Legal

Keyuan Petrochemicals Joins SEC Sanction List

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Reverse merger company Keyuan Petrochemicals (KEYP) and its CFO Aichun Li engaged in egregious accounting activity in 2010 and 2011, according to a settlement in which the company did not dispute Securities and Exchange Commission claims.

China-based Keyuan became public through a reverse merger with shell Silver Pearl Enterprises in May 2010. The company subsequently raised $52 million in a pair of convertible preferred stock PIPE offerings in 2010, according to PlacementTracker data. Investors included funds managed by Vision Capital Advisors, Taylor Asset Management, Whalehaven Capital, Westpark Capital and China Reinv Partners. Prax Capital Management's Dragon State International Ltd. was the sole investor in the second PIPE, which was placed by TriPoint Global Equities.

Legal
Virginia Sourlis

Reverse Merger Lawyer Sourlis Barred

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Regulators have moved to ban New Jersey reverse merger attorney Virginia Sourlis, alleging that Sourlis fabricated a bogus legal opinion that set the stage for the illegal offering of millions of shares of stock in Greenstone Holdings. The Securities and Exchange Commission has given Sourlis 30 days to request a hearing on the charges or the ban will become permanent. Sourlis’ law firm has been active as counsel in at least 30 reverse merger transactions since 2005. Greenstone formed in 2005 through a merger with a shell company, according to Securities and Exchange Commission claims that the transaction was intended to prevent the wood treatment maker from going into bankruptcy. In 2012, a U.S. District Court found Sourlis liable for fraud in the unlawful issuance of over six million shares of Greenstone stock.

Legal
New Stream Capital

New Stream Managers Arrested on Conspiracy, Fraud Charges

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Two co-founders of Ridgefield, Conn.-based hedge fund New Stream Capital were indicted on nineteen counts of criminal conspiracy, securities fraud, and wire fraud on Tuesday by the U.S. Justice Department. The fund’s CFO Richard Pereira was also arrested for his role in allegedly falsifying the fund’s financial statements. The SEC also filed a parallel civil fraud suit against the New Stream trio today, charging that $50 million was raised off false promises about the fund’s asset structure and senior debt positions, when in fact the fund knew it was facing massive redemptions in 2007 and 2008. David Bryson and Bart Gutekunst put up their Connecticut mansions for their $5 milllion bail bonds. Pereira posted a $300,000 bond.

Legal

Investors, Now Creditors, Prepare Claims in Wake of Rodman Bankruptcy

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When Rodman & Renshaw, the long-time leading investment bank focused on PIPE financing of emerging growth companies that ceased operations last September, filed for Chapter 7 bankruptcy last month it left creditors questioning how cash was spent in its final days. In late 2011, the investment bank was beset with a money-losing capital markets business in the wake of a severe downturn in capital available for the type of unregistered PIPE deals sold to trading-oriented hedge funds that had made it a perennial growth equity market leader for a decade. In a move alternately seen as bold and desperate by others in the PIPE market, Rodman's senior management announced in January 2012 that the company was building an online platform that would transact PIPE deals without the expense of investment bankers. The announcement came just two months after Rodman successfully raised $6.65 million in a convertible debt placement to some of the very same hedge funds it had sold its small cap clients' PIPE deals to for a decade. Called Direct Markets, the new subsidiary was announced as the future of the equity private placement business for Rodman, and indeed the market.