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

Tuesday, December 31, 2013


SEC Obtains Order of Permanent Injunctions Against Chicago-Area Investment Adviser and Its Owners for Fraud

The Securities and Exchange Commission (Commission) announced that on December 19, 2013, Judge Charles P. Kocoras of the U.S. District Court for the Northern District of Illinois entered an order of permanent injunctions against Oakbrook, Illinois resident Patrick G. Rooney (Rooney) and his company Solaris Management, LLC (Solaris).

According to the SEC's complaint filed on November 16, 2011, Rooney and Solaris radically changed the investment strategy of the Solaris Opportunity Fund LP (the Fund), contrary to the Fund's offering documents and marketing materials, by becoming wholly invested in Positron Corp. (Positron), a financially troubled microcap company. The SEC alleges that Rooney, who has been Chairman of Positron since 2004 and received salary and stock options from Positron since September 2005, misused the Fund's money by investing more than $3.6 million in Positron through both private transactions and market purchases. Many of the private transactions were undocumented while other investments were interest-free loans to Positron. Rooney and Solaris hid the Positron investments and Rooney's relationship with the company from the Fund's investors for over four years. Although Rooney finally told investors about the Positron investments in a March 2009 newsletter, the SEC's complaint alleges he falsely told them he became Chairman to safeguard the Fund's investments. These investments benefited Positron and Rooney while providing the Fund with a concentrated, undiversified, and illiquid position in a cash-poor company with a lengthy track record of losses.

Without admitting or denying the Commission's allegations, Rooney and Solaris consented to the entry of permanent injunctions which enjoin them from violating Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-8(a)(1) and (a)(2) thereunder; Section 17(a) of the Securities Act of 1933; and Sections 10(b) and 13(d)(1) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13d-1 thereunder. Rooney and Solaris Management further agreed that the court would determine whether to impose penalties and disgorgement against them and whether Rooney should be prohibited from acting as an officer or director of a public company.

Monday, December 30, 2013


SEC Charges Microsoft Senior Manager and Friend with Insider Trading in Advance of Company News

The Securities and Exchange Commission announced that, on December 19, 2013, it charged a senior portfolio manager at Microsoft Corporation and his friend and business partner with insider trading ahead of company announcements.

The SEC alleges that Brian D. Jorgenson, who lives in Lynwood, Wash., obtained confidential information about upcoming company news through his work in Microsoft's corporate finance and investments division. Jorgenson tipped Sean T. Stokke of Seattle in advance of the Microsoft announcements, the most recent occurring in October. After Stokke traded on the inside information that Jorgenson provided, the two equally split the illicit profits in their shared brokerage accounts. They made joint trading decisions with the goal of generating enough profits to create their own hedge fund.

In a parallel action, the U.S. Attorney's Office for the Western District of Washington announced criminal charges against Jorgenson and Stokke.

According to the SEC's complaint filed in U.S. District Court for the Western District of Washington, Jorgenson and Stokke made a combined $393,125 in illicit profits in their scheme, which began in April 2012.

The SEC alleges that Stokke first traded in advance of a public announcement that Microsoft intended to invest $300 million in Barnes & Noble's e-reader business. Jorgenson learned of the impending transaction after his department became involved in the financing aspects of the deal. Jorgenson tipped Stokke so he could purchase approximately $14,000 worth of call options on Barnes & Noble common stock. Following a joint public announcement on April 30, 2012, Barnes & Noble's stock price closed at $20.75 per share, a 51.68 percent increase from the previous day. Jorgenson and Stokke made nearly $185,000 in ill-gotten trading profits.

The SEC alleges that Stokke later traded in advance of Microsoft's fourth-quarter earnings announcement in July 2013. As part of his duties at Microsoft, Jorgenson prepared a written analysis of how the market would react to the negative news that Microsoft's fourth quarter earnings were more than 11 percent below consensus estimates. He estimated that Microsoft's stock price would decline by at least six percent. Jorgenson tipped this confidential information to Stokke, who purchased almost $50,000 worth of Microsoft options. After Microsoft's announcement on July 18, its stock price declined more than 11 percent the next day from $35.44 to $31.40 per share. Jorgenson and Stokke realized more than $195,000 in illicit profits.

According to the SEC's complaint, Stokke traded in advance of another Microsoft announcement on Oct. 24, 2013. Jorgenson was aware that the company would be announcing first quarter 2014 earnings that were more than 14 percent higher than consensus estimates. Rather than purchase Microsoft securities directly, Jorgenson and Stokke purchased more than $45,000 worth of call options on an exchange-traded fund in which Microsoft comprised more than eight percent of the fund's holdings. Following the announcement, Microsoft's share price increased nearly six percent and the price of the ETF increased 0.51 percent. Jorgenson and Stokke made approximately $13,000 in illegal trading profits.

Jorgenson and Stokke are charged with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, both directly and pursuant to Section 20(d) of the Exchange Act. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and financial penalties against Jorgenson and Stokke as well as an officer-and-director bar against Jorgenson.

The SEC's investigation was conducted by Brendan P. McGlynn, Patricia A. Paw, John S. Rymas, and Daniel L. Koster of the Philadelphia Regional Office. The SEC's litigation will be led by John V. Donnelly and G. Jeffery Boujoukos.

The SEC appreciates the assistance of the U.S. Attorney's Office for the Western District of Washington, Federal Bureau of Investigation, Options Regulatory Surveillance Authority, and Financial Industry Regulatory Authority.

Sunday, December 29, 2013



The Securities and Exchange Commission issued its annual staff report on the findings of examinations of credit rating agencies registered as nationally recognized statistical rating organizations (NRSROs).  The agency also submitted an annual staff report on NRSROs to Congress.

“The two reports reflect an evolving industry,” said Thomas J. Butler, director of the SEC’s Office of Credit Ratings.  “The examination report shows that the SEC’s vigilant oversight is improving compliance at NRSROs, while the annual report to Congress depicts an industry that is growing more competitive and transparent.”

The 2010 Dodd-Frank Act requires the SEC to examine each NRSRO at least annually and issue a report summarizing key findings of the examinations.  The report discusses the staff’s findings and recommendations for each of the 10 NRSROs.  Among the areas examined are whether each NRSRO conducts business in accordance with its policies, procedures, and methodologies as well as how an NRSRO manages conflicts of interest and whether it maintains effective internal controls.

The report noted, for instance, that the staff found one or more NRSROs lacked comprehensive procedures governing ratings placed under review.  The staff also found that oversight of the process for developing new rating methodologies and criteria was not sufficient at one or more NRSROs to ensure independence from business and market share considerations.

The 2013 examination report highlights certain improvements among NRSROs, such as increased investment in compliance systems and infrastructure along with enhancements in compliance training for both analytical and non-analytical employees.  These improvements address recommendations that the staff made to NRSROs on prior examinations.

The annual report to Congress, which is required by the 2006 Credit Rating Agency Reform Act, identifies the applicants for NRSRO registration, actions taken on the applications, and the SEC’s views on the state of competition, transparency, and conflicts of interest among NRSROs.

Observations from the 2013 annual report include the following:

The number of NRSROs rose to 10 with HR Ratings de México, S.A. de C.V., registering in November 2012.
Some smaller NRSROs have gained significant market share in ratings for certain types of asset-backed securities.
Transparency is increasing due to the NRSROs issuing unsolicited commentary on ratings issued by other NRSROs.

The following SEC staff made significant contributions to the examinations and reports: Abe Losice, Michele Wilham, Kenneth Godwin, Natalia Kaden, Harriet Orol, Jacob Prudhomme, Diane Audino, Kristin Costello, Scott Davey, Shawn Davis, Michael Gerity, Julia Kiel, Joanne Legomsky, Russell Long, Carlos Maymi, David Nicolardi, Sam Nikoomanesh, Joseph Opron, Abraham Putney, Mary Ryan, Warren Tong, Evelyn Tuntono, and Kevin Vasel.

Saturday, December 28, 2013


SEC Charges Former SAP Employee with Insider Trading

The Securities and Exchange Commission announced that, on December 23, 2013, it charged David F. Marchand, of Campbell, California, a former Board Assistant to the Co-Chief Executive Officer of SAP AG, with unlawful insider trading in the securities of three issuers: SuccessFactors, Inc. (“SuccessFactors”), Ariba, Inc. (“Ariba”) and SAP AG (“SAP”). According to the SEC’s complaint filed in the U.S. District Court for the District of New Jersey, Marchand made a total of $43,500 in illicit profits through his trading.

The SEC’s complaint alleges that, while in possession of material nonpublic information concerning SAP’s intention to acquire SuccessFactors, Marchand purchased SuccessFactors common stock between November 21, 2011 and November 28, 2011, in advance of the December 3, 2011 public announcement that SAP and SuccessFactors had entered into a merger agreement pursuant to which a subsidiary of SAP would acquire SuccessFactors for $40 per share in a tender offer. The price of SuccessFactors common stock increased 51.4 percent after the announcement, and Marchand sold his shares, realizing illicit profits of $28,061.

