TWO COMPANIES AND OWNERS ORDERDED BY CFTC TO PAY OVER $1MILLION IN RESTITUTION AND PENALTIES IN PRECIOUS METALS FRAUD CASE

FROM: COMMODITY FUTURES TRADING COMMISSION

CFTC Orders Florida Firms, Joseph Glenn Commodities LLC and JGCF LLC, and Owners Scott Newcom and Anthony Pulieri to Pay over $1 Million in Restitution and Penalties for Fraudulent Off-Exchange Transactions in Precious Metals with Retail Customers

Washington DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against two Boca Raton, Fla., companies, Joseph Glenn Commodities LLC (Joseph Glenn) and JGCF LLC (JGCF), and their sole owners and principals, Scott Newcom and Anthony Pulieri (the Respondents) for engaging in illegal, fraudulent off-exchange financed transactions in precious metals with retail customers.

The CFTC Order, filed on March 27, 2013, requires Joseph Glenn, JGCF, Newcom, and Pulieri to pay approximately $635,000 in restitution to customers for their losses and to return approximately $330,000 remaining in customers’ accounts. The Order requires Pulieri to pay a civil monetary penalty of $100,000. The Order also permanently prohibits the Respondents from registering with the CFTC and imposes a five-year trading ban on trading for others. In addition, the Order prohibits the Respondents from violating the Commodity Exchange Act, as charged, and requires them to comply with certain undertakings, including fully and expeditiously cooperating with the CFTC.

The Illegal and Fraudulent Transactions

The CFTC Order finds that from July 2011 through June 2012, the Respondents solicited retail customers, generally by telephone or through Joseph Glenn’s website, to buy physical precious metals such as gold, silver, copper, platinum, or palladium in what are known as off-exchange leverage transactions. According to the Order, the customers paid the Respondents a portion of the purchase price for the metals, and Joseph Glenn and JGCF purportedly financed the remainder of the purchase price, while charging the customers interest on the amount they purportedly loaned to customers.

The CFTC Order states that such financed off-exchange transactions with retail customers have been illegal since July 16, 2011, when certain amendments of the Dodd-Frank Wall Street and Consumer Protection Act of 2010 (Dodd-Frank Act) became effective. As explained in the Order, financed transactions in commodities with retail customers like those engaged in by the Respondents must be executed on, or subject to, the rules of an exchange approved by the CFTC. Since the Respondents’ transactions were done off-exchange with retail customers, they were illegal.

Furthermore, the CFTC Order states that when Joseph Glenn and JGCF engaged in these illegal transactions they were acting as dealers for a metals merchant called Hunter Wise Commodities, LLC (Hunter Wise), which the CFTC charged with fraud and other violations in federal court in Florida on December 5, 2012 (see CFTC Press Release 6447-12). Hunter Wise was purportedly Joseph Glenn’s and JGCF’s source for the metal and the loans. As alleged in the CFTC Complaint against Hunter Wise and according to the CFTC Order in this case, however, neither Joseph Glenn, JGCF, nor Hunter Wise purchased or held metal on the customers’ behalf, or disbursed any funds to finance the remaining balance of the purchase price. The Order finds that the Respondents’ customers thus never owned, possessed, or received title to the physical commodities that they believed they purchased.

The Order also finds that the Respondents defrauded their customers by misrepresenting the profitability of the financed off-exchange transactions and failing to disclose associated commissions, service, and interest fees.

CFTC staff responsible for this matter are Jon J. Kramer, Joy H. McCormack, Elizabeth M. Streit, Scott R. Williamson, Rosemary Hollinger, and Richard Wagner.

HOUSTON-BASED HEDGE FUND MANAGER ACCUSED OF DEFRAUDING INVESTORS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., March 22, 2013 — The Securities and Exchange Commission today announced charges against a Houston-based hedge fund manager and his firm accused of defrauding investors in two hedge funds and steering bloated fees to a brokerage firm CEO who also is charged in the SEC’s case.

An investigation by the SEC’s Enforcement Division found that George R. Jarkesy Jr., worked closely with Thomas Belesis to launch two hedge funds that raised $30 million from investors. Jarkesy and his firm John Thomas Capital Management (since renamed Patriot28 LLC) inflated valuations of the funds’ assets, causing the value of investors’ shares to be overstated and his management and incentive fees to be increased. Jarkesy, a frequent media commentator and radio talk show host, also lied to investors about the identity of the funds’ auditor and prime broker. Meanwhile, although they shared the same "John Thomas" brand name, Jarkesy’s firm and Belesis’ firm John Thomas Financial were portrayed as wholly independent. Jarkesy led investors to believe that as manager of the funds, he was solely responsible for all investment decisions. However, Belesis sometimes supplanted Jarkesy as the decision maker and directed some investments from the hedge funds into a company in which his firm was heavily invested. Belesis also bullied Jarkesy into showering excessive fees on John Thomas Financial even in instances where the firm had done virtually nothing to earn them.

