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Thursday, July 31, 2014



The Securities and Exchange Commission announced fraud charges against a penny stock company and its CEO linked to a scam artist whom the agency separately charged earlier this month.

The SEC alleges that MSGI Technology Solutions and its CEO J. Jeremy Barbera defrauded investors by touting a joint venture to develop and manage solar energy farms across the country on land purportedly owned by an electricity provider operated by Christopher Plummer.  Barbera and Plummer co-authored press releases falsely portraying MSGI as a successful renewable energy company on the brink of profitable solar energy projects.  However, MSGI had no operations, customers, or revenue at the time, and Plummer’s company did not actually possess any of the assets or financing needed to develop the purported solar energy farms. 
The SEC previously charged Plummer and a different penny stock company and CEO that similarly issued false press releases depicting a thriving business that in reality was struggling financially.

Barbera and MSGI agreed to settle the SEC’s charges.

“It is vital that information disseminated by a company into the marketplace be corroborated and truthful,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office.  “Barbera caused MSGI to issue press releases baselessly touting nonexistent assets and phony business opportunities, which had the harmful effect of misleading investors.”
According to the SEC’s complaint filed in federal court in Manhattan, in addition to co-authoring misleading press releases with Plummer, Barbera himself made other material misstatements about MSGI’s operations.  For example, he described MSGI in press releases and on its website as an operational security company with customers all over the world, despite the fact that MSGI had long lacked the financial means to manufacture any security products on a commercial scale.  Barbera also falsely claimed in press releases that another sham entity operated by Plummer had purchased MSGI’s sizable outstanding debt, and he falsely touted nonexistent solar energy projects with an entity unrelated to Plummer.

The SEC’s complaint charges Barbera and MSGI with violating antifraud provisions of the federal securities laws.  The defendants have consented to the entry of final judgments permanently enjoining them from future violations of the antifraud provisions.  Barbera has agreed to pay a $100,000 penalty and be permanently barred from acting as an officer or director of a public company or from participating in a penny stock offering.  Barbera and MSGI neither admitted nor denied the charges.  The settlement is subject to court approval.
The SEC’s investigation has been conducted by Justin P. Smith and George N. Stepaniuk of the New York office and supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Connecticut and the Federal Bureau of Investigation.

Wednesday, July 30, 2014



The Securities and Exchange Commission today charged Smith & Wesson Holding Corporation with violating the Foreign Corrupt Practices Act (FCPA) when employees and representatives of the U.S.-based parent company authorized and made improper payments to foreign officials while trying to win contracts to supply firearm products to military and law enforcement overseas.

Smith & Wesson, which profited by more than $100,000 from the one contract that was completed before the unlawful activity was identified, has agreed to pay $2 million to settle the SEC’s charges.  The company must report to the SEC on its FCPA compliance efforts for a period of two years.

According to the SEC’s order instituting a settled administrative proceeding, the Springfield, Mass.-based firearms manufacturer sought to break into new markets overseas starting in 2007 and continuing into early 2010.  During that period, Smith & Wesson’s international sales staff engaged in a pervasive effort to attract new business by offering, authorizing, or making illegal payments or providing gifts meant for government officials in Pakistan, Indonesia, and other foreign countries.

“This is a wake-up call for small and medium-size businesses that want to enter into high-risk markets and expand their international sales,” said Kara Brockmeyer, chief of the SEC Enforcement Division’s FCPA Unit.  “When a company makes the strategic decision to sell its products overseas, it must ensure that the right internal controls are in place and operating.”  
According to the SEC’s order, Smith & Wesson retained a third-party agent in Pakistan in 2008 to help the company obtain a deal to sell firearms to a Pakistani police department.  Smith & Wesson officials authorized the agent to provide more than $11,000 worth of guns to Pakistani police officials as gifts, and then make additional cash payments.  Smith & Wesson ultimately won a contract to sell 548 pistols to the Pakistani police for a profit of $107,852.
The SEC’s order finds that Smith & Wesson employees made or authorized improper payments related to multiple other pending or contemplated international sales contracts.  For example, in 2009, Smith & Wesson attempted to win a contract to sell firearms to an Indonesian police department by making improper payments to its third-party agent in Indonesia.  The agent indicated he would provide a portion of that money to Indonesian officials under the guise of legitimate firearm lab testing costs.  He said Indonesian police officials expected to be paid additional amounts above the actual cost of testing the guns.  Smith & Wesson officials authorized and made the inflated payment, but a deal was never consummated.

The SEC’s order finds that Smith & Wesson also authorized improper payments to third-party agents who indicated that portions would be provided to foreign officials in Turkey, Nepal, and Bangladesh.  The attempts to secure sales contracts in those countries were ultimately unsuccessful. 

The SEC’s order finds that Smith & Wesson violated the anti-bribery, internal controls and books and records provisions of the Securities Exchange Act of 1934.  The company agreed to pay $107,852 in disgorgement, $21,040 in prejudgment interest, and a $1.906 million penalty. Smith & Wesson consented to the order without admitting or denying the findings.  The SEC considered Smith & Wesson’s cooperation with the investigation as well as the remedial acts taken after the conduct came to light.  Smith & Wesson halted the impending international sales transactions before they went through, and implemented a series of significant measures to improve its internal controls and compliance process.  The company also terminated its entire international sales staff.

The SEC’s investigation was conducted by FCPA Unit members Mayeti Gametchu and Paul G. Block, who work in the Boston Regional Office.  The SEC appreciates the assistance of the Justice Department’s Fraud Section and the Federal Bureau of Investigation.

