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This is a photo of the National Register of Historic Places listing with reference number 7000063

Tuesday, November 29, 2011

COURT REFUSES APPROVAL OF SEC SETTLEMENT WITH CITIGROU

The following excerpt is from the SEC website: November 28, 2011 Public Statement by SEC Staff: by Robert Khuzami Director, Division of Enforcement U.S. Securities and Exchange Commission Washington, D.C. “While we respect the court's ruling, we believe that the proposed $285 million settlement was fair, adequate, reasonable, in the public interest, and reasonably reflects the scope of relief that would be obtained after a successful trial. The court's criticism that the settlement does not require an 'admission' to wrongful conduct disregards the fact that obtaining disgorgement, monetary penalties, and mandatory business reforms may significantly outweigh the absence of an admission when that relief is obtained promptly and without the risks, delay, and resources required at trial. It also ignores decades of established practice throughout federal agencies and decisions of the federal courts. Refusing an otherwise advantageous settlement solely because of the absence of an admission also would divert resources away from the investigation of other frauds and the recovery of losses suffered by other investors not before the court. The settlement provisions cited by the court have been included in settlements repeatedly approved for good reason by federal courts across the country — including district courts in New York in cases involving similar misconduct. We also believe that the complaint fully and accurately sets forth the facts that support our claims in this case as well as the basis for the proposed settlement. These are not 'mere' allegations, but the reasoned conclusions of the federal agency responsible for the enforcement of the securities laws after a thorough and careful investigation of the facts. Finally, although the court questions the amount of relief obtained, it overlooks the fact that securities law generally limits the disgorgement amount the SEC can recover to Citigroup's ill-gotten gains, plus a penalty in an amount up to a defendant's gain. It was for this reason that we sought to recover close to $300 million — all of which we intended to deliver to harmed investors. The SEC does not currently have statutory authority to recover investor losses. We will continue to review the court's ruling and take those steps that best serve the interests of investors.”

MAN MAKES OVER $1.2 MILLION IN ALLEGED UNREGISTERED SECURITES BUT, SEC SEEKS DISGORGEMENT

The following excerpt is from the SEC website: November 23, 2011 “The Securities and Exchange Commission filed a civil injunctive action against Myron Weiner, relating to his unregistered sale of shares of Spongetech Delivery Systems, Inc. (“Spongetech”) in 2009. In its complaint, the Commission alleges that Weiner purchased the shares from a Spongetech affiliate at a discounted price of 5 cents, and then sold the shares into the public market less than three months later for 20 cents, for a profit of $1,215,057. The Commission’s complaint alleges that Weiner’s sales were not registered with the Commission, and no exemption from the registration requirements of the federal securities laws applied. The Commission’s complaint seeks a final judgment: (1) enjoining Weiner from violating Section 5 of the Securities Act of 1933 (registration provisions); (2) requiring the payment of disgorgement of $1,215,057, plus prejudgment interest of $80,135; (3) requiring payment of a civil penalty of $50,000; and (5) barring Weiner for one year from participating in the offering of any penny stock. The U.S. Attorney’s Office for the Eastern District of New York filed a related forfeiture action. The Commission wishes to thank the U.S. Attorney’s Office, the Federal Bureau of Investigation and the Internal Revenue Service for their assistance in connection with this matter.”

Monday, November 28, 2011

FINAL JUDGEMENT ENTERED AGAINST FORMER CEO OF CHINA VOICE HOLDING CORP.

The following excerpt is from the SEC website: “On November 22, 2011, the Securities and Exchange Commission announced that the Honorable Reed O’Connor, United States District Judge for the Northern District of Texas, entered a Final Judgment against William F. Burbank, IV, the former Chief Executive Officer and President of China Voice Holding Corp. to settle charges that he made false and misleading statements and material omissions regarding China Voice and selectively disclosed material, non-public information regarding the company. Without admitting or denying the allegations in the SEC’s complaint, Burbank agreed to entry of a Final Judgment permanently enjoining him from violating Section 17(a) of the Securities Act of 1933, 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder and from aiding and abetting violations of Section 13(a) of the Exchange Act and Regulation FD thereunder. The Final Judgment, entered on November 21, also orders Burbank to pay $60,333 in disgorgement and prejudgment interest and a civil penalty of $60,000. In addition, Burbank is barred from ten years from serving as an officer or director of a public company and from participating in an offering of a penny stock. The Commission filed an emergency action on April 28, 2011, alleging that China Voice’s co-founder and former Chief Financial Officer, David Ronald Allen, with the assistance of Alex Dowlatshahi and Christopher Mills, and numerous related entities, launched what became a Ponzi scheme that sought to raise at least $8.6 million from investors across the country. The Commission alleged that, contrary to what investors were told, proceeds were used to pay back earlier investors; to make payments to Allen, Dowlatshahi, and Mills; and to make payments to Allen-affiliated business, including China Voice. The Commission’s complaint alleged that Burbank also received ill-gotten gains from this Ponzi scheme. The SEC’s complaint further charged Burbank and Allen for a series of fraudulent statements about China Voice’s financial condition and business prospects and with selectively disclosing material, non-public information regarding the company to certain shareholders. In addition, the SEC charged China Voice shareholders Ilya Drapkin and Gerald Patera with financing stock promotion campaigns regarding China Voice, including a blast fax campaign conducted by Robert Wilson. The Commission’s case is still pending against remaining defendants China Voice, Allen, Wilson, and various of their related entities.”

Sunday, November 27, 2011

UNREGISTERED SECURITIES FRAUD NETS GOVERNMENT MILLIONS FROM FINES AND DISGOGEMENTS

The following is an excerpt from the SEC web site: November 15, 2011 “The Securities and Exchange Commission announced today that on November 8, 2011, the U.S. District Court for the Northern District of Texas ruled that Timothy Page, of Malibu, California, and his company Testre LP are liable for violating the registration provisions of the federal securities laws. The Court ordered Page to pay $2.49 million in disgorgement and $400,284 in prejudgment interest. The Court also ordered three relief defendants - Reagan Rowland and Rodney Rowland, of Los Angeles, California, and John Coutris, of Irving, Texas - to pay back their ill-gotten gains. The Commission's complaint alleged that Page and Testre violated the registration provisions of the federal securities laws when they engaged in an unregistered public offering of ConnectAJet.com, Inc., a reverse-merger company that claimed it would "revolutionize the aviation industry" by creating a real-time, online booking system for private jet travel. The Commission alleged that Page and his collaborators purchased tens of millions of shares directly from ConnectAJet.com, Inc. for pennies per share, under a purported registration exemption under the Securities Exchange Act of 1933, Regulation D, Rule 504. The Commission alleged that Page then touted the stock to investors through a national marketing campaign and dumped his shares into the public market when no registration statement was filed or in effect. The Court ruled that Page and Testre violated Section 5 of the Securities Act of 1933. In addition to the monetary relief granted by the Court, the Commission continues to seek the following additional relief against Page and Testre: civil penalties, penny stock bars, and injunctions from future violations of Section 5 of the Securities Act of 1933. Reagan Rowland and Rodney Rowland were ordered to pay $138,219 and John Coutris was ordered to pay $281,840 in ill-gotten gains they received from Ryan Reynolds, one of Page's collaborators. The Commission acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in this matter.”

Saturday, November 26, 2011

FORMER BROKER PLEADS GUILTY TO OBSTRUCTION OF JUSTICE

The following excerpt is from the SEC website: November 21, 2011 “The Securities and Exchange Commission ("Commission") announces that on November 8, 2011, Robert Carlsson (“Carlsson”), a former broker, pled guilty to obstruction of justice in connection with his false representations to the SEC during two separate examinations of Carlsson's broker-dealer in 2006 and 2007 by examination staff of the Commission’s Chicago Regional Office. The Commission previously announced that on September 8, 2010, the United States Attorney's Office for the Northern District of Illinois obtained a 21-count indictment of Brian Hollnagel, BCI Aircraft Leasing Inc., and five others involved in BCI's fraudulent scheme and obstruction of the Commission's attempts to discover and investigate that very scheme. U.S. v. Brian Hollnagel et al., Criminal Action No. 1:10-cr-0195 (N.D. Ill.) (St. Eve., J.). In that indictment, among various other violations, Hollnagel, BCI, and Carlsson, who raised money from investors for BCI's operations, were accused of obstruction of justice in connection with false representations to the SEC during the 2006 and 2007 examinations of Carlsson's broker-dealer, 21 Capital Group. In particular, Hollnagel, BCI, and Carlsson were accused of concealing Carlsson's fund raising activities for BCI from the Commission’s Chicago examination staff. According to the plea agreement, Carlsson faces an advisory Sentencing Guidelines range of 10 to 16 months’ imprisonment. Carlsson has agreed to fully and truthfully cooperate with the United States Attorney's Office for the Northern District of Illinois in connection with the September 8, 2010 indictment of Hollnagel, BCI, and others. Previously, on August 13, 2007, the Commission filed a civil injunctive complaint alleging that Defendants Hollnagel and BCI, from approximately 1998 through 2007, raised at least $82 million from approximately 120 investors as part of a fraudulent scheme in which the Defendants commingled investor funds, used investor funds to pay other investors, and failed to use investor funds as represented. The Complaint alleged that, as a result of their conduct, Defendants Hollnagel and BCI violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission’s action was stayed in 2010 pending the criminal proceedings referenced above.”