"Jarkesy disregarded the basic standards to which all fund managers are held," said Andrew M. Calamari, Director of the SEC’s New York Regional Office. "Not only did he falsify valuations and deceive investors about the value of their holdings, but he bent over backwards to enrich Belesis at the funds’ expense. Belesis in turn exploited the supposed independence of the funds to surreptitiously pull the strings on key decisions."

According to the SEC’s order instituting administrative proceedings against Jarkesy, Belesis, and their firms, Jarkesy launched the two hedge funds in 2007 and 2009, and they were called John Thomas Bridge and Opportunity Fund LP I and John Thomas Bridge and Opportunity Fund LP II. The funds invested in three asset classes: bridge loans to start-up companies, equity investments principally in microcap companies, and life settlement policies. Jarkesy mispriced certain holdings to increase the net asset values of the funds, which were the basis for calculating the management and incentive fees that Jarkesy deducted from the funds for himself. Jarkesy also falsely claimed that prominent service providers such as KPMG and Deutsche Bank worked with the funds.

According to the SEC’s order, Jarkesy used fund assets to hire multiple stock promoters in 2010 and 2011 to create an artificial and unsustainable spike in the price of two microcap stocks in which the funds were heavily invested. As a result of these efforts, the funds recorded temporary gains in the value of the microcap stocks that Jarkesy used to mask the write-down of other more illiquid holdings of the funds.

According to the SEC’s order, Jarkesy violated his fiduciary duties to the funds in multiple instances by providing excessive compensation to Belesis and John Thomas Financial. This only incited further demands by Belesis. For example, in February 2009, Belesis angrily complained via e-mail that Jarkesy was not steering enough money to John Thomas Financial, and Jarkesy responded that "we will always try to get you as much as possible, Everytime [sic] without exception!" On another occasion, Jarkesy reassured Belesis that "[n]obody gets access to Tommy until they make us money!!!!!"

The SEC’s order charges that Jarkesy and John Thomas Capital Management violated and aided and abetted violations of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5, and violated Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act and Rule 206(4)-8. The SEC’s order further charges that Belesis and John Thomas Financial aided and abetted and caused Jarkesy’s and John Thomas Capital Management’s violations of Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8. The administrative proceedings will determine what, if any, remedial action is appropriate in the public interest against Jarkesy, John Thomas Capital Management, Belesis, and John Thomas Financial including disgorgement and financial penalties.

The SEC’s investigation was conducted by Igor Rozenblit, Kathy Murdocco, and Michael Osnato in the New York Regional Office. The SEC’s litigation will be led by Todd Brody. The SEC appreciates the assistance of the Financial Industry Regulatory Authority (FINRA).

TRIO ACCUSED OF USING INVESTOR MONEY IN ONE FUND TO BAIL OUT ANOTHER

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today charged three Bay Area real estate fund managers with fraud for secretly using the assets of a new real estate fund to rescue an older, rapidly collapsing fund.

The SEC alleges that Walter Ng, his son Kelly Ng, and Bruce Horwitz lured investors into their real estate fund called Mortgage Fund '08 LLC (MF08) by claiming it was safe and secure and would replicate the success of their earlier real estate fund, R.E. Loans LLC. In reality, R.E. Loans could no longer make payouts to its investors, so the Ngs funneled millions of dollars from MF08 to prop up R.E. Loans. The Ngs and Horwitz falsely touted both funds' performance in their effort to continue raising money. They raised more than $85 million during an 18-month period from investors primarily living in the San Francisco area.

According to the SEC's complaint filed in federal court in Oakland, the Ngs and Horwitz promoted the MF08 fund 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 alleges 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. For example, the percentage of the R.E. Loans portfolio that was either delinquent or in default increased from 19 percent in January 2008 to 48 percent in August 2008. The percentage of the MF08 portfolio that was delinquent increased from 16 percent in March 2008 to 74 percent in mid-June 2008.

The SEC alleges that 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. For example, both Walter Ng and Horwitz touted the funds' purportedly positive performance at a June 2008 investor dinner in Oakland's Chinatown. Additionally, Walter Ng and Kelly Ng in July 2008 characterized MF08 as a "fantastic success" even though more than 70 percent of its loan portfolio was delinquent by that time.

The SEC's complaint charges Walter Ng and Kelly Ng with violating Section 17(a) of the Securities Act of 1933 ("Securities Act), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Sections 206(1) and (2) of the Investment Advisers Act of 1940 ("Advisers Act"); Bruce Horwitz with violating Section 17(a)(2) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder; and The Mortgage Fund with violating Sections 206(1) and (2) of the Advisers Act. The Complaint seeks injunctive relief, disgorgement of wrongful profits, and financial penalties against all four defendants.

CFTC SEEKS ORDER FREEZING ASSETS AND RESTITUTION OF CUSTOMER FUNDS IN COMPLAINT AGAINST PEREGRINE FINANCIAL GROUP, INC.

