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

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

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

08/25/2015 01:45 PM EDT

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

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

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

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

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

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

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

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

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

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

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

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

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

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

08/25/2015 11:05 AM EDT

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

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

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

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

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

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

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

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

SEC ANNOUNCES MAN CONVICTED OF INSIDER TRADING RECEIVES HOME CONFINEMENT SENTENCE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23323 / August 19, 2015

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

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

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

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

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

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

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23321 / August 17, 2015

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

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

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

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

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

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

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

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

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

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

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

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

TWO CITIGROUP AFFILIATES WILL PAY 180 MILLION TO SETTLE FRAUD CHARGES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

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

08/17/2015 10:35 AM EDT

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

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

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

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

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

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

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

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

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

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

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

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

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23315 / August 12, 2015

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

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

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

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

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

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

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

SEC FILES CASE AGAINST FORMER BANK OFFICIAL

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23316 / August 13, 2015

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

SEC Files Case Against Former Banco Santander Official for Insider Trading

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

The SEC's complaint alleges that Cedric Cañas Maillard, a Spanish citizen and former executive advisor to Banco Santander's CEO, learned confidentially that the investment bank had been asked by one of the world's largest mining companies, BHP Billiton, to advise and help underwrite its proposed acquisition of Potash Corporation of Saskatchewan, one of the world's largest producers of fertilizer minerals. The SEC alleges that Cañas coordinated with a close friend to purchase Potash call options in a Switzerland-based brokerage account, of which Cañas was the sole beneficial owner, on August 16, 2010-the day before Potash announced that it had rejected BHP's acquisition bid. Potash stock rose more than 27% after that announcement, and Cañas sold the Potash call options three days after he purchased them for illicit net profits of $278,156.97, a gain of more than 1,400%.

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

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

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

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

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

08/13/2015 11:30 AM EDT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

08/13/2015 09:05 AM EDT

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

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

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

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

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

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

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

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

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


Statement on Edward D. Jones Enforcement Action

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

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


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

SEC ANNOUNCES FORMER SOFTWARE EXEC TO SETTLE BRIBERY CHARGES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

08/12/2015 03:45 PM EDT

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

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

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

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

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

The scheme lasted from 2009 to 2013.

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

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

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

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

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

SEC ANNOUNCES $20.3 MILLION SETTLEMENT RELATED TO MISUSE OF DARK POOL TRADING SUBSCRIBER INFO AND OPERATING SECRET TRADING DESK

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

08/12/2015 09:00 AM EDT

The Securities and Exchange Commission today announced that ITG Inc. and its affiliate AlterNet Securities have agreed to pay $20.3 million to settle charges that they operated a secret trading desk and misused the confidential trading information of dark pool subscribers.

An SEC investigation found that despite telling the public that it was an “agency-only” broker whose interests don’t conflict with its customers, ITG operated an undisclosed proprietary trading desk known as “Project Omega” for more than a year.  While ITG claimed to protect the confidentiality of its dark pool subscribers’ trading information, during an eight-month period Project Omega accessed live feeds of order and execution information of its subscribers and used it to implement high-frequency algorithmic trading strategies, including one in which it traded against subscribers in ITG’s dark pool called POSIT.

ITG agreed to admit wrongdoing and pay disgorgement of $2,081,034 (the total proprietary revenues generated by Project Omega) plus prejudgment interest of $256,532 and a penalty of $18 million that is the SEC’s largest to date against an alternative trading system.

“ITG created a secret trading desk and misused highly confidential customer order and trading information for its own benefit,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “In doing so, ITG abused the trust of its customers and engaged in conduct justifying the significant sanctions imposed in this case.”

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

Project Omega traded a total of approximately 1.3 billion shares, including approximately 262 million shares with unsuspecting subscribers in ITG’s own dark pool.
Project Omega employed an algorithmic trading strategy called the “Facilitation Strategy” in which it executed trades based on a live feed of information concerning orders that its sell-side subscribers sent to ITG’s algorithms for handling.

