SEC FILES FRAUD CHARGES AGAINST CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED; ITS CEO, PRESIDENT AND FORMER CHAIRMAN; ITS FOUNDER AND FORMER DIRECTOR; AND ITS VICE PRESIDENT AND SECRETARY

The Securities and Exchange Commission today announced that, on November 29, 2012, the Commission filed fraud and other related charges against China North East Petroleum Holdings (CNEP); its CEO, President and former Chairman of the Board of Directors, Wang Hongjun (Wang); its founder, former director and Wang's mother, Ju Guizhi (Ju); and its Vice President of Corporate Finance and Secretary, Jiang Chao. The Commission also named Wang's wife, Sun Jishuang (Sun), and Jiang Chao's father, Jiang Mingfu, as Relief Defendants to recover company monies that they improperly received.

The Commission alleges that CNEP, Wang, Ju and Jiang Chao diverted offering proceeds to the personal accounts of corporate insiders and their immediate family members, and also engaged in fraudulent conduct in connection with at least 176 undisclosed transactions between the company and its insiders or their immediate family members, otherwise known as related-party transactions.

The Commission alleges that, in connection with its two public stock offerings in late 2009, CNEP falsely stated to investors in a registration statement and other public filings signed by Wang that the offering proceeds would be used to fund future business expansion and for general working capital purposes. Instead, consistent with a pre-existing pattern of engaging in undisclosed, related-party transactions, Jiang Chao then diverted over $900,000 of offering proceeds to his father, Jiang Mingfu, and at the direction of Ju, diverted at least $6 million dollars to her and Sun, who is her daughter-in-law and Wang's wife.

The Commission further alleges that during 2009, CNEP, Wang and Ju engaged in at least 176 undisclosed, related-party transactions. This fraudulent conduct involved approximately $28 million in transactions from CNEP to Wang or Ju; approximately $11 million purportedly loaned to CNEP or paid to third parties on behalf of CNEP by Wang or Ju; and $20 million of unusual post-year-end adjustments that purported to eliminate the remaining debts owed by Wang and Ju to CNEP. Together, these transactions totaled approximately $59 million of related-party activity during 2009. Neither the magnitude nor the volume of these related-party transactions has been fully disclosed to the investing public.

The Commission alleges that CNEP, Wang, Ju and Jiang Chao violated the antifraud provisions of the securities laws, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 (Exchange Act) and Rule 10b-5. The Commission further alleges violations of reporting, recordkeeping and internal controls provisions of the securities laws, Sections 13(a), 13(b)(2)(A) & (B), and 13(b)(5) of the Securities Exchange Act and Rules 13a-1, 13a-11, 13a-13 and 13b2-1. The Commission is seeking: (i) permanent injunctive relief to prevent future violations of the federal securities laws, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties from each Defendant; (ii) officer and director bars against Wang, Ju and Jiang Chao; and (iii) disgorgement from the Relief Defendants, Sun and Jiang Mingfu, of improperly received funds.

The investigation is continuing.

Washington D.C., Sept. 10, 2015 —   The Securities and Exchange Commission today announced fraud charges against a Wall Street CEO and his company, family members, and business associates accused of secretly obtaining control and manipulating the stock of Chinese companies they were purportedly guiding through the process of raising capital and becoming publicly-traded in the United States.

The SEC alleges that Benjamin Wey and New York Global Group (NYGG) typically structured reverse mergers between clients and publicly-traded shell companies in such a way that he and other family members secretly obtained ownership interests of more than five percent of the newly listed companies. To avoid detection and evade SEC reporting requirements as beneficial owners, they divided their shares among a vast network of foreign accounts and generated tens of millions of dollars in illegal profits as they sold the securities into artificially inflated markets.  The illicit profits eventually circled back to Wey and his wife, who used the money to finance a lavish lifestyle.

Also charged in the case in addition to Benjamin Wey and NYGG are his wife Michaela Wey and sister Tianyi Wei, their Switzerland-based broker Seref Dogan Erbek, and two attorneys Robert Newman and William Uchimoto.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Benjamin Wey and Dogan Erbek.

“We allege that when the Weys and NYGG were supposed to be helping Chinese companies go public in the U.S., they were secretly obtaining control of blocks of their clients’ shares so they could manipulate the markets and derive illegal profits.  The Weys and their attorneys went to extraordinary lengths to hide their scheme, but they underestimated our ability to piece it together,” said Antonia Chion, Associate Director of the SEC’s Division of Enforcement.”

The SEC’s complaint alleges violations or the aiding and abetting of violations of the antifraud provisions and the disclosure and reporting provisions of the federal securities laws.