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION
CFTC Files Complaint Against Peregrine Financial Group, Inc. and Russell R. Wasendorf, Sr. Alleging Fraud, Misappropriation of Customer Funds, Violation of Customer Fund Segregation Laws, and Making False Statements
Commission Seeks an Order Freezing Assets and Restitution of Customer Funds.
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today that it filed a complaint in the United States District Court for the Northern District of Illinois against Peregrine Financial Group Inc. (PFG), a registered futures commission merchant, and its owner, Russell R. Wasendorf, Sr.(Wasendorf).  The Complaint alleges that PFG and Wasendorf committed fraud by misappropriating customer funds, violated customer fund segregation laws, and made false statements in financial statements filed with the Commission.

The National Futures Association (NFA) is PFG’s Designated Self-Regulatory Organization and is responsible for monitoring and auditing PFG for compliance with the minimum financial and related reporting requirements. According to the Complaint, in July 2012 during an NFA audit, PFG falsely represented that it held in excess of $220 million of customer funds when in fact it held approximately $5.1 million.
The Commission’s action alleges that from at least February 2010 through the present, PFG and Wasendorf failed to maintain adequate customer funds in segregated accounts as required by the Commodity Exchange Act and CFTC Regulations.  The Complaint further alleges that defendants made false statements in filings required by the Commission regarding funds held in segregation for customers trading on U.S. Exchanges.
According to the Complaint, Wasendorf attempted to commit suicide yesterday, July 9, 2012.  In the aftermath of that incident, the staff of the NFA received information that Wasendorf may have falsified certain bank records.

In the litigation, the CFTC seeks a restraining order to freeze assets, appoint a receiver and preserve records.  Further, the litigation seeks restitution, disgorgement, and civil monetary penalties among other appropriate relief.

The following CFTC Division of Enforcement staff members are responsible for this case: William Janulis, Jon Kramer, Thaddeus Glotfelty, Melissa Glasbrenner, Rosemary Hollinger, Scott Williamson, Richard Wagner.

INVESTMENT ADVISER BUSINESS AND OWNER ACCUSED OF TAKING CLIENTS FUNDS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
June 11, 2012
SEC Charges Atlanta Investment Advisor and its Owner for Misappropriating Client Funds
On Saturday, June 9, 2012, The Securities and Exchange Commission filed a civil action in the United States District Court for the Northern District of Georgia against Benjamin Daniel DeHaan and Lighthouse Financial Partners, LLC. Lighthouse, an investment advisor located in Atlanta and registered with the State of Georgia, has been owned and operated by DeHaan since 2007.

The Commission’s complaint alleges that from approximately January 2011 through early May 2012, DeHaan moved approximately $1.2 million in funds belonging to his clients from their accounts at a custodial broker-dealer into a bank account in Lighthouse’s name that he controlled, thus gaining custody and control of these client assets. DeHaan and Lighthouse told the clients that these funds would be used to open new accounts at another broker-dealer. Once in this account, at least some of these funds were moved to a personal account belong to DeHaan and to accounts used by Lighthouse for business expenses. At least $600,000 in client funds remains unaccounted for. DeHaan is also alleged to have provided false documents to the Commission’s staff and to an examiner for the State of Georgia.

Without admitting or denying the allegations in the Commission’s complaint, DeHaan and Lighthouse have offered to consent to interim relief in the form of an order providing for a preliminary injunction against violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, allowing for expedited discovery, freezing their assets, preventing the destruction or concealment of documents and requiring an accounting. The Commission may seek additional relief, such as a permanent injunction, disgorgement of any ill-gotten gains with prejudgment interest and civil penalties, at a later time.
The Commission acknowledges the assistance and cooperation of the Securities Division of the Georgia Secretary of State’s Office in investigating this matter.

SEC FILES CHARGES AGAINST FORMER ATTORNEY FOR MUTUAL BENEFITS

FROM:  U.S SECURITIES AND EXCHANGE COMMISSION  
April 30, 2012
The Securities and Exchange Commission announced today that it filed a complaint against Defendant Michael J. McNerney, charging him with violations of the federal securities laws arising from his involvement in Mutual Benefits Corp.’s (“MBC”) offering fraud which raised more than $1 billion from approximately 29,000 investors. From 1995 through at least May 2004, McNerney served as primary securities regulatory counsel for MBC. The complaint alleges thatin this role, he helped conceal the fraud, met with investors, and supervised the filing of false reports with state regulators. The Commission’s complaint charges McNerney with aiding and abetting MBC’s violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. The Commission seeks permanent injunctive relief against McNerney, who has consented to the entry of Final Judgment providing for full injunctive relief.

In addition to the civil action against McNerney, the Commission simultaneously issued an Order pursuant to Rule 102(e)(2) of the Commission’s Rules of Practice forthwith suspending McNerney from appearing or practicing before the Commission based on the entries of a felony conviction against him. On August 26, 2011, the Honorable Adalberto Jordan, United States District Judge for the Southern District of Florida, sentenced McNerney to 5 years in prison, followed by three years of supervised release, and ordered him to pay restitution, along with his co-conspirators, in the amount of $826,839,642.

