CFTC CHARGES MAN, COMPANY WITH DEFRAUDING INVESTOR PARTICIPANTS IN INVESTMENT POOL

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

June 24, 2015

CFTC Charges Illinois Resident Nick A. Wurl and His Company Ludiera Capital LLC with Fraud and Misappropriation in $9 Million Scheme

Defendants allegedly defrauded at least 46 participants in an investment pool

Wurl was charged with wire fraud in a related criminal action

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) filed a federal enforcement action in the U.S. District Court for the Northern District of Illinois against Defendants Nick A. Wurl and his company Ludiera Capital LLC, both of Chicago, Illinois, charging them with fraud, misappropriation, and the issuance of false statements in connection with an investment pool they operated that traded commodity futures contracts and options on futures contracts. According to the CFTC Complaint, “In reality, the pool was little more than a shell company used to defraud pool participants and enrich Defendants at their expense.”

On May 27, 2015, the U.S. Department of Justice (DOJ), in a related criminal complaint filed in the U.S. District Court for the Northern District of Illinois, charged Wurl with wire fraud. In conjunction with that action, DOJ obtained writs of garnishment against known accounts in the names of Wurl and Ludiera.

The CFTC’s Complaint alleges that Defendants fraudulently solicited over $9 million from at least 46 investors for the represented purpose of trading physical commodities, such as soybeans and other agricultural commodities, as well as energy products. In their solicitations, Defendants fraudulently represented that (1) Defendants would only invest participants’ funds in the buying and selling of physical commodities; (2) Defendants’ physical commodity trading was generating profits for participants; (3) Defendants were not engaged in the trading of futures or options; (4) participants’ funds would be maintained in segregated accounts; and (5) the worst potential outcome for investors was 0 percent return on investment.

According to the Complaint, and contrary to the represented investment strategy, Defendants never engaged in physical commodity trading. Rather, the bulk of participants’ funds — over $6.8 million — was pooled and used by Defendants to trade futures and options. Defendants never disclosed to participants the risk of trading futures and options and never disclosed that a significant portion of participants’ funds would be used for trading futures and options. Further, Defendants never disclosed that Defendants were sustaining significant trading losses. Rather, Defendants operated to conceal their commingling and misappropriation of customer funds and trading losses by providing pool participants with false reports and account statements showing fictitious profits.

The CFTC Complaint also alleges that Defendants misappropriated at least $600,000 of participants’ funds to pay down personal credit card debt and purchase vehicles, among other things. Akin to a Ponzi scheme, and in order to further disguise their trading losses and misappropriation, the Defendants also distributed approximately $1.8 million to pool participants in redemptions, utilizing other pool participants’ principal to fund these payments.

In its continued litigation, the CFTC seeks restitution, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and preliminary and permanent injunctions from further violations of the federal commodities laws, as charged.

The CFTC thanks and acknowledges the assistance of the U.S. Attorney’s Office for the Northern District of Illinois and the Federal Bureau of Investigation.

CFTC Division of Enforcement staff members responsible for this action are Rachel Hayes, Rebecca Jelinek, Stephen Turley, Lauren Fulks, Diane Romaniuk, Peter Riggs, and Charles Marvine.

INVESTMENT ADVISER TO PAY OVER $1 MILLION TO ONCLUDE FRAUD CASES WITH SEC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23273 / June 1, 2015

Securities and Exchange Commission v. Sage Advisory Group, LLC and Benjamin Lee Grant, Civil Action No. 10-cv-11665 (D. Mass. September 29, 2010)

Securities and Exchange Commission v. John A. Grant, Sage Advisory Group, LLC and Benjamin Lee Grant, Civil Action No. 11-cv-11538 (D. Mass. September 1, 2011)

Court Orders Massachusetts Investment Adviser to Pay Over $1 Million to Conclude Two SEC Fraud Cases

The Securities and Exchange Commission announced that, on May 29, 2015, the Honorable George A. O'Toole Jr. of the United States District Court for the District of Massachusetts entered final judgments against the one-time registered investment adviser Sage Advisory Group, LLC, and its principal, Benjamin Lee Grant ("Lee Grant"), both of Boston, MA, in two fraud cases filed by the SEC. A federal court jury previously found Sage and Lee Grant liable for fraud in the first case, and Sage and Lee Grant recently admitted liability for fraud in the second case. Among other relief, the final judgments impose permanent injunctions against future violations of certain antifraud provisions of the federal securities laws and order Sage and Lee Grant to pay a total of $1,051,038.

In the first case, filed on September 29, 2010, the Commission alleged that Lee Grant had fraudulently led his brokerage customers to transfer their assets to Sage, his new advisory firm. Prior to October 2005, Lee Grant was a registered representative of broker-dealer Wedbush Morgan Securities and had customer accounts representing approximately $100 million in assets, virtually all of which were managed by California-based investment adviser First Wilshire Securities Management. According to the complaint, Lee Grant resigned from Wedbush in September 2005 so that he could operate Sage, his own newly-minted investment advisory firm. Lee Grant made false and misleading statements to his former brokerage customers. Among other things, Lee Grant misled customers by telling them that the changes in their accounts were being done at the suggestion of First Wilshire and that First Wilshire was not willing to continue managing the customers' assets if they stayed with Wedbush. Lee Grant also told customers that the "wrap fee" program being offered by Sage offered potential savings, based on historical commission costs - without disclosing that a new arrangement with a discount broker would produce substantial savings to the benefit of Sage, not the customers, under the "wrap fee." To rush his customers to sign up as advisory clients with Sage, Lee Grant falsely suggested that they might suffer disruption in First Wilshire's management of their assets unless they signed and returned the new advisory and custodial account documents as soon as possible.

