SEC ANNOUNCES INSIDER TRADING CHARGES AGAINST NEW JERSEY MAN IN MONEY IN A SHOE-BOX CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

10/24/2014 01:35 PM EDT

The Securities and Exchange Commission today announced insider trading charges against a New Jersey man who generated nearly $700,000 in illicit profits trading in the securities of two pharmaceutical companies that were about to be acquired.  The SEC charged his source of nonpublic information earlier this month.

The SEC alleges that David Post of Livingston, N.J., was tipped with confidential details about the impending deals by his former business school classmate who was tasked with evaluating potential acquisitions in his financial analyst job at a major pharmaceutical company.  Post and his friend, Zachary Zwerko, used prepaid “burner” cell phones to exchange coded text messages in advance of Post’s trading.  They also used a dummy e-mail account they could both access to draft an e-mail message in code and leave it in the draft folder for the other to read and then delete.  In exchange for the illegal tips, Post paid Zwerko $7,000 at a Halloween party following his profitable trading in 2012, and gave him $50,000 in a shoebox when Zwerko visited his home after additional insider trading occurred earlier this year.

The U.S. Attorney’s Office for the Southern District of New York announced parallel insider trading cases against Post today and against Zwerko earlier this month.

“Post and Zwerko tried to keep law enforcement authorities in the dark by using prepaid cell phones and a dummy e-mail account to communicate inside information, and Post doled out the kickbacks inside his own home,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.  “But in the end, the SEC staff’s investigative expertise helped in bringing yet another audacious insider trading scheme to light.”

According to the SEC’s amended complaint filed in U.S. District Court for the Southern District of New York, Post traded on the basis of confidential details about two acquisition targets of the pharmaceutical company where Zwerko then worked.  The insider trading first occurred in 2012 when Zwerko learned his employer was among several other pharmaceutical companies in a competitive bidding process for Ardea Biosciences Inc.  In the several weeks leading up to Ardea’s public announcement, Post received regular updates from Zwerko about the status of confidential negotiations and purchased $227,000 worth of Ardea securities – the most he had ever invested in a single company.  Post had never before purchased Ardea securities.  After Ardea publicly announced that it had accepted an acquisition bid and its stock price rose by 51 percent, Post sold all of his shares and reaped profits of approximately $105,000.

The SEC further alleges that Zwerko tipped Post with confidential details about his employer’s nonpublic negotiations to acquire Idenix Pharmaceuticals Inc. earlier this year.  Although not directly involved in the deal, Zwerko accessed confidential files in the company’s database during the negotiations and gleaned additional nonpublic information in his communications with others at the company.  Post, who had never before purchased Idenix securities, made purchases totaling $219,000 from May 21 to June 6.  After a public announcement was made on June 9, Post sold his Idenix securities for a profit of approximately $579,000.

The SEC’s amended complaint charges Zwerko and Post with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The complaint seeks permanent injunctive relief, disgorgement with prejudgment interest on a joint and several liability basis, and financial penalties.

The SEC’s investigation, which is continuing, has been conducted by Dominick D. Barbieri, Neil Hendelman, and Charles D. Riely.  The SEC’s litigation will be led by Mr. Barbieri.  The case has been supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, Federal Bureau of Investigation, and Financial Industry Regulatory Authority.

SEC CHARGES HEDGE FUND MANAGER WITH INSIDER TRADING USING MATERIAL, NONPUBLIC INFORMATION IN ADVANCE OF NEWS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23118 / October 24, 2014

Securities and Exchange Commission v. Stephen E. Slawson, Civil Action No. Number1:14-cv-3421

SEC Charges New Jersey-Based Hedge Fund Manager with Insider Trading in Carter's Stock

The Securities and Exchange Commission today filed insider trading charges against a New Jersey-based hedge fund manager who allegedly used material, nonpublic information to trade in advance of market-moving news concerning Carter's Inc.

Stephen Slawson, who lives in Lebanon, N.J., and was co-founder and former manager to a hedge fund named TCMP3 Partners L.P., becomes the eighth individual that the SEC has charged in connection with the agency's investigation into insider trading and other misconduct involving the securities of the Atlanta-based marketer of children's clothing.

According to the SEC's complaint filed in federal court in the Northern District of Georgia, Slawson conducted insider trading on at least eight occasions in the hedge fund's accounts or personal accounts belonging to him or other family members. Slawson was initially tipped with nonpublic information about Carter's by a hedge fund investment consultant named Dennis Rosenberg, who received the inside information from a Carter's executive. Slawson later communicated directly with that executive: Eric Martin, who at the time was vice president and director of investor relations.

The SEC alleges that based on the illegal tips that Slawson received from Rosenberg and Martin, his insider trading in Carter's stock generated more than $500,000 in profits or avoided losses.

The SEC's complaint alleges that Slawson violated the antifraud provisions of the federal securities laws: Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks a permanent injunction, disgorgement with prejudgment interest and civil monetary penalties pursuant to Section 21A of the Exchange Act.

Previously, the U.S. Attorney's Office for the Northern District of Georgia announced that a grand jury had indicted Slawson and charged him with one count of conspiracy to commit securities fraud and wire fraud, 25 counts of securities fraud, and nine counts of wire fraud, based on substantially similar conduct as alleged in the SEC's complaint. He is awaiting a trial in the criminal case.

The SEC, whose investigation continues into insider trading of Carter's stock, appreciates the assistance of the U.S. Attorney's Office for the Northern District of Georgia and the Financial Industry Regulatory Authority.

SEC ANNOUNCES FISCAL YEAR 2014 "A STRONG YEAR FOR ENFORCEMENT"

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced that in fiscal year 2014, new investigative approaches and the innovative use of data and analytical tools contributed to a very strong year for enforcement marked by cases that spanned the securities industry.  

In the fiscal year that ended in September, the SEC filed a record 755 enforcement actions covering a wide range of misconduct, and obtained orders totaling $4.16 billion in disgorgement and penalties, according to preliminary figures.  In FY 2013, the Commission filed 686 enforcement actions and obtained orders totaling $3.4 billion in disgorgement and penalties.  In FY 2012, the Commission filed 734 enforcement actions and obtained orders totaling $3.1 billion in disgorgement and penalties.

The agency’s enforcement actions also included a number of first-ever cases, including actions  involving the market access rule, the “pay-to-play” rule for investment advisers, an emergency action to halt a municipal bond offering, and an action for whistleblower retaliation.

 “Aggressive enforcement against wrongdoers who harm investors and threaten our financial markets remains a top priority, and we brought and will continue to bring creative and important enforcement actions across a broad range of the securities markets,” said SEC Chair Mary Jo White.  “The innovative use of technology – enhanced use of data and quantitative analysis – was instrumental in detecting misconduct and contributed to the Enforcement Division’s success in bringing quality actions that resulted in stiff monetary sanctions.”

“Time and again this past year, the Division’s staff applied its tremendous energy and talent, uncovered misconduct, and held accountable those who were responsible for wrongdoing,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “I am proud of our excellent record of success and look forward to another year filled with high-impact enforcement actions.”

In addition to the first-ever cases, Chair White noted that the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative was an important effort that began in the last fiscal year.  The SEC reached a settlement with a California school district for charges of misleading bond investors, making it the first settlement under the initiative targeting municipal disclosure. 

Director Ceresney added that, going forward, the Enforcement Division will continue to bring its resources to bear across the entire spectrum of the financial industry, from complex accounting fraud and market structure cases, to investment adviser and municipal securities cases, microcap fraud, insider trading, and cases against gatekeepers.