The SEC’s investigation was conducted by Patrick L. Feeney and Steven A. Susswein, and supervised by Melissa Hodgman.  The litigation will be led by Cheryl L. Crumpton, Joshua Braunstein, and Derek Bentsen. The SEC appreciates the assistance of the Federal Bureau of Investigation, U.S. Attorney’s Office for the Southern District of New York, Financial Industry Regulatory Authority, Securities and Futures Commission of Hong Kong, Monetary Authority of Singapore, Ontario Securities Commission, and British Columbia Securities Commission.

[ NOTE - These charges were voluntarily dismissed on Sep 1, 2017 - https://www.sec.gov/litigation/litreleases/2018/lr24105.htm ] 

Washington D.C., Oct. 14, 2016 —   The Securities and Exchange Commission today announced that Melissa Hodgman has been named Associate Director in the SEC’s Enforcement Division.  Ms. Hodgman succeeds Stephen L. Cohen, who left the SEC in June.

Ms. Hodgman began working in the Enforcement Division in 2008 as a staff attorney.  She joined the Market Abuse Unit in 2010 and was promoted to Assistant Director in 2012.

Ms. Hodgman has investigated or supervised dozens of enforcement recommendations spanning a variety of misconduct, including:

• The SEC’s first case against a brokerage firm for failing to file SARs when appropriate.

• Fraud charges against a Wall Street CEO and his company, family members, and business associates accused of secretly obtaining control and manipulating the stock of Chinese companies they were purportedly guiding through the process of raising capital and becoming publicly-traded in the United States.

• Fraud and other related charges against China North East Petroleum Holdings, its CEO, President and former Chairman of the Board of Directors, and others arising from their alleged diversion of offering proceeds to the personal accounts of corporate insiders and their immediate family members and fraudulent conduct in connection with at least 176 undisclosed related-party transactions.

• Charges against Charles Schwab Investment Management, Charles Schwab & Co., and two executives for making misleading statements regarding the Schwab YieldPlus Fund and failing to establish, maintain and enforce policies and procedures to prevent the misuse of material, nonpublic information.

Ms. Hodgman has led the Enforcement Division’s Cross-Border Working Group, which provides expertise and assistance of matters with international actors and implications.  Ms. Hodgman also co-founded and served as the enforcement representative on the Chair’s Attorney Honors Program, and is a member of the Enforcement Division’s hiring committee at its Washington D.C. headquarters.

“Melissa has supervised and investigated a broad range of noteworthy and first-of-their-kind cases across the spectrum of the securities industry and involving misconduct located around the world,” said Andrew J. Ceresney, Director of the SEC’s Enforcement Division.  “She has distinguished herself with her excellent judgment and creativity, and I am pleased to have her join the senior ranks of the Enforcement Division.”

Ms. Hodgman said, “I am honored by this appointment and look forward to continuing our tradition of pursuing tough but fair enforcement actions in complex and cutting-edge cases, especially matters involving cross-border issues and efforts to hold gatekeepers accountable for breaches of their professional standards.”     [...]

Washington D.C., March 10, 2017 —   The Securities and Exchange Commission today announced fraud charges against a Ukraine-based trading firm accused of manipulating the U.S. markets hundreds of thousands of times and the New York-based brokerage firm and CEO who allegedly helped make it possible.

The SEC’s complaint alleges that Avalon FA Ltd touted itself to traders as a destination to engage in layering, a scheme in which orders are placed but later canceled after tricking others into buying or selling stocks at artificial prices, resulting in illicit profits.  Avalon allegedly made more than $21 million in the layering scheme involving U.S. stocks during a five-year period.  According to the SEC’s complaint, Avalon also made more than $7 million in illicit profits through a cross-market manipulation scheme in which the firm bought and sold U.S. stocks at a loss in order to manipulate the prices of the stock and its corresponding options so that it could then profitably trade at artificial prices.  Avalon allegedly used traders in Eastern Europe and Asia to conduct its trading, and the firm kept a portion of the profits and collected commissions from the traders.

The SEC’s complaint also describes fraud charges against Avalon’s named owner Nathan Fayyer and Sergey Pustelnik, who allegedly kept his controlling interest in Avalon undisclosed and embedded himself at Lek Securities as a registered representative, using his position to facilitate the schemes.

The SEC further alleges that Lek Securities and its owner Samuel Lek made the schemes possible by providing Avalon with access to the U.S. markets, approving the cross-market trading scheme, and improving its trading technology to assist Avalon’s trading.  According to the SEC’s complaint, Lek Securities also relaxed its layering controls after Avalon complained.  Avalon was the highest-producing customer for Lek Securities in terms of trading commissions, fees, and rebates generated.