Friday, November 25, 2011

ICI 2011 CLOSED-END FUND CONFERENCE REMARKS BY EILEEN ROMINGER

The following excerpt is from the SEC website: Eileen Rominger Director, Division of Investment Management November 17, 2011 “Good afternoon, and thank you for inviting me to speak here today. Let me make the usual disclosure that my remarks represent my own views and not necessarily the views of the Commission, the individual Commissioners or my colleagues on the SEC staff. We have just listened to the panel on “How Closed-End Funds Fit in Today’s Markets.” I am reminded that the last time that an SEC Division of Investment Management Director spoke about closed-end funds at this conference was in October 2007. A panel on the same topic back then probably would have sounded somewhat different. 2007 was in many ways a peak year for closed-end funds -- their assets were about four times what they are today; they issued more than three times worth of new shares in 2007 than they did last year; and 2007 saw the biggest-ever closed-end fund IPO of $5 billion dollars.2 Year 2008 was not kind to the closed-end fund industry. During the financial crisis, the average closed-end fund discount to NAV hit record levels -- it was estimated to be more than 15%, with 443 closed-end funds trading at double-digit discounts.3 Yet perhaps the financial crisis will be remembered by the closed-end fund industry primarily as the event that, for the first time in history, froze the market for auction-rate preferred shares, or ARPs, one of the funds’ key sources of leverage. Three years after the financial crisis, it is not uncommon to read that closed-end funds still are “suffering a bad rap,” that they “lack fans,” that investors are “shying away” from their IPOs, or that their investors are still “spooked.”4 And then there are the various reminders that the ever-growing ETFs and ETNs are muscling in on some of the closed-end funds’ traditional investment territory. It is probably fair to say that in 2011, closed-end funds are still looking to regain their footing in the post-financial crisis investment environment. Some significant strides have been made -- I was glad to find out that, as of the end of September of this year, over 77% percent of ARPs that were outstanding when the markets froze in 2008, have been redeemed as funds found other comparable sources of financing or decided to de-leverage.5 Overall, these are challenging times for investors. Stresses on the global economic order have led to sharp market volatility increases, accompanied by redemptions from equity mutual funds. During periods of stress -- more than ever -- I believe that it is important that funds do all they can to maintain high standards. Only by doing so will they continue to earn and retain the confidence of investors. One area in which standards should be held high is that of informing and educating investors. For example, leverage is often a difficult issue for investors to understand and put in the right perspective. And not only for investors. For closed-end funds themselves, some leverage, such as bank debt or issuing preferred stock, may be straightforward to quantify and explain. Other leverage, such as tender option bonds or reverse repos, may be more complex and variable. In the last few years, as many closed-end funds may have shifted from using ARPs to other forms of leverage, including derivatives, they may be facing new challenges in giving their investors an understandable picture of their leverage profiles. If leverage materially affected a fund’s performance during its fiscal year, I believe the fund should discuss this factor in its annual report. About a year ago, my Division staff sent a letter to the ICI providing its most recent observations about derivatives-related disclosures by investment companies in registration statements and shareholder reports.6 The letter noted, for example, that some funds that appear to have significant derivatives exposure in their financial statements, have limited or no discussion in their annual reports of the effect of those derivatives on the funds’ performance. Even apart from the regulatory requirements, leaving investors in the dark about the role that leverage plays in the management and performance of their portfolios cannot be good for the closed-end fund business. An investor reading a fund’s annual report should not have to dig through the footnotes in the financial statements to understand the material impact that derivatives -- or leverage generally -- may have had on the fund’s performance. Unfortunately, some closed-end fund investors are still in that position today. At the other end of the spectrum, many closed-end funds do an excellent job of communicating to their investors on this topic. These funds’ annual reports speak pointedly and clearly about the role of leverage in their performance. They manage to convey to investors what is important about their funds’ often complex leverage strategies in a simplified but focused and accurate manner. I believe that these investors are well served. The complexities of how best to inform and educate investors about leverage in general, and derivatives in particular, are well known to us at the Commission. My Division is beginning to analyze the comments that have come in on the Concept Release on derivatives, which the Commission issued at the end of August.7 The Concept Release did not speak in detail about disclosure issues, but it did devote significant attention to the treatment of derivatives under the leverage, portfolio diversification and concentration requirements. These are all issues that go to providing investors a complete and accurate picture of their fund. The Concept Release also broadly invited comments on any derivatives-related issues that commenters felt were relevant to the use of derivatives by funds. We welcome and appreciate your views about derivatives-related issues from the closed-end fund community’s point of view. As the markets work through this challenging period, I hope that the closed-end fund industry as a whole makes the commitment and re-doubles efforts to provide investors with appropriate disclosure about leverage and derivatives. Take a fresh look at your funds’ shareholder reports and websites, because these are the places where your investors, as a practical matter, look for information about their funds. Efforts spent on these channels of communication will not only benefit your investors, but will be good for business, too. Speaking of what is perceived as “good for business,” a Morningstar article recently observed that “many closed-end funds live and die by their distributions.”8 In today’s environment of historically low interest rates, many closed-end funds are finding managed distribution policies to be magnets for yield-seeking investors. Couple that with the low cost of leverage, and many closed-end funds may be tempted to further increase the size of their funds’ distributions. Last year, for example, there were 566 announced distribution increases, compared to 187 distribution reductions, and the average change in distribution was an increase of 6.6%.9 Of course, managed distribution policies have been around for as long as closed-end funds themselves, with mixed results and some historical lessons. The 2007 speech to this audience by my predecessor in the Division, cautioned about several issues: the importance of timely disclosure to investors regarding the sources of fund distributions; making clear to investors the extent of a fund’s ability to sustain its current distributions; the need for monitoring of distribution rates by fund managers and directors; and the appropriateness of continuing with a distribution policy.10 It was a timely caution. The market events of 2008 -- combined with the effects of the tax rules -- led a number of closed-end funds to reduce their distribution rates or discontinue their managed distribution policies altogether. These developments made real the need for good disclosure and investor understanding of managed distributions. As we once again face a market under stress in 2011, and as investors seek refuge in yield, it is critically important to conduct business in a way that does not undermine the protection of investors. A growing segment of our population is approaching retirement and seeking yield-generating investments. It would be great if we could agree to raise the bar for informing and educating investors. And of course we all know that a few “bad apples” can tarnish an entire industry. When certain closed-end funds appear to have distribution rates that are significantly higher than their portfolios’ average annual total returns,11 it suggests an unsustainable posture that may end badly for shareholders. We should all worry when Morningstar observes that closed-end funds with high distribution rates -- particularly those that provide the least information about the sustainability of their distributions -- tend to trade at the highest premiums and are “market successes.”12 I think we would all agree that there is no “market success” when it concerns poorly informed investors on the issue of closed-end fund distributions. One cannot help but remember that closed-end funds have known their share of market “bubbles.” In fact, closed-end funds as we know them today arose out of the ashes of the infamous 1929 closed-end funds bubble. It was a time of spectacular growth for leveraged closed-end funds and premiums that reached the sky. In 1929, the premiums averaged 50%, and the hottest new closed-end fund issues sometimes traded at 200% of NAV.13 It was also a time marked by a lack of transparency that bordered on secrecy. After the great crash of 1929, one of the key ways in which closed-end funds sought to resurrect the industry was through a coordinated effort toward greater transparency to inform and educate the investing public about themselves. And the focus of that effort was not on pages and pages of “boilerplate,” but on actually getting across to an investor what sort of thing he or she would be getting when buying a closed-end fund. That real effort at transparency -- and the substantive regulation in the form of the Investment Company Act -- is what enables us to be here today to discuss the state of the closed-end fund industry in the year 2011. And yet, we are still talking about transparency and distribution policies. Reputation is far more easily lost than regained, so I encourage all to disclose clearly and completely, and to set distribution policies that will manage, and meet, investor expectations appropriately over the long-term. I’m happy to have had the chance to speak with you today. Thank you for your time.”

Thursday, November 24, 2011

EXECUTIVE AT LARGE DISCOUNT BROKER SETTLES WITH SEC

The following excerpt is from the SEC website: November 21, 2011 “The Securities and Exchange Commission today announced that Randall Merk consented to the entry of a permanent injunction, payment of a civil penalty, and a suspension in order to settle a Commission action related to the Schwab YieldPlus Fund. Merk was an Executive Vice President at Charles Schwab & Co., Inc., President of Charles Schwab Investment Management, and a Trustee of the Schwab YieldPlus Fund and other Schwab funds. In January 2011, the Commission filed a complaint alleging that Merk and another official committed securities law violations in connection with the offer, sale, and management of the YieldPlus Fund. YieldPlus is an ultra-short bond fund that, at its peak in 2007, had $13.5 billion in assets and over 200,000 accounts, making it the largest ultra-short bond fund at the time. The fund suffered a significant decline during the credit crisis of 2007-2008 and saw its assets fall from $13.5 billion to $1.8 billion during an eight-month period. According to the complaint, Merk misled or failed to inform investors adequately about the risks of investing in YieldPlus. The complaint also alleged that Merk approved other Schwab funds’ redemptions of their investments in YieldPlus at a time when he knew or was reckless in not knowing that a portfolio manager for those funds had received material, nonpublic information about YieldPlus without the authorization of the YieldPlus Fund’s board of trustees. On November 21, 2011, the SEC filed a consent signed by Merk and a proposed final judgment against him. Without admitting or denying the Commission’s allegations, Merk consented to the entry of a final judgment permanently enjoining him from aiding and abetting violations of, or otherwise violating, Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The proposed final judgment also would enjoin Merk from future violations of Section 34(b) of the Investment Company Act of 1940, which prohibits the making of untrue statements of material fact, or material omissions, in documents filed with the Commission. Merk also agreed to pay a $150,000 civil penalty, which the Commission is seeking to have included in an existing Fair Fund for distribution to injured YieldPlus investors. The proposed judgment is subject to the Court’s approval. If the Court enters the injunction, Merk also has agreed to settlement of a yet-to-be instituted administrative proceeding in which the Commission would suspend Merk for 12 months from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any penny stock offering. The Commission previously entered into a $118 million settlement with three Schwab entities regarding the YieldPlus Fund and another bond fund. See Press Release 2011-7 and Litigation Release No. 21806 (Jan. 11, 2011). Litigation continues against Kimon Daifotis, the former lead portfolio manager for the YieldPlus Fund and former Chief Investment Officer for Fixed Income for Charles Schwab Investment Management. See Litigation Release No. 21805 (Jan. 11, 2011).”