The complaint further alleges that, in early January 2012, Marchand became aware of material nonpublic information regarding SAP’s favorable financial performance for the fourth quarter and year ended 2011, including its “best ever” software revenue numbers. After learning this information, Marchand purchased SAP American Depositary Receipts (ADRs) prior to SAP’s January 13, 2012 public release of its preliminary fourth quarter 2011 results. Marchand sold his SAP ADRs after the announcement, realizing illicit profits of $2,157.

The SEC also alleges that, a few months later, after he learned material nonpublic information about SAP’s intentions to acquire Ariba, Marchand purchased Ariba common stock on April 16, 2012, May 2, 2012 and May 8, 2012, in advance of the May 22, 2012 public announcement that a subsidiary of SAP and Ariba had entered into a merger agreement pursuant to which a subsidiary of SAP would acquire Ariba for $45 per share of common stock. The price of Ariba common stock increased approximately 19 percent after the announcement, and Marchand sold his Ariba shares, realizing illegal profits of $13,282.

Marchand has consented, without admitting or denying the SEC’s allegations, to the entry of a final judgment permanently enjoining him from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder; requiring him to pay $43,500 in disgorgement, $2,155 in prejudgment interest, and a penalty of $43,500. The settlement is subject to court approval.

The SEC’s ongoing investigation is being conducted by Brendan P. McGlynn, Oreste P. McClung and Daniel L. Koster of the Philadelphia Regional Office. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

Friday, December 27, 2013


Charges Archer-Daniels-Midland Company with FCPA Violations

The Securities and Exchange Commission today charged global food processor Archer-Daniels-Midland Company (ADM) for failing to prevent illicit payments made by foreign subsidiaries to Ukrainian government officials in violation of the Foreign Corrupt Practices Act (FCPA).

An SEC investigation found that ADM's subsidiaries in Germany and Ukraine paid $21 million in bribes through intermediaries to secure the release of value-added tax (VAT) refunds. The payments were then concealed by improperly recording the transactions in accounting records as insurance premiums and other purported business expenses. ADM had insufficient anti-bribery compliance controls and made approximately $33 million in illegal profits as a result of the bribery by its subsidiaries.

ADM, which is based in Decatur, Ill., has agreed to pay more than $36 million to settle the SEC's charges. In a parallel action, the U.S. Department of Justice today announced a non-prosecution agreement with ADM and criminal charges against an ADM subsidiary that has agreed to pay $17.8 million in criminal fines.

According to the SEC's complaint filed in U.S. District Court for the Central District of Illinois, the bribery occurred from 2002 to 2008. Ukraine imposed a 20 percent VAT on goods purchased in its country. If the goods were exported, the exporter could apply for a refund of the VAT already paid to the government on those goods. However, at times the Ukrainian government delayed paying VAT refunds it owed or did not make any refund payments at all. On these occasions, the outstanding amount of VAT refunds owed to ADM's Ukraine affiliate reached as high as $46 million.

The SEC alleges that in order to obtain the VAT refunds that the Ukraine government was withholding, ADM's subsidiaries in Germany and Ukraine devised several schemes to bribe Ukraine government officials to release the money. The bribes paid were generally 18 to 20 percent of the corresponding VAT refunds. For example, the subsidiaries artificially inflated commodities contracts with a Ukrainian shipping company to provide bribe payments to government officials. In another scheme, the subsidiaries created phony insurance contracts with an insurance company that included false premiums passed on to Ukraine government officials. The misconduct went unchecked by ADM for several years because of its deficient and decentralized system of FCPA oversight over subsidiaries in Germany and Ukraine.

The SEC's complaint charges ADM with violating Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. ADM consented to the entry of a final judgment ordering the company to pay disgorgement of $33,342,012 plus prejudgment interest of $3,125,354. The final judgment also permanently enjoins ADM from violating those sections of the Exchange Act, and requires the company to report on its FCPA compliance efforts for a three-year period. The settlement is subject to court approval. The SEC took into account ADM's cooperation and significant remedial measures, including self-reporting the matter, implementing a comprehensive new compliance program throughout its operations, and terminating employees involved in the misconduct.

The SEC's investigation was conducted by Nicholas A. Brady and supervised by Moira T. Roberts and Anita B. Bandy. The SEC appreciates the assistance of the Justice Department's Fraud Section and the Federal Bureau of Investigation.

Thursday, December 26, 2013


December 19, 2013

Federal Court in New York Orders Defendant David M. Nunn to Pay a $600,000 Civil Monetary Penalty for Engaging in an Illegal Coffee Futures Trading Scheme and Making False Statements to ICE Futures U.S. Court Permanently Bans Nunn from Trading or Registration with the CFTC

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Lewis A. Kaplan of the U.S. District Court for the Southern District of New York entered a consent Order against David M. Nunn for entering into fictitious sales, engaging in illegal noncompetitive and fictitious trades in coffee futures contracts over a two-year period, and making false statements to representatives of ICE Futures U.S., Inc. (ICE). Nunn is a Vermont resident and a former ICE floor broker.

The consent Order of permanent injunction, entered on December 18, 2013, requires Nunn to pay a $600,000 civil monetary penalty and, among other sanctions, permanently bans Nunn from trading on a registered entity, soliciting or receiving funds for trading on a registered entity, applying for registration or claiming exemption from registration with the CFTC, or acting as a principal or agent of any CFTC registrant or person exempted from registration.

The Order stems from a CFTC Complaint filed on October 18, 2012 (see CFTC Press Release 6393-12). The Complaint alleged that, from at least July 2008 through September 2010, Nunn engaged in over 1,300 non-competitive, fictitious coffee futures trades on ICE. The Complaint further alleged that, through this illegal scheme, Nunn transferred over $1.68 million to another account that he controlled.

The Order states that Nunn engaged in a series of unlawful, non-competitive commodity futures transactions involving coffee futures on ICE. The Order also states that Nunn intentionally made non-competitive, fictitious sales by placing virtually simultaneous orders to buy or sell in accounts either held in his name or held under another person’s name that he controlled. Nunn made false statements to ICE officials during an interview when he denied that monies were transferred to him from the account held under the other person’s name, according to the Order.

In a related ICE proceeding, Nunn was expelled from ICE membership and is prohibited from directly or indirectly accessing the exchange’s markets. The CFTC appreciates the assistance of ICE in this matter.

CFTC Division of Enforcement staff members responsible for this case are Trevor Kokal, Michael Geiser, David Oakland, David Acevedo, Lenel Hickson, and Manal Sultan.

Wednesday, December 25, 2013


Agencies Issue FAQ Document Regarding Collateralized Debt Obligations Backed by Trust Preferred Securities under Final Rules Implementing the “Volcker Rule”
Three federal financial institution regulatory agencies today issued a FAQ (Frequently Asked Questions) document to provide clarification and guidance to banking entities regarding investments in “Covered Funds” and whether collateralized debt obligations backed by trust preferred securities (TruPS CDOs) could be determined to be Covered Funds under the final rules to implement section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The FAQs are intended to clarify that banking entities that have holdings in TruPS CDOs are not required to sell these holdings immediately under the final rules, but instead may use the conformance period to determine if they can be brought into conformance by the end of the conformance period, which is July 21, 2015.

The document released by the agencies provides an overview of some of the key legal issues banking entities should consider in determining whether holdings of TruPS CDOs are subject to the provision of the final rules implementing section 619, commonly known as the Volcker Rule. The issues identified and discussed in the document are whether a TruPS CDO qualifies in its current form as a Covered Fund under the final rules; whether it can be restructured or otherwise conformed to the final rules by the end of the conformance period of July 21, 2015; and whether a bank’s investment in the CDO constitutes an ownership interest.

The final rules were approved by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Securities and Exchange Commission, and the Commodity Futures Trading Commission on December 10, 2013.
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Tuesday, December 24, 2013



The Securities and Exchange Commission today announced charges against a woman and her stepson for their involvement in a North Carolina-based Ponzi and pyramid scheme that the agency shut down last year.

The SEC alleges that Dawn Wright-Olivares and Daniel Olivares, who each now live in Arkansas, provided operational support, marketing, and computer expertise to sustain, which offered and sold securities in the form of “premium subscriptions” and “VIP bids” for penny auctions.  While the website conveyed the impression that the significant payouts to investors meant the company was extremely profitable, the payouts actually bore no relation to the company’s net profits.  Approximately 98 percent of total revenues for ZeekRewards – and correspondingly the share of purported net profits paid to investors – were comprised of funds received from new investors rather than legitimate retail sales.

Wright-Olivares and Olivares have agreed to settle the SEC’s charges.  In a parallel action, the U.S. Attorney’s Office for the Western District of North Carolina today announced criminal charges against the pair.

