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

Thursday, April 30, 2015

REAL ESTATE INVESTMENT FIRM AFFILIATED WITH GOLDMAN SACHS, WILL SETTLE SEC CHARGES BY PAYING $640,000

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
04/22/2015 12:15 PM EDT

The Securities and Exchange Commission today charged W2007 Grace Acquisition I Inc., a real estate investment firm, with failing to make required public filings.  W2007 Grace, which is indirectly owned by one or more private equity funds affiliated with The Goldman Sachs Group Inc., has agreed to pay $640,000 to settle the SEC’s charges relating to eight missed filings.

According to the SEC’s order instituting administrative proceedings, W2007 Grace went “dark” in November 2007, after its reporting obligations for its class B and class C preferred shares were suspended upon its filing with the Commission a notice of suspension of its duty to file public reports pursuant to Section 15(d) of the Securities Exchange Act of 1934.  At the time, W2007 Grace had fewer than 300 holders of record of the preferred shares.  Once the suspension took effect, the rules required W2007 Grace to resume reporting if the number of holders of record on the first day of any subsequent fiscal year was 300 or more.

The SEC’s order finds that W2007 Grace incorrectly concluded that it had fewer than 300 holders of record on Jan. 1, 2014 by failing to properly apply Rule 12g5-1 of the Exchange Act.  Specifically, W2007 Grace improperly treated certain distinct corporations and custodial accounts as single holders of record.  As a result, W2007 Grace was required to resume making public filings in 2014, but failed to do so.

“When companies cease disclosures to the public and go dark, they must ensure that they accurately count their holders of record, so that investors are not deprived of information they are entitled to under the law.” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “W2007 Grace failed to correctly count their holders of record and this action should send the message that there will be consequences for such lapses.”

In addition to paying the civil monetary penalty, W2007 Grace must cease and desist from committing or causing any violations of Section 15(d) of the Exchange Act and Rules 15d-1, 15d-11, and 15d-13, and resume periodic reporting by filing an annual report on Form 10-K for fiscal year 2014 on or before May 15 and filing a Form 10-K on or before July 1 for fiscal year 2013 and any other periodic reports required to be filed.

The SEC’s investigation has been conducted by Megan R. Genet and Steven G. Rawlings of the SEC’s New York Regional Office, and has been supervised by Sanjay Wadhwa.

Wednesday, April 29, 2015

CFTC CHAIRMAN MASSAD'S REMARKS BEFORE DERIVOPS NORTH AMERICA 2015

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION
Remarks of Chairman Timothy Massad before the DerivOps North America 2015
April 22, 2015
As Prepared For Delivery

Thank you for inviting me today, and I thank Diane for that kind introduction. It’s a pleasure to be here.

Yesterday was actually the 40th anniversary of the CFTC. The CFTC was formed as a separate agency on April 21, 1975, having been part of the Department of Agriculture prior to that time. What the agency has accomplished during that time is a credit to the CFTC staff. We have an incredibly dedicated and talented team whose tireless efforts have greatly benefitted the American public. I also thank my fellow commissioners for their efforts, particularly their willingness to work constructively together.

The growth of the derivatives markets over the last 40 years is really astounding. The sensible regulatory framework created by the CFTC for the futures market was a foundation for that market’s success. It has helped insure integrity and transparency while facilitating growth and innovation. Today we face a similar challenge in the swaps market – we must create a regulatory framework that achieves the goals of transparency and integrity while enabling the market to continue to grow and thrive.

And today, I want to update you on where we stand on creating that framework.

The New Regulatory Framework

Now unlike the futures and options market, the swaps market grew to be a global market in the absence of regulation. Moreover, while regulation of the futures and options market occurred gradually over time as the market evolved, the decision to create a regulatory framework for the swaps market occurred as a result of the worst financial crisis since the Great Depression. So these differences make our task particularly challenging.

As you know, the G-20 nations agreed to bring the over-the-counter derivatives market out of the shadows through four key commitments: central clearing, market oversight, transparent trading, and data reporting. Congress enacted those four G-20 commitments in the Dodd-Frank Act, and gave primary responsibility to the CFTC. Over the last five years, we have made substantial progress implementing each.

Clearing through central counterparties is now required for most interest rate and credit default swaps. About 75% of the transactions in our market, measured by notional amount, are cleared, compared to about 15% in December 2007.

We have increased oversight of major market players through our registration and regulation of swap dealers – more than 100 are now provisionally registered – and major swap participants.

Swaps transactions must now be reported to registered swap data repositories. There are now four data repositories in the U.S., and more than 20 others internationally, and thousands of participants are providing trade data which improves price discovery, increases market transparency, and enhances supervisory oversight.

Transparent trading of swaps on regulated platforms has begun. We currently have 22 swap execution facilities temporarily registered with 3 more applications pending. According to information compiled by the International Swaps and Derivatives Association, SEF trading accounted for about half of total volume in 2014.
But there is more work to do in all these areas. Let me briefly note some of the general issues we have been working on, and then talk specifically about some trading and data issues that I think will be of great interest to you.

Over the last ten months, one of our priorities has been to work on fine-tuning the new rules so that the new framework works effectively and efficiently for market participants. In particular, we have made a number of changes to address concerns of commercial end-users who depend on these markets to hedge commercial risk day in and day out, because it is vital that these markets continue to serve that essential purpose. This has included adjustments to reporting requirements and measures to facilitate access to these markets by end-users. We will continue to do this where appropriate. With reforms as significant as these, such a process is to be expected. We are also working on finishing the few remaining rules mandated by Dodd-Frank, such as margin for uncleared swaps and position limits.

Oversight of clearinghouses has been another key priority. Under the new framework, clearinghouses play an even more critical role than before. So we have also been focused on making sure clearinghouses operate safely and have resiliency. We did a major overhaul of our clearinghouse supervisory framework over the last few years. Today we are focused on having strong examination, compliance and risk surveillance programs. And while our goal is to never get to a situation where recovery or resolution of a clearinghouse must be contemplated, we are working with fellow regulators, domestically and internationally, on the planning for such contingencies, in the event there is ever a problem that makes such actions necessary.

We also remain committed to a robust surveillance and enforcement program to prevent fraud and manipulation. Whether holding some of the world’s largest banks accountable for attempting to manipulate key benchmarks or stopping crooks from defrauding seniors through precious metal scams and Ponzi schemes, our goal is to make sure that the markets we oversee operate fairly for all participants, regardless of their size or sophistication.

Yesterday, you may have seen that the Commission and the Department of Justice brought civil and criminal charges against an individual whose actions we believe contributed to the market conditions that led to the flash crash of 2010.  We believe this individual, using algorithmic trading strategies, sought to manipulate the E-mini S&P 500 on repeated occasions. The individual was arrested and taken into custody in London yesterday morning, and in addition to the Justice Department, I want to thank the FBI, U.K. Financial Conduct Authority, and Scotland Yard for their help on this case.  As this case illustrates, we will do everything in our power to pursue those who attempt to engage in fraud or manipulation in our markets, whether through electronic trading or conventional schemes. There is nothing more important than the integrity of our markets.

Agenda Going Forward

Let me now highlight a few current agenda items that I believe will be of interest to you. I want to discuss some operational issues in swaps trading and data collection that we are working on. Many of you are responsible for operationalizing the new regulatory framework. So your understanding of these issues and your thoughts on how we might best achieve these regulatory objectives, are very important and helpful to us. And I look forward after I conclude my remarks to hearing your thoughts and questions.

Trading Issues

A key commitment of the G-20 nations embodied in the Dodd-Frank Act was exchange-based trading of swaps. In most jurisdictions, this has not yet occurred. Here in the U.S., as I already noted, the trading of swaps on regulated exchanges has begun, though it is still relatively new. It’s been just over a year since the first made available for trading determinations took place.

I noted earlier the ISDA data on overall volumes. Over the last year we have seen consistent use of these platforms, with weekly volumes in the $1.5 trillion range. Volumes of interest rate swaps have fluctuated both on and off SEFs, against a backdrop of low interest rates. In the case of swaps on CDS indices, SEF trading represented roughly two-thirds of trading. And participation on SEFs is increasing. One SEF recently confirmed that it had exceeded 700 buy side firms as participants. We have also seen a significant increase in non-U.S. market participants participating on SEFs for credit indices, now at about 20 percent from negligible levels this time last year.

So we are making progress. But there is more work to do. Last fall, I said the goal should be to build a regulatory framework that not only meets the Congressional mandate of bringing this market out of the shadows, but which also creates the foundation for the market to thrive. The regulatory framework must ensure transparency, integrity and oversight, and, at the same time, permit innovation and competition. I also said we would look at ways to improve the framework and rules to achieve this. Since that time, we have focused on some operational issues where we believe adjustments can improve trading. Today I want to note a couple of the things we have done and discuss some other adjustments that we intend to make over the coming months.

