Search This Blog

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

Tuesday, July 31, 2012


CFTC Suspends Registrations of Chicago Mercantile Exchange Traders Christopher Foufas, William Kerstein, and Maksim Baron for Unlawful S&P 500 Trading

Washington DC
– The U.S. Commodity Futures Trading Commission (CFTC) today issued orders filing and settling charges against Christopher T. Foufas and Maksim Baron of Chicago, Ill., and William K. Kerstein of Riverwoods, Ill., all registered floor brokers in the Chicago Mercantile Exchange’s (CME) Standard & Poor’s 500 Stock Price Index futures contract (S&P 500) trading pit.

The CFTC order entered against Foufas finds that he indirectly bucketed his customers’ orders on at least 11 occasions between May 2009 and October 2010. On each of these occasions, Foufas, while filling customers’ orders in the S&P 500 trading pit, indirectly took the opposite side of his customers’ orders for his own account through noncompetitive round-turn trades with accommodating traders, according to the order. This practice permitted Foufas to establish a position for his own account without competitive execution, according to the order.

The CFTC orders entered against Kerstein and Baron find that Kerstein and Baron accommodated another broker in taking the opposite side of his customer orders into his own account on seven and four of these occasions, respectively.

The CFTC orders require Foufas, Kerstein, and Baron to pay civil monetary penalties of $75,000, $50,000, and $20,000, respectively. The orders also suspend Foufas’ and Baron’s floor registrations for two months and Kerstein’s floor registration for one month, removing them from the trading floor. The order also prohibits Foufas from filling or executing orders for customers for 18 months. The orders require all three traders to cease and desist from further violations of the Commodity Exchange Act and CFTC regulations, as charged.

The CFTC’s Enforcement Division thanks the staff of the CME’s Market Regulation Department for their assistance.

CFTC Division of Enforcement staff members responsible for this case are Jon J. Kramer, Mary Beth Spear, Ava M. Gould, Elizabeth M. Streit, Scott R. Williamson, Rosemary Hollinger, and Richard B. Wagner. Meghan M. Wise of the CFTC’s Division of Market Oversight also contributed to this matter.

Monday, July 30, 2012


Washington, D.C., July 17, 2012The Securities and Exchange Commission today announced that two options traders who the agency charged with short selling violations have agreed to pay more than $14.5 million to settle the case against them.

An SEC investigation found that brothers Jeffrey A. Wolfson and Robert A. Wolfson engaged in naked short selling by failing to locate shares involved in short sales and failing to close out the resulting failures to deliver. SEC rules require short sellers to locate shares to borrow before selling them short, and they must purchase securities to close out their failures to deliver by a specified date. The Wolfsons made approximately $9.5 million in illegal profits from their naked short selling transactions.

"The Wolfsons attempted to game short-selling restrictions in order to win millions of dollars in illegal profits. This settlement deprives them of those profits and more," said Andrew M. Calamari, Acting Director of the SEC’s New York Regional Office.

According to the SEC’s orders settling the administrative proceedings against the Wolfsons, they made illegal naked short sales from July 2006 to July 2007. Jeffrey Wolfson, who lives in the Chicago area, conducted illegal naked short sales while working as a broker-dealer himself and later as the principal trader at a Chicago-based brokerage firm that is no longer in business. Robert Wolfson, who lives in Massachusetts, conducted illegal naked short sales while trading in an account at New York-based broker-dealer Golden Anchor Trading II LLC, which also was charged by the SEC and agreed to the settlement. Jeffrey Wolfson generated approximately $8.8 million in net illicit trading profits, and Robert Wolfson and Golden Anchor made more than $700,000.

The Wolfsons and Golden Anchor settled the SEC’s administrative proceedings without admitting or denying the findings. Jeffrey Wolfson is required to pay $13.425 million, which includes a $2.5 million penalty in addition to disgorgement and prejudgment interest. Robert Wolfson and Golden Anchor are required to collectively pay $1.1 million in disgorgement, prejudgment interest, and penalties. Jeffrey Wolfson is suspended from working in the securities industry for 12 months, and Robert Wolfson is suspended for four months. Golden Anchor has been censured, and along with the Wolfsons is subject to a cease and desist order from committing or causing violations of the short sale rules they violated.

The SEC’s investigation was conducted in the New York Regional Office by Steven Rawlings, Peter Altenbach, Daniel Marcus, and Layla Mayer. The litigation was led by Kevin McGrath. The SEC acknowledges the assistance of the Chicago Board Options Exchange and the Financial Industry Regulatory Authority in this matter.

Sunday, July 29, 2012


The Securities and Exchange Commission announced today that the United States
District Court for the Southern District of New York entered an amended judgment
on July 26, 2012, against defendants Michael J. Xirinachs and Emerald Asset
Advisors LLC (Emerald Asset) of Melville, New York, previously finding on August
11, 2011 that they had engaged in an unregistered distribution of billions of
shares of Universal Express Inc. (USXP) between February 2006 and June 2007. The
judgment enjoined Xirinachs and Emerald Asset from future violations of the
securities registration provisions of Section 5 of the Securities Act of 1933,
ordered them jointly and severally to disgorge over $3.8 million in profits plus
prejudgment interest, and pay civil penalties of $3,835,000 based on 590
unregistered transactions; ordered Xirinachs separately to disgorge over
$428,000 in compensation plus prejudgment interest, and pay civil penalties of
$2,119,000 based on 326 unregistered transactions; and barred Xirinachs and
Emerald Asset from participating in penny stock offerings for three years, but
allowed them to purchase penny stocks during that period. The other defendants
were previously sanctioned on September 8, 2011.

Saturday, July 28, 2012


Remarks of SEC Under Secretary Miller at an event hosted by the Bretten Woods Committee

"Navigating Transformatinal Change of Global Financial Landscape: Realizing Systemic Stability, Avoiding Unintended Consequences"

As prepared for deliveryWASHINGTON -
Thank you very much for the invitation to join you today.

Meetings like this are important opportunities for global leaders in the public and private sectors to collaborate and learn from each other. I am joined today by my colleagues from the Financial Stability Oversight Council and the Office of Financial Research. As we work to get the rules of regulatory reform right and to address threats to financial stability, we need broad engagement. Every rule I work on benefits from public input.

Today I want to build on your constructive dialogue by talking about our progress implementing regulatory reform and the challenges that remain, particularly in connection with identifying and addressing risks to financial stability. Then I look forward to answering your questions.

For the last two years, Treasury and financial regulators have been hard at work creating a more resilient financial system. We were given a big assignment, and we have made tremendous progress. Nine out of 10 rules with deadlines before mid-July have been proposed or finalized. New institutions are up and running and already hard at work, including the Consumer Financial Protection Bureau, the Financial Stability Oversight Council, and the Office of Financial Research, or better known to you as the CFPB, the FSOC, and the OFR. The framework of our new system is in place.

Financial reform has significantly improved our ability to monitor and contain risks to financial stability. Financial institutions are much stronger, making them better able to withstand shocks. Increased trading on exchanges and new trade repositories and reporting are bringing transparency to markets. The FSOC and OFR are actively monitoring threats to financial stability and strengthening coordination among regulators. Every day I see more evidence of this progress.

But even with the benefit of these new rules and institutions, we approach the task of identifying and addressing risks to financial stability with humility. In my experience, you are never handed the same script for a financial crisis or shock. The next financial crisis is unlikely to look like the last. Problems can surface in unexpected ways that will challenge even the most sophisticated tools and the smartest regulators.

The reforms we have put in place have made our financial system less vulnerable, but we all have more to do.

PROGRESSA Strengthening Economy As a result of this Administration’s efforts, we’ve made considerable progress in repairing the economic damage from the crisis and putting our financial system on sounder footing.
The U.S. economy is gradually getting stronger. GDP is back to its pre-crisis levels. The private sector has added more than 4.4 million jobs over the last 28 months.
Not only is credit expanding, but the cost of credit has fallen significantly from the peaks of the crisis. Commercial and industrial lending at banks increased 10 percent in 2011 and increased at an annual rate of 11 percent in the first five months of this year.
Our national deficit peaked three years ago in 2009, both in dollars and as a share of GDP.
The government has closed most of the emergency programs put in place during the crisis and recovered most of its financial sector investments. For example, the Troubled Asset Relief Program is expected to cost taxpayers a small fraction of original forecasts. Most of the expected cost will be a result of the support provided to the housing market, which is showing signs of stabilizing.