“Wright-Olivares was a marketing and operational mastermind behind the scheme and Olivares was the chief architect of the computer databases they used,” said Stephen Cohen, an associate director in the SEC’s Division of Enforcement.  “After they learned ZeekRewards was under investigation by law enforcement, they accepted substantial sums of money from the scheme while keeping investors in the dark about its imminent collapse.”

Pyramid schemes are a type of investment scam often pitched as a legitimate business opportunity in the form of multi-level marketing programs. According to the SEC’s complaint filed in federal court in Charlotte, N.C., the ZeekRewards scheme raised more than $850 million from approximately one million investors worldwide.

The SEC alleges that Wright-Olivares served as the chief operating officer for much of the existence of ZeekRewards.  She helped develop the program and its key features, marketed it to investors, and managed some of its operations.  She also helped design and implement features that concealed the fraud.  Olivares managed the electronic operations that tracked all investments and managed payouts to investors.  Together, Wright-Olivares and Olivares helped perpetuate the illusion of a successful retail business.

The SEC’s complaint charges Wright-Olivares with violating the registration and antifraud provisions of Sections 5 and 17 of the Securities Act, and Section 10 of the Exchange Act and Rule 10b-5.  The complaint charges Olivares with violating Section 17 of the Securities Act and Section 10 of the Exchange Act and Rule 10b-5.  To settle the SEC’s charges, Wright-Olivares agreed to pay at least $8,184,064.94 and Olivares agreed to pay at least $3,272,934.58 – amounts that represent the entirety of their ill-gotten gains plus prejudgment interest.  Payments will be made as part of the parallel criminal proceeding in which additional financial penalties could be imposed in a restitution order.

The SEC’s investigation, which is continuing, has been conducted by Brian Privor, Alfred Tierney, and John Bowers.  The SEC appreciates the assistance of the U.S. Attorney’s Office of the Western District of North Carolina and the U.S. Secret Service.

Monday, December 23, 2013


December 20, 2013
CFTC Approves Comparability Determinations for Six Jurisdictions for Substituted Compliance Purposes

Australia, Canada, the European Union, Hong Kong, Japan, and Switzerland are deemed comparable with respect to certain swaps provisions of the Dodd-Frank Act

Washington, DC — The Commodity Futures Trading Commission (Commission) today approved a series of broad comparability determinations that would permit substituted compliance with non-U.S. regulatory regimes as compared to certain swaps provisions of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and the Commission’s regulations. Substituted compliance describes the circumstances where the Commission’s general policy would be to permit non-U.S. swap dealers or non-U.S. MSPs whose swaps activities might bring them within the scope of certain Commission regulations, to use compliance with regulations in their home jurisdiction as a substitute for compliance with the relevant Commission regulations. This approach builds on the Commission’s long-standing policy of recognizing comparable regulatory regimes based on international coordination and comity principles with respect to cross-border activities involving futures and options.

The vote was conducted via seriatim, which was approved by three commissioners. The comparability determinations will be published in the Federal Register.

In accordance with the Commission’s general policy and procedural framework described in its Interpretative Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations published on July 26, 2013 (the Cross-Border Guidance), the comparability determinations are part of substituted compliance with respect to Commission regulations applicable to swaps activities outside the U.S.

This approval by the Commission also reflects a collaborative effort with authorities and market participants from each of the six jurisdictions that has registered swap dealers. Working with authorities in Australia, Canada, the European Union (EU), Hong Kong, Japan, and Switzerland, the Commission was able to issue comparability determinations for a broad range of entity-level requirements (see related attached summary chart). In two jurisdictions, the EU and Japan, the Commission also approved substituted compliance for a number of key transaction-level requirements. For the EU, the Commission is issuing comparability determinations for transaction-level requirements under Commission regulations 23.501, 23.502, 23.503, and certain provisions of 23.202 and 23.504. For Japan, the Commission is issuing comparability determinations for transaction-level requirements under certain provisions of Commission regulations 23.202 and 23.504.

As jurisdictions outside the U.S. continue to strengthen their regulatory regimes, the Commission may determine that additional foreign regulatory requirements are comparable to and as comprehensive as certain requirements under the CEA and the Commission’s regulations.

Sunday, December 22, 2013


The Securities and Exchange Commission today announced that the agency’s enforcement actions in fiscal year 2013 resulted in a record $3.4 billion in monetary sanctions ordered against wrongdoers.

The SEC filed 686 enforcement actions in the fiscal year that ended in September.  The $3.4 billion in disgorgement and penalties resulting from those actions is 10 percent higher than FY 2012 and 22 percent higher than FY 2011, when the SEC filed the most actions in agency history.

“A strong enforcement program helps produce financial markets that operate with integrity and transparency, and reassures investors that they can invest with confidence,” said Mary Jo White, Chair of the SEC.  “I am incredibly proud of the dedicated and talented women and men of the Enforcement Division.  Our results show that we are prepared to tackle the breadth and complexity of today’s securities markets.”

George S. Canellos, co-director of the SEC’s Division of Enforcement, said, “We are focused on addressing wrongdoing in all corners of the financial industry.  Going forward, we will continue to be aggressive but fair in our pursuit of those who violate the securities laws.”

Andrew J. Ceresney, co-director of the SEC’s Division of Enforcement, added, “Numbers tell only a part of the story as we look to bring high-quality enforcement actions that make an impact across the market.  We are proud of the terrific results achieved by our hardworking and committed staff and pleased with the strong and robust pipeline of investigations they’ve developed for the year ahead.”

SEC Enforcement in Fiscal Year 2013

Market Structure and Exchanges – The SEC brought several significant actions against stock exchanges and other market participants on issues relating to market structure and fair market access.  The SEC obtained its largest-ever penalty against an exchange when NASDAQ agreed to pay a $10 million penalty for its poor systems and decision-making during the Facebook IPO. FY 2013 also included the SEC’s first penalty against an exchange for violations relating to regulatory oversight when the agency charged the Chicago Board Options Exchange (CBOE) and an affiliate for various systemic breakdowns.

Gatekeepers – The SEC is focused on holding accountable accountants, attorneys, and others who have special duties to ensure that the interests of investors are safeguarded.  Among actions against auditors, the SEC charged the Chinese affiliates of major accounting firms for refusing to produce documents related to China-based companies being investigated.  And the SEC charged trustees and directors for failing to uphold their responsibilities under the securities laws.

Insider Trading – Continuing its pursuit of those who unlawfully trade on material, nonpublic information, the SEC filed multiple actions alleging wrongdoing at S.A.C. Capital Advisors and its affiliates, including an action against Steven Cohen for failing to supervise two senior employees and prevent them from insider trading under his watch.

Municipal Securities – The SEC increased its attention to securities violations by municipalities and other participants in the market for securities of cities and other governmental issuers.

Financial Crisis Enforcement Actions – With several more enforcement cases in FY 2013 against individuals and entities whose actions contributed to the financial crisis, the SEC has now filed enforcement actions against 169 individuals and entities arising from the financial crisis resulting in more than $3 billion in disgorgement, penalties, and other monetary relief for the benefit of harmed investors.  The individuals charged include 70 CEOs, CFOs, or other senior executives.

New Admissions Policy – The SEC changed its longstanding settlement policy and now requires admissions of misconduct in a discrete category of cases where heightened accountability and acceptance of responsibility by a defendant are appropriate and in the public interest.  The first settlements under the new policy came in actions against Philip A. Falcone and his firm Harbinger Capital Partners, and JPMorgan Chase & Co.

Going to Trial – The SEC continued to aggressively deploy litigation resources to maximize the deterrent impact of enforcement actions.  One successful example in FY 2013 is the favorable verdict obtained at trial against former Goldman Sachs Vice President Fabrice Tourre, who was found liable for his role in marketing a CDO.  The SEC also obtained a favorable decision after a lengthy trial against optionsXpress and two individuals for engaging in sham transactions to give the illusion of compliance with Reg SHO.

Whistleblower Tips – The SEC’s Office of the Whistleblower received 3,238 tips in the past year and paid more than $14 million to whistleblowers whose information substantially advanced enforcement actions.

New Forward-Looking Initiatives

New Task Forces – The Financial Reporting and Audit (FRAud) Task Force was created to improve the Enforcement Division’s ability to detect and prevent financial statement and other accounting frauds.  The new Microcap Task Force brings additional resources and analytical expertise to address fraud in the microcap markets and target gatekeepers.

Consolidated Short Selling Charges – The SEC will continue to conduct streamlined investigations to crack down on violators of Rule 105 of Regulation M.  The SEC recently announced actions against 23 firms that resulted in $14.4 million in monetary sanctions.

A Strong Pipeline – The Enforcement Division headed into the next fiscal year well positioned for significant achievements across its program, having opened 908 investigations last year (up 13 percent) and obtained 574 formal orders of investigation (up 20 percent).