Project Omega accessed the feed by connecting to a software utility that was used by ITG’s sales and support teams.  As a result, Project Omega had a real-time view of subscriber orders being placed through ITG’s algorithms.
From April to December 2010, the Facilitation Strategy was designed to detect open orders of sell-side subscribers being handled by ITG.  Based on that information, Project Omega opened positions in displayed markets on the same side of the market as the detected orders, and then closed these positions in POSIT by trading against the detected orders.  By employing this strategy, Project Omega sought to capture the full “bid-ask spread” between the National Best Bid and Offer (NBBO).

Project Omega had access to the identities of POSIT subscribers and used this information to identify sell-side subscribers and trade with them in the dark pool in connection with the Facilitation Strategy.

To earn the full “bid-ask spread” in connection with the Facilitation Strategy, Project Omega needed the subscribers with which it traded in POSIT to be configured to trade “aggressively” so that the subscribers would “cross the spread” to trade with Project Omega.  Project Omega took steps to ensure that the sell-side subscribers were configured to trade aggressively in POSIT.
Project Omega’s other primary strategy called the “Heatmap Strategy” involved trading on markets other than POSIT based on a live feed of confidential information relating to customer executions in other dark pools.  Based on customer executions, Project Omega’s Heatmap algorithm was designed to open positions in specific securities in displayed markets at the bid or the offer and then close them at midpoint or better in the external dark pools where customers had received midpoint executions.  The goal of this strategy was to earn a “half spread” or better based on knowledge of ITG customers’ executions.

The SEC’s order finds that ITG violated Sections 17(a)(2) and (3) of the Securities Act of 1933 in connection with Project Omega by engaging in a course of business that operated as a fraud and by failing to make disclosures about Project Omega and its proprietary trading activities.  ITG also violated Rules 301(b)(2) and 301(b)(10) of Regulation ATS by failing to amend its Form ATS filings in light of Project Omega’s trading activities in POSIT, failing to establish adequate safeguards, and failing to implement adequate oversight procedures to protect the confidential trading information of POSIT subscribers.

The SEC’s continuing investigation is being conducted by Paul T. Chryssikos, Scott A. Thompson, Matthew Koop, and Mandy B. Sturmfelz of the SEC Enforcement Division’s Market Abuse Unit with assistance from G. Jeffrey Boujoukos of the Philadelphia Regional Office.  The case is being supervised by Joseph G. Sansone, acting co-chief of the unit.  Substantial assistance was provided by Michael J. Gaw and Tyler Raimo of the Division of Trading and Markets.

Remarks at a Press Conference Announcing Major Enforcement Charges Involving a Massive Hacking Trading Scheme

Remarks at a Press Conference Announcing Major Enforcement Charges Involving a Massive Hacking Trading Scheme

NY RESIDENT AND COMPANY CHARGED BY CFTC WITH MAKING FALSE STATEMENTS TO NFA

FROM:  U.S. COMMODITIES FUTURES TRADING COMMISSION 

CFTC Charges New York Resident Gary Creagh and his Company, Wall Street Pirate Management, LLC, with Making False Statements to the National Futures Association

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of an enforcement action charging Defendants Gary Creagh and Wall Street Pirate Management, LLC (Wall Street Pirate), both of New York, New York, with making false, fictitious, or fraudulent statements or omissions to the National Futures Association (NFA) in statutorily required reports and during an NFA audit, in violation of the Commodity Exchange Act (CEA). Both Wall Street Pirate and Creagh, the managing member and sole employee of Wall Street Pirate, were registered with the CFTC at the time of the conduct.

The CFTC Complaint, filed on August 5, 2015, in the U.S. District Court for the Southern District of New York, charges that, from at least December 2011 through September 2013, Creagh willfully made false statements or representations to the NFA and concealed material information from the NFA. Specifically, Creagh falsely represented to the NFA on multiple occasions that the commodity pool he operated on behalf of Wall Street Pirate was not active, despite the fact that he had accepted funds from prospective pool participants and actively traded commodity futures on behalf of the commodity pool, according to the Complaint. The CFTC Complaint also charges that Wall Street Pirate, by and through Creagh, failed to maintain required books and records and provide account statements and privacy notices to pool participants.

The NFA is a Chicago-based futures association, which is registered with the CFTC and serves as an industry self-regulatory organization. Pursuant to the CEA, the NFA is responsible, under CFTC oversight, for certain aspects of the regulation of futures entities and their associated persons.