But challenges remain. Although the U.S. economy is still expanding, the pace of economic growth has slowed during the last two quarters. Headwinds from Europe are partly to blame. In addition, the rise in oil prices earlier this year, the ongoing government spending reduction, and slow rates of growth in income have all adversely affected U.S. growth.

The slowdown in U.S. growth could be exacerbated by uncertainty about fiscal matters. The United States faces unsustainable fiscal deficits. To restore fiscal responsibility, policy makers must take action but there is significant uncertainty about the shape of the reforms to tax policy and spending to come.

Further, global economic growth has slowed in recent months and forecasts for future growth have been reduced. The continuing crisis in Europe is the key factor behind the slowdown. Growth in China, India, Brazil and other large emerging economies has also slowed as a result of weaker external demand combined with the effects of past policy tightening and an increase in risk aversion.

In summary, U.S. economic activity has moderated in recent months, with growth held back by a number of temporary factors. Looking ahead, the fundamentals for the private sector are generally supportive, and the housing market appears to be stabilizing. We continue to expect growth to strengthen gradually going forward.

Financial Regulatory Reform: Stronger Financial Institutions and Financial MarketsDespite these challenges, we have remained focused on the need to complete financial regulatory reform, which we believe is a necessary foundation for sustained economic growth and financial stability. More resilient financial institutions and markets are less vulnerable to financial shocks and less likely to propagate risk.

I want to highlight a few specific areas where we believe reform is building stronger institutions and markets.
More capital: We have forced banks to substantially increase the amount of capital they hold, so that they are able to provide credit to the economy and absorb losses in the future. Banks have added over $400 billion of high-quality capital, up 70 percent from three years ago.

Reduced leverage: Overall leverage in the financial system has been reduced significantly. Financial sector debt has dropped by more than $3 trillion since the crisis, and household debt is down $900 billion.

More stable funding models: Banks are funding themselves more conservatively, relying less on riskier short-term funding. As we learned during the financial crisis, reliance on short-term funding can quickly threaten a troubled firm. In addition, the use of the "shadow banking system"—a key source of financial stress during the crisis—has decreased substantially.

Reducing risk: Regulators are limiting risk-taking at the largest financial institutions, recognizing the outsized threats they can pose in times of market stress. Federal regulators have imposed tougher standards on the largest banks, and we can now subject the largest non-banks to enhanced supervision and prudential standards. Eight large financial market utilities, such as clearinghouses, will now be subject to heightened risk management standards. High-risk trading strategies and investments at depository institutions will be more constrained by the Volcker Rule.

Limiting contagion: Regulators are putting in place the framework for the "orderly liquidation authority," a mechanism to unwind large, complex financial companies. Through this authority, which was sorely lacking during the crisis, we are protecting taxpayers and preserving financial stability in the event of a failure of a large financial firm. In addition, nine of the largest bank holding companies recently submitted their "living wills," providing contingency plans for an orderly bankruptcy.

And finally,
More transparent derivatives markets: The SEC and CFTC are putting in place a new framework for derivatives oversight, providing new safeguards for market participants. Following the adoption of swaps definitions this month, more than 20 key rulemakings can now move forward. This marks a major milestone in the implementation of derivatives reforms. As swaps move onto transparent trading venues and are centrally cleared, regulators and market participants will have much more insight into these exposures and potential risks in the derivatives markets.
Financial Regulatory Reform: Identifying and Addressing Risks to Financial StabilityFSOC
We are also building new institutions. The Financial Stability Oversight Council and the Office of Financial Research, both created by the Dodd-Frank Act, are actively monitoring and mitigating threats to the stability of the financial system.

Since its first meeting in October 2010, the FSOC has met regularly to discuss market developments and potential threats to stability. Most recently, the FSOC has focused on the situation in Europe, our housing market, and the lessons to be drawn from recent errors in risk management at several major financial institutions, including the failure of MF Global and the trading losses at JPMorgan Chase.

One of the duties of the FSOC is to facilitate information-sharing and coordination among its member agencies. In the run-up to the crisis, fragmentation in our regulatory system allowed many risks to slip through the cracks. As Chair of the FSOC, Secretary Geithner continues to make it a priority that the work of the regulators is well-coordinated.

Last week, the FSOC released its second annual report, which includes a review of significant financial market and regulatory developments, potential emerging threats to financial stability, and recommendations to strengthen the financial system. As Under Secretary, I spend time working with the FSOC staff and agencies, and I can tell you that generating the report is an extraordinarily useful and demanding process.

OFRThe Dodd-Frank Act also established the OFR to collect and standardize financial data, perform essential research, and develop new tools for measuring and monitoring risk. In its first annual report, also released last week, the OFR noted that gaps in financial data and in our understanding of the financial system still represent risks.

Currently, the OFR is working on a number of projects with the FSOC, including developing metrics for and indicators of financial stability. The OFR is also providing analysis related to the FSOC’s evaluation of nonbank financial companies for potential designation for Federal Reserve supervision and enhanced prudential standards.

One ongoing priority is establishing a legal entity identifier (LEI), or unique, global standard for identifying parties to financial transactions. The LEI can improve the quality of financial data, especially in identifying the largest and most complex firms’ exposures, and thus help to detect a buildup of risk in the system.

Current Threats to Financial StabilitySo where do we see threats to financial stability today? I would like to highlight just a couple of areas raised in the FSOC’s report.

Risks in Wholesale Funding MarketsThe FSOC recommended a set of reforms to address structural vulnerabilities, particularly in wholesale short-term funding markets such as money market funds and the tri-party repurchase agreement market. As we saw during the financial crisis, these sources of funding were particularly vulnerable to disruption, which quickly spread through the markets.

Firms should closely monitor their reliance on wholesale short-term funding. Maturity transformation, which entails funding longer-term assets with short-term debt, is a core function of the financial system, but overreliance can create additional vulnerabilities in stressed environments.

The SEC adopted a number of reforms to the regulation of money market funds in 2010 that provided additional safeguards. However, money market funds continue to lack a mechanism to absorb a sudden loss in value of a portfolio security, and investors have an incentive to redeem at the first indication of any perceived threat to the value or liquidity of the fund, potentially disadvantaging remaining shareholders. The FSOC recommends that the SEC publish structural reform options for public comment and ultimately adopt additional reforms.

In the tri-party repo markets, the FSOC supports additional steps toward reducing intraday credit exposure between clearing banks and market participants. In addition, the FSOC recommends that regulators and industry participants work together to better define standards for collateral management in the tri-party repo market, particularly for lenders (such as money market funds) that have certain restrictions on the instruments that they can hold.

Risk Management and Supervisory AttentionThe FSOC also recommends that financial institutions establish strong risk management and reporting structures to help ensure that risks are evaluated independently and at appropriately senior levels. This means prudent risk management practices for complex trading strategies. Financial institutions also need to maintain disciplined credit underwriting standards and vet emerging financial products.

The report notes, for example, that high-speed trading is an area where increased speed and automation of trade execution may require a parallel increase in trading risk management and controls. The Flash Crash in May 2010 highlighted system-wide vulnerabilities in the equities and futures markets. Since then, the regulators have taken a number of steps to address potential risks.

For example, the SEC put in place a dynamic single-stock circuit breaker called the limit up/limit down rule. In addition, they recently approved a plan to create a consolidated audit trail that would allow regulators to monitor and respond to events in the equity markets in a more robust and timely manner. However, more work needs to be done as financial markets evolve and high speed trading becomes more prevalent. We must continue to track developments and analyze risks with real-time policy responses.

GOING FORWARD: PARTNERING IN FINANCIAL STABILITYAs you can see, reform is improving the way we identify threats to financial stability. We have made tremendous strides. Our financial system is stronger and safer. A number of important reforms are in place. The FSOC and the OFR are on the job.

While the government will continue to work diligently to strengthen the financial system against potential threats, we cannot do this alone. The financial services industry must become a stronger partner in both regulatory reform and initiatives aimed at financial stability.

During the financial crisis, some in the private sector acted irresponsibly. Risk built up where we did not have visibility or the tools to contain it. Taking risk is an important engine of financial returns, but it must be managed.

I would like to share a few suggestions on how the private sector can do its part.

First of all, reward people for both realizing profit and constraining risk. A culture that primarily rewards short-term profits should be set aside in favor of one that strives for long-term gains and stability.