Packages. Last year CFTC staff took action related to package trades, to allow market participants sufficient time to adapt to exchange-based trading. They worked with market participants to provide additional time for implementation and compliance, which varied by package type. Such phasing has been very useful. The market has developed technical solutions for many packages, and progress is continuing.

Block Trades. Another area concerned block trades. Market participants expressed concern that technology limitations could impair a SEF’s ability to facilitate pre-trade credit checks where the trade is negotiated away from the exchange. Last September, CFTC staff provided no-action relief with respect to the so called “occurs away” requirement so that block transactions could continue to be negotiated between parties and executed on a SEF.
In the areas I’ve just noted, the staff believed it was appropriate in light of our regulatory objectives and the circumstances in the market to provide at least temporary relief or an adjustment through a no-action letter. This can give the market time to develop a solution, as well as allow the staff to explore with the Commissioners possible amendments to Commission rules to address some of these issues through a rulemaking.

Let me turn to some additional steps we plan to take. In some cases, the staff may again act by no-action letter to address an immediate issue, and the Commission may look to amend our rules thereafter.

Error Trades

The first area is to address how erroneous trades are handled. It is important for market participants to have a clear understanding of how corrections can be made where appropriate, while at the same time having certainty that trades they have executed are final. Today, our staff is issuing a no-action letter that will provide relief to enable market participants, SEFs, and DCMs to fix erroneous swap trades. This updates a previous no-action letter that expired last year, and extends the relief to June 15, 2016. Promoting trade certainty and straight-through processing for swaps transactions are critical components of the new market structure. However, there have been concerns that our rules resulted, in some cases, in the inability to resubmit or correct trades that either did not go through, or that did go through and contained correctable errors. There also have been concerns that the operational difficulty of resubmitting or correcting an erroneous trade has resulted in trades pending for surprisingly long periods of time in an affirmation process.

To address these concerns, the no-action letter provides relief that trades that have been rejected from clearing due to clerical or operational errors can be corrected within an hour after rejection. The SEF or DCM can then permit a new prearranged trade, with the same terms and conditions as the original trade, but corrected for any such errors, to be executed and submitted for clearing.

The letter also provides relief to enable SEFs and DCMs to permit new prearranged trades to offset and replace an erroneous trade that has already been accepted for clearing. We expect the industry to continue to take steps to reduce operational errors, as well as to meet the time frames contemplated in straight through processing for swaps.

Uncleared Swaps – SEF Confirmations and Confirmation Data Reporting

Market participants have also raised concerns about confirmations provided by SEFs to counterparties for swaps that are not cleared. As you know, the SEF may not have access to all the relevant non-economic terms of the transaction that are contained in an ISDA Master Agreement between the parties or other underlying documentation. Last year, the staff issued a no-action letter that permitted the SEF confirmation to incorporate by reference the ISDA Master Agreement. This provided temporary relief to SEFs from the requirement to maintain copies of the ISDA Master Agreements or other underlying documentation. Today, based on feedback from SEFs and market participants and our concern that the operational burdens of furnishing the ISDA agreements to the SEFs exceeded the benefits, this relief is being extended until March 31, 2016.

I should note that the relief pertains to a SEF’s obligations. Under the SEF rulebooks, the parties to a swap must maintain relevant trade documents and make these agreements available to the SEFs and the CFTC upon request.

This no-action letter also provides relief for SEFs regarding their obligation to report Confirmation Data on uncleared swaps to SDRs. SEFs have expressed concern that to comply with their reporting obligations for uncleared swaps, they might be required to obtain trade terms from the same ISDA Master Agreements or other underlying documentation that, as I have just discussed, are not otherwise available to them. In light of these concerns, this relief clarifies that SEFs need only report such Confirmation Data for uncleared swaps as they already have access to without undergoing this additional burden. I would note that SEFs must to continue to report all “Primary Economic Terms” data for uncleared swaps – as well as the Confirmation Data they do in fact have – as soon as technologically practicable. I would also note that the counterparties to the trade have ongoing reporting obligations for uncleared swaps.

This is not the full list of issues pertaining to SEF trading that we are looking at, and we will continue to consider adjustments to our rules are needed in other areas.

I want to turn now to some related issues concerning data which are equally important.

Data

Today, under our rules, swap transactions, whether cleared or uncleared, must be reported to swap data repositories. Regular reporting is the cornerstone of transparency. You can now go to public websites and see the price and volume for individual swap transactions. And the CFTC publishes the Weekly Swaps Report that gives the public a snapshot of the swaps market. The availability of accurate data also means we can do much more to evaluate systemic risk and make sure that the markets operate fairly.

Although we have come a long way since the global financial crisis, there remains a considerable amount of work still to do to collect and use derivatives market data effectively.

We continue to focus on data harmonization, including by helping to lead some very active international work in this area, such as in the development of unique product identifiers and unique swap identifiers and guidance on standardizing reporting fields. We are also looking at clarifications to our own rules to improve data collection and usage. In that regard, we are taking steps that will clarify reporting obligations and at the same time improve the quality and usability of the data in the SDRs. You may recall that last year we issued a concept release seeking the public’s views on a variety of issues related to swap data reporting. We received a great many helpful comments, including letters from many of the organizations represented in this room, and we very much appreciate those. One particular issue stood out as a top priority for clarification – the reporting workflow surrounding cleared swaps.

Let me elaborate a bit on the issue. For a cleared swap trade, the original trade is submitted to the clearinghouse, at which point it is novated and two resulting swaps are created, with the clearinghouse as central counterparty to both sides. Thus, the original swap can result in multiple records. Additionally, the first trade may be reported to a different SDR than the two resulting swaps, so those records can reside in two locations. For example, the original or “alpha” swap may appear to remain as an open bilateral swap in one SDR, while in fact, it is subject to the clearing requirement and has been terminated and novated into two swaps that are open in another SDR.

We intend to proceed with a rulemaking in the near future on this issue. I expect the proposal will include the following key elements:

First, the proposed new rules will ensure consistency and clarity of the reporting workflow for cleared swaps. They will provide that when the original swap is accepted for clearing, terminated, and novated into two swaps, the clearinghouse must report a notice of termination to the original SDR and the original SDR will be required to accept and record that termination in its records. The proposed rules will identify clearinghouses as reporting counterparties for resulting swaps, which our original rules had not explicitly contemplated, and clarify that the clearinghouse will select the SDR to which the resulting swaps are submitted.

I also expect the proposed rules will mandate new data fields that will allow users of the data to easily link the original swap and the original SDR to the resulting swaps and any subsequent SDR.

I believe the proposed rule should also provide that daily valuations of cleared swaps need only be supplied to the SDRs from the clearinghouse, eliminating a requirement for certain counterparties to the trade to supply their valuations as well. This requirement created noise in the data and detracted from its clarity and usability without providing any meaningful benefit.

In addition, I expect this proposed rule on cleared swap reporting to eliminate the requirement to report “Confirmation Data” for the original alpha swaps that are intended to be cleared and then terminated upon acceptance for clearing. Confirmation Data related to extinguished “alpha” swaps that are intended to be cleared is simply not useful enough to justify the burden of a reporting requirement. For any resulting swaps generated when the trade is accepted for clearing as well as other swaps intended to be cleared, however, Confirmation Data will continue to be required.

Conclusion

Let me conclude by simply noting the United States has the best derivatives markets in the world – the most dynamic, innovative, competitive and transparent. They have been an engine of our economic growth and prosperity because, day in and day out, they have served the needs of a wide array of market participants.

I know this group understands the importance of making sure our markets continue to operate effectively and efficiently. I look forward to working with all of you to make sure that these markets continue to work well for the many businesses that rely on them in the years ahead.

Thank you for inviting me.

Tuesday, April 28, 2015

SEC OBTAINS INJUNCTION AGAINST MAN WHO ALLEGEDLY RAN FRAUD SCHEME TARGETING MILITARY PERSONNEL

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23245 / April 22, 2015
Securities and Exchange Commission v. Leroy Brown, Jr. and LB Stocks and Trades Advice LLC, Civil Action No. 6:15-cv-119-WSS (W.D. Tex. Waco Division)
SEC Obtains Preliminary Injunction Against Central Texas Man Accused of Running Fraudulent Scheme Targeting U.S. Military Members

The Securities and Exchange Commission announced that on April 21, 2015, the Honorable Walter S. Smith, Jr. of the United States District Court for the Western District of Texas entered an Agreed Preliminary Injunction against a central Texas man accused of running a fraudulent investment scheme targeting members of the U.S. military. Among other things, the Agreed Preliminary Injunction, pending a final disposition of the action, enjoins defendants from violating the securities laws that the SEC alleges defendants violated, freezes defendants' assets, orders defendants to provide an accounting, and prohibits the destruction, alteration, or concealment of documents.

