SEC CHARGES ATTORNEY WITH INSIDER TRADING IN ADVANCE OF MERGER ANNOUNCEMENT

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

07/16/2015 02:10 PM EDT

The Securities and Exchange Commission charged a Pennsylvania attorney with insider trading in the stock of Harleysville Group, Inc. in advance of the 2011 announcement of a $760 million merger of Harleysville and Nationwide Mutual Insurance Company.

According to the SEC’s complaint, Herbert K. Sudfeld illegally traded on the news that sent Harleysville’s stock price up 87 percent when the merger of the two insurance companies was announced in September 2011.  At the time, Sudfeld was a real estate partner at a law firm that advised Harleysville on the merger.  Sudfeld was not involved in the merger and learned that the announcement of it was imminent from a conversation between an attorney working on the transaction and their shared legal assistant.  Sudfeld allegedly stole the inside information and purchased Harleysville stock in his and his wife’s accounts.  Once the merger was announced, Sudfeld sold all the shares he had purchased, realizing approximately $79,000 of illegal profits.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of Pennsylvania today announced criminal charges against Sudfeld.

“We allege that Sudfeld breached his duties of trust and confidence owed to his law firm when he misappropriated information about the merger to enrich himself,” said Daniel M. Hawke, Chief of the Division of Enforcement’s Market Abuse Unit.  “The Commission will continue to aggressively pursue attorneys and other professionals who abuse their access to confidential information.”

The SEC’s complaint filed in federal court in Philadelphia names Sudfeld’s wife, Mary Jo Sudfeld, as a relief defendant for the purpose of recovering insider trading profits in her brokerage account through trades conducted by Sudfeld.  The complaint charges Sudfeld with violating antifraud provisions of the federal securities laws and an SEC antifraud rule.  The SEC seeks a permanent injunction and financial penalties against Sudfeld and return of allegedly ill-gotten gains and prejudgment interest from Sudfeld and Mary Jo Sudfeld.

The SEC’s investigation has been conducted by Kelly L. Gibson, Assunta Vivolo and John Rymas of the SEC’s Market Abuse Unit in the Philadelphia Regional Office.  The case is being supervised by Mr. Hawke and G. Jeffrey Boujoukos.  The litigation will be led by David A. Axelrod and John V. Donnelly of the Philadelphia Office.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of Pennsylvania and the Federal Bureau of Investigation.

SEC ANNOUNCES DEFAULT JUDGEMENT AGAINST LAWYER FOR FORGING ATTORNEY OPINION LETTERS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23217 / March 11, 2015

Securities and Exchange Commission v. Guy M. Jean-Pierre, a/k/a Marcelo Dominguez de Guerra, Civil Action No. 12-cv-8886

Default Judgment Entered Against Securities Lawyer for Forging Attorney Opinion Letters for Microcap Stocks

The Securities and Exchange Commission announced today that a default judgment including nearly $1.5 million in disgorgement, prejudgment interest and civil penalty was entered on March 10, 2015 by the U.S. District Court for the Southern District of New York against Guy M. Jean-Pierre (Jean-Pierre) a/k/a Marcelo Dominguez de Guerra, a securities lawyer. Jean-Pierre engaged in a fraudulent scheme to issue forged attorney opinion letters that facilitated the transfer of restricted microcap shares on Pink OTC Markets Inc. (now named OTC Markets Group Inc.), after Pink Sheets had banned him from issuing such letters. Pink Sheets is a financial marketplace trading platform that provides price and liquidity information for nearly 10,000 securities. Jean-Pierre sought to evade the Pink Sheet ban by writing letters using his niece's identity and falsifying her signature without her knowledge or consent. In addition to ordering permanent injunctions from violating antifraud statutes and rule, Jean-Pierre was ordered to disgorge $62,000, along with prejudgment interest of $7,580.43, and pay a penalty of $1,425,000 for a total of $1,494,580.43 and is subject to a lifetime bar from participating in the offering of any penny stock pursuant to Section 20(g) of the Securities Act.

On December 6, 2012, the Commission filed a civil injunctive action in the United States District Court for the Southern District of New York charging Jean-Pierre for issuing fraudulent attorney opinion letters that resulted in more than 70 million shares of microcap stock becoming available for unrestricted trading by investors.

On March 10, 2015, United States District Judge Lorna Schofield issued default judgment against Jean-Pierre adopting the opinion of Magistrate Judge Henry B. Pitman. With the entry of the default judgments, the Commission was granted full relief sought in its Complaint.

The Commission's investigation was conducted by Megan R. Genet and Steven G. Rawlings of the Commission's New York Regional Office. The Commission's litigation effort was led by Todd Brody and Megan R. Genet.