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

CFTC Division of Enforcement staff members responsible for this case are Jonah E. McCarthy, Timothy J. Mulreany, Patricia Gomersall, and Paul G. Hayeck.

The CFTC would like to thank the NFA for its cooperation in this matter.

MORGAN STANLEY TO PAY $300,000 FINE FOR VIOLATING CUSTOMER PROTECTION RULE AND RELATED SUPERVISION FAILURES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

August 6, 2015

CFTC Orders Morgan Stanley & Co. LLC to Pay a $300,000 Civil Monetary Penalty for Violations of Customer Protection Rule for Cleared Swaps and Related Supervision Failures

Order Finds that the Firm Failed to Maintain Sufficient U.S. Dollars in Segregated Accounts in the United States, Holding Required Funds Instead in Other Currencies

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order requiring Morgan Stanley & Co. LLC (Morgan Stanley), a registered Futures Commission Merchant and provisionally registered swap dealer, to pay a $300,000 civil monetary penalty for failing to hold sufficient U.S. Dollars in segregated accounts in the United States to meet all of its U.S. Dollar obligations to cleared swaps customers. The Order also finds that the firm failed to implement adequate procedures and requires Morgan Stanley to cease and desist from violating CFTC Regulations, as charged.

Aitan Goelman, the CFTC’s Director of Enforcement, commented: “Since passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFTC has implemented rules to protect swaps customers and market participants, including rules for protection of cleared swaps customer collateral. This action demonstrates that the Division of Enforcement will investigate and pursue violations of these important rules of the road in the swaps market.”

As set forth in the Order, on numerous days from March 12, 2013 to March 7, 2014, Morgan Stanley failed to hold sufficient U.S. Dollars in segregated accounts in the United States to meet all U.S. Dollar obligations to the firm’s cleared swaps customers, in violation of CFTC Regulation 22.9. On those days, Morgan Stanley held the amount of the U.S. Dollar deficits in Euros and other currencies, rather than in U.S. Dollars, according to the Order. Because Morgan Stanley held the amount of the U.S. Dollar deficits in other currencies, it did not have a shortfall in overall cleared swaps customer collateral. As the Order finds, however, the size of Morgan Stanley’s U.S. Dollar deficits ranged from approximately $5 million to approximately $265 million, at times representing more than 10 percent of the amount that the firm was obligated to maintain in U.S. Dollars for cleared swaps customers.

Additionally, the Order finds that from November 8, 2012 to on or about April 8, 2014, Morgan Stanley did not have in place adequate procedures to comply with the currency denomination requirements for cleared swaps customer collateral and did not train and supervise its personnel to ensure compliance with CFTC Regulation 22.9. Morgan Stanley thereby failed to supervise diligently its officers, employees, and agents and did not have sufficient procedures in place to detect and deter the violations found herein, in violation of Regulation 166.3, the Order finds.

The Order recognizes that Morgan Stanley promptly reported the deficiencies to the CFTC, implemented corrective procedures, and cooperated with the CFTC’s Division of Enforcement in its investigation.

The CFTC appreciates the assistance of the Division of Swap Dealer and Intermediary Oversight.

The CFTC Division of Enforcement staff members responsible for this case are Elizabeth C. Brennan, Douglas K. Yatter, Lenel Hickson, Jr., and Manal M. Sultan.

Additional Dissenting Comments on Pay Ratio Disclosure

Additional Dissenting Comments on Pay Ratio Disclosure

TWO CORPORATE OFFICERS CHARGED WITH INFLATING VALUES OF ENERGY PROPERTIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

08/06/2015 10:00 AM EDT

The Securities and Exchange Commission today announced charges alleging that Miller Energy Resources Inc., its former chief financial officer, and its current chief operating officer inflated values of oil and gas properties, resulting in fraudulent financial reports for the Tennessee-based company.  The audit team leader at the company’s former independent auditor also was charged in the matter.

In an order instituting administrative proceedings, the SEC’s Division of Enforcement alleges that after acquiring oil and gas properties in Alaska in late 2009, Miller Energy overstated their value by more than $400 million, boosting the company’s net income and total assets.  The allegedly inflated valuation had a significant impact, turning a penny-stock company into one that eventually listed on the New York Stock Exchange, where its stock reached a 2013 high of nearly $9 per share.