“As alleged in our complaint, Avalon openly marketed itself as a destination for manipulative trading, and Lek Securities opened the gate to allow the schemes into the U.S. markets despite repeated warnings that its customer was manipulating the market,” said Stephanie Avakian, Acting Director of the SEC’s Division of Enforcement. 

After filing its complaint in U.S. District Court for the Southern District of New York, the SEC obtained an emergency court order freezing Avalon’s assets held in its account at Lek Securities as well as freezing and repatriating funds that Avalon has transferred overseas.

The SEC’s investigation was conducted by Sarah S. Nilson along with Owen A. Granke and Carolyn Welshhans of the Market Abuse Unit.  The case was supervised by Melissa Hodgman, Antonia Chion, and Robert A. Cohen.  The litigation will be led by David J. Gottesman, Olivia S. Choe, and Ms. Nilson.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

Washington D.C., Sept. 23, 2019 - The SEC today filed settled fraud charges against Nissan, its former CEO Carlos Ghosn, and its former director Greg Kelly related to false financial disclosures that omitted more than $140 million to be paid to Ghosn in retirement.

According to the SEC's orders and complaint, beginning in 2004 Nissan's Board delegated to Ghosn the authority to set individual director and executive compensation levels, including his own. From 2009 until his arrest in Tokyo in November 2018, Ghosn, with substantial assistance from Kelly and subordinates at Nissan, engaged in a scheme to conceal more than $90 million of compensation from public disclosure, while also taking steps to increase Ghosn's retirement allowance by more than $50 million. Each year, Ghosn fixed a total amount of compensation for himself, with a certain amount paid and disclosed and an additional amount that was unpaid and undisclosed. Ghosn and his subordinates, including Kelly, crafted various ways to structure payment of the undisclosed compensation after Ghosn's retirement, such as entering into secret contracts, backdating letters to grant Ghosn interests in Nissan's Long Term Incentive Plan, and changing the calculation of Ghosn's pension allowance to provide more than $50 million in additional benefits. Kelly and Ghosn's Nissan subordinates misled Nissan's CFO, and Nissan issued a misleading disclosure in connection with the increased pension allowance. The $140 million in undisclosed compensation and retirement benefits was never paid out to Ghosn.

In an administrative proceeding, the Commission charged Nissan with violating the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Nissan settled the charges, agreeing to pay a $15 million civil penalty and to cease and desist from committing or causing violations of the anti-fraud provisions. The SEC's complaint filed in district court charges Ghosn with violating the same anti-fraud provisions and Kelly with aiding and abetting Ghosn's and Nissan's violations. To settle the charges, Ghosn and Kelly agreed to be permanently enjoined from violating or aiding and abetting violations of the anti-fraud provisions. Ghosn also agreed to a $1 million civil penalty and a 10-year officer and director bar. Kelly agreed to a $100,000 penalty, a five-year officer and director bar and a five-year suspension from practicing or appearing before the Commission as an attorney. Nissan, Ghosn, and Kelly settled without admitting or denying the SEC's allegations and findings.

The SEC investigation was conducted by Brad Ney and Christian Schultz, with assistance from Jamie Wohlert, Richard Haynes and Sandhya Harris. The case was supervised by Tim England and Melissa Hodgman. The SEC would like to thank the Tokyo District Public Prosecutors Office for its assistance in connection with this investigation.

Securities and Exchange Commission v. Lek Securities Corp., et al., No. 17-cv-1789 (S.D.N.Y. filed March 10, 2017)

On October 1, 2019, a federal court judge entered final judgments against New York-based brokerage firm Lek Securities Corp. and Chief Executive Officer Sam Lek, who were charged by the Securities and Exchange Commission with facilitating manipulative U.S. trading by a Ukraine-based firm over a three-year period.

The SEC's complaint, filed in March 2017, alleged that Lek Securities and Sam Lek helped facilitate manipulative trading schemes by its customer, Avalon FA Ltd., headquartered in Kiev. According to the complaint, Avalon illegally profited from layering, which involved placing and canceling orders to trick others into buying or selling stocks at artificial prices, and cross-market manipulation, which involved buying or selling stocks to artificially impact options prices. The SEC's complaint alleged that Lek Securities and Sam Lek made the schemes possible by giving Avalon access to the U.S. markets, relaxing the brokerage firm's layering controls after Avalon complained, allowing Avalon to conduct the trading activity, and improving Lek Securities' technology to assist Avalon's trading.

The Honorable Denise L. Cote for the U.S. District Court for the Southern District of New York entered the final judgments by consent. Lek Securities agreed to a three-year injunction requiring it to terminate business with foreign customers potentially engaged in market manipulation or manipulative trading and largely prohibiting it from providing intra-day trading to foreign customers. Lek Securities also agreed to retain an independent compliance monitor for a three-year period and, along with Sam Lek, agreed to permanent injunctions from violating the antifraud and manipulative trading provisions of Sections 9(a)(2) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. Lek Securities will pay a $1 million penalty, plus $525,892 in disgorgement and prejudgment interest, and Sam Lek will pay a $420,000 penalty.