SEC CHARGED ATTORNEY WITH CONDUCTING A PONZI SCHEME WORTH ABOUT $5 MILLION

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission  charged a Manhattan-based attorney with conducting a Ponzi scheme that defrauded some of his legal clients as well as close family members and friends.

The SEC alleges that Charles A. Bennett raised approximately $5 million by selling purported investments in what he described as a pool of funds that invested in joint ventures with a Wyoming-based investment fund to which he claimed to have a close connection.  Bennett told investors their money would largely be used to fund investments in European real estate mortgage-backed securities yielding lucrative rates of return ranging anywhere from 6 to 25 percent over short periods of time.  He stated that prominent individuals including a former governor of New York were participating in these investment ventures.
However, the SEC alleges that Bennett’s story was a sham.  While the fund does exist and Bennett is an acquaintance of the fund’s principal, he had no connection to the fund nor did he invest in any joint ventures associated with the fund or prominent individuals.  In fact, he made no investments at all, instead secretly misappropriating all of the money he raised from investors.  Bennett used funds from newer investors to pay redemptions and make phony “interest” payments to earlier investors, and he siphoned away investor money to support his own lifestyle that included vacations, expensive hotels, and substantial cash withdrawals.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Bennett.

“Bennett falsely portrayed that he was closely associated with a Wyoming-based fund and would provide substantial rates of return to investors, but he was simply keeping the cash for himself and using it to perpetuate his Ponzi scheme,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

According to the SEC’s complaint filed in federal court in Manhattan, Bennett sent phony documents to investors in order to make the investments appear legitimate.  He falsely claimed them to be account statements issued by the Wyoming-based fund.  By mid-2014, Bennett’s scheme began to collapse as investors’ demands for the return of their principal outpaced his ability to obtain new funds.  Last month, Bennett composed a lengthy handwritten note admitting to his fraudulent conduct and left it in a Manhattan hotel room.  He then jumped into the Hudson River and was later rescued.

The SEC’s complaint charges Bennett with violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, and with selling securities for which no registration statement is active or on file with the SEC.  The complaint seeks among other things permanent injunctive relief, disgorgement of ill-gotten gains, and financial penalties.  

The SEC’s investigation, which is continuing, is being conducted by Jorge G. Tenreiro and Lara S. Mehraban of the New York Regional Office.  The case is being supervised by Amelia A. Cottrell, and Richard G. Primoff and Mr. Tenreiro are leading the SEC’s litigation.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.

LAWYER CHARGED BY SEC WITH HAVING ROLE IN PRIME BANK SCHEME

FROM:  SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Florida Lawyer in Connection with Multi-Million Dollar Prime Bank Scheme

The Securities and Exchange Commission announced that today that it charged Florida attorney Allen Ross Smith, a sole practitioner, with violating the anti-fraud and securities offering provisions of the federal securities laws for his role in an advance fee investment scheme involving prime bank transactions and overseas debt instruments. The scheme was orchestrated by Switzerland-based Malom Group AG, a company named with an acronym for "Make A Lot Of Money," through individuals in Zurich and Las Vegas. Smith acted as Malom's attorney as well as its escrow agent and "paymaster."

According to the SEC's complaint, filed in the U.S. District Court for the District of New Hampshire, Smith, leveraging his title and position as an attorney, made several false and misleading statements to investors. These statements concerned Malom's financial strength and history of success, Smith's familiarity with Malom and its principals, and the status of transactions from which Malom would repay investors who lost all their funds. In making these misstatements, Smith repeated what he was told by Malom and its agents and did nothing to verify their claims. At least three investors entered into transactions with Malom after having received Smith's misstatements about Malom. These investors collectively lost $2.1 million.

The SEC's complaint also alleges that Smith assisted Malom by allowing it to use his attorney escrow account to collect investor funds, and then by following Malom's direction to distribute those funds to individuals, including many with no connection to the contemplated transactions, located in the United States and abroad. Smith received and distributed approximately $2.44 million in investor funds at Malom's behest. Finally, the complaint alleges that Smith offered and sold unregistered securities by, among other actions, making several required certifications regarding Malom to investors as part of a securities offering that was intended to help New Hampshire-based USA Springs, Inc. emerge from bankruptcy. As a result of that fraudulent offering, the federal bankruptcy court for the District of New Hampshire entered a $60 million judgment against Malom in 2012. In re USA Springs, Inc., 1:08-bk-11816 (Bankr. D.N.H.).

The SEC's complaint alleges that Smith violated Section 17(a) and Section 5 of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and aided and abetted violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest thereon, and civil penalties against Smith.

The SEC's investigation was conducted by Stephen Simpson and Angela Sierra, and the SEC's litigation will be led by Mr. Simpson. The SEC appreciates the assistance of the Department of Justice, Federal Bureau of Investigation, and the State Attorney's Office for the Canton of Zurich, Switzerland.