On April 13, 2015, the SEC obtained a temporary restraining order and emergency asset freeze against Leroy Brown, Jr. and his firm, LB Stocks and Trades Advice LLC to halt this ongoing and fraudulent scheme. The SEC's complaint accuses Brown and LB Stocks and Trades Advice LLC of using false pretenses to solicit funds from investors, many of whom are active members of the U.S. military, including those serving at Fort Hood in Killeen, Texas. Brown exploited relationships he made during his time in the military, as well as his own military experience, to gain investors' trust. He assured investors that he had years of experience in the securities markets, and that he and companies he controlled had all necessary licenses and registrations with the SEC and the Financial Industry Regulatory Authority (FINRA). Brown promised investors he would double or triple their money, and that his investments could not lose.

According to the SEC, these claims were false. Brown and his companies have no securities licenses, and Brown himself has no evident experience with investments.

The SEC's complaint charges Brown and LB Stocks and Trades Advice LLC with violating the antifraud and securities registration provisions of the federal securities laws, specifically 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 10b-5 thereunder. In addition to the emergency relief it has already obtained, the SEC seeks civil penalties, disgorgement of ill-gotten gains, and permanent injunctive relief.

The SEC's investigation was conducted by Jim Etri, Chris Ahart and Melvin Warren of the Fort Worth Regional Office. B. David Fraser is leading the SEC's litigation. The SEC appreciates the assistance of the U.S. Attorney's Office for the Western District of Texas, the United States Secret Service, and the Texas Department of Public Safety - Criminal Investigations Division.

Monday, April 27, 2015

CFTC ORDERS POOL OPERATOR TO PAY $100,000 PENALTY

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
CFTC Orders Tennessee-based Commodity Pool Operator Hope Advisors LLC to Pay a $100,000 Civil Monetary Penalty for Registration and Reporting Violations

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today entered an Order requiring Hope Advisors LLC (HAL), a Brentwood, Tennessee, Commodity Pool Operator (CPO), to pay a $100,000 civil monetary penalty for acting as a CPO without registering with the CFTC, as required, and for providing monthly statements to pool participants that failed to show all the information required by Commission Regulation.

Registration Violations

The Order finds that HAL operates Hope Investments LLC (HIL) as a commodity pool. However, it commenced operating HIL in March 2011 and continued to operate HIL through January 23, 2013, without the benefit of registration with the CFTC as a CPO, in violation of the registration provisions of the Commodity Exchange Act. These provisions ensure that persons dealing in commodities meet certain minimum financial and fitness requirements, and enable the CFTC to monitor the trading activities of market members, the Order states.

Regulation 4.22(d) Reporting Deficiencies

In addition, the CFTC Order states that the principal purpose of financial reporting required by CFTC Regulation 4.22(d) is to ensure that pool participants receive accurate, fair, and timely information on the overall trading performance and financial condition of the pool.  According to the Order, as relevant here, Regulation 4.22(d) requires that commodity pool statements report both realized and unrealized gains and losses; however, the Order states that HAL was providing monthly reporting statements to HIL participants that showed only realized gains and losses.

According to the Order, HAL learned it was required to register as a CPO in August 2012, and thereafter undertook the registration process; it has been registered in that capacity since January 24, 2013. HAL also took remedial action to correct the monthly pool statements it sent to pool participants, by retaining a consultant, who designed a compliant performance report that HAL sends to participants each month. The Order also states that as of August 2013, HAL began issuing two monthly reports to HIL participants, one showing realized gains/losses, and a second based on net asset value showing realized and unrealized gains and losses that complies with the specific Commission reporting regulations. According to the Order, no customers were injured by any of the previous omissions.

The following CFTC Division of Enforcement staff members are responsible for this case: Diane M. Romaniuk, Ava M. Gould, Judith McCorkle, Scott R. Williamson, and Rosemary Hollinger.

The CFTC appreciates the assistance of the National Futures Association.

Sunday, April 26, 2015

SEC CHARGES OIL COMPANY, FOUNDER WITH SECURITIES FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 23239 / April 10, 2015
Securities and Exchange Commission v. Mieka Energy Corporation, et al., Civil Action No. 3:15-cv-01097-K (N.D. Tex. Dallas Division)
SEC Charges Texas Oil Company and Its Founder with Securities Fraud

On April 10, 2015, the Securities and Exchange Commission charged Mieka Energy Corporation of Flower Mound, Texas, and its founder and president Daro Ray Blankenship, with fraudulently offering oil and gas-related investments. The SEC also charged Mieka's publicly traded parent company, Vadda Energy Corporation, with fraud and reporting violations for deceptively touting the success of Mieka's investments. Two of Mieka's salesmen, Robert William Myers, Jr. and Stephen Romo, were charged with acting as unregistered brokers.

The SEC alleges that, between September 2010 and October 2011, Blankenship and Mieka raised $4.4 million from approximately 60 investors by selling interests in joint ventures that were to drill and complete two gas wells. The SEC further alleges that, in truth, Blankenship immediately spent all of the offering proceeds on unrelated expenses and projects, leaving no money to drill one of the promised wells, or complete the other well. Blankenship then misled investors about these facts through deceptive "investor update" newsletters and misleading public filings by Vadda, which he signed and certified.

Romo and Myers participated in the scheme by marketing and selling the joint venture interests to the public - for which they together received approximately $190,000 in commissions - without being registered as broker-dealers, or associated with any SEC-registered broker-dealer.

The complaint charges Blankenship and Mieka with 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. Vadda is charged with violating Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder. Blankenship also faces charges under Exchange Act Rule 13a-14, and for aiding and abetting and being a control person of Mieka and Vadda's violations. The SEC accuses Romo and Myers of violating Section 15(a) of the Exchange Act. The SEC seeks permanent injunctions against all defendants, as well as civil penalties, disgorgement of ill-gotten gains with prejudgment interest, and a bar against Blankenship ever serving as an officer and director of a public company.

The SEC's investigation was conducted by Jeffrey Cohen, Keith Hunter and Jessica Magee of the SEC's Fort Worth Regional Office. David Reece will lead the litigation.

Saturday, April 25, 2015

ALLEGED PERPETRATOR OF COLLAPSED PONZI SCHEME CHARGED BY SEC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 23240 / April 13, 2015
Securities and Exchange Commission v. James A. Evans, Jr., d/b/a Cashflowbot.com, d/b/a DollarMonster, Civil Action No. 1:15-cv-01118-RWS (Northern District of Georgia)
SEC Charges Georgia Resident with Engaging in a Ponzi Scheme

The Securities and Exchange Commission filed charges against the perpetrator of a Ponzi scheme that raised money from more than 3,000 investors between January 2012 and April 2014.

According to the SEC's complaint filed in federal court in the Northern District of Georgia, James A. Evans, Jr., who lives in Villa Rica, Georgia, operating a website at the domain name "Cashflowbot.com," and using the business name "DollarMonster", falsely promoted DollarMonster as a "private fund" where investors could make "big profits." Among other things, Evans misrepresented to investors that DollarMonster: (a) paid out investment returns that exceeded the amount of money investors had contributed to the fund; (b) was a "financial advisor" with more than 120 management teams and $38 million in assets under management; (c) managed a hedge fund that purchased stocks on behalf of investors in the fund; (d) was a "private Holding Company" that invested in assets such as gold, silver, real estate, stocks and bonds, and (e) had used investor funds to profitably invest in stocks with a market value of $3.2 million.

The complaint alleges that Evans raised approximately $1.15 million from investors. He redistributed approximately $1.06 million to investors as purported investment returns, and withdrew approximately $30,405 for his own personal use. Ultimately, Evans' scheme collapsed.

The SEC's complaint alleges that Evans violated the registration and antifraud provisions of the federal securities laws: 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, and Section 206(4) of the Investment Advisers Act of 1934. The complaint seeks a permanent injunction, disgorgement with prejudgment interest and civil monetary penalties pursuant to Sections 21(d)(3) of the Exchange Act and Section 209(e) of the Advisers Act.

Friday, April 24, 2015

MAN ORDERED TO PAY OVER $3 MILLION FOR ALLEGED ROLE IN STOCK MANIPULATION SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23234 / April 8, 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
Court Orders U.K. Man to Pay More Than $3 Million in U.S. Stock Manipulation Scheme

The Securities and Exchange Commission announced today that on April 7, 2015, the U.S. District Court for the Southern District of New York entered a final judgment against Jonathan E. Bryant of Crewe, Cheshire, United Kingdom which ordered Bryant to pay a total of $3,168,184.70 in a stock manipulation case filed by the Commission in 2012. Bryant is the Chief Executive Officer of 8000, Inc., a now defunct Virginia-based company. The Commission alleges that, in 2009 and 2010, Bryant directed a scheme to inflate 8000, Inc.'s stock price while secretly controlling a majority of the company's shares and directing its operations.