Following trial, on August 13, 2014, a federal district court jury found both Sage and Lee Grant liable for fraud under the Investment Advisers Act of 1940, among other charges.

In the second case, filed on September 1, 2011, the Commission alleged that Sage and Lee Grant separately violated the antifraud provisions of the Investment Advisers Act, as did Lee Grant's father, Jack Grant. The Commission's complaint alleged that Jack Grant violated a Commission bar from association with investment advisers by associating with Sage and by acting as an investment adviser himself. The Commission bar had been based on a 1988 Commission enforcement action against Jack Grant alleging that he sold $5,500,000 of unregistered securities and misappropriated investors' funds. The Commission alleged in its September 2011 complaint that, notwithstanding his agreement to accept a Commission bar to settle the 1988 action, Jack Grant did not remove himself from the securities business and instead continued to provide investment advice to individuals and small businesses. The Commission's complaint alleged that he retooled his service as the Law Offices of Jack Grant and used his son, Lee Grant, to help implement his investment advice. The complaint further alleged that Jack Grant, Lee Grant, and Sage failed to inform their advisory clients that Jack Grant was barred from associating with investment advisers. In May 2013, the court entered a final judgment against Jack Grant on a settled basis, ordering Jack Grant to pay a total of $201,392.27, among other relief.

The final judgments entered against Sage and Lee Grant on May 29, 2015 conclude the cases and were entered with Sage's and Lee Grant's consent. The final judgment in the first case acknowledges the jury's liability finding, imposes permanent injunctions against future violations of Sections 206(1), 206(2), 206(4), and 204A of the Investment Advisers Act and Rules 204A-1 and 206(4)-7 thereunder, orders Sage and Lee Grant to pay on a joint and several basis $500,000 in disgorgement and $51,038 in prejudgment interest, and orders Lee Grant to pay an additional $350,000 civil penalty. The final judgment in the second case imposes additional permanent injunctions against future violations of Sections 206(1), 206(2), and 207 of the Investment Advisers Act and orders Lee Grant to pay an additional $150,000 civil penalty. As part of their consent in the second case, Sage and Lee Grant acknowledged that their conduct violated the federal securities laws and admitted the underlying facts establishing the violations.

Lee Grant also consented to the Commission's entry in follow-on administrative proceedings of a permanent bar, pursuant to Section 203(f) of the Investment Advisers Act, prohibiting him from association with any broker, dealer, or investment adviser, among other entities. The Commission entered the administrative order on June 1, 2015.

For further information on the first case, see Litigation Release No. 21672 (September 29, 2010) (SEC Charges Massachusetts-Based Investment Adviser with Fraud); and Litigation Release 23066 (August 13, 2014) (Jury Returns Verdict Against Massachusetts Investment Adviser in SEC Fraud Case).

For further information on the second case, see Litigation Release No. 22081 (September 1, 2011) (SEC Charges Massachusetts-Based Attorney for Violating an Investment Adviser Bar and his Son for Failing to Disclose his Father's Bar to Advisory Clients); and Litigation Release No. 22708 (May 30, 2013) (SEC Obtains Final Judgment and Issues Administrative Orders against John A. ("Jack") Grant).

SEC ALLEGES FRAUD IN CASE INVOLVING THE TOUTING THE PROSPECTS OF CERTAIN MICROCAP COMPANIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

05/26/2015 12:30 PM EDT

The Securities and Exchange Commission today announced fraud charges against a securities lawyer who used his New York law office as the headquarters for planning and implementing market manipulation schemes.  Also charged are two stock promoters from Canada who assisted him.

The SEC alleges that Adam S. Gottbetter orchestrated promotional campaigns that touted the prospects of microcap companies and enticed investors to buy their stock at inflated prices so he and his cohorts could sell shares they controlled and reap massive profits.  Gottbetter enlisted Mitchell G. Adam and K. David Stevenson to help him in the last of three schemes he conducted in a six-year period.  They repeatedly cautioned each other about the dangers of missteps that might draw law enforcement attention to the scheme, such as failing to keep secret the identities of Adam and Stevenson.  The three rehearsed stories they would tell if ever questioned by law enforcement.  During one meeting in New York City, Gottbetter complained about the difficulties of stock manipulation but conceded that robbing a bank was the only other way to make so much money so quickly.

Gottbetter agreed to pay $4.6 million to settle the SEC’s charges.  Stevenson also agreed to settle the SEC charges against him while a case against Adam will be litigated in federal court in Newark, N.J.

In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against Gottbetter, Adam, and Stevenson.

“As a securities lawyer, Gottbetter should have served as a gatekeeper and protected the capital markets and investors from fraudsters.  Instead, he swung the gates wide open and illicitly profited at investors’ expense,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.

According to the SEC’s complaint, Gottbetter was involved in the manipulation of the stocks of Kentucky USA Energy Inc. (KYUS) and Dynastar Holdings Inc. (DYNA) before teaming up with Adam and Stevenson in July 2013 to utilize their offshore ties for a new and potentially more lucrative scheme.  Together they schemed to drive up the stock price for purported oil and gas exploration company HBP Energy Corp. (HBPE) through fraudulent trades generated by a trading algorithm.  They then planned to launch an extensive promotional campaign featuring multiple call centers, roadshows, and a listing on the Frankfurt Stock Exchange.  After creating the false appearance of liquidity and investor interest, they planned to dump their shares of the stock on unsuspecting investors around the world.  While Stevenson and Adam managed to do some small coordinated trades, the scheme was thwarted before the planned manipulation and promotion could be launched when Stevenson was arrested by the FBI.