Implement best-in-class risk management practices.
Run rigorous stress tests and scenario analyses. Consider how investments and activities can have unintended consequences for financial markets.
Increase transparency in financial reporting beyond existing requirements.
Empower, recognize, and reward effective risk managers. Signal to the organization that risk management is valued.
Participate in industry forums to share lessons learned and develop best practices.

These initiatives are not only good for the financial system but also benefit financial firms by promoting client, customer, bondholder, and stockholder confidence.

I would also add that the relentless efforts of some in the financial industry to undermine, work around, or stall reform are short-sighted. I strongly believe that such efforts will further undermine trust in financial firms – trust that is essential for the functioning of the industry.

Regulatory reform benefits, not disadvantages, financial firms. We look forward to continued engagement to make our financial system more vibrant and safe. To achieve that, the financial services industry and the government each have a lot of work to do. We share responsibility for protecting Americans from the extraordinary damage – lost jobs, lost homes, lost businesses, and lost wealth – that a financial crisis can cause. Americans deserve a financial system that is the foundation for sustained growth and economic security.

Thank you.

Friday, July 27, 2012


Defendant Matthew Brown Settles Penny Stock Manipulation ChargesThe Securities and Exchange Commission announced today that Chief Judge Gregory M. Sleet of the United States District Court for the District of Delaware entered a final judgment against Defendant Matthew W. Brown on July 2, 2012 in SEC v. Dynkowski, et al., Civil Action No. 1:09-361, a stock manipulation case the SEC filed on May 20, 2009, and amended on March 25, 2010 and December 22, 2011, to charge additional individuals. The SEC’s complaint alleges that Brown participated in market manipulation schemes involving the stock of GH3 International, Inc. and Asia Global Holdings, Inc.

As alleged in the complaint, the schemes generally followed the same pattern: Defendant Pawel P. Dynkowski and his accomplices agreed to sell large blocks of shares for penny stock companies in exchange for a portion of the proceeds. The shares were put in nominee accounts that Dynkowski and his accomplices controlled. The defendants artificially inflated the market price of the stocks through wash sales, matched orders and other manipulative trading, often timed to coincide with false or misleading press releases, and then sold shares obtained from the issuers and divided the illicit proceeds.

As alleged in the complaint, Dynkowski orchestrated the manipulation scheme involving GH3 International, Inc. stock in 2006 with Brown, who operated a penny stock website called The complaint alleges that in this scheme Dynkowski and Brown engaged in manipulative trading and that Brown helped coordinate this manipulative trading with issuance of false press releases. The complaint alleges that this scheme generated approximately $747,609 in illicit profits.

The complaint further alleges that in 2006, Brown planned the manipulation scheme involving the stock of Asia Global Holdings, Inc., with two defendants who were registered representatives at a small broker-dealer in California. As alleged in the complaint, Dynkowski and another defendant manipulated the price of Asia Global stock using wash sales, matched orders, and other manipulative trading, coordinated with false press releases. After manipulating the price of the stock, the complaint alleges, Dynkowski, Brown, and others in this scheme sold 54 million shares that had been improperly registered on SEC Form S-8 and held in nominee accounts, generating over $4 million in illicit profits.

To settle the SEC’s charges, Brown consented to a final judgment that permanently enjoins him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 13(d) of the Securities Exchange Act of 1934, and Rules 10b-5, 13d-1 and 13d-2 thereunder; orders disgorgement of $86,745 and prejudgment interest of $24,081; and bars Brown from participating in any offering of a penny stock. In a related criminal case, Brown previously pled guilty to conspiracy to commit securities fraud and conspiracy to engage in money laundering. He was sentenced to four years in prison and ordered to pay criminal forfeiture of $4,798,138. U.S. v. Brown, Criminal Action No. 09-46-SLR (D. Del.).

The SEC thanks the following agencies for their cooperation and assistance in connection with this matter: the U.S. Attorney’s Office for the District of Delaware; the Delaware State Police; United States Immigration and Customs Enforcement, Department of Homeland Security, Homeland Security Investigations; and the Department of the Treasury, Internal Revenue Service, Criminal Investigation.

Thursday, July 26, 2012


The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law
International InvestingIndividual investors in the United States have access to a wide selection of investment opportunities, including international investments. The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to help educate investors about international investing. This Investor Bulletin describes ways individual investors may obtain information about international investments— including special factors to consider when investing internationally.

Should I consider international investments?Two of the chief reasons individual investors invest internationally are:
diversification (spreading your investment risk among foreign companies and markets in addition to U.S. companies and markets); and
growth (taking advantage of the potential for growth in some foreign economies, particularly in emerging markets).

Investors should consider various factors when assessing potential investments, be they domestic or international.

International investment returns may move in a different direction, or at a different pace, than U.S. investment returns. Including exposure to both domestic and foreign securities in your portfolio may reduce the risk that you will lose money if there is a drop in U.S. investment returns and your portfolio’s overall investment returns over time may have less volatility. Keep in mind that with globalization, markets are increasingly intertwined across borders. Investors should balance these considerations along with factors unique to international investing, including those described below.

How can I invest internationally? There are a number of ways individual investors may gain exposure to international investments. As with domestic investments, investors should first learn as much as they can about an investment.

Mutual funds. There are different kinds of mutual funds that invest in foreign securities, including: global and international funds (that invest in companies and businesses outside of the United States); regional or country funds (that invest in a particular region or country); or international index funds (that seek to track the results of a particular foreign market or international index). Investing through mutual funds may reduce some of the potential risks of investing internationally because mutual funds provide more diversification than most investors could achieve on their own. If you want to learn more about investing in these types of mutual funds, as well as in mutual funds generally, information is available in Mutual Funds – A Guide for Investors.

Exchange-traded funds. An exchange-traded fund (ETF) is a type of investment that typically has an objective to achieve the same return as a particular market index. ETFs are listed on stock exchanges and, like stocks (and in contrast to mutual funds), trade throughout the trading day with fluctuating market prices. A share in an ETF that tracks an international or foreign index seeks to give an investor exposure to the performance of the underlying international or foreign stock or bond portfolio along with the ability to trade the ETF shares like any other exchange-traded security.

American depositary receipts. The stocks of most foreign companies that trade in U.S. markets are traded as American depositary receipts (ADRs) issued by U.S. depositary banks (rather than the actual foreign company stock). Each ADR represents one or more shares of a foreign stock or a fraction of a share. If you own an ADR you have the right to obtain the foreign stock it represents, but U.S. investors usually find it more convenient and cost-effective to own the ADR. The price of an ADR generally corresponds to the price of the foreign stock in its home market, adjusted for the ratio of ADRs to foreign company shares. Sometimes the terms "ADR" and "ADS" (for American depositary share) are used interchangeably.

U.S.-traded foreign stocks. Although most foreign stocks trade in the U.S. markets as ADRs, some foreign companies list their stock directly here as well as in their local market. For example, some Canadian stocks that are listed and trade on Canadian markets are also listed and trade directly in U.S. markets, rather than as ADRs. Some foreign companies list their securities in multiple markets, which may include U.S. markets. You can purchase ADRs and U.S.-listed foreign stocks that trade in the United States through your U.S. broker.

Trading on foreign markets. Your U.S. broker may be able to process an order for a company that only trades on a foreign securities market. These foreign companies are not likely to file reports with the SEC. The information available about these companies may be different than the information available about companies that file reports with the SEC. Moreover, the information may not be available in English.

Where can I find information about investing internationally?You should learn as much as you can about an investment, and about an investment adviser or broker-dealer, before you invest. Tracking down information on international investments may require extra effort, but it will make you a more informed investor. One of the most important things to remember is to read and understand the information about an investment before you invest. Here are some sources of information to consider:

SEC reports. Foreign companies listed on U.S. stock exchanges or that publicly offer their securities in the United States must file reports with the SEC. The SEC requires these foreign companies to file electronically, so their reports are available through the SEC’s EDGAR website at at no charge. However, if the company’s securities trade on the over-the-counter markets in the United States rather than on a stock exchange, the company may not be required to file reports with the SEC.

Mutual fund firms. You can get the prospectus for a particular mutual fund directly from the mutual fund firm. Many firms also have websites and phone lines that provide helpful information about international investing.

Broker-dealers and investment advisers. Your broker or investment adviser may have research reports on particular foreign companies, individual countries or geographic regions. Ask whether updated reports are available on a regular basis. Your broker or investment adviser also may be able to provide you with copies of SEC reports and other information.