SEC Enforcement in Fiscal Year 2014

Combatting Financial Fraud and Enhancing Issuer Disclosure

Charged more than 135 parties with violations relating to reporting and disclosure.  Cases include actions against Bank of America Corporation;Fifth Third Bancorp and its former CFO; snack food maker Diamond Foods Inc. and its former CEO and CFO; five executives and finance professionals from collapsed law firm Dewey & LeBoeuf LLP; animal feed company AgFeed Industries Inc. and eight executives; and CVS Caremark Corp. and its retail controller.

Continued to devote resources to combat market manipulation and microcap fraud, including by filing multiple actions against penny stock promoters and others who created a false appearance of genuine interest in various stocks, and by using trading suspensions to neutralize threats to investors after questions arise concerning the adequacy or accuracy of an issuer’s disclosures.  The SEC also suspended trading in hundreds of dormant shell companies that were ripe for abuse in the over-the-counter market.

Filed several actions to halt international investment frauds, including those that spread through social media and targeted, among others, immigrant communities.  These cases include actions against 11 operators and promoters in a scheme known as CKB and CKB168, plus related entities; against World Capital Market Inc., WCM777 Inc., and their founder; and against eight operators and promoters of TelexFree, Inc. and related entities.  The Enforcement Division will continue to root out pyramid and Ponzi schemes that prey on vulnerable investors.

Brought coordinated charges against 34 individuals and companies for violating laws requiring them to promptly report information about their holdings and transactions in company stock, under a new initiative using quantitative analytics to identify especially high rates of filing deficiencies.

Ensuring Exchanges, Traders and Other Market Participants Operate Fairly

Brought first-ever actions under a rule requiring firms to establish adequate risk controls before providing customers with market access.  One action was resolved against Knight Capital Americas LLC, and another is continuing against Wedbush Securities Inc. and two of its executives. 

Obtained the largest penalty to date against an alternative trading system, Lavaflow Inc.

Charged dark pool operator Liquidnet Inc. with improperly using subscribers’ confidential trading information in marketing its services. Also charged the co-owner of brokerage firm Visionary Trading LLC with manipulative trading, and charged the owner, two firms, and four other individuals with registration violations.

Imposed the largest penalty ever for net capital rule violations, in a case against high frequency trading firm Latour Trading LLC and a former senior executive.

Charged four officials from clearing firm Penson Financial Services, including its CEO and CCO, relating to violations of Regulation SHO arising from its securities lending practices.

Filed significant enforcement actions against the New York Stock Exchange and brokerage subsidiaries for their failure to comply with exchange rules; brokerage subsidiaries and former employees of ConvergEx Group, including its former CEO, for deceiving brokerage customers with hidden fees; and Wells Fargo Advisors LLC, in the Commission’s first case against a broker-dealer for failing to protect a customer’s material nonpublic information.

Uncovering Misconduct by Investment Advisers and Investment Companies

Brought first-ever action under investment adviser “pay-to-play” rule, charging private equity firm TL Ventures Inc. with providing certain services within two years after an associate made contributions to two political candidates.  Also charged this firm and an affiliated adviser with improperly acting as unregistered investment advisers.

Filed first action arising from a focus on fees and expenses charged by private equity firms.  The Commission instituted an action against private equity firm Clean Energy Capital LLC and its president, alleging fraud in the allocation of expenses to the firm’s funds.

Charged three investment advisory firms with failures to maintain adequate controls on the custody of customer accounts.  The misconduct at Further Lane Asset Management, GW & Wade, and Knelman Asset Management Group involved failures to maintain client assets with a qualified custodian or to engage an independent public accountant to conduct surprise exams as required by the custody rule.  Also charged the CEO of Further Lane and the CEO and chief compliance officer of Knelman for custody rule and other violations.

Pursued other types of wrongdoing by asset managers, and leveraged proactive risk identification initiatives such as the Aberrational Performance Inquiry that uses proprietary analytics to identify hedge funds with suspicious returns.

Increasing Activity in Whistleblower Program

The program awarded nine whistleblowers with total awards of approximately $35 million in FY 2014.

Brought the first charges ever under new authority to bring anti-retaliation enforcement actions.  The SEC charged hedge fund advisory firmParadigm Capital Management with engaging in prohibited principal transactions and then retaliating against the employee who reported the trading activity to the Commission, and charged the firm’s owner in connection with the principal transactions.

Awarded more than $30 million to a whistleblower who provided key original information that led to a successful enforcement action, making it the largest-ever whistleblower award.

Holding Gatekeepers Accountable

Held attorneys, accountants and compliance professionals accountable for the important roles they play in the securities industry. 

Cases include an action against Ernst & Young LLP relating to auditor independence rules, and against audit firm Sherb & Co. LLP and four of its auditors for their roles in the failed audits of three China-based companies.

The Commission charged two Florida-based attorneys for their roles in an offering fraud conducted by a transfer agent, and charged transfer agent Registrar and Transfer Company and its CEO for violations involving improper distributions of billions of shares of unregistered stock.

In its fraud case against animal feed company AgFeed Industries Inc., the Commission charged the company’s audit committee chair, who learned of the misconduct in question and failed to take meaningful action to investigate it or disclose it to investors after learning of it.

Rooting Out Insider Trading 

Charged 80 people in cases involving trading on the basis of inside information. The Commission also is implementing and developing next generation analytical tools to help identify patterns of suspicious trading.

Among those charged are a former hedge fund trader, a portfolio manager, the co-chairman of a board, an investment banker, an investor relations executive, an accountant, husbands who traded on information they learned from their wives, and a group of golfing buddies and other friends.

Upholding Disclosure Standards in Municipal Securities

Focused on upholding appropriate standards of disclosure in securities issuances by local and state governments.  Cases this year included an emergency court order against a Chicago suburb and its comptroller, featuring the Commission’s first emergency action to halt a municipal bond offering; charges against the state of Kansas; and the first penalty imposed against a municipal issuer.

Announced the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative, which encourages and rewards self-reporting of certain violations by municipal issuers and underwriters.  Under the MCDC Initiative, these parties may self-report inaccurate statements in bond offerings about their prior compliance with certain continuing disclosure obligations.  In exchange, they may receive settlement terms that reflect credit for their self-reporting.  In the first action to arise from this Initiative, the Commission reached a settlement with a California school district for charges of misleading bond investors.

Cracking Down on Misconduct Involving Complex Financial Instruments

Filed enforcement actions against RBS Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Inc., and three Morgan Stanley entities for misconduct involving mortgage-backed securities and collateralized debt obligations.  The SEC also held global investment bank and brokerage firm Jefferies LLC responsible for its failure to properly supervise trading on its mortgage-backed securities desk.

Combatting Foreign Corrupt Practices and Obtaining Highest-Ever Penalties Against Individuals

Filed significant actions under the Foreign Corrupt Practices Act (FCPA) against Alcoa Inc., Weatherford International Ltd., the Archer-Daniels-Midland Company, and the Hewlett-Packard Company.  Additionally, in concluding its case against former Siemens executives who were charged with bribery in Argentina, the SEC also obtained the highest-ever FCPA penalties against individuals.

Demanding Admissions in Important Cases Enhancing Public Accountability

Demanded and obtained acknowledgements of wrongdoing under the admissions policy announced in the previous fiscal year.  Cases from this fiscal year involved fraud on clients concerning trading prices, a longstanding failure to comply with registration provisions, and failures to provide the Commission with accurate information during its investigations, among other things. 

Staff considers requiring admissions in cases where the violation of the securities laws includes particularly egregious conduct, where large numbers of investors were harmed, where the markets or investors were placed at significant risk, where the conduct obstructs the Commission’s investigation, where an admission can send a particularly important message to the markets, or where the wrongdoer poses a particular future threat to investors or the markets. 