Tuesday, July 29, 2014



CFTC Charges Lloyds Banking Group and Lloyds Bank with Manipulation, Attempted Manipulation, and False Reporting of LIBOR

Banks agree to a $105 million settlement and agree to changes in systems and controls

Washington, DC -- The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order againstLloyds Banking Group plc and Lloyds Bank plc, formerly known as Lloyds TSB Bank plc (Lloyds TSB), bringing and settling charges for acts of false reporting and attempted manipulation of the London Interbank Offered Rate (LIBOR) for Sterling, U.S. Dollar, and Yen committed by employees of Lloyds TSB and HBOS plc (HBOS), which was acquired by Lloyds Banking Group in January 2009. The Order finds that, in a few instances, Lloyds TSB was successful in its manipulation of Sterling LIBOR and Yen LIBOR. The CFTC also brought and settled charges that Lloyds TSB, at times, aided and abetted the attempts of derivatives traders at Rabobank to manipulate Yen LIBOR.
The Order requires Lloyds Banking Group and Lloyds Bank to pay a $105 million civil monetary penalty, cease and desist from their violations of the Commodity Exchange Act, and to adhere to specific undertakings to ensure the integrity of LIBOR submissions in the future.
“By today’s action, Lloyds is being held accountable for serious misconduct,” said Aitan Goelman, CFTC Director of Enforcement. “The CFTC remains committed to taking all actions necessary to ensure the integrity of the markets we oversee.”
The unlawful conduct of Lloyds Banking Group and Lloyds Bank undermined the integrity of LIBOR, a critical global interest rate benchmark that is the basis of trillions of dollars of financial instruments. The CFTC Order finds that Lloyds Banking Group and Lloyds Bank, through Lloyds TSB and HBOS, attempted to manipulate LIBOR, at times successfully, to benefit cash and derivatives trading positions. The Order also finds that HBOS altered and lowered its Sterling and U.S. Dollar LIBOR submissions to protect its reputation at the time HBOS was being acquired by Lloyds Banking Group. (Excerpts of submitter communications follow this release.)
In a related action, the U.S. Department of Justice (DOJ) entered into a deferred prosecution agreement with Lloyds Banking Group, deferring criminal wire fraud charges in exchange for Lloyds Banking Group continuing to cooperate and agreeing to an $86 million penalty. In addition, the United Kingdom Financial Conduct Authority (FCA) issued a Final Notice regarding its enforcement action against Lloyds Bank and Bank of Scotland plc (a subsidiary of HBOS) and imposed collectively on both firms a penalty of £105 million (approximately $179 million).
Highlights of the CFTC’s Order
  • Before the acquisition of HBOS by Lloyds Banking Group in January 2009, the Sterling and U.S. Dollar LIBOR submitters at each bank individually altered LIBOR submissions on occasion to benefit the submitters’ and traders’ cash and derivatives trading positions. Upon the consolidation of the two companies, the submitters, who were located in separate offices, coordinated with one another to adjust LIBOR submissions to benefit their respective trading positions.
  • From at least mid-2006 to October 2008, the Lloyds TSB Yen LIBOR submitter colluded with the Yen LIBOR Submitter at Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) to adjust their respective Yen LIBOR submissions to benefit the trading positions of Lloyds TSB and Rabobank.
  • During the global financial crisis in the last quarter of 2008, HBOS, through the acts of its submitters and a manager, improperly altered and lowered HBOS’s Sterling and U.S. Dollar LIBOR submissions to create a market perception that HBOS was relatively financially healthy and not a desperate borrower of cash. Specifically, the manager who supervised the HBOS Sterling and U.S. Dollar LIBOR submitters directed the submitters to make LIBOR submissions at the rate of the expected published LIBOR so that the bank did not stand out as a material outlier from the rest of the submitting banks. The submitters followed these instructions, making submissions through the end of the year that did not reflect their honest assessment of HBOS’s cost of borrowing unsecured interbank funds, and, accordingly, were not consistent with the BBA LIBOR definition.
  • In 2006, Lloyds TSB and HBOS submitters on certain occasions increased their bids for Sterling in the cash market in an attempt to manipulate the published Sterling LIBOR fixing higher, thereby benefitting specific trading positions that were tied to Sterling LIBOR.
The Order also recognizes the cooperation of Lloyds Banking Group and Lloyds Bank with the Division of Enforcement in its investigation.
The CFTC acknowledges the valuable assistance of the DOJ, the Washington Field Office of the Federal Bureau of Investigation, and the FCA.
CFTC Division of Enforcement staff members responsible for this case are Jason T. Wright, Anne M. Termine, Jonathan K. Huth, Philip P. Tumminio, Rishi K. Gupta, Maura M. Viehmeyer, Elizabeth Padgett, Jordan Grimm, Terry Mayo, James A. Garcia, Kassra Goudarzi, Boaz Green, Aimée Latimer-Zayets, and Gretchen L. Lowe.
* * * * * * *
With this Order, the CFTC has now imposed penalties of over $1.87 billion on entities for manipulative conduct with respect to LIBOR submissions and other benchmark interest rates. See In re RP Martin Holdings Limited and Martin Brokers (UK) Ltd., CFTC Docket No. 14-16 (May 15, 2014) ($1.2 Million penalty) (CFTC Press Release 6930-14); In re Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank), CFTC Docket No. 14-02, (October 29, 2013) ($475 Million penalty) (CFTC Press Release 6752-13); In re ICAP Europe Limited,CFTC Docket No. 13-38 (September 25, 2013) ($65 Million penalty) (CFTC Press Release 6708-13); In re The Royal Bank of Scotland plc and RBS Securities Japan Limited, CFTC Docket No. 13-14 (February 6, 2013) ($325 Million penalty) (CFTC Press Release 6510-13); In re UBS AG and UBS Securities Japan Co., Ltd., CFTC Docket No. 13-09) (December 19, 2012) ($700 Million penalty) (CFTC Press Release 6472-12); In re Barclays PLC, Barclays Bank PLC, and Barclays Capital Inc., CFTC Docket No. 12-25 (June 27, 2012) ($200 Million penalty) (CFTC Press Release 6289-12). In these actions, the CFTC ordered each institution to undertake specific steps to ensure the integrity and reliability of the benchmark interest rates.