Technology Improvements – The Enforcement Division significantly improved its analytical capabilities, including those for forensics analysis and for reviewing and analyzing high volumes of electronic documents.  A Center for Risk and Quantitative Analytics was created to coordinate and enhance risk identification, risk assessment, and data analytic activities

Saturday, December 21, 2013



The Securities and Exchange Commission today announced fraud charges against a company named with an acronym for “Make A Lot Of Money” that is behind a pair of advance fee schemes guaranteeing astronomical returns to investors in purported prime bank transactions and overseas debt instruments.

The SEC alleges that Swiss-based Malom Group AG and several individuals conducted the schemes from Las Vegas and Zurich.  They raised $11 million from U.S. investors by using a series of lies and forged documents to steer them into seemingly successful foreign trading programs that were nothing more than vehicles to steal money.  Advance fee frauds solicit investors to make upfront payments before purported deals can go through, and perpetrators fool investors with official-sounding terminology to add an air of legitimacy to the investment programs.  Many transactions offered by Malom Group bore hallmarks of prime bank frauds, which tout the supposed use of well-known overseas banks to attract investors.

The SEC alleges that Malom Group charged fees to investors for bogus services, and the individuals pulling the strings distributed investor funds among themselves for personal use.  They further lied to investors who later inquired about the progress of the transactions, lulling them with excuses about why they have yet to receive investment returns or refunds.

“Under the guise of a name insinuating they would make a lot of money for investors, the individuals behind this scheme sought nothing more than to make a lot of money for themselves,” said Stephen L. Cohen, an associate director in the SEC’s Division of Enforcement.  “They peddled agreements and transactions filled with technical-sounding jargon that was as meaningless as their promises to investors.”

In a parallel action, the U.S. Department of Justice today announced criminal charges against the same six individuals charged in the SEC’s complaint:

Anthony B. Brandel of Las Vegas, who served as Malom Group’s main point of contact with U.S. investors – explaining the investments, collecting investor funds, and lulling investors about the status of the transactions.  His Las Vegas company M.Y. Consultants also is charged in the SEC’s complaint.
Sean P. Finn of Whitefish, Mont., who recruited U.S. investors through his Wyoming-based company M. Dwyer LLC, which also is charged in the SEC’s complaint.
Hans-Jürg Lips of Switzerland, who has been described as the Malom Group’s president or chairman of the board of directors.
Joseph N. Micelli of Las Vegas, who has been described as Malom Group’s compliance officer.
Martin U. Schläpfer of Switzerland, who has been described as Malom Group’s chief executive officer, managing director, and legal counsel.
James C. Warras of Waterford, Wisc., who has been described as Malom Group’s executive vice president.
According to the SEC’ s complaint filed in U.S. District Court for the District of Nevada, the schemes occurred from 2009 to 2011 and the lulling of investors continued into 2013.  None of the transactions in securities offered or sold were registered with the SEC or eligible for an exemption.  In the first scheme, they offered “joint venture” agreements that purportedly allowed investors to “use” Malom Group’s financial resources in exchange for an upfront fee.  The agreements required the investors to propose investment transactions for Malom Group to enter into with third parties in order to generate returns for the company and the investor.  Malom Group supplied investors with forged bank statements and “proof of funds” letters to give the false impression that the company had the millions of dollars needed for the transactions.  Before investors paid their upfront fees, the Malom Group executives and promoters typically knew at least the basic details of the proposed trading programs, in some cases actually providing the trading program for investors to propose.  But after receiving the upfront fees from investors, Malom Group proceeded to reject every proposed transaction and misappropriate investor funds to further the scheme and line the perpetrators’ pockets.

According to the SEC’s complaint, the second scheme falsely promised investors that Malom Group would generate funding by creating structured notes that would be listed on “Western European” exchanges.  After inducing investors to pay an “underwriting fee” and making personal and corporate guarantees of repayment, Malom Group reneged on the guarantees of repayment and failed to issue any structured notes.  Again the perpetrators behind the scheme quickly distributed investor funds among themselves.

The SEC’s complaint alleges that Malom Group, Schläpfer, Lips, Warras, and Micelli violated the antifraud and securities registration provisions of the federal securities laws, and Brandel, Finn, M.Y. Consultants, and M. Dwyer LLC violated the antifraud and securities and broker-dealer registration provisions.  The SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

The SEC’s investigation was conducted by Stephen Simpson and Angela Sierra, and the SEC’s litigation will be led by Mr. Simpson.  The SEC appreciates the assistance of the Department of Justice, Federal Bureau of Investigation, and State Attorney’s Office for the Canton of Zurich, Switzerland.

Friday, December 20, 2013


SEC Charges Seven Individuals and Six Entities Involved in Prime Bank Fraud

The Securities and Exchange Commission filed a civil injunctive action on December 12, 2013, in the United States District Court for the District of Colorado against Colorado resident Daniel D. Coddington, his company Golden Summit Investors Group, Ltd., and others who carried out a Prime Bank Fraud that raised more than $31 million from 2010 through 2012.

The SEC’s complaint alleges that Coddington, Jesse W. Erwin, Merlyn C. “Curt” Geisler, Marshall D. Gunn, Lewis P. Malouf, Golden Summit, Extreme Capital Ltd, Fidelity Asset Service Corp., Geisco FNF, LLC and SouthCom Management, LLC claimed to have access to special programs that would provide annual returns of more than 250 percent by obtaining loans against a financial instrument known as a collateralized mortgage obligation, or CMO, and then investing the loan proceeds in a purported CMO trading program.  The complaint alleges that the above individuals and entities never obtained any loans against CMOs or placed investor funds in a CMO trading program, but instead misappropriated investor funds for their own use.  The complaint also alleges that Seth A. Leyton, Michael B. Columbia and Stonerock Capital Group LLC aided and abetted the fraud by selling CMOs held for the benefit of investors and funneling those proceeds back to Coddington.

The SEC’s complaint alleges that Coddington, Erwin, Geisler, Gunn, Malouf, Golden Summit, Extreme Capital, Fidelity Asset, Geisco and SouthCom violated the antifraud provisions of the securities laws in Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder; and that Coddington, Erwin, Columbia, Leyton, and Stonerock Capital also aided and abetted these violations.  The complaint also alleges that Coddington, Geisler, Gunn, Malouf, Extreme Capital, Geisco, Golden Summit, and SouthCom violated the security registration provisions of the securities laws in Sections 5(a) and (c) of the Securities Act.  Also, the complaint alleges that Coddington, Geisler, Gunn, Malouf, Extreme Capital, Geisco, Golden Summit, and SouthCom violated Section 15(a) of the Exchange Act by acting as unregistered broker-dealers.  The SEC’s complaint seeks permanent injunctions, disgorgement plus prejudgment interest, third-tier penalties, and other relief against all of the defendants.   Additionally, the complaint seeks disgorgement plus prejudgment interest from relief defendants Daniel S. “Scott” Coddington, Coddington Family Trust, Joanna I. Columbia, Vincent G. Farris, and Vincent G. Farris Co., L.P.A.

The SEC’s investigation was conducted in the Denver Regional Office by John C. Martin, Kerry M. Matticks and James A. Scoggins.  Leslie J. Hughes will lead the SEC’s litigation.  The SEC acknowledges the assistance and cooperation of the Federal Bureau of Investigation and the Financial Industry Regulatory Authority.

Thursday, December 19, 2013


Remarks at SEC Open Meeting
Statement on Proposed Rules to Amend Regulation A
 Commissioner Kara M. Stein
U.S. Securities and Exchange Commission
Washington, D.C.
Dec. 18, 2013

Today, the Commission is taking an important step towards completing its responsibilities under the Jumpstart Our Business Startups Act, commonly called the JOBS Act.

I also would like to thank the staff for all of your hard work in getting this Proposed Rule before us today so we may continue our progress towards implementing the JOBS Act.  I would also like to thank my fellow Commissioners for working with me to put into this proposal a framework for what may be a better path forward than the text of the rule being proposed today.  I am concerned that the rule we are proposing today will not work for issuers seeking to raise smaller amounts of capital, will unnecessarily preclude the states from performing an important oversight role, and will not ultimately achieve the goals of the drafters.  Nevertheless, I will support this proposal so that we may hear from small businesses, investors, the states, and others on how we may best improve it.

In the aftermath of the Great Recession, far too many small businesses with great ideas, great people, great products, and customers, were unable to secure the capital that they needed to survive and grow.   The JOBS Act was enacted to help solve that problem by revising some of the restrictions imposed by the federal securities laws.  One portion of the JOBS Act, Section 401, added a new exemption from registration to Section (3)(b) of the Securities Act for offerings of up to $50 million per year, subject to certain basic statutory protections.  This new exemption is loosely being termed Reg A plus, as it is modeled after the existing exemption under Section 3(b), which was the basis for Regulation A.  Our work today is to propose how the Commission may best implement these provisions.