Successful Litigation

Obtained a jury verdict against Samuel Wyly and the estate of the late Charles Wyly in a matter alleging a longstanding fraudulent scheme to use offshore trusts to conceal their ownership of tens of millions of shares of public companies.  This was the first litigation in which a defendant testified at trial against his co-defendants after agreeing to settle on terms requiring a written acknowledgement of wrongdoing.  The court issued a preliminary decision under which defendants are required to pay disgorgement of approximately $187 million and substantial prejudgment interest.

Obtained a jury verdict against a Minneapolis attorney and entities he controls for fraud in connection with unregistered offerings in a real estate fund.  The court ordered almost $20 million of monetary relief.

Obtained a jury verdict finding a Connecticut hedge fund manager liable for fraud after he funneled money to a Ponzi scheme.  The court ordered more than $80 million of monetary relief.

Obtained a jury verdict against Massachusetts advisory firm Sage Advisory Group, LLC and its principal in a case charging a scheme to induce the principal’s former brokerage customers to transfer their assets to his new advisory firm.  The court will later determine whether and what relief to impose against the defendants.

Additional data on the SEC’s FY 2014 enforcement results will be available as part of the SEC’s upcoming Agency Financial Report.

SEC ANNOUNCES SETTLEMENT WITH BROTHER OF RAJ RAJARATNAM

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced that former hedge fund manager Rajarengan “Rengan” Rajaratnam has agreed to pay more than $840,000 and accept securities industry bars in order to settle the agency’s insider trading case against him.

The SEC filed civil charges in March 2013 against Rengan Rajaratnam for his role in the widespread insider trading scheme conducted by his brother Raj Rajaratnam and hedge fund advisory firm Galleon Management.  The insider trading occurred in securities of more than 15 companies for illicit gains totaling nearly $100 million.  The SEC has now obtained court judgments or settlements in Galleon-related enforcement actions against 35 defendants, resulting in approximately $165 million in monetary sanctions.

“We are pleased to have reached a favorable proposed resolution of our insider trading charges against Rengan Rajaratnam,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “The settlement ensures he’s out of the industry and paying a serious price for breaking the law.”

Rengan Rajaratnam, who became a portfolio manager at Galleon after co-founding hedge fund advisory firm Sedna Capital Management, neither admitted nor denied the SEC’s allegations in agreeing to the settlement that is subject to court approval.  The proposed final judgment would permanently enjoin Rengan Rajaratnam from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and require him to pay $372,264.42 in disgorgement, $96,714.27 in prejudgment interest, and a $372,264.42 penalty.  Under the settlement, he also would be barred from association with any investment adviser, broker, dealer, municipal securities dealer, or transfer agent with the right to apply for reentry after five years.

The SEC’s investigation was conducted by John Henderson, Matthew Watkins, Diego Brucculeri, and James D’Avino in the New York Regional Office.  The case has been supervised by Sanjay Wadhwa, Senior Associate Director of the New York office, and Joseph Sansone, Deputy Chief of the Enforcement Division’s Market Abuse Unit.

6 GOVERNMENT AGENCIES APPROVE FINAL RISK RETENTION RULE

FROM:  U.S. FEDERAL DEPOSIT INSURANCE CORPORATION 

Six Federal Agencies Jointly Approve Final Risk Retention Rule

Six federal agencies approved a final rule requiring sponsors of securitization transactions to retain risk in those transactions. The final rule implements the risk retention requirements in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

The final rule is being issued jointly by the Board of Governors of the Federal Reserve System, the Department of Housing and Urban Development, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission. As provided under the Dodd-Frank Act, the Secretary of the Treasury, as Chairperson of the Financial Stability Oversight Council, played a coordinating role in the joint agency rulemaking.

The final rule largely retains the risk retention framework contained in the proposal issued by the agencies in August 2013 and generally requires sponsors of asset-backed securities (ABS) to retain not less than five percent of the credit risk of the assets collateralizing the ABS issuance. The rule also sets forth prohibitions on transferring or hedging the credit risk that the sponsor is required to retain.

As required by the Dodd-Frank Act, the final rule defines a "qualified residential mortgage" (QRM) and exempts securitizations of QRMs from the risk retention requirement. The final rule aligns the QRM definition with that of a qualified mortgage as defined by the Consumer Financial Protection Bureau. The final rule also requires the agencies to review the definition of QRM no later than four years after the effective date of the rule with respect to the securitization of residential mortgages and every five years thereafter, and allows each agency to request a review of the definition at any time. The final rule also does not require any retention for securitizations of commercial loans, commercial mortgages, or automobile loans if they meet specific standards for high quality underwriting.

The final rule will be effective one year after publication in the Federal Register for residential mortgage-backed securitizations and two years after publication for all other securitization types.

Dissenting Statement at Open Meeting Regarding Final Rule on Credit Risk Retention

Dissenting Statement at Open Meeting Regarding Final Rule on Credit Risk Retention

Dissenting Statement of Commissioner Daniel M. Gallagher Concerning Adoption of Rules Implementing the Credit Risk Retention Provisions of the Dodd-Frank Act

Dissenting Statement of Commissioner Daniel M. Gallagher Concerning Adoption of Rules Implementing the Credit Risk Retention Provisions of the Dodd-Frank Act

Statement by SEC Chair Mary Jo White at the SEC Open Meeting on Credit Risk Retention

Statement by SEC Chair Mary Jo White at the SEC Open Meeting on Credit Risk Retention

Skin in the Game: Aligning the Interests of Sponsors and Investors

Skin in the Game: Aligning the Interests of Sponsors and Investors

SEC INVESTOR BULLETIN ON ENFORCEMENT DIVISION INVESTIGATIONS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to provide investors with a general overview of how the SEC’s Division of Enforcement conducts investigations.

The SEC’s Division of Enforcement (Enforcement) works on hundreds of investigations each year.  Many investigations originate from complaints or tips that the SEC receives from the public.  The purpose of an SEC investigation is to determine whether any persons or entities violated the federal securities laws.  Common violations include misrepresenting important information about potential investments, manipulating the market prices of securities, stealing customers’ funds or securities, insider trading, and selling unregistered securities.

SEC investigations are generally conducted on a confidential basis to maximize their effectiveness and protect the privacy of those involved.  Because SEC investigations are generally nonpublic, Enforcement will not confirm or deny the existence of an investigation unless the SEC brings charges against a person or entity involved.  Enforcement also will not provide updates on the status of any pending SEC investigation.

SEC investigations are civil, not criminal.  The SEC can charge individuals and entities for violating the federal securities laws and seek remedies such as monetary penalties, disgorgement of ill-gotten gains, injunctions, and restrictions on an individual’s ability to work in the securities industry or to serve as an officer or director of a public company, but the SEC cannot put people in jail.  Enforcement may refer potential criminal cases to criminal law enforcement authorities for investigation or coordinate SEC investigations with criminal investigations involving the same conduct.  If a person is convicted of a criminal violation of the securities laws, a court may sentence that person to serve time in jail.

Enforcement decides whether to initiate an investigation based on many factors, including the magnitude and nature of the possible violations, the number of victims affected by the misconduct, the amount of potential or actual harm to investors from the misconduct, and whether misstated or omitted facts would have impacted investors’ investment decisions.  Enforcement also considers whether the conduct is ongoing or whether it occurred too long ago to pursue the full range of available remedies.  Enforcement may be more likely to initiate an investigation if the matter:

Requires immediate action to protect investors;
Relates to conduct that may threaten the fairness or liquidity of the securities markets;
Involves individuals with a history of misconduct;
Involves a subject matter the SEC or Enforcement has designated as a priority;
Fulfills a programmatic goal of the SEC and Enforcement; or
Concerns an industry practice that may be widespread and should be addressed.
Enforcement receives information about possible violations from many sources, including market surveillance activities, investor tips and complaints, whistleblower submissions, other divisions and offices of the SEC, self-regulatory organizations and other securities industry sources, and media reports.  If Enforcement opens an investigation, it may request documents and interview witnesses on a voluntary basis.  If authorized with a formal order of investigation, Enforcement can issue subpoenas requiring the production of documents and witness testimony.  Enforcement develops the facts in an SEC investigation primarily through interviewing witnesses under oath and analyzing documents and data (e.g., emails, brokerage records, and trading data).

