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

Friday, December 30, 2011

SECURITIES FRAUD AND DISCLOSURE VIOLATIONS MAKES MAN AND HIS TRUST PART WITH NEARLY $50 MILLION

The following excerpt is from the SEC website:

“The Securities and Exchange Commission announced that on December 21, 2011, United States District Court Judge Susan D. Wigenton entered a final judgment ordering defendants Alfred S. Teo, Sr. and the MAAA Trust, a trust Teo controlled, to pay a total of $49,493,143.15 in disgorgement, prejudgment interest and penalties for false filings regarding their Musicland Stores Corporation stock. In particular, the Court ordered Teo and the Trust to pay $17,422,054.13 in disgorgement plus $14,649,034.89 in prejudgment interest, and civil penalties of $17,422,054.13. These amounts are in addition to (i) $996,782.68 in disgorgement and prejudgment interest Teo paid for his insider trading violations pursuant to the Court’s previous order of March 15, 2010, and (ii) a $1 million fine that Teo paid in a parallel criminal action for insider trading. The Court also enjoined Teo and the Trust from further violations of Sections 13(d) and 16(a) of the Securities Exchange Act of 1934 and Rules 13d-1, 13d-2 and 16a-3 thereunder. Previously, the Court had enjoined Teo from further violations of Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder, and barred him from serving as an officer and director of a public company.
On May 25, 2011, following a ten day trial, a jury sitting in Newark, New Jersey returned a verdict in favor of the Commission finding Teo liable for securities fraud and disclosure violations on all counts against him and finding the Trust liable for disclosure violations. Prior to the trial, on August 10, 2010, the Court granted the Commission’s motion for summary judgment against Teo finding him liable for violations of Section 16(a) of the Exchange Act and Rule 16a-3 thereunder.
The Commission’s complaint, filed on April 22, 2004, charged Teo and others with insider trading and making false Commission filings. Specifically, Teo and ten of his relatives, friends and colleagues engaged in insider trading in Musicland and C-Cube Microsystems, Inc. stock. Teo, a major Musicland shareholder, learned about a tender offer for Musicland, and in breach of a duty of trust and confidence to Musicland, he purchased Musicland stock on the basis of this information prior to the company’s December 7, 2000 public announcement of the tender offer. Teo tipped eight others with this information, who purchased Musicland stock prior to the Musicland announcement. Teo also engaged in insider trading in the securities of C-Cube. Teo, a director of Cirrus Logic, Inc., which had been negotiating to acquire C-Cube, misappropriated from Cirrus material, non-public information regarding the negotiations, and he purchased C-Cube stock shortly before C-Cube announced on March 26, 2001 that it had agreed to be acquired by another company. Teo tipped his business partner, defendant Mitch Sacks, with this information, who purchased C-Cube stock prior to the C-Cube announcement. Teo also filed false information with the Commission and deceived the investing public regarding his Musicland stock ownership. Between July 1998 and January 2001, Teo, the Trust, and Teren Seto Handelman, the Trust’s trustee and Teo’s sister-in-law, filed multiple false and misleading Forms 13D with the Commission, and failed to make required filings, thereby materially misrepresenting their ownership of Musicland stock. Teo made false filings to avoid triggering Musicland’s shareholders rights plan, or “poison pill,” which Teo understood would have significantly diluted his stock causing massive losses to him. Instead, Teo’s fraud enabled him to secretly purchase millions of Musicland shares well above the poison pill threshold, which he eventually sold, receiving illicit profits.
Between May 3, 2004, and January 3, 2011, the Court entered final judgments against Teo’s tippees: defendants Teren Seto Handelman (Teo’s sister-in-law), Mitch Sacks (Teo’s business partner), Phil Sacks (Teo’s tennis partner and Mitch Sacks’ father), John Reier (CFO of Teo’s companies), Larry Rosen (Teo’s friend), Rich Herron (Teo’s yachting friend), Charles Fortune, Jerrold Johnston and Mark Lauzon (Teo’s business associates), David Ross (Teo’s yacht builder), and relief defendant James Ruffolo. These defendants and relief defendant consented to the entry of judgments without admitting or denying the allegations in the Commission’s complaint. On March 15, 2010, the Court entered a partial judgment on consent against Teo to settle the Commission’s insider trading charges against him, and the Court ordered him to pay $996,782.68 in disgorgement plus prejudgment interest, enjoined him against further violations of Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder, and barred him from serving as an officer or director of any public company. Prior to the December 21, 2011 final judgment, the Court ordered a total of $3,869,647.76 in disgorgement, prejudgment interest and civil penalties against Teo and his tippees.
In a separate action, the United States Attorney’s Office for the District of New Jersey prosecuted Teo for violations of the federal securities laws. On June 27, 2006, after a six week trial, Teo pled guilty to insider trading charges. Thereafter, on February 6, 2007, Teo was sentenced to 30 months in prison, followed by two years supervised release and ordered to pay a $1 million fine. United States v. Alfred S. Teo, 04-Cr.-583 (KSH) (D.N.J.)
Teo, age 65 and a resident of Kinnelon, New Jersey and Fisher Island, Florida, is the Chairman of several private companies which produce industrial plastics. Teo’s companies are some of the largest producers of plastic bags in North America. Teo was a director and audit committee member of two public companies: Navarre Corp. from May 1, 1998 to April 22, 2004; and Cirrus from July 21, 1998 to April 10, 2001.
The Commission expresses its appreciation to the United States Attorney’s Office for the District of New Jersey and the New York Stock Exchange for their assistance in this matter.”

SEC ALLEGES MAGYAR TELEKOM PLC. BRIBED OFFICIALS IN MACEDONIA AND MONTENEGRO

The following excerpt is from the SEC website:

December 29, 2011
“The Securities and Exchange Commission today charged the largest telecommunications provider in Hungary and three of its former top executives with bribing government and political party officials in Macedonia and Montenegro to win business and shut out competition in the telecommunications industry.

The SEC alleges that three senior executives at Magyar Telekom Plc. orchestrated, approved, and executed a plan to bribe Macedonian officials in 2005 and 2006 to prevent the introduction of a new competitor and gain other regulatory benefits. Magyar Telekom’s subsidiaries in Macedonia made illegal payments of approximately $6 million under the guise of bogus consulting and marketing contracts. The same executives orchestrated a second scheme in 2005 in Montenegro related to Magyar Telekom’s acquisition of the state-owned telecommunications company there. Magyar Telekom paid approximately $9 million through four sham contracts to funnel money to government officials in Montenegro.
Magyar Telekom’s parent company Deutsche Telekom AG also is charged with books and records and internal controls violations of the Foreign Corrupt Practices Act (FCPA).

Magyar Telekom agreed to settle the SEC’s charges by paying more than $31.2 million in disgorgement and pre-judgment interest. Magyar Telekom also agreed to pay a $59.6 million criminal penalty as part of a deferred prosecution agreement announced today by the U.S. Department of Justice. Deutsche Telekom settled the SEC’s charges, and as part of a non-prosecution agreement with the Department of Justice agreed to pay a penalty of $4.36 million.
The three former top executives at Magyar Telekom charged by the SEC for orchestrating the bribery schemes are:
Elek Straub, former Chairman and CEO.

Andras Balogh, former Director of Central Strategic Organization.

Tamas Morvai, former Director of Business Development and Acquisitions.
According to the SEC’s complaints filed in the Southern District of New York, in the wake of legislation intended to liberalize the Macedonian telecommunications market, Magyar Telekom entered into a secret agreement entitled the “Protocol of Cooperation” with senior Macedonian government officials to delay or preclude the issuance of a license to a new competitor and mitigate other adverse effects of the new law. To win their support, Magyar Telekom paid €4.875 million to a third-party intermediary under a series of sham contracts with the intention that the intermediary would forward money to the government officials. Magyar Telekom also promised a Macedonian political party the opportunity to designate the beneficiary of a business venture in exchange for the party’s support.

The SEC further alleges that in Montenegro, Magyar Telekom used intermediaries to pay bribes to government officials in return for their support of Magyar Telekom’s acquisition of the state-owned telecommunications company on terms favorable to Magyar Telekom. At least two Montenegrin government officials involved in the acquisition received payments made through the bogus contracts. A family member of a top Montenegrin government official also received payments.

The SEC’s complaint against Straub, Balogh, and Morvai alleges that they violated Sections 30A and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 13b2-1 and 13b2-2, and that they aided and abetted violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act. The SEC seeks disgorgement and penalties and the imposition of permanent injunctions. The SEC’s complaint against Magyar Telekom and Deutsche Telekom alleges that Magyar Telekom violated Section 30A of the Exchange Act and that Magyar Telekom and Deutsche Telekom violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. Magyar Telekom and Deutsche Telekom consented to the entry of final judgments without admitting or denying the SEC’s allegations. The settlements are subject to court approval.”