Wednesday, November 23, 2011

THE WASHINTON PONZI FAMILY

The following excerpt is from the SEC website: “On November 18, 2011, the Securities and Exchange Commission charged a Bethesda, Md. man and several family members and friends with conducting a multi-million dollar Ponzi scheme targeting investors in the Washington D.C. metropolitan area. The SEC alleges that Garfield M. Taylor lured primarily middle-class residents in his community with little to no investing experience to invest in promissory notes issued by his two companies that engaged in purportedly low-risk options trading. Taylor urged investors to refinance their homes and use any available means to invest, including their personal savings and retirement funds. The SEC alleges that he promised returns as high as 20 percent per year and falsely assured investors that their investments would be protected by a “reserve account” or that he would employ a “covered call” trading strategy that would not touch the principal amount of their investment. According to the SEC’s complaint filed in federal court in Washington D.C., Taylor and his companies instead engaged in very high-risk, speculative options trading and suffered massive losses. Taylor relied upon money from new investors to pay returns to earlier investors in typical Ponzi scheme fashion. The SEC’s complaint also alleges that he siphoned off $5 million in investor funds to pay family and friends and for other personal uses, including $73,000 to the private school his children attended. The SEC alleges that the Ponzi scheme defrauded more than $27 million from approximately 130 investors from 2005 to 2010. The scheme ultimately collapsed in the fall of 2010 when the companies’ accounts were depleted by the trading losses and interest payments to investors. The SEC’s complaint charged Taylor’s companies Garfield Taylor Inc. and Gibraltar Asset Management Group LLC – which were not registered with the SEC – as well as five collaborators in Taylor’s scheme: Maurice G. Taylor of Bowie, Md., who is the brother of Garfield Taylor. He is the Chief Investment Officer at Gibraltar and worked as a trader for Garfield Taylor Inc. Randolph M. Taylor of Washington D.C., who is the nephew of Garfield Taylor. He was formerly the Vice President for Organizational Development at Gibraltar. Benjamin C. Dalley of Washington D.C., who is the childhood friend and business partner of Randolph Taylor. He was formerly Vice President of Operations at Gibraltar. Jeffrey A. King of Upper Marlboro, Md., whose sister is married to Maurice Taylor. He was a former independent contractor for Garfield Taylor Inc. and former President and Chief Operating Officer of Gibraltar. William B. Mitchell of Middle River, Md., who was formerly Vice President for Finance at Garfield Taylor Inc. and former Executive Vice President of Strategic Planning at Gibraltar. According to the SEC’s complaint, Garfield Taylor and the others jointly prepared and finalized a Gibraltar PowerPoint presentation for prospective investors that was riddled with false and misleading statements. They misrepresented the nature of the company’s options trading strategy, the anticipated rate of return, the protections offered by its outside accountant, and the overall level of risk involved in an investment with Gibraltar. They pitched the PowerPoint presentation to potential institutional investors and charitable organizations, including a Washington D.C.-based children’s charity and a Baptist church in Maryland. Garfield Taylor went so far as to provide the Baptist church with a fake “letter of recommendation” from Charles Schwab as he pitched the investment opportunity. The SEC alleges that in order to maintain a steady flow of new investor money, Garfield Taylor induced current investors and others including King and Mitchell to solicit and refer new investors to him in exchange for commission payments based on the amounts invested. Garfield Taylor, who was not a licensed securities broker, persuaded several individuals to give him online access to their personal brokerage accounts so he could place trades and share in any profits generated. The SEC’s complaint charges Garfield Taylor, Inc., Gibraltar Asset Management Group LLC, Garfield Taylor, Dalley, King, and Randolph Taylor with violations of Sections 17(a) of the Securities Act of 1933 (“Securities Act”). The SEC’s complaint also charges those defendants and Maurice Taylor with violating or aiding and abetting violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder. It also alleges that Garfield Taylor violated Sections 206(1), (2) and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The SEC’s complaint also charges Garfield Taylor, Inc., Gibraltar Asset Management Group, LLC, and Garfield Taylor with violations of Sections 5(a) and 5(c) of the Securities Act. The SEC’s complaint also alleges that Garfield Taylor, King, and Mitchell violated Section 15(a) of the Exchange Act. The SEC seeks a judgment permanently enjoining the defendants from future violations of the relevant provisions of the federal securities laws and ordering them to pay penalties and disgorgement with prejudgment interest. The SEC also named three companies belonging to Randolph Taylor, Dalley, King, and Mitchell as relief defendants for the purposes of seeking disgorgement with prejudgment interest of investor funds.”

Tuesday, November 22, 2011

SEC ALLEGES CANADIAN RESIDENT USED BUSINESS AS PONZI SCHEME

The following excerpt is from the SEC website: November 17, 2011 “The Securities and Exchange Commission announced that, on November 16, 2011, it charged a New Hampshire business directed by a Canadian resident with obtaining over $1.3 million from investors in a fraudulent Ponzi scheme. The SEC also announced that Judge Joseph N. Laplante of the U.S. District Court in New Hampshire has issued a temporary restraining order that, among other things, freezes the assets of the company and its principal and prohibits them from continuing to solicit or accept investor funds. In its complaint, the SEC alleges that Henry Roche, a Canadian resident, through New Futures Trading International Corporation has been engaged in an ongoing unregistered offering of securities in the United States through operations in New Hampshire and Ontario, Canada. According to the Complaint, since December 2010 Roche has raised over $1.3 million from at least 14 investors in nine states through the offer and sale of high yield promissory notes purportedly yielding either 5-10% per month, or a 200% return within 14 months. The Complaint alleges that Roche represented to some investors that funds supplied would be invested in bonds, Treasury notes and/or 10-year Treasury note futures contracts, and to others that the funds would be invested directly in New Futures, an on-line futures day-trading training business Roche was operating from Canada. According to the complaint, instead of using the funds for either purpose, Roche used approximately $937,000 provided by New Futures investors to make Ponzi “interest” payments to investors in prior Roche-controlled entities. The Complaint also alleges that Roche misappropriated at least another $359,000 to support his lifestyle, to operate a horse breeding venture, Majestic Horses, and to buy horses. The Complaint alleges that Roche’s present activity through New Futures appears to be the continuation of an ongoing investment scheme Roche has been operating over the past three years under a series of entity names, including Masters Palace, Inc., and Third Realm Institute (a/k/a Third Realm, Inc.). The Commission’s complaint charges Roche and New Futures Trading International Corporation with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission acknowledges the assistance of the Ontario Securities Commission and the New Hampshire Bureau of Securities in this matter.”

Monday, November 21, 2011

SEC CHARGES FORMER MADOFF EMPLOYEE WITH CREATING FAKE TRADES

The following excerpt is from the SEC website: “Washington, D.C., Nov. 21, 2011 – The Securities and Exchange Commission today charged a longtime Bernie Madoff employee with fraud for his role in creating fake trades to facilitate the massive Ponzi scheme. The SEC alleges that David Kugel, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for nearly four decades, was asked by Madoff to provide the firm’s investment advisory operations with backdated arbitrage trade information to be formulated into fictitious trading on investors’ account statements. Kugel’s own account at BMIS was among those in which backdated trades were entered, and he withdrew nearly $10 million in “profits” from the fictitious trading over several years. "Kugel helped Madoff maintain the elaborate and enduring facade that his clients were engaged in actual trading when in fact no such trading occurred," said George S. Canellos, Director of the SEC's New York Regional Office. "Kugel withdrew millions of dollars of phony profits that he knew weren't from actual trading activity." The SEC previously charged two other longtime Madoff employees Annette Bongiorno and JoAnn Crupi for their roles in producing phony account statements that were sent to Madoff investors. According to the SEC’s complaint against Kugel filed in U.S. District Court for the Southern District of New York, Bongiorno and Crupi and other staff in Madoff’s investment advisory (IA) operations used the information provided by Kugel to formulate fictitious trades to appear on investor account statements. The SEC alleges that sometime in the early 1970s after Kugel began his career with Madoff as an arbitrage trader in the firm’s proprietary trading business, Madoff informed Kugel that BMIS managed money for outside clients. He asked Kugel to provide the firm’s IA operations with backdated convertible arbitrage trades for inclusion on investor account statements. Some of these trades replicated successful trades that Kugel had actually made for BMIS proprietary trading operations. Other trades were based on historical information that Kugel obtained from old newspapers. According to the SEC’s complaint, Bongiorno and Crupi regularly asked Kugel for backdated information about trades amounting to millions of dollars. After Kugel provided the information, Crupi and Bongiorno would then design trades that totaled that amount. These fictitious trades were highly profitable on an annualized basis, and appeared on account statements and trade confirmations sent to investors. Kugel, who opened his own BMIS account, received these account statements and trade confirmations as well. The SEC alleges that Kugel provided backdated trade information for IA accounts, including his own. He withdrew the purported “profits” of these trades even though he knew they weren’t proceeds of actual trading activity. One trade in S&P index options in 2007 earned Kugel a profit of more than $375,000 in just a few weeks. Kugel withdrew almost $10 million from his BMIS IA accounts from 2001 to 2008. The U.S. Attorney’s Office for the Southern District of New York has filed parallel criminal charges against Kugel, who has pled guilty and also agreed to settle the SEC’s civil charges. Subject to court approval, the civil case will result in a permanent injunction against Kugel, who must forfeit his ill-gotten monetary gains upon entry of a criminal forfeiture order in the criminal case. The SEC’s complaint against Kugel alleges that by engaging in this conduct, Kugel violated and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; aided and abetted violations of Sections 204, 206(1) and 206(2) of the Investment Advisers Act of 1940 and Rule 204-2 thereunder, and Sections 15(c) and 17(a) of the Exchange Act and Rules 10b-3 and 17a-3 thereunder. The SEC’s investigation was conducted by Kristine M. Zaleskas and Aaron P. Arnzen of the New York Regional Office. The Commission thanks the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation for its coordination and assistance. The SEC’s investigation is continuing.”