Foreign companies. Foreign companies often prepare annual reports, and some, but not all, companies also publish an English language version of their annual report. Ask your broker for copies of the company’s reports or check to see if they are available from the SEC. Some foreign companies post their annual reports and other financial information on their websites.

Foreign regulators. You may be able to learn more about a particular foreign public company by contacting the foreign securities regulator that oversees the markets in which that company’s securities trade. You may also be able to learn more about a particular foreign broker-dealer or foreign investment adviser by contacting the securities regulator with which the firm is registered. Many foreign securities regulators post information about issuers and registrants on their websites, including audited financial statements.

You will find a list of international securities regulators on the website of the International Organization of Securities Commissions (IOSCO) at Foreign regulators sometimes post warnings about investment scams and information about their enforcement actions that can be useful to investors. IOSCO publishes investor alerts that it receives from its securities regulator members on its website.

You may already be investing internationally. In the United States, we have access to information and products from all over the world. Foreign companies can achieve the status of household names in the United States without public awareness that these companies are domiciled outside of the United States, or they may conduct a majority of their business operations abroad. You should conduct your own review of your holdings to determine whether the securities you own or are considering for purchase already provide you with international or foreign exposure.

What issues and risks should I consider when investing internationally? While investing in any security requires careful consideration, international investing raises some special issues and risks. These include:

Access to different information. In some jurisdictions, the information provided by foreign companies is different than information provided by U.S. companies. The nature and frequency of disclosures required under foreign law may also be different from that of U.S. companies. In addition, foreign companies’ financial statements may be prepared using a different set of accounting standards than companies use in the United States. Information foreign companies publish may not be in English.

Moreover, the financial statements of publicly listed companies in the United States, whether based in the United States or abroad, must be audited by an independent public accounting firm subject to oversight by the Public Company Accounting Oversight Board (PCAOB). The financial statements of a foreign company that is not publicly listed in the United States may or may not be subject to analogous auditing and auditor oversight arrangements.

Costs of international investments. International investing can be more expensive than investing in U.S. companies. In some countries there may be unexpected taxes, such as withholding taxes on dividends. In addition, transaction costs such as fees, broker’s commissions and taxes may be higher than in U.S. markets. You also should be aware of the potential effects of currency conversion costs on your investment. Mutual funds that invest abroad may have higher fees and expenses than funds that invest in U.S. securities, in part because of the extra expense of trading in foreign markets.

Working with a broker or investment adviser. If you are working with a broker, make sure the broker is registered with the SEC. It is against the law for a broker, foreign or domestic, to contact you and solicit your investment unless it is registered with the SEC. You can obtain information about a U.S.-registered broker by visiting FINRA’s BrokerCheck website or calling FINRA’s toll-free BrokerCheck hotline at (800) 289-9999. If you are working with a U.S.-registered investment adviser, you may be able to obtain information about the investment adviser by visiting the SEC’s Investment Adviser Public Disclosure (IAPD) website. If you directly contact and work with a foreign broker not registered with the SEC, you may not have all the protections under the laws of the United States as would be the case if the broker were registered with the SEC.

Changes in currency exchange rates. A foreign investment also has foreign currency exchange risks. When the exchange rate between the foreign currency of an international investment and the U.S. dollar changes, it can increase or reduce your investment return in the foreign security. In fact, it is possible that a foreign investment may increase in value in its home market but, because of changing exchange rates, the value of that investment in U.S. dollars is actually lower. In addition to exchange rates, you should be aware that some countries might impose foreign currency controls that restrict or delay you from moving currency out of a country.

Changes in market value. All securities markets can experience dramatic changes in market value. One way to attempt to reduce the impact of these price changes is to be prepared to hold your investments through adverse times and sharp downturns in domestic or foreign markets, which may be long lasting.

Political, economic and social events. Depending on the country or region, it can be more difficult for individual investors to obtain information about and comprehensively analyze all the political, economic and social factors that influence a particular foreign market. These factors may provide diversification from a domestically-focused portfolio, but they may also contribute to the risk of international investing.

Different levels of liquidity. Some foreign markets may have lower trading volumes for securities or fewer listed companies than U.S. markets. Some foreign markets are open for shorter periods than U.S. markets. In addition, some countries may restrict the amount or type of securities that foreign investors may purchase. Where these factors exist, they can contribute to less liquidity when you want to sell and lead to difficulty finding a buyer.

Legal remedies. Where you purchase a security can impact whether you have, and where you can pursue, legal remedies against the foreign company or any other foreign-based entities involved in your transaction, such as a foreign broker. Even if you sue successfully in a U.S. court, you may not be able to collect on a U.S. judgment against a foreign company, entity or person. You may have to rely on legal remedies that are available in the home country, if any.

Morrison v. National Australia Bank
Investors should be mindful when either buying or selling securities on foreign securities exchanges or otherwise outside the United States, or entering into securities transactions with parties located outside the United States, that, as a result of a recent Supreme Court decision, Morrison v. National Australia Bank, investors may not have the ability to seek certain legal remedies in U.S. courts as private plaintiffs. Investors who purchase or sell securities outside the territory of the United States will generally not be able to bring suit as private plaintiffs in U.S. courts to address fraudulent activity that may occur in connection with these transactions—even if the fraudulent activities occur within the United States.
Please note, however, that the SEC’s law enforcement authority with respect to fraudulent conduct within the United States, and conduct outside the United States that has a foreseeable substantial effect within the United States, is generally not subject to the limitations placed on private rights of action by the Morrison decision.

Investors who would like to provide information about fraud or wrongdoing involving potential violations of the U.S. securities laws may contact the SEC using the SEC’s Tips, Complaints and Referrals Portal. SEC action may or may not lead to the investor receiving funds to redress any fraud.

Different market operations. Foreign markets may operate differently from the major U.S. trading markets. For example, there may be different time periods for clearance and settlement of securities transactions. Some foreign markets may not report securities trades within the same period as U.S. markets. Rules providing for the safekeeping of shares held by foreign custodian banks or depositories may differ from those in the United States. If a foreign custodian has credit problems or fails, shares purchased in a foreign market may have different levels of protection than provided under the laws of the United States.


Washington, D.C., July 25, 2012 — The Securities and Exchange Commission has charged the close friend of a CEO with insider trading in the stock of a Houston-based employment services company by exploiting confidential information he learned while they were spending time together.

The SEC alleges that Ladislav "Larry" Schvacho, who lived in Georgia at the time of his illegal trading, made approximately $511,000 in illicit profits by using inside information to trade around the acquisition of Comsys IT Partners Inc. by another staffing company. Schvacho gleaned nonpublic information while the Comsys CEO called other Comsys executives to discuss the acquisition and through confidential, merger-related documents to which Schvacho had access.

"As a result of Schvacho’s time with the CEO, he learned nonpublic details and stockpiled Comsys shares until it became by far the largest stock investment that he’d ever made into a single company," said William P. Hicks, Associate Regional Director of the SEC’s Atlanta Regional Office. "The Comsys CEO confided in Schvacho, who exploited that trust and stole information for a half-million-dollar payday."

According to the SEC’s complaint filed late yesterday in U.S. District Court for the Northern District of Georgia, Schvacho first met Larry L. Enterline when they worked for the same company in the 1970s. Enterline went on to become the Comsys CEO in 2006. The two maintained their close friendship even after Enterline moved to Houston to run Comsys, speaking frequently on the phone and maintaining a longstanding tradition of Friday evening dinner and drinks when Enterline visited Atlanta, where he still had a home. The two often shared confidential information with one another.

The SEC alleges that Schvacho purchased approximately 72,000 shares of Comsys stock in the weeks leading up to a public announcement on Feb. 2, 2010, that Comsys was to be acquired by Manpower Inc. Given their close relationship and long history of sharing confidences, Enterline made no significant effort to shield information about the impending acquisition from Schvacho. Rather, Enterline reasonably expected that Schvacho would refrain from disclosing or otherwise misusing the confidential information. For example, during one of their Friday evening dinners at a restaurant in Atlanta on Nov. 6, 2009, Enterline discussed the potential acquisition in Schvacho’s presence during phone conversations with one or more Comsys senior executives. On the very next business day (November 9), Schvacho began purchasing Comsys stock relying on the material, nonpublic information he learned.