PROFITS INCREASE AT FDIC INSURED INSTITUTIONS

The following is an excerpt from an FDIC e-mail: November 22, 2011 "Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $35.3 billion in the third quarter of 2011, an $11.5 billion improvement from the $23.8 billion in net income the industry reported in the third quarter of 2010. This is the ninth consecutive quarter that earnings registered a year-over-year increase. "We continue to see income growth that reflects improving asset quality and lower loss provisions," said FDIC Acting Chairman Martin J. Gruenberg. "U.S. banks have come a long way from the depths of the financial crisis. Bank balance sheets are stronger in a number of ways, and the industry is generally profitable, but the recovery is by no means complete. "Ongoing distress in real estate markets and slow growth in jobs and incomes continue to pose risks to credit quality," Acting Chairman Gruenberg added. "The U.S. economic outlook is also clouded by uncertainties in the global economy and by volatility in financial markets. So even as the banking industry recovers, the FDIC remains vigilant for new economic challenges that could lie ahead." As was the case in each of the last eight quarters, lower provisions for loan losses were responsible for most of the year-over-year improvement in earnings. Third-quarter loss provisions totaled $18.6 billion, almost 50 percent less than the $35.1 billion that insured institutions set aside for losses in the third quarter of 2010. A majority of all institutions (63 percent) reported improvements in quarterly net income from a year ago. Also, the share of institutions reporting net losses for the quarter fell to 14.3 percent, down from 19.5 percent a year earlier. The average return on assets (ROA), a basic yardstick of profitability, rose to 1.03 percent, from 0.72 percent a year ago. Asset quality indicators continued to improve as noncurrent loans and leases (those 90 days or more past due or in nonaccrual status) fell for a sixth consecutive quarter. Insured banks and thrifts charged off $26.7 billion in uncollectible loans during the quarter, down $17.2 billion (39.2 percent) from a year earlier. Financial results for the third quarter and the first nine months of 2011 are contained in the FDIC's latest Quarterly Banking Profile, which was released today. Also among the findings: Loan portfolios grew slowly for a second consecutive quarter. Loan balances posted a quarterly increase for the second quarter in a row and for only the third time in the last 12 quarters. (The first increase, in the first quarter of 2010, reflected the rebooking of securitized loans onto banks' balance sheets as a result of new accounting rules, not an actual increase in lending.) Total loans and leases increased by $21.8 billion (0.3 percent), as loans to commercial and industrial borrowers increased by $44.8 billion and residential mortgage loan balances rose by $23.7 billion. Loans to other depository institutions declined by $37.1 billion (25.3 percent), reflecting the elimination of intra-company loans reported in the second quarter between two related institutions that merged in the third quarter. Large institutions again experienced sizable deposit inflows. Deposits in domestic offices increased by $279.5 billion (3.4 percent) during the quarter. Almost two-thirds of this increase ($183.8 billion or 65.8 percent) consisted of balances in large noninterest-bearing transaction accounts that have temporary unlimited deposit insurance coverage. The 10 largest insured banks accounted for 75.7 percent ($139.1 billion) of the growth in these balances. The number of institutions on the FDIC's "Problem List" fell for the second quarter in a row. The number of "problem" institutions declined from 865 to 844. This is the second time since the third quarter of 2006 that the number of "problem" banks has fallen. Total assets of "problem" institutions declined from $372 billion to $339 billion. Twenty-six insured institutions failed during the third quarter, four more than in the previous quarter, but 15 fewer than in the third quarter of 2010. Through the first nine months of 2011, there were 74 insured institution failures, compared to 127 failures in the same period of 2010. The Deposit Insurance Fund (DIF) balance continued to increase. The DIF balance — the net worth of the fund — rose to $7.8 billion at September 30th from $3.9 billion at June 30th. Assessment revenue and fewer expected bank failures continued to drive growth in the fund balance. The contingent loss reserve, which covers the costs of expected failures, fell from $10.3 billion to $7.2 billion during the quarter. Estimated insured deposits grew 3.6 percent in the third quarter. Much of this increase is attributable to the growth in balances exceeding $250,000 in noninterest-bearing transaction accounts, for which the Dodd-Frank Act temporarily extended unlimited insurance coverage through the end of 2012.”

Thursday, December 29, 2011

DODD-FRANK ON MINE SAFETY

The following excerpt is from the SEC website:

“Washington, D.C., December 21, 2011 – The Securities and Exchange Commission has adopted new rules outlining how mining companies must disclose the mine safety information required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under Section 1503 of the Dodd-Frank Act, mining companies are required to include information about mine safety and health in the quarterly and annual reports they file with the SEC. The Dodd-Frank Act disclosure requirements are based on the safety and health requirements that apply to mines under the Federal Mine Safety and Health Act of 1977, which is administered by the Mine Safety and Health Administration (MSHA).
The new SEC rules, which take effect 30 days after publication in the Federal Register, specifically require those companies to provide mine-by-mine totals for the following:
Significant and substantial violations of mandatory health or safety standards under section 104 of the Mine Act for which the operator received a citation from MSHA

Orders under section 104(b) of the Mine Act

Citations and orders for unwarrantable failure of the mine operator to comply with section 104(d) of the Mine Act

Flagrant violations under section 110(b)(2) of the Mine Act

Imminent danger orders issued under section 107(a) of the Mine Act

The dollar value of proposed assessments from MSHA

Notices from MSHA of a pattern of violations or potential to have a pattern of violations under section 104(e) of the Mine Act

Pending legal actions before the Federal Mine Safety and Health Review Commission

Mining-related fatalities
The accompanying instructions specify that a mining company must report the total penalties assessed in the reporting period, even if the company is contesting an assessment. For legal actions, mining companies are instructed to report the number instituted and resolved during the reporting period, report the number pending on the last day of the reporting period, and categorize the actions based on the type of proceeding.
In addition, the Dodd-Frank Act added a requirement for U.S. companies to file a Form 8-K when they receive notice from MSHA of an imminent danger order under section 107(a) of the Mine Act; notice of a pattern of violations under section 104(e) of the Mine Act, or notice of the potential to have a pattern of such violations. The new SEC rules specify that the Form 8-K must be filed within four business days and include the type of notice received, the date it was received, and the name and location of the mine involved. The new rules specify that a late filing of the Form 8-K will not affect a company's eligibility to use Form S-3 short-form registration.”



SEC CHARGES GE FUNDING CAPITAL MARKETS SERVICES WITH MUNICIPAL BOND MARKET FRAUD

The following excerpt is from the SEC website:

“Washington, D.C., Dec. 23, 2011 — The Securities and Exchange Commission today charged GE Funding Capital Market Services with securities fraud for participating in a wide-ranging scheme involving the reinvestment of proceeds from the sale of municipal securities.

GE Funding CMS agreed to settle the SEC’s charges by paying approximately $25 million that will be returned to affected municipalities or conduit borrowers. The firm also entered into agreements with the Department of Justice, Internal Revenue Service, and a coalition of 25 state attorneys general and will pay an additional $45.35 million.

The settlements arise from extensive law enforcement investigations into widespread corruption in the municipal reinvestment industry. In the past year, federal and state authorities have reached settlements with four other financial firms, and 18 individuals have been indicted or pled guilty, including three former GE Funding CMS traders.

“Our in-depth investigations have uncovered pervasive corrupt practices in the municipal securities reinvestment market, and we are requiring financial firms one by one to step up and pay the price for their misconduct,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “More than $743 million has been recovered from financial institutions in these settlements, much of which has been returned to municipalities that have been harmed.”

Elaine C. Greenberg, Chief of the SEC’s Enforcement Division’s Municipal Securities and Public Pensions Unit, added, “GE Funding CMS’s fraudulent practices and misrepresentations undermined the competitive bidding process and negatively impacted the prices that municipalities paid for reinvestment products. The firm’s misconduct deprived municipalities of a conclusive presumption that reinvestment instruments were purchased at fair market value.”

According to the SEC’s complaint filed in U.S. District Court for the District of New Jersey, in addition to fraudulently manipulating bids, GE Funding CMS made improper, undisclosed payments to certain bidding agents in the form of swap fees that were inflated or unearned. These payments were in exchange for the assistance of bidding agents in controlling and manipulating the competitive bidding process.

The SEC alleges that from August 1999 to October 2004, GE Funding CMS illegally generated millions of dollars by fraudulently manipulating at least 328 municipal bond reinvestment transactions in 44 states and Puerto Rico. GE Funding CMS won numerous bids through a practice of “last looks” in which it obtained information regarding competitor bids and either raised a losing bid to a winning bid or reduced its winning bid to a lower amount so that it could make more profit on the transaction. In connection with other bids, GE Funding CMS deliberately submitted non-winning bids to facilitate bids set up in advance by certain bidding agents for other providers to win. GE Funding CMS’s fraudulent conduct also jeopardized the tax-exempt status of billions of dollars in municipal securities because the supposed competitive bidding process that establishes the fair market value of the investment was corrupted.
In settling the SEC’s charges without admitting or denying the allegations, GE Funding CMS agreed to pay a $10.5 million penalty along with disgorgement of $10,625,775 with prejudgment interest of $3,775,987. GE Funding CMS consented to the entry of a final judgment enjoining it from future violations of Section 17(a) of the Securities Act of 1933. The settlement is subject to court approval. The Commission recognizes GE Funding CMS’s cooperation in its investigation.

Other financial institutions charged prior to today’s settlement with GE Funding CMS:
Wachovia Bank N.A. – $148 million settlement with SEC and other federal and state authorities on Dec. 8, 2011.
J.P. Morgan Securities LLC – $228 million settlement with SEC and other federal and state authorities on July 7, 2011.
UBS Financial Services Inc. – $160 million settlement with SEC and other federal and state authorities on May 4, 2011.
Banc of America Securities LLC – $137 million settlement with SEC and other federal and state authorities on Dec. 7, 2010.

