JPMORGAN CHASE ORDERED TO PAY $100 MILLION FOR DISCLOSURE FAILURES

FROM:  U.S. COMMODITY FUTURES 

CFTC Orders JPMorgan Chase Bank, N.A. to Pay $100 Million for Failure to Disclose Conflicts of Interest

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against JPMorgan Chase Bank, N.A. (JPMCB). The Order finds that JPMCB failed to disclose certain conflicts of interest to clients of its U.S.-based wealth management business, J.P. Morgan Private Bank. Specifically, JPMCB failed to fully disclose its preference for investing its client funds in certain commodity pools or exempt pools, namely hedge funds and mutual funds managed and operated by an affiliate and subsidiary of JP Morgan Chase & Co. (Proprietary Funds). JPMCB also failed to disclose its preference for investing its clients’ funds in third-party-managed hedge funds, each a commodity pool or exempt pool, that shared management and/or performance fees with a JPMCB affiliate. JPMorgan has admitted to facts set forth in the Order and acknowledged that its conduct violated the Commodity Exchange Act and/or related Regulations.

The CFTC Order requires JPMCB to pay a $40 million civil monetary penalty, to pay disgorgement in the amount of $60 million, and to cease and desist from further violations as charged.

Aitan Goelman, the CFTC’s Director of Enforcement, commented: “Investors are entitled to know if a bank managing their money favors placing investments in its own proprietary funds or other vehicles that generate fees for the bank. As demonstrated by the enforcement actions made public today, we and our regulatory partners will aggressively pursue financial institutions that fail to provide adequate disclosures to clients.”

As set forth in the Order, JPMCB serves as the investment manager for certain of its clients’ investment management accounts (IM Accounts) and certain private funds, known as the Global Access Portfolios (GAP), which are also offered to JPMCB clients. Since at least 2008, JPMCB has preferred to invest IM Accounts and GAP private fund assets in Proprietary Funds and has expected that a significant percentage of relevant portfolio assets will be invested in Proprietary Funds. Although JPMCB had historically made some disclosures regarding this preference, JPMCB did not disclose its preference for Proprietary Funds from January 2011 through January 2014, and never disclosed its preference for investment in proprietary hedge funds prior to January 2014.

Additionally, prior to August 2015, JPMCB failed to disclose its preference to invest IM accounts and GAP private funds in third-party hedge funds (each a commodity pool or exempt pool) for which JPMCB acts as the placement agent and earns fees for placement, shareholder servicing and other ongoing services.

These placement agent fees are typically referred to as “retrocessions.” Since at least 2005, JPMCB sought “retrocessions” from third-party hedge fund managers that were under consideration for IM account and GAP private funds investments. During introductory meetings, third-party hedge fund managers were typically asked about their willingness to pay retrocessions. If a manager declined to pay retrocessions, JPMCB typically sought an alternative manager with a similar investment strategy who was willing to pay JPMCB retrocessions. JPMCB did not disclose its preference for retrocession-paying third-party hedge fund managers until August 2015, when it added additional language to certain client documentation.

The CFTC Order is being announced simultaneously with the issuance of an order by the U.S. Securities and Exchange Commission settling charges for related conduct. The CFTC thanks and appreciates the assistance of the U.S. Securities and Exchange Commission.

The CFTC Division of Enforcement staff members responsible for this case are Neel Chopra, Katie Rasor, Chad Silverman (former staff), K. Brent Tomer, Lenel Hickson and Manal Sultan.

FORMER OFFSHORE BROKERAGE HEAD PLEADS GUILTY TO CHARGES STEMMING FROM INTERNATIONAL PUMP AND DUMP SCHEME

FROM:  U.S. JUSTICE DEPARTMENT 

Thursday, December 10, 2015

Former Head of Offshore Brokerage Pleads Guilty to Conspiracy to Commit International Stock Fraud and Money Laundering Scams

A California man pleaded guilty today to two counts of conspiracy to commit wire fraud and one count of conspiracy to commit international money laundering in connection with an international “pump and dump” scheme involving stocks traded on the over-the-counter (OTC) market.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Dana J. Boente of the Eastern District of Virginia and Assistant Director in Charge Paul M. Abbate of the FBI’s Washington Field Office made the announcement.

Harold Bailey Gallison II, 58, of Valley Center, California, was charged in an indictment unsealed on July 14, 2015, along with eight other individuals for their roles in complex, international stock manipulation and money laundering schemes.

In entering his guilty plea, Gallison admitted that he conspired to artificially “pump” or inflate the trading volume and price of the shares of Warrior Girl Corp., quoted on the OTC market under the ticker symbol WRGL, and Everock Inc., quoted on the OTC market under the ticker symbol EVRN, by touting business activities and deceptive revenue forecasts and by engaging in coordinated trading activity to create the appearance of increasing market demand.  Gallison admitted that he and others then “dumped” or sold the shares at the inflated prices and laundered proceeds through bank accounts in the United States and overseas.  Gallison further admitted that he facilitated the schemes through an offshore brokerage and money laundering platform that went by various names, including Sandias Azucaradas, Moneyline Brokers and Trinity Asset Services (collectively Moneyline).  Through Moneyline, Gallison created nominee accounts in the names of shell companies to conceal both the true source and ownership of the securities and the flow of funds.  In addition, Gallison pleaded guilty to one count of conspiring to launder the proceeds of a number of securities fraud schemes, including Warrior Girl and Everock, totaling more than $25 million.

Several of Gallison’s co-defendants are scheduled to proceed to trial on Jan. 25, 2016, and are presumed innocent until and unless proven guilty.  Gallison is scheduled to be sentenced on March 18, 2016.

The FBI’s Washington Field Office is investigating the case.  Senior Trial Attorney N. Nathan Dimock and Trial Attorney Michael O’Neill of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Kosta Stojilkovic of the Eastern District of Virginia are prosecuting the case.  Assistant U.S. Attorneys James P. Gillis and G. Zachary Terwilliger of the Eastern District of Virginia assisted in the prosecution.  The Securities and Exchange Commission, the Financial Industry Regulatory Authority and the Criminal Division’s Office of International Affairs also provided significant assistance.

SEC SAYS FALSE TWEETS SENT TWO STOCKS DROPPING

FROM:  U.S. SECURITIES  AND EXCHANGE COMMISSION 

PRESS RELEASE

SEC Charges: False Tweets Sent Two Stocks Reeling in Market Manipulation

Criminal Charges Also Filed

2015-254

Washington D.C., Nov. 5, 2015 — The Securities and Exchange Commission today filed securities fraud charges against a Scottish trader whose false tweets caused sharp drops in the stock prices of two companies and triggered a trading halt in one of them.

According to the SEC’s complaint filed in federal court in the Northern District of California, James Alan Craig of Dunragit, Scotland, tweeted multiple false statements about the two companies on Twitter accounts that he deceptively created to look like the real Twitter accounts of well-known securities research firms.

The U.S. Attorney’s Office for the Northern District of California today filed criminal charges against Craig.

The SEC’s complaint alleges that Craig’s first false tweets caused one company’s share price to fall 28 percent before Nasdaq temporarily halted trading.  The next day, Craig’s false tweets about a different company caused a 16 percent decline in that company’s share price.  On each occasion, Craig bought and sold shares of the target companies in a largely unsuccessful effort to profit from the sharp price swings.

The SEC’s investigation also determined that Craig later used aliases to tweet that it would be difficult for the SEC to determine who sent the false tweets because real names weren’t used.

“As alleged in our complaint, Craig’s fraudulent tweets disrupted the markets for two public companies and caused significant financial losses for their investors,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.  “Craig also said in later tweets that the SEC would have a hard time catching the perpetrator.  As today’s enforcement action demonstrates, those tweets turned out to be false as well.”

According to the SEC’s complaint:

On Jan. 29, 2013, Craig used a Twitter account he created to send a series of tweets that falsely said Audience Inc. was under investigation.  Craig purposely made the account look like it belonged to the securities research firm Muddy Waters by using the actual firm’s logo and a similar Twitter handle.  Audience’s share price plunged and trading was halted before the fraud was revealed and the company’s stock price recovered.

On Jan. 30, 2013, Craig used another Twitter account he created to send tweets that falsely said Sarepta Therapeutics Inc. was under investigation.  In this case Craig deliberately made the Twitter account seem like it belonged to the securities research firm Citron Research, again using the real firm’s logo and a similar Twitter handle.  Sarepta’s share price dropped 16 percent before recovering when the fraud was exposed.

The SEC’s complaint charges that Craig committed securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The complaint seeks a permanent injunction against future violations, disgorgement, and a monetary penalty from Craig.

The SEC has issued an Investor Alert titled Social Media and Investing – Stock Rumors prepared by the Office of Investor Education and Advocacy.  The alert aims to warn investors about fraudsters who may attempt to manipulate share prices by using social media to spread false or misleading information about stocks, and provides tips for checking for red flags of investment fraud.

The SEC’s investigation was conducted by staff in the Market Abuse Unit including Elena Ro, John Rymas, and Steven D. Buchholz.  The case was supervised by Joseph G. Sansone, Co-Chief of the Market Abuse Unit.  The SEC’s litigation will be led by Ms. Ro and John S. Yun of the San Francisco Regional Office.  The SEC appreciates the assistance of the U.S. Department of Justice and the Federal Bureau of Investigation.