On May 3, 2004, the Commission first halted the on-going fraud at MBC when it filed a contested emergency civil enforcement action against MBC and its principals. In its complaint, the Commission alleged that the defendants raised over $1 billion from thousands of investors through a fraudulent, unregistered offering of securities in the form of fractionalized interests in viatical and life settlements. The Commission obtained a restraining order to halt the alleged fraud at MBC, and thereafter the United States District Court for the Southern District of Florida appointed a receiver to identify and trace the assets of MBC.

The Commission’s actions regarding MBC have resulted in nine injunctions and other relief against nine defendants and eight relief defendants, and orders to pay disgorgement and civil penalties totaling $30 million. In addition, the United States Attorney’s Office for the Southern District of Florida has charged 12 defendants in criminal actions for their roles in the fraud.

The SEC acknowledges the work of the United States Attorney’s Office for the Southern District of Florida, the Federal Bureau of Investigation, Miami Field Office, and the Internal Revenue Service, Criminal Investigation Division in this matter.

SEC CHARGES FORMER CALPERS CEO AND FRIEND WITH FALSIFYING LETTERS IN $20 MILLION PLACEMENT AGENT FEE SCHEME

FROM: U.S.  SECURITIES AND EXCHANGE COMMISSION

April 23, 2011

The Securities and Exchange Commission today charged the former CEO of the California Public Employees’ Retirement System (CalPERS) and his close personal friend with scheming to defraud an investment firm into paying $20 million in fees to the friend’s placement agent firms.

The SEC alleges that former CalPERS CEO Federico R. Buenrostro and his friend Alfred J.R. Villalobos fabricated documents given to New York-based private equity firm Apollo Global Management. Those documents gave Apollo the false impression that CalPERS had reviewed and signed placement agent fee disclosure letters in accordance with its established procedures. In fact, Buenrostro and Villalobos intentionally bypassed those procedures to induce Apollo to pay placement agent fees to Villalobos’s firms. The false letters bearing a fake CalPERS logo and Buenrostro’s signature were provided to Apollo, which then went ahead with the payments.

“Buenrostro and Villalobos not only tricked Apollo into paying more than $20 million in placement agent fees it would not otherwise have paid, but also undermined procedures designed to ensure that investors like CalPERS have full disclosure of such fees,” said John M. McCoy III, Associate Regional Director of the SEC’s Los Angeles Regional Office.

According to the SEC’s complaint, Apollo began requiring signed investor disclosure letters in 2007 from investors such as CalPERS before it would pay fees to a placement agent that assisted in raising funds. Villalobos’s firm ARVCO Capital Research LLC (which later became ARVCO Financial Ventures LLC) agreed to this contractual provision in a placement agent agreement with Apollo related to CalPERS’s investment in Apollo Fund VII. However, when ARVCO requested an investor disclosure letter from CalPERS’s Investment Office to provide Apollo, it was informed that CalPERS’s Legal Office had advised it not to sign a disclosure letter. ARVCO never again contacted CalPERS’s Investment Office for an investor disclosure letter.

The SEC alleges that in January 2008, Villalobos instead fabricated a letter using a phony CalPERS logo. At Villalobos’s request, Buenrostro then signed what appeared to be a CalPERS disclosure letter. Upon receipt of the fake disclosure letter for Apollo Fund VII, Apollo paid ARVCO about $3.5 million in placement agent fees.

The SEC’s complaint further alleges that less than two weeks later, Villalobos and Buenrostro created false CalPERS disclosure letters for at least four more Apollo funds under similarly suspicious circumstances. As part of the scheme, Buenrostro signed blank sheets of fake CalPERS letterhead that Villalobos and ARVCO then used to generate additional investor disclosure letters as they needed them. Based on these false documents, Apollo was induced to pay ARVCO more than $20 million in placement agent fees it would not have paid without the disclosure letters.

The SEC seeks an order requiring Buenrostro, Villalobos, and ARVCO to disgorge any ill-gotten gains, pay financial penalties, and be permanently enjoined from violating the antifraud provisions of the federal securities laws.

As alleged in the SEC’s complaint, the defendants violated Section 17(a)(1) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and 10b-5(c) thereunder.

FATHER AND SON HEDGE FUND MANAGERS CHARGED WITH FRAUD

FROM:  SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., April 20, 2012 – The Securities and Exchange Commission today charged a Boston-based father-son duo of hedge fund managers and their firms with securities fraud for misleading investors about their investment strategy and past performance.

The SEC’s investigation found that Gabriel and Marco Bitran raised millions of dollars for their hedge funds through GMB Capital Management LLC and GMB Capital Partners LLC by falsely telling investors they had a lengthy track record of success based on actual trades using real money. In truth, the Bitrans knew the track record was based on back-tested hypothetical simulations. The Bitrans also misled investors in certain hedge funds to believe they used quantitative optimal pricing models devised by Gabriel Bitran to invest in exchange-traded funds (ETFs) and other liquid securities. Instead, they merely invested the money almost entirely in other hedge funds. GMB Capital Management later provided false documents to SEC staff examining the firm’s claims in marketing materials of a successful track record.

The Bitrans agreed to be barred from the securities industry and pay a total of $4.8 million to settle the SEC’s charges.