The SEC’s investigations have been conducted by Deputy Chief Mark R. Zehner and Assistant Municipal Securities Counsel Denise D. Colliers, who are members of the Municipal Securities and Public Pensions Unit in the Philadelphia Regional Office. The SEC thanks the Antitrust Division of the Department of Justice and the Federal Bureau of Investigation for their cooperation and assistance in this matter.”

Wednesday, December 28, 2011

CFTC ORDERS $350,000 CIVIL PENALTY AGAINST MERRILL LYNCH COMMODIITES, INC.


The following excerpt is from the commodity futures trading commission website:

December 7, 2011
"Washington, DC -- The U.S. Commodity Futures Trading Commission (CFTC) today announced that Merrill Lynch Commodities, Inc. (MLCI) agreed to pay a $350,000 civil monetary penalty to settle CFTC charges that it exceeded speculative position limits in Cotton No. 2 futures contracts in trading on the IntercontinentalExchange U.S. (ICE). MLCI also agreed to cease and desist from further such violations of Section 4a(b)(2) of the Commodity Exchange Act (CEA).
According to the CFTC order, MLCI held net futures equivalent positions in Cotton No. 2 futures contracts in excess of CFTC speculative position limits on ICE over four consecutive days from January 31, 2011, through February 3, 2011. These MLCI positions exceeded the CFTC’s speculative position limit of 5,000 contracts in all months and 3,500 contracts in any single month in Cotton No.2, the order finds, and violated the CEA’s prohibition against trading in excess of speculative position limits.
Specifically, at the end of the trading day on January 31, 2011, MLCI held a net short position of 5,502 contracts, which was 502 contracts over the all months speculative position limit, according to the order. The following day, on February 1, 2011, MLCI held a net short position of 6,059 contracts, which was 1,059 contracts over the all months speculative limit. MCLI also held a net short position of 3,727 contracts in the March 2011 contract, which was 227 contracts over the single month speculative position limit, the order also finds."
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FORMER CEO AND CFO OF A CLEAN COAL TECH. COMPANY CHARGED WITH MISLEADING INVESTORS

The following excerpt is from the SEC website:

“Washington, D.C., Dec. 21, 2011 — The Securities and Exchange Commission today charged the former CEO and CFO at a Minnesota-based clean coal technology company for making false and misleading statements to investors, and separately charged a network of brokers who sold the company’s securities without being registered with the SEC to do so.

According to the SEC’s complaints filed in U.S. District Court for the District of Minnesota, Bixby Energy Systems raised at least $43 million from more than 1,800 investors during a nine-year period through a series of purported private placement offerings of stocks, warrants, and promissory notes. The company used this capital raising activity to help fund operations, pay salaries, and pay commissions to brokers that sold Bixby securities.

The SEC alleges that Bixby’s former CEO Robert Walker and former CFO Dennis DeSender made repeated misstatements both verbally and in writing to investors about the company’s core product – a machine that supposedly produced synthetic natural gas through a proprietary clean coal technology. They told investors that Bixby’s coal gasification machine was proven and operating when in fact it had substantial technological defects, did not function properly, and was at risk of self-destruction. Walker and DeSender never disclosed these problems to investors.

“Investors were falsely informed that Bixby’s coal gasification technology was proven, fully functional, and ready for market,” said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. “Investors who purchased Bixby shares through the unregistered brokers were deprived of the protections afforded under the federal securities laws requiring the registration of broker-dealers and securities offerings like these.”
According to the SEC’s complaint, among the other false and misleading statements or omissions to investors in offering materials or solicitations:

Investors were told that company officers would not be compensated for their sale of Bixby securities. However, Bixby actually paid DeSender at least $3.6 million in cash and warrants related to his sale of Bixby securities. DeSender kicked back more than $600,000 to Walker in an undisclosed and fraudulent commission-sharing scheme.

DeSender was convicted for bank fraud in 1998. However, this was never disclosed to investors in offering materials, which instead touted DeSender’s “25 years of financial consulting and operations management experience” and “extensive background in management and operations.”

Walker and DeSender induced investors to purchase Bixby securities by telling them that Bixby was going to conduct an initial public offering of its shares in the near term, even though they knew that Bixby could not do so.
The SEC further alleges that DeSender and his corporation DLD Financial Ltd. acted as unregistered brokers and that Walker aided and abetted the violations. Walker and DeSender are charged with violations of the securities offering provisions of the Securities Act of 1933.

According to the SEC’s separate complaint against the unregistered brokers, they and DeSender sold more than $21.7 million in Bixby securities to at least 560 investors. As compensation for their sale of Bixby securities, the unregistered brokers and DeSender were paid a total of at least $4.9 million in transaction-based cash commissions. They also received warrants to purchase more than 900,000 shares of Bixby common stock. The SEC alleges that these brokers induced the purchase or sale of securities when they were not registered with the SEC as a broker or dealer or associated with an entity registered with the SEC as a broker or dealer.
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The unregistered brokers are charged with violations of Section 15(a) of the Securities Exchange Act of 1934.”



Tuesday, December 27, 2011

UNREGISTERED STOCK SALES NETS OVER $1.3 MILLION IN DISGORGEMENT, INTEREST AND CIVIL PEALTY



The following excerpt is from the Securities and Exchange Commission website:

“The United States Securities and Exchange Commission announced that on December 19, 2011, the Honorable Dora L. Irizarry, United States District Court Judge for the Eastern District of New York, entered a judgment against Myron Weiner. The judgment permanently enjoins Weiner from violating the registration provisions of Section 5 of the Securities Act of 1933 (“Securities Act”) and imposes a one-year penny stock bar against Weiner. The judgment also ordered Weiner to pay $1,215,057 in disgorgement, $80,135 in prejudgment interest, and a $50,000 civil penalty. Weiner consented to the entry of the judgment, without admitting or denying the allegations of the Commission’s complaint. Weiner also settled a related forfeiture action brought by the Civil Division of the U.S. Attorney’s Office for the Eastern District of New York.
The Commission’s civil action against Myron Weiner, filed on November 22, 2011, relates to his unregistered sales 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 alleges that Weiner’s conduct violated the registration provisions of Section 5 of the Securities Act, since his sales were not registered with the Commission, and no exemption from the registration requirements of the federal securities laws applied.
The Commission wishes to thank the U.S. Attorney’s Office, the Federal Bureau of Investigation and the Internal Revenue Service for their assistance and cooperation in connection with this matter.”



SEC CHARGES FORMER SECURITIES TRADER OF PARTICIPATING IN AN "INTERPOSITIONING SCHEME"

The following excerpt is from the SEC website:

“Washington, D.C., Dec. 23, 2011 — The Securities and Exchange Commission today charged a former securities trader at a San Diego-based brokerage firm with orchestrating an illegal trading scheme.

The SEC alleges that Aurelio Rodriguez acted in concert with a Mexican investment adviser, InvesTrust, and unnecessarily inserted a separate broker-dealer as a middleman into securities transactions in order to generate millions of dollars in additional fees. Rodriguez, who resided in Coronado, Calif., at the time and currently lives in Mexico, agreed to pay $1 million to settle the SEC’s charges. The SEC also charged his former firm Investment Placement Group (IPG) and its CEO with failing to properly supervise Rodriguez. IPG agreed to pay more than $4 million to settle the charges.

In an interpositioning scheme, an extra broker-dealer is illegally added as a principal on trades even though no real services are being provided. The SEC alleges that Rodriguez colluded with InvesTrust and needlessly inserted a broker-dealer based in Mexico into securities transactions between IPG and InvesTrust’s pension fund clients, causing the pension funds to pay approximately $65 million more than they would have without the middleman.

“Rodriguez repeatedly abused his position as a securities industry professional to commit this cross-border fraudulent scheme to the detriment of the pension funds,” said Rosalind R. Tyson, Director of the SEC’s Los Angeles Regional Office. “The scheme’s participants reaped millions of dollars from these illicit activities.”

According to the SEC’s order instituting administrative proceedings against Rodriguez, the scheme occurred from January to November 2008. Rodriguez in coordination with InvesTrust acquired 10 different credit-linked notes in an IPG proprietary account. Rodriguez knew that the notes were slated for InvesTrust’s pension fund clients.
The SEC alleges that IPG, through Rodriguez, added a markup of roughly 1.5 to 4.5 percent to the purchase price and then sold the notes to the middleman Mexican brokerage firm. IPG, through Rodriguez, repurchased the notes from the Mexican brokerage firm within a day or so at a slightly higher price. IPG added another markup and then sold the securities to InvesTrust’s pension fund clients.

According to the SEC’s order, in some instances Rodriguez repeated the buy-sell pattern with the middleman Mexican brokerage firm multiple times, driving up the price with each successive trade before finally selling the notes to the pension funds at artificially inflated prices. Rodriguez received millions of dollars in additional markups generated from the interpositioned transactions.

The SEC’s order finds that Rodriguez violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5. Without admitting or denying the SEC’s findings, Rodriguez consented to the order and agreed to pay $1 million in ill-gotten gains and to be barred from the securities industry as well as from participating in any penny stock offering, for five years. The order also requires him to cease and desist from committing or causing any violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5.
The SEC instituted separate but related administrative proceedings against IPG and its CEO Adolfo Gonzalez-Rubio, who was Rodriguez’s direct supervisor. IPG and Gonzalez-Rubio each agreed to settle their cases without admitting or denying the SEC’s findings. IPG agreed to be censured, pay approximately $3.8 million in disgorgement and prejudgment interest, pay a $260,000 penalty, and comply with certain undertakings. Gonzalez-Rubio agreed to a three-month suspension as a supervisor with any broker, dealer, investment adviser, or certain other registered entities.”