COURT ORDERS $31 MILLION RESTITUTION AND PENALTY PAYMENT AGAINST MAN, COMPANY FOR FRAUD

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

October 20, 2015

Federal Court in Ohio Orders over $31 Million in Restitution and Civil Monetary Penalties against John R. Bullar and His Company, Executive Management Advisors L.L.C., for Commodity Pool Operator and Commodity Trading Advisor Fraud and Ponzi Scheme

In a Related Criminal Action, John R. Bullar was sentenced to 8 Years 4 Months in Prison and Ordered to Pay over $6 Million in Criminal Restitution

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Michael R. Barrett of the U.S. District Court for the Southern District of Ohio entered an Order for Final Judgment by Default against Defendant John R. Bullar, a resident of Cincinnati, Ohio, and a Consent Order against his company, Defendant Executive Management Advisors L.L.C. (EMA), imposing restitution on Bullar and EMA of over $6.2 million. In addition, the Orders require Bullar and EMA to pay civil monetary penalties totaling more than $24.8 million for their fraud, misappropriation, embezzlement, and operation of a Ponzi scheme, while illegally acting as Commodity Trading Advisors (CTAs) and Commodity Pool Operators (CPOs) without registering as such with the CFTC.  The Orders also impose permanent trading and registration bans on the Defendants and prohibit them from further violations of the Commodity Exchange Act, as charged.

The Orders arise out of a CFTC Complaint filed on September 23, 2014, which charged Bullar and EMA with embezzlement, fraudulent solicitation, misappropriation of customer funds, fraud by a CPO and CTA, commodity futures and options fraud, and failure to register as a CPO and CTA (see Complaint and Press Release 7006-14, September 23, 2014).

Embezzlement and Misappropriation

The Orders find that Bullar, from at least January 2008, and EMA, from at least March 2009 through September 2013, fraudulently solicited and accepted at least $8.3 million from at least 40 investors (EMA Pool Participants), who were told their funds would be pooled and traded in commodity futures and option contracts.  In fact, according to the Orders, most of the funds received from the EMA Pool Participants were not traded at all, and over $6.2 million of the EMA Pool Participants’ funds were embezzled or misappropriated by the Defendants and used by Bullar to pay his personal expenses, to pay money to him or to accounts he controlled, and to purchase property, vehicles, landscaping and other home improvements.  Additionally, some EMA Pool Participants’ funds were used by Defendants to pay for other EMA Pool Participants’ withdrawals of principal or fictitious profits, in the manner typical of a Ponzi scheme, the Orders find.

The Orders further find that to conceal their embezzlement and fraud the Defendants issued false account statements that showed fictitious profits and account balances and other false information.  Throughout the periods of their misconduct, Bullar and EMA failed to register with the CFTC as a CPO or CTA, as required, the Orders find.

Related Criminal Action

In a related criminal action brought by the U.S. Attorney’s Office for the Southern District of Ohio, Bullar pleaded guilty to one count of wire fraud and one count of money laundering and was sentenced on June 22, 2015 to 100 months (8 years and 4 months) in prison and ordered to pay criminal restitution totaling over $6 million.

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.

The CFTC thanks and acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of Ohio, the Internal Revenue Service-Criminal Investigation (Cincinnati Field Office), the Ohio Department of Commerce (Division of Securities-Enforcement), and the Office of the Hamilton County Prosecutor’s Office.

CFTC Division of Enforcement staff members responsible for this case are Xavier Romeu-Matta, Christopher Giglio, Douglas K. Yatter, Steven Ringer, Lenel Hickson, Jr., and Manal M. Sultan.

* * * * * *

CFTC’s Commodity Pool Fraud Advisory

The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Commodity Pool Fraud Advisory, which warns customers about a type of fraud that involves individuals and firms, often unregistered, offering investments in commodity pools.

Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a Toll-Free Hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.

CFTC ANNOUNCES DEUTSCHE BANK AG ORDERED TO PAY $2.5 MILLION PENALTY IN CASE INVOLVING SWAPS REPORTING VIOLATIONS AND SUPERVISION FAILURES

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

September 30, 2015

CFTC Orders Deutsche Bank AG to Pay a $2.5 Million Civil Monetary Penalty for Swaps Reporting Violations and Related Supervision Failures

CFTC Finds that Deutsche Bank Did Not Diligently Address and Correct Errors until after Bank Was Notified of CFTC Investigation

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Deutsche Bank AG, a global banking and financial services company and provisionally registered Swap Dealer, for failing to properly report its swaps transactions from in or about January 2013 until July 2015 (the Relevant Period). The CFTC Order also finds that Deutsche Bank did not diligently address and correct the reporting errors until the Bank was notified of the CFTC’s investigation, and failed to have an adequate swaps supervisory system governing its swaps reporting requirements.

This is the CFTC's first action enforcing the new Dodd-Frank requirements that provide for the real-time public reporting of swap transactions and the reporting of swap data to swap data repositories.

The Order requires Deutsche Bank to pay a $2.5 million civil monetary penalty and comply with undertakings to improve its internal controls to ensure the accuracy and integrity of its swaps reporting.

CFTC Director of Enforcement Aitan Goelman commented: “This is another in a series of cases the CFTC has brought this year highlighting the importance of complete and accurate reporting – here involving reporting of swap transactions. When reporting parties fail to meet their reporting obligations, the CFTC cannot carry out its vital mission of protecting market participants and promoting market integrity.”

As a provisionally registered Swap Dealer, Deutsche Bank is required to comply with certain disclosure, recordkeeping, and reporting requirements related to its swap transactions. Specifically, Parts 43 and 45 of the CFTC’s Regulations specify requirements for real-time public reporting, public availability of swap transaction and pricing data, and reporting of creation and continuation data. These Regulations also include requirements for a reporting counterparty to report and correct errors and omissions in its swaps reporting, including cancellations, to the registered Swap Data Repository (SDR) to which the reporting counterparty originally reported the swap.

The reporting requirements are designed to enhance transparency, promote standardization, and reduce systemic risk in swaps trading. Accurate swap data is essential to effective fulfillment of the regulatory functions of the CFTC, including meaningful surveillance and enforcement programs. Moreover, real-time public dissemination of swap transaction and pricing data supports the fairness and efficiency of markets and increases transparency, which in turn improves price discovery and decreases risk.

According to the CFTC Order, during the Relevant Period, Deutsche Bank failed to properly report cancellations of swap transactions in all asset classes, which in the aggregate included between tens of thousands and hundreds of thousands of reporting violations and errors and omissions in its swap reporting. Deutsche Bank was aware of problems relating to its cancellation messages since its reporting obligations began on December 31, 2012, but failed to provide timely notice to its SDR and did not diligently investigate, address and remediate the problems until it was notified of the Division of Enforcement’s investigation in June 2014. Because of Deutsche Bank’s reporting failures, misinformation was disseminated to the market through the real time public tape and to the CFTC.

The Order further finds that Deutsche Bank’s reporting failures resulted in part due to deficiencies with its swaps supervisory system. Deutsche Bank did not have an adequate system to supervise all activities related to compliance with the swaps reporting requirements until at least sometime between April and July of 2014 – well after its reporting obligations went into effect, according to the Order.

The Order recognizes Deutsche Bank’s significant cooperation with the CFTC during the investigation of this matter.

The CFTC’s Data and Reporting Branch in the Division of Market Oversight (DMO) is responsible for the supervision of swaps data collection and reporting obligations of registered entities. This matter originated from referrals by DMO, and the Data and Reporting Branch provided substantial assistance to the Division of Enforcement during the investigation.

The CFTC Division of Enforcement staff members responsible for this matter are Allison Passman, Joseph Patrick, Robert Howell, Scott Williamson, and Rosemary Hollinger, with assistance from DMO staff Lawrence Grannan, Athanasia Papadopoulos, Kristin Liegel, Benjamin DeMaria, and Daniel Bucsa.

CFTC SAYS WHISTLEBLOWER TO RECEIVE $290,000

FROM:  COMMODITY FUTURES TRADING COMMISSION 

September 29, 2015

CFTC to Issue Whistleblower Award of Approximately $290,000

Whistleblower Provided Valuable Information about Violations of the Commodity Exchange Act, which Resulted in an Enforcement Action

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today announced that it will make an award of approximately $290,000 to a whistleblower for providing valuable information about violations of the Commodity Exchange Act (CEA).

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the CFTC’s Whistleblower Program provides monetary awards to persons who report violations of the CEA if the information leads to an enforcement action that results in more than $1 million in monetary sanctions.

Whistleblowers are eligible for 10 percent to 30 percent of monies collected.  The CFTC can also pay awards based on monetary sanctions collected by other authorities in actions that are related to a successful CFTC enforcement action, and are based on information provided by a CFTC whistleblower.  The Dodd-Frank Act whistleblower provisions also prohibit retaliation by employers against employees who provide the CFTC with information about possible violations, or who assist the CFTC in any investigation or proceeding based on such information.

Aitan Goelman, the Director of the Division of Enforcement, stated, “Receiving high quality information from whistleblowers is an essential part of the CFTC’s overall enforcement program.  Such information allows the staff to bring cases more quickly and with fewer agency resources, and we will continue to provide financial incentives for people with specific and credible information about violations of the CEA to come forward.”