In addition to Bryant, the Commission's complaint, filed on September 27, 2012, also charged 8000, Inc., 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.

Bryant consented to the entry of this final judgment. The final judgment permanently enjoins Bryant from future violations of 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 final judgment also orders 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 bars 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 bars him from participating in an offering of a penny stock.

The final judgment against Bryant follows a judgment by consent that the court entered against Kelly on June 6, 2013, which permanently enjoins 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 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. 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 enjoins Duncan from violating Sections 5(a), 5(c), and 17(a)(2) of the Securities Act, permanently enjoins 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 Commission's motion for a default judgment against 8000, Inc. is pending.

Thursday, April 23, 2015

U.S. CFTC AND AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY SIGN MEMORANDUM OF UNDERSTANDING

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

April 13, 2015

U.S. Commodity Futures Trading Commission and Australian Prudential Regulation Authority Sign Memorandum of Understanding to Enhance Supervision of Cross-Border Regulated Firms

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) announced today that CFTC Chairman Tim Massad and Australian Prudential Regulation Authority (APRA) Chairman Wayne Byres have signed a Memorandum of Understanding (MOU) regarding cooperation and the exchange of information in the supervision and oversight of regulated firms that operate on a cross-border basis in the United States and in Australia.

Through the MOU, the CFTC and APRA express their willingness to cooperate in the interest of fulfilling their respective regulatory mandates. The scope of the MOU includes swap dealers and major swap participants.

Wednesday, April 22, 2015

SEC BRINGS FRAUD CHARGES AGAINST COMPANY CONTROLLER IN RECORDS MANIPULATION CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced fraud charges against the former controller of a suburban Chicago company’s Japanese subsidiary who cost his company millions of dollars in trading losses and manipulated accounting records to avoid detection.

The SEC alleges that Katsuichi Fusamae, who was a senior accounting officer at Molex Japan Co. Ltd., engaged in unauthorized equity trading in the company’s brokerage accounts that resulted in losses of more than $110 million.  He concealed the massive trading losses by taking out unauthorized and undisclosed company loans with Japanese banks and brokerage firms, and he used loan proceeds to replenish account balances and engage in additional trading.  When Fusamae’s long-running scheme came to light and the parent company Molex Incorporated restated its financial statements in 2010, it recognized $201.9 million in cumulative net losses, which included both trading losses and borrowing costs from the unauthorized loans.

Fusamae agreed to settle the SEC’s charges by admitting wrongdoing and accepting a permanent bar from serving as an officer or director of a publicly traded company.  Possible monetary sanctions will be determined by the court at a later date.

Molex Incorporated, which is based in Lisle, Ill., and designs, manufactures, and sells electronic components, agreed to a cease-and-desist order finding that the company filed inaccurate financial statements as a result of Fusamae’s fraud.  Molex also failed to maintain accurate books and records and sufficient internal accounting controls.

“Fusamae took advantage of internal control weaknesses at Molex to falsify records, monopolize the flow of information from banks and broker-dealers, and circumvent external and internal audit processes.  His actions left Molex shareholders in the dark about the company’s true financial condition,” said Timothy L. Warren, Associate Director of the SEC’s Chicago Regional Office.

According to the SEC’s complaint filed in U.S. District Court for the Northern District of Illinois, Fusamae’s scheme began in the late 1980s when he began investing Molex Japan’s excess cash in riskier securities, including substantial trading of equities on margin. No one at Molex or Molex Japan authorized Fusamae to engage in the riskier trading, nor were they aware of his trading activities.  Shortly after Fusamae started his unauthorized trading, Molex Japan began suffering substantial losses on Fusamae’s investments.  Fusamae falsified Molex accounting records and general ledger entries and intentionally utilized dormant general ledger accounts to conceal the unauthorized and undisclosed trading as well as the concealed borrowing.  At the peak of his scheme, Molex Japan had accumulated approximately $222 million in unauthorized loan obligations as a result of Fusamae’s misconduct.  Molex consequently filed financial statements that failed to account for the trading losses and unauthorized loans.

The SEC’s complaint charges Fusamae with violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1.  Fusamae also is charged with aiding and abetting Molex’s violations of Section 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13.  In addition to the officer-or-director bar, the settlement permanently enjoins Fusamae from future violations and provides the court with the authority to determine whether he obtained any ill-gotten gains and whether disgorgement is appropriate.  The settlement is subject to court approval.

The SEC’s order against Molex finds that the company violated Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13.  Molex neither admits nor denies the findings.

The SEC’s investigation was conducted by Jeffrey A. Shank and Kevin A. Wisniewski in the Chicago Regional Office.  The SEC’s litigation related to disgorgement will be led by Daniel J. Hayes.

Tuesday, April 21, 2015

SEC.gov | Remarks at University of South Carolina and UNC-Charlotte 4th Annual Fixed Income Conference

SEC.gov | Remarks at University of South Carolina and UNC-Charlotte 4th Annual Fixed Income Conference

SEC CHARGES BLACKROCK ADVISORS LLC WITH BREACHING FIDUCIARY DUTY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
04/20/2015 01:15 PM EDT

The Securities and Exchange Commission today charged BlackRock Advisors LLC with breaching its fiduciary duty by failing to disclose a conflict of interest created by the outside business activity of a top-performing portfolio manager.

BlackRock agreed to settle the charges and pay a $12 million penalty.  The firm also must engage an independent compliance consultant to conduct an internal review.

According to the SEC’s order instituting a settled administrative proceeding, Daniel J. Rice III was managing energy-focused funds and separately managed accounts at BlackRock when he founded Rice Energy, a family-owned and operated oil-and-natural gas company.  Rice was the general partner of Rice Energy and personally invested approximately $50 million in the company.  Rice Energy later formed a joint venture with a publicly-traded coal company that eventually became the largest holding (almost 10 percent) in the $1.7 billion BlackRock Energy & Resources Portfolio, the largest Rice-managed fund.  The SEC’s order finds that BlackRock knew and approved of Rice’s investment and involvement with Rice Energy as well as the joint venture, but failed to disclose this conflict of interest to either the boards of the BlackRock registered funds or its advisory clients.

“BlackRock violated its fiduciary obligation to eliminate the conflict of interest created by Rice’s outside business activity or otherwise disclose it to BlackRock’s fund boards and advisory clients,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “By failing to make such a disclosure, BlackRock deprived its clients of their right to exercise their independent judgment to determine whether the conflict might impact portfolio management decisions.”

The SEC’s order also finds that BlackRock and its then-chief compliance officer Bartholomew A. Battista caused the funds’ failure to report a “material compliance matter” – namely Rice’s violations of BlackRock’s private investment policy – to their boards of directors.  BlackRock additionally failed to adopt and implement policies and procedures for outside activities of employees, and Battista caused this failure.  Battista agreed to pay a $60,000 penalty to settle the charges against him.

“This is the first SEC case to charge violations of Rule 38a-1 for failing to report a material compliance matter such as violations of the adviser’s policies and procedures to a fund board,” said Julie M. Riewe, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “BlackRock and Battista caused the funds’ failure to report Rice’s violations of BlackRock’s private investment policy and denied the funds’ boards critical compliance information alerting them to Rice’s outside business interests.”

BlackRock agreed to be censured and consented to the entry of the SEC’s order finding that the firm willfully violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7.  The order finds that the firm caused violations of Rule 38a-1 of the Investment Company Act of 1940.  Battista also consented to the entry of the order finding that he caused violations of Section 206(4) of the Advisers Act, Rule 206(4)-7, and Rule 38a-1.  BlackRock and Battista are required to cease and desist from committing or causing any further violations.  BlackRock and Battista neither admitted nor denied the findings.

The SEC’s investigation was conducted by Janene M. Smith, David A. Becker, and Brian E. Fitzpatrick and supervised by Jeffrey B. Finnell of the SEC Enforcement Division’s Asset Management Unit.

Monday, April 20, 2015

SEC CHARGES 23 COMPANIES, 6 INDIVIDUALS FOR ROLES IN CELLULAR LICENSING FRAUD SCHEME

U.S. SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 23236 / April 9, 2015
Securities and Exchange Commission v. Janus Spectrum LLC et al., Civil Action No. 2:15-cv-00609-DGC
SEC Charges Firms and Individuals for Defrauding Investors in Cellular Licensing Scheme

On April 6, 2015, the Securities and Exchange Commission charged 12 companies and six individuals with defrauding investors in a scheme involving applications to the Federal Communications Commission (FCC) for cellular spectrum licenses.