SEC ALLEGED CPA INSIDE TRADER WILL GIVES BACK GAINS PLUS TO PAY FINE

The following excerpt is from the SEC website: November 18, 2011 “The Securities and Exchange Commission announced today that it has filed and, subject to Court approval, simultaneously settled charges against Mark A. Konyndyk, CPA, for insider trading in advance of a tender offer. The Commission’s complaint alleges that Konyndyk, a former manager in the Transaction Advisory Services Group of Ernst & Young (“E&Y”), learned through his work at E&Y that Activision, Inc. was the target of highly confidential acquisition talks, code-named “Project Sego,” in which Vivendi S.A. was the potential acquirer. In particular, Konyndyk performed due-diligence work on Project Sego for E&Y’s client, Vivendi, billing 36 hours to the engagement. Both before and shortly after his departure from E&Y’s employ on November 2, 2007, including just days before the December 2, 2007, public announcement of the Vivendi-Activision merger, Konyndyk bought Activision out-of-the-money call options with near-term expirations. He sold the options shortly after the public announcement, earning gross profits of $9,725. Without admitting or denying the allegations, Konyndyk has agreed to settle the Commission’s allegations against him, and the complaint and settlement papers were submitted simultaneously to the Court for its consideration. In particular, Konyndyk signed a consent that provides—subject to approval by the Court—for the entry of a final judgment permanently enjoining him against future violations of the Section 14(e) of the Securities Exchange Act of 1934 and Rule 14e-3 thereunder. The final judgment to which Konyndyk consented would further order that he is liable for disgorgement of $9,725 (comprising all the profits flowing from his own illegal trading) plus $1,789.28 in prejudgment interest thereon as well as a $9,725 civil penalty, but allow him one year to pay the foregoing sums. Additionally, Konyndyk consented, in related administrative proceedings, to the entry of a Commission order that would suspend him, pursuant to Commission Rule of Practice 102(e), from appearing or practicing before the Commission as an accountant, with a right to seek reinstatement after two years. If approved by the Court, this settlement would fully resolve this case. The Commission acknowledges the assistance of the Options Regulatory Surveillance Authority.”

Sunday, November 20, 2011

SEC ANNOUNCES BODY ARMY CORPORATE DIRECTORS TO $1.6 MILLION TO SETTLE ACCOUNTING FRAUD CHARGES

The following excerpt is from the SEC website: November 15, 2011 “The Securities and Exchange Commission announced that the U.S. District Court for the Southern District of Florida ordered three former directors to pay more than $1.6 million in monetary sanctions to settle charges that they were involved in an accounting fraud at a major supplier of body armor to the U.S. military and law enforcement agencies. The settlements by Cary Chasin, Jerome Krantz and Gary Nadelman - former members of the board of directors at Pompano Beach, Fla.-based DHB Industries - impose permanent officer-and-director bars in addition to monetary sanctions. The final judgments entered on November 10, 2011, find Chasin liable for disgorgement of $100,000 plus prejudgment interest of $5,723 and a penalty of $100,000; Krantz liable for disgorgement of $375,000 plus prejudgment interest of $21,464 and a penalty of $100,000, and Nadelman liable for disgorgement of $820,000 plus prejudgment interest of $46,935 and a penalty of $100,000. The final judgments also bar Chasin, Krantz and Nadelman from acting as officers or directors of any issuer that has a class of securities registered pursuant to Section 12 and 15(d) of the Securities Exchange Act of 1934. In addition, the final judgments enjoin Chasin, Krantz and Nadelman from violating Sections 10(b) and 14(a) and Rules 10b-5 and 14a-9 of the Exchange Act and from aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13 of the Exchange Act, and enjoins Nadelman from violating Section 13(b)(5) and Rules 13b2-1 and 13b2-2 of the Exchange Act. Chasin, Krantz and Nadelman agreed to settle the SEC's charges without admitting or denying the allegations.”

Saturday, November 19, 2011

SEC TRIES TO STOP IPO SCAM OF TECH COMPANIES LIKE FACEBOOK AND GROUPON

The following excerpt is from the SEC website: “Washington, D.C., Nov. 17, 2011 — The Securities and Exchange Commission today filed an emergency enforcement action to stop a fraudulent scheme targeting investors seeking coveted stock in Internet and technology companies like Facebook and Groupon in advance of a public offering. The SEC alleges that Florida resident John A. Mattera and several other individuals carried out the scam using a newly-minted hedge fund named The Praetorian Global Fund. They falsely claimed that the fund and affiliated Praetorian entities owned shares worth tens of millions of dollars in privately-held companies that were expected to soon hold an initial public offering (IPO) including Facebook, Groupon, and others. Taking advantage of investor interest in pre-IPO shares that are virtually impossible for company outsiders to obtain, Mattera and others solicited funds and gave investors a false sense of comfort that their money was protected by telling them that an escrow service was receiving their funds. In reality, according to the SEC’s complaint filed in federal court in Manhattan, Mattera and his cohorts never owned the promised pre-IPO shares in these companies. The purported escrow service, headed by John R. Arnold of Florida, merely transferred investor funds to personal accounts controlled by Mattera and Arnold. After Arnold took a cut of the money for himself, Mattera stole most of the remaining funds to afford his lavish personal expenses and pay others for their roles in the scheme. “By conjuring up a seemingly prestigious hedge fund and touting the safety of an escrow agent, these men exploited investors’ desire to get an inside track on a wave of hyped future IPOs,” said George S. Canellos, Director of the SEC’s New York Regional Office. “Even as investors believed their funds were sitting safely in escrow accounts, Mattera plundered those accounts to bankroll a lifestyle of private jets, luxury cars, and fine art.” The U.S. Attorney’s Office for the Southern District of New York, which conducted a parallel investigation of the matter, today filed criminal charges against Mattera, who was arrested earlier today. The SEC is seeking an emergency court order to freeze the assets of Mattera, Arnold, Joseph Almazon of Hicksville, N.Y., David E. Howard II of New York City, Bradford Van Siclen of Montclair, N.J., and eight different entities also charged in the SEC’s complaint. The SEC alleges that Mattera, who has been a subject of a prior SEC enforcement action and several state criminal actions, used investor proceeds to compensate Van Siclen and others for their involvement in promoting the fraudulent offerings. Howard, who was separately charged by the SEC earlier this year for his role in a boiler room operation, worked for Mattera as an authorized representative of the Praetorian hedge fund. Mattera, Van Siclen, and Howard were each actively involved in providing false documents and information to broker-dealer representatives in pitching their clients to invest in the Praetorian entities. They raised at least $12 million from investors across the country during the past 15 months. Almazon controls Long Island-based unregistered broker-dealer Spartan Capital Partners, which raised a significant portion of the money in the Praetorian entities. The SEC’s complaint alleges that Spartan Capital solicited investments by phone, word of mouth, and advertisements on professional networking website LinkedIn.com. One advertisement read in part: “[Spartan] can offer the opportunity to buy pre-IPO shares of the following companies: Facebook, Twitter, Zynga, Bloom Energy, Fisker, and Groupon.” Another ad stated: “We have access to Fisker Auto, Groupon, Ren Ren, Bloom Energy and many more! Unlike most of the other investment banking firms, we let you sell your shares right at the open! You also do not need to be in NY to invest in our IPOs!” According to the SEC’s complaint, the purported escrow accounts at Arnold’s firm — First American Service Transmittals Inc. (FAST) — played a critical role in the fraudulent scheme. Mattera and Van Siclen told investors verbally and in writing that their investments would be held in escrow with FAST. Arnold, who was charged together with Mattera in a previous SEC enforcement action, falsely held out FAST as an escrow agent for the investments. Almost immediately after receiving investors’ deposits, however, Arnold released the money to himself and entities controlled by Mattera, who misappropriated investors’ funds for private jets, luxury cars, fine art, jewelry, and other personal uses. He also transferred money to his mother Ann Mattera and his wife Lan Phan. They are named as relief defendants in the SEC’s complaint for the purpose of reclaiming investor funds unrightfully in their possession. The SEC’s complaint charges Mattera, Van Siclen, the Praetorian Fund, Praetorian G Power I LLC, Praetorian G Power II LLC, Praetorian G IV, Praetorian G Power V LLC, and Praetorian G Power VI LLC, Arnold, and First American Service Transmittals Inc. with violations, or aiding and abetting violations of, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5. The complaint further charges Mattera, Van Siclen, the Praetorian G entities, Almazon, Spartan Capital Partners, and Howard with violating Sections 5(a) and 5(c) of the Securities Act by engaging in the unregistered offering of securities, and Almazon and Spartan Capital with violations of Section 15(a) of the Exchange Act by acting as unregistered brokers. The SEC seeks a temporary restraining order as well as preliminary and permanent injunctive relief and financial penalties against the defendants, as well as disgorgement by defendants and relief defendants of their ill-gotten gains plus prejudgment interest. The SEC’s investigation, which is continuing, has been conducted by Karen Willenken, Michael Osnato, Richard Needham, and Yvette Quinteros of the New York Regional Office. The SEC’s litigation effort will be led by Preethi Krishnamurthy. The SEC thanks the U.S. Attorney’s Office for the Southern District of New York, Internal Revenue Service, and Swiss Financial Market Supervisory Authority for their assistance in this matter."