The SEC’s complaint alleges that Gottbetter violated Sections 5(a), 5(c) and Section 17(a) of the Securities Act of 1933, and violated and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The complaint alleges that Adam and Stevenson violated and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

Gottbetter agreed to be barred from the penny stock industry in addition to paying $4.6 million in disgorgement and prejudgment interest from ill-gotten gains in the Kentucky USA Energy manipulation scheme.  He consented to injunctions against future violations.  Stevenson also agreed to be barred from the penny stock industry and consented to an injunction against future violations.  The settlements are subject to court approval.

The SEC’s investigation was conducted by Simona Suh of the Market Abuse Unit and Nancy A. Brown and Elzbieta Wraga of the New York office.  The case was supervised by Amelia A. Cottrell and Michael J. Osnato Jr.  The SEC’s litigation against Adam will be led by Ms. Brown and Ms. Suh.  The SEC appreciates the assistance of the Newark Field Office of the Federal Bureau of Investigation, the U.S. Attorney’s Office for the District of New Jersey, and the Financial Industry Regulatory Authority.

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.

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.

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.

SEC FILES CHARGES AGAINST OPTIMA GLOBAL FINANCIAL, INC.

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23213 / March 3, 2015

Securities and Exchange Commission v. Ahmad Fnaikher Alyasin and Optima Global Financial, Inc., Civil Action No. 4:15-cv-00566

SEC Files Fraud and Related Charges Against Optima Global Financial, Inc., Its CEO, Ahmad Alyasin, and Their Lawyer Gary Patterson

The Securities and Exchange Commission today announced that, on March 3, 2015, the Commission filed fraud and other related charges against Optima Global Financial, Inc. ("Optima"), its CEO, Ahmad Fnaikher Alyasin ("Alyasin"), and, on March 3, 2015, against their lawyer Gary Eugene Patterson ("Patterson").

The Commission's Order finds and its complaint alleges that, from at least September 2010 through at least March 2011, Alyasin and Optima engaged in a fraudulent scheme to obtain and sell purportedly unrestricted shares of China North East Petroleum Holdings Limited ("CNEP") in unregistered transactions. Their attorney, Patterson, issued two baseless Rule 144 legal opinions, allowing the restrictive legends to be improperly removed from the securities. Alyasin and Optima loaned $3.5 million to the former Chief Executive Officer and President and current director of CNEP ("Borrower"). The loan was secured by a pledge of 2.5 million shares of restricted CNEP control stock. Under the provisions of the lending agreements, Alyasin and Optima agreed not to sell those restricted shares for the term of the loan.

According to the Commission's Order and complaint, Alyasin and Optima, however, immediately took steps to remove the restrictive legends from the shares, allowing them to margin and then, in contravention of the federal securities laws and the stated terms of the lending agreements, to sell those securities into the open market. Patterson caused this fraudulent scheme by issuing two baseless Rule 144 opinion letters incorrectly stating that the restrictive legends on the CNEP stock certificates could be removed based on the terms of the lending agreements.

By engaging in the unregistered offer and sale of securities, the Commission alleges in its complaint that Alyasin, Optima, and Patterson each violated the registration requirements of Sections 5(a) and (c) of the Securities Act of 1933 ("Securities Act"). In addition, Alyasin and Optima are alleged to have violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 by engaging in the fraudulent scheme, and Patterson caused Alyasin's and Optima's violations of those antifraud provisions.

Without admitting or denying the findings, Patterson agreed to settle the SEC's claims against him. As part of his settlement with the Commission, Patterson, consented to the issuance of an order that requires him: (1) to cease-and-desist from committing or causing any violations and any future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder; (2) to pay a civil penalty of $30,000. In addition, the order prohibits Patterson from providing professional legal services to any person or entity in connection with the offer or sale of securities, including, without limitation, participating in the preparation of any opinion letter related to such offerings; and bars him from appearing or practicing as an attorney before the Commission for ten years.

Alyasin and Optima agreed to a bifurcated settlement whereby they, without admitting or denying the allegations, consent to: (1) the entry of a final judgment permanently enjoining them from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, and (2) the entry of a final judgment imposing disgorgement of ill-gotten gains along with prejudgment interest, and civil penalties in amounts, if any, to be determined by the Court upon motion of the Commission.

The SEC's investigation was conducted by Ansu Banerjee and Delane Olson, and supervised by Melissa Hodgman. The litigation will be led by John Bowers.

CFTC CHARGED HUSBAND, WIFE AND COMPANIES WITH FRAUD

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

February 3, 2015

CFTC Charges California Residents Christopher Valois and Cynthia Wong and Their Companies with Fraud and Registration Violations

Husband and wife team allegedly stole more than $300,000 of the $750,000 their customers invested

Federal court enters emergency Order freezing Defendants’ assets and protecting books and records

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Cormac J. Carney of the U.S. District Court for the Central District of California entered an emergency restraining Order freezing assets and prohibiting the destruction or concealment of books and records of Defendants Christopher Valois, Cynthia Wong, and their companies, Bertram Trade LLC (Bertram) and Churchhill Commodities Trading LLC (Churchhill), all of Orange County California. The judge set a hearing date for February 12, 2015.

The court’s Order arises from a CFTC Complaint filed on January 28, 2015, charging the Defendants with precious metals and futures fraud, misappropriation, engaging in illegal off-exchange precious metals transactions, and registration violations, in violation of the Commodity Exchange Act and CFTC Regulations from October 2011 to the present.