According to the SEC's complaint filed in federal district court in Arizona, David Alcorn and Kent Maerki orchestrated the offering fraud through Janus Spectrum LLC, a Glendale, Ariz.-based company they founded and managed. Janus Spectrum held itself out as a service provider that prepares cellular spectrum license applications on behalf of third parties. The complaint alleges that although Alcorn and Maerki had third parties offer and sell securities based on the licenses to investors, they were personally involved in presentations to investors and Maerki appeared in misleading videos, including one called "Money from Thin Air."

The SEC alleges that investors in the scheme were promised potentially lucrative returns based on Janus Spectrum obtaining FCC licenses in the Expansion Band and Guard Band portions of the 800 megahertz (MHz) band. Janus Spectrum and the fundraising entities claimed that investors could profit because Sprint and other major wireless carriers needed licenses in this spectrum. In fact, the value of the licenses was small because this spectrum cannot support cellular systems and is generally used for "push-to-talk" services for local law enforcement or businesses like pizza delivery companies that require less bandwidth.

The SEC's complaint alleges that the scheme raised more than $12.4 million from investors from May 2012 to October 2014. The fundraising entities funneled a significant percentage of the investors' funds to Janus Spectrum, which used only a small portion to prepare applications for FCC licenses. The complaint alleges that instead, all of the individuals in the scheme kept a significant portion of investor funds for personal use.
he SEC's complaint alleges that all of the defendants violated 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 10b-5 thereunder. In addition, the SEC's complaint alleges that Janus Spectrum, Alcorn, Maerki, Bank, Jones, Johnson, and Chadwick violated Section 15(a) of the Exchange Act. The SEC also seeks permanent injunctions, disgorgement plus prejudgment interest, and civil penalties against all defendants.

The SEC's investigation was conducted by Sana Muttalib and Lorraine Pearson and supervised by Victoria A. Levin of the Los Angeles office. The litigation will be handled by Sam Puathasnanon. The SEC appreciates the assistance of the Texas State Securities Board and the Federal Communications Commission.

Sunday, April 19, 2015

SEC CHARGES COMPANY WITH CONDUCTING FRAUDULENT OIL AND GAS SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 23230 / April 6, 2015
Securities and Exchange Commission v. Team Resources, Inc., et al., Civil Action No. 3:15-CV-1045 (NDTX, April 6, 2015)
SEC Charges California Companies with Running a $33 Million Oil and Gas Scheme

The Securities and Exchange Commission today filed suit in the U.S. District Court for the Northern District of Texas against two California oil-and-gas companies, their principal, and four sales associates, for conducting a long-term fraudulent oil and gas scheme.

The SEC alleges that, from 2007 through 2012, Team Resources, Inc. and Fossil Energy Corp. raised over $33 million from approximately 475 investors nationwide through eight unregistered offerings of oil-and-gas partnership interests. Kevin Albert Boyles controlled both companies, and used his sales staff of Philip Adam Dressner, Michael James Eppy, Andrew Stitt, and John M. Olivia to cold-call potential investors and mislead them into buying the partnership interests. The complaint alleges that the defendants misled investors about such material information as potential returns, the success of past offerings, and how offering proceeds would be used. In addition, Boyles paid large and undisclosed commissions to the salesmen — ranging from 25% to 35% — even though none of them was registered as a broker or associated with a registered broker-dealer. After raising sufficient funds from investors, Team Resources and Fossil Energy contracted with third parties to drill the wells, all of which failed to produce oil and gas in the amounts projected by the defendants.

The SEC charges Team, Fossil, Boyles, Dressner, Eppy and Stitt with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act"), and Sections 10(b) and 15(a) of the Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. Olivia is charged with violating Sections 5(a) and 5(c) of the Securities Act and Section 15(a) of the Exchange Act. The SEC seeks civil penalties and disgorgement plus prejudgment interest from each defendant, as well as other relief.

To settle the SEC's charges, Team, Fossil, and Boyles have consented to judgments permanently enjoining them from violating Sections 5(a), 5(c), and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. Olivia has consented to a permanent injunction against violations of Sections 5(a) and 5(c) of the Securities Act, and Section 15(a) of the Exchange Act. Team, Fossil, Boyles, and Olivia have consented to disgorge their ill-gotten gains and to pay civil penalties in amounts to be determined by the court. Boyles and Olivia have also agreed to consent to an administrative order barring each from associating with any broker, dealer, investment adviser, municipal advisor, transfer agent, or nationally recognized statistical rating organization, or from participating in an offering of penny stock.

Friday, April 17, 2015

CFTC CHARGES COMPANY AND PRINCIPALS WITH POOL FRAUD

FROM:  COMMODITY FUTURES TRADING COMMISSION 
March 31, 2015
CFTC Charges Maverick International, Inc. and its Principals Wesley Allen Brown and Edward Rubin with Pool Fraud and Other Violations

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) announced the filing of a civil enforcement action in the U.S. District Court for the Middle District of Florida, charging Defendants Maverick International, Inc. and its principals, Wesley Allen Brown and Edward Rubin, with operating a fraudulent commodity pool and other violations of federal commodity laws. Maverick International, Inc. purportedly maintains offices in Wilmington, Delaware; however, its address is actually the address of a mail forwarding service. Brown currently resides in North Myrtle Beach, South Carolina, and Rubin resides in Winnabow, North Carolina.

The CFTC Complaint was filed under seal on March 23, 2015, and on March 26, 2015, U.S. District Court Judge Brian J. Davis issued an emergency Order freezing and preserving assets under Defendants’ control and prohibiting them from destroying documents or denying CFTC staff access to their books and records.  The Court scheduled a hearing for April 8, 2015, on the CFTC’s motion for a preliminary injunction.

The CFTC Complaint charges that, as early as June 18, 2008, Defendants solicited and accepted more than $2 million from members of the public to trade commodity futures contracts in a commodity pool. As alleged, the Defendants misappropriated all of the $2 million to pay their personal and business expenses, including rent, meals, and more than $200,000 in cash withdrawals.

The Complaint alleges that Brown used his position as an associate pastor at a Flagler Beach, Florida, church to solicit congregants to participate in the fraudulent scheme. Through in-person solicitations and the Defendants’ website (wealthnavigator.org), Brown represented to actual and potential participants that the Defendants profitably traded commodity futures and precious metals on behalf of participants. These representations were false, because Defendants misappropriated all of the participants’ funds, and no trading on behalf of participants took place, according to the Complaint.

In its continuing litigation, the CFTC seeks full restitution to defrauded pool participants, disgorgement of any 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.

The CFTC appreciates the assistance of the Office of the State Attorney for the Seventh Judicial District of Florida; the Florida Office of Financial Regulation; the Office of the U.S. Attorney for the Middle District of Florida; the North Carolina Department of the Secretary of State, Securities Division; the Sherriff’s Department, Brunswick County, North Carolina; and the City of Myrtle North Myrtle Beach, Department of Public Safety.

CFTC Division of Enforcement staff members responsible for this action are Timothy J. Mulreany, George Malas, and Paul Hayeck.

Wednesday, April 15, 2015

SEC.gov | The Dominance of Data and the Need for New Tools: Remarks at the SIFMA Operations Conference

SEC.gov | The Dominance of Data and the Need for New Tools: Remarks at the SIFMA Operations Conference

SEC CHARGED FORMER TECHNOLOGY CEO WITH USING CORPORATE FUNDS FOR PERSONAL PURPOSES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
03/31/2015 01:00 PM EDT

The Securities and Exchange Commission charged the former CEO of Silicon Valley-based technology firm Polycom Inc. with using nearly $200,000 in corporate funds for personal perks that were not disclosed to investors.

The SEC alleges that Andrew Miller created hundreds of false expense reports with bogus business descriptions for his personal use of company dollars to pay for meals, entertainment, and gifts.  Furthermore, he used Polycom funds to travel with his friends and girlfriend to luxurious international resorts while falsely claiming the trips were business-related site inspections in advance of company sales retreats.  Miller hid the costs by directing a travel agent to bury them in fake budget line items.  In 2012 alone, Miller charged Polycom for more than $115,000 in personal expenses despite publicly reporting that he received less than $35,000 in perks that year.

The SEC separately charged Polycom in an administrative order finding that the company had inadequate internal controls and failed to report Miller’s perks to investors.  Polycom agreed to pay $750,000 to settle the SEC’s charges, without admitting or denying the SEC’s findings as to the company.  The case against Miller continues in federal court.

“CEOs are stewards of corporate assets and must be held to the highest standard of honesty and integrity,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “We will not hesitate to charge executives with fraud when they allegedly use a public company as a personal expense account and hide it from investors.”

According to the SEC’s complaint filed in the San Francisco Division of U.S. District Court for the Northern District of California, Miller’s undisclosed use of company funds for personal perks was wide-ranging:

More than $80,000 for personal travel and entertainment that Miller hid in falsified invoices or passed off as legitimate business expenses
More than $10,000 for clothing and accessories and more than $5,000 worth of spa gift cards that Miller falsely claimed to have given as gifts to customers and employees.

