agreed to hear a case that will look at the liability of secondary parties, including lawyers, bankers, and accountants, who did not say anything even though they knew that corporate officials were misleading shareholders. The case involves Charter Communications, a cable television provider, and is said to be the most important securities law case to reach the Supreme Court in twenty years. The decision could have major consequences and will affect investors’ ability to recover losses from companies that have engaged in fraud.

Trade groups that want to limit banks’ liability and consumer advocates that want to expand it are working to garner support for their sides. Both sides are also courting federal and state regulators.

Clark Mitchell, a South Florida physician, has pleaded guilty to two criminal counts related to a $1 billion viatical sales scheme connected to death benefits company Mutual Benefits Corp. The company has been shut down by state and federal authorities.

In a plea agreement announced at the U.S. District Court for the Southern District of Florida, Mitchell pleaded guilty to one count of conspiracy to commit health care fraud and one count of securities fraud.

The South Florida physician faces a 10-year prison sentence-to be determined in March. He is being ordered to pay a fine of more than $5 million. Also as part of the plea agreement, Mitchell will be responsible for some $367 million in restitution to Mutual Benefits Corp. investors, as well as over $500,000 in health care fraud restitution.

In California, four stockbrokers who were convicted for securities fraud and conspiracy because of their roles in a “pump-and-dump” scheme that cost investors over $5 million will be sentenced this year.

According to the U.S. Attorney’s Office, the four men worked for Hampton Porter Investment Bankers LLC, a San Diego-based company that failed to disclose the company’s financial interests in certain stocks when it sold these particular stocks to clients.

Hampton Porter allegedly held sales meetings where co-owner John Laurienti and former Hampton Porter retail manager James Green pressured brokers to sell “house stocks.” Brokers who sold these stocks were paid “special incentive” compensation that customers didn’t know about. Hampton Porter also had a “no net-sales” policy that prevented customers from selling their house stocks’ shares because brokers delayed or failed to make sell orders. Brokers from Hampton Porter also engaged in cross-trading, which consists of selling one client’s shares to another client.