According to the Complaint, husband and wife Valois and Wong, acting by and through Bertram and Churchhill, fraudulently solicited approximately $450,000 from six customers, some of whom were senior citizens, to purchase precious metals or engage in futures trading. The Complaint states that the precious metals transactions offered by Valois and Wong and their companies were illegal off-exchange instruments and alleges that Valois and Wong misappropriated more than $300,000 of customer money to pay their personal expenses.

The Complaint also alleges that Valois and Wong acted as Commodity Trading Advisors by trading another $300,000 of at least four members of the general public in futures contracts and receiving advisory fees for such futures trading, even though they were not registered with the CFTC, as required. In fact, Valois previously had been banned from the futures industry for cheating and defrauding customers, according to the Complaint.

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

The CFTC appreciates the cooperation of the National Futures Association in this matter.

CFTC Division of Enforcement staff members responsible for this case are Camille Arnold, Joseph Patrick, Robert Howell, Scott Williamson, and Rosemary Hollinger.

CFTC CHARGES MAN WITH FRAUD AND ACTING AS AN UNREGISTERED FUTURES COMMISSION MERCHANT

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

November 25, 2014

CFTC Charges California Resident Thomas Gillons with Fraud and Acting as an Unregistered Futures Commission Merchant

Federal Court Issues Emergency Order Freezing Gillon’s Assets and Protecting Books and Records

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 Northern District of Illinois, charging Defendant Thomas Gillons of Napa County, California, with fraud and acting as a Futures Commission Merchant (FCM) without being registered as such with the CFTC.

On the same day the Complaint was filed, November 19, 2014, U.S. District Judge Ronald A. Guzman issued an emergency Order freezing and preserving assets under the control of Gillons and prohibiting him from destroying documents or denying CFTC staff access to his books and records. The court scheduled a hearing for December 1, 2014, on the CFTC’s motion for a preliminary injunction.

Gillons Allegedly Misappropriated Nearly $130,000 in Customer Funds

The CFTC’s Complaint alleges that, since at least August 31, 2013, Gillons fraudulently solicited and accepted at least $194,000 from at least three customers by claiming that he was a licensed broker and would trade their funds in a sub-account in customers’ names, earning them a 12 to 14 percent return. However, in reality, Gillons’ broker license had been suspended, and he was not currently registered with any securities firm, according to the Complaint. Moreover, Gillons traded only a portion of customer funds, losing approximately $55,234 and misappropriating at least $129,766 in customer funds, the Complaint alleges.

Furthermore, the Complaint alleges that Gillons accepted money to margin, guarantee, or secure commodity futures trades without being registered with the CFTC as an FCM.

In its continuing litigation, the CFTC seeks restitution, disgorgement of ill-gotten gains, civil monetary penalties, trading and registration bans, and injunctions against further violations of the Commodity Exchange Act.

CFTC Division of Enforcement staff members responsible for this action are Stephanie Reinhart, Melissa Glasbrenner, David Terrell, Scott Williamson, and Rosemary Hollinger.

SEC FILES ACTION AGAINST MAN WHO ALLEGEDLY DEFRAUDED INVESTORS

U.S. SECURITIES AND EXCHANGE COMMISSION

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23146 / December 2, 2014

Securities and Exchange Commission v. Levi Lindemann, Civil Action No. 0:14-cv-04834-PJS-JJK

On November 24, 2014, the Securities and Exchange Commission filed an emergency action alleging that Levi Lindemann, a former registered representative and resident of West Lakeland Minnesota, operated a fraudulent scheme through his private company, Gershwin Financial, Inc. and his sole proprietorship, Alternative Wealth Solutions. The SEC's complaint alleged that from at least September 2009 to August 2013, Lindemann raised approximately $976,000 from six investors located in Wisconsin, including elderly individuals and a member of his own family. The complaint further alleged that Lindemann told these investors that their money would be used to purchase a variety of purported investments including various notes and interests in a unit investment trust. The complaint alleged that in reality, none of these investments were ever made. The complaint charged Lindemann with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

After a hearing on November 24, 2014, the Honorable Patrick J. Schiltz of the United States District Court for the District of Minnesota issued an Order granting the relief sought by the SEC including a preliminary injunction, freezing assets and other emergency relief. Counsel for Lindemann consented to the relief sought by the SEC.

The SEC's investigation in this matter is continuing.

SEC CHARGES MAN WITH STEALING MONEY HE RECEIVED FROM INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges California Resident with Fraudulent Sales of Stock

The Securities and Exchange Commission today charged the owner of several now-defunct investment entities with fraudulently selling shares of stock that he claimed to own when he had actually purchased them for others a few years before.

The SEC alleges that Vinay Kumar Nevatia, who used several aliases while living in Palo Alto, Calif., sold approximately $900,000 worth of stock he supposedly owned in a privately-held information technology company called CSS Corp. Technologies (Mauritius) Limited. He deceived the buyers into believing that he owned the shares, orchestrated a series of secret wire transfers, and induced the stock transfer agent into recording his fraudulent sales. He stole the money he received from investors for his own use.

According to the SEC's complaint filed in federal district court in San Francisco, Kumar provided the true owners of the shares with fake updates on their investments for more than a year after he had disposed of their stock in these subsequent sales in 2011 and 2012. The actual owners had bought the CSS stock through Kumar in 2008. Kumar has never been registered with the SEC nor licensed to trade securities.

The SEC's complaint charges Kumar with violating Sections 17(a)(1), (a)(2), and (a)(3) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks permanent injunctions, the return of ill-gotten gains, and a financial penalty.