Monday, December 26, 2011

ANOTHER COURT ACTION REGARDING CHINA VOICE HOLDING'S CASE

The following excerpt is from the SEC website:

December 22, 2011
“On December 21, 2011, the Honorable Reed O’Connor, United States District Judge for the Northern District of Texas, entered an order permanently enjoining Robert Wilson and his company, Strategic Capital.

Without admitting or denying the allegations in the Commission’s complaint, Wilson and Strategic Capital consented to the entry of a judgment that permanently enjoins them from violating Section 17(b) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The judgment also provides that upon motion of the Commission, the Court may order disgorgement of ill-gotten gains and prejudgment interest thereon against Wilson, Strategic Capital, and another Wilson company, Green Horseshoe Holdings, Inc. In addition, pursuant to the judgment, the Court may order civil penalties in amounts the Court deems appropriate against Wilson and Strategic Capital, as well as a penny stock bar against Wilson.

The Commission’s complaint, originally filed on April 28, 2011, alleged that China Voice Holding Corp., its former CFO and co-founder David Ronald Allen, and former CEO and President William F. Burbank IV made a series of false and misleading statements and omissions regarding China Voice’s financial condition and business prospects. In addition, the SEC charged China Voice shareholders Ilya Drapkin and Gerald Patera with financing stock promotion campaigns regarding China Voice. These campaigns included a blast fax campaign conducted by Robert Wilson and Strategic Capital, which the SEC alleged contained false and misleading statements and failed to accurately disclose the amount and source of the compensation Wilson, Strategic Capital, and Green Horseshoe Holdings, Inc. received.

The Commission previously entered into settlements with the other defendants in this matter: Allen, Burbank, China Voice, Drapkin, Patera, Alex Dowlatshahi, Christopher Mills, and various of their companies.”

SEC COMMISSIONER DANIEL GALLAGHER SPEAKS ON DODD-FRANK

The following excerpt is from the SEC website:

U.S. Securities and Exchange Commission
U.S. Chamber of Commerce
Washington, D.C.
December 14, 2011
“Thank you, David (Hirschmann), for your very kind introduction.
I am honored to be here today with Congresswoman Emerson and Congressman Garrett. And it is a unique pleasure to share airtime with my dear friend and former boss, Commissioner Paul Atkins, my friend Brian Cartwright, who was formerly the General Counsel of the SEC, and my friend, former Commissioner Roel Campos. Roel, I am taking care of your old office – Paul’s furniture looks great in it!
Before I begin my substantive remarks, I have to provide the boilerplate disclaimer that my comments today are my own, and do not necessarily represent the positions of the Commission or my fellow Commissioners.
I also want to take a moment at the outset to explain why I believe initiatives like this – that Jack Katz and the Chamber have undertaken – are so important. I have known Jack for a long time, and I know that he, like myself, has a deep and long-held respect and affinity for the SEC and its staff. And both of us have been deeply saddened to watch the torrent of criticism befall the agency over the last few years. Like Jack, though, I believe that this criticism provides the Commission with a unique opportunity to re-think and critically analyze the way we fulfill our mission.
Those who hold the agency dear are right to rush to its defense – in particular the defense of a loyal and hard-working staff that has been subjected to frequent, unfair criticism. But we should not reflexively protect past practices or shun appropriate criticism. Smart regulation, smart enforcement, and smart management require that we constantly evaluate and evolve as regulators. And so we are here today, in all of our various capacities, to help ensure that the Commission meets this obligation of serious introspection, and for that I am very appreciative. I can tell you that I did not come back to the agency to protect the status quo at the expense of meaningful change that investors, taxpayers, and the SEC staff should expect and demand.
The topic of this event – fundamental reform of the SEC -- could not be more timely. Although this is only my sixth week as a Commissioner, I previously spent four years at the Commission as a member of the staff, and because of that I believe I have a healthy perspective on the potential reforms being discussed today and the effectiveness, or ineffectiveness, of the myriad changes that have taken place over the last few years.
An examination of the SEC should be through the prism of the Financial Crisis and the Dodd-Frank Act,1 which together have had a greater impact on how the Commission undertakes its mission than any set of events at least since Enron, WorldCom and Sarbanes-Oxley at the onset of the millennium, and probably since the Great Depression and the initial formation of the Commission in 1934.
The Dodd-Frank Act presented an opportunity to make changes that could have served the U.S. capital markets very well. Indeed, the 2,319 pages of legislation were meant to address the problems associated with the Financial Crisis. It was both expected and necessary that Congress respond to those events. Although the full impact of the legislation will not be known for years as regulators toil on the implementation of the Act, it is becoming clear that the SEC will need to focus on a number of issues within the Commission’s core competencies that were not addressed in the legislation.
I believe that the Commission’s model of regulation could have served as the basis for many of the reforms in the Dodd-Frank Act. The virtues of the SEC model are many. First and foremost, its structure – a bipartisan Commission of five commissioners, no more than three of whom may represent one political party – ensures that the Commission considers a diversity of views, provides some level of insulation from political pressures, and allows the Commission to benefit from the varying experiences of the Commissioners and their staffs. In addition, the Commission is accountable to Congress: not only do Congressional oversight committees review carefully the actions of the Commission, but the Commission is also dependent on Congress for its funding and answerable to Congress for its spending. This accountability translates into greater accountability to the American electorate. And of course, the Commission is required to engage in an open and transparent process in exercising its regulatory function.
Another key aspect of the Commission’s regulatory mission is the core mandate to require clear and timely disclosure by the market participants it oversees. When these disclosure obligations are not met, there is the very real threat of swift and stern enforcement. Thus, issuers can offer securities to investors so long as proper and timely disclosure is made, and investors may take whatever risks they choose. There is no guarantee of investment performance and there is no government-backed principal protection. In the absence of fraud or other abuse, investors’ decisions to take risks enable them to reap the rewards – but they can also lose.
In the context of regulated entities, broker-dealers in particular, the SEC regulatory and oversight construct focuses on the protection of investor assets, and the winding down of firms that take unnecessary risks or simply fail to achieve success. Once again, there are no bailouts or expectations of a taxpayer backstop in this model – the SEC has no balance sheet. Entities can live or die. When they die, our rules should ensure that investor assets are safe and that there is sufficient capital in place to wind them down.
Without a doubt, the most notable feature of the Financial Crisis was the taxpayer-funded rescue of certain firms. And so the most pressing policy concern following the crisis has been how to address the problem of “too big to fail.” Unfortunately, nearly a year and a half after the enactment of Dodd-Frank, some commentators believe that we have not addressed that problem. As you know, the Financial Stability Oversight Council, or FSOC, has been tasked with crafting criteria for the designation of firms as “systemically important financial institutions,” or SIFIs, and to designate SIFIs under those criteria. The FSOC recently proposed a new three-step designation process that begins with a firm’s size and certain other quantitative criteria, then moves on to consider other quantitative and qualitative data. Ultimately the FSOC, after providing firms an opportunity to dispute the contemplated SIFI designation, may vote to designate a firm as SIFI. SIFIs will be subject to stringent regulation by the Fed, including increased capital requirements, supervision and other requirements.
Although I expect that SIFI regulation will be very burdensome, FSOC’s designation of SIFIs may have unintended, positive consequences for SIFIs. Notwithstanding the prohibition in Dodd-Frank against taxpayer funded bail-outs, there is a danger that credit providers may be pricing in a presumption that the government would once again rescue SIFIs in a financial crisis. Similarly, SIFIs may have other competitive advantages that spring from their special status as federally protected firms. For example, as we have seen several times in the last three years, counterparties can swiftly leave non-taxpayer-backstopped firms, such as stand-alone broker-dealers, for SIFI firms when there is instability in the markets. And this has happened even in fully-collateralized transactions involving highly liquid assets. It is simply impossible to compete with the promise of government protection. It would be premature to judge, at this point, the extent to which these potential competitive advantages may offset or exceed the burdens of more stringent regulation, but these are serious concerns.
In my view, the framework for regulating SIFIs should allow for these firms to fail. In 2009,2 FDIC Vice Chairman Nominee Thomas Hoenig, then the President of the Federal Reserve Bank of Kansas City, convincingly argued that permitting large institutions to fail, allowing for losses to be identified and taken, replacing management, and re-privatizing these institutions has resulted historically in a quicker economic recovery and lower costs to taxpayers than attempting to save these institutions and taking an incremental and delayed approach to addressing problems.
Although the SEC no longer acts as a holding company supervisor, its regulatory paradigm should provide guidance for regulators in this space. MF Global provides an informative case study. With assets listed in its bankruptcy filing of approximately $41 billion, MF Global fell below the $50 billion threshold at which firms will be considered for SIFI status and consolidated Fed regulation. While there are still significant questions as to whether MF Global complied with its obligations under existing regulations to segregate client assets, it is clearly a positive outcome that the firm’s failure was permitted to proceed without governmental intervention and the financial system did not melt down.
A very high profile event in the crisis separate from the bailout of Bear Stearns and AIG, but intimately tied up with the problem of too-big-to-fail, was the breaking of the buck by the Reserve Primary Fund, representing only the second time in history that investors have lost money in a money market mutual fund.
Despite the fact that the Dodd-Frank Act did not address money market funds, these funds have emerged as an issue in the past month or so. Indeed, in an early November speech, the Chairman explicitly stated her intent to “issue a proposal in very short order.”3 Since then, I have spent a considerable amount of time during my first 26 business days as a Commissioner focused on this important issue. And, based on what I have learned to date, I have questions about many of the currently discussed reform options.
Before I comment on some of the specific proposals currently on the table, I want to step back for a moment and express my more general concerns with the push towards rulemaking in this area. In particular, I want to make sure that we keep in mind two important and related questions as we proceed. First, for what specific problems or risks are we trying to solve? And second, do we have the necessary data that will allow us to regulate in a meaningful and effective way?
Let me address the first question. As I said earlier, I do not believe that it should be – nor can it be – the goal of the Commission to ensure that securities products are risk-free. Of course we must strive to prevent fraudulent and manipulative practices. But when the risks of an entirely legal investment are adequately disclosed, it is not the Commission’s job to forestall the possibility of loss. To put a finer point on it, in light of the extensive disclosures regarding the possibility of loss, money market funds should not be treated by investors or by regulators as providing the surety of federally insured demand deposits.
So what is prompting this urgency to reform money market funds? What are the particular risks that money market funds, as currently constituted, pose to investors and to the capital markets? What problem are we solving here?
I’ll admit that I just posed a bit of a trick question. We cannot know what risks money market funds pose unless – and this brings me to my second point – we have a clearer understanding of the effects of the Commission’s 2010 money market reforms.4 For some reason, much of the discussion surrounding the current need for money market reform sweeps aside the fact that the Commission has already responded to the 2008 crisis by making significant changes to Rule 2a-7. Notably, those amendments only became effective in May 2010. Without an adequate understanding of the current state of play, we are handicapped in our effort to define existing risks and measure their magnitude. Nor can we simply hand-wave and speak vaguely of addressing “systemic risk” or some other kind of protean problem. The risks and issues justifying a rulemaking must be specifically and thoughtfully defined in relation to the Commission’s mission. As a reminder, the Commission’s mandate is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. We are not expected to regulate with other goals in mind.
Given my belief that any rulemaking in this space could be premature, and possibly unnecessary, I thought I’d spend just a few minutes on the current proposals being bandied about. Although I am keeping an open mind about all options in this space, and am fully aware that the devil is in the details of many of these proposals, I do have some initial reactions.
First, I am hesitant about any form of so-called “capital” requirement, whether it takes the form of a “buffer” or of an actual capital requirement similar to those imposed on banks. Although I am not opposed to a bank-like capital requirement in principle, it is my understanding that the level of capital that would be required to legitimately backstop the funds would effectively end the industry. And I have doubts that a smaller capital buffer that accrues over time would be sufficient to protect investors and funds in an actual crisis. I am concerned that it could simply create the illusion of protection, and further obscure the well-disclosed risk of investing in money market funds.
I will note, however, that at least one industry participant has suggested the possibility of a stand-alone redemption fee. Although the details of the imposition of such a fee would need to be carefully considered, this suggestion avoids my worries about capital requirements. This minimal approach does not set up false expectations of capital protection, externalizes the costs of redemptions, and could be part of an orderly process to wind down funds when necessary. And, a meaningful redemption fee may cause a healthy process of self-selection among investors that could cull out those more likely to “run” in a time of stress. But despite my initial positive reaction to the notion of a redemption fee standing alone, grafting the fee onto a capital buffer regime will not assuage my concerns with such a capital requirement. Indeed, a combined approach retains all the problems of any capital solution, unless something significant is done to manage investor expectations regarding the level of protection provided.
Second, I acknowledge that a move to a floating NAV would work a profound change to the money market fund industry as we recognize it today. This proposal has its ardent supporters and its impassioned critics. I believe that it is an important option to keep on the table and to subject to further study and consideration. For example, it would be important to understand the effect of such a change on the commercial paper market and bank deposits.
Finally, I should make explicit what I hope you have already gleaned from my statements thus far. If the Commission moves forward with a proposal, the option of doing nothing until we have seriously analyzed the impact of last year’s reforms must be given serious consideration. By pre-judging the outcome of this rulemaking – that something, anything must be done as soon as possible, never mind the consequences – the Commission runs the danger of skewing its analysis of any proposed regulatory changes. Any analysis we undertake will necessarily be flawed if we lack a rigorous sense of the current baseline against which to measure the effects of any proposed changes. Moreover, we have a legal obligation to thoroughly consider all reasonable alternatives, and that includes the alternative of doing nothing beyond those significant changes the Commission has undertaken just last year.
Another area within the SEC’s regulatory sphere which could have benefitted from additional legislative authority – and which is near and dear to me – is the supervision of broker-dealers. In particular, the Commission could have benefitted from enhanced authority with respect to non-bank broker-dealer holding companies. These institutions would, presumably, generally not be deemed systemically important under the FSOC’s SIFI criteria, yet they are a core part of the SEC’s regulatory program. Unfortunately, rather than increasing the Commission’s oversight authority in this space, the Commission’s only statutory authority for such a program was eliminated from the Exchange Act, 5 and a new Federal Reserve Board program was established. 6 As various bills are floated in Congress, this is an area where I hope the Commission will be provided greater tools to carry out its core mission.
As I stated at the beginning of my remarks, it is important for the Commission to be open to constructive criticism and suggestions for improvement, which events like this are intended to foster. The Commission should consider specific proposals like those included in Jack Katz’s report7that was released in connection with this event, as well as others presented here today, and should work with Congress on appropriate legislation to enhance the Commission’s operations.
In this vein, notable legislative initiatives include the SEC Regulatory Accountability Act,8 which was voted out of the House Financial Services Committee in November, and the Regulatory Accountability Act,9 which was approved by the House earlier this month, each of which would impose enhanced cost-benefit analysis requirements on the Commission when adopting rules. Significantly, the SEC Regulatory Accountability Act, which was proposed by Congressman Garrett, would among other things require the Commission to conduct periodic retrospective evaluations of the effectiveness and impact of its regulations.
While I am still studying the detailed recommendations contained in Jack’s latest report, a couple of his proposals strike me as being particularly incisive:
his call for a second special study, in the model of that undertaken by the Commission under Chairman Cary, of American regulatory policy, including the future of the U.S. and global secondary market structure, the interaction of the equity, debt and derivatives markets nationally and internationally, and the development of a corporate disclosure system that reflects the needs of investors and the information technology of the present and future; and
his recommendations to integrate cost-benefit analysis at the earliest stages of the rule development process so that this analysis can guide the regulatory process, and to adopt a regulatory look-back requirement for major rules.
Thank you all very much for your attention today. We would not be here if the SEC were not an incredibly important institution. The fact that so many different people have expended so much effort in an attempt to reinvigorate the agency is a testament to that fact. As we consider proposals to improve the agency, we should focus on the Commission’s strengths and successes – the functions that the SEC does well and that investors and participants expect us to do well and the strengths of our regulatory design. And we should learn from, but not dwell on, its failures. With this focus in mind, and with the help of people like Jack Katz, I know we can achieve our common goal of restoring the standing, reputation, and effectiveness of the Commission.
1 Pub. L. No. 111-203, 124 Stat. 1376 (July 21, 2010).
2 Thomas M. Hoenig, Too Big Has Failed (March 6, 2009). Available at http://www.kc.frb.org/speechbio/HoenigPDF/Omaha.03.06.09.pdf.
3 Chairman Mary L. Schapiro, Remarks at SIFMA’s 2001 Annual Meeting, (Nov. 7, 2011). Available at http://www.sec.gov/news/speech/2011/spch110711mls.htm.
4 Money Market Fund Reform, Investment Company Act Release No. 29132 (Feb. 23, 2010) [75 FR 10060 (Mar. 4, 2010)].
5 See Pub. L. No. 111-203, §617, Elimination of Elective Investment Bank Holding Company Framework (eliminating Section 17(i) of the Exchange Act).
6 See Pub. L. No. 111-203, §618, Securities Holding Companies, which generally defines “securities holding company” to include “a person (other than a natural person) that owns or controls 1 or more brokers or dealers registered with the Commission” excluding certain institutions that are otherwise already regulated, and which provides:
SEC. 618. SECURITIES HOLDING COMPANIES.
* * *
(b) SUPERVISION OF A SECURITIES HOLDING COMPANY NOT HAVING A BANK OR SAVINGS ASSOCIATION AFFILIATE.—
(1) IN GENERAL.—A securities holding company that is required by a foreign regulator or provision of foreign law to be subject to comprehensive consolidated supervision may register with the Board of Governors under paragraph (2) to become a supervised securities holding company. Any securities holding company filing such a registration shall be supervised in accordance with this section, and shall comply with the rules and orders prescribed by the Board of Governors
applicable to supervised securities holding companies.
(2) REGISTRATION AS A SUPERVISED SECURITIES HOLDING COMPANY.—
(A) REGISTRATION.—A securities holding company that elects to be subject to comprehensive consolidated supervision shall register by filing with the Board of Governors such information and documents as the Board of Governors, by regulation, may prescribe as necessary or appropriate in furtherance of the purposes of this section.
* * *
7 Jonathan G. Katz and U.S. Chamber of Commerce Center for Capital Markets Competitiveness, U.S. Securities and Exchange Commission: A Roadmap for Transformational Reform (Dec. 2011) ; see also Jonathan G. Katz and U.S. Chamber of Commerce Center for Capital Markets Competitiveness, Examining the Efficiency and Effectiveness of the U.S. Securities and Exchange Commission (Feb. 2009).
8 H.R. 2308.
9 H.R. 3010.