“The Bitrans solicited investors by touting an impressive track record and a unique investment strategy, and they lied about both,” said David P. Bergers, Director of the SEC’s Boston Regional Office.

According to the SEC’s order instituting settled administrative proceedings, Gabriel Bitran founded GMB Capital Management in 2005 for the stated purpose of managing hedge funds using quantitative models he developed based on his academic optimal pricing research to trade primarily ETFs. He and his son Marco Bitran solicited potential investors with three primary selling points:
Very successful performance track records based on actual trades using real money from 1998 to the inception of the hedge funds.

The firm’s use of Gabriel Bitran’s proprietary optimal pricing model to trade ETFs.
Gabriel Bitran’s involvement as founder and portfolio manager of the funds.
The SEC’s order states that over a period of three years, the Bitrans raised more than $500 million for eight hedge funds and various managed accounts while making these misrepresentations to investors. In order to market the hedge funds, GMB Management and the Bitrans created performance track records beginning in January 1998 showing double-digit annualized return without any down years. They distributed these track records to potential investors in marketing materials, and told investors that they were based on actual trading with real money using Gabriel Bitran’s optimal pricing models. In reality, the Bitrans knew their representations were false and the track records were based on hypothetical historical investments. For two of their hedge funds, they created track records showing annualized returns of 16.2 percent and 11.7 percent with no down years, and told investors the returns were based on actual trading when in fact they were based on hypothetical historical allocations to hedge fund managers.

According to the SEC’s order, investors were misled to believe their money was being invested according to Gabriel Bitran’s unique quant strategy when in reality certain GMB hedge funds were merely investing predominantly in other hedge funds without his involvement. For example, investors in two GMB hedge funds were told that Gabriel Bitran spent 80 percent of his time managing the funds and was involved in reviewing trades in the funds on a daily basis. However, he actually had no role in the management of either fund. Both funds experienced a series of losses at the end of 2008, and GMB eventually dissolved them. When a possible financial fraud at the Petters Group Worldwide was reported in late September 2008, the two hedge funds’ investments in a fund that was entirely invested in the Petters Group became illiquid. However, GMB did not disclose to investors that it had been impacted by the Petters fraud, instead sending investors a letter stating that “a swap instrument that the Fund entered into seeking to realize a higher return on a portion of its uninvested cash” had become illiquid because “one of the parties underlying the swap instrument is currently experiencing a credit and liquidity crisis, in conjunction with other alleged factors.” Furthermore, the two GMB funds suffered significant losses in hedge funds that had invested with Bernard Madoff. These investments in funds that ultimately invested with the Petters Group and Madoff were made contrary to what GMB investors were told.

According to the SEC’s order, during an SEC examination of GMB Capital Management, the firm produced a document that the Bitrans claimed was a real-time record of Gabriel Bitran’s trades since 1998. In fact, the document was false and created solely for the purpose of responding to the SEC staff’s request for the books and records that supported GMB’s performance claims.

The GMB entities and the Bitrans neither admitted nor denied the SEC’s findings in settling the charges. They agreed to pay disgorgement of $4.3 million. Gabriel and Marco Bitran also agreed to pay $250,000 each in penalties and be barred from the securities industry, and the GMB entities will be censured. The SEC’s order requires the Bitrans and the GMB entities to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 204, 206(1), 206(2) and 206(4) of the Advisers Act and Rules 204-2(a)(16) and 206(4)-8 thereunder.

The SEC’s investigation was conducted by Kerry Dakin, Kevin Kelcourse, and Kathleen Shields of the Boston Regional Office. Paul Prata, Elizabeth Ward, and Milton Pepin of the Boston Regional Office worked on the SEC’s examination. Stuart Jackson of the SEC’s Division of Risk, Strategy, and Financial Innovation assisted in the investigation.

ALLEGEDLY, GOLD COIN DEALER INVESTED MONEY AT A CASINO

The following excerpt is from the Securities and Exchange Commission website:
March 26, 2012
SEC Charges Operator of Gold Coin Firm with Conducting Fraudulent Securities Offering
The Securities and Exchange Commission today announced that it filed a civil injunctive action against David L. Marion of Minneapolis, Minnesota and his company, International Rarities Holdings, Inc. (“IR Holdings”), accusing them of conducting a fraudulent, unregistered offer and sale of approximately $1 million in securities.

The SEC’s complaint, filed in U.S. District Court in Minneapolis, alleges that from at least November 2008 through July 2009, Marion and IR Holdings raised approximately $1 million from at least 26 investors through the offer and sale of IR Holdings securities. According to the complaint, Marion represented to investors that they were purchasing shares of IR Holdings, which he said was the parent company and 100% owner of International Rarities Corporation (“IR Corp.”). The complaint alleges that IR Corp. is a privately held Minneapolis based gold coin and bullion sales and trading firm that Marion also owned and operated. The complaint further alleges that Marion told investors that their investments were to be used to expand IR Holdings’ business and eventually take it public. According to the complaint, Marion’s representations were false because IR Holdings never owned IR Corp. and thus Marion sold investors shares of a worthless shell company. In addition, the complaint alleges that Marion did not use the investors’ funds to expand IR Holdings’ business and instead diverted the majority of the funds for his own personal use, including for casino gambling.