According to Christopher Ehrman, the Director of the CFTC’s Whistleblower Office, “The Whistleblower Office continues to receive high quality information from whistleblowers on a regular basis. The number of tips, complaints and referrals that we receive continues to grow year over year. We are committed to whistleblowers, and we value the information that they provide.”

SEC CHARGES FATHER, THREE SONS AND OTHERS WITH DEFRAUDING INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23360 / September 24, 2015

Securities and Exchange Commission v. Jason W. Galanis, Civil Action No. 1:15-cv-07547 (Southern District of New York, Complaint filed Sept. 24, 2015)

SEC Charges Six in Stock Fraud Scheme

The Securities and Exchange Commission charged six men, including a father and three sons, with defrauding investors in Gerova Financial Group Ltd., whose shares once traded on the New York Stock Exchange.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against the six: Jason Galanis, his father John Galanis, brothers Derek Galanis and Jared Galanis, along with Gerova president and chairman Gary T. Hirst and investment adviser Gavin Hamels. Jason Galanis is a securities fraud recidivist who was charged by the SEC in 2007 and his father John Galanis has been a defendant in numerous SEC enforcement actions dating back to the early 1970s.

In a complaint filed in U.S. District Court in Manhattan, the SEC alleges that in early 2010, Jason Galanis and Hirst orchestrated a scheme to secretly issue $72 million of unrestricted Gerova shares to a Galanis family friend in Kosovo. According to the complaint, Jason Galanis, his father, and his brothers directed sales of the shares from the Kosovo friend’s brokerage accounts and had the proceeds wired to them and their associates who collectively realized at least $16 million in illicit profits.

In addition, the complaint names Gavin Hamels, an investment adviser that Jason Galanis allegedly bribed to purchase Gerova stock to help stabilize Gerova’s stock price as the shares were liquidated. The complaint alleges that many of the purchases were coordinated in matched trades with the Kosovo friend’s sales. Hamels is alleged to have purchased Gerova stock for clients based on arrangements with Jared Galanis regarding the times, prices, and amounts of stock to purchase, and is alleged to have failed to inform his clients of the bribe from Jason Galanis.

The complaint charges Jason Galanis, Jared Galanis, Derek Galanis and Hirst with violations of Sections 5(a) and (c) of the Securities Act of 1933 (“Securities Act”); Jason Galanis, Jared Galanis and Derek Galanis with violations of Section 17(a)(1) of the Securities Act; Jason Galanis, Jared Galanis, Derek Galanis and Hamels with violations of Section 10(b) of the Securities Exchange Act of 1934, and Rules 10b-5(a) and (c) thereunder; John Galanis and Hirst with violations of Section 20(e) of the Exchange Act for aiding and abetting violations of Section 10(b) of the Exchange Act, and Rules 10b-5(a) and (c) thereunder; Jared Galanis with violations of Section 20(e) of the Exchange Act for aiding and abetting violations of Section 9(a)(1) of the Exchange Act; and Hamels with violations of Section 9(a)(1) of the Exchange Act, and Sections 206(1) and (2) of the Investment Advisers Act of 1940 (“Advisers Act”). In addition, the Commission alleges, in the alternative, that Derek Galanis violated Section 15(b) of the Securities Act by aiding and abetting violations of Section 17(a)(1); Jared Galanis and Derek Galanis violated Section 20(e) of the Exchange Act by aiding and abetting violations of Section 10(b) of the Exchange Act, and Rules 10b-5(a) and (c) thereunder; and Hamels violated Section 209(f) of the Advisers Act by aiding and abetting violations of Sections 206(1) and (2) of the Advisers Act.

The complaint seeks a final judgment permanently enjoining the defendants from committing future violations of these provisions, ordering them to disgorge their ill-gotten gains plus prejudgment interest, imposing financial penalties and barring Jason Galanis and Hirst from acting as officers or directors of a public company.

The SEC’s investigation was conducted by H. Gregory Baker, Christopher Ferrante, Leslie Kazon, and Sheldon Pollock of the New York Regional Office. The litigation will be led by Nancy A. Brown and Mr. Baker. The SEC thanks the U.S. Attorney’s Office of the Southern District of New York, the U.S. Postal Inspection Service, and the Federal Bureau of Investigation for their assistance in this matter.

CFTC SETTLES WASH SALES CASE INVOLVING BITCOIN

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

September 24, 2015

CFTC Settles with TeraExchange LLC, a Swap Execution Facility, for Failing to Enforce Prohibitions on Wash Trading and Prearranged Trading in Bitcoin Swap

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against TeraExchange LLC (Tera), a provisionally registered Swap Execution Facility (SEF), for failing to enforce its prohibition on wash trading and prearranged trading on the SEF platform.  The CFTC Order requires Tera to cease and desist from future violations relating to its obligations to enforce rules on trade practices.  Tera is based in Summit, New Jersey.

Specifically, the CFTC Order finds that Tera offered for trading on its SEF a non-deliverable forward contract based on the relative value of the U.S. Dollar and Bitcoin, a virtual currency (the Bitcoin Swap).  On October 8, 2014, the only two market participants authorized at that time to trade on Tera’s SEF entered into two transactions in the Bitcoin Swap.  The transactions were for the same notional amount, price, and tenor, and had the effect of completely offsetting each other.  At the time, these were the only transactions on Tera’s SEF.

Tera arranged for the two market participants to enter into the transactions.  Tera brought together the market participants, telling one that the trade would be “to test the pipes by doing a round-trip trade with the same price in, same price out, (i.e. no P/L [profit/loss] consequences) no custodian required,” according to the Order.

However, subsequent to the transactions, Tera issued a press release and made statements at a meeting of the CFTC’s Global Markets Advisory Committee (GMAC) announcing the transactions, creating the impression of actual trading interest in the Bitcoin swap.  Neither Tera’s press release nor the statements at the GMAC meeting indicated that the October 8 transactions were pre-arranged wash sales executed for the purpose of testing Tera’s systems.

As a provisionally registered SEF, Tera is required under the SEF Core Principles of the Commodity Exchange Act (CEA) and CFTC Regulations to enact and enforce rules prohibiting certain types of trade practices on the SEF, including wash trading and prearranged trading.  Tera’s rulebook, in fact, prohibited those practices.

The CFTC noted in the Order that “[t]hese facts should be distinguished from a situation where a SEF or other designated contract market runs pre-operational test trades to confirm that its systems are technically capable of executing transactions and, to the extent that these simulated transactions become publicly known, makes it clear to the public that the trades do not represent actual liquidity in the subject market.”

The CFTC appreciates the assistance of the Division of Market Oversight. CFTC Division of Enforcement staff members responsible for this case are Andrew Ridenour, Kim Bruno, Daniel Jordan, and Rick Glaser.

CFTC ORDERS CARGILL DE MEXICO TO PAY $500,000 FOR ROLE IN WASH SALES SCHEME

FROM:  COMMODITY FUTURES TRADING 

CFTC Orders Cargill de México SA De CV to Pay $500,000 for Unlawfully Executing Wash Sales on the CBOT and KCBT

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against commodities trading company Cargill de México SA De CV (Cargill de México) for executing wash trades involving corn, soybean, and wheat futures contracts on the Chicago Board of Trade (CBOT) and wheat futures contracts on the Kansas City Board of Trade (KCBT). The CFTC order requires that Cargill de México pay a $500,000 civil monetary penalty.

The Order finds that on multiple occasions between March 2010 and August 2014 Cargill de México engaged in wash sales and unlawful non-competitive transactions in certain agricultural futures products, including corn, soybeans, and wheat on the CBOT, as well as in hard red wheat traded on the KCBT. Before orders for these trades were entered on an exchange, Cargill de México employees, either acting alone or with another employee, entered equal and opposite transactions in the same futures contract for another account that was also owned by Cargill de México, and matched the product, quantity, price, and timing of those orders and trades. The Order finds that by so prearranging, structuring, and entering these orders, which negated the risk incidental to an open and competitive marketplace, Cargill de México also engaged in noncompetitive transactions.

In addition to imposing the $500,000 civil monetary penalty, the Order also requires Cargill de México to comply with certain undertakings. First, the Order requires Cargill de México to conduct training for certain personnel addressing the ethics, compliance, and legal requirements of the Commodity Exchange Act (CEA) and CFTC regulations with regard to prearranged, fictitious, or noncompetitive trading. Second, the Order requires Cargill de México to submit a report to the CFTC’s Division of Enforcement representing (i) that Cargill de México has adopted policies and procedures designed to prevent any potential prearranged, fictitious, or noncompetitive trading in violation of the CEA and CFTC regulations, (ii) that Cargill de México has conducted certain training sessions for relevant personnel, and (iii) that Cargill de México has begun using the self-match prevention technology available on the front end system provided by its primary clearing firm. Finally, the Order requires Cargill de México to cease and desist from further violations of Section 4c(a)(1) of the CEA and CFTC Regulation 1.38(a), as charged.

The CFTC thanks the CME Group, Inc. for its assistance in this matter.

CFTC Division of Enforcement staff members responsible for this case are Trevor Kokal, James G. Wheaton, Lenel Hickson Jr., and Manal M. Sultan.