Examples of Misconduct from Written Communications

Examples of Requests for Skewed Sterling LIBOR Submissions

March 6, 2009: (emphasis added)
Former HBOS Sterling SubmitterI am paying on 12 yards of 1s today; a re-fix against Group, so if is there any way of making 1s relatively low, it would be helpful for us all. [. . .] I think it is going to be about 126 or something, maybe 128, it is a tricky one at the moment.
Lloyds TSB Sterling Submitter: Well I could, I mean I have left mine at 125 mate, I mean.
Former HBOS Sterling Submitter: Yeah, well I that will be perfect. As long as you—you can’t go lower than 125, if you are going at 125 that is what, that is what I am hoping to shape it down to, so if you can do that, that would be great.
Lloyds TSB Sterling SubmitterYeah I have got a fixing small one nowhere near 12 yards, so yeah I do it at 25, alright?
Former HBOS Sterling SubmitterAnd I am a payer the 3s as well, I don’t know what were you thinking of going in the 3s. [. . .] I have only 500 quid the 3s so I am not that—it’s not the end of the world, but if you’re the other way around don’t worry about it.
Lloyds TSB Sterling SubmitterNo, no, no, I have got a small loan going out but it is less than that, alright I will probably have to go 90- probably 96 but I will let you know before, I do 25 definitely for 1s and I will speak to you on—
Former HBOS Sterling Submitter: Yeah don’t stress mate, go 25 in the 1s and just go with what you can in the 3s. No great stress.
Lloyds TSB Sterling Submitter: Yeah, no problem.
Former HBOS Sterling Submitter: Alright thanks.
March 31, 2009: (emphasis added)
Former HBOS Sterling Submitter: [. . .] I was just going to say, I am receiving on 3s LIBOR today on a couple on—on a big reset on about 2 and a half yards and I am receiving tomorrow on 5 yards, so on the LIBOR front obviously I don’t know if you have got anything contrary to that, but if you haven’t the firmer the better please.
Lloyds TSB Sterling Submitter: The higher the better.
Former HBOS Sterling Submitter: Yes please.
Lloyds TSB Sterling SubmitterOh mate, I have always got loads of loans going out at the end of the month so I always try and fix it higher, so. Trouble is mate they keep calling it fucking lower, I can’t work out why it is fucking going down all the time. [. . .] I mean we put 67 in yesterday, I will leave it at 67 and I won’t go any lower, right?
Former HBOS Sterling Submitter: Yeah.
Lloyds TSB Sterling Submitter: What do you need, and what was the other period, was it all 3s?
Former HBOS Sterling Submitter: No just 3s today and tomorrow.
Lloyds TSB Sterling Submitter: Okay, we will leave it at 67.
Former HBOS Sterling Submitter: Yeah cool, just 1s I am small receiving today, tomorrow is a massive one in the 1s. I am paying but we’ll worry about 1s tomorrow?
Lloyds TSB Sterling SubmitterWell luckily not today mate because I have got trillions and billions of 1s going out today, tomorrow I can set it slightly lower.
Former HBOS Sterling Submitter: Yeah that’s cool, I am receiving 1s today in the yard, tomorrow I am paying on 11.5 yards. [. . .] In the 1s but we will worry about it tomorrow, tomorrow.
Lloyds TSB Sterling Submitter: Yeah, okay mate no problem
April 1, 2009:
Lloyds TSB Junior Trader: Just a quick question: do you have lots of 1s fixing today? Do you want us to keep the libor higher?
Former HBOS Sterling Submitter: Yeah, I have a big liability fix, so as low as possible, please. [. . .] But I have a massive asset fix in the 3s, so as high as you can in the 3s.
Lloyds TSB Junior Trader: Oh, right. Okay, okay. Got it.

Examples of Requests for Skewed U.S. Dollar LIBOR Submissions

January 17, 2008:
HBOS Trader: 3mth higher today pls!
HBOS U.S. Dollar Submitter: Should be 92 for guide ill put in 93 to get couunted.
May 11, 2009:
Former HBOS U.S. Dollar Submitter to Trader Who Assisted Lloyds TSB U.S. Dollar Submitter: when we have big resets as to be honest we shoudl be co ordinating the libor inputs to suit the books. for example later this month i have a 5y 3 month liability reset so we shoudl put in a low one there ill let u know.
May 19, 2009:
Lloyds TSB U.S. Dollar Submitter to Former HBOS U.S. Dollar Submitter: we got the LIBORs down for you.