Saturday, December 24, 2011

JOINT INTERNATIONAL MEETNG TO DISCUSS REGULATION OF OVER-THE-COUNTER DERIVATIVES MARKETS

The following excerpt is from the Securities and Exchange Commission’s website: “Washington, D.C., Dec. 9, 2011 — The Securities and Exchange Commission today released the following joint statement with other regulators: Leaders and senior representatives of the authorities responsible for regulation of the over-the-counter (OTC) derivatives markets in Canada, the European Union, Hong Kong, Japan, Singapore, and the United States met yesterday in Paris. The meeting included Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA); Jonathan Faull, Director General for Internal Market and Services at the European Commission; Ashley Alder, Chief Executive Officer of the Hong Kong Securities and Futures Commission; Masamichi Kono, Vice-Commissioner of the Japan Financial Services Agency; Teo Swee Lian, Deputy Managing Director (Financial Supervision) of the Monetary Authority of Singapore; Mary Condon, Vice-Chair of the Ontario Securities Commission; Louis Morisset, Superintendent of Securities Markets at l’Autorité des Marchés Financiers du Québec; Gary Gensler, Chairman of the United States Commodity Futures Trading Commission; and Mary Schapiro, Chairman of the United States Securities and Exchange Commission. Since mid-2011, the authorities have engaged in a series of bilateral technical dialogues on OTC derivatives regulation. The meeting, held at ESMA headquarters in Paris, is the first time the authorities have met as a group to discuss their implementation efforts. In the meeting, the authorities addressed the cross-border issues related to the implementation of new legislation and rules to govern the OTC derivatives markets in their respective jurisdictions. At the conclusion of the meeting, the authorities agreed to continue bilateral regulatory dialogues and to meet as a group again in early 2012.”

SEC COMMISSIONER SPEAKS AT SECURITIES LAW DEVELOPMENTS CONFERENCE

The following excerpt is from the SEC website:

Remarks Before the ICI 2011 Securities Law Developments Conference
by
Eileen Rominger
Director, Division of Investment Management
December 13, 2011
Omni Shoreham Hotel
2500 Calvert Street, NW
Washington, DC
Thank you, Karrie, for that kind introduction. And good morning to everyone here today. I am very happy to be speaking at this Securities Law Developments conference, before an impressive audience of mutual fund lawyers and other professionals.
I am glad that I am speaking to you today, and not several years ago when this conference used to be called the “Procedures” conference. I was an executive in New York for many years. On Wall Street, if someone invited you to a meeting where a large number of lawyers would discuss “Procedures” … well it probably was not a good thing.
And I should interject my own procedure here, by telling you that my remarks this morning are my own, and do not necessarily represent the views of the Commission, individual Commissioners, or the staff of the Commission.1
When I first thought about coming to the Commission, I was in the process of retiring from a Wall Street asset management firm. At that time, I was asked many questions:
Why come to the Commission?
Why leave a nice life in the Northeast and move to Washington?
Why take on the burdens of another high-stress job?
And those were just the questions from my husband.
In the end, of course, I decided to come to Washington. My greatest hope is that my decades of experience – as a securities analyst, a portfolio manager, and a manager of portfolio managers – can be useful for the important work of the Commission.
After spending decades on Wall Street, I am glad to have made the transition from industry to government regulator. And as recent events have highlighted, I believe it is important for the government to employ – literally to employ – a real-world understanding of business practices, and an appreciation of the problems that businesses try to solve every day.
I do not see my job at the Commission as an opportunity to take off the black hat and put on a white hat. The business of finance is just that, a business. At its best, this business performs an essential function in our society. It provides investment opportunities for investors. It serves a role in allocating capital to the businesses that comprise the U.S. economy.
And whether our perspective is conducting business or regulating business, it is important to remember that it all comes down to this – the assets that the professionals manage are “other people’s money.”
The investment of client assets in mutual funds is not an exciting game, nor is it a mathematical exercise. It is the assumption of responsibility for the savings of real people. It can represent:
The ability to pay for health care – or not,

The ability to fund a child’s education – or not, and

The ability to retire when needed – or not.
Just as you are highly aware of this, so are we as we do our work at the SEC.
< This Past Year >
During my time at the Commission this year I have enjoyed the fast pace and the very interesting work. The achievements of the Division and the Commission have been remarkable, and I am honored to have been able to contribute during this historic time.
More than 90 provisions in the Dodd-Frank Act require SEC rulemaking. The Commission already has proposed or adopted rules for over three-quarters of them.

Of these rulemakings, the Division of Investment Management has participated in 13, and almost half of those the Commission has already adopted.

The Commission and staff have finished 12 of the more than 20 studies and reports that the Dodd-Frank Act requires.

The Division has participated in 4 of these studies, and 3 of them are completed.
The Division also is working on many other projects and initiatives that are not related to the Dodd-Frank Act. I look forward to helping the Commission face the issues raised by these matters, and the many others that lie ahead. One of the underlying issues, of course, is how to improve what we do.
< Improvements in Gathering and Using Data >
As we enter 2012, I am particularly interested in improving the way that we on the Commission staff incorporate empirical data into the regulatory process. We have an opportunity to utilize empirical data more extensively across the range of our activities. I think this would enhance the quality of the work we do for the Commission.
For example:
Our rulemaking recommendations would continue to benefit from ongoing feedback and understanding of the key elements of the cost structures of investment advisers.

Our consideration of exemptive applications would likely benefit from continuing improvements in our analysis of the performance of certain products already in the market.

And our approach to disclosure would likely benefit from continuing our ongoing study of how investors actually use the materials provided, and how they make their investment decisions.
An area in which we have made great progress in utilizing data is in the collection and analysis of money market fund data — more on that in a moment.
When I worked as a securities analyst and portfolio manager, we spent most of our time analyzing financial data and other information to arrive at our decisions. For the most part, the data was readily available on EDGAR, the SEC database.
As regulators, we face far greater challenges in data analysis. Some relevant data can be difficult or very costly to obtain. Once we have obtained the data, we need to further develop our ability to effectively analyze the information so that we can derive useful insight from it. Then, we need to apply that insight in a world in which regulations must apply to all, even though business models and their related cost structures definitely are not homogenous. Further, the industry is in a constant state of change due to product innovation, global capital market trends, and an ever-shifting competitive landscape. And so drawing conclusions from any dataset requires judgment as much as quantitative expertise.
The SEC staff is actively engaged in efforts to enhance the gathering and utilization of data:
These efforts are evident in the increasing use of analytics by the Compliance Inspections and Examinations Office to prioritize its activities based on quantitative risk assessments.

They are evident in Enforcement’s use of the analysis of outlier investment performance to identify potential problem areas.

And they are evident in the investor testing activities in which Investment Management and the Office of Investor Education and Advocacy are engaged.

These efforts are also evident in the Commission’s recent request for comments on the development of a plan for retrospective review of existing significant regulations. An important part of that request relates to the existence of relevant data that the Commission should consider in selecting and prioritizing rules for review and in reviewing the rules themselves. The request for comments also asks how the Commission should assess such data in these processes.
Moving to a more information-driven process will only succeed if we can work together on this. We rely on the information you provide in comment letters. Thank you very much for the work that you and your staff devote to those letters — I know they are time-consuming. To the extent that you can illustrate and support your comments with data and specific information, anecdotal or other, it will be even more helpful in advancing our goal.
I also appreciate your efforts to offer constructive solutions to the issues raised by the Commission.
I assure you that we give a great deal of focus and attention to the substantive responses we receive.
The agency is also continuing to invest in Information Technology resources across most divisions. We are in the planning stages for significant improvements in the technology infrastructure for the Investment Management Division. We already benefit from the collection of data about investment advisers through the IARD system. We also look forward to receiving and compiling data about private funds through IARD in the future. And in the coming year, the Division will invest in staff who have relevant experience in data and financial analytics.
< Money Market Funds >
The SEC’s oversight of money market funds is a good example of our continued focus on improving information collection and utilization. As a result of the first phase of money market reform approved by the Commission in February 2010, we have been receiving detailed holdings data for each of the past 12 months. This data is submitted via form N-MFP and is extensively analyzed and considered by the SEC staff.
In the last year, the Commission has received filings from over 650 money market funds each month, or about 8000 filings altogether. Each month, these funds report about 70,000 different positions in all their portfolios. We are using the data to monitor characteristics and trends of holdings, and to identify areas that raise questions. This data will also help us better assist other regulators with systemic risk monitoring responsibilities, such as Treasury and the Federal Reserve.
Lastly, this data is increasingly used as a point of reference during examinations. As our IM staff participates in exams of money market funds, we will occasionally ask questions about holdings and trends. This is helpful in gaining a general sense of the portfolio decision-making process. If you are part of one of these discussions, I encourage you to avoid reading too much into these high level questions, as it is not our intention to convey a specific point of view on these individual securities.
< Target Date Funds >
The Commission staff is gathering information not only about financial institutions and professionals. We are also looking at the types of information that investors believe are most useful when they choose their investments. For example, the Commission staff is currently conducting investor testing as part of its rulemaking efforts on target date retirement funds.
Target date fund assets as of October are about $360 billion. The new cash flow that target date funds netted last year was over 10 times what it was 10 years ago. One recent survey showed that 70% of U.S. employers who responded use target date funds as the default investment in their defined contribution plans. The increasing significance of target date funds in 401(k) retirement plans – together with the market losses suffered in 2008 – gave rise to concerns about those funds.
Last year, the Commission proposed rule changes to address concerns regarding target date fund names and information presented in target date fund marketing materials. To date, target date fund disclosures have been tested on about 1,000 investors. After we analyze the testing data and consider public comments on the proposed rule, the Division will evaluate whether to recommend that the Commission adopt rule changes to address target date funds.
Before I close, let me briefly mention a few other recent initiatives.
Recently, the Commission issued a concept release on the use of derivatives by funds. Although the use of derivatives by funds is not new, it has increased exponentially in recent years. Also, funds are now using complex derivatives that did not exist when the Commission provided guidance to funds many years ago.
I am especially interested in information regarding how funds use derivatives consistent with the leverage limitations in the Investment Company Act. Thank you for your responses, and we look forward to continuing the dialogue in this important area.
We need to ensure that our regulatory protections keep up with the increasing complexity of these instruments and the ways that funds use them. This is the right time to step back and to consider whether any changes in Commission rules or guidance may be needed.
Other Regulatory Notices
The Commission also has issued an advance notice of proposed rulemaking regarding a rule that provides certain issuers of asset-backed securities with conditional exclusions from the definition of investment companies under the 1940 Act. And it has issued a concept release on real estate investment trusts that invest in mortgages.
We expect to gather data and consider all the comments, in determining whether to recommend that the Commission take further action.