SEC ACCUSES COMPANY PRESIDENT OF TRANSFERRING TWO-THIRDS OF INVESTOR FUNDS INTO PERSONAL ACCOUNT

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION F

Litigation Release No. 23354 / September 18, 2015

Securities and Exchange Commission v. Robert DeWayne Milligan, Civil Action No. 2:15-cv-07308 (C.D. Cal.)

SEC Charges President of America's Natural Energy with Oil and Gas Investment Fraud

The Securities and Exchange Commission today announced charges against Robert DeWayne Milligan, who was president of a California-based business known as America’s Natural Energy (“ANE”), for engaging in the fraudulent offering of unregistered securities.

According to the SEC’s complaint filed in the U.S. District Court for the Central District of California, from at least May 2010 through May 2014, Milligan raised over $1.3 million from approximately 39 investors in multiple states for ANE, which he represented to be a business engaged in oil and gas exploration in the Williston Basin of North and South Dakota. According to the complaint, ANE was, in reality, primarily a scheme that Milligan used to fund his personal lifestyle, which included cash withdrawals, gambling, travel, and shopping. The SEC alleges that, in raising funds from investors, Milligan made material misstatements and omissions regarding, among other things, the status of ANE’s drilling projects, his business experience, and the use of investor funds, including his transfer of nearly two-thirds of the funds he raised for ANE into his personal bank accounts. As a result of Milligan’s alleged misconduct, ANE’s investors have suffered substantial losses.

The Complaint charges Milligan with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10(b) thereunder. The Commission is seeking a permanent injunction, an accounting, disgorgement of ill-gotten gains plus prejudgment interest, and civil monetary penalties against Milligan.

This matter was investigated by Lee Robinson and Anne Romero under the supervision of Ian Karpel, all of the SEC’s Denver Regional Office. Zachary Carlyle will lead the litigation.

CALIFORNIA MAN CHARGED BY CFTC WITH FRAUD RELATED TO PRECIOUS METALS

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

September 11, 2015

CFTC Charges California Resident Hannes Tulving, Jr., through his company, The Tulving Company, Inc., with Misappropriation and Fraudulent Solicitation in a $17.8 Million Precious Metals Scheme

At Least 381 Customers Nationwide Allegedly Defrauded in the Scheme

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today filed a civil Complaint against Defendants Hannes Tulving, Jr. of Newport Beach, California, and his company, The Tulving Company, Inc., charging them with fraudulent solicitation and misappropriation in connection with the precious metals markets. Neither Defendant has ever been registered with the CFTC.

In its enforcement action, the CFTC alleges that the Defendants fraudulently offered contracts of sale of commodities in interstate commerce, namely, contracts for the sale of gold, silver, platinum, and palladium bullion and coin (precious metals). In offering these contracts, the Defendants obtained and misappropriated at least $17.8 million from at least 381 customers located throughout the United States for the purchase and sale of precious metals, according to the Complaint.

In their solicitations, the Defendants allegedly made false and fraudulent representations, including that The Tulving Company was a highly reputable, stable, and established precious metals firm that delivered precious metals to customers; that it bought and sold in excess of $2.1 billion in precious metals from 1999 through March 2013; and that precious metals were shipped quickly to customers after placement of orders and receipt of customer funds. These representations were false, according to the Complaint.

The Defendants allegedly purchased and sold little or no precious metals with the funds they collected from customers. Instead, according to the Complaint, the Defendants defrauded customers by lying to them and misappropriating their funds for improper and unauthorized uses, including for the Defendants’ own financial benefit.

To conceal their fraud, according to the Complaint, the Defendants made false and/or deceptive statements, including falsely representing that (1) customers owned specific amounts of precious metals when, in fact, they did not, (2) customers holdings in precious metals had significant value when, in fact, the non-existent holdings had no value whatsoever, and (3) customers were realizing profits from their investments when, in fact, no profit whatsoever had been realized.

In its continuing litigation, the CFTC seeks restitution to defrauded customers, disgorgement of ill-gotten gains, a civil monetary penalty, permanent registration and trading bans, and a permanent injunction against future violations of federal commodities laws, as charged.

CFTC Division of Enforcement staff members responsible for this case are Luke B. Marsh, Richard Foelber, Dmitriy Vilensky, and Paul G. Hayeck.

Keynote Address by Commissioner Sharon Y. Bowen before ISDA North America Conference

Keynote Address by Commissioner Sharon Y. Bowen before ISDA North America Conference

SEC ANNOUNCES $6.5 MILLION JUDGEMENT IN CASE INVOLVING STOCK MANIPULATION THROUGH FALSE PRESS RELEASES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23349 / September 16, 2015

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)

Court Orders Company to Pay More Than $6.5 Million in U.S. Stock Manipulation Scheme

The Securities and Exchange Commission announced today that on September 14, 2015, a federal court in New York entered a final judgment by default against 8000, Inc., a Virginia-based company, that ordered it to pay $6,525,000 in a civil penalty in a stock manipulation case filed by the Commission in 2012. The Commission alleged that the Company issued numerous false press releases to inflate the value of the company so that certain parties could benefit.

In addition to 8000, Inc., the Commission's complaint, filed on September 27, 2012, also charged Jonathan Bryant, a consultant for the company as well as the company's former Chief Executive Officer, Thomas Kelly of Levittown, Pennsylvania, and the company's attorney, Carl N. Duncan of Bethesda, Maryland. The 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 supposed to be for sale to the general public. According to the complaint, from November 2009 through October 2010, Bryant and Kelly 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 profited by selling 56.8 million "restricted" shares of 8000, Inc. into the market. Because the shares were restricted, they should not have been sold into the market at that time. The complaint alleged that Duncan provided false legal opinions removing the trading restrictions on the stock, and that Kelly profited from the scheme by buying and selling 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.

In addition to ordering 8000, Inc. to pay $6.5 million, the final judgment entered by the United States District Court for the Southern District of New York permanently enjoins 8000, Inc. from future violations of various antifraud and securities registration sections of the federal securities laws, including Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder.

The judgment against 8000, Inc. concludes the Commission's case. Defendants Bryant, Kelly, and Duncan all previously settled the Commission's action. Bryant consented to the entry of a final judgment that was entered on April 7, 2015. The final judgment permanently enjoined Bryant from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The final judgment also ordered Bryant to disgorge the $2,969,525 in profits that he realized from selling 8000, Inc.'s restricted securities and to pay $198,659.70 in pre-judgment interest. Additionally, the final judgment barred Bryant 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 barred him from participating in an offering of a penny stock.

Kelly consented to the entry of a final judgment that was entered on June 6, 2013, which permanently enjoined Kelly from violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. It also permanently barred 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 barred him from participating in an offering of a penny stock. On September 2, 2014, after a hearing, the court ordered Kelly to pay $415,569 in profits that he realized from trading in 8000 Inc.'s securities in the secondary market and to pay $46,697 in pre-judgment interest.

Duncan agreed to settle the Commission's action at the time it was filed. In December 2012, the court entered a final judgment against Duncan that permanently enjoined Duncan from violating Sections 5(a), 5(c), and 17(a)(2) of the Securities Act, permanently enjoined him from participating in the preparation and issuance of certain opinion letters, bars him from participating in an offering of a penny stock, and ordered him to disgorge $15,570 in unlawful proceeds and to pay $524.98 in prejudgment interest and a $25,000 civil money penalty. Duncan also consented to an administrative order issued pursuant to Rule 102(e)(3) of the Commission's Rules of Practice permanently suspending him from appearing or practicing before the Commission as an attorney.

The SEC would like to thank the Financial Industry Regulatory Authority for their assistance in this matter.

CFTC ANNOUNCES COMMODITY POOL FRAUDSTER SENT TO PRISON FOR 17 YEARS

FROM:  U.S. JUSTICE DEPARTMENT 

September 9, 2015

Commodity Pool Operator Sentenced to 17 Years’ Incarceration for Fraud

Washington, DC — Donovan Davis Jr., one of three Principal Defendants charged by the CFTC for the fraudulent operation of Capital Blu Management, LLC of Melbourne, Florida, was sentenced to 17 years in a federal prison on August 27, 2015.

Davis was convicted on May 14, 2015 of multiple counts of criminal conspiracy, mail fraud, wire fraud, and money laundering in connection with the operation of a fraudulent $17 million commodity pool. The two other Co-Defendants in the CFTC action, Blayne Davis and Damien Bromfield, earlier pleaded guilty to similar criminal charges. B. Davis was sentenced to 9 years in prison; Bromfield’s sentencing is scheduled for September 24.

CFTC Enforcement Director, Aitan Goelman, said “These sentences serve as a strong reminder that those who engage in fraud in the commodities markets face the very real possibility of criminal prosecution and jail time in addition to the civil sanctions sought by the CFTC.”

In 2011, the U.S. District Court for the Middle District of Florida found these same Defendants liable for civil violations of the Commodity Exchange Act and CFTC Regulations and ordered them to pay more than $7 million each in restitution and civil monetary penalties and permanently barred them from engaging in any commodity-related activity (see CFTC Press Release, Order, and Judgment 6054-11, June 15, 2011, and CFTC Press Release and Complaint 5643-09, April 7, 2009).

The CFTC subsequently provided material assistance to the U.S. Attorney’s office responsible for the criminal prosecution of these Defendants.