Examples of Collusion between the Lloyds TSB Yen LIBOR Submitter and the Rabobank Yen LIBOR Submitter

June 27, 2006: (emphasis added)
Rabobank Yen Submitter: just for your info skip...i need a high 1mth today - so i will be setting an obseenly high 1 mth (6)
Lloyds TSB Yen Submitter: sure mate no worries...give us an idea where and I’ll try n oblige...;)
July 27, 2006: (emphasis added)
Rabobank Yen Submitter: morning little …[racial epithet redacted] friend in tokyo wants a high 1m fix from me going to set .37 - just for your info sir
Lloyds TSB Yen Submitterthat suits mate as got some month end fixings so happy to ablige..rubbery jubbery..:-O
January 5, 2007:
Rabobank Yen Submitter: need a high 1mth fix today mate - just for info ;)
Lloyds TSB Yen Submitter: suits (bu)
Rabobank Yen Submitter: (b)
Lloyds TSB Yen Submitter: just b4 you beat me up....I was in meeting so didn’t do me libors today...thk they put .52 for 1s....
March 19, 2008: (emphasis added)
Rabobank Yen Submitter: [Rabobank Senior Yen Trader] needs a high 6m libor if u can help skip - asked me to set 1.10
Lloyds TSB Yen Submitteroops my 6s is 1.15!!! he’ll love me
Rabobank Yen Submitter: hahaha so di i!
Lloyds TSB Yen Submitter: send him my regards the lovely fella....
March 28, 2008: (emphasis added)
Rabobank Yen Submitter: morning skip – [Rabobank Senior Yen Trader] has asked me to set high libors today - gave me levels of 1m 82, 3m 94....6m 1.02
Lloyds TSB Yen Submittersry mate can’t oblige today...I need em lower!!!
Rabobank Yen Submitter: yes was told by jimbo...just thought i’d let you know why mine will be higher ...and you don’t get cross with me
Lloyds TSB Yen Submitter: never get cross wiv yer mate
June 27, 2006: (emphasis added)
Lloyds TSB Yen Submittermrng turn today...what u going 3s libor...hoping for a higher one....0.35 or u think that is pushing it a bit?
Rabobank Yen Submitter: nope - fine with me mate - will set 35 for you (b)
Lloyds TSB Yen Submitter: (K) cheers dude
Rabobank Yen Submitter: no prob at all mate ;)
July 19, 2007:
Lloyds TSB Yen Submitter: mrng beautiful.....if u can would love a low fixing in 3s libor today....(y)
Rabobank Yen Submitter: ok skip - what u need? no prob
Lloyds TSB Yen Submitter: .77 if poss but just no higher than yest!!
January 7, 2008: (emphasis added)
Lloyds TSB Yen Submitterplse may i have a nice high 1m libby today..grovel grovel...(k). [. . .]
Rabobank Yen Submitter: yes nice and toasty....what would you like me to set for 1m mate? i’ve gone 70 so far....or hogher?
Lloyds TSB Yen Submitterthats fine..thx lad xx

Examples of Communications Relating to HBOS Lowering Its U.S. Dollar and Sterling LIBOR Submissions to Protect Its Market Reputation

May 6, 2008:
HBOS Senior Manager to Two Other HBOS Senior Managers and Other HBOS Personnel: it will be readily apparent that in the current environment no bank can be seen to be an outlier. The submissions of all banks are published and we could not afford to be significantly away from the pack.
August 8, 2008: (emphasis added)
HBOS Senior Manager to HBOS Managers and Senior Managers: As a bank we are extremely careful about the rates we pay in different markets for different types of funds as paying too much risks not only causing a re-pricing of all short term borrowing but, more importantly in this climate, may give the impression of HBOS being a desperate borrower and so lead to a general withdrawal of wholesale lines.
September 26, 2008:
HBOS U.S. Dollar LIBOR Submitter to an Employee of Another Financial Institution: youll like this ive been pressured by senior management to bring my rates down into line with everyone else.
October 21, 2008:
HBOS LIBOR Supervisor to HBOS Sterling LIBOR Submitters: do not want to be an outlier in BBA submissions - this could potentially create an issue with buyers of our paper.
October 30, 2008:
HBOS LIBOR Supervisor HBOS LIBOR Submitters: continue to post levels at or slightly above the level we will pay for deposits or issue [certificates of deposit].
- - - - - - - - - - - - - - -
Footnote from page 6 of the CFTC Order:  The communications quoted in this Order contain shorthand trader language and many typographical errors.  The shorthand and errors are explained in brackets within the quotations only when deemed necessary to assist with understanding the discussion.
Media Contact
Dennis Holden
Last Updated: July 28, 2014

Monday, July 28, 2014



On July 22, 2014, the Securities and Exchange Commission charged a partner at a New York-based investor relations firm with insider trading on confidential information he learned about two clients while he helped prepare their press releases.
The SEC alleges that Kevin McGrath sold his shares in Misonix Inc. upon learning that the company was set to announce disappointing financial results. The SEC further alleges that McGrath bought stock in Clean Diesel Technologies Inc. when he learned about the company's impending announcement of positive news, and he profited when its stock price increased nearly 100 percent. McGrath's illicit profits and avoided losses from insider trading in both companies totaled $11,776.
McGrath, who lives in Brooklyn, N.Y., and works at Cameron Associates, agreed to settle the charges by paying disgorgement of $11,776, prejudgment interest of $1,492, and a penalty of $11,776, for a total of $25,044.

The settlement also includes a "conduct-based injunction" that permanently requires McGrath to abstain from trading in the stock of any issuer for which he or his firm has performed any investor relations services within a one-year period. His present or any future firm is required to provide written notice to a client upon any intent to sell shares received as compensation for services performed, and must receive written authorization for the sale from the management of that company.

According to the SEC's complaint filed in federal court in Manhattan, McGrath purchased Misonix shares in April 2009. He later performed work on a press release in which Misonix was set to announce disappointing quarterly results. McGrath ascertained the company's target date to release the negative news, and sold all of his Misonix shares shortly before the press release was issued on May 11, 2009. By doing so, McGrath avoided losses of $5,400 when Misonix's share price subsequently dropped 22 percent.