Lek Securities also agreed to a censure, and Sam Lek agreed to associational and penny stock bars with a right to reapply after ten years. In settling the SEC's charges, Lek Securities and Sam Lek admit that as alleged in the SEC's complaint, Avalon's trading activity through Lek Securities constituted violations of the federal securities laws.

The litigation, which is being handled by David J. Gottesman, Olivia S. Choe, and Sarah S. Nilson, is continuing against Avalon and individuals associated with it. The SEC's investigation was conducted by Ms. Nilson, Owen A. Granke, and Carolyn Welshhans, and supervised by Melissa R. Hodgman and Antonia Chion.

Washington D.C., Jan. 22, 2021 —  The Securities and Exchange Commission today announced Melissa R. Hodgman, currently an Associate Director in the Commission's Division of Enforcement, has been named Acting Director of the Division of Enforcement.

"Melissa's dedication to investor protection, broad experience in the Division, and proven track record of collaboration and creative problem solving make her ideally suited to this role," said SEC Acting Chair Allison Herren Lee. "As Associate Director, Melissa has overseen a wide range of complex and programmatically important matters, and has been a leading voice in the Division on critical issues of diversity, hiring, and labor-management relations. She is highly respected by her colleagues in the Division and across the agency for her intellect and dedication."

"It has been my honor to serve with the incredibly talented staff across the Division of Enforcement for over a decade," said Ms. Hodgman. "I am constantly inspired by the dedication of my colleagues in the Division and across the Commission, especially with the challenges of the last year. I look forward to continuing my work with them in the role of Acting Director and supporting the Commission's mission of protecting investors and market integrity through the aggressive pursuit of all forms of fraud and misconduct in our markets."

Ms. Hodgman has been Associate Director in the Home Office since October 2016. She has investigated and led teams pursuing and litigating numerous enforcement actions covering the spectrum of securities law violations, including matters related to financial fraud and disclosure; broker-dealers, investment advisers, and gatekeepers; offering frauds, market structure, and manipulation; and cross-border and FCPA violations. The notable cases to which Ms. Hodgman has contributed include:

• Successful litigation against two Ukraine-based traders, Nathan Fayyek and Sergey Pustelnik, who, along with their trading firm, were found liable for a multi-pronged manipulative trading scheme, and against Lek Securities, the U.S. based broker-dealer the Commission alleged helped to facilitate their trading, and its principal, Samuel Lek, who settled just prior to trial.

• A $50 million settlement with Big 4 accounting firm KPMG to settle charges relating to the firm’s receipt and use of PCAOB inspection information as well as misconduct related to internal training exams. In addition to the settlement with the firm, the Commission charged eight KPMG officials for their roles.

• Actions against Nissan Corporation and its former CEO Carlos Ghosn and director Greg Kelly in connection with a scheme to conceal from public disclosure tens of millions of dollars of expected compensation for Ghosn. Nissan agreed to pay a $15 million civil penalty, and Ghosn and Kelly were barred from acting as officers or directors of public companies, in addition to paying significant civil penalties.

• Enforcement actions against several individuals and entities responsible for the Fyre Festival including Fyre Festival CEO William Z. (Billy) McFarland, who admitted to his role in a fraudulent scheme that raised more than $27 million from over 100 investors.

• Investigation of the Schwab YieldPlus Fund for misconduct related to the 2008 financial crisis that resulted in a $118 million settlement with broker dealer Charles Schwab & Co, and related entities where the SEC found that the YieldPlus Fund misstated the risk associated with its portfolio. The Commission also brought litigated charges against two senior executives.

Ms. Hodgman has also played key roles in numerous Commission initiatives, including the creation and leadership of the Division's Covid-19 Steering Committee and overseeing the Division's Financial Reporting and Audit Group. She has been a leader in the Division's diversity and inclusion work during her career, including as the head of the Division's Hiring Committee, Executive Sponsor of the agency's Women’s Committee, and as a member of the Division's Labor and Management Forum at both the local and national levels.

Ms. Hodgman began working in the Enforcement Division in 2008 as a staff attorney. She joined the Market Abuse Unit in 2010 and was promoted to Assistant Director in 2012. She received the Ellen B. Ross Award, the 2010 SEC Chairman's Award, the 2017 Arthur F. Mathews Award, and the 2020 Chairman's Award for Excellence with the SEC's Employee Affinity Groups, as well as a number of Division Director Awards.   [...]