During this next year, I look forward to working with you on the matters I have described this morning, and on the other projects that the Division has undertaken to accomplish.
I also look forward to reviewing the information that you provide to the Commission through comment letters and other input. The information you provide can help us improve our work on the matters that lie at the heart of the Commission’s mission – investor protection and capital formation. It is important to remember that, at the end of the day, the Commission serves these important purposes, but it also serves people. It serves investors, and it serves the American economy. Every day, the headlines in the newspapers remind me of the importance of our work.
In that regard, I hope you are looking forward to this year as much as I am.
Thank you.

1 The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission or of the author’s colleagues upon the staff of the Commission."


Thursday, December 22, 2011

SEC EXCLUDES IN CALCULATING INDIVIDUAL NET WORTH FOR SOME UNREGISTERED SECURITIES INVESTORS

The following excerpt is from the SEC website:

“Washington, D.C., December 21, 2011 — The Securities and Exchange Commission has amended its rules to exclude the value of a person’s home from net worth calculations used to determine whether an individual may invest in certain unregistered securities offerings. The changes were made to conform the SEC’s definition of an “accredited investor” to the requirements of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under the amended rule, the value of an individual’s primary residence will not count as an asset when calculating net worth to determine “accredited investor” status. The amendments also clarify the treatment of borrowing secured by a primary residence for purposes of the net worth calculation. Under certain circumstances, they also permit individuals who qualified as accredited investors under the pre-Dodd-Frank Act definition of net worth to use that prior net worth standard for certain follow-on investments.
SEC rules permit certain private and limited offerings to be made without registration, and without requiring specified disclosures, if sales are made only to “accredited investors.” One way individuals may qualify as “accredited investors” is by having a net worth, alone or together with their spouse, of at least $1 million. The Dodd-Frank Act requires that the value of a person’s primary residence be excluded from the net worth calculation used to determine the person’s “accredited investor” status.
Under the amended net worth calculation, indebtedness secured by the person’s primary residence, up to the estimated fair market value of the primary residence, is not treated as a liability, unless the borrowing occurs in the 60 days preceding the purchase of securities in the exempt offering and is not in connection with the acquisition of the primary residence. In such cases, the debt secured by the primary residence must be treated as a liability in the net worth calculation. This is intended to prevent manipulation of the net worth standard, by eliminating the ability of individuals to artificially inflate net worth under the new definition by borrowing against home equity shortly before participating in an exempt securities offering. In addition, any indebtedness secured by a person’s primary residence in excess of the property’s estimated fair market value is treated as a liability under the new definition.
The amended net worth standard will take effect 60 days after publication in the Federal Register. Beginning in 2014, and every four years thereafter, the Dodd-Frank Act requires the Commission to review the “accredited investor” definition in its entirety and to engage in further rulemaking to the extent it deems appropriate.
SEC has now proposed or adopted more than three-quarters of the rules that the Dodd-Frank Act required the agency to write.”


13 CHARGED BY SEC IN ALLEGED PUMP AND DUMP STOCK PROGRAM

The following excerpt is from the SEC website:

“The Securities and Exchange Commission announced charges today against Daniel “Rudy” Ruettiger and twelve other individuals who participated in a pump-and-dump scheme involving the stock of Rudy Nutrition, a now defunct Nevada corporation. The SEC's complaint, filed in the United States District Court for the District of Nevada, alleges that Rudy Ruettiger, who is known for having inspired the motion picture “Rudy,” founded Rudy Nutrition to compete with Gatorade in the sports drink market. The SEC alleges that while Rudy Nutrition produced and sold modest amounts of a sports drink called “Rudy,” with the tagline “Dream Big! Never Quit!,” the company primarily served as a vehicle for a pump-and-dump scheme in 2008. As alleged in the complaint, participants in this scheme made false and misleading statements in company press releases, SEC filings, and promotional materials, and engaged in manipulative trading to artificially inflate the price of Rudy Nutrition stock, while selling unregistered shares to investors. The complaint alleges that the scheme generated more than $11 million in illicit profits.

The SEC’s complaint names thirteen defendants and includes the following allegations:
Daniel “Rudy” Ruettiger, a resident of Las Vegas, Nevada, was the CEO of Rudy Nutrition. Ruettiger made false statements in SEC filings and authorized the issuance of company shares to nominee accounts used by other defendants to sell unregistered stock in the scheme.

Rocco “Rocky” Brandonisio, a resident of Las Vegas, Nevada, was the President of Rudy Nutrition. Brandonisio made false statements in an SEC filing and authorized the issuance of company shares to nominee accounts used by other defendants to sell unregistered stock in the scheme.
Stephen DeCesare, a resident of Las Vegas, Nevada, is a stock promoter. DeCesare was the primary organizer of the scheme. He recruited other defendants to manipulate the price of Rudy Nutrition stock, and directed the issuance of false company press releases.

Pawel P. Dynkowski, a citizen of Poland, is a stock promoter. Dynkowski manipulated the price of Rudy Nutrition stock using wash sales, matched orders, and other trading coordinated with the issuance of false company press releases.
Kevin S. Kaplan, a resident of Las Vegas, Nevada, was the Chief Financial Officer of Rudy Nutrition. Kaplan authorized the issuance of company shares to nominee accounts used by other defendants to sell unregistered stock in the scheme.

Gregg R. Mulholland, a resident of Huntington Beach, California, is a stock promoter. As part of the scheme, Mulholland made false statements about the company in mailers sent to two million domestic households, and controlled nominee accounts that sold shares in the scheme.
Mehmet Mustafoglu, a resident of Beverly Hills, California, was a consultant to Rudy Nutrition. Mustafoglu sold unregistered shares of Rudy Nutrition during the scheme.

Joseph A. Padilla, a resident of San Marcos, California, is a stock promoter and a former registered representative at the broker-dealer Scottsdale Capital Advisors LLC. Padilla sold unregistered shares of Rudy Nutrition during the scheme.

Angelo R. Panetta, a resident of Montebello, California, is a stock promoter. Panetta made false statements about Rudy Nutrition on an Internet radio show and in an Internet chat room, and sold unregistered shares of the company during the scheme.

Kevin J. Quinn, a resident of Santa Monica, California, is a business consultant and a disbarred attorney. Quinn arranged for the company to issue unregistered shares to nominee accounts used to sell shares during the scheme.

Andrea M. Ritchie, a resident of San Marcos, California, is a former registered representative at the broker-dealer Scottsdale Capital Advisors LLC. Ritchie sold shares of Rudy Nutrition for other defendants without conducting a reasonable inquiry as to the registration status of the shares.
Chad P. Smanjak, a citizen of the Republic of South Africa, is a stock promoter. Smanjak directed Dynkowski’s manipulative trading, and controlled a series of Panamanian companies that sold shares during the scheme.
Gary J. Yocom, a resident of Altamonte Springs, Florida, is a former registered representative at Thomas Anthony & Associates, Inc., a now defunct broker-dealer. Yocom sold shares of Rudy Nutrition for other defendants without conducting a reasonable inquiry as to the registration status of the shares.

As a result of the conduct described in the complaint, the Commission alleges that Ruettiger, Brandonisio, DeCesare, Dynkowski, Kaplan, Panetta, Quinn, and Smanjak violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (“Securities Act”), Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), and Rule 10b-5; that Mulholland violated Sections 5(a), 5(c), 17(a), and 17(b) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5; and that Padilla, Ritchie, Mustafoglu and Yocom violated Sections 5(a) and 5(c) of the Securities Act. The Commission’s complaint seeks against each defendant permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties, and, as to certain defendants, orders barring them from participating in penny stock offerings and/or serving as officers and directors of public companies.