The SEC alleges that McGrath also performed work on a press release in which Clean Diesel was announcing approximately $2 million in orders it received for certain products. Merely minutes after finding out on May 24, 2011, that the press release was bound for issuance the following day, McGrath purchased 1,000 shares of Clean Diesel. The stock price rose 95 percent upon the positive news, and McGrath sold all of his Clean Diesel shares on May 27 for illicit profits of $6,376.

The SEC's complaint charges McGrath with violating Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Without admitting or denying the allegations, McGrath agreed to be permanently enjoined from future violations of these provisions of the federal securities laws. The settlement is subject to court approval.

Sunday, July 27, 2014



The Securities and Exchange Commission today announced it has charged a Florida-based transfer agent and its owner with defrauding investors by using aggressive boiler room tactics to peddle worthless securities with promises of high returns or discounted prices. 

Transfer agents are typically used by publicly-traded companies to keep track of the individuals and entities that own their stocks and bonds.  The SEC alleges that Cecil Franklin Speight, whose firm International Stock Transfer Inc. (IST) was a registered transfer agent, abused the transfer agent function by creating and issuing fake securities certificates to both U.S. and international investors.  While investors collectively sent in millions of dollars thinking they were purchasing high-yield investments and discounted stock, they ended up receiving counterfeit certificates that Speight and IST fooled them into thinking were legitimate. 

In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York today announced criminal charges against Speight.

“Speight brazenly misused his transfer agent authority to commit fraud by creating fake certificates and acting as if he was authorized by issuers to do so,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “His promise of high-yield investment returns and his use of attorneys to receive investor money were simply lures to take advantage of unsuspecting investors.”

Speight and IST agreed to settle the SEC’s charges.  Speight will be barred from serving as an officer or director of a public company and from participating in any penny stock offering.  The court will determine monetary sanctions at a later date.

According to the SEC’s complaint filed Wednesday in U.S. District Court for the Eastern District of New York, Speight’s scheme included multiple securities, including the issuance of fake foreign bond certificates and stock certificates for a publicly-traded microcap company with no connection to IST.  To bolster the appearance of the safety of the investments and conceal from investors how their money was really being spent, Speight enlisted two attorneys to receive investment funds into their own bank accounts.  From there, the money was transferred to IST.  Instead of making its way to any issuers, however, IST and Speight spent investors’ money almost as quickly as it came in.  They used it to pay Speight’s personal expenses, and in Ponzi scheme fashion new investor money was used to fund interest payments to prior foreign bond investors.  In all, Speight and IST stole more than $3.3 million from at least 70 investors. 

The SEC’s complaint charges Speight and IST with violating the antifraud provisions of the securities laws, including Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5.  The complaint charges IST with violating the transfer agent books and records requirements of Section 17(a)(3) of the Exchange Act, and Speight with aiding and abetting such violations.  Speight and IST have consented to the entry of judgments permanently enjoining them from future securities law violations and requiring them to pay disgorgement of all ill-gotten gains plus prejudgment interest and penalties as determined by the court, which must approve the settlement.
The SEC’s investigation was conducted by Sharon Binger, Adam Grace, Justin Alfano, John Lehmann, Elzbieta Wraga, and Jordan Baker in the New York office.  An examination of IST was conducted by Debra Williamson, Ileana Rodriguez, and Brian Dyer and supervised by John Mattimore and Nicholas Monaco in the Miami office.  The SEC’s litigation will be handled by Alexander Vasilescu, Justin Alfano, and John Lehmann.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York and the Federal Bureau of Investigation.

Saturday, July 26, 2014



The Securities and Exchange Commission today announced a second round of charges against individuals behind a boiler room scheme that hyped a company whose new technology was purportedly Super Bowl-bound.

The SEC previously charged the operators of the scheme based in the South Florida and Los Angeles areas.  Seniors and other investors were pressured into purchasing stock in Thought Development Inc. (TDI), an unaffiliated Miami Beach-based company that stated its signature invention is a laser-line system that generates a green line on a football field for a first-down marker visible not only on television but also to players, officials, and fans in the stadium. 
The SEC today is additionally charging four executives who helped make the scheme possible and three companies they operate – DDBO Consulting, DBBG Consulting, and CalPacific Equity Group.  Approximately $1.7 million was raised through these companies from more than 110 investors who were told that an initial public offering (IPO) in TDI was imminent and that their money would be used to develop the groundbreaking technology.  Instead, the SEC alleges that the IPO was not forthcoming as promised, and at least 50 percent of the offering proceeds were merely retained by these companies or paid to sales agents through undisclosed commissions and fees.  Certain executives, their sales agents and their companies lured investors by misrepresenting that TDI’s technology was about to be used by the National Football League (NFL).  One investor even made an additional $75,000 investment on top of an initial $2,500 investment after being told that NFL Commissioner Roger Goodell purchased TDI’s technology for use in the 2013 Super Bowl.  In fact, there was no such arrangement.   

“These sales agents misled investors to believe that TDI was on the brink of having its technology used in football stadiums across the country,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.  “In reality, TDI had not reached any agreements with the NFL or any team to feature its technology during any games, and certainly not at the Super Bowl.”
The SEC’s complaints charge brothers Dean R. Baker of Coral Springs, Fla., and Daniel R. Baker of Valley Village, Calif., along with Bret A. Grove of Delray Beach, Fla., and Demosthenes Dritsas of Newhall, Calif. 

In parallel actions, the U.S. Attorney’s Office for the Central District of California announced criminal charges against Daniel Baker and Dritsas, and the U.S. Attorney’s Office for the Southern District of Florida announced criminal charges against Dean Baker and Grove as well as Peter Kirschner and Stuart Rubens.  The latter two were charged by the SEC in its initial complaint filed last year.  Dean Baker was previously barred from association with any FINRA member firm in 2006.   