The SEC’s complaint charges Marion and IR Holdings with violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking a permanent injunction and disgorgement of ill-gotten gains with prejudgment interest, jointly and severally, against Marion and IR Holdings and a civil penalty against Marion.

SEC CHARGES INVESTMENT ADVISER WITH USING INVESTOR MONEY TO BUY LONG ISLAND BEACH PROPERTY

The following excerpt is from the SEC website:

SEC Obtains Asset Freeze Against Long Island Investment Adviser Charged with Defrauding Investors
“Washington, D.C., March 6, 2012 – The Securities and Exchange Commission today announced it has charged a New York-based investment adviser with defrauding investors in five offshore funds and using some of their money to buy himself a multi-million dollar beach resort property on Long Island.

The SEC alleges that Brian Raymond Callahan of Old Westbury, N.Y., raised more than $74 million from at least two dozen investors since 2005, promising them their money would be invested in liquid assets. Instead, Callahan diverted investor money to his brother-in-law’s beach resort project that was facing foreclosure, and in return received unsecured, illiquid promissory notes. Callahan also used investor funds to pay other investors and make a down payment on the $3.35 million unit he purchased at his brother-in-law’s real estate project.

According to the SEC’s complaint filed yesterday in federal court in Islip, N.Y., Callahan operated the five funds through his investment advisory firms Horizon Global Advisors Ltd. and Horizon Global Advisors LLC. He used the promissory notes to hide his misuse of investor funds. The promissory notes overstated the amount of money diverted to the real estate project. For instance, in 2011, Callahan received $14.5 million in promissory notes in exchange for only $3.3 million he provided to his brother-in-law. The inflated promissory notes allowed Callahan to overstate the amount of assets he was managing and inflate his management fees by 800 percent or more.

“Callahan misled investors in his funds with false promises, and he enriched himself at their expense when he diverted fund assets for his personal use and pocketed inflated management fees,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement.

According to the SEC’s complaint, Callahan refused to testify in the SEC’s investigation and recently informed investors about the investigation, but gave false assurances that no laws had been broken. Callahan also misled investors by not disclosing that in 2009, the Financial Regulatory Industry Authority barred him from associating with any FINRA member.

The SEC charges Callahan and his advisory firms with violating federal antifraud laws, specifically Sections 17(a)(1), (2) and (3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a), (b) and (c) thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The SEC is seeking preliminary and permanent injunctions against Callahan and his firms, return of ill-gotten gains with interest, and financial penalties.
At the SEC’s request, and after a court hearing yesterday, the court granted a temporary restraining order freezing the assets of Callahan and his advisory firms, enjoining them from violating the antifraud provisions, and granting other emergency relief.

The SEC’s investigation has been conducted by Holly Pal, Linda French, Osman Handoo, Ann Rosenfield, Natalie Lentz and Lisa Deitch of the SEC’s Division of Enforcement. The SEC’s litigation is being led by Dean Conway.

The Commission acknowledges the assistance of the British Virgin Islands Financial Services Commission and the Bermuda Monetary Authority.”

SEC REMARKS ON CHARGES BROUGHT AGAINST CREDIT SUISSE EXECUTIVES

REMARKS BY ROBERT KHUZAMI,  DIRECTOR OF THE SEC DIVISION OF ENFORCEMENT

The following excerpt is from the U.S. Securities and Exchange Commission website:

February 1, 2012
“For the past three years, the SEC has been aggressively pursuing fraudulent conduct related to the financial crisis. We have brought actions against more than 90 individuals and entities, with more than half of them senior officers such as CEOs and CFOs.

Today, we add four more people to the list of individuals that the SEC has charged for conduct stemming from the financial crisis including the former Global Head of Structured Credit Trading for Credit Suisse, Kareem Serageldin.

Serageldin was a high-ranking member of Credit Suisse’s investment bank. He played a critical role in overseeing the bank’s activities in the structuring, marketing and selling of mortgage-backed securities.

And, in the end, he took advantage of his privileged position within the bank to consistently record fictitious profits on his books, or to cover up losses between the fall of 2007 and early 2008.

The Commission’s case today alleges that these defendants – all highly experienced, well-seasoned investment bankers and traders – corrupted the process of recording the fair value of billions of dollars of predominantly residential mortgage-backed securities owned by Credit Suisse.

Known as RMBS, these securities are created by pooling together large groups of mortgages, which can then be marketed and sold to investors or kept in a firm’s trading books.

While these products were complex, the rules were quite simple: tell the truth about the fair value of the securities that you have on your books, a rule that holds true in good markets and in bad.

Indeed, when banks report to the public about their financial health, investors – and the law – demand that the information is accurate.
In this case, defendants spent countless hours manipulating the prices of these RMBS securities to avoid having to disclose a significant decline in value, while trying to avoid marking the bonds in such a way that their scheme would be detected by the bank.

The Complaint reads like a “Greatest Hits” list of mismarking “how-tos.” For example, the defendants:
Used profit and loss targets to reverse engineer the marks on the bonds, rather than basing those marks on the true market price.