“Financial statement information is the cornerstone of investment decisions.  We’ve charged that Miller Energy falsified financial statement information and grossly overstated the value of its Alaska assets and that the company’s independent auditor failed to conduct an audit that complied with professional standards,” said William P. Hicks, Associate Regional Director of the SEC’s Atlanta office.  “The SEC will aggressively prosecute such conduct.”    

Knoxville-based Miller Energy paid $2.25 million and assumed certain liabilities to purchase the Alaska properties.  It later reported them at a value of $480 million, according to the SEC’s Division of Enforcement.  While accounting standards required the company to record the properties at “fair value,” then-CFO Paul W. Boyd allegedly relied on a reserve report that did not reflect fair value for the assets, and he also is alleged to have double-counted $110 million of fixed assets already included in the reserve report.  The report by a petroleum engineering firm allegedly contained expense numbers that were knowingly understated by David M. Hall, the CEO of Miller Energy’s Alaska subsidiary and Miller Energy’s chief operating officer since July 2013.  Hall, of Anchorage, Alaska, also is alleged to have altered a second report to make it appear as though it reflected an outside party’s estimate of value.

The Division of Enforcement alleges that the fiscal 2010 audit of Miller Energy’s financial statements was deficient due to the failure of Carlton W. Vogt III, the partner in charge of the audit.  Vogt, of Warwick, New York, was then at Sherb & Co LLP, a now defunct firm that was suspended by the SEC in 2013 for conduct unrelated to its work for Miller Energy.  Vogt issued an unqualified opinion of Miller Energy’s 2010 annual report and is alleged to have falsely stated that the audit was conducted in accordance with the standards of the Public Company Accounting Oversight Board and that Miller Energy’s financial statements were presented fairly and conformed with U.S. generally accepted accounting principles.

As a result of their conduct, Miller Energy, Boyd, and Hall are alleged to have violated anti-fraud provisions of U.S. securities laws and a related SEC anti-fraud rule.  The company also is alleged to have violated books and recordkeeping and internal controls requirements, with Boyd and Hall in some cases causing or aiding and abetting those alleged violations.  The SEC’s Division of Enforcement is seeking to obtain cease-and-desist orders, civil monetary penalties, and return of allegedly ill-gotten gains from the company, Boyd, and Hall.  It also is seeking to bar Boyd and Hall from serving as public company officers or directors and to bar Boyd and Vogt from public company accounting.  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 was conducted in its Atlanta Regional Office by William Uptegrove and John Nemeth under the supervision of Assistant Regional Director Peter Diskin.  The Enforcement Division’s litigation will be led by Robert Schroeder, Edward Sullivan, William Uptegrove, and M. Graham Loomis of the Atlanta Regional Office.

SEC.gov | Dissenting Statement at an Open Meeting to Adopt the “Pay Ratio” Rule

SEC.gov | Dissenting Statement at an Open Meeting to Adopt the “Pay Ratio” Rule

Statement on Pay Ratio Disclosure

Statement on Pay Ratio Disclosure

SEC CHARGES MAN WITH OPERATING $114 MILLION PONZI SCHEME BASED ON ANTI-DROWSY DRIVING TECHNOLOGY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

08/03/2015 02:25 PM EDT

The Securities and Exchange Commission charged a Houston-area businessman with operating a $114 million Ponzi scheme that defrauded investors, some of whom were told that their money would fund technology to prevent accidents caused by drowsy driving.

The SEC’s case filed in federal court in Houston charged Frederick Alan Voight of Richmond, Texas with defrauding more than 300 investors in multiple offerings of promissory notes issued by two partnerships he owns, F.A. Voight & Associates LP and DayStar Funding LP.  While Voight’s latest offering promised investors returns as high as 42 percent a year from loans to small public companies, most of the funds went to pay earlier investors, the complaint alleges.  Approximately $22 million of Voight’s allegedly ill-gotten gains remain unaccounted for to date.

“Voight wooed investors with promises of outsized returns and once-in-a-lifetime investment opportunities.  But, like all Ponzi schemes, we allege that this one collapsed when Voight couldn’t find enough new money to keep up with his false promises,” said David L. Peavler, Acting Regional Co-Director of the SEC’s Fort Worth Regional Office.