According to the SEC’s complaint filed in federal court in Miami against Dean Baker, Grove, DDBO Consulting, and DBBG Consulting, they entered into an agreement with Kirschner to solicit investors and sell TDI stock.  Baker is president of DDBO Consulting and DBBG Consulting, and Grove is vice president of DBBG.  They recruited, hired, and supervised sales agents who were paid transaction-based compensation in connection with the offer and sale of TDI stock.  Grove misled investors about the use of proceeds by not disclosing fees of more than 50 percent, while Baker and sales agents falsely promised investors guaranteed returns from a purportedly pending IPO.  The sales agents further claimed that TDI’s laser-line technology would be used by the NFL, and Baker himself falsely told an investor in January 2012 that TDI’s technology would be used during the NFL’s upcoming preseason.

According to the SEC’s complaint filed in federal court in Los Angeles against Daniel Baker, Dritsas, and their firm CalPacific Equity Group, they similarly entered into agreements with Kirschner to act as sales agents to offer and sell TDI stock.  Daniel Baker told an investor that the proceeds would go “directly to the business” and no more than “ten cents on every dollar of investor money” would be used as a commission or other fee.  Dritsas told the same investor that he would not charge any commission for a trade – “not even a dime” – when in fact CalPacific received 50 percent of the investor’s proceeds as commissions or other fees. 
“The Bakers and others falsely claimed that an IPO was just around the corner for TDI, and they further enticed investors by saying there were extracting just minimal fees or commissions while more than half the money actually wound up in sales agents’ wallets,” said Glenn S. Gordon, associate director of the SEC’s Miami Regional Office.  “We will continue to bring actions against those who target seniors and other groups vulnerable to investment fraud.” 
The SEC’s complaints allege violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 as well as Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5. 

The defendants have all agreed to settle the SEC’s charges, while Daniel Baker and Dritsas have also entered into plea agreements in criminal cases relating to matters alleged in the complaint in this action.

The SEC’s investigation has been conducted by Kevin B. Hart, Fernando Torres and Mark Dee in the Miami office, and supervised by Jason R. Berkowitz.  The investigation followed an SEC examination conducted by Anson Kwong, Michael Nakis and George Franceschini under the supervision of Nicholas A. Monaco and the oversight of John C. Mattimore.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Florida, the U.S. Attorney’s Office for the Central District of California and the Federal Bureau of Investigation.

Friday, July 25, 2014


Spanish Trader Agrees to Pay Disgorgement and a Penalty to Settle Insider Trading Case

The Securities and Exchange Commission announced that Cedric Cañas Maillard, a Spanish citizen and former high-ranking official at Madrid-based Banco Santander, S.A., has agreed to pay almost $2 million to settle charges that he traded on inside information in advance of a public announcement about a proposed acquisition for which the Spanish investment bank was acting as an adviser.

The SEC’s Complaint, filed in July 2013, alleged that Cañas, who served as an executive advisor to Banco Santander’s CEO, learned confidentially that the investment bank had been asked by one of the world’s largest mining companies, BHP Billiton, to advise and help underwrite its proposed acquisition of Potash Corporation, one of the world’s largest producers of fertilizer minerals. In the days leading up to a public announcement of BHP’s bid, Cañas purchased Potash contracts-for-difference (CFDs), which were highly leveraged securities not traded in the U.S. but based on the price of U.S. exchange-listed Potash stock. The CFDs mirrored the movement and pricing of that stock. Cañas also tipped his close personal friend Julio Marín Ugedo about the potential acquisition and advised him to purchase Potash stock.

The SEC’s Complaint alleged that Cañas purchased 30,000 Potash CFDs from August 9 to August 13, 2010 based on material, non-public information he learned about BHP’s offer to acquire Potash. Marín purchased 1,393 shares of Potash common stock based on material, non-public information through two Spain-based brokerage accounts. Cañas liquidated his entire CFD position in Potash following the August 17, 2010 public announcement for an illicit profit of $917,239, and Marín sold his stock for net trading profits of $43,566.

The settlement was approved yesterday by Judge Valerie E. Caproni of the United States District Court for the Southern District of New York.

Cañas agreed to the entry of a final judgment ordering him to pay $960,806, the amount of the trading profits reaped by both Cañas and Marín, and a $960,806 civil penalty. Without admitting or denying the SEC’s allegations, he agreed to be permanently enjoined from future violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder.

The SEC’s litigation continues with respect to Marín.