Manually overrode the proper marks when they showed more losses than the defendants wanted to take.
Used a friendly broker-dealer to conceal the fraud by sending that friendly broker-dealer a spreadsheet with Credit Suisse’s marks, and rather than testing those marks, the friendly broker-dealer in effect “laundered” those marks by returning them back to Credit Suisse untested – what was, in effect, a “round trip.”
As a result of defendants’ misconduct, Credit Suisse provided investors with information that painted a rosy and ultimately false picture of the fair value of its subprime exposure at a time when other major banks, one after another, had announced significant losses on their subprime exposure.

The evidence, as laid out in our complaint, is based on e-mails and recorded phone conversations, which show these defendants engaged in multiple acts of deception – acts that sought to obscure the devastating decline in the fair value of billions of dollars of subprime mortgage-backed securities they controlled.

Because Credit Suisse taped the phone lines of some of its trading personnel, our complaint is built around real words uttered by real people in the midst of a fraud.
What’s more, these defendants were incredibly knowledgeable about the markets and financial instruments that they repeatedly mispriced.
Yet, at every turn, they disregarded objective market data so that they could, in Serageldin’s own words, send a “message” to the senior-most management of Credit Suisse that they were generating profits.
I want to add that three of the defendants we have charged cooperated in the government’s investigation.

Before I turn it over to Preet Bharara, I want to thank Preet and Janice Fedarcyk, Assistant Director-in-Charge of the FBI’s New York office, and their teams from the U.S. Attorney’s Office and the FBI – in particular Assistant U.S. Attorney Eugene Ingoglia and Virginia Chavez Romano as well as Special Agent Thomas McGuire. Like always, their work was extraordinary and professional.

Lastly, I want to recognize the dedication of the SEC staff that conducted this investigation. Those individuals – who reviewed millions of pages of documents, highly technical trading spreadsheets, and hundreds of hours of recorded calls – are:
Michael Osnato
Michael Paley
Kenneth Gottlieb
Howard Fischer
Kristine Zaleskas
Michael Fioribello”

SEC ALLEGES THREE FORMER "WELLCARE" EXECS IMPROPERLY RETAINED $40 MILLION

The following excerpt is from the SEC website:

“On January 9, 2012, the Securities and Exchange Commission (“Commission”) filed a civil injunctive action against three former executives of WellCare Health Plans, Inc. (“WellCare”), a managed care services company that administers federal government-sponsored health care programs. According to the Commission’s complaint, from 2003 to 2007, Todd Farha, former Chief Executive Officer, Paul Behrens, former Chief Financial Officer, and Thaddeus Bereday, former General Counsel, (collectively, “the Defendants”), devised and carried out a fraudulent scheme that deceived the Florida Agency for Health Care Administration (“AHCA”) and the Florida Healthy Kids Corporation (“Healthy Kids”) by improperly retaining over $40 million in health care premiums the company was statutorily and contractually obligated to spend on certain health care services or reimburse to the state agencies. As a result of the scheme, WellCare recorded the retained amount as revenue, which materially inflated its net income and diluted earnings per share (“EPS”) in its public financial statements.

As alleged in the complaint, WellCare received premiums from AHCA and Healthy Kids that WellCare was required, by contract and by statute, to spend on certain eligible health care services for low-income plan participants. If WellCare spent less than a certain percentage of the premiums on eligible health care services, it was required to refund some or all of the difference to the State of Florida. According to the complaint, the Defendants devised a scheme to evade the state’s regulatory framework and fraudulently retain the premiums by, among other methods, funneling the premiums through an internal subsidiary and by applying administrative and other non-allowable expenses in their calculation of money spent on health care services. In total, through their fraudulent conduct, the complaint alleges that WellCare reduced the refunds it paid to AHCA by approximately $35 million and to Healthy Kids by approximately $6 million.

The excess premiums retained by the Defendants went straight to WellCare’s bottom line. WellCare materially misstated its net income and EPS in filings with the Commission and in quarterly and annual earnings releases from 2004-2006 and the first two quarters of 2007. On January 26, 2009, WellCare filed its Form 10-K for 2007 and restated its financial results for those time periods. The Restatement reduced WellCare’s reported net income and EPS by approximately 14% for fiscal year (“FY”) 2004, 9% for FY 2005, 13% for FY 2006, and 9% for the first quarter of FY 2007.

The Commission’s complaint also alleges that, after setting their fraudulent scheme in motion, the Defendants sold approximately 1.6 million WellCare shares into the public market for gross proceeds of approximately $91 million. The Commission alleges that the Defendants sold these shares on the basis of the material, nonpublic information that they were conducting a fraudulent scheme that impacted WellCare’s financial results, caused false and misleading statements, and imperiled the Company’s business relationship with the State of Florida. According to the complaint, the Defendants sold the shares pursuant to 10b5-1 trading plans that were created and amended in bad faith, and through three public stock offerings conducted while the scheme was ongoing.