More than $10,000 for tickets to professional baseball and football games that Miller falsely claimed to have attended with clients.

More than $5,000 for plants and a plant-watering service at Miller’s apartment that he falsely claimed were for the company’s San Francisco office
The SEC’s complaint against Miller alleges that he violated the antifraud, proxy solicitation, periodic reporting, books and records and internal controls provisions of the federal securities laws.  The complaint also alleges that he falsely certified the accuracy of Polycom’s annual reports, which incorporated its proxy statements.

The SEC’s order against Polycom found that its internal controls over Miller’s expenses were inadequate.   For example, Polycom allowed Miller to approve his own expenses that were charged on his assistants’ credit cards, and the company allowed him to book and charge airline flights without providing any descriptions of their purpose.  As a result of Miller’s misconduct, Polycom’s proxy statements contained false compensation information and failed to accurately describe Miller’s perks as required.

“Public companies are required to implement and maintain effective controls over executive compensation and expenses,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.  “Miller allegedly exploited weaknesses in Polycom’s controls to steer himself a series of perks to the detriment of shareholders.”

The SEC’s investigation was conducted by David Berman and John Roscigno of the San Francisco office, and the case was supervised by Tracy Davis.  The SEC’s litigation against Miller will be led by Susan LaMarca and David Johnson.

Tuesday, April 14, 2015

COURT ORDERS TEXAS COMPANY WITH OPERATING A FRAUDULENT COMMODITY POOL

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION  
April 6, 2015
Federal Court Orders Texas-based RFF GP, LLC, KGW Capital Management, LLC, and Kevin G. White to Pay over $7.5 Million for Operating a Fraudulent Commodity Pool

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Richard A. Schell of the U.S. District Court for the Eastern District of Texas entered a Consent Order for permanent injunction against Defendants RFF GP, LLC, KGW Capital Management, LLC, and Kevin G. White, all of The Woodlands, Texas. The Order, entered on March 30, 2015, requires the Defendants jointly to pay a $4,150,000 civil monetary penalty and restitution of $3,365,888. The Order also imposes permanent trading and registration bans against them.

The Order stems from a CFTC Complaint filed on July 9, 2013 (see CFTC Press Release 6644-13, July 12, 2013), charging the Defendants with fraud and misappropriation of pool participants’ funds while operating a fraudulent commodity pool, Revelation Forex Fund, LP. Defendants duped pool participants into investing in Revelation, a purported hedge fund and commodity pool, which Defendants established for the purpose of trading off-exchange foreign currency (forex), according to the Complaint.

The Order finds that the Defendants fraudulently solicited approximately $7.4 million from more than 20 pool participants. Of this amount, Defendants misappropriated approximately $1.7 million of pool participants’ funds. The Order also finds that White used these misappropriated pool participants’ funds for personal expenses, including a gym membership, retail purchases, meals, travel, and a dog training service, among other things. In making their solicitations through two websites and at a tradeshow presentation, Defendants fabricated Revelation’s performance and lied about White’s investment experience, according to the Order.

Related regulatory and criminal action

In a related regulatory action, the Securities and Exchange Commission filed a Complaint against White contemporaneously with the CFTC’s Complaint (SEC v. White, No. 4:13-cv-00383 (U.S. District Court for the Eastern District of Texas)). The U.S. District Court for the Eastern District of Texas entered interlocutory judgments against White and the other Defendants in this case on March 30, 2015.

In a related criminal action, on February 18, 2015, White was sentenced to 8 years in prison for mail fraud (United States v. White, Case No. 8:13-cr-00035-UA (U.S. District Court for the Eastern District of Texas)). (See CFTC Press Release 7127-15, February 26, 2015.)

The CFTC thanks the U.S. Securities and Exchange Commission’s Fort Worth, Texas, regional office, the U.S. Attorney’s Office for the Eastern District of Texas, the Federal Bureau of Investigation, Dallas Field Office, and the Nevada Office of the Attorney General for their assistance and cooperation on this matter.

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 case are Harry E. Wedewer, Dmitriy Vilenskiy, John Einstman, and Paul G. Hayeck.

Monday, April 13, 2015

SEC ANNOUNCES JUDGEMENT BARING DEFENDANTS FROM PARTICIPATING IN MUNICIPAL BOND FUNDING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 23229 / April 6, 2015
Securities and Exchange Commission v. Gary J. Burtka, Civil Action No. Civil Action No. 14-cv-14278 (Cohn) (E.D. MI)
Securities and Exchange Commission v. Eric C. Waidelich, Civil Action No. Civil Action No. 14-cv-14279 (Cohn) (E.D. MI)
SEC Obtains Final Judgments Against Gary Burtka and Eric Waidelich

The Securities and Exchange Commission announced that on January 28, 2015, the Honorable Avern Cohn of the United States District Court for the Eastern District of Michigan entered final judgments settling fraud charges brought by the Commission in related suits against defendants Gary J. Burtka and Eric C. Waidelich, the mayor and city administrator of Allen Park, Michigan.  Both judgments bar the defendants from participating in any municipal bond offerings and enjoin them from future violations of certain antifraud provisions of the federal securities laws.  The judgment against Burtka also imposed a $10,000 civil penalty.

The Commission’s Complaints, and an administrative proceeding the Commission filed against the City of Allen Park, arose from the city’s issuance of $31 million in general obligation bonds to support a movie studio project.  The Commission alleged that the city began planning the studio project in late 2008 in the hope it would bring much-needed economic development.  The state of Michigan had just enacted legislation that provided significant tax credits to film studios conducting business within the state.  The original plan detailed a $146 million facility with eight sound stages led by a Hollywood executive director, and the city planned to repay investors with $1.6 million in revenue from leases at the site.  The city issued bonds on November 12, 2009 and June 16, 2010 to raise funds to help develop the site.

The Complaints alleged that, by the time the bonds were issued, the city’s plans to implement and pay for the studio project had deteriorated into merely building and operating an onsite vocational school.  However, none of these changes were reflected in the bond offering documents or other public statements.  Investors were left uninformed not only about the project’s deterioration, but also about the substantial impact it would have on the city’s ability to service the bond debt, which comprised approximately 10% of the city’s total budget.  Moreover, the city used outdated budget information in the bond offering documents that did not reflect the city’s budget deficit of at least $2 million for fiscal year 2010.  The studio project collapsed within months of the second bond issuance, and the state appointed an emergency manager in October 2010, citing the failed project as a primary factor in the city’s deteriorating economic condition.

The Complaint against Waidelich alleged that, as city administrator, he reviewed and approved the offering documents provided to investors.  Those documents contained false and misleading statements about the scope and viability of the movie studio project as well as Allen Park’s overall financial condition and its ability to service the bond debt.  The Complaint against Burtka alleged that he was an active champion of the studio project and in a position to control the actions of the city and Waidelich with respect to the fraudulent bond issuances.  Based on this control, the Complaint charged Burtka with liability for violations committed by the city and by Waidelich.  This was the first time the Commission charged a municipal official under a federal statute that provides for “control person” liability.

Burtka and Waidelich consented to the entry of the Commission’s proposed judgments against them.  On November 25, 2014, Judge Avern Cohn held a status conference and asked the Commission for briefing on specific developments that occurred between the issuance of the first and second bonds, the harm caused by the fraud, and whether additional parties should be held responsible.  On January 28, 2015, the Court entered the judgments, imposing a $10,000 civil penalty against Burtka and enjoining him from further violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and enjoining Waidelich from further violations of Section 17(a)(2) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  The Court also barred Burtka and Waidelich from participating in any municipal bond offerings.  Judge Cohn also posted comments explaining the basis for his decisions.

Sunday, April 12, 2015

SEC CHARGES FORMER TECH CEO WITH USING CORPORATE FUNDS FOR PERSONAL PURPOSES WITHOUT DISCLOSURE TO INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 23225 / March 31, 2015
Accounting and Auditing Enforcement Release No. AAER-3646 / March 31, 2015
Securities and Exchange Commission v. Andrew M. Miller, Civil Action No. 3:15-cv-1461

The Securities and Exchange Commission charged the former CEO of Silicon Valley-based technology firm Polycom Inc. with using nearly $200,000 in corporate funds for personal perks that were not disclosed to investors.

The SEC alleges that Andrew Miller created hundreds of false expense reports with bogus business descriptions for his personal use of company dollars to pay for meals, entertainment, and gifts. Furthermore, he used Polycom funds to travel with his friends and girlfriend to luxurious international resorts while falsely claiming the trips were business-related site inspections in advance of company sales retreats. Miller hid the costs by directing a travel agent to bury them in fake budget line items. In 2012 alone, Miller charged Polycom for more than $115,000 in personal expenses despite publicly reporting that he received less than $35,000 in perks that year.