The SEC's investigation was conducted by William T. Salzmann, Jason H. Lee, and Cary S. Robnett of the San Francisco Regional Office with assistance from Kristin A. Snyder, Stephanie A. Wilson, Edward G. Haddad, Brian Applegate, Michael A. Tomars, and Tracey A. Bonner of the San Francisco office's examination program. Mr. Salzmann and Mr. Lee will lead the SEC's litigation. The SEC appreciates the assistance of the U.S. Attorney's Office for the Northern District of California, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.

SEC SETTLES REAL ESTATE INVESTMENT FUND ALLEGED FRAUD CLAIMS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

San Francisco Bay Area Real Estate Fund Managers Settle Fraud Claims

The Securities and Exchange Commission today announced that Kelly Ng and Walter Ng, their affiliated investment advisory firm The Mortgage Fund, LLC, and Bruce Horwitz agreed to resolve fraud charges against them, which fully resolves the Commission's litigation. In the settlement, Kelly Ng, Horwitz, and The Mortgage Fund, LLC will pay a total of $5,205,367 and Kelly Ng and Walter Ng will be barred from the securities industry. The SEC filed a complaint against the Ngs, Horwitz and the firm in federal court in Oakland, California in 2013, alleging that they defrauded investors in their real estate fund called Mortgage Fund '08 LLC (MF08) by secretly using its assets to rescue an older, rapidly collapsing fund called R.E. Loans, LLC.

According to the SEC's complaint, the Ngs and Horwitz promoted MF08 in the midst of the 2008 financial crisis as a new opportunity to invest in conservatively underwritten commercial real estate loans secured by deeds of trust. But the Ngs and their advisory firm, The Mortgage Fund LLC, immediately began transferring money raised by MF08 to R.E. Loans so that they could afford distributions to investors in that fund. From December 2007 to March 2008, the Ngs transferred almost $39 million from MF08 to R.E. Loans. They later attempted to justify the transfers by claiming MF08 had purchased three loans from R.E. Loans that totaled around $39 million.

The SEC further alleged that both the Ngs and Horwitz lured investors into MF08 by making false claims about its performance and the R.E. Loans fund's performance. What investors did not know was that both R.E. Loans and MF08 began to experience significant and dramatic borrower defaults in 2008. Despite the funds' rapidly disintegrating portfolios, the Ngs and Horwitz repeatedly assured investors that R.E. Loans and MF08 were performing well and the underlying loans were safe and secure.

Walter Ng, Kelly Ng, Horwitz, and The Mortgage Fund, LLC, without admitting or denying the SEC's allegations, all consented to the entry of final judgments, which the court entered on August 1, 2014. Under the terms of the settlements, Kelly Ng and the Ngs' firm will pay a total of $4,480,025 in disgorgement, prejudgment interest, and civil monetary penalties and Horwitz will pay $725,342. The Commission intends to ask the Court to authorize the transfer of any disgorgement, interest, and penalty payments collected to the MF08 Liquidating Trustee for distribution to MF08 investors. All four agreed to be permanently enjoined from violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. Kelly Ng, Walter Ng, and The Mortgage Fund further agreed to be permanently enjoined from violating Sections 206(1) and (2) of the Investment Advisers Act of 1940.

Walter Ng and Kelly Ng further agreed to be barred from the securities industry, including association with any brokerage firm or investment adviser. Kelly Ng currently is incarcerated and serving an 18 month sentence after he pled guilty to twenty counts of structuring cash transactions to avoid bank reporting requirements.

SEC CHARGES BROKER WITH DEFRAUDING THE ELDERLY AND BLIND

FROM:  THE U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission charged a broker based in Roanoke, Va., with defrauding elderly customers, including some who are legally blind, by stealing their funds for her personal use and falsifying their account statements to cover up her fraud.

According to the SEC’s complaint filed in U.S. District Court for the Western District of Virginia, Donna Jessee Tucker siphoned $730,289 from elderly customers and used the money to pay for such personal expenses as vacations, vehicles, clothes, and country club membership.  Tucker ensured that the customers received their monthly account statements electronically, knowing that they were unable or unwilling to access their statements in that format.  The SEC further alleges that Tucker engaged in unauthorized trading and other financial transactions while making misrepresentations to customers about their investment accounts and forging brokerage, banking, and other documents. 

The SEC’s investigation resulted from a broker-dealer examination of the firm where Tucker worked that was conducted by the SEC’s Philadelphia Regional Office.

“Tucker befriended her customers and gained their trust, only to be stealing their money behind their backs and giving them phony documents to hide it,” said Sharon Binger, director of the SEC’s Philadelphia office.

In a parallel action, the U.S. Attorney’s Office for the Western District of Virginia announced criminal charges against Tucker.

Tucker has agreed to settle the SEC’s charges and disgorge the $730,289 in ill-gotten gains either in the criminal case or the civil case.  She consented to the entry of an order permanently enjoining her from violating Section 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The settlement is subject to court approval.

The SEC’s investigation was conducted by Brendan P. McGlynn, Lisa M. Candera, and Daniel L. Koster of the Philadelphia Regional Office, with assistance from Christopher R. Kelly.  The examination that led to the investigation was conducted by James A. O’Leary, Calvin N. Inge, and William McIntyre under the supervision of Diane J. Hagy.

The SEC appreciates the assistance of the U.S. Attorney’s Office for the Western District of Virginia, Federal Bureau of Investigation, Secret Service, and Internal Revenue Service.

SCE ANNOUNCES FRAUD CHARGES AGAINST CEO OF RENEWABLE ENERGY PENNY STOCK COMPANY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

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

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

The SEC previously charged Plummer and a different penny stock company and CEO that similarly issued false press releases depicting a thriving business that in reality was struggling financially.

