The Securities and Exchange Commission has charged Louis Zehil, a corporate attorney and former law partner with McGuireWoods, with securities fraud related to private investment in public entity (PIPE) transactions. As a result, the regulator has frozen Zehil’s assets.

Zehil represented seven public companies in issuing their stock in PIPE transactions between January 2006 and February 2007. The companies were: Gran Tierra Energy, Foothills Resources, MMC Energy, Alternative Energy Sources, Ethanex Energy, GoFish, and Kreido BioFuels.

In PIPE transactions, investors usually buy restricted stock at a discounted price, and are barred from selling those shares for a certain period of time. The investors and Zehil agreed that the shares would be issued with restrictions until the issuing companies filed registration statements with the SEC, and the regulator declared them effective.

According to the complaint, Zehil invested personally in the transactions through two entities he controlled—Strong Branch Ventures IV and Chestnut Capital Partners II. As an attorney for the issuers, Zehil allegedly instructed the transfer agents that all the shares should carry restrictions, except for the shares issued to Strong Branch and Chestnut Capital. The SEC says that Zehil’s letters to the transfer agents falsely stated that those particular shares were legally allowed to be issued without restrictions. The SEC claims that Zehil sold the Strong Branch and Chestnut Capital shares into the public market and generated illegal profits of at least $17 million.

“This is a case where a gatekeeper engaged in fraud and the SEC takes this conduct very seriously,” Gerald Gross, assistant regional director at the New York office of the SEC, told CFO.com. “Fraud of this nature by gatekeepers such as an attorney cannot be tolerated.”

The Future of Finance Has Arrived

The pace with which finance functions are employing automation and advanced technologies is quickening. Rapidly. A new survey of senior finance executives by Grant Thornton and CFO Research revealed that, for just about every key finance discipline, the use of advanced technologies has increased dramatically in the past 12 months.

Read More

The SEC seeks to permanently bar the defendants, Zehil, Strong Branch, and Chestnut Capital, from future violations of federal securities laws. The Commission also seeks to assess civil penalties and obtain a final judgment from the United States District Court for the Southern District of New York requiring them to disgorge ill-gotten gains.

Leave a Reply

Your email address will not be published. Required fields are marked *