Friday, November 18, 2011

DOCTOR PRESCRIBED TRADING SCHEME THAT SAVED HEDGEFUNDS $30 MILLION

The following excerpt is from the SEC website: November 17, 2011 “The Securities and Exchange Commission announced today that on November 16, 2011, the Honorable Deborah A. Batts of the United States District Court for the Southern District of New York entered final judgments against Dr. Joseph F. Skowron III and Dr. Yves M. Benhamou in the SEC’s insider trading case, SEC v. Joseph F. “Chip” Skowron III, et al., Civil Action No. 10-CV-8266-DAB (S.D.N.Y.). The SEC charged Benhamou, a French doctor and medical researcher, with unlawfully tipping material, non-public information to Skowron, a former hedge fund portfolio manager, who was charged with using the inside information to trade ahead of a January 23, 2008 negative announcement, helping the hedge funds he managed avoid losses of approximately $30 million. At the time of the alleged conduct, Skowron managed six health care-related hedge funds affiliated with FrontPoint Partners LLC. The SEC alleged that Skowron sold hedge fund holdings of Human Genome Sciences Inc. (HGSI) based on tips he received unlawfully from Benhamou, who served on the Steering Committee overseeing HGSI’s clinical trial for Albuferon, a potential drug to treat Hepatitis C. Benhamou tipped Skowron with material, non-public information about the trial as he learned of negative developments that occurred in December 2007 and January 2008. In response, Skowron ordered the sale of the entire position in HGSI stock — approximately six million shares held by the six funds. HGSI announced changes to the trial resulting from the negative developments on January 23, 2008, which led to a 44 percent drop in share price by the end of the day. The hedge funds avoided losses of approximately $30 million by selling their positions in advance of the news. The SEC alleged that, at various points in the relationship, including after the illegal HGSI trades were completed, Skowron gave Benhamou envelopes of cash both in appreciation of his work and to induce Benhamou to lie about their communications. The final judgments permanently enjoin Skowron and Benhamou from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. Skowron was ordered to disgorge $29,017,156 (a joint and several obligation with the relief defendants), plus $1,360,000 (for which he is individually obligated), plus prejudgment interest of $5,142,782, and to pay a civil penalty in the amount of $2,720,000. Benhamou was ordered to disgorge $52,138, plus prejudgment interest of $8,237. The six hedge funds, which were named solely as relief defendants, were ordered to disgorge $29,017,156, plus prejudgment interest of $4,003,669; the final judgment against Skowron provides that his disgorgement and prejudgment interest (but not penalty) obligation shall be credited dollar for dollar by amounts the relief defendants are ordered to disgorge and/or by amounts that Skowron is ordered to forfeit in the related criminal action. Both Skowron and Benhamou pled guilty in parallel criminal cases before the United States District Court for the Southern District of New York, titled United States v. Joseph F. Skowron III, 11-CR-00699-DLC (S.D.N.Y.) and United States v. Yves M. Benhamou, 11-CR-336-GBD (S.D.N.Y.).”

Thursday, November 17, 2011

MORGAN STANLEY INVESTMENT MANAGEMENT AGREES TO PAY $3.3 TO SETTLE FRAUD CHARGES

The following is an excerpt from the SEC website: “Washington, D.C., Nov. 16, 2011 — The Securities and Exchange Commission today charged Morgan Stanley Investment Management (MSIM) with violating securities laws in a fee arrangement that repeatedly charged a fund and its investors for advisory services they weren’t actually receiving from a third party. The SEC’s Enforcement Division Asset Management Unit has been focused on fee arrangements with registered funds. The SEC’s investigation found that MSIM — the primary investment adviser to The Malaysia Fund — represented to investors and the fund’s board of directors that it contracted a Malaysian-based sub-adviser to provide advice, research and assistance to MSIM for the benefit of the fund, which invests in equity securities of Malaysian companies. The sub-adviser did not provide these purported advisory services, yet the fund’s board annually renewed the contract based on MSIM’s representations for more than a decade at a total cost of $1.845 million to investors. MSIM agreed to pay more than $3.3 million to settle the SEC’s charges. The SEC’s Asset Management Unit has an initiative inquiring into the investment advisory contract renewal process and fee arrangements in the fund industry. “We want to take the advisory fee setting process out of the shadows by scrutinizing the role of investment advisers and fund board members in vetting fee arrangements with registered funds,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. According to the SEC’s order instituting the settled administrative proceedings, The Malaysia Fund’s board of directors evaluated and approved the sub-adviser fees each year from 1996 to 2007 based on MSIM’s representations during what’s known as the “15(c) process.” Section 15(c) of the Investment Company Act requires an investment adviser to provide a fund’s board with information that is reasonably necessary to evaluate the terms of any contract whereby a person undertakes regularly to serve as an investment adviser of a registered investment company. “MSIM failed in its duty to provide the fund’s board members with the information they needed to fulfill their significant responsibility of reviewing and approving the sub-adviser’s contract,” said Bruce Karpati, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “MSIM’s failure undermined the integrity of the board’s oversight process.” According to the SEC’s order, MSIM arranged The Malaysia Fund’s sub-advisory agreement with a subsidiary of AM Bank Group, one of the largest banking groups in Malaysia. Despite the research and advisory agreement stating that the AM Bank Group subsidiary (AMMB) would provide MSIM with “investment advice, research and assistance, as [MSIM] shall from time to time reasonably request,” the SEC found that AMMB merely provided two monthly reports based on publicly available information that MSIM neither requested nor used in its management of the fund. Furthermore, MSIM’s oversight and involvement with AMMB during the relevant time period were wholly inadequate. MSIM had no written procedures specifically governing its oversight of sub-advisers, and did not have a procedure in place for reviewing work done by AMMB. According to the SEC’s order, MSIM also was responsible for preparing and filing the fund’s annual and semi-annual reports to shareholders. The fund’s filings stated that for an advisory fee, AMMB provided MSIM with “investment advice, research and assistance.” Since AMMB was not providing any advisory services, MSIM prepared and filed false information in the annual and semi-annual reports. “Not only did MSIM’s internal controls fail in allowing this purported services arrangement to go on, but the firm repeatedly issued reports to investors that inaccurately represented those services,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “MSIM clearly lost sight of this sub-adviser.” According to the SEC’s order, the fund’s sub-adviser contract with AMMB was terminated in early 2008 after the SEC’s examination staff inquired into the fund’s relationship with the sub-adviser. The SEC’s order finds that MSIM willfully violated Sections 15(c) and 34(b) of the Investment Company Act and Sections 206(2) and (4) of the Investment Advisers Act of 1940, and Rule 206(4)-7 thereunder. Without admitting or denying the SEC’s findings, MSIM agreed to a censure and to cease and desist from committing or causing any violations and any future violations of those provisions. MSIM agreed to repay the fund $1.845 million for the sub-adviser’s fees and pay a $1.5 million penalty. MSIM also agreed to implement policies and procedures specifically governing the Section 15(c) process and its oversight of service providers. The SEC’s case was handled by Chad Alan Earnst, Christine Lynch, and Jessica Weiner, members of the Asset Management Unit in the Miami Regional Office, and Tonya Tullis, staff accountant. Karen Stevenson, Susan Schneider, and Dennis Delaney from the SEC’s Washington D.C. office conducted the related examinations. The SEC acknowledges the assistance of the Securities Commission of Malaysia and the Monetary Authority of Singapore. The SEC’s investigation is continuing.”

Wednesday, November 16, 2011

FORMER CEO AGREES TO RETURN BONUS MONEY RECEIVED WHILE HIS COMPANY WAS COOKING THE BOOKS

(RARE AND/OR WELL DONE!) The following excerpt is from the SEC website: “Washington, D.C., Nov. 15, 2011 –The Securities and Exchange Commission today announced that the former chief executive officer and chairman of CSK Auto Corporation has agreed to return $2.8 million in bonus compensation and stock profits that he received while the company was committing accounting fraud. Maynard L. Jenkins of Scottsdale, Ariz., was not personally charged by the SEC for the company’s misconduct, however he is still required under Section 304 of the Sarbanes-Oxley Act (SOX) to reimburse CSK Auto for incentive-based compensation and stock sale profits that he received during the company’s fraudulent period. The SEC filed court papers against Jenkins in July 2009 saying he violated the SOX “clawback” provision by failing to reimburse the company. It marked the agency’s first SOX clawback case against an individual who was not alleged to have otherwise violated the securities laws. "CEOs should know that they can be deprived of bonuses or stock profits they received while accounting fraud was occurring on their watch," said Robert Khuzami, Director of the SEC's Division of Enforcement. Rosalind Tyson, Director of the SEC’s Los Angeles Regional Office, added, “Jenkins received incentive-based pay while CSK Auto was fraudulently overstating its income to shareholders. His bonuses and stock profits are now being rightfully returned to the company for the benefit of the shareholders.” The settlement with Jenkins is subject to court approval. Jenkins has agreed to reimburse $2,796,467 to O’Reilly Automotive Inc., which has since acquired CSK Auto. The SEC previously charged four former CSK Auto executives who perpetrated the accounting fraud, and separately charged the company for filing false financial statements for fiscal years 2002 to 2004. The company settled the charges, and the litigation against three of the former executives is continuing (CSK’s former chief operating officer has since died). The U.S. Department of Justice brought a criminal indictment against those same executives, who have pleaded guilty to various charges. CSK Auto recently entered into a non-prosecution agreement with the DOJ in which it agreed to pay a $20.9 million penalty. The SEC’s investigation was conducted by Dabney O’Riordan, Robert Conrrad, Rhoda Chang, Spencer Bendell, and Lorraine Echavarria in the Los Angeles Regional Office. The litigation effort was led by Donald Searles. The SEC thanks the Department of Justice, Federal Bureau of Investigation, Internal Revenue Service, and U.S. Postal Service for their substantial assistance in the investigation.”