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

“It is vital that information disseminated by a company into the marketplace be corroborated and truthful,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office.  “Barbera caused MSGI to issue press releases baselessly touting nonexistent assets and phony business opportunities, which had the harmful effect of misleading investors.”

According to the SEC’s complaint filed in federal court in Manhattan, in addition to co-authoring misleading press releases with Plummer, Barbera himself made other material misstatements about MSGI’s operations.  For example, he described MSGI in press releases and on its website as an operational security company with customers all over the world, despite the fact that MSGI had long lacked the financial means to manufacture any security products on a commercial scale.  Barbera also falsely claimed in press releases that another sham entity operated by Plummer had purchased MSGI’s sizable outstanding debt, and he falsely touted nonexistent solar energy projects with an entity unrelated to Plummer.

The SEC’s complaint charges Barbera and MSGI with violating antifraud provisions of the federal securities laws.  The defendants have consented to the entry of final judgments permanently enjoining them from future violations of the antifraud provisions.  Barbera has agreed to pay a $100,000 penalty and be permanently barred from acting as an officer or director of a public company or from participating in a penny stock offering.  Barbera and MSGI neither admitted nor denied the charges.  The settlement is subject to court approval.

The SEC’s investigation has been conducted by Justin P. Smith and George N. Stepaniuk of the New York office and supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Connecticut and the Federal Bureau of Investigation.

SEC ANNOUNCES 2ND ROUND OF CHARGES FOR THOSE INVOLVED IN BOILER ROOM SHCEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

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

The SEC previously charged the operators of the scheme based in the South Florida and Los Angeles areas.  Seniors and other investors were pressured into purchasing stock in Thought Development Inc. (TDI), an unaffiliated Miami Beach-based company that stated its signature invention is a laser-line system that generates a green line on a football field for a first-down marker visible not only on television but also to players, officials, and fans in the stadium. 

The SEC today is additionally charging four executives who helped make the scheme possible and three companies they operate – DDBO Consulting, DBBG Consulting, and CalPacific Equity Group.  Approximately $1.7 million was raised through these companies from more than 110 investors who were told that an initial public offering (IPO) in TDI was imminent and that their money would be used to develop the groundbreaking technology.  Instead, the SEC alleges that the IPO was not forthcoming as promised, and at least 50 percent of the offering proceeds were merely retained by these companies or paid to sales agents through undisclosed commissions and fees.  Certain executives, their sales agents and their companies lured investors by misrepresenting that TDI’s technology was about to be used by the National Football League (NFL).  One investor even made an additional $75,000 investment on top of an initial $2,500 investment after being told that NFL Commissioner Roger Goodell purchased TDI’s technology for use in the 2013 Super Bowl.  In fact, there was no such arrangement.   

“These sales agents misled investors to believe that TDI was on the brink of having its technology used in football stadiums across the country,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.  “In reality, TDI had not reached any agreements with the NFL or any team to feature its technology during any games, and certainly not at the Super Bowl.”

The SEC’s complaints charge brothers Dean R. Baker of Coral Springs, Fla., and Daniel R. Baker of Valley Village, Calif., along with Bret A. Grove of Delray Beach, Fla., and Demosthenes Dritsas of Newhall, Calif. 

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

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

According to the SEC’s complaint filed in federal court in Los Angeles against Daniel Baker, Dritsas, and their firm CalPacific Equity Group, they similarly entered into agreements with Kirschner to act as sales agents to offer and sell TDI stock.  Daniel Baker told an investor that the proceeds would go “directly to the business” and no more than “ten cents on every dollar of investor money” would be used as a commission or other fee.  Dritsas told the same investor that he would not charge any commission for a trade – “not even a dime” – when in fact CalPacific received 50 percent of the investor’s proceeds as commissions or other fees. 

“The Bakers and others falsely claimed that an IPO was just around the corner for TDI, and they further enticed investors by saying there were extracting just minimal fees or commissions while more than half the money actually wound up in sales agents’ wallets,” said Glenn S. Gordon, associate director of the SEC’s Miami Regional Office.  “We will continue to bring actions against those who target seniors and other groups vulnerable to investment fraud.” 

The SEC’s complaints allege violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 as well as Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5. 

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

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

SEC ANNOUNCES FRAUD CHARGES AGAINST ALLEGED "RECIDIVIST" VIOLATORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission  announced fraud charges against four individuals and a microcap company for concealing from investors that two lawbreakers ran the company.

According to the SEC’s orders instituting administrative proceedings, the mission of Natural Blue Resources Inc. was to create, acquire, or otherwise invest in environmentally-friendly companies, including an initiative to locate, purify, and sell water recovered from underground aquifers in New Mexico and other areas with depleting water resources.  What investors didn’t know was that two individuals with prior law violations – James E. Cohen and Joseph Corazzi – secretly controlled the operational and management decisions of Natural Blue while calling themselves outside “consultants.”  This arrangement enabled them to be de facto officers of Natural Blue and personally profit from the company without disclosing their past brushes with the law to investors.  Cohen, who lives in Windermere, Fla., was previously incarcerated for financial fraud.  Corazzi, who resides in Albuquerque, N.M., was previously charged with violating federal securities laws and permanently barred from acting as an officer or director of a public company. 

“Cohen and Corazzi concealed their involvement through a so-called ‘consulting’ agreement, but their influence over the issuer spread much further,” said Andrew J. Ceresney, director of the SEC’s Enforcement Division.  “Investors in Natural Blue had a right to know who was running the company behind the scenes.”

