SEC CHARGES COMPANY AND TOP OFFICERS WITH FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Imaging Diagnostic Systems, Inc., Its Ceo, and Cfo with Fraud

The Securities and Exchange Commission today filed an enforcement action in the U.S. District Court for the Southern District of Florida charging Imaging Diagnostic Systems, Inc. (“Imaging”), a Florida-based medical technology company, Linda Grable, its CEO, and Allan Schwartz, its CFO, for making material misstatements and omissions in Imaging’s filings concerning the timing of its Food and Drug Administration (“FDA”) application and concerning Imaging’s failure to remit payroll taxes to the Internal Revenue Service (“IRS”).

Imaging is engaged in the development and testing of a breast imaging system, the CTLM®, which purportedly uses a laser to detect breast cancer.  Imaging to date has failed to obtain FDA approval to market and sell the CTLM® in the United States.  The SEC’s complaint alleges from October 2008 to December 2009, Imaging repeatedly disclosed in filings and letters to shareholders that it expected to file, by specific deadlines identified in these public statements, a Premarket Approval (“PMA”) application with the FDA to obtain permission to market and sell the CTLM®.  Each time, Imaging failed to meet its projected deadline.  The complaint alleges that Grable and Schwartz knew there was no basis for the projections because Imaging did not have enough cancer cases to finish its clinical trials and could not pay for the clinical sites.  

In addition, according to the complaint, beginning in the quarter ended March 31, 2010, Imaging stopped remitting payroll to the IRS for its employees.  The complaint alleges that Imaging’s failure to pay payroll taxes constituted a known commitment, event, or uncertainty of the type that should have been disclosed in the Management’s Discussion and Analysis of Imaging’s periodic filings, which were signed by Grable and Schwartz.   However, Imaging did not publicly disclose that it failed to remit payroll taxes until over 16 months later, when on May 18, 2011 it filed a Form 10-Q.  Even then, Imaging failed to disclose the risks associated with its failure to pay payroll taxes and in fact failed to provide any disclosure of the risks until it filed an Amended Form 10-K on November 29, 2011.

Finally, the complaint alleges that Grable and Schwartz failed to file beneficial ownership reports in 2009, 2010, and 2011 despite having received stock and options.

The SEC’s complaint charges that Imaging, Grable, and Schwartz violated Section 17(a)(2) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5(b) thereunder.  The complaint also alleges that Imaging violated Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; Imaging and Grable violated Section 14(a) of the Exchange Act and Rule 14a-9 thereunder; Grable and Schwartz violated Section 16(a) of the Exchange Act and Rules 13a-14, 13b2-1, and 16a-3 thereunder; and Grable and Schwartz aided and abetted Imaging’s violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 10b-5(b), 12b-20, 13a-1 and 13a-13 thereunder.  The SEC seeks financial penalties and permanent injunctions.  The SEC also seeks penny stock bars and officer-and-director bars against Grable and Schwartz.

The SEC’s investigation was conducted by Jenny A. Trotman, Senior Counsel, and Kathleen Strandell, Staff Accountant, of the Miami Regional Office.  The investigation was supervised by Thierry Olivier Desmet, Assistant Regional Director.  Robert Levenson, Regional Trial Counsel, will lead the SEC’s litigation.

SEC CHARGES BANK OF AMERICA ENTITIES WITH SECURITIES ACT VIOLATIONS RELATED TO RMBS OFFERING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Bank of America Entities with Material Misrepresentations and Omissions in Connection with an RMBS Offering

On August 6, 2013, the Securities and Exchange Commission (“Commission”) filed a civil injunctive action against Bank of America, N.A. (“BANA”), Banc of America Mortgage Securities, Inc. (“BOAMS”), and Merrill Lynch, Pierce, Fenner & Smith, Inc. f/k/a Banc of America Securities LLC (“BAS”) (collectively the “Bank of America Entities”). The Commission alleges that the Bank of America Entities made material misrepresentations and omissions in connection with the sale of residential mortgage-backed securities known as BOAMS 2008-A. Specifically, the complaint alleges that the Bank of America Entities failed to disclose the disproportionate concentration of wholesale loans (72% by unpaid principal balance) underlying BOAMS 2008-A as compared to prior BOAMS offerings. The complaint also alleges that the Bank of America Entities failed to disclose known risks associated with the high concentration of wholesale loans in BOAMS 2008-A including higher likelihood that the loans would be subject to material underwriting errors, become severely delinquent, fail early in the life of the loan, or prepay. The complaint further alleges that the Bank of America entities violated Regulation S-K and subpart Regulation AB of the Securities Act of 1933 (the “Securities Act”) by failing to disclose the material characteristics of the pool of loans underlying BOAMS 2008-A. The complaint also alleges that the Bank of America Entities made material misrepresentations and omissions in its public filings and in the loan tapes it provided to investors and rating agencies that the loans in BOAMS 2008-A complied with BANA’s underwriting standards when a material amount did not. Finally, the complaint alleges that BOAMS and BAS violated Section 5(b)(1) of the Securities Act by failing to file with the Commission certain loan tapes that it provided only to select investors.

The Commission’s complaint, filed in the United States District Court for the Western District of North Carolina, charges the Bank of America Entities with violating the antifraud provisions of the federal securities laws. The complaint alleges that that each violated Sections 17(a)(2) and 17(a)(3) of the Securities Act. The complaint also alleges that BAS and BOAMS violated Section 5(b)(1) of the Securities Act. The complaint seeks against each of the Bank of America Entities a permanent injunction, disgorgement with prejudgment interest and civil monetary penalties pursuant Section 20(d) of the Securities Act.

The Commission would like to thank the United States Attorney’s Office for the Western District of North Carolina for its substantial assistance in this matter.