THREE INDICTED IN ALLEGED $54 MILLION "GREEN ENERGY" FRAUD

FROM:  U.S. JUSTICE DEPARTMENT 

Thursday, September 3, 2015

Indictment Charges Three People with Running $54 Million “Green Energy” Ponzi Scheme

An indictment was unsealed today charging three people in an investment scheme, involving a Bala Cynwyd, Pennsylvania-based company, that defrauded more than 300 investors from around the country.  Troy Wragg, 34, a former resident of Philadelphia, Pennsylvania, Amanda Knorr, 32, of Hellertown, Pennsylvania, and Wayde McKelvy, 52, of Colorado, are charged with conspiracy to commit wire fraud, conspiracy to commit securities fraud, securities fraud and seven counts of wire fraud, announced U.S. Attorney Zane David Memeger of the Eastern District of Pennsylvania and Special Agent in Charge William F. Sweeney Jr of the FBI’s Philadelphia Division.

As the founders of the Mantria Corporation, Wragg and Knorr allegedly promised investors huge returns for investments in supposedly profitable business ventures in real estate and “green energy.”  According to the indictment, Mantria was a Ponzi scheme in which new investor money was used to pay “earnings” to prior investors since the businesses actually generated meager revenues and no profits.  To induce investors to invest funds, it is alleged that Wragg and Knorr repeatedly made false representations and material omissions about the economic state of their businesses.

Between 2005 and 2009, Wragg, Knorr and McKelvy, through Mantria, intended to raise over $100 million from investors through Private Placement Memorandums (PPMs).  In actuality, they raised $54.5 million.  Wragg and Knorr were allegedly able to raise such a large sum of money through the efforts of McKelvy.  McKelvy operated what he called “Speed of Wealth” clubs which advertised on television, radio and the internet, held seminars for prospective investors and promised to make them rich.  According to the indictment, McKelvy taught investors to liquidate all their assets such as mutual funds and 401k plans, to take out as many loans out as possible, such as home mortgages and credit card debt and invest all those funds in Mantria.  During those seminars and other programs, Wragg, Knorr and McKelvy allegedly lied to prospective investors to dupe them into investing in Mantria and promised investment returns as high as 484 percent.

It is further alleged that Wragg, Knorr and McKelvy spent a considerable amount of the investor money on projects to give investors the impression that they were operating wildly profitable businesses.  Wragg, Knorr and McKelvy allegedly used the remainder of the funds raised for their own personal enrichment.  Wragg, Knorr and McKelvy allegedly continued to defraud investors until November 2009 when the SEC initiated civil securities fraud proceedings against Mantria in Colorado, shut down the company, and obtained an injunction to prevent them from raising any new funds.  A receiver was appointed by the court to liquidate what few assets Mantria owned.

In order to lure prospective investors, it is alleged that Wragg, Knorr and McKelvy lied and omitted material facts to mislead investors as to the true financial status of Mantria, including grossly overstating the financial success of Mantria and promising excessive returns.

“The scheme alleged in this indictment offered investors the best of both worlds – investing in sustainable and clean energy products while also making a profit,” said U.S. Attorney Memeger.  “Unfortunately for the investors, it was all a hoax and they lost precious savings.  These defendants preyed on the emotions of their victims and sold them a scam.  This office will continue to make every effort to deter criminals from engaging in these incredibly damaging financial crimes.”

“As alleged, these defendants lied about their intentions regarding investors’ money, pocketing a substantial portion for personal use,” said Special Agent in Charge Sweeney Jr.  “So long as there are people with money to invest, there will likely be investment swindlers eager to take their money under false pretenses.  The FBI will continue to work with its law enforcement and private sector partners to investigate those whose greed-based schemes rob individuals of their hard-earned money.”

If convicted of all charges, the defendants each face possible prison terms, fines, up to five years of supervised release and a $1,000 special assessment.

The criminal case was investigated by the FBI and is being prosecuted by Assistant U.S. Attorney Robert J. Livermore.  The SEC in Colorado investigated and litigated the civil securities fraud charges which formed the basis of the criminal prosecution.      

An indictment is an accusation.  A defendant is presumed innocent unless and until proven guilty.

SEC CHARGES FORMER BANK ANALYST AND OTHERS WITH INSIDER TRADING IN FRONT OF CLIENTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Former Investment Bank Analyst and Two Others With Insider Trading in Advance of Client Deals

08/25/2015 01:45 PM EDT

The Securities and Exchange Commission today charged a former investment bank analyst with illegally tipping his close friend with confidential information about clients involved in impending mergers and acquisitions of technology companies.  The SEC also charged his friend and another individual with trading on the inside information.

The SEC alleges that Ashish Aggarwal, who worked in J.P. Morgan’s San Francisco office, gleaned sensitive nonpublic information about two acquisition deals from colleagues who were working on them.  Aggarwal tipped Shahriyar Bolandian, who traded on the basis of the illegal tips in his own accounts as well as accounts belonging to his father and sister.  Bolandian also tipped his friend Kevan Sadigh so he could trade on the confidential information.  Bolandian worked at Sadigh’s e-commerce company, and together they made more than $672,000 in combined profits from their insider trading.

The SEC Enforcement Division’s Market Abuse Unit detected the insider trading through trading data analysis tools in its Analysis and Detection Center.

“We allege that Aggarwal, Bolandian, and Sadigh misused an investment bank’s confidential information for their personal benefit and victimized the bank, its clients, and investors,” said Robert A. Cohen, Acting Co-Chief of the SEC Enforcement Division’s Market Abuse Unit.  “We will continue to proactively identify and combat serial insider trading schemes, particularly when it involves industry professionals.”

In a parallel action, the U.S. Department of Justice today announced criminal charges against Aggarwal, who lives in San Francisco, as well as Bolandian and Sadigh, who each live in Los Angeles.

According to the SEC’s complaint filed in U.S. District Court for the Central District of California:

Aggarwal misappropriated confidential information about two J.P. Morgan-advised deals: Integrated Device Technology’s planned acquisition of PLX Technology in 2012 and salesforce.com’s acquisition of ExactTarget in 2013.
Aggarwal repeatedly communicated with Bolandian, his friend since college, in the days and weeks leading up to public announcements about the deals.

Bolandian and Sadigh bought the same series of call options in PLX Technology and ExactTarget.  Their trades were often within hours or even minutes of each other, and typically were 100 percent of the daily trading volume of those option series.
One of the brokerage accounts used by Bolandian was located offshore in the Bahamas.  He opened and funded the account with his credit card a week before the ExactTarget deal was announced.

Bolandian conducted various trades in his accounts on Aggarwal’s behalf in an arrangement that enabled Aggarwal to circumvent J.P. Morgan’s pre-clearance rules and potentially share in any profits.

The SEC’s complaint charges Aggarwal, Bolandian, and Sadigh with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3.  The complaint seeks a final judgment ordering Aggarwal, Bolandian, and Sadigh to pay disgorgement of their ill-gotten gains plus prejudgment interest and penalties, and permanent injunctions from future violations of these provisions of the federal securities laws.

The SEC’s continuing investigation is being conducted by Paul E. Kim and Deborah A. Tarasevich of the Market Abuse Unit with assistance from John Rymas in the unit’s Analysis and Detection Center.  The case is being supervised by Mr. Cohen and fellow Acting Co-Chief Joseph Sansone.  The SEC’s litigation will be led by David S. Mendel and Matthew P. Cohen.

The SEC appreciates the assistance of the Criminal Fraud Section of the U.S. Department of Justice, the U.S. Attorney’s Office for the Central District of California, and the Federal Bureau of Investigation.

SEC ACCUSES MAN OF COMMITTING FRAUD USING EB-5 IMMIGRANT INVESTOR PILOT PROGRAM

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

08/25/2015 11:05 AM EDT

The Securities and Exchange Commission today announced an asset freeze obtained against a man in Bellevue, Wash., accused of defrauding Chinese investors seeking U.S. residency through the EB-5 Immigrant Investor Pilot Program by investing in his companies.

The SEC alleges that Lobsang Dargey and his “Path America” companies have raised at least $125 million for two real estate projects: a skyscraper in downtown Seattle and a mixed-use commercial and residential development containing a farmers’ market in Everett, Wash.  But Dargey diverted $14 million for unrelated real estate projects and $3 million for personal use including the purchase of his $2.5 million home and cash withdrawals at casinos.

“We allege that Dargey promised investors their money would be used to develop specific real estate projects approved under the EB-5 program, but he misused millions of dollars to enrich himself and jeopardized investors’ prospects for U.S. residency,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.

According to the SEC’s complaint filed yesterday in U.S. District Court for the Western District of Washington:

Under the EB-5 program, foreign citizens may qualify for U.S. residency if they make a qualified investment of at least $500,000 in a specified project that creates or preserves at least 10 jobs for U.S. workers.
Dargey and his companies obtained investments from 250 Chinese investors under the auspices of the EB-5 program.  Path America SnoCo and Path America KingCo operated as regional centers through which EB-5 investments could be made.
Dargey told U.S. Citizenship and Immigration Services (USCIS) and EB-5 investors that he would use investor money only for the Seattle skyscraper and Everett, Wash., projects.

Dargey and his companies misled investors about their ability to obtain permanent residency by investing in the Path America projects.  For example, Dargey knew that USCIS can deny investors’ residency applications if investor money is used for a project that materially departs from the approved business plan presented to USCIS.  Dargey failed to tell investors that he and his companies had departed from the business plan by using investor money for personal expenses and unrelated projects.