The SEC has suspended trading in Natural Blue stock.  The other two individuals charged in the case are Toney Anaya and Erik Perry, who were former chief executive officers at Natural Blue.  The SEC’s orders find that they misled investors by failing to disclose that Cohen and Corazzi were running the company in spite of their criminal or disciplinary histories.

Anaya, who is a former New Mexico governor and attorney general, and Perry each agreed to settle the charges.  Anaya has cooperated extensively with the SEC’s investigation.

“Preventing past law violators from raising money in our markets is critical to preserving investor confidence,” said Paul Levenson, director of the SEC’s Boston Regional Office.  “Natural Blue and its officers attempted an end-run around the rules designed to prevent recidivists from getting their hands on the controls of public companies.”

According to the SEC’s orders, Cohen and Corazzi created Natural Blue so they and other entities they controlled could receive money and stock from the company and profit by hundreds of thousands of dollars.  While Natural Blue was ostensibly led by Anaya and subsequently Perry, management decisions made by Cohen and Corazzi resulted in no revenues or viable business operations for the company.  Anaya and Perry each deferred to Cohen and Corazzi in derogation of their responsibilities.  Natural Blue and Perry also made various material misrepresentations about the company, its contracts, and its anticipated revenue in a February 2011 press release as well as on a website and verbally to investors.

Anaya, who served as Natural Blue’s CEO from August 2009 to January 2011, has signed a cooperation agreement with the SEC in which he has consented to the entry of a cease-and-desist order without admitting or denying the charges.  He will be barred from participating in any offering of a penny stock for at least five years.  Any financial penalties will be determined at a later date.

Perry, who replaced Anaya and served as CEO until June 2011, agreed to settle the case by consenting to the entry of a cease-and-desist order without admitting or denying the charges.  Perry, who previously resided in Massachusetts and currently lives in Bulgaria, agreed to pay a $150,000 penalty and be permanently barred from serving as an officer or director of a public company and from participating in any offerings of penny stock. 

  

The SEC’s orders charge Natural Blue, Cohen, and Corazzi with violations of Section 17(a)(1) and (a)(3) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and 10b-5(c).  The orders also charge Natural Blue with violations of Section 17(a)(2) for misrepresentations made to investors in press releases and public filings, and violations of Section 15(d) of the Exchange Act and Rules 15d-1 and 15d-13 by failing to make required SEC filings.

The SEC’s investigation was conducted by Thomas Rappaport, Amy Gwiazda, Sofia Hussain, and Rua Kelly in the Boston Regional Office.  Rua Kelly and Mayeti Gametchu will handle the litigation.  The SEC appreciates the assistance of the Federal Bureau of Investigation.

SEC CHARGES PALM BEACH HEDGE FUND ADVISORY FIRM AND FOUNDER WITH FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged a West Palm Beach, Fla.-based hedge fund advisory firm and its founder with fraudulently shifting money from one investment to another without informing investors.  The firm’s founder and another individual later pocketed some of the transferred investor proceeds to enrich themselves.

The SEC alleges that Weston Capital Asset Management LLC and its founder and president Albert Hallac illegally drained more than $17 million from a hedge fund they managed and transferred the money to a consulting and investment firm known as Swartz IP Services Group Inc.  The transaction went against the hedge fund’s stated investment strategy and wasn’t disclosed to investors, who received account statements falsely portraying that their investment was performing as well or even better than before.  Weston Capital’s former general counsel Keith Wellner assisted the activities.

The SEC further alleges that out of the transferred investor proceeds, Hallac, Wellner, and Hallac’s son collectively received $750,000 in payments from Swartz IP.  Weston Capital and Hallac also wrongfully used $3.5 million to pay down a portion of a loan from another fund managed by the firm.

“Investment advisers owe their clients a fiduciary duty of utmost good faith and full disclosure about what they’re doing with their money,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.  “Weston and Hallac dishonored that duty with Wellner’s assistance by secretly steering investor proceeds to a third party and then pocketing some of those funds.”

Weston Capital, Hallac, and Wellner agreed to settle the SEC’s charges along with Hallac’s son Jeffrey Hallac, who is named as a relief defendant in the SEC’s complaint for the purposes of recovering ill-gotten gains in his possession.  The court will determine monetary sanctions for Weston Capital and Hallac at a later date.  Wellner and Jeffrey Hallac each agreed to pay $120,000 in disgorgement.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, Weston Capital managed more than a dozen unregistered hedge funds in early 2011 with combined total assets of approximately $230 million.  One of the funds managed by the firm was Wimbledon Fund SPC, which was segregated into five separate classes of investment portfolios.  The Class TT Segregated Portfolio was required to invest all of its investor money in a diversified multi-billion hedge fund called Tewksbury Investment Fund Ltd., that invested in short-term, low risk interest bearing accounts and U.S. Treasury Bills.

The SEC alleges that in violation of its stated investment strategy, Weston Capital and Hallac redeemed TT Portfolio’s entire investment in the Tewksbury hedge fund and transferred the money to Swartz IP.  The transaction was not disclosed to investors and Weston Capital and Hallac solicited and received investments for the TT Portfolio during this time while knowing the funds would not be invested in Tewksbury. As soon as Swartz IP received the money transfers, it disbursed the funds primarily to a special purpose entity created to support and finance varying medically related business ventures.

The SEC’s complaint alleges that Weston and Hallac violated federal anti-fraud laws and rules as well as Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8, and that Wellner aided and abetted these violations.  Without admitting or denying the allegations, Weston Capital, Hallac, and Wellner consented to the entry of a judgment enjoining them from future violations of these provisions.  