Thursday, July 24, 2014



Statement of Commissioner Daniel M. Gallagher

Commissioner Daniel M. Gallagher

Washington, D.C.
July 23, 2014
Thank you, Chair White.  I would like to join my colleagues in thanking the staff again for all of the hard work that went into today’s adopting release.  I would like to extend a special thank you to Norm Champ, David Grimm, Diane Blizzard, Sarah ten Siethoff, and Thoreau Bartmann in the Division of Investment Management, as well as Jennifer Marietta-Westberg, Vanessa Countryman, Jennifer Bethel and our former colleague Craig Lewis in the Division of Economic and Risk Analysis for their tremendous – and often thankless – efforts on a rulemaking process that has spanned several years and followed a circuitous and sometimes contentious path.  It is because of the staff’s dedication and perseverance that we have arrived where we are today.
From the beginning, this rulemaking process has proven to be a difficult undertaking for the Commission and a stark reminder of the heavy weight that comes with sharing the stewardship of an agency that for eight decades has played a pivotal role in our nation’s capital markets.  The process has illustrated that it is incumbent on us as Commissioners to set aside any preconceptions we may have and approach each issue dispassionately and with an open mind.  It is our duty to strive to understand the substance of those issues as well as the potential impacts of any regulatory approaches we consider – and then to make the difficult decisions that often follow.
Despite an inauspicious start, this rulemaking process has demonstrated the Commission’s ability to make those difficult decisions, and I’m pleased that a majority of the Commission has joined together to successfully conclude our long and arduous path to implement commonsense, reasonable reforms to our rules governing money market mutual funds.
As for my own path to today’s rulemaking, I consistently have been a proponent of requiring money market mutual funds to adopt market-based pricing[1]  – that is, a floating net asset value – but not at any cost, and only in the context of a reform package that effectively mitigates risks to investors without forcing money funds to masquerade as federally insured bank deposits.  I was not able to support an earlier reform proposal that included a proposal for so-called “capital buffer” requirements. [2]   That proposal made no economic sense, as proven by Craig Lewis,[3] and did not fit either the definition of regulatory capital or the structure of money market funds. The paltry so-called “buffer” would have offered only an illusion of protection to investors and the markets.  And I would note that the infirmities of the unsuccessful SEC capital buffer proposal of 2012 also feature in pending international proposals, and foreign policymakers should be loath to follow that rabbit down the hole. 
Make no mistake – money market mutual funds are not bank products.  However, because of the unintended, but perhaps predictable, consequences flowing from the Commission’s adoption of Rule 2a-7 in 1983, today’s multi-trillion dollar money market fund industry is viewed by many market participants as providing the functional equivalent of federally insured bank products.  And, of course, the 2008 Treasury money fund insurance program and related Federal Reserve commercial paper facilities did nothing to disabuse market participants of that perception.  The status quo of implicit guarantees for money funds is unacceptable, just as it was for Fannie Mae and Freddie Mac in the decades leading up to the crisis.  The difference though is that, today, the Commission is doing  for money market funds what precious few policymakers were willing to do with the GSEs before the crisis:  we are taking action to correct any misconceptions of federal backstops and bailouts for money funds.  Addressing a three decade old error in a nuanced and tailored manner to reinstate market-based pricing should not be seen, as some have argued, as a heavy-handed act of government.  This is especially true when the fix will positively impact investor behavior and eliminate the perception of taxpayer support.
Like other mutual funds, money market funds should be risk-taking ventures borne of the capital markets, where we want investors, whether retail or institutional, to take risks – informed risks that they freely choose in pursuit of a return on their investments.  Today’s reforms squarely address and put investors on notice of this distinction, and I applaud the Commission and staff for resisting outside pressure to apply a bank regulatory paradigm to a product that is so integral to the functioning of the capital markets.  Many forget, sometimes all too conveniently, that this agency came very close to imposing a capital buffer on money funds.  This was a big-government, bank-regulator preferred proposal that would have crippled the industry.  I take great pride in my successful efforts to kill that misguided proposal.
The Commission does not have oversight authority over banks or bank products, and we do not have access to the tools available to the prudential regulators who do.  There should be no confusion about that, now or ever, and the agency learned no tougher lesson from the events of 2008.  The Commission is an appropriated independent agency without a Treasury line of credit or a balance sheet.  We cannot bail out any firm or product, and that is the proper order of things.  Our oversight should be focused on market-based valuations and strict capital standards employing those valuations, and in the case of failure, we should be expert in the wind-down process.  As I have said so many times recently, we should be the morticians, not the ER doctors. 
The tailored floating NAV requirement we are adopting today directly addresses concerns that arose during the financial crisis.  Most notably, as has been discussed, it eliminates the first-mover “put” advantage that favors sophisticated institutional investors at the expense of retail investors, leaving the latter holding the proverbial bag.  Just as importantly, in my view, today’s floating NAV reforms clarify for investors the risks associated with investing in money market mutual funds while making it clear to the markets and to policymakers that these financial instruments are not bank products to be overseen by prudential regulators, but rather investment products properly regulated by the SEC. 
However, as I have consistently stated, requiring money market funds to float their net asset values should help stem a run, but does not fully solve the problem of run risk.[4]  Unlike in the banking sector, there is no federal insurance program, and no taxpayer dollars, to help stop runs.  Accordingly, it is critical for fund boards to have discretionary tools at their disposal to limit or suspend redemptions temporarily in appropriate circumstances.  The fees and gates allowed in today’s rule give fund boards a mechanism to stem the tidal wave of redemptions that can materialize in the midst of a market crisis – and that cannot be stopped by floating the NAV alone.  And the gating component of today’s rule is actually just a codification of the status quo with mandated disclosure so investors can better understand the potential of a liquidity event.  The current inscrutable hodgepodge of Rule 22E-3 and ad-hoc exemptive relief leaves many investors understandably confused about, or worse, completely oblivious to, the liquidity risks lurking in 2a-7 funds, and it is incumbent on the Commission to address this confusion and provide clarity to investors and the markets – which is exactly what today’s rulemaking does.
Neither reform on its own would have meaningfully achieved all of the objectives we set out to accomplish.  But together, as demonstrated by DERA’s comprehensive analysis, today’s floating NAV and fees and gates reforms are a targeted and measured regulatory response and the best path forward for our regulatory oversight of money market mutual funds in the future. 
All that said, I have consistently, loudly, and publicly stated that my vote for a floating NAV was contingent on the resolution of the tax and accounting-related issues arising from the move away from a constant NAV.[5]  As we make abundantly clear in today’s release, the accounting issues have been completely addressed:  money funds are cash equivalents.  And, as Chair White noted, concurrently with today’s rulemaking, the Department of the Treasury and the IRS have issued a revenue procedure, that is, an official IRS statement of procedure that may be relied on by taxpayers under the Internal Revenue Code, and a proposed rulemaking that squarely addresses each of the principal concerns that were raised by commenters, and that may be relied upon by taxpayers beginning on the same date that today’s rule becomes effective. 
First, Treasury and the IRS have issued a proposed rulemaking that allows taxpayers to use the simplified aggregate accounting method for funds subject to a floating NAV.  Under this method, investors will not be required to track and report the cost or tax basis and redemption price of all shares they purchase and redeem.  Rather, they will calculate their taxable gain or loss on an aggregate basis at the end of the tax year, based on information already provided in their year-end statements.
Second, Treasury and the IRS have issued a revenue procedure that exempts taxpayers invested in funds subject to a floating NAV from the “wash sale” rules, which prohibit taxpayers from recognizing a loss on the sale of a security if the investor buys a substantially identical security within 30 days – a common occurrence with short term cash management securities such as money market funds.  This revenue procedure will become effective on the same day as our amendments, providing full and immediate relief to taxpayers who otherwise would have had to track the timing of individual purchases and redemptions for compliance with the wash sale rules.
These pronouncements from Treasury and the IRS provide the two critical forms of tax relief that commenters consistently cited as necessary in light of our proposed amendments, and my vote for today’s rule is predicated upon the granting of this relief.
I have also insisted that we provide a long compliance period to give the industry and investors the time needed to implement and understand the intricacies of today’s rule, and so I am pleased that there will be a two-year compliance period.  Today’s amendments introduce substantial changes to the regulatory framework governing money market funds, and it is imperative that we afford money funds and their investors ample time to make business and investment decisions. 
It is also critical that the SEC, as well as Treasury and the IRS, have sufficient time to identify whether any changes need to be made to address unforeseen and unanticipated impacts on registrants and taxpayers.  To that end, I called for the creation of an internal working group here at the Commission, as alluded to by Norm Champ, Chair White, and Commissioner Aguilar, that will be dedicated to closely monitoring the application of the rule and responding to any issues that are identified or raised by registrants and taxpayers between now and the compliance date.  I will be interacting with this group on a regular basis to ensure appropriate responses to the issues that are raised.  Treasury and the IRS also have agreed to work with this newly-formed working group to the extent any further changes need to be made to ensure complete relief for taxpayers under the amended rules.
Given the level of chatter about this rulemaking in the EU, IOSCO, and the FSB, there will be international reactions to today’s rule amendments.  It will be up to local authorities to determine whether reforms are needed in their markets, and I caution policymakers abroad to recognize that our reforms reflect the unique features of the U.S. money fund marketplace.  In this era of increasingly brazen attempts at reckless, unprecedented “one world” financial regulation, it is crucial to acknowledge that one size does not fit all for money fund reform.
Finally, I note that today we also are reproposing a rule that would remove references to nationally recognized statistical rating organizations from our rules governing money market mutual funds.  The congressional mandate to eliminate references to credit ratings from all of our rules is one of the few provisions of the Dodd-Frank Act that actually addresses a core financial crisis problem, and the one year deadline to do so was one of the only deadlines in Dodd-Frank that could have realistically been met had not numerous rulemakings of dubious relevance taken precedence.  The process of implementing this mandate has taken far, far too long, and to put it plainly, is unacceptable.  There should be no further delay on this rulemaking and I would hope and expect that we will be considering a final rule this year.
Despite the rocky road that we followed to get here, today’s rulemakings in many ways represent the best of the Commission and its staff.  Before I conclude, I want to thank my friend and colleague, Luis Aguilar, for his wise counsel, unwavering principles, and collegiality throughout this process.  None here can understand what we have been through, Luis, and it is especially satisfying to join you today in moving the agency from the tragedy of 2012 to a proper rulemaking today.
Once again, I would like to express my gratitude for the tireless efforts of the Commission staff and, like Luis, I have no questions.