Regulation A, which allows for an exemption for securities offerings of up to $5 million, as  mentioned by my fellow Commissioners, has been used very rarely, as acknowledged in the release.  The Government Accountability Office and others have studied this issue and identified a number of reasons why issuers use this exemption infrequently, including the comparative ease with which issuers may raise capital through Rule 506 offerings, the small amount of capital that can be raised in reliance on the exemption, and the difficulty of navigating the various relevant state securities laws.

In seeking to construct a new exemption for smaller issuers, Congress sought to revive and improve Regulation A.   It lifted the ceiling for offerings made under the new exemption to $50 million.  Commensurate with the increased size of the new exempted offerings, Congress inserted important, basic investor protections into the statute, such as requiring issuers to provide audited financial statements.  Equally important, Congress did not explicitly preempt these smaller offerings from all state securities regulation.  To the contrary, Congress deliberately revised the bill to ensure that state securities laws were not explicitly preempted before the bill’s final passage.

I am concerned that the Proposed Rule before us today does not yet achieve the appropriate balance between promoting capital formation for issuers and protecting investors.  I believe that the states play an important role protecting investors.  The Proposed Rule explicitly preempts the state securities laws for offerings relying upon this new exemption, notwithstanding Congress’ decision not to do so.  The Proposed Rule also fails to make any real attempt to make the old Regulation A, which is for offerings up to $5 million, work.  I think we could and should have included in the text of the rule a clear proposal as to how to make the old Regulation A exemption work.

The Proposed Rule does make great efforts to ensure that larger offerings relying on the new exemption are subject to critical investor protections, including audited financials and ongoing reporting obligations.  Those are important.  I urge commenters to explore these protections and offer thoughts regarding how we can improve them.  I also specifically look forward to comments on what role states can and should play in the regulatory regime, and I encourage the states to continue their diligent work toward a coordinated review process.[1] The states are often uniquely well-suited to oversee these kinds of offerings, with strong motivations to both protect investors and support the success of their local businesses seeking to raise money.  

I also remain concerned with how this proposal fits within the overall framework of our federal regulatory regime.  We just proposed a rule for Crowdfunding that includes greater investor protections than the Tier 1 proposal before us today, despite the fact that issuers can raise up to $5 million from retail investors in a Tier 1 offering, and only $1 million through Crowdfunding.  As I said before, we should be taking this opportunity to improve the old Regulation A to make it both more useful to issuers and protective of investors.

I also worked with my fellow Commissioners to ensure that this proposal outlines alternative approaches, including the development of an intermediate tier.  That tier could involve state-level oversight, while also streamlining the requirements to make the exemption more accessible for issuers seeking lesser amounts, such as $10 million.  I look forward to robust comment on this approach.

We all want to make sure the new and improved Regulation A exemption works for both issuers and investors.  Unfortunately, I’m not yet convinced that today’s proposal fulfills that objective, but I am confident that the Commission will benefit from the input of all stakeholders as we seek to finalize it.

Again, I thank the staff and my fellow Commissioners for their work on this proposal, and I look forward to learning with them how we can best improve and finalize it in the near future.  Thank you.


Remarks at SEC Open Meeting
Promoting Investor Protection in Small Business Capital Formation
 Commissioner Luis A. Aguilar
U.S. Securities and Exchange Commission
Washington, D.C.

Dec. 18, 2013

Today, the Commission proposes rules to implement Title IV of the JOBS Act.[1]  As mandated by that Act, the proposed rule would allow companies to issue a class of securities that are exempted from the registration and prospectus requirements of the Securities Act, provided that certain conditions are met.[2]  This is the third major rulemaking undertaken by the Commission to comply with the JOBS Act since its adoption last year.[3]

Enhancements to Investor Protection under Regulation A-plus

The proposed rules being considered today enhance an existing exemptive regime known as Regulation A.  Under the current provisions of Regulation A, companies can raise up to $5 million per year without registration, provided that they file an offering statement with the Commission containing certain required information and furnish an offering circular to purchasers, among other conditions.[4]

Today’s proposal, often referred to as “Regulation A-plus,” would extend this exemption to issuances of up to $50 million in any 12-month period, while at the same time increasing investor protection for so-called “Tier 2” offerings[5] in four important ways:

First, by enhancing disclosure requirements, and by requiring companies to include audited financial statements in their offering circulars;
Second, by ensuring that the Commission staff has an opportunity to review and comment on the offering circular before it becomes effective;
Third, by limiting the amount of securities that a potential investor may invest to 10% of the investor’s annual income or net worth, whichever is greater; and
Fourth, by requiring companies that issue a class of securities under Regulation A-plus to file ongoing disclosure reports, so long as the securities are held of record by at least 300 investors.[6]  
Given the $50 million limit on offerings under Regulation A-plus, the offering statement and ongoing disclosure reports required by the proposed rules are focused on the types of information that the staff’s experience suggests are relevant to smaller companies and their investors.  As a result, the required disclosure, while valuable, is less extensive than the disclosure required in a registered offering.  In that regard, I encourage commenters, and in particular investors with experience investing in smaller companies, to comment in detail about the specific disclosures that would be valuable to require in offering circulars and reports under revised Regulation A.

It is my hope that the final disclosure requirements will protect and inform investors, resulting in the investor confidence necessary for the success of Regulation A-plus, while at the same time providing an appropriate alternative to registered offerings for those small and emerging companies that need access to public capital to grow and create jobs.[7]

The Role of the States

Today’s release also addresses the issue of preempting state blue sky review for Regulation A‑plus offerings, as provided for in Section 401(b) of the JOBS Act.[8]  One way the statute enables preemption is by authorizing the Commission to adopt a definition of “qualified purchaser” with respect to such offerings, as offers and sales to qualified purchasers would be exempt from state registration or qualification.[9]  To that end, today’s proposal would define “qualified purchaser” to include all offerees, and all purchasers in “Tier 2” offerings.[10]  In other words, the proposed rule defines “qualified purchaser” in a way that would preempt all Tier 2 offerings from state blue sky requirements—although state securities commissions would nevertheless retain jurisdiction to investigate and bring enforcement actions in the case of any fraud or deceit.

However, as the Commission acknowledges in the proposing release,[11] the North American Securities Administrators Association—known as NASAA—recently proposed a coordinated process to streamline review of Regulation A offerings.[12]  This new streamlined protocol could substantially reduce state securities law compliance hurdles for Regulation A issuers by reducing the cost and time frame associated with state review.[13]  In that regard, the proposing release solicits comments on potential alternative approaches to the definition of “qualified purchaser”[14] that would take into account possible state review.[15]

The Commission is mindful of the important role that state securities administrators play in protecting investors and promoting capital formation, particularly with respect to smaller offerings.[16]  It has long been recognized that the states are on the “front lines” of antifraud enforcement for smaller offerings.[17]  Moreover, the states have a history of working closely with issuers and investors in their jurisdictions, and have extensive experience reviewing small offerings.[18]  This is important expertise and experience to incorporate into the process. Accordingly, I look forward to NASAA and the state regulators completing their work to implement a workable protocol for state review of offerings under Regulation A, and I urge both investors and other interested parties to comment on the pros and cons of incorporating a form of state review into the Regulation A qualification process.

Ongoing Reporting and Secondary Trading

Before concluding, it is important to note that, in accordance with the statute, securities issued pursuant to Regulation A-plus will not be restricted securities, and will thus be freely tradeable by security holders who are not affiliates of the issuer.[19]  Accordingly, the ongoing reporting requirements in the proposed rules provide an important protection for investors in securities issued pursuant to Tier 2 of Regulation A.

It cannot yet be known whether a reliable secondary market will develop for Regulation A securities.  However, even with the proposed reporting requirements, the market for such securities will almost certainly be less transparent than the market for listed securities.  In addition, given the smaller offering size and reduced transparency, Regulation A securities may experience wider spreads, lower liquidity, and the potential for significant volatility as compared to registered securities, in any secondary trading markets that may develop.

Although the JOBS Act is silent regarding what actions can be taken to mitigate the risks to investors that may result from such a trading environment, the Commission must be proactive in addressing foreseeable consequences.

In that regard, I expect the staff to actively monitor any secondary trading activity that develops after adoption with respect to Regulation A securities, for any possible indications of fraud, manipulation, or market failure.   The rule changes we propose today will not achieve the hoped for benefits in capital formation, if the end result is that investors are left holding a portfolio of securities that cannot be valued or sold.