The securities laws are complex and SEC investigations often last months or even years.  At any point during an investigation, Enforcement may decide to close the investigation without recommending any enforcement action.

If Enforcement makes a preliminary determination to recommend enforcement action, it may elect to provide individuals or entities who would be charged in the action with a Wells notice explaining the proposed charges against them and informing them that they can make a voluntary submission setting forth their interests and position.  If Enforcement believes (based on the evidence it has compiled and after considering a Wells submission or deciding not to issue a Wells notice) that enforcement action should be taken, Enforcement seeks authorization from the Commission for the SEC to file a civil lawsuit, to commence an administrative proceeding, or, in certain circumstances, to issue a report of investigation.  Any enforcement action that the SEC initiates is based on Commission authorization.

In some situations, Enforcement may continue to investigate other involved parties or related conduct even after the SEC files an enforcement action.  Information about filed enforcement actions is provided in litigation releases and administrative orders posted on the SEC’s website.

DOJ ANNOUNCES INDICTMENTS IN ALLEGED LIBOR INTEREST RATE MARKET MANIPULATION CASE

FROM:  U.S. JUSTICE DEPARTMENT 

THURSDAY, OCTOBER 16, 2014

TWO FORMER RABOBANK TRADERS INDICTED FOR ALLEGED

MANIPULATION OF U.S. DOLLAR, YEN LIBOR INTEREST RATES

Six Individuals Now Charged in Rabobank LIBOR Investigation

WASHINGTON — Two former Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) derivative traders – including the bank’s former Global Head of Liquidity & Finance in London – have been charged in a superseding indictment for their alleged roles in a scheme to manipulate the U.S. Dollar (USD) and Yen London InterBank Offered Rate (LIBOR), a benchmark interest rate to which trillions of dollars in interest rate contracts were tied, the Justice Department announced today.  Six former Rabobank employees have now been charged in the Rabobank LIBOR investigation.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Deputy Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division and Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington Field Office made the announcement.

Earlier today, a federal grand jury in the Southern District of New York returned a superseding indictment charging Anthony Allen, 43, of Hertsfordshire, England; and Anthony Conti, 45, of Essex, England, with conspiracy to commit wire fraud and bank fraud and with substantive counts of wire fraud for their participation in a scheme to manipulate the USD and Yen LIBOR rate in a manner that benefitted their own or Rabobank’s  financial positions in derivatives that were linked to those benchmarks.

The indictment also charges Tetsuya Motomura, 42, of Tokyo, Japan, and Paul Thompson, 48, of Dalkeith, Australia, who were charged in a prior indictment with Paul Robson, a former Rabobank LIBOR submitter.  In addition to adding as defendants Allen and Conti, the superseding indictment alleges a broader conspiracy to manipulate both the USD LIBOR and the Yen LIBOR.

Robson and Takayuki Yagami, a former Rabobank derivatives trader, each pleaded guilty earlier this year to one count of conspiracy in connection with their roles in the scheme.

“Today, we have charged two more members of the financial industry with influencing Dollar LIBOR and Yen LIBOR to gain an illegal advantage in the market, unfairly benefitting their own trading positions in financial derivatives,” said Assistant Attorney General Caldwell.  “LIBOR is a key benchmark interest rate that is relied upon to be free of bias and self-dealing, but the conduct of these traders was as galling as it was greedy.  Today’s charges are just the latest installment in the Justice Department’s industry-wide investigation of financial institutions and individuals who manipulated global financial rates.”

“With today’s charges against Messrs. Allen and Conti, we continue to reinforce our message to the financial community that we will not allow the individuals who perpetrate these crimes to hide behind corporate walls,” said Deputy Assistant Attorney General Snyder.  “This superseding indictment, with its charges against Mr. Allen, makes an especially strong statement to managers in financial institutions who devise schemes to undermine fair and open markets but leave the implementation – and often the blame – with their subordinates.”

“With today’s indictments the FBI’s investigation into Rabobank’s manipulation of LIBOR benchmark rates expands in scope to include the U.S. Dollar,” said Assistant Director in Charge McCabe. “I would like to thank the special agents, forensic accountants, and analysts, as well as the prosecutors who have worked to identify and stop those who hide behind complex corporate and securities fraud schemes.”

According to the superseding indictment, at the time relevant to the charges, LIBOR was an average interest rate, calculated based on submissions from leading banks around the world, reflecting the rates those banks believed they would be charged if borrowing from other banks.   LIBOR was published by the British Bankers’ Association (BBA), a trade association based in London.  LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year.  The published LIBOR “fix” for U.S. Dollar and Yen currency for a specific maturity was the result of a calculation based upon submissions from a panel of 16 banks, including Rabobank.

LIBOR serves as the primary benchmark for short-term interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products.

Rabobank entered into a deferred prosecution agreement with the Department of Justice on Oct. 29, 2013, and agreed to pay a $325 million penalty to resolve violations arising from Rabobank’s LIBOR submissions.

According to allegations in the superseding indictment, Allen, who was Rabobank’s Global Head of Liquidity & Finance and the manager of the company’s money market desk in London, put in place a system in which Rabobank employees who traded in derivative products linked to USD and Yen LIBOR regularly communicated their trading positions to Rabobank’s LIBOR submitters, who submitted Rabobank’s LIBOR contributions to the BBA.  Motomura, Thompson, Yagami and other traders entered into derivative contracts containing USD or Yen LIBOR as a price component and they asked Conti, Robson, Allen and others to submit LIBOR contributions consistent with the traders’ or the bank’s financial interests, to benefit the traders’ or the banks’ trading positions.  Conti, who was based in London and Utrecht, Netherlands, served as Rabobank’s primary USD LIBOR submitter and at times acted as Rabobank’s back-up Yen LIBOR submitter.  Robson, who was based in London, served as Rabobank’s primary submitter of Yen LIBOR.  Allen, in addition to supervising the desk in London and money market trading worldwide, occasionally acted as Rabobank’s backup USD and Yen LIBOR submitter.  Allen also served on a BBA Steering Committee that provided the BBA with advice on the calculation of LIBOR as well as recommendations concerning which financial institutions should sit on the LIBOR contributor panel.

The charges in the superseding indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

The investigation is being conducted by special agents, forensic accountants and intelligence analysts in the FBI’s Washington Field Office.  The prosecution is being handled by Senior Litigation Counsel Carol L. Sipperly and Trial Attorney Brian R. Young of the Criminal Division’s Fraud Section and Trial Attorney Michael T. Koenig of the Antitrust Division.  The Criminal Division’s Office of International Affairs has provided assistance in this matter.

The Justice Department expresses its appreciation for the assistance provided by various enforcement agencies in the United States and abroad.  The Commodity Futures Trading Commission’s Division of Enforcement referred this matter to the department and, along with the U.K. Financial Conduct Authority, has played a major role in the LIBOR investigation.  The Securities and Exchange Commission also has played a significant role in the LIBOR series of investigations, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation. The department has worked closely with the Dutch Public Prosecution Service and the Dutch Central Bank in the investigation of Rabobank.  Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the department is grateful for their cooperation and assistance.