Wednesday, November 9, 2011

INVESTMENT ADVISOR CHARGED WITH COMMITTING WIRE FRAUD

The following excerpt comes from the SEC website: “The Securities and Exchange Commission today announced that the U.S. Attorney for the District of Massachusetts has charged Andrey C. Hicks of Boston, Mass., in a criminal complaint unsealed on Friday, October 28, 2011. Hicks was charged with committing wire fraud, attempting to commit wire fraud, and aiding and abetting wire fraud, in violation of 18 U.S.C. Sections 1343, 1349, and 2. On October 26, 2011, the SEC filed an emergency enforcement action charging Hicks and Locust Offshore Management, LLC, his investment advisory firm, with fraud in connection with misleading prospective investors about their supposed quantitative hedge fund and diverting investor money to the money manager’s personal bank account. The SEC alleges in its complaint that Hicks and his advisory firm made misrepresentations about his education, work experience, and the hedge fund’s auditor, prime broker/custodian, and corporate status when soliciting individuals to invest in the purported hedge fund, called Locust Offshore Fund, Ltd. By making these representations and creating other indicia of legitimacy, the SEC alleged that Hicks may have obtained at least $1.7 million from 10 investors and may have misappropriated at least a portion of these funds for personal expenses. In the Commission’s action, the U.S. District Court in Massachusetts issued a temporary restraining order on October 26 that, among other things, freezes the assets of the money manager, his advisory firm, and the hedge fund. On October 28, 2011, the Court converted the temporary restraining order into a preliminary injunction that will continue the asset freeze and other relief until further order of the Court.”

Tuesday, November 8, 2011

SEC OPEN MEETING: SEC/CFTC SYTEMIC RISK DATA FORM

“by Chairman Mary Schapiro U.S. Securities and Exchange Commission Washington, D.C. October 26, 2011 Good morning. This is an open meeting of the U.S. Securities and Exchange Commission on October 26, 2011. Today, the Commission will consider adoption of a joint SEC/CFTC form to collect critical systemic risk data about hedge funds and other private funds. This data will assist the Financial Stability Oversight Council (FSOC) in assessing the systemic risk that these funds may pose. This private fund data collection is mandated by the Dodd-Frank Act. The data collection form we are adopting today — termed “Form PF” for “private fund” — was the result of extensive and collaborative consultation with fellow FSOC members as well as coordination with international regulators. As a result, we have produced a document that will address the dramatic lack of private fund information available to regulators today while easing the burden on private fund managers producing the data, so that the same data collection approaches and protocols apply cross-border where appropriate. This private fund data collection initiative follows from the lessons learned during the financial crisis — lessons about the importance of monitoring and reducing the possibility that a sudden shock or failure of a financial institution will cascade through the entire financial system. The Dodd-Frank Act sought to address this issue, in part, by creating the FSOC to carry out this monitoring role and by requiring the SEC to collect information from private fund advisers, to inform the Council in its assessment of systemic risk. Form PF data will give the FSOC new insight into private fund activities and greatly enhance the FSOC’s risk-monitoring mission. Form PF data will be utilized by regulators to assess systemic risk. It will be complemented by the new Form ADV data about private funds, which provides both regulators and the investing public information about a private fund’s size, its managers, and the entities that serve critical “gatekeeper” functions, such as auditors and custodians. “Tiered” Reporting For hedge funds, private equity funds, and liquidity funds, the information required on Form PF would be “tiered” so that we would receive more detailed information from larger private fund advisers, rather than imposing the same reporting requirements for all private funds. In addition, in a change from the proposal, we are adopting a minimum reporting requirement of $150 million so that smaller private fund advisers would not be required to file Form PF at all, in part because these smaller advisers would have a minimal impact on a broad-based systemic risk analysis. While the group of large private fund advisers is relatively small in number, it represents a large majority of private funds’ assets under management. For instance, the rule would require heightened reporting from hedge fund advisers managing at least $1.5 billion in hedge fund assets. And, although this heightened reporting threshold would apply to only about 230 U.S.-based hedge fund advisers, these advisers manage more than an estimated 80 percent of the assets under management. Reporting by Large Private Equity Managers Similarly, SEC staff estimates that approximately 155 U.S.-based private equity fund advisers managing over $2 billion in private equity fund assets would be subject to the heightened private equity reporting. In response to commenters, we have increased the private equity fund manager thresholds to target those advisers that have the most influence over the private equity market. At the same time, however, we believe that we still will receive heightened reporting from managers representing 75 percent of the private equity market. This will provide FSOC members the information they need to monitor the leveraged loan and private equity markets. In addition, in general, the data collection form will require substantially less information from advisers managing large private equity funds than the large hedge fund and liquidity funds advisers. This is because, after consultation with staff representing FSOC members, we believe private equity funds have less potential to pose systemic risks than other types of private funds. Timing and Frequency of Reporting The private fund data collection we are implementing will play an important role in supporting the framework created by the Dodd-Frank Act. It is designed to ensure that regulators have a view into financial market activities of potential systemic importance. At the same time, however, and in consultation with FSOC, we are making several changes at adoption that we believe address issues raised by commenters, while still preserving the utility of the data collection for FSOC. The strongest concerns voiced on the proposal related to the timing and frequency of the reporting. We want the information that will be reported to regulators on Form PF to be useful. It will not be useful if it is rushed or incomplete. As a result, we are extending the filing deadlines from 15 days to 60 days for larger hedge fund advisers. In addition, for smaller advisers and for large private equity advisers, we are extending the deadlines from 90 days to 120 days. We believe data quality will improve and reporting burden will decrease with these changes, but FSOC will still obtain sufficiently timely data. The deadline for private equity fund advisers is designed to allow these advisers to obtain financial statements from their funds’ portfolio companies. In addition, unlike the proposal, large private equity fund managers will only file Form PF once a year, as opposed to the quarterly requirement for large hedge fund and liquidity fund managers. In consultation with FSOC staff, we are adopting this reduced filing frequency for private equity managers because the private equity business model is based on purchasing a select group of companies and working with management to strengthen them over time. Thus, trends emerge more slowly in private equity investing. In addition, we took heed of comments related to the costs that attach to reclassifying, recalculating or reprogramming data and systems for reporting purposes. In fine-tuning Form PF, we have balanced the usefulness that comes from standardization of data reporting, where necessary, with the benefit of relying on advisers’ own internal calculation methodologies where appropriate. Confidentiality I also know that the confidentiality of the information reported on Form PF is very important to those filing the information. The data is sensitive and proprietary and — by Congressional design — non-public. The Dodd-Frank Act contains strong protection for the information filed on Form PF. In addition, we are committed to building the controls necessary to provide appropriate confidentiality and limit the availability of proprietary hedge fund and other private fund information to those who have a regulatory need to know.”

Monday, November 7, 2011

SEC SETTLES WITH FORER CEO OF VERITAS SOFTWARE CORP.

The following excerpt is from the SEC website: “The U.S. Securities and Exchange Commission today announced that, on October 21, 2011, the United States District Court for the Northern District of California entered a settled final judgment against Mark Leslie, the former Chief Executive Officer of Veritas Software Corporation, in SEC v. Mark Leslie, Kenneth E. Lonchar, Paul A. Sallaberry, Michael M. Cully, and Douglas S. Newton, Civil Action No. 07 CV 3444 (JF) (PSG) (N.D. Cal. filed July 2, 2007). The final judgment resolves the Commission's case against Leslie. The Commission's amended complaint alleges that Leslie and the remaining defendants in this action inflated Veritas' reported revenues by approximately $20 million in connection with a software sale to AOL. The complaint further alleges that Leslie failed to disclose material information to Veritas' independent auditors in violation of the federal securities laws. Without admitting or denying the allegations in the complaint, Leslie consented to entry of a final judgment permanently enjoining him from future violations of Rule 13b2-2(a)(2)of the Securities Exchange Act of 1934 and ordering him to pay disgorgement and prejudgment interest of $1,550,000 and a civil penalty of $25,000. Kenneth E. Lonchar and Paul A. Sallaberry remain as defendants in the Commission's action.”