Notably, Regulation A-plus is just one of several initiatives under the JOBS Act that raises this issue.  Other JOBS Act provisions may also increase the number of companies that are exempt from the registration and reporting requirements of the Exchange Act, but still have significant security holdings in public hands.  For example, the availability of general solicitation and advertising under Regulation D allows shares to be sold to an unlimited number of accredited investors in transactions that are much more widely dispersed than the traditional private placement.  Although such securities are initially restricted, they may be resold after a one-year holding period pursuant to Rule 144, provided that certain limited information about the issuer is publicly available.  Similarly, as currently proposed, shares issued in crowdfunding transactions would be freely tradable after a one-year holding period.[20]

While there may not be a single, simple solution to this developing problem, it is clear that the Commission needs to take a hard and comprehensive look at Exchange Act Rule 15c2-11, which describes the information required under Rule 144 for non-reporting companies, and provides the conditions pursuant to which broker-dealers may publish quotations in over-the-counter securities.[21]  The problems with Rule 15c2-11 have long been documented,[22] and the likelihood of an exponential growth in companies whose securities trade in reliance on that rule is real.  The Commission needs to get in front of the problem and not wait until investors are harmed.  It is my hope that the staff will complete such a review, together with any recommended ameliorative steps, before the adoption of the rules implementing crowdfunding and Regulation A-plus.

As always, the Commission’s focus must be on the public interest and the interests of investors, who alone supply the capital required for capital formation.

I look forward to comments on today’s proposal and on the issues raised in the release.

Finally, I want to thank the staff for their hard work on this proposal.

[1] Jumpstart Our Business Startups Act, Pub. L. No. 112-106, 126 Stat. 306 (2012) (the “JOBS Act”), §§ 401-402.

[2] Title IV of the JOBS Act amends certain provisions of the Securities Act of 1933, 15 U.S.C. 77c(b) (the “Securities Act”), to provide this mandate.

[3] The JOBS Act was signed into law on April 5, 2012.  Titles I, V, and VI of the Act are self-operating.  Rules to implement Title II of the JOBS Act, which amended Rule 506 of Regulation to remove the ban on general solicitation and general advertising, so long as sales are made only to accredited investors, were proposed August 29, 2012 (Rel. No. 33-9354) and adopted July 10, 2013 (Rel. No. 33-9415).  Rules to implement Title III of the JOBS Act, to provide an exemption for qualifying Internet crowdfunding transactions, were proposed on October 23, 2012 (Rel. No. 33-9470).  In addition, the staff of the Commission published two reports required by the JOBS Act—the “Report on Authority to Enforce Exchange Act Rule 12g5-1 and Subsection (b)(3)” as required by Section 504 of the JOBS Act (October 16, 2012), and the “Report to Congress on Decimalization” as required by Section 106 of the JOBS Act (July 20, 2012)—and hosted a public roundtable on decimalization on February 5, 2013.   I have publicly and privately urged the Commission to complete its important work under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), with all deliberate speed.  Numerous important requirements under the Dodd-Frank Act remain unfulfilled, despite the fact that well over three years have passed since enactment.

[4] See, Regulation A under the Securities Act, 17 C.F.R. §§ 251-263.

[5] The proposed amendments would create two tiers of offerings:  Tier 1, for offerings of up to $5 million in a twelve-month period, and Tier 2, for offerings from zero to up to $50 million in a twelve-month period.  An issuer seeking to raise $5 million or less could elect to proceed under either Tier.  Both Tiers would be subject to certain basic requirements as to issuer eligibility, disclosure, and other matters.  Tier 2 offerings would also be subject to additional requirements, including audited financial statements, ongoing reporting obligations, and an investment limit of 10% of the investor’s annual income or net worth, whichever is greater.  As proposed, sales pursuant to Tier 2 would be exempted from state registration or qualification pursuant to the preemption provisions under the JOBS Act; sales pursuant to Tier 1would remain subject to blue sky review.  See note 8 below and accompanying text.

[6] The proposed amendments would provide for the filing of an annual report on proposed new Form 1-K, semiannual updates on Form 1-SA, and current event reporting on Form 1-U, so long as the securities are held of record by at least 300 investors.

[7] Recently-established, fast-growing firms, sometimes called “gazelles,” are extremely important to job growth.  One study reported that 43,000 rapidly-expanding businesses between three and five years old—about eight-tenths of 1% of all U.S. businesses—were responsible for about 10% of overall net job creation in the economy.  D.  Stangler, High-Growth Firms and the Future of the American Economy, Ewing Marion Kauffman Foundation, Research Series (March 2010) 7, available at .  Research shows that companies in that category are particularly dependent on outside equity investments for early stage capital.  A.M. Robb and D.T. Robinson, The Capital Structure Decisions of New Firms, Ewing Marion Kauffman Foundation, (November 2008), available at .

[8] JOBS Act §401(b).

[9] Securities Act §18(b)(4)(D)(ii), as added by JOBS Act §401(b).

[10] Proposed Rule Amendments for Small and Additional Issues Exemptions Under Section 3(b) of the Securities Act, SEC Release No. 33-XXXX (December 18, 2013) (“Proposing Release”) 183.

[11] Proposing Release 176-77.

[12] See, NASAA Release, dated October 30, 2013, Notice of Request for Public Comment: Proposed Coordinated Review Program for Section 3(b)(2) Offerings, available at: ; see, also, letter from Andrea Seidt, the President of NASAA, to Chair White of the SEC, dated December 12, 2013.

[13] Proposing Release 185.                          

[14] Proposing Release 185-88, 192-93.

[15] Proposing Release 185-86 (“We will also consult with the states and consider any changes to the states’ processes and requirements for reviewing offerings, before we adopt final amendments.”).

[16] Section 19(d) of the Securities Act establishes a policy of federal and state cooperation in securities matters and authorizes the Commission to cooperate with state securities administrators and any association of their duly constituted representatives.  For three decades, the Commission and NASAA have conducted an annual conference to promote effective regulation, uniformity in federal and state regulatory standards, capital formation, and administrative efficiency.

[17] In 2012, NASAA members initiated 2,496 enforcement actions, resulting in $694 million in awards to investors and 1,361 years of incarceration sentenced upon violators.  NASAA Enforcement Report (October 2013), available at .

[18] All states currently conduct disclosure review of Regulation A securities offerings, and a majority of the states also conduct merit reviews, based on the terms of the offering.  See, e.g., U.S. Gov’t Accountability Office, Factors That May Affect Trends In Regulation A Offerings (July 2012) 13.

[19] Securities Act §3(b)((2)(C), as added by JOBS Act §401(a).  See, Rule 144 under the Securities Act.

[20] The effect is compounded by other provisions of the JOBS Act, which substantially raised the number of holders a company may have before it is required to register as a reporting company under the Exchange Act.  This loosening of the reporting threshold is exacerbated by the fact that reporting triggers continue to be based on the number of “record holders,” which may fail to count large numbers of beneficial owners for securities held in “street name.”

[21] Exchange Act Rule 15c2-11 requires, among other things, that a broker-dealer have in its records certain information specified in paragraph (a) of the rule before it publishes any quotation for an issuer’s security in any quotation medium other than a national securities exchange.  In addition, the broker-dealer must, based on a review of that information together with any other documents and information required by subsection (b) of the rule, have a reasonable basis under the circumstances for believing that the paragraph (a) information is accurate in all material respects, and that the sources of the paragraph (a) information are reliable.  Certain information required by paragraph (a) must be made reasonably available upon request to any person expressing an interest in a proposed transaction in the security with such broker-dealer.  However, under the so-called piggyback exception of Rule 15c2-11(f)(3), a broker-dealer may publish quotations on a security in an interdealer quotation system, without complying with such information gathering requirements, if the security has been quoted in the same system on at least 12 of the previous 30 calendar days, with no more than four business days in succession without a quotation.  A broker-dealer can "piggyback" on either its own or other broker-dealers’ previously published quotations.  17 C.F.R. §240.15c2-11.

[22] See, Publication or Submission of Quotations Without Specified Information, SEC Release No. 34-41110 (February 25, 1999), available at (reproposing amendments to Rule 15c2-11 originally proposed in response to “concerns about increased incidents of fraud and manipulation in over-the-counter (OTC) securities…”); Publication or Submission of Quotations Without Specified Information, SEC Release No. 34-39670 (February 17, 1998), available at (the requirement to make information available to investors on request “may have little practical effect because only the first broker-dealer to publish quotations must have the information, and an investor might find it difficult to identify that broker-dealer”);  See, also, Michael Molitor, Will More Sunlight Fade the Pink Sheets? Increasing Public Information About Non-Reporting Issuers with Quoted Securities, 39 Ind. L. Rev. 309 (2006) (due to Rule 15c2-11’s “piggyback” provision “it may be difficult for an investor actually to get the information [required by paragraph (a)].”  And, Rule 15c2-11 “is badly flawed because neither the investor nor the registered representative of the broker-dealer will possess the required information in most instances.  Moreover, even if the piggyback exception does not apply, the investor will receive the information only if he or she asks for it.”  Also, “[j]ust as the content of paragraph (a) information is paltry compared to the information required of Exchange Act reporters, its timeliness could lag far behind that required of Exchange Act reporters ….”).


Remarks at SEC Open Meeting
Opening Statement on Proposal for Regulation A+
 SEC Chair Mary Jo White
Washington, D.C.