The SEC further alleges that Schvacho learned nonpublic information between December 11 and December 14 while he and Enterline vacationed together in Florida. Enterline again discussed the possible acquisition in Schvacho’s presence during a phone conversation with another Comsys senior executive. During that vacation, Schvacho also had access to Enterline’s merger-related documents. Just days later, Schvacho bought additional Comsys stock. On December 19, Enterline again discussed the impending acquisition in Schvacho’s presence during a phone conversation after Schvacho picked him up from the airport. On the next business day, Schvacho purchased additional Comsys shares.

According to the SEC’s complaint, on or about January 20, Schvacho converted his 401(k) account to create a self-directed account so that he could buy even more Comsys shares based on material, nonpublic information about the deal. In order to purchase his large position in Comsys stock, Schvacho undertook other various unusual steps including using all available cash in his brokerage accounts to purchase Comsys shares. The Comsys stock price increased approximately 31 percent following the public announcement on February 2. Schvacho immediately sold half of his Comsys shares after the announcement was made.

The SEC’s investigation was conducted by Debbie T. Hampton and Matthew F. McNamara in the Atlanta Regional Office, and Paul Kim will lead the litigation.

Wednesday, July 25, 2012


Washington, D.C., July 19, 2012The Securities and Exchange Commission today charged a Chicago-based consulting firm and two of its former executives with accounting violations that overstated the company’s income for multiple years.
The SEC found that Huron Consulting Group Inc., a provider of financial and operational consulting services to clients in various industries, failed to properly record redistributions of sales proceeds by the selling shareholders of four firms acquired by Huron. The selling shareholders redistributed the money to employees at those firms who stayed on to work at Huron as well as other Huron employees and themselves. Because the redistributions were contingent on the employees’ continued employment with Huron, based on the achievement of personal performance measures, or not clearly for a purpose other than compensation, Huron should have recorded the redistributions as compensation expense in its financial statements. By failing to do so, Huron overstated its pre-tax income to the public. Former chief financial officer Gary Burge and former controller and chief accounting officer Wayne Lipski oversaw these accounting decisions at Huron.
Huron agreed to settle the SEC’s charges by paying a $1 million penalty, and Burge and Lipski agreed to pay a total of nearly $300,000 in disgorgement and penalties to settle the charges against them.
“Huron’s income overstatements obscured the fact that a substantial portion of the money it paid to acquire other consulting firms was being used to retain professional talent at the firm,” said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. “Huron, Burge, and Lipski should have known that their flawed accounting gave investors a misleading impression of the profitability of Huron’s acquisitions.”
According to the SEC’s order instituting settled cease-and-desist proceedings, Huron’s financial statements for 2006, 2007, 2008, and the first quarter of 2009 were materially misstated as a result of these accounting failures. In August 2009, Huron restated those financial statements, thus reducing its net income by approximately $56 million.
The SEC’s order finds that in January 2008, Huron, Burge and Lipski considered an SEC Staff Accounting Bulletin, which referenced accounting principles applicable to the redistributions, but that they subsequently did not determine the full impact of the accounting principles on the company’s financial statements. As a result, Huron publicly overstated its pre-tax income by 3.7 percent for 2005, 6.09 percent for 2006, 30.45 percent for 2007, 68.59 percent for 2008, and 25.29 percent for the first quarter of 2009.
The SEC’s order finds that Huron violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 thereunder. The order finds that Burge and Lipski caused Huron’s violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13, and that they violated Rule 13b2-1.
In agreeing to settle the charges without admitting or denying the SEC’s findings, Huron consented to the SEC’s order imposing a $1 million penalty and requiring the company to cease and desist from committing or causing any violations or any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. Burge and Lipski, without admitting or denying the SEC’s findings, also consented to the order, which requires Burge to pay disgorgement of $147,763.12, prejudgment interest of $30,338.46, and a penalty of $50,000, and requires Lipski to pay disgorgement of $12,750, prejudgment interest of $3,584.94, and a penalty of $50,000. The order also requires Burge and Lipski to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 13b2-1.
The SEC’s investigation was conducted in the Chicago Regional Office by Ruta Dudenas, Rebecca Bernard, Thomas Meier, and Paul Montoya with litigation counsel assistance from Robert Moye.

Tuesday, July 24, 2012


The FDIC has become aware of multiple instances in which individuals or purported investment advisors have approached financially weak institutions in apparent attempts to defraud the institutions by claiming to have access to funds for recapitalization. These parties also may claim that the investors, or individuals associated with the investors, include prominent public figures and that the investors have been approved by one or more of the federal banking agencies to invest substantial capital in the targeted institutions. Ultimately, these parties have required the targeted institutions to pay, in advance, retention and due diligence fees, as well as other costs. Once paid, the parties have failed to conduct substantive due diligence or to actively pursue the proposed investment.

Institutions should be extremely cautious if approached by any party in a similar manner. Before entering into any agreements or paying any funds, targeted institutions should verify the credibility of such solicitations, including the credibility of the investor group, their principals, and their representatives. Further, institutions deemed to be Critically Undercapitalized for purposes of Prompt Corrective Action are cautioned that prior approval may be required for the payment of retention or due diligence fees, or other costs. If, following assessment of the parties and proposal, it appears likely that a proposal is fraudulent, institutions should submit a Suspicious Activity Report in compliance with Part 353 of the FDIC's Rules and Regulations and ensure that the designated FDIC Case Manager is informed of the solicitation and the institution's actions.

Monday, July 23, 2012


The Securities and Exchange Commission today charged Texas-based medical
device company Orthofix International N.V. with violating the Foreign Corrupt
Practices Act (FCPA) when a subsidiary paid routine bribes referred to as
chocolates to Mexican officials in order to obtain lucrative sales contracts
with government hospitals.

The SEC alleges that Orthofixâ's Mexican subsidiary Promeca S.A. de C.V.
bribed officials at Mexico’s government-owned health care and social services
institution Instituto Mexicano del Seguro Social (IMSS). The chocolates came
in the form of cash, laptop computers, televisions, and appliances that were
provided directly to Mexican government officials or indirectly through front
companies that the officials owned. The bribery scheme lasted for several years
and yielded nearly $5 million in illegal profits for the Orthofix

Orthofix agreed to pay $5.2 million to settle the SEC’s charges.
According to the SEC's complaint filed in U.S. District Court for the Eastern
District of Texas, the bribes began in 2003 and continued until 2010. Initially,
Promeca falsely recorded the bribes as cash advances and falsified its invoices
to support the expenditures. Later, when the bribes got much larger, Promeca
falsely recorded them as promotional and training costs. Because of the bribery
scheme, Promeca's training and promotional expenses were significantly over
budget. Orthofix did launch an inquiry into these expenses, but did very little
to investigate or diminish the excessive spending. Later, upon discovery of the
bribe payments through a Promeca executive, Orthofix immediately self-reported
the matter to the SEC and implemented significant remedial measures. The company
terminated the Promeca executives who orchestrated the bribery scheme.

The SEC's proposed settlement is subject to court approval. Orthofix
consented to a final judgment ordering it to pay $4,983,644 in disgorgement and
more than $242,000 in prejudgment interest. The final judgment would permanently
enjoined the company from violating Sections 13(b)(2)(A) and 13(b)(2)(B) of the
Securities Exchange Act of 1934. Orthofix also agreed to certain undertakings,
including monitoring its FCPA compliance program and reporting back to the SEC
for a two-year period.

Orthofix also disclosed today in an 8-K filing that it has reached an
agreement with the U.S. Department of Justice to pay a $2.22 million penalty in
a related action.

Sunday, July 22, 2012


July 11, 2012
CFTC Charges Houston-based Christopher Daley and his company, TC Credit Service, LLC, with Solicitation Fraud and Misappropriation in $1.4 Million Dollar Commodity Pool Scheme federal court enters order freezing defendants’ assets and preserving books and recordsWashington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of an anti-fraud enforcement action in the U.S. District Court for the Southern District of Texas, charging Christopher D. Daley (Daley) of Houston, Texas, and his firm, TC Credit Service, LLC (TCCS) (doing business as Del-Mair Group, LLC) with operating a commodity pool scheme that fraudulently solicited and accepted approximately $1.4 million from the public. Daley was owner and sole employee of TCCS, and none of the defendants has ever been registered with the CFTC.

On June 19, 2012, a day after the CFTC filed its complaint, the Honorable Judge Lynn N. Hughes, of the U.S. District Court for the Southern District of Texas, issued an emergency order under seal, freezing the defendants’ assets and prohibiting the destruction of books and records.