The SEC’s investigation was conducted by Julie M. Russo and Karaz S. Zaki under the supervision of Elisha L. Frank in the SEC’s Miami Regional Office and was assisted by Victor M. Pedroso III, Jean M. Cabot, and John C. Mattimore of the Miami office examination program.  The SEC’s litigation is being led by Russell Koonin.

ALZHEIMER PRODUCTS COMPANY AND PRESIDENT ORDERED TO PAY $1.9 MILLION

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Court Orders California Company and Its President to Pay Over $1.9 Million in Investment Scheme Involving Purported Alzheimer's Treatment

The Securities and Exchange Commission announced that on June 10, 2014, a California federal court entered final judgments against Your Best Memories International Inc., a promoter of a purported Alzheimer’s treatment, its president, Robert Hurd, and Smokey Canyon Financial Inc., another company controlled by Hurd.  Your Best Memories and Hurd, both of Los Angeles, California, were charged as defendants in a fraud action filed by the Commission in June 2013.  The Commission alleged that they claimed to be in the business of raising money from investors on behalf of a Massachusetts-based company that was in the business of developing products intended to improve memory function in individuals suffering from Alzheimer's disease and other conditions.  The Commission charged Your Best Memories and Hurd with misleading investors about how their funds would be used and making misleading statements that one of the products touted to investors had received approval from the U.S. Food and Drug Administration as a treatment for Alzheimer's disease.  Smokey Canyon Financial, based in Reno, Nevada, was charged by the Commission as a relief defendant because it received investor funds.

According to the Commission’s complaint, filed on June 20, 2013, Your Best Memories and Hurd falsely told investors that their funds would largely be used to finance the development and marketing of products intended to improve memory function in individuals suffering from Alzheimer’s disease, dementia or memory loss.  The Commission alleged that, unbeknownst to investors, a mere 17% of the funds raised were used for their intended purpose, while 37% of investor funds were funneled to Hurd or his company, Smokey Canyon Financial.  The Commission also alleged that Your Best Memories and Hurd made Ponzi payments to investors (using investors' principal to make payments purporting to be investment returns to other investors) and falsely stated that they had secured FDA approval to sell coconut oil as a treatment for Alzheimer’s disease, when, in fact, the FDA had never approved such a claim.  The complaint alleged that, in total, Your Best Memories raised approximately $1.2 million from more than 50 investors in an unregistered securities offering.

The final judgments, entered by default by the United States District Court for the Central District of  California, imposed permanent injunctions prohibiting Your Best Memories and Hurd from future violations of Sections 5(a) and (c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934.  Your Best Memories, Hurd, and Smokey Canyon Financial also were ordered to pay disgorgement of $963,000 and prejudgment interest of $34,170.  In addition, Your Best Memories and Hurd were ordered jointly and severally to pay a civil penalty of $963,000.

On March 14, 2014, the Court entered a partial final judgment, by consent, against the other Defendant in the action, Kenneth Gross, of Porter Ranch, California, who was charged with selling Your Best Memories stock without being registered as a broker-dealer as required by the federal securities laws.  The judgment permanently enjoined Gross from future violations of Sections 5(a) and (c) of the Securities Act and Section 15(a) of the Exchange Act, with disgorgement, prejudgment interest and civil penalties to be decided by the Court at a later date.   The Commission also instituted a settled follow-on administrative proceeding against Gross on March 6, 2014, permanently barring him from the securities industry.

CFTC CHARGES COUPLE AND COMPANY WITH MAKING ILLEGAL OFF-EXCHANGE COMMODITY TRANSACTIONS

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

CFTC Charges Florida Residents Cindy and Paul Vandivier and Their Company, Mintline, Inc., with Fraud in Connection with Illegal, Off-Exchange Commodity Transactions

Federal Court Issues Order Freezing Defendants’ Assets and Prohibiting Destruction of Books and Records

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained an emergency court Order on May 13, 2014, freezing and preserving the assets under the control of Cindy Vandivier, Paul Vandivier, and their company, Mintline, Inc. (collectively, the Defendants), all of Coconut Creek, Florida. The court’s Order, entered by Judge William J. Zloch of the U.S. District Court for the Southern District of Florida, also prohibits the Vandiviers and Mintline from destroying books and records and grants the CFTC immediate access to such documents. Neither Mintline nor Cindy Vandivier has ever been registered with the CFTC, and Paul Vandivier has no current registration status with the CFTC.

The Order stems from a CFTC enforcement action filed on May 12, 2014, charging the Vandiviers and Mintline with fraudulently soliciting customers and misappropriating customer funds in connection with illegal, off-exchange transactions in precious metals from July 2011 to at least April 2013.

Defendants Allegedly Misappropriated Virtually All of the Customers’ Funds

According to the CFTC Complaint, the Defendants purported to sell physical metals, on a leveraged, margined, or financed basis to retail customers located throughout the United States. The Complaint alleges that the Defendants, in fact, did not purchase, sell, transfer ownership of, deliver, or arrange for storage of any physical metals in connection with the financed metals transactions, but instead misappropriated virtually all of the customers’ funds, using a portion of those funds to pay for office and personal expenses.

The CFTC Complaint further alleges that the Defendants falsely represented to customers that their metals were being held in secured depositories, and fraudulently charged customers interest on purported loans to finance the purchase of the metals. In reality, the Complaint alleges that no physical metal was stored for Defendants’ customers and no loans were made to customers to purchase physical metal.

Sometime between January and April 2013, the Defendants ceased operations, leaving customers without their metals or a return of their funds, according to the Complaint.

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

CFTC Division of Enforcement staff members responsible for this case are Alan Edelman, Michelle Bougas, James H. Holl, III, and Rick Glaser.