Dec. 18, 2013

Good morning.   This is an open meeting of the U.S. Securities and Exchange Commission on Dec. 18, 2013, under the Government in the Sunshine Act.

Today we are considering an important rulemaking mandated by the Jumpstart Our Business Startups (JOBS) Act.  Title IV of the JOBS Act requires the Commission to adopt rules to create a new exemption from registration under the Securities Act for offerings of up to $50 million dollars in a 12-month period.

This new exemption is intended to build upon Regulation A, which is an existing exemption from registration for small issues of up to $5 million within a 12-month period.  We often have referred to this new exemption as Regulation A+.

At its core, the mandate of Regulation A+ is to help increase the access of smaller companies to capital.  This is obviously a very important objective.  Our rulemaking goal is to make Regulation A+ an effective, workable path to raising capital that – very importantly – also builds in the necessary investor protections.

As it exists today, Regulation A is little used by issuers.  A GAO Report last year found that various factors have contributed to this outcome, including the type of investors that businesses seek to attract, the process of filing with the Commission, state securities law compliance, and the cost-effectiveness of Regulation A relative to other exemptions.  The factors identified by the GAO Report were not a surprise to either regulators or market participants.

Responding to this record, the proposal we are considering today aims to increase the use of Regulation A by establishing two tiers – Tier 1 for offerings up to $5 million and Tier 2 for offerings up to $50 million.  The proposal builds on our existing regulation in several ways to put forward an effective exemption that maintains important investor protections and addresses the challenges of balancing the respective roles of federal and state law.

First, the proposed rules broadly preserve and modernize the essential, current framework of Regulation A, including existing provisions regarding issuer eligibility, offering circulars, “testing the waters,” and bad actor disqualifications.  The proposal also retains the review and qualification of offering statements by the Commission and its staff.  I believe that such review and qualification is a critically important investor protection.

Second, the proposed rules include additional investor protections designed to address the heightened risk to investors associated with increasing the annual offering limitation to $50 million.  Tier 2 offerings would, for example, impose a limitation on the amount of securities that investors can purchase and require audited financial statements and ongoing reporting from issuers.

Third, in light of these investor protections and the need to develop a workable exemption, the proposed rules would preempt state securities laws with respect to Tier 2 offerings, but preserve state review with respect to Tier 1 offerings.  The complexity, time, and cost of compliance with state securities laws for Regulation A offerings was cited by the GAO Report – and was repeatedly cited in the pre-rulemaking comments we received – as a key reason for the limited use of the exemption.  To ensure that the revised exemption will be a viable path for capital-raising, a calibrated preemption of state securities laws in connection with certain Regulation A offerings currently appears necessary.

Importantly, however, the proposal explores alternative approaches to addressing the challenge of balancing the respective roles of federal and state securities laws.  One recent significant development is the proposal by the North American Securities Administrators Association (NASAA) for coordinated reviews of Regulation A offerings, which, if fully implemented, could potentially reduce the costs of compliance with state securities law obligations and enhance the speed of state-level review.  NASAA has taken significant steps to develop a coordinated review program, including milestones they highlighted in a letter to the Commission just last week.  I will be closely watching the continued development of this program and would like to hear more about how this program could effectively resolve the challenges identified with the current approach to state securities law compliance.

The proposal we are considering today is very thoughtful and benefits from the staff’s careful analysis and work over many months, and it considers a range of approaches to developing a workable exemption that preserves investor protections.  It provides a strong basis for moving forward on this important initiative.  We should, however, be open to views on all of the issues raised by the proposal.

Before I turn the proceedings over to Keith Higgins, the Director of the Division of Corporation Finance, to discuss the recommendations, I would like to thank the staff for all of their efforts to develop this proposal.  Specifically, I would like to thank Keith Higgins, Mauri Osheroff, Sebastian Gomez Abero, Karen Wiedemann, Zachary Fallon, Shehzad Niazi, Paul Dudek, Amy Starr, Craig Olinger, and Mark Green in the Division of Corporation Finance; Annie Small, Rich Levine, David Fredrickson and Dorothy McCuaig in the Office of the General Counsel; Craig Lewis, Scott Bauguess, Erin Smith, Vladimir Ivanov , Rachita Gullapalli, and Christopher Meeks in the Division of Economic and Risk Analysis; Brian Croteau, Jeffrey Minton, John Cook, Kevin Stout, Ellen Gazlay, and Eric West in the Office of the Chief Accountant; Andrea Orr, Josephine Tao, Carla Carriveau, and John Guidroz in the Division of Trading and Markets; and James Curtis and Christian Sandoe in the Division of Investment Management.  I also would like to thank my fellow Commissioners and their counsels for their hard work on this proposal.


Massachusetts Investment Adviser Sentenced to 36 Months in Jail for Defrauding Investors

The Securities and Exchange Commission (Commission) announced that, on December 11, 2013, Judge Denise J. Casper of the United States District Court for the District of Massachusetts sentenced former Plymouth, Massachusetts investment adviser Jeffrey A. Liskov (Liskov) to serve a prison term of 36 months, followed by a supervised probationary period of 3 years, and to pay $3,003,147 in restitution. The sentence was imposed in connection with Liskov’s guilty plea in July 2013 to a one-count criminal Information charging him with willfully violating Section 206 of the Investment Advisers Act of 1940 (Advisers Act).

The Commission previously filed a civil action against Liskov and his former advisory firm, EagleEye Asset Management, LLC (EagleEye), for defrauding their clients in connection with foreign currency exchange (forex) investments. The factual allegations in the criminal Information are substantially similar to those in the Commission’s complaint in the civil case.  The Commission’s complaint, filed on September 8, 2011, alleged that, between at least November 2008 and August 2010, Liskov made material misrepresentations to several advisory clients to induce them to liquidate investments in securities and instead invest in forex. The forex investments resulted in client losses totaling nearly $4 million, while EagleEye and Liskov pocketed over $300,000 in performance fees. The Commission alleged that Liskov’s strategy was to generate temporary profits on client forex investments to enable him to collect performance fees, after which client forex investments invariably quickly declined in value.

According to the Commission’s complaint, Liskov made material misrepresentations or failed to disclose material information to clients concerning the nature of forex investments, the risks involved in forex, and Liskov’s poor track record in forex trading for himself and other clients. The Commission’s complaint further alleged that, as to two clients, without their knowledge or consent, Liskov liquidated securities in their brokerage accounts and transferred the proceeds to their forex trading accounts where he lost nearly all their funds, but not before first collecting performance fees on temporary profits in these clients’ forex accounts. The complaint alleged that Liskov accomplished the unauthorized transfers by using “white out” correction fluid to change dates, amounts, and other data on asset transfer documentation. Liskov also opened multiple forex trading accounts in the name of one client, without obtaining the client’s consent, thereby maximizing his ability to earn performance fees on the client’s forex investments.

As result of the foregoing conduct, the Commission alleged that EagleEye and Liskov violated Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Advisers Act. The Commission also alleged that EagleEye failed to maintain certain books and records required of investment advisers in violation of Section 204 of the Advisers Act and Rule 204-2 thereunder, and that Liskov aided and abetted EagleEye’s violations of these recordkeeping provisions.

After an eight-day trial in the Commission’s civil case, on November 26, 2012, a jury found that EagleEye and Liskov violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 206(1) of the Advisers Act. After a further hearing, United States District Court Judge William G. Young found that EagleEye and Liskov violated Section 204 of the Advisers Act and Rule 204-2 thereunder, concerning recordkeeping obligations relating to EagleEye’s business. On December 12, 2012, the Court entered a final judgment against EagleEye and Liskov in the Commission’s action, ordering that they be permanently enjoined from future violations of the foregoing provisions of the securities laws. The Court also ordered EagleEye and Liskov to pay, jointly and severally, disgorgement of their ill-gotten gains in the amount of $301,502.26, plus pre-judgment interest on that amount of $29,603.59, and each to pay a civil penalty of $725,000.

On December 27, 2012, the Commission instituted public administrative proceedings against each of EagleEye and Liskov to determine what sanctions against them, if any, would be appropriate and in the public interest. On July 24, 2013, an administrative law judge revoked EagleEye’s registration as an investment adviser and barred Liskov from, among other things, associating with any investment adviser. On September 23, 2013, the Commission issued orders of finality in the administrative proceedings against EagleEye and Liskov.

The Commission acknowledges the assistance of Secretary of the Commonwealth of Massachusetts William F. Galvin’s Securities Division and the United States Commodity Futures Trading Commission, both of which filed cases against EagleEye and Liskov in September 2011.