The CFTC complaint alleges that from at least January 2010 and continuing through at least November 2011, Daley and TCCS fraudulently solicited and accepted at least $1,427,688 from at least 55 members of the public to participate in a commodity pool to trade crude oil futures contracts. TCCS did not at any time during this period maintain any commodity accounts in its name, and Daley’s personal trading accounts sustained consistent net losses each month, according to the complaint. Daley, however, allegedly used only a portion of pool participants’ funds to trade futures contracts, while misappropriating the rest of the funds. Daley used at least $100,000 of pool participants’ funds to pay for personal expenses, such as rent and personal loan payments, and transferred approximately $195,000 of pool participant’s funds to his own personal bank accounts, according to the complaint.

The complaint further alleges that Daley made fraudulent misrepresentations and omissions of material fact, including (1) misrepresenting that Daley’s trading in crude oil futures contracts generated and would generate 20 percent monthly returns on deposits, (2) misrepresenting that the pool never had a losing month, (3) misrepresenting that the pool’s value had increased 60 percent for the year as of March 2011, and (4) omitting that Daley misappropriated pool participants’ funds, that the pool never maintained any commodity interest account in its own name, that Daley’s personal futures trading accounts sustained consistent monthly losses, and that Daley was not properly registered as a Commodity Pool Operator with the CFTC. Moreover, the complaint alleges that Daley issued false account statements to pool participants to conceal the fraud.

In its continuing litigation, the CFTC seeks restitution to defrauded customers, a return of ill-gotten gains, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of federal commodities laws.

CFTC Division of Enforcement staff members responsible for this case are Eugene Smith, Patricia Gomersall, Christine Ryall, Antoinette Chance, Paul Hayeck, and Joan Manley.

Friday, July 13, 2012


CFTC Files Complaint Against Peregrine Financial Group, Inc. and Russell R. Wasendorf, Sr. Alleging Fraud, Misappropriation of Customer Funds, Violation of Customer Fund Segregation Laws, and Making False Statements
Commission Seeks an Order Freezing Assets and Restitution of Customer Funds.
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today that it filed a complaint in the United States District Court for the Northern District of Illinois against Peregrine Financial Group Inc. (PFG), a registered futures commission merchant, and its owner, Russell R. Wasendorf, Sr.(Wasendorf).  The Complaint alleges that PFG and Wasendorf committed fraud by misappropriating customer funds, violated customer fund segregation laws, and made false statements in financial statements filed with the Commission.

The National Futures Association (NFA) is PFG’s Designated Self-Regulatory Organization and is responsible for monitoring and auditing PFG for compliance with the minimum financial and related reporting requirements. According to the Complaint, in July 2012 during an NFA audit, PFG falsely represented that it held in excess of $220 million of customer funds when in fact it held approximately $5.1 million.
The Commission’s action alleges that from at least February 2010 through the present, PFG and Wasendorf failed to maintain adequate customer funds in segregated accounts as required by the Commodity Exchange Act and CFTC Regulations.  The Complaint further alleges that defendants made false statements in filings required by the Commission regarding funds held in segregation for customers trading on U.S. Exchanges.
According to the Complaint, Wasendorf attempted to commit suicide yesterday, July 9, 2012.  In the aftermath of that incident, the staff of the NFA received information that Wasendorf may have falsified certain bank records.

In the litigation, the CFTC seeks a restraining order to freeze assets, appoint a receiver and preserve records.  Further, the litigation seeks restitution, disgorgement, and civil monetary penalties among other appropriate relief.

The following CFTC Division of Enforcement staff members are responsible for this case: William Janulis, Jon Kramer, Thaddeus Glotfelty, Melissa Glasbrenner, Rosemary Hollinger, Scott Williamson, Richard Wagner.

Wednesday, July 11, 2012


Washington, D.C., July 10, 2012 – The Securities and Exchange Commission today charged Texas-based medical device company Orthofix International N.V. with violating the Foreign Corrupt Practices Act (FCPA) when a subsidiary paid routine bribes referred to as “chocolates” to Mexican officials in order to obtain lucrative sales contracts with government hospitals.

The SEC alleges that Orthofix’s Mexican subsidiary Promeca S.A. de C.V. bribed officials at Mexico’s government-owned health care and social services institution Instituto Mexicano del Seguro Social (IMSS). The “chocolates” came in the form of cash, laptop computers, televisions, and appliances that were provided directly to Mexican government officials or indirectly through front companies that the officials owned. The bribery scheme lasted for several years and yielded nearly $5 million in illegal profits for the Orthofix subsidiary.

Orthofix agreed to pay $5.2 million to settle the SEC’s charges, and agreed to pay a $2.22 million monetaryv penalty as part of a deferred prosecution agreement announced today by the U.S. Department of Justice.

“Once bribery has been likened to a box of chocolates, you know a corruptive culture has permeated your business,” said Kara Novaco Brockmeyer, Chief of the SEC Enforcement Division’s Foreign Corrupt Practices Act Unit. “Orthofix’s lax oversight allowed its subsidiary to illicitly spend more than $300,000 to sweeten the deals with Mexican officials.”

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of Texas, the bribes began in 2003 and continued until 2010. Initially, Promeca falsely recorded the bribes as cash advances and falsified its invoices to support the expenditures. Later, when the bribes got much larger, Promeca falsely recorded them as promotional and training costs. Because of the bribery scheme, Promeca’s training and promotional expenses were significantly over budget. Orthofix did launch an inquiry into these expenses, but did very little to investigate or diminish the excessive spending. Later, upon discovery of the bribe payments through a Promeca executive, Orthofix immediately self-reported the matter to the SEC and implemented significant remedial measures. The company terminated the Promeca executives who orchestrated the bribery scheme.

The SEC’s proposed settlement is subject to court approval. Orthofix consented to a final judgment ordering it pay $5.2 million in disgorgement and prejudgment interest, and permanently enjoining the company from violating the books and records and internal controls provisions of the FCPA. Orthofix also agreed to certain undertakings, including monitoring its FCPA compliance program and reporting back to the SEC for a two-year period.

The SEC’s investigation was conducted by Carol Shau and Alka N. Patel in the Los Angeles Regional Office. The SEC acknowledges and appreciates the assistance of the U.S. Department of Justice’s Criminal Division - Fraud Section and the Federal Bureau of Investigation.

Tuesday, July 10, 2012


July 9, 2012
Final Judgment Entered Against Connecticut Man Who Misappropriated Over $1 Million From Vulnerable Investors
The Securities and Exchange Commission (“Commission”) announced that, on July 5, 2012, the United States District Court for the District of Connecticut entered a final judgment by default against Florin S. Ilovici, formerly of Avon, Connecticut. The Commission’s action against Ilovici was originally filed in June 2011 and charged that, starting as early as 2008, Ilovici made material misrepresentations in raising over $1 million in investment funds from at least two elderly Connecticut women who lived alone, had little or no family, and had health problems. The complaint alleged that, instead of investing these funds on their behalf as he promised, Ilovici transferred the investor funds to his personal bank and brokerage accounts where he either lost the funds in risky securities or foreign currency exchange trading or used the funds for personal expenses, including mortgage and credit card payments, travel, and home improvements, all without the knowledge or authorization of his investors. The complaint alleged that Ilovici’s conduct violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

The final judgment entered by the Court came in response to a Commission motion for default judgment and permanently enjoined Ilovici from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The final judgment also ordered Ilovici to pay disgorgement in the amount of $1,094,984.52, representing profits gained as a result of the conduct alleged in the complaint, plus pre-judgment interest on the disgorgement in the amount of $54,935.50, and a civil penalty in the amount of $900,000.00. The complaint also named Ilovici’s wife, Diana Ilovici, as a relief defendant, as to whom the judgment requires a payment of $30,196.93 in unjust enrichment because she received proceeds of the conduct alleged in the complaint.

Monday, July 9, 2012

SEC Approves Rules and Interpretations on Key Terms for Regulating Derivatives

SEC Approves Rules and Interpretations on Key Terms for Regulating Derivatives


Statement of Support
Chairman Gary Gensler
July 6, 2012
Washington, DC – Commodity Futures Trading Commission Chairman Gary Gensler today issued the following statement:
“I support the formal reopening of the comment period on the CFTC’s initial margin proposal so that we can hear further from market participants in light of work being done to internationally harmonize an approach to margin.