According to the SEC’s complaint, Voight recently raised $13.8 million that he said would be loaned to a startup named InterCore Inc. to fund its deployment of a “Driver Alertness Detection System,” or DADS.  Starting in October 2014, Voight allegedly wrote to prospective investors about a “tremendous” opportunity to help InterCore install the DADS technology into “several million trucks and buses,” which he said was enough for the company to pay the 30 to 42 percent annual interest rates on the promissory notes “many, many times over.”

Voight knew the claims were false because he served on InterCore’s board and was aware that the Delray Beach, Florida public company was financially troubled and had no means to pay back the loans, the complaint alleges.  The SEC alleges that Voight used funds from the DADS investors to make Ponzi payments to earlier investors or funneled them to InterCore through two of his other partnerships, Rhine Partners LP and Topside Partners LP.  The complaint alleges that InterCore sent the funds to its Montreal-based subsidiary, InterCore Research Canada, Inc., where the funds seemingly disappeared.  By routing funds through Rhine and Topside, Voight is alleged to have garnered benefits – including fees and InterCore stock warrants – that he never disclosed to the DADS investors.

The SEC’s complaint charges Voight and DayStar with securities fraud and with conducting unregistered securities offerings.  Voight and Daystar, without admitting or denying the allegations, agreed to settle the SEC’s complaint by consenting to permanent injunctions against committing these violations in the future.  They also agreed to asset freezes and other emergency relief, and to pay civil penalties and return allegedly ill-gotten gains with interest in amounts to be set later by the court.  Voight also consented to being barred from serving as a public company officer or director and to be barred permanently from participating in the offer, purchase, or sale of any security except for his own personal account.

The SEC named F.A. Voight & Associates, Rhine, Topside, InterCore, and InterCore Research Canada as relief defendants for the purpose of recovering any allegedly ill-gotten gains they received from the fraud.  F.A. Voight & Associates, Rhine, and Topside have agreed to asset freezes and other emergency relief and to return allegedly ill-gotten gains in amounts to be set by the court.  The SEC will litigate its claims against relief defendants InterCore and InterCore Research.

The SEC’s investigation was conducted by Senior Counsel Jeff Cohen, Senior Staff Accountant Keith Hunter and Assistant Regional Director Jessica Magee of the Fort Worth office.  The SEC’s litigation will be led by Jennifer Brandt.

STOCK PRICE SPIKE INDICATED STOCK RISE SCAM ACCORDING TO SEC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

07/31/2015 04:30 PM EDT

The Securities and Exchange Commission charged a Canadian citizen with conducting a scheme to conceal his control and ownership of a microcap company whose price quickly spiked last year.  The SEC suspended trading in the stock, Cynk Technology Corp., before the alleged schemer, Phillip Thomas Kueber, could profit on the gains from the stock’s rise to more than $21 from less than 10 cents per share.

The SEC alleges that Kueber was behind a false and misleading registration statement filed by Cynk and enlisted a small group of straw shareholders and sham CEOs to conceal his control of purportedly non-restricted shares in Cynk stock.  The complaint alleges that the straw shareholders – mainly Kuber’s family members and associates in British Columbia and California – never received the shares they “purchased.”  Kueber allegedly transferred the shares to brokerage accounts and offshore shell companies he secretly controlled and misled broker-dealers about his ownership of the shares to create the false appearance of a company with publicly held shares.

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of New York, Kueber was unable to cash in on selling his Cynk shares when the SEC suspended trading in Cynk on July 11, 2014 amid suspicious activity surrounding the company’s stock.  Once trading resumed, the share price fell, closing at 60 cents per share on July 28, 2014.

“We allege that Kueber used straw shareholders, offshore dummy corporations, and puppet corporate officers to gain and conceal control over the majority of Cynk shares,” said Michael Paley, Co-Chair of the SEC Enforcement Division’s Microcap Fraud Task Force.  “Law enforcement has again pierced through the layers of deceit to hold an alleged wrongdoer accountable, in this case before he could liquidate his shares in the open market and realize ill-gotten profits.”