Sunday, November 6, 2011

SEC REQUIRES COMPLETE AND ACCURATE DOCUMENTS FROM FINRA

The following excerpt is from the SEC website: “Washington, D.C., Oct. 27, 2011 — The Securities and Exchange Commission today ordered the Financial Industry Regulatory Authority (FINRA) to hire an independent consultant and undertake other remedial measures to improve its policies, procedures, and training for producing documents during SEC inspections. According to the SEC’s order instituting settled administrative proceedings, certain documents requested by the SEC’s Chicago Regional Office during an inspection were altered just hours before FINRA’s Kansas City District Office provided them. “The law requires FINRA to produce the documents the SEC seeks in its examinations in complete and accurate form,” said Gerald Hodgkins, Associate Director of the SEC’s Division of Enforcement. “Although FINRA has previously taken steps to improve compliance, those enhancements did not go far enough to prevent the document production failure that occurred in its Kansas City District Office. This order will help ensure that FINRA effectively addresses the weaknesses in its training as well as its policies and procedures.” The SEC’s order finds that on Aug. 7, 2008, the Director of FINRA’s Kansas City District Office caused the alteration of three records of staff meeting minutes just hours before producing them to the SEC inspection staff, making the documents inaccurate and incomplete. According to the SEC’s order, the production of the altered documents by the Kansas City District Office was the third instance during an eight-year period in which an employee of FINRA or its predecessor (National Association of Securities Dealers) provided altered or misleading documents to the SEC. FINRA has consented to engage an independent consultant within 30 days that will: Conduct a one-time comprehensive review of FINRA’s policies and procedures and training relating to document integrity. Assess whether the policies and procedures and training are reasonably designed and implemented to ensure the integrity of documents provided to the SEC. Make recommendations for the enhancement of FINRA’s policies and procedures and training as may be necessary in light of the consultant’s review and assessment. Without admitting or denying the findings, FINRA consented to the SEC’s order requiring it to cease and desist from committing or causing future violations of Section 17(a) of the Securities Exchange Act of 1934 and Exchange Act Rule 17a-1, and to comply with the undertakings described above. In determining to accept FINRA’s settlement offer, the Commission considered remedial acts promptly undertaken by FINRA and cooperation afforded the SEC staff.”

Saturday, November 5, 2011

SEC CHAIRMAN SCHAPIRO DISCUSSES FRAUD

The following excerpt is from the SEC website: by Chairman Mary L. Schapiro U.S. Securities and Exchange Commission Washington, D.C. November 3, 2011 Good morning. It is a pleasure to be with you today to discuss fraud and how we might be better able to prevent it. I’d like to thank the Stanford Center on Longevity and the FINRA Foundation for sponsoring an especially timely conference. Today, we live in a world in which fewer individuals retire with defined-benefit pension plans; more people are paying more money out-of-pocket for higher education; and once solid savings strategies — like home ownership — seem unsure. People simply don’t have the safety net they had — or felt they had — just a few years ago. At times like these, fighting financial fraud is an especially urgent task. It’s not just the timing of this conference that makes it important, though. It’s the recognition by the sponsors and participants that there is no single strategy or entity that can eliminate fraud by itself. We need to mount a comprehensive, multi-lateral approach to fraud prevention, one that brings together government agencies, private and non-profit institutions and investors themselves. Of course, the SEC needs to play a central role in this effort. Protecting investors is our most important mission. It is why we exist. Our divisions and offices have unique power to regulate, oversee, examine and prosecute those in a position to commit fraud or engage in unscrupulous activities. But we have long relied on self-regulatory organizations (SROs) like FINRA to support us in this mission, and we look forward to continuing to work closely with the Center on Longevity and other partners to pursue this fight against fraud. This collaborative approach is something we are emphasizing inside and outside the agency. Inside the SEC, key offices and divisions are working together in all areas of our anti-fraud effort. And outside the agency, the SEC is collaborating more often, and with better results, with everyone from state securities regulators to criminal prosecutors to local nonprofits focused on fighting fraud. Rather than confronting fraudsters with a series of separate efforts, we are weaving our initiatives into an increasingly fine-meshed net, one that we hope is ever-harder to escape or avoid. The investor protection net we’re weaving has been reinforced with new leadership, more effective organizational structures, enhanced technology and a staff that is bringing greater industry experience, improved training and a renewed energy to the task of preventing fraud. Division of Enforcement The cornerstone of our anti-fraud effort remains the Division of Enforcement. Charged with detecting, deterring and prosecuting fraud, the Division is benefitting from an aggressive new management team, a more efficient structure, and upgraded technological support. One key step was restructuring the Division, redeploying veteran attorneys from management to investigative and prosecutorial positions, putting more troops on the front lines. Another was creating specialized units to concentrate on high-priority areas of enforcement. One such unit, the Office of Market Intelligence, serves as a central office for handling tips, complaints and referrals about wrongdoing, and houses the Whistleblower Office created by the Dodd-Frank Act. This office allows enforcement attorneys to provide a unified, coherent, coordinated response to the huge volume of potential leads the agency receives. In addition, when the SEC adopted rules creating the Whistleblower Program, we were finally able to offer substantial cash rewards to insiders and others with useful information about violations of the securities laws and abuse of the public trust. The result of all this is that the quality of the tips we receive has improved substantially and generated a number of cases now in the pipeline. Our handling of those tips has improved, as well, as the creation of the TCR system has allowed us to consolidate multiple, dispersed repositories for tips and complaints into a single, searchable database. In addition to capturing and storing information and making it broadly available to investigative staff, the system will eventually include risk analytics tools that will help the SEC quickly and efficiently identify the highest value tips and search for trends and patterns. Relying in part on information gathered through the TCR system, Enforcement is working to focus its limited resources on Division priorities by developing risk-based initiatives that anticipate and detect suspicious behavior, allowing Enforcement to move more rapidly in investigating and stopping fraud. One area of particular interest to Enforcement is affinity fraud — the targeting of specific groups tied together by shared characteristics, such as ethnicity, religious affiliation or profession. In these cases, fraudsters often rely on group members to provide recommendations and word-of-mouth advertising that brings in new victims. In one recent case, we obtained a court order freezing the assets of a company that targeted Deaf investors in the U.S. The company solicited several million dollars and promised extraordinary returns of 1.2 percent per day. In reality, those funds went into foreign banks and the 14,000 investors — half of them in the U.S. — never saw a penny returned. Of course, affinity fraud isn’t our only focus. Last winter, Attorney General Holder announced a dramatic example of a coordinated effort against schemes ranging from affinity fraud to Ponzi schemes to foreign exchange (FOREX) and business opportunity frauds. “Operation Broken Trust” was the first national operation of its kind to target such a broad array of investment frauds, all of which preyed directly on retail investors. Actions were brought against 189 civil defendants and 310 criminal defendants for fraud schemes that harmed more than 120,000 victims and involved more than $10 billion. These SEC collaborations with the Justice Department reflect an important symbiotic relationship. The SEC can only win civil judgments: monetary damages and industry bars. But we often provide the specialized investigative expertise that allows Justice to build a criminal case. In return, Justice wins criminal convictions that result in hard time for guilty parties — a particularly powerful deterrent. The Microcap Fraud Working Group is another collaboration, this one inside the agency. This team brings together the Division of Enforcement and the Office of Compliance Inspections and Examination (OCIE) in a coordinated, proactive approach to detecting and deterring fraud involving microcap securities. This type of fraud is often perpetuated through “pump and dump” schemes in which the securities are promoted or “pumped” through the release of false and misleading information while insiders profit by selling or “dumping” the promoted stock to the public. Many of the promoters and boiler room operations involved in pump and dumps are unregistered, making them harder to discover and shut down. Nonetheless, the SEC has closed down several of these operations this year alone. Last January, for example, we brought a case against a New York fraudster who was pushing millions of shares of penny stocks on his website and posting price predictions with no basis in reality. When these promotional efforts brought dramatic, but temporary, increases in volume and price, the perpetrator sold shares from his personal account, earning almost $3 million in profits. In addition to bringing cases against individuals who perpetrate microcap fraud, we also target the issuers themselves. In June, we suspended trading in 17 microcap stocks whose issuers were suspected of pumping stock prices by providing inadequate and inaccurate information to investors. Microcap stocks are often where fraud meets social media, with posts on message boards by stock-touting websites, twitter users, and anonymous individuals taking the place of the classic boiler room phone banks. In these cases, online hype often led to price spikes that didn’t last much beyond the time needed for their promoters to dump shares and pocket investors’ money. The challenges of policing these evolving markets are enormous but new strategies, technologies and organization are coming together to foster more and more effective enforcement. OCIE OCIE is another stalwart in the SEC’s battle against fraud and a source of referrals to enforcement for prosecution. Like Enforcement, OCIE has also undergone substantial changes over the last two years, with an energetic new leadership team working with agency veterans to create the National Exam Program (NEP). Working with the SEC’s Division of Risk, Strategy and Financial Innovation, the NEP is creating and continuously improving metrics that allow OCIE to target registrants that pose higher risk. A recently-established Office of Risk Analysis and Surveillance unit within OCIE guides that targeting strategy across different program areas and sharpens focus on registrants and practices that pose the greatest risk to investors and market integrity. Working with filings and public information, OCIE targets registrants that show unusual patterns of activity — claiming returns that are consistently high, for example, even when the markets are down or are mixed. Other discrepancies that can serve as red flags include overstatement of assets, non-disclosure of affiliates or misrepresenting custodial arrangements. Even something as simple as a tip that an individual is lying about their college degree, or that a broker claiming a PhD in finance cannot answer basic technical questions, can trigger additional scrutiny — particularly if a registrant emphasizes those credentials in promotional material. This ability to target more effectively has become even more important in the wake of Dodd-Frank as OCIE’s responsibilities increase rapidly — including expanded responsibility for hedge fund and rating agency examinations — but the SEC’s budget grows much more slowly. This creates a number of risks, not the least of which is that investors will have the impression that because an entity or activity is subject to registration and regulation, that means that it is being adequately examined. Once an exam is triggered, a lot depends on the skills of the examiners themselves — the ability to grasp complex and misleading accounting, the tenacity to deal with extraordinary amounts of data, and the skill to conduct an effective interview. As a result, we are focused not just on technology and targeting, but on our staff and the way they conduct examinations. OCIE is continuing its restructuring efforts, including the development of specialized working groups in six key areas: Equity Market Structure and Trading Practices, Fixed Income and Municipals, Marketing and Sales Practices, Microcap Fraud, New and Structured Products, and Valuation. These working groups will serve as forums in which the NEP and other agency staff collaborate on issues, initiatives, and concerns. They will serve as ongoing resource for training and for disseminating this specialized knowledge. Stronger teamwork and collaboration between OCIE and the Division of Enforcement both led to an increase in referrals by OCIE to Enforcement and allowed the SEC to move more swiftly to protect investor assets when irregularities were discovered. One major case this year involved a Connecticut hedge fund advisor and related entities that were engaged in a multi-year, $200 million Ponzi scheme. The fraud was first discovered by OCIE examiners during a risk-based exam of a registered adviser affiliated with the fraudster. Despite conduct that ultimately led to a criminal obstruction of justice charge, OCIE and their colleagues in Enforcement obtained evidence of the fraud - evidence that also led to criminal charges by the U.S. Attorney. Much of OCIE’s work serves investors by improving and probing the quality of registrant’s disclosures — determining if investors’ funds are being handled safely and reported accurately, and discouraging any temptation to do otherwise. Office of Investor Education and Advocacy Another of our most important collaborations is with individual investors. As you know well, an informed and skeptical investor is the best defense against securities fraud. Unfortunately, many investors are just sophisticated enough to be excellent victims — more educated, affluent and financially literate than is generally thought. So, at the SEC, we’re working to elevate investor education to the next level — where people recognize not just opportunities, but warning signs, a level where investors act not just on instinct, but on the basis of solid information. The Commission’s Office of Investor Education and Advocacy (OIEA) leads that effort: answering investor questions, making information available through a variety of media, and bringing new light to issues surrounding investor protection. Every day, we get questions about the securities markets and complaints, about brokers, investment advisers, and particular investments. Often these disputes can be settled quickly, after OIEA forwards the complaint to the entity involved. In more serious cases, OIEA staff enters the complaint into the SEC’s TCR database for review by either the Division of Enforcement or OCIE. Our goal, however, is to reach out to investors before they need to reach out to us, ensuring that they have the information and background they need before making potentially risky investment decisions. There are a number of ways we try to do that. In 2009, we launched Investor.gov, a website focused exclusively on investor education for individuals. It offers investors information topics such as how to research investments and investment professionals, understand fees, and detect fraud. For investors who prefer print, we continue to offer this information in hard copy, as well. And, of course, all of our materials are available free of charge and without copyright, encouraging the widest possible dissemination. We also reach out to investors directly, electronically and through partnerships with other organizations. In the past year, we have published Investor Alerts and Bulletins on subjects including fake securities-related websites, pre-IPO investment fraud, stock trading basics, margin rules, and potential issues with reverse merger transactions. In addition to using Investor.gov and the SEC’s website to disseminate materials, we also use other channels, including a designated RSS feed, GovDelivery, press releases, and our Twitter account — @SEC_Investor_Ed — which has over 22,000 followers. And we are also reaching out through partnership with other government agencies, local governments and private sector financial education organizations. We work, for example, with the FINRA Investor Education Foundation and its Investor Protection Campaign for Older Investors, which is conducted in conjunction with state securities regulators and AARP. Some of OIEA’s most important, recent contributions to investor protection are the studies it is conducting. One study, required by the Dodd Frank Act, looked at how investors get information about investment professionals and suggested ways to help them access and use it more effectively. It proposed, for example, combining FINRA’s BrokerCheck and the SEC’s Investment Adviser Public Disclosure (IAPD) databases and adding a ZIP Code search function, so investors can more easily obtain results about both advisers and broker-dealers no matter which database they search. And it suggested that educational content be added to both systems, so investors can better understand the information they find and make clearer red flags that might sometimes signal a potential fraud. Another study, also required by Dodd-Frank, involves a broad survey of retail investors’ financial literacy. Issues include: Evaluating the existing level of financial literacy among retail investors. How to improve the timing, content, and format of disclosures regarding financial intermediaries, investment products, and investment services. How to make it easier for investors to understand expenses and conflicts of interest in transactions involving investment services and products. What the most effective existing private and public efforts to educate investors are. A key component of this study is investor testing currently underway that is aimed at determining the effectiveness of current SEC-mandated disclosure documents. The results of this testing will be used to determine how disclosure materials could more effectively communicate the information that SEC registrants are required to provide. For many people, investment information that you and I would consider important and easily available, is difficult to access and hard to understand. And their failure to access it leaves them vulnerable. These studies will help the SEC put clear, necessary information in front of investors and help keep them keep their nest egg safe. Today, 100 million Americans are invested in the financial markets. The trillions of dollars they entrust to others make a tempting target. Fortunately, many frauds are slow-motion crimes, and alert investors can detect them before they take place. Unfortunately, too few investors know what to look for, or how easy it is to get answers from the SEC, FINRA, and many other organizations able to steer people away from risky or fraudulent investments. Our Office of Investor Education and Advocacy is working to change that. And they’re looking forward to changing that in partnership with you. Collaboration There are so many more other collaborative efforts underway than I have time to note. For example: We’ve leveraged the capacity of the private sector by adopting regulations requiring that broker-dealers and investment advisers which have custody of their clients funds be subject to a surprise audit every year to help ensure that customer funds are protected. We’re working more closely than ever with state regulatory agencies, leveraging the differing strengths and jurisdictions that federal and state agencies bring to the table, to build the strongest possible case when fraud is suspected. This year, a number of Chinese companies suspected of providing false or misleading financial statements to investors were delisted from U.S. exchanges. The SEC is working with the Public Company Accounting Oversight Board, and the Chinese government to increase cooperation on audit oversight of public companies and ensure accurate financial reporting. And Risk Fin, the SEC’s “in-house think tank,” is playing a key role in developing our risk-based targeting strategy. The fact is no single agency can take all the actions needed to contain and reduce the kind of fraud that threatens life savings, turn “golden years” into dust, and steal dreams invested in over a lifetime. But no agency or institution is better placed, better prepared or more motivated to stand at the center of this fight, bringing our expertise to bear wherever possible, and taking advantage of the expertise of others whenever we can. Today, there’s a new energy and a smarter approach to the SEC’s efforts: more experience and better training in the staff, more effective organization and improved collaboration; and upgraded IT to support it all. Perhaps most important of all, though, is our understanding that in an age of limited resources, the SEC has to work collaboratively with other organizations, agencies, academics, and activists to protect investors. The fight against fraud will take a serious effort from us all."