Wednesday, December 18, 2013


CFTC Orders David R. Lynch to Pay More than $470,000 in Restitution and a Civil Monetary Penalty to Settle Charges of Fraudulent Misappropriation, Fraudulent Solicitations, and False Statements

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it entered an Order requiring David R. Lynch of Stuart, Florida, to make restitution of $171,297 to defrauded customers and pay a $300,000 civil monetary penalty, among other sanctions, for fraudulent misappropriation, fraudulent solicitations, and false statements in connection with a commodity pool trading leveraged or margined off-exchange foreign currency contracts (forex). Lynch has never been registered with the CFTC.

According to the CFTC’s Order, from about December 2008 through July 4, 2013, Lynch operated a commodity pool and fraudulently solicited at least $348,450 from at least 14 pool participants. Lynch falsely told pool participants that he had earned as much as 7 percent per month trading forex, that they could never lose their principal, and that they could get their funds back at any time. However, Lynch deposited only a portion of his pool participants’ funds in forex trading accounts and the trading he did was unprofitable, the Order finds.

The CFTC’s Order also finds that Lynch misappropriated over $126,000 of his pool participants’ funds by using part of those funds to pay his personal expenses and the remainder to pay false profits or purported returns of capital to some pool participants in the manner of a Ponzi scheme. Further, to conceal his trading losses and misappropriations, Lynch issued monthly account statements to pool participants that falsely showed that pool participants were earning consistent profits.

In addition to ordering restitution to be made and imposing a civil monetary penalty, the CFTC Order also requires Lynch to cease and desist from further violations of the Commodity Exchange Act and a CFTC regulation, as charged, and imposes permanent bans on trading, registration, and certain other commodity related activities.

CFTC Division of Enforcement staff members responsible for this case are Glenn I. Chernigoff, Alison B. Wilson, Kara L. Mucha, and Gretchen L. Lowe.

Tuesday, December 17, 2013


SEC Awarded $400,000 in Disgorgement from Certified Public Accountant for His Violations of Commission Suspension Order

The Securities and Exchange Commission today announced a court ruling that requires certified public accountant Michael H. Taber to pay the government $400,000 in compensation he received while suspended from appearing or practicing before the Commission as an accountant.

According to the SEC's application filed in U.S. District Court for the Southern District of New York, Taber violated a 2004 Commission Order suspending him. The 2004 Order was based on a fraud injunction obtained against Taber, in SEC v. Del Global Techs. Corp., 04 CV 4092 (S.D.N.Y. filed June 1, 2004), for his participation in a fraudulent scheme as the chief financial officer of a New York-based company. While suspended, Taber repeatedly drafted, compiled, and edited information and data that was incorporated into requisite periodic reports that public companies filed with the SEC.

On October 3, 2013, the district court entered an order enforcing compliance by Taber with the 2004 Commission Order and directing the parties to submit their positions regarding disgorgement. On December 5, 2013, U.S. District Judge Katherine B. Forrest entered an order awarding the Commission $400,000 in disgorgement from Taber, who is licensed as a certified public accountant in New York and is currently a Florida resident.

Monday, December 16, 2013


CFTC Names Mark P. Wetjen Acting Chairman of the Commission

Washington, DC —The U.S. Commodity Futures Trading Commission (CFTC or Commission) today announced that the members of the Commission have unanimously elected Commissioner Mark P. Wetjen to serve as Acting Chairman upon the end of Chairman Gary Gensler’s service.

“I am honored to have been chosen to serve as Acting Chairman,” said Commissioner Wetjen. “I thank my colleagues, Commissioners Chilton and O’Malia, for their support and look forward to working collaboratively to oversee the ongoing implementation of the Dodd-Frank Act and the continuation of the CFTC’s critical mission. I also would like to thank Chairman Gensler for his leadership of this agency and of the financial reform effort in the aftermath of the financial crisis. I am eager to continue that effort in consultation with my fellow commissioners.”

“I am so pleased that my friend and partner Mark Wetjen will be Acting Chairman at such an exciting time for the agency,” Gensler said. “Mark has worked tirelessly to bring swaps market reform to life. The Commission has greatly benefitted from his thoughtful insight. The CFTC will be well served with Mark at the helm as it continues the important work of implementing financial reforms for the benefit of the public.”

Wetjen was sworn in as a Commissioner of the CFTC on October 25, 2011. Prior to his CFTC service, he worked in the U.S. Senate as a senior leadership staffer advising on all financial-services-related matters. Before his service in the U.S. Senate, Commissioner Wetjen was a lawyer in private practice.

Born and raised in Dubuque, Iowa, Commissioner Wetjen received a bachelor’s degree from Creighton University and a law degree from the University of Iowa College of Law.


December 16, 2013
CFTC Announces Sayee Srinivasan as the Acting Chief Economist

Washington, DC — U.S. Commodity Futures Trading Commission (CFTC or Commission) Chairman Gary Gensler today announced that Sayee Srinivasan has been named Acting Chief Economist.

“I am very pleased that such a talented economist as Sayee will lead the Office of the Chief Economist,” said Chairman Gensler. “Sayee’s work has been critical to bringing much-needed transparency to the swaps marketplace. His experience and market acumen will be very valuable as the Commission continues working to promote transparency in the derivatives markets.”

In his new role, Mr. Srinivasan will be responsible for leading the Commission’s efforts drafting policy and rule-making; advising the Chairman, Commission and senior staff on industry practices and CFTC policy implications; assisting the Commission in developing capacity to analyze swaps data; publishing the Weekly Swaps Reports and guiding research as it relates to market structure for futures and swap markets.”

“The derivatives markets are in a critical stage of transition from over-the-counter to regulated platforms,” said Mr. Srinivasan. “I am excited for the opportunity to work with the talented CFTC staff and with other agencies to leverage new data sources to track and improve our understanding of these markets.”

Mr. Srinivasan joined the Commission in 2012 in the Office of the Chief Economist. He has already made critical contributions on policy and rule development on issues pertaining to the market structure of futures and swaps markets. Prior to joining the Commission, he worked with the Chicago Mercantile Exchange, the Bombay Stock Exchange, the National Stock Exchange of India, and OptiMark Technologies focusing on market and product design, trading rules, and business development across a broad range of asset classes, and both cash and derivatives markets. His research interest includes regulatory policy development on issues related to pre-trade, trade, and post trade technology, systems, processes and risk management.

Mr. Srinivasan has a Ph.D. and an M.A. in Economics from the University of Texas at Austin. He has a B.A. in Accounting and an M.A. in Finance from University of Bombay (now University of Mumbai).


The Securities and Exchange Commission today charged a London-based hedge fund adviser and its former U.S.-based holding company with internal controls failures that led to the overvaluation of a fund’s assets and inflated fee revenue for the firms.

GLG Partners L.P. and its former holding company GLG Partners Inc. agreed to pay nearly $9 million to settle the SEC’s charges.

“Investors depend upon fund advisers to have proper controls in place to ensure that valuations and fees are not inflated,” said Antonia Chion, an associate director in the SEC’s Division of Enforcement.  “GLG’s pricing committee did not have the information and time it needed to properly value assets.”

According to the SEC’s order instituting settled administrative proceedings, the GLG firms managed the GLG Emerging Markets Special Assets 1 Fund.  From November 2008 to November 2010, GLG’s internal control failures caused the overvaluation of the fund’s 25 percent private equity stake in an emerging market coal mining company.  The overvaluation resulted in inflated fees to the GLG firms and the overstatement of assets under management in the holding company’s filings with the SEC.

According to the SEC’s order, GLG’s asset valuation policies required the valuation of the coal company’s position to be determined monthly by an independent pricing committee.  On a number of occasions, GLG employees received information calling into question the $425 million valuation for the coal company position.  But there were inadequate policies and procedures to ensure that such relevant information was provided to the independent pricing committee in a timely manner or even at all.  There was confusion among GLG’s fund managers, middle-office accounting personnel, and senior management about who was responsible for elevating valuation issues to the independent pricing committee.  

The SEC’s order finds that GLG Partners L.P. violated and GLG Partners Inc. caused violations of 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, 13a-11, and 13a-13.  The order requires the firms to hire an independent consultant to recommend new policies and procedures for the valuation of assets and test the effectiveness of the policies and procedures after adoption.  The order directs the firms to cease and desist from violating or causing violations of various provisions of the federal securities laws.  The firms consented to the order without admitting or denying the charges.  The SEC is establishing a Fair Fund to distribute money to harmed fund investors.  The GLG firms agreed to pay disgorgement of $7,766,667, prejudgment interest of $437,679, and penalties totaling $750,000.

The SEC’s investigation was conducted by Jonathan Cowen, Ann Rosenfield, Robert Dodge, and Lisa Deitch.  The case arose from the SEC’s Aberrational Performance Inquiry, an initiative by the Enforcement Division’s Asset Management Unit that uses proprietary risk analytics to identify hedge funds with suspicious returns. Performance that is flagged as inconsistent with a fund’s investment strategy or other benchmarks forms a basis for further investigation and scrutiny.

The SEC appreciates the assistance of the Financial Conduct Authority in the United Kingdom.