Late yesterday, the court granted the SEC’s request for an asset freeze and issued an order restraining Dargey and his companies from soliciting additional investors.  The SEC also was granted an order expediting discovery, prohibiting the destruction of documents, and requiring Dargey to repatriate funds he transferred to overseas bank accounts.

The SEC’s investigation was conducted by Brent Smyth and Michael Foley of the San Francisco office and supervised by Steven Buchholz.  The SEC’s litigation will be led by Mr. Smyth and Susan LaMarca.  The SEC appreciates the assistance of the USCIS.

SEC ANNOUNCES MAN CONVICTED OF INSIDER TRADING RECEIVES HOME CONFINEMENT SENTENCE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23323 / August 19, 2015

Securities and Exchange Commission v. Eric McPhail, et al., Civil Action No. 1:14-cv-12958 (District of Massachusetts, Complaint filed July 11, 2014)

Defendant in SEC Insider Trading Case Sentenced by Massachusetts Federal Court in Parallel Criminal Action

The Securities and Exchange Commission announced that, on August 17, 2015, Douglas Parigian was sentenced to eight months of home confinement and 3 years of supervised release for his role in an insider trading ring that traded on inside information about Massachusetts-based American Superconductor Corporation. Parigian had previously pled guilty to criminal charges of conspiracy and securities fraud for his conduct. The criminal charges against Parigian arose out of the same conduct that is the subject of a civil insider trading action filed by the Commission against Parigian and others in July 2014.

The U.S. Attorney's Office for the District of Massachusetts indicted Parigian and another defendant, Eric McPhail, in a Superseding Information dated May 11, 2015. The Information charged that McPhail had a history, pattern and practice of sharing confidences with an individual who had material, nonpublic information concerning American Superconductor's quarterly earnings and other business activities (the "Inside Information"). This individual provided McPhail with the Inside Information with the understanding that it would be kept confidential. Instead, McPhail used email and other means to provide the Inside information to his friends, including Parigian, with the intent that they profit by buying and selling American Superconductor stock and options. Parigian used this information to profit on the purchase and sale of American Superconductor stock and options.

In July 2014, the Commission filed a civil injunctive against Eric McPhail and six of his golfing buddies, including Parigian, alleging that McPhail repeatedly provided non-public information about American Superconductor. McPhail's source was an American Superconductor executive who belonged to the same country club as McPhail and was a close friend. According to the complaint, from July 2009 through April 2011, the executive told McPhail about American Superconducter's expected earnings, contracts, and other major pending corporate developments, trusting that McPhail would keep the information confidential. Instead, McPhail misappropriated the inside information and tipped his friends, who improperly traded on the information. Four defendants settled the SEC's charges, without admitting or denying the allegations, by consenting to the entry of judgments permanently enjoining them from violating the antifraud provisions of the Exchange Act, paying disgorgement and civil penalties. The SEC's case against Parigian, McPhail and another individual, Jamie Meadows, is ongoing.

SEC CHARGES COMPANY FOUNDER WITH SELLING UNREGISTERED SECURITIES IN AN ALLEGED FRAUD SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23321 / August 17, 2015

Securities and Exchange Commission v. EnviraTrends, Inc., et al., Civil Action No. 8:15CV1903T27TGW (M.D. Fla., August 17, 2015)

SEC Charges Development Stage Company and Founder in Unregistered Offering Fraud Scheme

On August 17, 2015, the Securities and Exchange Commission filed a settled civil injunctive action against Russell Haraburda, the founder and Chief Executive Officer of EnviraTrends, Inc., a Sarasota, Florida-based development stage company purportedly in the business of selling pet memorial products. The Commission's action also charged EnviraTrends. The Commission's complaint alleges that Haraburda and EnviraTrends engaged in a fraudulent scheme to sell EnviraTrends securities to the public in unregistered offerings based on false and misleading statements regarding the company's activities and financial condition, and the purposes for which investors' funds would be used, while Haraburda misappropriated most of the money raised from investors for his own personal use. The Commission charges Haraburda and EnviraTrends with violating the antifraud, registration, and other provisions of the federal securities laws.

The Commission's complaint, filed in federal court in the Middle District of Florida, also alleges:

From mid-2009 until at least February 2014, Haraburda and EnviraTrends raised over $2.3 million through the sale of EnviraTrends stock to over 100 investors in thirteen states.

In soliciting these funds, Haraburda and EnviraTrends made numerous oral and written misrepresentations, including in filings with the SEC, regarding EnviraTrends' activities, operations, and finances. Haraburda and EnviraTrends repeatedly assured investors that their money would be used to build the company's business, including arranging for EnviraTrends' shares to be listed on a stock exchange or quoted on the OTC Bulletin Board. Contrary to these representations, Haraburda misappropriated $1.8 million, or 78% of the funds obtained from investors, spending it on personal expenses, including his mortgage payments, car and motorcycle payments, alimony, shopping sprees, and personal travel. EnviraTrends never developed or sold a product or service, never generated revenue, and a public market for EnviraTrends shares was never created.

In annual and quarterly reports and other filings EnviraTrends made with the Commission, Haraburda and EnviraTrends falsely stated that Haraburda had loaned funds to the company. But Haraburda did not make any loans to the Company. While there were occasional transfers of small sums from Haraburda's personal bank account to the company's bank accounts, the funds transferred were investor funds that Haraburda had previously misappropriated.

Haraburda further concealed his misappropriations by falsely stating to auditors that the company owed him hundreds of thousands of dollars, thus creating a pretext for his personal use of investor funds.

After the Commission's investigation of this matter began, Haraburda in 2014 created sham promissory notes purporting to show that he intended to repay the amounts he had misappropriated.

Haraburda and EnviraTrends, without admitting or denying the allegations in the complaint, have agreed to the entry of a final judgment providing permanent injunctive relief, barring Haraburda from serving as an officer or director of a public company, barring Haraburda from being associated with any offering of penny stock, and ordering Haraburda and EnviraTrends to disgorge their ill-gotten gains. The final judgment would provide permanent injunctive relief against Haraburda and EnviraTrends under the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5. The final judgment would enjoin Haraburda from violating the registration provisions of Sections 5(a) and (c) of the Securities Act; the certification requirements of Exchange Act Rules 13a-14 and 15d-14; and the prohibition against misrepresentations to auditors in Exchange Act Rule 13b2-2; and from aiding and abetting violations of the reporting provisions of Section 13(a) and 15(d)(1) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 15d-1. The final judgment would further enjoin EnviraTrends from violating Sections 5(a) and (c) of the Securities Act; and Section 13(a) and 15(d)(1) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 15d-1. The final judgment also would order Haraburda and EnviraTrends to jointly pay more than $2.3 million in disgorgement and prejudgment interest, but would waive these payments, except for $150,000, based their financial condition. The proposed settlement is subject to the approval of the District Court.

The SEC's investigation was conducted by Natalie Shioji, Ranah Esmaili, Donato Furlano, and Lisa Deitch, and assisted by Trial Attorney Michael Semler.

The SEC appreciates the assistance of the Florida Office of Financial Regulation.

TWO CITIGROUP AFFILIATES WILL PAY 180 MILLION TO SETTLE FRAUD CHARGES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Citigroup Affiliates to Pay $180 Million to Settle Hedge Fund Fraud Charges

08/17/2015 10:35 AM EDT

The Securities and Exchange Commission today announced that two Citigroup affiliates have agreed to pay nearly $180 million to settle charges that they defrauded investors in two hedge funds by claiming they were safe, low-risk, and suitable for traditional bond investors.  The funds later crumbled and eventually collapsed during the financial crisis.

Citigroup Global Markets Inc. (CGMI) and Citigroup Alternative Investments LLC (CAI) agreed to bear all costs of distributing the $180 million in settlement funds to harmed investors.

An SEC investigation found that the Citigroup affiliates made false and misleading representations to investors in the ASTA/MAT fund and the Falcon fund, which collectively raised nearly $3 billion in capital from approximately 4,000 investors before collapsing.  In talking with investors, they did not disclose the very real risks of the funds.  Even as the funds began to collapse and CAI accepted nearly $110 million in additional investments, the Citigroup affiliates did not disclose the dire condition of the funds and continued to assure investors that they were low-risk, well-capitalized investments with adequate liquidity.  Many of the misleading representations made by Citigroup employees were at odds with disclosures made in marketing documents and written materials provided to investors.

“Firms cannot insulate themselves from liability for their employees’ misrepresentations by invoking the fine print contained in written disclosures,” said Andrew Ceresney, Director of the SEC’s Enforcement Division.  “Advisers at these Citigroup affiliates were supposed to be looking out for investors’ best interests, but falsely assured them they were making safe investments even when the funds were on the brink of disaster.”

According to the SEC’s order instituting a settled administrative proceeding:

The ASTA/MAT fund was a municipal arbitrage fund that purchased municipal bonds and used a Treasury or LIBOR swap to hedge interest rate risks.
The Falcon fund was a multi-strategy fund that invested in ASTA/MAT and other fixed income strategies, such as CDOs, CLOs, and asset-backed securities.
The funds, both highly leveraged, were sold exclusively to advisory clients of Citigroup Private Bank or Smith Barney by financial advisers associated with CGMI.  Both funds were managed by CAI.

