Legal

Hedge Funds Say China Medical CEO Tanked Company with Transfers to Family

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China Medical Technologies (CMEDY) was already on financially shaky ground before three hedge funds accused the company’s CEO Xiaodong Wu of further destabilizing the company by illegally transferring much of its assets to relatives. China Medical had already defaulted on two series of convertible notes, and Nasdaq had delisted its shares. Investors Whitebox Advisors, GLG Partners and Visium Asset Management made the claims in a suit they filed against Wu’s son-in-law Henry Mann and daughter-in-law Bi Junyun in the New York Supreme Court on Aug. 22. Wu himself was not named in the suit.

Legal
Corey Ribotsky

SEC Files New Complaint Against NIR’s Ribotsky, Dworkin

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The Securities and Exchange Commission filed an amended complaint against NIR Group, its founder Corey Ribotsky, and former analyst Daryl Dworkin. The document reiterates most of the commission’s allegations that Ribotsky engaged in fraudulent accounting, lied to investors and stole over $1 million from one of his funds, but it also provides new specifics to the regulator’s claims that Ribotsky profited from management fees from phantom gains and engaged in questionable accounting. The suit was originally filed last September in Manhattan's U.S. District Court. Funds managed by NIR, which include four AJW entities and New Millennium Capital Partners II, committed $225 million to 144 PIPEs from 1999 through 2010, according to PlacementTracker data. Dworkin plead guilty to charges of securities fraud in a separate criminal case in 2010.

Legal
Cowardly Lion

SEC Sues E-Lionheart for Dumping Billions of Shares

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E-Lionheart Associates and its principal Edward Bronson sold billions of shares of stock illegally through specious recourse to the Rule 504 exemption and state blue sky laws, according to a suit filed by the Securities and Exchange Commission. The suit was filed Aug. 22 in Manhattan’s U.S. District Court. Bronson and E-Lionheart (also known as Fairhills Capital) approached numerous small companies to arrange below-market price purchases of shares and then dump them for enormous profits, according to the SEC’s complaint. “In the aggregate,” the complaint alleges, “Defendants have entered into hundreds of transactions, involving the sale of billions of shares to the investing public, without a registration statement being filed or in effect and with no valid exemption from registration available for Defendants' sales of securities.”

Ossining, New York resident Bronson’s operation raked in more than $10 million in ill-gotten gains, the commission says.

Legal

Rodman Sanctioned for Selling Analyst “Love”

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FINRA sanctioned investment bank Rodman & Renshaw for failing to separate research and banking roles in several situations, including one where the company placed a $10 million registered direct offering for a Chinese issuer. Suspect communications were concealed in code that referred to deal terms as "soda" and "popcorn," FINRA alleges. The functions of research and banking arms of broker dealers are generally kept separate to avoid conflicts of interest and eliminate opportunities for improper insider trading. FINRA said in a release that is important for firms like Rodman to maintain this separation, “given concerns that research analysts could be pressured to tailor their coverage to the interests of a firm's current or prospective investment banking clients.”

Rodman had supervisory deficiencies relating to interaction between banking and research functions from 2008 through March of this year, FINRA alleges, as well as inadequacies in its analyst compensation procedures, restricted list procedures and disclosure of market making status in research materials. The firm, which has no other disciplinary history with FINRA, agreed to a $315,000 fine.