This prosecution is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force.  President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets and recover proceeds for victims of financial crimes.  For more information about the task force visit: www.stopfraud.com.

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SEC CHARGES ONLINE STOCK RECOMMENDATION BUSINESS OWNER WITH FRAUD

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged the operator of an online stock recommendation business with conducting several fraudulent securities offerings and siphoning some of the money raised from investors for a Caribbean vacation and plastic surgery.

An SEC investigation found that Anthony Coronati, who lives on Staten Island, initially held himself out as an investment adviser to a hedge fund that he claimed would invest in equity securities.  But the hedge fund was fictitious and Coronati used investor money for other purposes.  When the money began drying up, he went on to defraud investors in additional schemes involving his New Jersey-based company Bidtoask LLC.  Coronati and Bidtoask sold membership interests in the company for the purpose of investing in promising technology companies that had yet to hold initial public offerings (IPOs).  Investors were told that Bidtoask would invest directly in pre-IPO Facebook shares without charging any fees, commissions, or markups to investors.  However, Bidtoask’s Facebook-related investments actually did require the payment of significant fees that Coronati and Bidtoask concealed from investors.  Bidtoask did not even own the shares of other technology companies in which it was supposedly investing, and these companies were not actually in the process of an IPO.
Coronati and Bidtoask have agreed to settle the SEC’s charges.  Coronati must pay back $400,000 in funds stolen from investors, and the money will be deposited into a Fair Fund for distribution to victims of the fraud schemes.  Coronati also agreed to be permanently barred from the securities industry.

“Coronati and Bidtoask blatantly lied in order to lure investors into fraudulent schemes, and Coronati then misappropriated large sums of money entrusted to him,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “The Fair Fund will help put money back in investors’ pockets.”

Coronati, who operates the website BidToAsk.com that offers stock recommendations to subscribers, was the subject of a subpoena enforcement action filed by the SEC late last year when he failed to produce documents or appear for scheduled testimony during the SEC’s investigation.  As a result of his continued failure to comply with SEC subpoenas in spite of a court order, Coronati was held in contempt of court and arrested earlier this year.
“Despite Coronati’s repeated attempts to defy SEC subpoenas and impede our work, the SEC investigative staff doggedly pursued the case and gathered the necessary evidence to bring this enforcement action that makes it possible to return stolen funds back to investors,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.

According to the SEC’s order instituting a settled administrative proceeding, Coronati conducted his schemes from at least 2009 to 2013.  As the various schemes unraveled, he faced increasing concerns from investors.  Coronati placated certain investors by making Ponzi-like payments to them using other investors’ money, and he sent a phony account statement to at least one investor purporting a position in the fake hedge fund that was worth more than $120,000.  The account statement also purported that the fictitious hedge fund was more than 80 percent invested in well-known public companies such as Apple.  Meanwhile, Coronati used investor funds to pay business expenses and such personal expenses as the Caribbean vacation and plastic surgery, and he also used investor money to purchase securities in a personal brokerage account he held in his own name.

The SEC’s order finds that Coronati and Bidtoask violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Coronati additionally violated Sections 206(1), 206(2), 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8.  Without admitting or denying the findings, Coronati and Bidtoask consented to the SEC’s order requiring them to cease and desist from further violations of those provisions of the securities laws and SEC rules.  Information about the Fair Fund will be available at: www.sec.gov/litigation/fairfundlist.htm

The SEC’s investigation was conducted by Jess Velona, Kenneth Byrne, and Thomas Feretic.  The litigation related to the subpoena enforcement action against Coronati was led by Preethi Krishnamurthy.  The case was supervised by Mr. Wadhwa and Sharon Binger.

SEC OBTAINS JUDGEMENT AGAINST DEFENDANTS IN SECURITIES FRAUD CASE

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23114 / October 15, 2014

Securities and Exchange Commission v. Stephen D. Ferrone, et al., Civil Action No. 1:11-cv-05223, USDC, N.D.Ill.

SEC Obtains Summary Judgment Against Defendants in Securities Fraud Involving Biopharmaceutical Company

The Securities and Exchange Commission announced that on October 10, 2014, the Honorable Elaine E. Bucklo of the United States District Court for the Northern District of Illinois granted the SEC's motion for summary judgment and for partial summary judgment, respectively, against Defendants Douglas McClain, Sr. ("McClain Sr."), of Fair Oaks, Texas, and Douglas McClain Jr. ("McClain Jr."), formerly of Savannah, Georgia. The Court found that McClain Sr. violated the antifraud provisions of the federal securities laws by making misrepresentations and omissions and that McClain Sr. and McClain Jr. engaged in insider trading.

The SEC filed this action against the defendants in August 2011, alleging that McClain Sr., McClain Jr., Immunosyn Corporation ("Immunosyn") Argyll Biotechnologies, LLC ("Argyll"), Stephen D. Ferrone, and James T. Miceli ("Miceli") committed securities fraud in connection with materially misleading statements during 2006-2010 regarding the status of regulatory approvals for Immunosyn's sole product, a drug derived from goat blood referred to as "SF-1019." The SEC also charged Argyll, McClain, Jr., McClain, Sr., Miceli, Argyll Equities, LLC ("Argyll Equities"), and Padmore Holdings, Ltd. with insider trading.

The SEC's complaint, filed in federal court in Chicago, alleged, among other things, that the defendants misleadingly stated in public filings with the SEC and in oral presentations that Argyll, Immunosyn's controlling shareholder, planned to commence the regulatory approval process for human clinical trials for SF-1019 in the U.S. or that regulatory approval was underway. The complaint alleges that these statements misled investors because the statements omitted to disclose that the U.S. Food and Drug Administration ("FDA") had already twice issued clinical holds on drug applications for SF-1019, which prohibited clinical trials involving SF-1019 from occurring.

After completion of discovery, the SEC moved for summary judgment, and for partial summary judgment, respectively, against McClain Sr. and McClain Jr. In granting the SEC's motion for summary judgment, the Court found that McClain Sr. committed securities fraud by taking money from investors and failing to deliver Immunosyn shares and by telling investors that Immunosyn would secure approval for SF-1019 from the FDA in about a year and that the U.S. Department of Defense had purchased SF-1019. The Court also found that McClain Sr. and McClain Jr. engaged in insider trading by selling their Immunosyn stock based on the material, non-public information that the FDA had issued clinical holds on drug applications for SF-1019. The Court found that McClain Sr. and McClain Jr. violated 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 Court will determine the appropriate remedies against McClain Sr. and McClain Jr. at a later date.

FACT SHEET: Safeguarding Consumers’ Financial Security | The White House

FACT SHEET: Safeguarding Consumers’ Financial Security | The White House

SEC ANNOUNCES JURY FINDS FORMER CHAIRMAN FAILED START-UP, LIABLE FOR SECURITIES FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23112 / October 15, 2014

Securities and Exchange Commission v. iShopNoMarkup.com, Inc., et al., Civil Action No. 04-CV-4057 (E.D.N.Y.)

Jury Finds Anthony M. Knight, Former Chairman of a Failed Internet Startup, Liable for Securities Fraud and Illegal Sale of Unregistered Securities

On Tuesday, October 14, 2014, a jury in federal court in Central Islip, New York returned a verdict in favor of the U.S. Securities and Exchange Commission. The jury found the former Chairman of failed Long Island-based internet startup, iShopNoMarkup.com, Inc., liable for securities fraud and illegally selling unregistered securities. The defendant, Anthony M. Knight co-founded iShop, and was formerly the Chairman of iShop's Board of Directors. He also served at various times as iShop's Secretary and Chief Executive Officer. The Commission had charged that from the fall of 1999 until the summer of 2000, iShop, Knight and others conducted a fraudulent securities offering scheme that defrauded over 350 investors who invested approximately $2.3 million. iShop also failed to file any registration statement with the Commission as to the securities sold.