The SEC previously charged Malom Group AG, its principals, and agents with violating the antifraud and securities registration provisions of the federal securities laws in SEC v. Malom Group AG, et al, 2:13-cv-2280 (D. Nev. Dec. 16, 2013) and SEC v. Erwin et al., 2:14-cv-623 (D. Nev. Apr. 23, 2014). For additional information about these cases, see Litigation Release Number 22890 (Dec. 16, 2013); Litigation Release Number 22978 (Apr. 28, 2014).

SEC CHARGES ATTORNEY AND OTHERS WITH RUNNING PRIME BANK INVESTMENT SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced charges and an emergency asset freeze against a Miami-based attorney and other perpetrators of a prime bank investment scheme that promised exorbitant returns from a purported international trading program.

Prime bank schemes lure investors to participate in a sham international investing opportunity with phony promises of exclusivity and enormous profits.  The SEC alleges that attorney Bernard H. Butts, Jr. has acted as an escrow agent to enable Fotios Geivelis, Jr. and his purported financial services firm Worldwide Funding III Limited to defraud approximately 45 investors out of more than $3.5 million they invested in a trading program that doesn’t actually exist.  Geivelis, who lives in Tampa and uses the alias “Frank Anastasio” with investors, touted returns of 6.6 million Euros (approximately $8.7 million converted to U.S. dollars) for investors within 15 to 45 business days on an initial investment of $60,000 to $90,000 in U.S. dollars.  Geivelis and Butts assured investors that their funds would remain with Butts in an escrow account until Worldwide Funding acquired the bank instruments necessary to generate the promised returns.  Butts instead has been doling out investor funds almost as soon as they’re received to enrich himself, sales agents, and Geivelis, who has been spending the money on such personal expenses as travel and gambling.

The SEC’s complaint, filed under seal on August 29 in federal court in Miami, also charged three sales agents who Geivelis and Butts paid to sell interests in the scheme: Douglas J. Anisky of Delray Beach, Fla., James Baggs of Lake Forest, Calif., and Sidney Banner of Delray Beach, Fla., and his company Express Commercial Capital.  The court granted the SEC’s request for an asset freeze on August 30, and the case was unsealed late Friday, September 6.

“Geivelis attempted to add a twist of legitimacy to a classic prime bank scheme by using a long-time attorney as an escrow agent to give investors the false impression that their money was secure,” said Julie K. Lutz, Acting Co-Director of the SEC’s Denver Regional Office.  “Meanwhile, Geivelis and Butts have misused investor funds and made lulling statements to investors that portray the sham trading program as successful and payments to investors as imminent.”

According to the SEC’s complaint, investors were lured through the Internet, telephone, and personal contact with promises of extraordinary profits.  Investors were told their $60,000 to $90,000 investment would pay for bank charges to lease a standby letter of credit (SBLC) in the amount of 10 million Euros from a banking group in Europe.  The SBLCs were to be used to acquire loans, and the funds from the loan were to be placed in a securities trading program.  Investors were promised that after their initial profit of at least 6.6 million Euro within 15 to 45 business days, the securities trading program would generate a weekly return of approximately 14 percent for 40 to 42 weeks.

The SEC alleges that investors were falsely promised that their money was being deposited into Butts’ attorney trust account, and Butts would not release the funds until he received proof from the receiving bank that a $10 million Euro SBLC had been deposited into the securities trading program to generate profits for investors.  Contrary to these representations by Butts, Geivelis, and the sales agents, no SBLC acquisitions ever occurred, no loans were obtained, and no promised returns were earned in a trading program or paid to investors. Investors were not told that instead of using the funds to obtain SBLCs, Butts and Geivelis each took approximately 45 percent and paid approximately 10 percent to the sales agents.

The SEC’s complaint charges all defendants with violations of the antifraud and securities registration provisions of the federal securities laws.  The complaint also charges Butts, Geivelis, Anisky, Banner, Express Commercial Capital, and Baggs with violations of the broker-dealer registration provisions of the federal securities laws.  The SEC seeks disgorgement of ill-gotten gains, financial penalties, and permanent injunctions.  The SEC’s complaint names several relief defendants: Butts’ law firm, his wife Margaret A. Hering, and Butts Holding Corporation as well as two other companies with ties to Geivelis (Global Worldwide Funding Ventures) and Anisky (PW Consulting Group).  The complaint names relief defendants for the purposes of recovering any ill-gotten assets from the fraud that may be in their possession.

The SEC’s investigation, which is continuing, has been conducted by Amy A. Sumner and Laura M. Metcalfe in the Denver Regional Office.  The SEC’s litigation will be led by Leslie J. Hughes.