Investors in these funds effectively paid advisory fees for two tiers of investment advice: first from the financial advisers of CGMI and secondly from the fund manager, CAI.

Neither Falcon nor ASTA/MAT was a low-risk investment akin to a bond alternative as investors were repeatedly told.

CGMI and CAI failed to control the misrepresentations made to investors as their employees misleadingly minimized the significant risk of loss resulting from the funds’ investment strategy and use of leverage among other things.
CAI failed to adopt and implement policies and procedures that prevented the financial advisers and fund manager from making contradictory and false representations.

CGMI and CAI consented to the SEC order without admitting or denying the findings that both firms willfully violated Sections 17(a)(2) and (3) of the Securities Act of 1933, GCMI willfully violated Section 206(2) of the Investment Advisers Act of 1940, and CAI willfully violated Section 206(4) of the Advisers Act and Rules 206(4)-7 and 206(4)-8.  Both firms agreed to be censured and must cease and desist from committing future violations of these provisions.

The SEC’s investigation has been conducted by Olivia Zach, Kerri Palen, David Stoelting, and Celeste Chase of the New York Regional Office, and supervised by Sanjay Wadhwa.

$50,000 FINE IMPOSED ON FORMER BROKER, SALES AGENT FOR UNLAWFUL PROMOTION/SALE OF SECURITIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23315 / August 12, 2015

Securities and Exchange Commission v. Inofin, Inc., Michael J. Cuomo, Kevin J. Mann, Sr., Melissa George, Thomas Kevin Keough, David Affeldt, and Nancy Keough, Civil Action No. 1:11-CV-10633 (D. Mass., Complaint Filed April 14, 2011)

Court Imposes $50,000 Civil Penalty On Former Broker and Sales Agent of Massachusetts Company

The Securities and Exchange Commission announced today that the U.S. District Court for the District of Massachusetts has imposed a $50,000 civil penalty against Thomas Kevin Keough ("Kevin Keough") for his role in the unlawful promotion and sale of unregistered securities issued by Inofin, Inc., a subprime auto-financing company. Previously, the Court had entered judgment ordering Kevin Keough (and his wife) to pay a total of over $350,000 in disgorgement of ill-gotten gains.

Kevin Keough was a defendant in a lawsuit brought by the Commission against Inofin, its former executives, and its sales agents alleging they illegally raised at least $110 million from hundreds of individual investors through the sale of unregistered Inofin notes and that Inofin and its executives lied about the company's financial performance and how Inofin was using its investors' money. The Commission alleged that Kevin Keough unlawfully earned commissions by promoting and selling Inofin's unregistered securities and that he concealed his activities from his broker-dealer employers by directing Inofin pay his illegal commissions to his wife, Nancy, who was named as a relief defendant in the Commission's action for the purpose of recovering these funds from her.

In February 2015, Keough agreed to the entry of a consent judgment in partial settlement of the claims against him. Entered by the Court on February 20, 2015, the consent judgment ordered Keough to disgorge $368,430 in illegal commissions, to pay an additional $44,500 in interest and permanently enjoined him from violating Section 15(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act"). In a related action, the Commission issued an Order on March 3, 2015, barring Kevin Keough from certain parts of the securities industry, with the right to apply for reentry to the industry after three years.

As part of the February 2015 consent judgment, the Commission and Kevin Keough agreed that the Court should decide whether to impose a civil penalty on him. After briefing and presentation of the evidence by both sides, the Court ruled on August 5, 2015 that Kevin Keough should pay a civil penalty in the amount of $50,000. As a result, on August 12, 2015, the Court supplemented its judgment to impose the additional $50,000 civil penalty upon Kevin Keough.

The Commission previously obtained final judgments by consent against Inofin's former executives Michael J. Cuomo of Plymouth, Massachusetts, Kevin Mann, Sr. of Marshfield, Massachusetts and Melissa George of Duxbury, Massachusetts and against another Inofin sales agent, David Affeldt of Potomac, Maryland. The judgments ordered Cuomo, George, Mann, and Affeldt to pay disgorgement and civil penalties and permanently enjoined them from violating the Exchange Act and the Securities Act. The SEC's action remains pending against bankrupt Inofin.

SEC FILES CASE AGAINST FORMER BANK OFFICIAL

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23316 / August 13, 2015

Securities and Exchange Commission v. Cedric Cañas Maillard, Civil Action No. 15-cv-6380 (S.D.N.Y.)

SEC Files Case Against Former Banco Santander Official for Insider Trading

The Securities and Exchange Commission today filed insider trading charges against a former high-ranking executive at Madrid-based Banco Santander, S.A. for trading based on material, nonpublic information about a proposed acquisition for which the Spanish investment bank was acting as an advisor and underwriter.

The SEC's complaint alleges that Cedric Cañas Maillard, a Spanish citizen and former 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 of Saskatchewan, one of the world's largest producers of fertilizer minerals. The SEC alleges that Cañas coordinated with a close friend to purchase Potash call options in a Switzerland-based brokerage account, of which Cañas was the sole beneficial owner, on August 16, 2010-the day before Potash announced that it had rejected BHP's acquisition bid. Potash stock rose more than 27% after that announcement, and Cañas sold the Potash call options three days after he purchased them for illicit net profits of $278,156.97, a gain of more than 1,400%.

The SEC previously charged Cañas with committing insider trading before the same announcement by trading Contracts-for-Difference (CFDs). After Cañas settled the prior case, the Commission staff continued to investigate other suspicious Potash trades in foreign accounts. Commission staff obtained evidence a few weeks ago revealing that Cañas was the sole beneficial owner of the Switzerland-based account that purchased options before the announcement. The SEC complaint alleges that Cañas coordinated with a friend to purchase Potash call options in that account before the public announcement of BHP's acquisition bid. Cañas and his friend rushed to fund the account and place the trades days prior to the announcement. The complaint, filed in U.S. District Court for the Southern District of New York, alleges that Cañas violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3, and seeks disgorgement of ill-gotten gains with prejudgment interest and financial penalties.

The SEC's prior complaint alleged that Cañas traded CFDs equivalent to 30,000 shares and tipped his friend, Julio Marín Ugedo, in advance of the Potash announcement. To settle that action, Cañas consented, without admitting or denying the allegations, to a judgment permanently enjoining him from violating Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder and ordering him to pay disgorgement of $960,806 and a civil penalty of $960,806. Pursuant to the Consent that Cañas signed in that action, the settlement resolved only the claims related to the specific trades identified in that complaint.

The SEC's investigation has been conducted jointly by staff in the Enforcement Division's Market Abuse Unit, the Chicago Regional Office, and the Denver Regional Office, including Kathryn A. Pyszka, Frank D. Goldman, and R. Kevin Barrett. The case was supervised by Robert Cohen and Joseph Sansone, acting co-chiefs of the Market Abuse Unit, and Timothy Warren, Associate Director of the Chicago Regional Office. The litigation is being handled by Ms. Pyszka and Mr. Goldman. The SEC appreciates the assistance of the Swiss Financial Market Supervisory Authority and the Spanish Comisión Nacional del Mercado de Valores.

SEC ANNOUNCES SETTLEMENT OF FRAUD CHARGES WITH OWNERS OF RESIDENTIAL, COMMERCIAL REAL ESTATE COMPANY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

08/13/2015 11:30 AM EDT

The Securities and Exchange Commission today announced that three Maryland men have agreed to settle charges that they defrauded investors in a company that owns and operates residential and commercial real estate.  Boston-based Signator Investors Inc. and one of its supervisors agreed to settle separate charges that they failed to supervise two of the men who worked in Signator’s Maryland office.

The SEC alleges that James R. Glover orchestrated the fraud by enticing family, friends, and fellow church members to become his clients at Signator and invest in Colonial Tidewater Realty Income Partners, which he co-managed.  Most of Glover’s clients were financially unsophisticated and relied on him for investment guidance.  Some even described him as “another dad” or “part of the family.”

“Glover lied to unsuspecting members of his close-knit religious community and preyed upon the trust they placed in him as their registered representative,” said Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office.

According to the SEC’s complaint filed in federal court in Baltimore against Colonial Tidewater, Glover, and Colonial Tidewater’s co-manager Sherman T. Hill:
Glover steered approximately 125 clients to purchase partnership units in Colonial Tidewater.

Glover and Hill provided false and misleading written statements about Colonial Tidewater’s value and financial condition.

Glover lied to investors about the liquidity of Colonial Tidewater’s investments and the expected returns.

Glover and Cory D. Williams, his business partner in Signator’s Maryland office, did not inform clients that they received undisclosed commissions from Colonial Tidewater when clients invested in the company, thus failing to disclose conflicts of interest.

Glover misappropriated hundreds of thousands of dollars of investor funds.
According to an SEC order instituting a settled administrative proceeding against Signator and Gregory J. Mitchell, who was a supervisor in Signator’s Maryland office:

Signator and Mitchell failed to identify and prevent the alleged fraud conducted by Glover and Williams.

Signator failed to have reasonable policies and procedures governing consolidated reports, which could be used to combine all of a client’s financial holdings in a single report.  

Glover, without Signator’s knowledge, inserted clients’ Colonial Tidewater holdings into the consolidated reports to create the false impression that Colonial Tidewater was a Signator-approved investment when it was never authorized for sale by Signator representatives.