“The CFTC has been working with the Federal Reserve, the other U.S. banking regulators, the Securities and Exchange Commission and international regulators and policymakers to align margin requirements for uncleared swaps. I think it is essential that we align these requirements globally, particularly between the major market jurisdictions. The international approach to margin requirements in the consultative paper (sponsored by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions) released today is consistent with the approach the CFTC laid out in its margin proposal last year. It would lower the risk of financial entities, promote clearing and help avoid regulatory arbitrage.”
Last Updated: July 6, 2012

Sunday, July 8, 2012


July 6, 2012
SEC Charges Company, CEO, and Stock Promoter With Market Manipulation
The Securities and Exchange Commission announced today that it charged Axius, Inc., its President and CEO, Roland Kaufmann, and stock promoter Jean-Pierre Neuhaus with engaging in a fraudulent broker bribery scheme designed to manipulate the market for Axius’ common stock. The Commission’s complaint, filed in federal court in Brooklyn, alleges that beginning in at least January 2012, Kaufmann and Neuhaus engaged in an undisclosed kickback arrangement with an individual (“Individual A”) who claimed to represent a group of registered representatives with trading discretion over the accounts of wealthy customers. Kaufmann and Neuhaus promised to pay kickbacks of between 26% and 28% to Individual A and the registered representatives he purported to represent in exchange for the purchase of up to $5 million of Axius stock through the customers’ accounts.

The complaint further alleges that on February 16 and 17, 2012, Kaufmann instructed Individual A to purchase approximately 14,000 shares of Axius stock for a total of approximately $49,000 through matched trades using detailed instructions concerning the size, price and timing of the purchase orders. Thereafter, Kaufmann paid Individual A bribes of approximately $13,700.

The complaint charges Neuhaus, Kaufmann, and Axius with violating Section 17(a)(1) and (a)(3) of the Securities Act of 1933 and Sections 9(a)(1) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c). The Commission seeks permanent injunctive relief, disgorgement of ill-gotten gains, plus pre-judgment interest, and civil penalties from all defendants, an order prohibiting Neuhaus and Kaufmann from participating in any offering of penny stock, and an order prohibiting Kaufmann from serving as an officer or director of a public company.

The Commission acknowledges assistance provided by the U.S. Attorney’s Office for the Eastern District of New York, and the Federal Bureau of Investigation in this matter.

Saturday, July 7, 2012


Thursday, July 5, 2012
CEO of Axius Inc. and Finance Professional Indicted for Alleged Roles in Scheme to Bribe Stock Brokers and Manipulate Stock Prices
WASHINGTON – The chief executive officer (CEO) of Axius Inc., a Nevada corporation, and a finance professional were indicted today on multiple charges for their alleged roles in a scheme to bribe stock brokers and manipulate the share price of Axius stock, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney Loretta E. Lynch for the Eastern District of New York.

Roland Kaufmann, a Swiss citizen and the CEO of Axius, and Jean-Pierre Neuhaus, a Swiss citizen and finance professional, were each charged in an indictment filed today in the Eastern District of New York with one count of conspiracy to commit securities fraud and to violate the Travel Act, one count of securities fraud, one count of wire fraud, one count of violating the Travel Act, one count of conspiracy to commit money laundering and one count of money laundering.  According to court documents, Axius is incorporated in Nevada and its principal offices are in Dubai, United Arab Emirates.  Axius is a “holding company and business incubator” that develops other businesses.

“As CEO of Axius, Mr. Kaufmann allegedly conspired with Mr. Neuhaus to fraudulently manipulate the value of his company’s stock,” said Assistant Attorney General Breuer.  “According to today’s indictment, he attempted to bribe stock brokers into artificially propping up the value of Axius stock.  With our partners in the U.S. Attorneys’ Offices, the Criminal Division’s Fraud Section is pursuing a nationwide effort to investigate and prosecute fraudulent conduct in our securities markets.”

“Rather than rely on the market to set the true value of Axius’ stock, the defendants allegedly sought to buy the best price possible through bribery and deception,” said U.S. Attorney Lynch.  “Their scheme stood to enrich themselves at the expense of the investing public.  We will vigorously investigate and prosecute any such corruption in the securities markets.”

“Conspiring to inflate the price of Axius shares artificially was likely to result in unjust enrichment for the defendants and undeserved losses for investors,” said Assistant Director-in-Charge Janice K. Fedarcyk of the FBI in New York.  “Market-driven fluctuations in share prices are risks investors have to accept. Illegal manipulations become the subject of FBI investigations.”

The indictment alleges that Kaufmann, 60, agreed with Neuhaus, 55, to defraud investors in Axius common stock by bribing stock brokers and manipulating the share price.  As part of the scheme, they enlisted the assistance of an individual they believed to have access to a group of corrupt stock brokers; this individual was in fact an undercover law enforcement agent.  Kaufmann and Neuhaus believed that the undercover agent controlled a network of stockbrokers in the United States with discretionary authority to trade stocks on behalf of their clients.

The indictment alleges that Kaufmann and Neuhaus instructed the undercover agent to direct brokers to purchase Axius shares that were owned or controlled by Kaufmann in return for a secret kickback of approximately 26 to 28 percent of the share price.  Kaufmann and Neuhaus allegedly instructed the undercover agent as to the price the brokers should pay for the stock, and Kaufmann specifically instructed the undercover agent that the brokers would have to pay gradually higher prices for the shares they were buying.  The indictment alleges that Kaufmann and Neuhaus directed the undercover agent that the brokers were to refrain from selling the Axius shares they purchased on behalf of their clients for a one-year period.  By preventing sales of Axius stock, Kaufmann and Neuhaus allegedly intended to maintain the fraudulently inflated share price for Axius stock.

Kaufmann and Neuhaus were originally charged in a criminal complaint filed in the Eastern District of New York on March 8, 2012.  They were arrested on March 8, 2012.  No investors were actually defrauded in the undercover operation.

In a related action, the Securities and Exchange Commission (SEC) today filed a civil enforcement action against Kaufmann and Neuhaus in the Eastern District of New York.  The department thanks the SEC for its cooperation in this matter.

This case is being prosecuted by Trial Attorney Justin Goodyear of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Shannon Jones of the Eastern District of New York.  The case was investigated by the FBI and the Internal Revenue Service.

Friday, July 6, 2012


Protecting Investors from Fraud
The following post appears courtesy of Barbara L. McQuade, the U.S. Attorney for the Eastern District of Michigan
Investor fraud schemes are among the most pervasive types of cases handled by the White Collar Crime Unit of the U.S. Attorney’s Office for the Eastern District of Michigan.
In the past year, our prosecutors have charged a number of investment advisors and stock brokers with defrauding their investors. In one case, a defendant encouraged elderly investors to liquidate legitimate investments to invest with him. In fact, he kept their funds for his own use, depleting many of the victims of their life savings, totaling $4 million. In another case, a defendant offered investments over the Internet, promising high returns and taking in $72 million in investor dollars. Instead, the investments either generated losses or were never made at all.

Victims of fraud include individual investors with modest portfolios as well as institutional investors with large investments, such as pension funds.

President Obama’s Financial Fraud Enforcement Task Force was designed to attack fraud, waste and abuse by increasing coordination among agencies and fully leveraging the government’s law enforcement and regulatory system. As part of that effort, the U.S. Attorney’s Office for the Eastern District of Michigan is aggressively prosecuting financial fraud cases. In the largest investment scheme in the history of the district, a defendant was recently convicted of defrauding more than 1,200 individuals by convincing them to invest more than $350 million in fictitious limited liability corporations. He was sentenced to 16 years in prison.

In addition to prosecuting perpetrators, we are also combating fraud by raising public awareness to help investors protect themselves. Knowledge of common fraud schemes can help prevent individuals from becoming victims of these crimes.

One of the most common investor fraud schemes is the classic “Ponzi” scheme, named for Charles Ponzi, who devised the concept in the 1920s. In a Ponzi scheme, the investment promoter promises investors a high rate of return for their investment and then uses the funds of new investors to pay the promised return to the earlier investors. These early investors then unwittingly help advance the scheme by bragging about the high rate of return on their investment. Eventually, of course, the scheme collapses when the swindler needs to pay out more than he can take in. A recent example of this type of fraud was the massive scheme Bernard Madoff operated that cost investors billions of dollars.

Another common scheme is known as affinity fraud. In these schemes, perpetrators prey on members of an identifiable group, such as a church community, a school parent-teacher organization, a country club or a professional group. The investment advisor will join the group, or pretend to be part of it. As a result, he enjoys an inflated credibility that encourages members of the group to trust him and be less cautious than they might otherwise be when making an investment.

