Legal

SEC Doubles Down on Bogus Opinion Attorneys

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Regulators are cracking down on two securities attorneys who allegedly failed to heed previous warnings to stop writing improper legal opinions to sell shares. In separate actions, the Securities and Exchange Commission filed suit against Dominican Republic resident Guy Jean-Pierre and began administrative proceedings against William Reilly, who was licensed to practice in New York. Legal opinions are required to allow the sale of restricted shares without going through the paperwork involved in registering an offering. The use of bogus opinions to remove restrictive legends has often played a role in allowing the improper sale of insider shares to the public, often in conjunction with the use of misleading publicity to boost stock prices. In such cases, retail buyers are often unaware that the sale of huge numbers of shares is diluting the value of the issuer's equity.

Legal

China North East Petroleum PIPEs Diverted Millions, SEC Says

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Management of China North East Petroleum (CNEP) diverted over $6 million from two registered direct offerings to family members according to a suit filed by the Securities and Exchange Commission. Some $6.9 million diverted from two registered direct offerings in 2009 was part of a larger scheme of almost $60 million in illegal transfers, the SEC says. CEO Wang Hongjun and Wang's mother Ju Guizhi (and founder and former director) allegedly transferred funds in at least 176 related-party transactions. The commission's suit says the undisclosed activities included $28 million in payments to Wang and Ju, along with $11 million in loans and around $20 million in "unusual post-year-end adjustments that purported to eliminate the remaining debts owed by Wang and Ju to CNEP." The allegedly illegal transactions took place in 2009, when the company raised a total of $31.9 million in registered direct offerings in September ($18.4 million) and December ($13.5 million).

Legal
Virginia Sourlis

Reverse Merger Attorney Sourlis Convicted in SEC Securities Fraud Case

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A U.S. District Court found securities attorney Virginia Sourlis liable for fraud in the improper issuance of some six million shares of Greenstone Holdings stock. The court granted the part of a summary judgment motion containing the Securities and Exchange Commission's allegation that Sourlis wrote a false legend removal letter that included representations that she communicated with individuals who do not exist. The Manhattan  court's ruling found Sourlis liable for aiding and abetting securities fraud but denied an SEC liability claim and postponed a decision on another claim involving registration laws. The attorney has served as counsel to parties in numerous reverse merger transactions. Sourlis was not named when the suit was first filed in February 2010.

Legal
Skowron

Morgan Stanley Adds Chapter to FrontPoint Saga

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Joseph "Chip" Skowron is in prison for allegedly engaging in insider trading while he managed funds for Morgan Stanley's FrontPoint Partners, but Morgan still has plans for Skowron. Morgan paid $33 million last year to settle a Securities and Exchange Commission suit against Skowron, who also received a five year prison sentence for insider trading in shares of Human Genome Sciences (HGSI) in 2008. Morgan still wants to recover over $32 million from Skowron. Funds managed by FrontPoint invested in 19 PIPEs and 90 Rule 144A offerings that raised over $400 million according to PlacementTracker data. Morgan acquired FrontPoint in 2006 for $404 million according to reports in the media.