United States District Judge Denis R. Hurley, who presided over the trial, will determine the remedies and sanctions to be imposed against the defendant. The Commission is seeking a judgment requiring the defendant to pay disgorgement of ill-gotten gains plus prejudgment interest, as well as civil monetary penalties, an injunction, and an officer and director bar.

Anthony Knight, age 48, was at the time of the conduct a resident of Great Neck, New York, and is currently a resident of San Diego, California.

The Commission charged that from the fall of 1999 until the summer of 2000, iShop conducted a fraudulent and unregistered securities offering. iShop distributed offering memoranda and other documents to investors that misrepresented, and failed to disclose, material information concerning iShop's business operations. Knight and others also made oral misrepresentations to investors to persuade them to invest in iShop stock. Knight also supervised Scott W. Brockop, iShop's former Vice President of Sales and Marketing, who oversaw an operation at iShop through which employees cold-called potential investors, and made material misrepresentations to induce them to purchase iShop stock. Through the offering, iShop sold nearly 6.75 million shares of stock to over 350 investors, and obtained proceeds of approximately $2.3 million. iShop did not file a registration statement for the sale of these securities, and there was no registration statement otherwise in effect.

The Commission also charged iShop, Brockop, and Moussa Yeroushalmi a/k/a Mike Yeroush, iShop's former President. On October 26, 2006, the District Court entered a final judgment by default against Brockop, and on February 15, 2007, a Commission administrative law judge entered an order by default against Brockop barring him from association with any broker or dealer. On January 21, 2011, the District Court entered a final judgment by consent against Yeroush. On April 30, 2014, the District Court entered a final judgment by consent against iShop, leaving Knight as the sole remaining defendant in the litigation.

The jury found that defendant Knight violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. Judge Hurley will make the determination as to the final relief that should be imposed against the defendant. The Commission seeks an order permanently enjoining the defendant from violations of the above provisions of the federal securities laws, requiring disgorgement of ill-gotten gains, plus prejudgment interest thereon, and imposing civil penalties pursuant to Section 20(d) of the Securities Act and Section 21(d)(3) of the Exchange Act. The Commission also seeks an order barring the defendant from acting as an officer or director of a public company under Section 21(d)(2) of the Exchange Act.

FORMER WELLS FARGO EMPLOYEE ACCUSED BY SEC OF ALTERING A DOCUMENT

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced an enforcement action against a former Wells Fargo Advisors compliance officer who allegedly altered a document before it was provided to the SEC during an investigation.

According to the SEC’s order instituting an administrative proceeding against Judy K. Wolf, she was responsible for identifying potentially suspicious trading by Wells Fargo personnel or the firm’s customers and clients and then analyzing whether the trades may have been based on material nonpublic information.  Wolf created a document in September 2010 to summarize her review of a particular Wells Fargo broker’s trading, and she closed her review with no findings.  The SEC Enforcement Division alleges that Wolf altered that document in December 2012 after the SEC charged the broker with insider trading.  By altering the document, Wolf made it appear that she performed a more thorough review in 2010 than she actually had.  After Wells Fargo provided the document to the SEC as part of its continuing investigation, SEC enforcement staff spotted the alteration and questioned Wolf specifically about the document.  At first she unequivocally denied altering the document after September 2010, but in later testimony she testified that she had done so.

The SEC previously charged Wells Fargo in the case, and the firm agreed to pay $5 million to settle these and other violations of the securities laws.  Prior to the enforcement action, Wells Fargo placed Wolf on administrative leave and ultimately terminated her employment.

“We allege that Wolf intentionally altered a trading review document after she knew that the SEC had charged a Wells Fargo employee with insider trading based on facts related to her review,” said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit.  “Regardless of her motivation, her conduct was inconsistent with what the SEC expects of compliance professionals and what the law requires.”

The SEC Enforcement Division alleges that Wolf, who lives in St. Louis, willfully aided and abetted and caused Wells Fargo to violate Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-4(j) as well as Rule 204(a) under the Investment Advisers Act of 1940.  

The SEC Enforcement Division’s investigation was conducted by Megan Bergstrom and David S. Brown of the Market Abuse Unit.  The case was supervised by Mr. Hawke, Robert A. Cohen, and Diana Tani.  The litigation will be led by Donald Searles.

COURT ORDERS MAN AND COMPANY TO PAY $2.5 MILLION FOR ILLEGAL, OFF-EXCHANGE PRECIOUS METALS TRANSACTIONS

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

Federal Court Orders Florida Resident Richard Morello and His Florida Company, Vertical Integration Group LLC, to Pay over $2.5 Million in Monetary Sanctions for Engaging in Illegal, Off-Exchange Precious Metals Transactions

Junior Alexis, Florida Resident and Vertical Integration Group, LLC Employee, ordered to pay over $700,000 in monetary sanctions for his role in the unlawful venture

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Beth Bloom of the U.S. District Court for the Southern District of Florida entered an Order of Default Judgment against Vertical Integration Group LLC (Vertical) of Lake Worth, Florida, and its Managing Members, Richard V. Morello of Lake Worth, Florida, and Junior Alexis of Boynton Beach, Florida, for engaging in illegal, off-exchange precious metals transactions.

The Order, entered on September 29, 2014, requires Vertical and Morello, jointly and severally, to pay restitution of $893,859 and Alexis, jointly and severally with Morello and Vertical, to pay restitution of $563,131; requires Vertical and Morello, jointly and severally, to pay a civil monetary penalty of $1,663,698, and Alexis to pay a civil monetary penalty of $140,000; imposes permanent trading, solicitation, and registration bans against all of the Defendants; and prohibits them from engaging in illegal, off-exchange retail commodity transactions, as charged.

The Court’s Order stems from a CFTC Complaint filed on January 13, 2014, that charged the Defendants with engaging in illegal, off-exchange transactions in precious metals with retail customers on a leveraged, margined, or financed basis (see CFTC Press Release and Complaint 6824-14). The Complaint further charged and the Order found that Morello, as controlling person for Vertical, is liable for Vertical’s violations of the Commodity Exchange Act.

The Order provides that Melanie Damian, Esq. is responsible for collecting restitution and making any distributions to Vertical’s customers. Ms. Damian was appointed by the U.S. District Court for the Southern District of Florida as Special Monitor, Corporate Manager, and Equity Receiver in the CFTC’s enforcement action against, among others, Hunter Wise Commodities LLC (Hunter Wise) and certain of its associated entities (see CFTC Press Releases 6447-12, December 12, 2012 and 6935-14, May 22, 2014).

The Order further finds that, since at least July 16, 2011 and continuing through at least February 2013, Vertical, by and through its employees, including Morello and Alexis, solicited retail customers to engage in off-exchange leveraged, margined, or financed precious metals (including gold, silver, platinum and palladium) transactions that were executed through Hunter Wise. During that period, according to the Order, approximately 39 of Vertical’s customers paid $1,008,583 to Vertical in connection with these precious metals transactions. The Order finds that these customers lost $893,859 of their funds to trading losses, commissions, fees, and other charges by Vertical and other companies, and that Vertical received commissions and fees totaling $554,566 in connection with these precious metals transactions.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, leveraged, margined, or financed transactions, such as those conducted by Vertical, are illegal off-exchange transactions unless they result in actual delivery of the commodity involved within 28 days. The Order finds that metals were never actually delivered in connection with the leveraged, margined, or financed precious metals transactions made on behalf of Vertical’s customers.