Friday, November 4, 2011

SEC SETTLES INSIDER TRADING CHARGES AGAINST CALIFORNIA WOMAN

The following excerpt is from the SEC website: October 25, 2011 “The United States District Court for the Northern District of California approved a proposed settlement of the Securities and Exchange Commission’s insider trading claims against Annabel McClellan. The Commission alleged that Ms. McClellan obtained confidential information about pending mergers and acquisitions from her husband, a former partner in the San Francisco offices of Deloitte Tax LLP, to tip her sister and brother-in-law in London. As alleged by the Commission, Ms. McClellan’s relatives used the information to place trades in advance of the public announcements of the transaction, making millions of dollars in illicit profits. Without admitting or denying the Commission’s allegations, Ms. McClellan consented to pay a $1 million civil money penalty. Ms. McClellan also consented to the entry of a final judgment that will enjoin her permanently from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The court entered the final judgment against Ms. McClellan on October 25, 2011. Ms. McClellan previously pleaded guilty to one count of obstructing the Commission’s investigation into the insider trading scheme. The United Kingdom Financial Services Authority filed insider trading charges against Ms. McClellan’s relatives and three others in November 2010. In a related action, the Commission requested the dismissal of the insider trading claims against Ms. McClellan’s husband, Arnold A. McClellan.”

Thursday, November 3, 2011

COURT ORDERS INJUCTION AND CIVIL PENALTIES AGAINST ENERGY CO. EXECUTIVE

October 17, 2011 The following excerpt is from the SEC website: “The Securities and Exchange Commission announced that on October 14, 2011, the United States District Court for the Middle District of Florida entered by consent a final judgment against Daniel W. Nodurft permanently restraining and enjoining him from future violation of Section 5 and Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (“Securities Act”). The Court also ordered Nodurft to pay a civil penalty in the amount of $50,000. The Commission’s complaint alleged that Nodurft, a resident of Louisiana and the former vice-president and general counsel of Aerokinetic Energy Corporation (“Aerokinetic”), a Sarasota-based company purportedly in the business of developing and marketing alternative power technologies and products, violated the registration and antifraud provisions of the securities laws in connection with Aerokinetic’s fraudulent unregistered securities offering. On July 24, 2008, the U.S. District Court for the Middle District of Florida issued a temporary restraining order against Aerokinetic and its then president, Randolph E. Bridwell in a related case (Securities and Exchange Commission v. Aerokinetic Energy Corporation, Case No. 8:08-cv-1409-T27TGW). On January 19, 2011, the Court entered a final judgment against Aerokinetic and Bridwell imposing disgorgement of ill-gotten proceeds, jointly and severally, in the amount of $555,000, plus prejudgment interest in the amount of $59,571.09. Additionally, Aerokinetic and Bridwell were ordered to pay civil penalties of $250,000 and $130,000, respectively. Aerokinetic’s judgment was upheld on appeal to the Eleventh Circuit Court of Appeals.”
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