[1] See, e.g., Joshua Gallu & Robert Schmidt, SEC’s Gallagher Calls for Floating Price for Money FundsBloomberg (Sept. 27, 2012), available at (reporting Gallagher comment that “[r]equiring money funds to have a fluctuating share price… [is] an attractive option that I am likely to support”); see also Commissioner Daniel M. Gallagher, SEC Reform After Dodd-Frank and the Financial Crisis (Dec. 14, 2011), available at
[2] See, e.g., Commissioners Daniel M. Gallagher and Troy A. ParedesStatement on the Regulation of Money Market Funds (Aug. 28, 2012), (“The truth is that we have carefully considered many alternatives, including the Chairman’s preferred alternatives of a “floating NAV” and a capital buffer coupled with a holdback restriction, and we are convinced that the Commission can do better.”); Gallu & Schmidt, supra n. 1 (“Gallagher said he couldn’t vote for Schapiro’s plan because its centerpiece was to make the funds hold extra capital.  The cushion was too small to protect investors, Gallagher said, leading him to believe the money would be used as collateral in case the funds needed to borrow from the Federal Reserve.  ‘I could not be complicit in a rulemaking that purported to eliminate bailouts but would actually do the opposite,’ Gallagher said.”).
[3] See Craig M. Lewis, The Economic Implications of Money Market Fund Capital Buffers (Nov. 2013), available at
[4] See Statement of Commissioners Gallagher and Paredes, supra n. 2 (“As for the floating NAV proposal, even if there is no stable $1.00 NAV — i.e., even if, by definition, there is no ‘buck’ to break — investors will still have an incentive to flee from risk during a crisis period such as 2008, because investors who redeem sooner rather than later during a period of financial distress will get out at a higher valuation.”).
[5] See, e.g., Gallu & Schmidt, supra n. 1 (“Gallagher said his support of a floating share price was contingent on the SEC ‘fully understanding and addressing’ the tax and accounting issues that could arise.”).