The CFTC cautions victims that restitution orders may not result in the recovery of money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

CFTC Division of Enforcement staff members responsible for this action are Michelle Bougas, Alan Edelman, Michael Solinsky, and Charles D. Marvine

SEC ANNOUNCES THAT PENNY STOCK PROMOTER TO PAY $700,000 IN FRAUD CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23107 / October 8, 2014

Securities and Exchange Commission v. Geoffrey J. Eiten and National Financial Communications Corp., Civil Action No. 1:11-CV-12185 (District of Massachusetts, December 12, 2011)

Massachusetts-based Penny Stock Promoter Ordered to Pay Over $700,000 in SEC Fraud Case

The Securities and Exchange Commission announced that on October 7, 2014, the U.S. District Court for the District of Massachusetts entered a final judgment against stock promoter Geoffrey J. Eiten, a Massachusetts resident.  Eiten is a defendant in an action filed by the Commission in December 2011, alleging that Eiten and his company, National Financial Communications, Inc. (“NFC”), made material misrepresentations and omissions in penny stock publications they issued.  Among other things, the judgment orders Eiten to pay a total of $727,029.

The Commission’s complaint, file on December 12, 20122, alleged that Eiten and NFC issued a penny stock promotional publication called the “OTC Special Situations Reports.”  According to the complaint, the defendants promoted penny stocks in this publication on behalf of clients in order to increase the price per share and/or volume of trading in the market for the securities of penny stock companies.  The complaint alleged that Eiten and NFC made misrepresentations in these reports about the penny stock companies they promoted.  The Commission’s complaint alleged that in four reports, Eiten and NFC made material misrepresentations and omissions, concerning, among other things, the companies’ financial condition, future revenue projections, intellectual property rights, and Eiten’s interaction with company management as a basis for his statements.  According to the complaint, Eiten and NFC were hired to issue the above reports and used false information provided by their clients, without checking the accuracy of the information with the companies in question or otherwise ensuring that the statements they were making in the OTC Special Situations Reports were true.

The judgment enjoins Eiten from further violations of the antifraud provisions of the federal securities laws (Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder) and from certain specified activities related to penny stocks, including the promotion of a penny stock or deriving compensation from the promotion of a penny stock.  The judgment also imposed a penny stock bar against Eiten, which permanently bars him from participating in an offering of penny stock, including engaging in activities with a broker, dealer, or issuer for the purpose of issuing, trading, or inducing or attempting to induce the purchase or sale of any penny stock.  The judgment orders Eiten to pay disgorgement of $605,262, representing ill-gotten gains, plus prejudgment interest of $71,767 and a civil penalty of $50,000.

In a previous default judgment against NFC on July 24, 2013, the Court ordered NFC to pay over $1.6 million.

SEC ANNOUNCES JUDGEMENT AGAINST FORMER CEO FOR INVOLVEMENT IN STOCK MANIPULATION SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23110 / October 10, 2014

Securities and Exchange Commission v. 8000, Inc., Jonathan E. Bryant, Thomas J. Kelly, and Carl N. Duncan, Esq., Civil Action No. 12-civ-7261 (S.D.N.Y., Complaint filed Sept. 27, 2012)

Judgment Against Former CEO Orders Payment of Over $450,000 in Case Involving Scheme to Manipulate Company's Stock

The Securities and Exchange Commission announced today that on October 9, 2014, the U.S. District Court for the Southern District of New York entered a Final Judgment against Thomas J. Kelly of Levittown, Pennsylvania. Kelly was the Chief Executive Officer of 8000, Inc., a now defunct Virginia-based company whose stock was quoted on OTC Pink operated by OTC Markets Group LLC. Kelly and 8000, Inc. were defendants in a civil fraud action filed by the Commission on September 27, 2012. Also charged were an undisclosed principal in 8000, Inc., Jonathan E. Bryant of Nantwich, United Kingdom, and the company's attorney, Carl N. Duncan of Bethesda, Maryland.

The Commission's complaint alleged that the defendants participated in a scheme to manipulate the trading volume and price of 8000 Inc.'s common stock by disseminating false information about the company and simultaneously selling, or facilitating the sale of its securities which were not for sale to the general public. According to the complaint, from November 2009 through October 2010, Kelly and Bryant disseminated financial reports and press releases falsely representing that 8000, Inc. had millions of dollars in capital financing and revenues when, in fact, the company had neither. As 8000, Inc.'s stock price rose based on the false information they were disseminating, Bryant is alleged to have sold 56.8 million "restricted" shares of 8000, Inc. into the market with the assistance of Duncan who provided false legal opinions removing the restrictions, and Kelly to have bought and sold the company's securities in the secondary market. The complaint alleged that the defendants' scheme increased the volume of trading in 8000, Inc. by 93% and the company's stock price from less than $0.01 per share to $0.42 per share between November 2009 and October 2010.

The Final Judgment orders Kelly to disgorge the $415,592 in profits that he realized from trading in 8000, Inc.'s securities and to pay $ 46,697in pre-judgment interest. The Final Judgment follows the Judgment that the court entered against Kelly on June 6, 2013, with Kelly's consent and without him admitting or denying the allegations in the Commission's Complaint. That Judgment permanently enjoins Kelly from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. It also permanently bars Kelly from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, and permanently bars him from participating in an offering of a penny stock.

CFTC CHAIRMAN MASSAD'S STATEMENT BEFORE GLOBAL MARKETS ADVISORY COMMITTEE OPEN MEETING

FROM:  U.S. COMMODITY FUTURES EXCHANGE COMMISSION  

Opening Statement Chairman Timothy G. Massad before the Global Markets Advisory Committee Open Meeting

October 9, 2014

Thank you, Mark. Commissioner Wetjen and his office, as well as the professional staff have done a tremendous amount of work to support the GMAC and I thank them for that. I also want to thank today’s participants. Your presence and input is very much valued.

Our advisory committees provide a valuable forum for discussion of complex and evolving market issues relevant to our work here at the CFTC. And, it is important for us to listen to a broad variety of viewpoints as we consider these.

The topics of discussion today are both timely and important.

The first session on non-deliverable forwards should be very helpful to us as we consider whether to propose mandatory clearing for NDFs.

As you know, under the law pertaining to swaps clearing, the Commission must consider several factors to determine whether a swap is required to be cleared, which include: whether there is sufficient liquidity to support clearing; whether the necessary rules and infrastructure are in place to support clearing; and what are the effects on the mitigation of systemic risk and on competition.

Now, today’s meeting is not a formal process to consider those factors; but today is an opportunity for us to learn more about the NDF market so that we can consider whether to go forward with a proposed rule. If we decide to propose a rule, there will be an opportunity later for all the public to give their views.

Considering whether to propose a rule for further clearing mandates underscores the importance of working out the cross border issues on clearinghouse regulation and supervision. Europe has not yet recognized our clearinghouses as equivalent. I believe they should because our clearinghouses meet international standards. They believe we should change our regulatory approach to clearinghouses that are located in Europe but are also registered with the U.S. But the existing dual registration regime has worked well for many years. And so I believe this is a situation of, if it ain’t broke, don’t fix it. But we have agreed to look at whether we can further harmonize our rules and regulatory approach. And I am pleased that they have decided to postpone the imposition of higher capital charges on European banks participating in our markets. It was this threat of higher capital charges that was going to fragment the market, not the existence of dual registration, which has existed for years and has actually been the foundation for the growth of the global markets.

Our second topic pertains to bitcoin.  While the development of digital payment systems raises many issues outside our jurisdiction, one area within our responsibility is derivative contracts traded on SEFs or DCMs that are based on bitcoin. Today, we have the opportunity to hear about that.