Another frequently used tactic used by perpetrators of investment fraud is to ingratiate themselves with their victims. In one recent case, a defendant regularly visited his clients at home, shared details of his personal life with them, attended family functions, such as birthday parties and weddings, provided gifts to family members, made donations to the clients’ preferred charities, and assisted clients in life decisions. After obtaining their trust, he took their money for his own use.

Thursday, July 5, 2012


July 3, 2012
On June 29, 2012, the Securities and Exchange Commission filed a civil action in the United States District Court for the Central District of California against Gold Standard Mining Corp. (“Gold Standard”), its Chief Executive Officer/Chief Financial Officer Panteleimon Zachos, attorney Kenneth G. Eade, auditor E. Randall Gruber and his firm Gruber & Company LLC.

In its complaint, the Commission alleges that, between May 2009 and April 2011, Gold Standard filed numerous reports about its purported Russian gold mining operations that were materially false and misleading in various respects. According to the complaint, Gold Standard represented that it had acquired a Russian gold mining company known as Ross Zoloto Co., Ltd. (“Ross Zoloto”), but did not inform investors that it had agreed to allow the prior owner of Ross Zoloto to keep profits from existing operations or of issues surrounding Russian government registration or approval of the business combination. The complaint also alleges that Gold Standard filed false or misleading financial statements.

The complaint alleges that Gold Standard and Zachos were responsible for these misstatements, and that Eade, Gruber and Gruber & Co. substantially assisted Gold Standard in making these false and misleading statements. The complaint further alleges that Gruber & Co., through its sole member Edward Randall Gruber, misrepresented in an audit opinion that it had audited the company’s 2007, 2008 and 2009 consolidated financial statements in accordance with standards of the Public Company Accounting Oversight Board.

Without admitting or denying the allegations in the Commission’s complaint, Gold Standard and Zachos consented to final judgments pursuant to which Gold Standard will be enjoined from violating Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rules 10b-5, 12b-20, 13a-11 and 13a-13 thereunder, and Zachos will be enjoined from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13a-14 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13 thereunder. Zachos will also be barred from serving as an officer or director of a public company. The judgments are subject to court approval.

The complaint alleges that Eade and Gruber aided and abetted Gold Standard’s violations of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5(b), 12b-20, 13a-11, and 13a-13 thereunder; Gruber & Co. violated Sections 10(b) and 10A(a) of the Exchange Act and Rule 10b-5(b) thereunder, and aided and abetted the violations of Gold Standard of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5(b), 12b-20, 13a-11, and 13a-13 thereunder; and Gruber violated Section 10A(a) of the Exchange Act and aided and abetted the violations of Gruber & Co. of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder or, in the alternative, in liable as a control person of Gruber & Co. LLC with respect to those violations pursuant to Section 20(a) of the Exchange Act. The Commission seeks permanent injunctions, disgorgement, prejudgment interest and civil penalties against Eade, Gruber and Gruber & Co. and seeks to bar Eade from serving as an officer or director of a public company.

Wednesday, July 4, 2012


Statement of Support
Chairman Gary Gensler
July 3, 2012
I support the exemptive order regarding the effective dates of certain Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) provisions.
Today’s exemptive order makes five changes to the exemptive order issued on December 19, 2011.

First, the proposed exemptive order extends the sunset date from July 16, 2012, to December 31, 2012.

Second, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) have now completed the rule further defining the term “swap dealer” and “securities-based swap dealer.” Thus, the exemptive order no longer provides relief as it once did until those terms were further defined.

The Commissions are also mandated by the Dodd-Frank Act to further define the term “swap” and “securities-based swap.” The staffs are making great progress, and I anticipate the Commissions will take up this final definitions rule in the near term. Until that rule is finalized, the exemptive order appropriately provides relief from the effective dates of certain Dodd-Frank provisions.

Third, in advance of the completion of the definitions rule, market participants requested clarity regarding transacting in agricultural swaps. The exemptive order allows agricultural swaps cleared through a derivatives clearing organization or traded on a designated contract market to be transacted and cleared as any other swap. This is consistent with the agricultural swaps rule the Commission already finalized, which allows farmers, ranchers, packers, processors and other end-users to manage their risk.

Fourth, unregistered trading facilities that offer swaps for trading were required under Dodd-Frank to register as swap execution facilities (SEFs) or designated contract markets (DCM) by July of this year. These facilities include exempt boards of trade, exempt commercial markets and markets excluded from regulation under section 2(d)(2). Given the Commission has yet to finalize rules on SEFs, this order gives these platforms additional time for such a transition.

Fifth, the Commission is providing guidance regarding enforcement of rules that require that certain off-exchange swap transactions only be entered into by eligible contract participants (ECPs). The guidance provides that if a person takes reasonable steps to verify that its counterparty is an ECP, but the counterparty turns out not to be an ECP based on subsequent Commission guidance, absent other material factors, the CFTC will not bring an enforcement action against the person.

Tuesday, July 3, 2012


SEC Sues Fund Adviser for Fees Charged in Breach of Duty Under the Investment Company Act
Washington, D.C., June 26, 2012 — The Securities and Exchange Commission today sued AMMB Consultant Sendirian Berhad (AMC), a Malaysian investment adviser, alleging that for more than a decade, AMC charged a U.S. registered fund for advisory services that AMC did not provide. The SEC alleges that by doing so, AMC breached its fiduciary duty with respect to compensation under the Investment Company Act of 1940.

Kuala Lumpur-based AMC served as a sub-adviser to the Malaysia Fund, Inc., a closed-end fund that invests in Malaysian companies, whose principal investment adviser is Morgan Stanley Investment Management, Inc. (MSIM). The SEC alleges that AMC misrepresented its services during the fund’s annual advisory agreement review process for each year for more than 10 years, and AMC collected fees for advisory services that it did not provide.

AMC, a unit of AMMB Holdings Berhad, one of Malaysia’s largest banking groups, agreed to pay $1.6 million to settle the SEC’s charges, without admitting or denying the allegations. The case follows the SEC’s recent related action against the Malaysia Fund’s primary adviser, MSIM, and is part of an inquiry into the investment advisory contract renewal process by the SEC Enforcement Division’s Asset Management Unit.
“We are committed to ensuring that advisers to registered funds adhere to their fiduciary duty with respect to the receipt of compensation. Here, AMC breached that duty by charging fees for services that were not rendered,” said Bruce Karpati, Chief of the Asset Management Unit in the SEC’s Division of Enforcement.

AMC’s advisory fees were approved each year from 1996 to 2007 as part of the “15(c) process,” a reference to Section 15(c) of the Investment Company Act of 1940, which requires a registered fund’s board to annually evaluate the fund’s advisory agreements, and advisers to provide the board with information reasonably necessary to make that evaluation.

According to the SEC, AMC submitted a report to the Malaysia Fund’s board of directors each year that falsely claimed that AMC was providing specific advice, research, and assistance to MSIM for the benefit of the fund. In reality, the SEC’s complaint said AMC’s services were limited to providing two monthly reports based on publicly available information that MSIM did not request or use. Moreover, the SEC alleged that AMC failed to adopt and implement adequate policies, procedures, and controls over its advisory business, contrary to certifications provided to the fund’s directors in 2006 and 2007. AMC’s advisory agreement with the fund was terminated in early 2008 after the SEC’s examination staff inquired about the services AMC was purportedly providing to the fund.

The SEC’s complaint, filed in the U.S. District Court for the District of Columbia, alleges that AMC breached its fiduciary duty with respect to the receipt of compensation within the meaning of Section 36(b) of the Investment Company Act of 1940. The SEC also alleges that AMC violated Sections 206(2) and (4) of the Investment Advisers Act of 1940, and Rule 206(4)-7 thereunder, and Section 15(c) of the Investment Company Act of 1940. AMC consented to a judgment that bars it from violating these provisions in the future. AMC has also agreed to disgorge $1.3 million of its advisory fees paid by the fund and pay a $250,000 penalty.

Chad Alan Earnst, Christine Lynch, and Jessica Weiner, of the Enforcement Division’s Asset Management Unit staff, conducted the investigation along with Tonya Tullis and Edward D. McCutcheon. Karen Stevenson, Susan Schneider, and Dennis Delaney conducted the related examinations.

The SEC acknowledges the assistance of the Securities Commission of Malaysia and the Monetary Authority of Singapore.