The SEC separately charged Polycom in an administrative order finding that the company had inadequate internal controls and failed to report Miller's perks to investors. Polycom agreed to pay $750,000 to settle the SEC's charges, without admitting or denying the SEC's findings as to the company. The case against Miller continues in federal court.

According to the SEC's complaint filed in the San Francisco Division of U.S. District Court for the Northern District of California, Miller's undisclosed use of company funds for personal perks was wide-ranging:

More than $80,000 for personal travel and entertainment that Miller hid in falsified invoices or passed off as legitimate business expenses.
More than $10,000 for clothing and accessories and more than $5,000 worth of spa gift cards that Miller falsely claimed to have given as gifts to customers and employees.
More than $10,000 for tickets to professional baseball and football games that Miller falsely claimed to have attended with clients.
More than $5,000 for plants and a plant-watering service at Miller's apartment that he falsely claimed were for the company's San Francisco office.
The SEC's complaint against Miller alleges that he violated the antifraud, proxy solicitation, periodic reporting, books and records and internal controls provisions of the federal securities laws. The complaint also alleges that he falsely certified the accuracy of Polycom's annual reports, which incorporated its proxy statements.

The SEC's order against Polycom found that its internal controls over Miller's expenses were inadequate. For example, Polycom allowed Miller to approve his own expenses that were charged on his assistants' credit cards, and the company allowed him to book and charge airline flights without providing any descriptions of their purpose. As a result of Miller's misconduct, Polycom's proxy statements contained false compensation information and failed to accurately describe Miller's perks as required.

The SEC's complaint against Miller alleges that he violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(b)(5) and 14(a) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-14, 13b2-1, 14a-3 and 14a-9 thereunder, and aided and abetted violations of Sections 13(a), 13(b)(2)(A) and 14(a) of the Exchange Act, and Rules 12b-20, 13a-1, 14a-3 and 14a-9 thereunder.

The SEC's order against Polycom found that it violated Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 14a-3 and 14a-9 thereunder.

The SEC's investigation was conducted by David Berman and John Roscigno of the San Francisco office, and was supervised by Tracy Davis. The SEC's litigation against Miller will be led by Susan LaMarca and David Johnson.

Saturday, April 11, 2015

SEC CHAIR'S REMARKS TO INVESTOR ADVISORY COMMITTEE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Opening Remarks to the Investor Advisory Committee
SEC Chair Mary Jo White
April 9, 2015

Good morning and welcome.  Thank you again for making time in your schedules to be here and for all the work you do for the Investor Advisory Committee and the SEC.  Today, I want to give you a couple of updates since your last meeting in February.  And then I will just very briefly touch on some of what lies ahead that I think are of interest to this Committee.

Update on Rulemakings

In March, the Commission adopted rules as required by the JOBS Act to create a new exemption from registration under the Securities Act for offerings of up to $50 million in a 12 month period, which are intended to enhance the ability of small companies to raise capital.  We have come to refer to this rulemaking as Regulation A+, which updates and expands the exemption in existing Regulation A.  In crafting the rules, we sought to both protect investors and address the challenges presented by federal and state securities registration and qualification requirements.  In light of the significant investor protections included in Regulation A+, state registration and qualification requirements were preempted for certain offerings of up to $50 million in an effort to make the exemption more workable.

Importantly, the states will continue to retain their role in certain offerings up to $20 million and issuers will be able to avail themselves of the coordinated review process developed by NASAA on those offerings.  And, the states continue to have their full anti-fraud powers for all Regulation A+ offerings.  As we move forward, the staff will be actively monitoring the implementation and development of the new rules, to assess its impact on capital formation and investor protection.  Staff will report its findings to the Commission, within five years of the adoption of Regulation A+, so that the Commission can consider possible changes to the Regulation A+ offering regime.

Also, in March, the Commission proposed amendments to Rule 15b9‑1, which would require certain active cross-market proprietary trading firms to register with FINRA.  These amendments seek to update the rule and fill a regulatory gap with respect to significant over-the-counter trading by these firms.  This registration requirement should, in my view, help better protect investors and the stability of our markets by requiring this trading to be overseen by both the Commission and the SRO tasked with the primary responsibility of regulating such off-exchange trading.

Going Forward in 2015

As we proceed in 2015, as you know, some front and center priorities are in the market structure and asset management spaces, as well as our disclosure effectiveness initiative and I expect activity in those areas.  The staff is also completing its internal review of the very important definition of “accredited investors.”  On tick size pilot, the Commission has until May 6th to act.

As most of you know from the remarks I made last month on my own behalf, I expect we will be discussing advancing rulemakings to impose a uniform fiduciary duty on broker-dealers and investment advisers under Section 913 of the Dodd-Frank Act and to require a program of third party examinations of investment advisers to increase our exam coverage.

On the mandated rulemaking front, as I said at the end of last year, we will be advancing the remaining Title VII and executive compensation rulemakings under Dodd-Frank Act, including the Section 956 executive compensation rulemaking to be done with our fellow financial regulators.  On the JOBS Act side, adoption of final crowdfunding rules is our last major rulemaking to complete, which is also a priority for 2015.

Closing

Let me conclude on that note.  Again, thank you for all of your hard work.

Friday, April 10, 2015

SEC CHARGES INVESTMENT ADVISER OF HIDING POOR PERFORMANCE OF LOAN ASSETS IN CLO FUNDS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
03/30/2015 09:45 AM EDT

The Securities and Exchange Commission announced fraud charges against an investment adviser and her New York-based firms accused of hiding the poor performance of loan assets in three collateralized loan obligation (CLO) funds they manage.

The SEC’s Enforcement Division alleges that Lynn Tilton and her Patriarch Partners firms have breached their fiduciary duties and defrauded clients by failing to value assets using the methodology described to investors in offering documents for the CLO funds, which have portfolios comprised of loans to distressed companies.  Instead, nearly all valuations of loan assets have been reported to investors as unchanged from the time they were acquired despite many of the companies making partial or no interest payments to the funds for several years.  Investors have not only been misled to believe that objective valuation analyses were being performed, but Tilton and her firms allegedly have avoided significantly reduced management fees because the valuation methodology described in fund documents would have given investors greater fund management control and earlier principal repayments if collateral loans weren’t performing to a particular standard.  Tilton and her firms also consequently have misled investors about asset valuations in fund financial statements.

“We allege that instead of informing their clients about the declining value of assets in the CLO funds, Tilton and her firms have consistently misled investors and collected almost $200 million in fees and other payments to which they were not entitled,” said Andrew J. Ceresney, Director of the SEC’s Enforcement Division.  “Tilton violated her fiduciary duty to her clients when she exercised subjective discretion over valuation levels, creating a major conflict of interest that was never disclosed to them.”

According to the SEC’s order instituting an administrative proceeding, CLO funds raise capital by issuing secured notes and using proceeds to purchase a portfolio of collateral typically comprised of commercial loans.  Investors are paid based on cash flows and other proceeds from the collateral.  The three CLO funds managed by Tilton and the Patriarch Partners firms are collectively known as the Zohar funds, and more than $2.5 billion has been raised from investors.  Tilton’s investment strategy for the Zohar funds has been to improve the operations of the distressed portfolio companies so they can pay off their debt, increase in value, and eventually be sold for a profit.

The SEC’s Enforcement Division alleges that under the contractual terms of the deals, Tilton and her firms are required to categorize the value of each loan asset in monthly reports by using a specific method set forth in deal documents.  To be assigned the highest category, a loan has to be current in its interest payments to the Zohar funds.  The category of each asset impacts the calculation of a fund’s “overcollateralization” ratio, which reflects the likelihood that investors will receive a return on their principal.  If the overcollateralization ratio falls below a specific threshold, Tilton and her firms are not entitled to receive certain management fees and may be required to cede more control of fund management to investors.

The SEC’s Enforcement Division alleges that rather than following the required methodology for valuing these loan assets, Tilton and her firms have maintained their control over the funds and preserved their management fees by not lowering an asset’s category until she decides to cease financial support of the distressed company.  Thus the valuation of an asset simply reflects Tilton’s subjective assessment of the company’s future.  Absent an actual overcollateralization ratio test, investors aren’t getting a true assessment of the actual values of their investments, which in reality have declined substantially.

The SEC’s Enforcement Division further alleges that Tilton and her firms were responsible for misstatements in the quarterly financial statements of the Zohar funds.  When preparing these financial statements, they failed to conduct a required impairment analysis on the assets of the Zohar funds despite disclosures stating that such analysis had occurred.  They also falsely stated that assets of the Zohar funds were reported at fair value.  Tilton repeatedly and falsely certified that the financial statements were prepared in accordance with Generally Accepted Accounting Principles (GAAP).