The SEC’s complaint alleges that Kueber violated the antifraud provisions of federal securities laws and related SEC antifraud rules.  The SEC is seeking to impose a civil monetary penalty, to bar Kueber from serving as a public company officer or director or participating in a penny-stock offer, and to be subject to a court-ordered injunction against future antifraud violations.

The SEC’s continuing investigation has been conducted by Joshua R. Geller, Joseph G. Darragh, and Michael Paley of the Microcap Fraud Task Force along with Wendy Tepperman of the New York office.  The litigation will be conducted by Preethi Krishnamurthy and Mr. Geller.  The case is being supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York, Federal Bureau of Investigation, Internal Revenue Service, Department of Homeland Security, and Financial Industry Regulatory Authority.

FOREIGN CURRENCY PONZI SCHEMERS ORDERED TO PAY $76 MILLION

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

Court Orders $76 Million in Civil Monetary Penalties against Keith F. Simmons, Deanna Salazar and Their Companies in Connection with Foreign Currency Ponzi Scheme

In Related Criminal Actions, Simmons Sentenced to 40 Years’ and Salazar Sentenced to 4.5 Years’ Incarceration and Ordered to Pay in Total $40 Million in Criminal Restitution

Both Simmons and Salazar Currently are Serving Their Prison Sentences

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Robert J. Conrad, Jr. of the U.S. District Court for the Western District of North Carolina entered separate Consent Orders (Orders) against Defendants Keith F. Simmons and his company, Black Diamond Capital Solutions, LLC, and Deanna Salazar and her companies, Life Plus Group, LLC and Black Diamond Holdings, LLC, imposing a total of $76 million in civil monetary penalties in connection with a foreign currency exchange (forex) scheme in violation of the Commodity Exchange Act (CEA). The Orders also impose permanent trading and registration bans on the Defendants and prohibit them from further violations of the anti-fraud provisions of the CEA, as charged.

Simmons was a resident of West Jefferson, North Carolina, and Salazar was a resident of Yucca Valley, California.

The Orders arise out of a CFTC Complaint, filed on January 13, 2011, charging Simmons, Salazar, and their companies with fraudulent solicitation and misappropriation of customer funds in connection with a Ponzi-style scheme involving forex trading (see CFTC Press Release and Complaint 5985-11, February 16, 2011). Also charged in the CFTC complaint are Bryan Coats of Clayton, North Carolina and his company, Genesis Wealth Management, LLC, and Jonathan Davey of Newark, Ohio and his companies, Divine Circulation Services, LLC, Divine Stewardship, LLC, Safe Harbor Ventures, Inc., Safe Harbor Wealth Investments, Inc., and Safe Harbor Wealth, Inc. The CFTC’s litigation against these Defendants is ongoing.

The Orders find that from at least April 2007 through at least 2009, Simmons and Salazar, acting through their companies and with others, fraudulently solicited and accepted at least $35 million from at least 240 individuals to engage in off-exchange forex trading through a trading platform known as Black Diamond. In fact, according to the Orders, no forex trading was ever conducted through the Black Diamond trading platform, and the Black Diamond trading platform never existed. Rather, Simmons and Salazar misappropriated millions of dollars of customer funds to make purported profit payments to customers, as is typical of a Ponzi scheme, and for personal and unrelated business expenses, according to the Orders. The Orders further find that to conceal their fraud, Simmons, with the assistance of Salazar, issued false customer account statements reflecting the promised returns or more based on Black Diamond’s purportedly successful forex trading.

In a related criminal action brought by the U.S. Attorney’s Office for the Western District of North Carolina, Simmons was convicted on December 16, 2010, on charges of securities fraud, wire fraud, and money laundering. Simmons was sentenced to 40 years’ incarceration and ordered to pay criminal restitution of $35 million. On December 7, 2010, Salazar pleaded guilty to charges of investment fraud conspiracy and tax evasion. Salazar was sentenced to 4.5 years’ incarceration and ordered to pay $5 million in criminal restitution. Both Simmons and Salazar are still serving their sentences.

CFTC Division of Enforcement staff members responsible for this case are Alan Edelman, Maura Viehmeyer, James H. Holl III, Gretchen L. Lowe, and Rick Glaser. The Division would like to thank the U.S. Attorney’s Office for the Western District of North Carolina and the Federal Bureau of Investigation for their cooperation in this matter.