Based on the conduct alleged in the complaint, the Commission charges that each of the Defendants violated antifraud provisions Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Exchange Act Rule 10b-5, and also violated Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1. All of the Defendants are also charged with aiding and abetting WellCare’s violations of reporting, books and records, and internal controls provisions, namely, Sections (13)(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11 and 13a-13. Bereday is charged with aiding and abetting Farha’s and Behrens’ violations of antifraud provisions Section 10(b) and Rule 10b-5(b) of the Exchange Act. Finally, Farha and Behrens are charged with violating Exchange Act Rules 13b2-2 and 13a-14, and Section 304(a) of Sarbanes-Oxley, which requires that the CEO or CFO of a company that restates its financial results to reimburse the company any incentive-based or equity-based compensation received and any profits realized from the sale of the company’s stock during the 12-month period following initial issuance of the misleading financial statements.

As to each Defendant, the Commission is seeking a judgment permanently enjoining them from violating the provisions of the securities laws specified above, civil penalties, disgorgement of ill-gotten gains with prejudgment interest, and officer and director bars. As to Farha and Behrens, the Commission seeks reimbursement of incentive-based and equity-based compensation pursuant to Section 304(a) of Sarbanes-Oxley.

In conducting its investigation, the Commission acknowledges assistance from the U.S. Attorney’s Office for the Middle District of Florida, the Office of Inspector General for the Department of Health and Human Services and the Federal Bureau of Investigation.”

COURT REFUSES APPROVAL OF SEC SETTLEMENT WITH CITIGROU

The following excerpt is from the SEC website: November 28, 2011 Public Statement by SEC Staff: by Robert Khuzami Director, Division of Enforcement U.S. Securities and Exchange Commission Washington, D.C. “While we respect the court's ruling, we believe that the proposed $285 million settlement was fair, adequate, reasonable, in the public interest, and reasonably reflects the scope of relief that would be obtained after a successful trial. The court's criticism that the settlement does not require an 'admission' to wrongful conduct disregards the fact that obtaining disgorgement, monetary penalties, and mandatory business reforms may significantly outweigh the absence of an admission when that relief is obtained promptly and without the risks, delay, and resources required at trial. It also ignores decades of established practice throughout federal agencies and decisions of the federal courts. Refusing an otherwise advantageous settlement solely because of the absence of an admission also would divert resources away from the investigation of other frauds and the recovery of losses suffered by other investors not before the court. The settlement provisions cited by the court have been included in settlements repeatedly approved for good reason by federal courts across the country — including district courts in New York in cases involving similar misconduct. We also believe that the complaint fully and accurately sets forth the facts that support our claims in this case as well as the basis for the proposed settlement. These are not 'mere' allegations, but the reasoned conclusions of the federal agency responsible for the enforcement of the securities laws after a thorough and careful investigation of the facts. Finally, although the court questions the amount of relief obtained, it overlooks the fact that securities law generally limits the disgorgement amount the SEC can recover to Citigroup's ill-gotten gains, plus a penalty in an amount up to a defendant's gain. It was for this reason that we sought to recover close to $300 million — all of which we intended to deliver to harmed investors. The SEC does not currently have statutory authority to recover investor losses. We will continue to review the court's ruling and take those steps that best serve the interests of investors.”

MAN AND HIS INVESTMENT FIRM ACCUSED OF FRAUD BY SEC

The following excerpt is from the SEC website: "On October 18, 2011, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the District of Minnesota against David B. Welliver and his investment advisory firm, Dblaine Capital, LLC, for fraud and numerous other violations of the federal securities laws in connection with the offer, sale, and management of a mutual fund, the Dblaine Fund. The SEC’s complaint alleges that Welliver and Dblaine Capital obtained $4 million in loans pursuant to an improper, undisclosed quid pro quo agreement entered into in breach of their fiduciary duties to the Dblaine Fund. Specifically, in exchange for the loans, Welliver and Dblaine Capital committed to invest the fund’s assets in certain “alternative investment” securities recommended by the lender. Welliver and Dblaine Capital then caused the fund to violate various investment restrictions and policies by investing the fund’s assets in a private placement offering that was affiliated with the lender. The complaint also alleges that Welliver and Dblaine further defrauded the Fund by providing an inaccurate valuation for the private placement holding. As a result, Welliver and Dblaine Capital caused the fund to offer, sell, and redeem shares at an inflated net asset value. When Welliver and Dblaine Capital ultimately discovered that the private placement was worthless, they continued their fraud by failing to disclose this to the Fund’s shareholders. The complaint also alleges that, in connection with the fraudulent conduct described above, Welliver and Dblaine Capital made false and misleading statements in various reports and filings with the Commission; engaged in certain prohibited affiliated transactions; and aided and abetted the fund’s violations of various provisions of the Investment Company Act of 1940. The SEC complaint alleges that, as a result of their misconduct, Welliver and Dblaine Capital violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 206 of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, Sections 17(a)(2), 17(e)(1), 22(e), and 34(b) of the Investment Company Act of 1940, and Rules 22c-1 and 38a-1 thereunder. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains, including prejudgment interest, and civil penalties."