The SEC’s Enforcement Division alleges that Tilton, Patriarch Partners LLC, Patriarch Partners VIII LLC, Patriarch Partners XIV LLC, and Patriarch Partners XV LLC violated Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206-4(8).  Patriarch Partners LLC also is charged with aiding and abetting violations by the others.  The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.

The SEC’s investigation has been conducted by Amy Sumner, Amanda de Roo, and John Smith with assistance from Judy Bizu.  Also contributing to the investigation were Allison Lee, Creola Kelly, and Brent Mitchell.  The case has been supervised by Laura Metcalfe, Reid Muoio, and Michael Osnato.  The Enforcement Division’s litigation will be led by Dugan Bliss, Nicholas Heinke, and Ms. Sumner.

Thursday, April 9, 2015

SEC FILES SUIT AGAINST COMPANY, OWNER ALLEGING FRAUD AGAINST INVESTORS THROUGH OIL AND GAS WELL DEALS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION  
Litigation Release No. 23231 / April 6, 2015
Securities and Exchange Commission v. GC Resources, LLC and Brian J. Polito, Civil Action No. 3:15-CV-0104-B, (NDTX, filed April 6, 2015)
SEC Charges Oil and Gas Company and Founder with Fraud

The Securities and Exchange Commission ("Commission") filed suit against GC Resources, LLC and Brian J. Polito in the United States District Court for the Northern District of Texas, Dallas Division, for defrauding investors through the sale of interests in oil and gas wells the company never owned.

The Commission alleges that GC Resources, through its owner and sole operator, Brian J. Polito, raised approximately $11.8 million by creating a fake agreement with a well-known oil company that purported to give GC Resources the right to sell interests in certain oil wells. Polito forged signatures on the false contract and used it to lure investors to purchase interests in the wells GC Resources claimed to own. Polito then used investor money for Ponzi-type payments back to investors and to purchase luxury cars, designer watches, and exotic vacations for himself.

The Commission's complaint charges both defendants with securities fraud under Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The complaint also alleges that Polito violated Section 15(a) of the Exchange Act by acting as an unregistered broker-dealer. The Commission's complaint seeks permanent injunctions, civil penalties, disgorgement plus prejudgment interest, and other relief against both of the defendants.

In a parallel action, the U.S. Attorney's Office for the Northern District of Texas, Dallas Division also filed criminal charges against Polito.

The SEC's investigation was conducted by Rebecca Fike and supervised by Jim Etri of the Fort Worth Regional Office. The litigation will be led by Jennifer Brandt. The Commission appreciates the assistance of the U.S. Attorney's Office in Dallas and the Federal Bureau of Investigation.

SEC CHARGES COMPANY AND OWNER WITH FRAUD IN RELATED TO SALE OF "LIFE SETTLEMENT" INVESTMENTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
04/07/2015 04:30 PM EDT

The Securities and Exchange Commission charged Los Angeles-based Pacific West Capital Group Inc. and its owner Andrew B. Calhoun IV with fraud in the sale of “life settlement” investments.

Life settlements are securities structured around when life insurance policies “mature” after the insured individual dies and benefits are paid.  Life settlement investors purchase an interest in a life insurance policy and in exchange receive a share of the death benefit.

The SEC’s complaint alleges that since 2004, Pacific West and Calhoun, a Beverly Hills-based life insurance agent, have raised nearly $100 million from life settlement investors.  Since at least 2012, Pacific West and Calhoun allegedly defrauded investors by using proceeds from the sale of new life settlements to continue funding life settlement investments sold years earlier.  Pacific West and Calhoun did not disclose this practice to investors and undertook it to make life settlement investments appear successful when, in fact, Pacific West had used up the primary reserves to pay premiums on those policies.

According to the SEC’s complaint filed in U.S. District Court for the Central District of California, Pacific West and Calhoun made false and misleading statements about the risks of investing in life settlements, including the risk of investors having to make increased premium payments as insured individuals lived longer than Pacific West and Calhoun anticipated.  Pacific West and Calhoun also allegedly misled investors about annual returns and have falsely represented to investors that their investments had nothing to do with Pacific West’s efforts and fortunes.

“Investors are entitled to fair disclosures about the risks associated with their investments,” said Michele Wein Layne, Director of SEC’s Los Angeles Regional Office.  “We allege that Pacific West and Calhoun did the opposite here by hiding and minimizing those risks in order to sell more life settlements.”

The SEC’s complaint charges Pacific West and Calhoun with violating the antifraud, securities registration, and broker-dealer registration provisions of the federal securities laws.  Also named as defendants are Ohio-based PWCG Trust, which held and serviced the insurance policies, and five sales agents of Pacific West: Brenda C. Barry of Issaquah, Wash., and her company BAK West, Andrew B. Calhoun Jr. of Anderson, S.C., Eric C. Cannon of Lakewood, Calif., and his company Century Point, and Michael W. Dotta and Caleb A. Moody, both of Los Angeles.

PWCG Trust and the sales agents are charged with violating the securities registration provisions, and the sales agents also are charged with broker-dealer registration violations.  The SEC’s complaint seeks permanent injunctions against all defendants and the return of allegedly ill-gotten gains with interest and penalties from Pacific West, Calhoun, and the sales agents.

The SEC’s investigation was conducted by Todd Brilliant, Dora Zaldivar, Kelly Bowers, and Robert Conrrad.  The SEC’s litigation will be led by John Bulgozdy and Kristin Escalante.

Wednesday, April 8, 2015

SEC CHARGES BROKERAGE FOR UNDERWRITING COMPANY WITH POSSIBLE MISLEADING OFFERING MATERIALS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
03/27/2015 10:00 AM EDT

The Securities and Exchange Commission announced charges against a New York-based brokerage firm responsible for underwriting a public offering despite obtaining a due diligence report indicating that the China-based company’s offering materials contained false information.

Macquarie Capital (USA) Inc., a wholly owned subsidiary of global financial services firm Macquarie Group Limited, has agreed to settle the SEC’s charges by paying $15 million and separately covering the costs of setting up a Fair Fund to compensate investors who suffered losses after purchasing shares in the public offering by Puda Coal.  The SEC previously charged the Puda Coal executives behind the offering fraud at the company, which is no longer in business.

“Underwriters are critical gatekeepers who are relied upon by the investing public to ferret out the essential facts and address potential inaccuracies before marketing a public stock offering,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Macquarie Capital proceeded with this offering despite a due diligence process that exposed a false claim by Puda Coal, and investors suffered massive losses when the truth publicly came to light.”

The SEC also charged former Macquarie Capital managing director Aaron Black and former investment banker William Fang for failing to exercise appropriate care in their due diligence review.  Black agreed to pay $212,711 and Fang agreed to pay $35,000 to settle the charges.

According to the SEC’s complaint filed in federal court in Manhattan, Macquarie Capital was the lead underwriter on a secondary public stock offering in 2010 by Puda Coal, which traded on the New York Stock Exchange at the time and purported to own a coal company in the People’s Republic of China (PRC).  In the offering documents, Puda Coal falsely told investors that it held a 90-percent ownership stake in the Chinese coal company.  Macquarie Capital repeated those statements in its marketing materials for the offering despite obtaining a report from Kroll Associates showing that Puda Coal did not own any part of the coal company.  According to corporate registry filings in the PRC that Kroll accessed in its due diligence review, Puda Coal’s chairman had transferred ownership of the coal company to himself and then sold nearly half of his interest to the largest state-owned investment firm in the PRC.  As a result, Puda Coal no longer had any ownership stake or source of revenue.

According to the SEC’s complaint, Kroll provided its report to Fang, who read it but failed to act on the information revealing that Puda Coal no longer owned the coal company.  Instead, Fang circulated the report to other members of the Puda Coal deal team and stated in the e-mail that “no red flags were identified.”  Black, who served as one of the transaction directors on the Puda Coal deal, received the report from Fang and read portions stating that Puda Coal’s chairman owned 50 percent of the coal company of which Puda Coal was claiming to own 90 percent.  Black likewise failed to act on the information.  

The SEC alleges that Macquarie Capital made a net profit of $4.17 million as lead underwriter on the Puda Coal offering, which sold stock to investors at a price of $12 per share.  When reports about Puda Coal’s false claim appeared on the Internet based on the same PRC filings that Kroll Associates accessed for its report, Puda Coal’s stock price plunged as low as pennies per share.

The SEC’s complaint charges Macquarie Capital, Black, and Fang with violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.  They agreed to settle the charges and accept permanent injunctions without admitting or denying the allegations.  The settlement is subject to court approval.  In addition to the monetary penalties, Black has agreed to be barred from supervisory positions in the securities industry and Fang has agreed to be barred from the securities industry, both for at least five years.

The SEC’s investigation was conducted by Charu A. Chandrasekhar, George N. Stepaniuk, David Stoelting, and Sheldon Pollock of the SEC’s New York Regional Office.  The case was supervised by Sanjay Wadhwa.
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