Securities Fraud Litigation Roundup: Former Hedge Fund Exec Admits to $1M Investment Fraud, SEC Files Penny Stock Scam Case& Class Action Claims Against Contact Lens Maker are Dismissed

Ex-Hedge Fund Exec Pleads Guilty to $1M Investment Fraud
In the U.S. District Court for the Southern District of New York, ex-hedge fund principal Berton Hochfeld pleaded guilty to wire fraud and securities charges over his alleged role in an investment scam that bilked investors of over $1M. He had been the organizer of limited liability Hochfield Capital, the general partner of Heppelwhite Fund LLP, which was set up to invest in publicly traded securities.

According to prosecutors, Hochfeld issued false representations to investors about the investments they made while misappropriating their money. He also is accused of taking money from Heppelwhite. Hochfeld will pay restitution and forfeit illegal profits. He will be sentenced this summer.

Securities and Exchange Commission Files Penny Stock Scam Case
The SEC is suing 12 entities and four individuals for allegedly running a penny stock scam that involved the acquisition of unregistered microcap company shares at discounted rates and then selling them while making false claims of registration exemptions per federal securities laws. Per the Commission, from 2007 to 2010 the defendants obtained unregistered shares in microcap companies at a discount of 30-60% by telling the companies that they wouldn’t resell the shares right away and instead keep them for investments when, actually, they did sell them immediately while making fraudulent claims that the shares were exempt from registration under the 1933 Securities Act’s Regulation D.

Actions allegedly taken included setting up virtual corporate presences in Texas and other states to make it appear as if compliance with claimed exemption was taking place and getting lawyer opinion letters that talked about the defendants’ intention to keep the shares for investment purposes. They also are also accused of using these letters to get stock certificates sans restrictive legends so they could resell the shares right away.

Class Action Securities Claims Against Contact Lens Maker are Dismissed
The U.S. District Court for the Northern District of California has dismissed a securities fraud class action lawsuit against Cooper Cos. Inc. (COO) and some of its former and current executives. The complaint had accused them of making false and misleading statements about “Avaira” contact lenses, which were defective, to raise the company’s share price. The executives also allegedly sold their company shares, making more than $14.2 million in illicit benefits. The plaintiffs are claiming 1934 Securities Exchange Act violations.

Noting that the lawsuit did not satisfy the Private Securities Litigation Reform Act’s pleading requirements and did not allege facts supporting that there was a “strong inference of scienter” or that the share price had become inflated due to omission or representation, the district court granted the defendants’ motion to dismiss.

Greenberg v. Cooper Cos. Inc. (PDF)

Securities and Exchange Commission v. Garber et al, Justia

United States v. Hochfeld (pdf)

More Blog Posts:
Texas Securities Criminal Case Against Oil and Gas Company Executive Can Proceed, Rules Fifth Circuit, Stockbroker Fraud Blog, February 6, 2013

Reviving Antifraud Lawsuit Over Alleged Market-Timing Practices From Over Five Years Ago is Not the Answer, Say Ex-SEC Officials, Institutional Investor Securities Fraud, December 22, 2012
Reviving Antifraud Lawsuit Over Alleged Market-Timing Practices From Over Five Years Ago is Not the Answer, Say Ex-SEC Officials, Institutional Investor Securities Fraud, December 22, 2012