I think about this area in the following way: Innovation is a vital part of our markets that our regulatory framework is designed to encourage. At the same time, our regulatory framework is intended to prevent manipulation and fraud, and to make sure our markets operate with transparency and integrity. Our responsibilities at the CFTC in this regard are ongoing. Of course, the fact that a contract exists doesn’t mean the CFTC endorses it, as the staff will explain more fully later today. As with all new developments, we must remain vigilant and will continue to evaluate these new contracts over time. And of course, we will coordinate with our colleagues at other regulatory authorities as appropriate. I think it is helpful to keep these points in mind whenever we consider a new innovation in our markets.

Thank you again for being here and contributing your ideas. I look forward to a productive discussion.

CFTC CHARGES FLORIDA FIRM AND OTHERS WITH FOREX POOL FRAUD

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

October 7, 2014

CFTC Charges Florida-based Forex Monthly Income Fund, LLC and its Principals Jean Chauvel, Renaud Pierre-Charles, and Employee and Agent Robert Tripode with Forex Pool Fraud and Other Violations

Federal Court issues emergency order freezing assets and records

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today announced that on September 30, 2014, Judge William Dimitrouleas of the U.S. District Court for the Southern District of Florida issued under seal an emergency Order freezing and preserving assets under the control of Jean Chauvel, Renaud Pierre-Charles, and Robert Tripode and their company Forex Monthly Income Fund, LLC (FMIF) (collectively, Defendants), a commodity pool operator based in the Miami, Florida area. The Order also prohibits the Defendants from destroying books and records and allows the CFTC immediate access to those records. The court scheduled a hearing for October 10, 2014, on the CFTC’s motion for a preliminary injunction.

Defendants allegedly misappropriated more than $1 million of customer funds

The emergency Order is part of a CFTC civil enforcement action also filed under seal on September 30, 2014. The CFTC Complaint alleges that from as early as January 2011, Defendants fraudulently solicited more than $1.4 million from members of the public to trade foreign currency (forex) in a commodity pool by, among other things, guaranteeing pool participants a monthly return on their investment based on profits purportedly earned from forex trading. Some of the Defendants’ victims were unsophisticated investors, including senior citizens, who sought higher monthly income on their retirement savings, according to the Complaint. The Complaint also alleges that the Defendants never traded or generated any income from trading forex, but rather misappropriated more than $1 million of the pool participants’ funds.

In its continuing litigation, the CFTC seeks full restitution to defrauded pool participants, disgorgement of ill-gotten gains, the payment of appropriate civil monetary penalties, permanent registration and trading bans, and a permanent injunction from future violations of federal commodities laws, as charged.

CFTC Division of Enforcement staff members responsible for this case are Kim Bruno, Michael Loconte, Daniel Jordan, and Rick Glaser.

Readout of the President's Meeting with Independent Financial Regulators | The White House

Readout of the President's Meeting with Independent Financial Regulators | The White House

4 INSURANCE AGENTS CHARGED BY SEC WITH SECURITIES FRAUD WHICH TARGETED THE ELDERLY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Four Insurance Agents in Securities Fraud Targeting Elderly Investors

09/26/2014 01:21 PM EDT

The Securities and Exchange Commission announced charges against four insurance agents for unlawfully selling securities in what turned out to be a multi-million dollar offering fraud targeting elderly investors.

The SEC previously charged a Colorado man who allegedly orchestrated the scheme and recruited active insurance agents to help him solicit investors in Colorado and several other states.  The scheme raised approximately $4.3 million during a nearly 18-month period.  The SEC’s investigation further found that the four insurance agents charged today solicited funds without registering with the SEC as a broker-dealer as required under the federal securities laws.

“When individuals act as a broker and sell securities to the public, they must comply with registration, supervision, and compliance requirements that exist to protect investors,” said Julie K. Lutz, Director of the SEC’s Denver Regional Office.  “These insurance agents improperly operated outside of that regulatory framework and thereby placed their clients at risk.”

According to the SEC’s order instituting administrative proceedings, the scheme primarily targeted retired annuity holders by using insurance agents to sell interests in a company called Arete LLC, which was controlled by the Colorado man orchestrating the scheme: Gary Snisky.  The insurance agents told investors that their funds would be used by Snisky to purchase government-backed agency bonds at a discount.  However, Snisky did not purchase bonds or conduct any such trading, and he misappropriated approximately $2.8 million of investor funds to pay commissions and make personal mortgage payments.

The SEC’s Enforcement Division alleges that the following three brokers raised approximately $1.5 million for Snisky and received almost $90,000 in commissions:

 Without admitting or denying the findings, Sorrells consented to an order finding that he violated Section 15(a) of the Securities Exchange Act of 1934.  He agreed to be barred from the securities industry, cease and desist from future violations of Section 15(a), and pay disgorgement of $207,213.34.  He also is subject to an additional financial penalty.  The settlement reflects substantial assistance that Sorrells provided in the SEC’s investigation.

The SEC’s Enforcement Division alleges that Meissner, Scott, and Tomich violated Section 15(a) of the Exchange Act, and is seeking disgorgement, penalties, and securities industry bars in the matter, which will be litigated before an administrative law judge.  The SEC’s case against Snisky, filed in November 2013, is still pending in federal court in Colorado.

The SEC’s investigation was conducted by Scott Mascianica, Kerry M. Matticks, and Jay A. Scoggins of the Denver office.  The SEC’s litigation will be led by Polly A. Atkinson and Leslie Hughes.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Colorado, Internal Revenue Service, Federal Bureau of Investigation, and U.S. Postal Inspection Service.

BITCOIN PONZI-SCHEMER ORDERED BY U.S. DISTRICT COURT TO PAY $40 MILLION

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23090 / September 22, 2014

Securities and Exchange Commission v. Trendon T. Shavers and Bitcoin Savings and Trust, Civil Action No. Civil Action No. 4:13-CV-416

Final Judgment Entered Against Trendon T. Shavers, A/K/A/ "Pirateat40" - Operator of Bitcoin Ponzi Scheme Ordered to Pay More Than $40 Million in Disgorgement and Penalties

The Securities and Exchange Commission announced that, on September 18, 2014, a United States District Court in Sherman, Texas entered final judgment against Trendon T. Shavers and Bitcoin Savings and Trust ("BTCST"), the online entity Shavers created and used to operate his Ponzi scheme, and through which he defrauded investors out of more than 700,000 bitcoins. The Court's judgment requires Shavers and BTCST to pay more than $40 million in disgorgement and prejudgment interest, and orders each Defendant to pay a civil penalty of $150,000.

The Commission established, and the Court found, that from February 2011 through August 2012, Shavers offered and sold investments in BTCST over the internet. Shavers solicited all investments, and paid all purported returns, in bitcoins. 

Operating under the internet name, "pirateat40," Shavers solicited investors in online chat rooms and on the Bitcoin Forum, an online forum dedicated to Bitcoin, promising them up to 7% returns weekly based on his claimed trading of bitcoin against the U.S. dollar, including selling bitcoins to individuals who wanted to buy them "off the radar." In reality, Shavers used new bitcoins received from BTCST investors to pay purported returns on outstanding BTCST investments, and diverted BTCST investors' bitcoins for his personal use. The Court further found that, even as he publicly denied the Ponzi scheme on the Bitcoin Forum, Shavers knowingly and intentionally operated BTCST as a sham and a Ponzi scheme, and repeatedly made materially false and misleading representations to BTCST investors and potential investors concerning the use of their bitcoins, how he would generate the promised returns, and the safety of their investments.

The Court's judgment permanently enjoins Shavers and BTCST from future violations of Sections 5 and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; orders them to disgorge, on a joint and several basis, $39,638,569, plus $1,766,098 prejudgment interest thereon, for a total of $40,404,667; and orders Shavers and BTCST each to pay a $150,000 penalty.