Rather than following Signator’s policies and procedures, Mitchell routinely allowed Glover and Williams to select client files for his review or he provided them a pre-selected list of names of client files to be reviewed, enabling them to remove all references to Colonial Tidewater investments before Mitchell reviewed the records.

“Signator and Mitchell failed to conduct the thorough reviews necessary to catch Glover and Williams in the act of defrauding investors,” said Ms. Binger.

Colonial Tidewater, Glover, and Hill agreed to settle the SEC’s charges without admitting or denying the allegations, and consented to the appointment of a receiver to take control of Colonial Tidewater.  Under settlements that are subject to court approval, Colonial Tidewater would be required to pay $527,844 in disgorgement, $66,542 in prejudgment interest, and a $725,000 penalty.  Glover agreed to be barred from the securities industry and pay $839,128 in disgorgement, $64,977 in prejudgment interest, and a $450,000 penalty.  Hill agreed to pay a $75,000 penalty.

In a separate SEC order, Williams agreed to settle charges that he violated provisions of the Investment Advisers Act.  Without admitting or denying the SEC’s findings, he agreed to be barred from the securities industry and pay $94,191 in disgorgement, $9,854 in prejudgment interest, and a $94,191 penalty.

Signator and Mitchell agreed to pay penalties of $450,000 and $15,000 respectively without admitting or denying the SEC’s findings.  Signator agreed to be censured and Mitchell agreed to be suspended from acting in a supervisory capacity for one year.

Funds collected from all the parties will go into a Fair Fund for injured investors.

The SEC’s investigation was conducted by Suzanne C. Abt, Assunta Vivolo, Scott A. Thompson, and Kelly L. Gibson in the Philadelphia Regional Office and supervised by G. Jeffrey Boujoukos.  The litigation will be handled by Christopher R. Kelly and David L. Axelrod.  The investigation followed an examination conducted by James O’Leary and Aidan Busch of the Philadelphia office under the supervision of Frank A. Thomas.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

SEC ANNOUNCES EDWARD JONES SETTLES CHARGES REGARDING OVERCHARGING CUSTOMERS IN MUNI BOND SALES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

08/13/2015 09:05 AM EDT

The Securities and Exchange Commission today announced that St. Louis-based brokerage firm Edward Jones and the former head of its municipal underwriting desk have agreed to settle charges that they overcharged customers in new municipal bonds sales.  It’s the SEC’s first case against an underwriter for pricing-related fraud in the primary market for municipal securities.  The firm also was charged with separate misconduct related to supervisory failures in its review of certain secondary market municipal bond trades.

Municipal bond underwriters are required to offer new bonds to their customers at what is known as the “initial offering price,” which is negotiated with the issuer of the bonds.  An SEC investigation found that instead of offering bonds to customers at the initial offering price, Edward Jones and Stina R. Wishman took new bonds into Edward Jones’ own inventory and improperly offered them to customers at higher prices.  In other instances, Edward Jones entirely refrained from offering the bonds to its customers until after trading commenced in the secondary market, and then offered the bonds at prices higher than the initial offering prices.  The firm’s customers paid at least $4.6 million more than they should have for new bonds.  In one instance, the misconduct resulted in an adverse federal tax determination for an issuer and put it at risk of losing valuable federal tax subsidies.

Edward Jones agreed to settle the case by paying more than $20 million, which includes nearly $5.2 million in disgorgement and prejudgment interest that will be distributed to current and former customers who were overcharged for the bonds.  Wishman agreed to pay $15,000 and will be barred from working in the securities industry for at least two years.

“Edward Jones undermined the integrity of the bond underwriting process by overcharging retail customers by at least $4.6 million and by misleading municipal issuers,” said Andrew J. Ceresney, Director of the SEC Enforcement Division.  “This enforcement action, which is the first of its kind, reflects our commitment to addressing abuses in all areas of the municipal bond market.”

According to the SEC’s order instituting a settled administrative proceeding against Edward Jones, the firm’s supervisory failures related to dealer markups on secondary market trades that involved the firm purchasing municipal bonds from customers, placing them into its inventory, and selling them to other customers often within the same day.  Because of the short holding periods, the firm faced little risk as a principal and almost never experienced losses on these intraday trades.  The SEC’s investigation found that Edward Jones’ supervisory system was not designed to monitor whether the markups it charged customers for certain trades were reasonable.

“Because current rules do not require dealers to disclose markups on municipal bonds, investors receive very little information about their dealer’s compensation in municipal bond trades,” said LeeAnn Ghazil Gaunt, Chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit.  “It is therefore important that firms have adequate supervisory systems to ensure that they are complying with their fair pricing obligations.”

Edward Jones consented to the SEC order without admitting or denying the findings that the firm willfully violated Sections 17(a)(2) and (3) of the Securities Act of 1933, Section 15B(c)(1) of the Securities Exchange Act of 1934, and Rules G-17, G-11(b) and (d), G-27, and G-30(a) of the Municipal Securities Rulemaking Board (MSRB).  The firm also failed reasonably to supervise within the meaning of Section 15(b)(4)(E) of the Exchange Act.  Edward Jones undertook a number of remedial efforts and now discloses the percentage and dollar amount of markups on all fixed income retail order trade confirmations in principal transactions.

Wishman consented to a separate SEC order without admitting or denying the findings that she willfully violated Sections 17(a)(3) of the Securities Act, MSRB Rules G-17, G-11(b) and (d), and G-30(a).  She also was a cause of Edward Jones’ violations of Section 17(a)(2) of the Securities Act and Section 15B(c)(1) of the Exchange Act.

The SEC’s investigation, which is continuing, has been conducted by Municipal Securities and Public Pensions Unit members Kevin Guerrero, Ivonia K. Slade, Eric A. Celauro, Sally J. Hewitt, and Brian D. Fagel along with Joseph O. Chimienti, Jonathan Wilcox, and the unit’s deputy chief Mark R. Zehner.  Providing assistance were members of the SEC’s National Exam Program, including Michael Fioribello, Paul N. Mensheha, and Stephen Vilim.


Statement on Edward D. Jones Enforcement Action

Commissioners Luis A. Aguilar, Daniel M. Gallagher, Kara M. Stein and Michael S. Piwowar
Aug. 13, 2015

The Commission’s recent enforcement action against Edward D. Jones involving the offer and sale of municipal bonds to retail investors highlights the need for clear rules requiring the disclosure of mark-ups and mark-downs.[1] We encourage the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB) to complete rules mandating transparency of mark-ups and mark-downs, even in riskless principal trades. If not, we believe the Commission should propose rules to address this important issue.


[1] See In the Matter of Edward D. Jones & Co., L.P., Exch. Act Rel. No. 75688 (Aug. 13, 2015) available at http://www.sec.gov/litigation/admin/2015/33-9889.pdf.

SEC ANNOUNCES FORMER SOFTWARE EXEC TO SETTLE BRIBERY CHARGES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

08/12/2015 03:45 PM EDT

The Securities and Exchange Commission today announced that a former executive at a worldwide software manufacturer has agreed to settle charges that he violated the Foreign Corrupt Practices Act (FCPA) by bribing Panamanian government officials through an intermediary to procure software license sales.

An SEC investigation found that Vicente E. Garcia, the former vice president of global and strategic accounts for SAP SE, orchestrated a scheme to pay $145,000 in bribes to one government official and promised to pay two others in order to obtain four contracts to sell SAP software to the Panamanian government.  He essentially caused SAP, which is headquartered in Germany and executes most of its sales through a network of worldwide corporate partners, to sell software to a partner in Panama at discounts of up to 82 percent.  The excessive discounts enabled the partner to create a slush fund from its excessive earnings on the other end of the sales and tap that money to pay the bribes to Panamanian government officials so SAP could sell the software.  Garcia, who lives in Miami, also received kickbacks from the slush fund into his bank account.

In a parallel action, the U.S. Department of Justice today announced a criminal action against Garcia.

“Garcia attempted to avoid detection by arranging large, illegitimate discounts to a corporate partner in order to generate a cash pot to bribe government officials and win business for SAP,” said Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit.

According to the SEC’s order instituting a settled administrative proceeding:

The scheme lasted from 2009 to 2013.

Garcia circumvented SAP’s internal controls by submitting various approval forms to SAP that falsified the reasons for the excessive discounts to the local partner.

Garcia used his SAP e-mail account and his personal e-mail account to communicate details of the bribery scheme and even identify the government officials and intended monetary amounts.

In an e-mail to one government official, Garcia attached a letter on SAP letterhead detailing fictional meetings in Mexico as requested by the official in order to justify a trip there on false pretenses.  The next day, Garcia sent a subsequent e-mail asking, “Any news …?  Was the document OK for him?  Can you ask him to finalize a deal for us in Feb-March, I need between $5 and $10 million.”

The SEC’s order finds that Garcia violated the anti-bribery and internal controls provisions of the Securities Exchange Act of 1934.  Garcia consented to the entry of the cease-and-desist order and agreed to pay disgorgement of $85,965, which is the total amount of kickbacks he received, plus prejudgment interest of $6,430 for a total of $92,395.

The SEC’s continuing investigation is being conducted by Ansu Banerjee and supervised by Alka Patel.  The SEC appreciates the assistance of the U.S. Department of Justice, U.S. Attorney’s Office for the Northern District of California, and Federal Bureau of Investigation.