Without admitting or denying the allegations in the complaint, nine of the defendants – Ruettiger, Brandonisio, DeCesare, Kaplan, Mustafoglu, Padilla, Panetta, Quinn, and Yocom – have agreed to final judgments, which are subject to Court approval:
Ruettiger has consented to a final judgment that orders disgorgement of $185,750, prejudgment interest of $11,366, and a civil penalty of $185,750, bars him from participating in the future offering of any penny stock, bars him from acting as an officer or director of a public company, and permanently enjoins him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5;

Brandonisio has consented to a final judgment that orders a civil penalty of $50,000, bars him from participating in the future offering of any penny stock, bars him from acting as an officer or director of a public company, and permanently enjoins him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5.

DeCesare has consented to a final judgment that orders disgorgement of $1,341,366 and prejudgment interest of $108,744, bars him participating in the future offering of any penny stock, and permanently enjoins him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5.

Kaplan has consented to a final judgment that orders a civil penalty of $25,000, bars him from participating in the future offering of any penny stock, bars him from acting as an officer or director of a public company for a period of five years, and permanently enjoins him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5.

Mustafoglu has consented to a final judgment that orders disgorgement of $363,603, prejudgment interest of $31,765, and a civil penalty of $40,000, bars him from participating in the future offering of any penny stock, and permanently enjoins him from violating Sections 5(a) and 5(c) of the Securities Act.

Padilla has consented to a final judgment that orders disgorgement of $197,427, prejudgment interest of $18,128, and a civil penalty of $100,000, bars him from participating in the offering of any penny stock for a period of three years, and permanently enjoins him from violating Sections 5(a) and 5(c) of the Securities Act. Additionally, in related administrative proceedings, Padilla has consented to a Commission Order barring him from association with any broker or dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization for a period of three years.

Panetta has consented to a final judgment that orders disgorgement of $175,000 and prejudgment interest of $21,692, bars him participating in the future offering of any penny stock, and permanently enjoins him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5.

Quinn has consented to a final judgment that orders disgorgement of $197,286 and prejudgment interest of $17,755, and permanently enjoins him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5.

Yocom has consented to a final judgment that orders disgorgement of $166,250 and prejudgment interest of $20,608, bars him from participating in the offering of any penny stock for a period of three years, and permanently enjoins him from violating Sections 5(a) and 5(c) of the Securities Act. Additionally, in related administrative proceedings, Yocom has consented to a Commission Order barring him from association with any broker or dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization for a period of three years.
In addition, two defendants – Mulholland and Ritchie – have agreed to bifurcated judgments which are subject to Court approval:
Mulholland has consented to a judgment that bars him from participating in the future offering of any penny stock, permanently enjoins him from violating Sections 5(a), 5(c), 17(a), and 17(b) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5, and provides that upon subsequent motion the Court will determine issues relating to monetary relief.

Ritchie has consented to a judgment that bars her from participating in the offering of any penny stock for a period of three years, permanently enjoins her from violating Sections 5(a) and 5(c) of the Securities Act, and provides that upon subsequent motion the Court will determine issues relating to monetary relief. In related administrative proceedings, Ritchie has also consented to a Commission Order barring her from association with any broker or dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization for a period of three years.
The SEC thanks the following agencies for their cooperation and assistance in connection with this matter: the U.S. Attorney’s Office for the Central District of California; the U.S. Attorney’s Office for the District of Delaware; United States Immigration and Customs Enforcement, Department of Homeland Security, Homeland Security Investigations; and the Department of the Treasury, Internal Revenue Service, Criminal Investigation.”

Wednesday, December 21, 2011

AON CORPORATION SETTLES BRIBERY CHARGES WITH SEC AND JUSTICE

The following excerpt is from the SEC website:

December 20, 2011
The Securities and Exchange Commission today filed a settled enforcement action in the U.S. District Court for the District of Columbia against Aon Corporation (Aon), an Illinois-based global provider of risk management services, insurance and reinsurance brokerage, alleging violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA). Aon will pay a total of approximately $14.5 million in disgorgement and prejudgment interest to the SEC. In a related action, Aon will pay a $1.764 million criminal fine to the U.S. Department of Justice (DOJ).

The Commission’s complaint alleges that Aon’s subsidiaries made over $3.6 million in improper payments to various parties between 1983 and 2007 as a means of obtaining or retaining insurance business in those countries. The complaint alleges that some of the improper payments were made directly or indirectly to foreign government officials who could award business directly to Aon subsidiaries, who were in position to influence others who could award business to Aon subsidiaries, or who could otherwise provide favorable business treatment for the company’s interests. The complaint alleges that these payments were not accurately reflected in Aon’s books and records, and that Aon failed to maintain an adequate internal control system reasonably designed to detect and prevent the improper payments.

According to the Commission’s complaint, the improper payments made by Aon’s subsidiaries fall into two general categories: (i) training, travel, and entertainment provided to employees of foreign government-owned clients and third parties; and (ii) payments made to third-party facilitators. Aon subsidiaries made these payments in various countries around the world, including Costa Rica, Egypt, Vietnam, Indonesia, United Arab Emirates, Myanmar, and Bangladesh. The complaint alleges that Aon realized over $11.4 million in profits from these improper payments.
Without admitting or denying the allegations in the Commission’s complaint, Aon consented to the entry of a final judgment permanently enjoining it from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and ordering the company to pay disgorgement of $11,416,814 in profits, together with prejudgment interest thereon of $3,128,206, for a total of $14,545,020. Aon’s proposed settlement offer has been submitted to the court for its consideration. In a related criminal proceeding, DOJ announced today that Aon has entered into a non-prosecution agreement under which the company will pay a $1.764 million criminal fine for the misconduct. Aon cooperated with the Commission’s and DOJ’s investigations and implemented remedial measures during the course of the investigations.

The Commission acknowledges the assistance of the Fraud Section of DOJ’s Criminal Division, the Federal Bureau of Investigation, and the Financial Services Authority of the U.K. in this matter."


SEC ANNOUNCES OCC HOLDINGS CASE HAS BEEN RESOLVED

 The following excerpt is from the SEC website:

"The Securities and Exchange Commission announced today that on November 30, 2011, the Honorable J. Paul Oetken of the United States District Court for the Southern District of New York entered consent judgments against the remaining defendants, Ahmed Awan and Yakov Koppel, in a case arising out of alleged fraudulent offerings of securities of OCC Holdings, Ltd, a/k/a OnCallContractors.com (“OCC Holdings”) and several other issuers. Without admitting or denying the allegations of the Commission’s complaint, Awan and Koppel, both of Brooklyn, New York, consented to the entry of judgment that permanently enjoins Awan and Koppel from future violations of 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 judgment further orders that Awan pay $655.41 in disgorgement plus prejudgment interest and a $10,000 civil penalty and that Koppel pay $850.53 in disgorgement plus prejudgment interest and a $10,000 civil penalty, and bars Koppel from participating in the offering of any penny stock.

In a related SEC administrative proceeding, Awan consented to the entry of an SEC order permanently barring him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock. In another related SEC administrative proceeding, Koppel consented to the entry of an SEC order permanently barring him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or national recognized statistical rating organization.
According the Commission’s complaint, filed on February 11, 2004, beginning in December 2001, Awan, Koppel, Khurram Tanwir, Alan Labineri, and Joseph Favata, along with three entity defendants, fraudulently raised more than $2 million from investors through three offerings: (1) the sale of purported private placement shares of OCC Holdings; (2) the sale of promissory notes issued by MB Holdings and other entities; and (3) the purported sale of restricted shares of an unrelated, privately owned company. The offerings were orchestrated by, and/or for the benefit of, Tanwir and/or Labineri, who had allegedly been conducting fraudulent offerings together since at least 1999. In conducting the offerings, the defendants allegedly made false and misleading promises of imminent initial public offerings (“IPOs”) and/or substantial increases in the stock price; falsely represented that the promissory notes were guaranteed and risk-free; misappropriated and used investor funds for personal expenses; and failed to disclose their disciplinary history.

In March and April, 2004, the Commission obtained emergency relief, including temporary restraining orders, orders freezing the assets of almost all of the defendants and relief defendants, and expedited discovery.
On December 3, 2008, following the granting of the Commission’s motion for summary judgment, final judgments were entered against Tanwir and Labineri in which they were permanently enjoined from future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, barred from participating in the offering of any penny stock and ordered, respectively, to pay $4,660,641.87 in disgorgement plus prejudgment interest and $3,432,739 in civil penalty (Tanwir) and $2,751,710.69 in disgorgement plus prejudgment interest and $2,026,739 in civil penalty (Labineri).

On February 20, 2009, the Commission obtained default judgments against defendants OCC Holdings, MB Holdings, and Equity Services Associates and relief defendants, Off World Strategic Holdings and MB Holdings USA Division A, Inc., in which the defendants were permanently enjoined from future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and MB Holdings and Equity Services Associates were permanently barred from participating in the offering of any penny stock. In addition, OCC Holdings was ordered to pay $1,716,270.94 in disgorgement plus prejudgment interest and $1,252,652 in civil penalty, MB Holdings was ordered to pay $1,926,374.56 in disgorgement plus prejudgment interest and $1,406,000 in civil penalty, and Equity Services Associates was ordered to pay $1,060,584.26 in disgorgement plus prejudgment interest and $774,087 in civil penalty. Furthermore, relief defendants, Off World Strategic Holdings and MB Holdings USA Division A were respectively ordered to pay $592,958.91 and $137,010.99 in disgorgement plus prejudgment interest.
On November 22, 2011, the Commission voluntarily dismissed all claims against defendant Favata."
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