SEC CHARGES TWO WITH VIOLATING FEDERAL SECURITIES LAWS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION  

SEC Charges Tyson D. Williams and Stanley D. Parrish with Violations of the Federal Securities Laws

On July 10, 2014, the Securities and Exchange Commission filed a civil injunctive action against Tyson D. Williams (Williams) and Stanley D. Parrish (Parrish), alleging that Williams and Parrish violated the federal securities laws in connection with the sale of securities by ST Ventures, LLC (ST Ventures).

In its Complaint, filed in the U.S. District Court for the District of Utah, the Commission alleges that Williams and Parrish raised over $7 million from approximately 50 investors through the fraudulent and unregistered sale of securities in ST Ventures. The Complaint alleges Williams and Parrish told investors that ST Ventures would purchase collateralized mortgage obligations (CMOs) and then leverage the CMOs to produce a large return for the investor within 30 to 90 days. The Complaint further alleges that Williams and Parrish made material misrepresentations and omissions regarding the investment including, among other things, the risk of the investment and the use of investor funds. Williams and Parrish told investors that their investment principal would never be at risk of loss because investing in CMOs is a very safe and liquid investment and that investor funds would be used only to purchase CMOs. Instead of using investors' funds as represented, the Complaint alleges, virtually all payments made to investors, which totaled more than $1.5 million, came from new investor money and Williams and Parrish misappropriated over $3.5 million of investors' proceeds for their personal use.

The Commission alleges that by engaging in this conduct Williams and Parrish violated 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 complaint seeks a permanent injunction as well as disgorgement, prejudgment interest and a civil penalty from Williams and Parrish.

THREE CHARGED IN ALLEGED GOLD FUTURES INVESTMENT PONZI SCHEME

FROM: U.S. SECURITIES AND EXCHANG COMMISSION

The Securities and Exchange Commission today announced that it filed an enforcement action on July 5, 2013 against John Fowler, a convicted felon, Jeffrey Fowler, a former Florida public school teacher, and Julianne Chalmers. The SEC charged John Fowler and Jeffrey Fowler with violations of the antifraud provisions of the federal securities laws. The SEC also charged John Fowler and Julianne Chalmers with registration violations.

From January 2011 through November 2011, John Fowler and Jeffrey Fowler raised approximately $4.3 million from 70 unsuspecting investors nationwide through a Ponzi scheme disguised as a gold futures investment program. The program purportedly was affiliated with a prominent New York-based hedge fund manager but actually had no connection to this manager and no investment in gold futures. Chalmers solicited investors to invest in the gold futures program by purchasing promissory notes.

The SEC’s complaint, filed in the United States District Court for the Middle District of Florida, alleges that John Fowler masterminded the Ponzi scheme and made misrepresentations and omissions in connection with the offer and sale of the promissory notes. He solicited at least one prospective investor, falsely claiming that a prominent hedge fund manager was the general partner of the investment program, that investor returns were guaranteed, and that he was a fellow investor. The complaint alleges that he also prepared fake promissory notes and assignments of security, and signed them as trustee of the prominent hedge fund manager. Finally, the complaint alleges that John Fowler misappropriated investor funds and unlawfully sold unregistered securities.

The complaint alleges that John Fowler’s son, Jeffrey Fowler, took steps to make the scheme appear legitimate by forming a Florida corporation with an identical name to the actual New York-based hedge fund manager and opening several bank accounts in this corporate name. Investors deposited their funds into this account and Jeffrey Fowler made purported interest payments to investors from these funds. Jeffrey Fowler also allegedly misappropriated investor funds for personal use.

The SEC’s complaint also alleges that by soliciting investors into the scheme, Chalmers unlawfully acted as an unregistered broker-dealer and sold unregistered securities that did not qualify for an exemption from the SEC’s registration provisions. Chalmers received more than $90,000 of investor proceeds in transaction-based commissions.

The SEC’s enforcement action charges John Fowler with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5(a) and 10b-5(c) thereunder; and Jeffrey Fowler with violating Sections 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5(a) and 10b-5(c) thereunder. The action charges Chalmers with violating Sections 5(a) and 5(c) of the Securities Act and Section 15(a) of the Exchange Act. Both John Fowler and Jeffrey Fowler have consented to the entry of judgments, which would enjoin then from violation of the above provisions. These judgments are subject to court approval. The SEC is seeking a permanent injunction, disgorgement, and financial penalties against Chalmers.

The U.S. Attorney’s Office for the Middle District of Florida conducted a parallel investigation of this matter, which resulted in felony convictions against John Fowler and Jeffrey Fowler. Both Fowlers are currently serving prison sentences. U.S. v. John Henley Fowler, 8:12-CR-359-T-35TGW (M.D. Fla. 2012); U.S. v. Jeffrey Robert Fowler, 8:12-CR-358-T-24EAJ (M.D. Fla. 2012).

The SEC’s investigation was conducted by Miami Regional Office enforcement staff Cecilia Danger and Tonya Tullis and supervised by Chad Alan Earnst. The SEC’s litigation will be led by Christine Nestor.

The SEC acknowledges assistance from the U.S. Attorney’s Office for the Middle District of Florida, the United States Secret Service, and the Federal Bureau of Investigation.

CITY, UNDERWRITER AND OTHERS CHARGED WITH FRAUD IN MUNICIPAL BOND SALES CASE

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
　

SEC Charges City of Victorvile, Underwriter, and Others with Defrauding Municipal Bond Investors

Washington, D.C., April 29, 2013 — The Securities and Exchange Commission today charged that the City of Victorville, Calif., a city official, the Southern California Logistics Airport Authority, and Kinsell, Newcomb & DeDios (KND), the underwriter of the Airport Authority’s bonds, defrauded investors by inflating valuations of property securing an April 2008 municipal bond offering.

Victorville Assistant City Manager and former Director of Economic Development Keith C. Metzler, KND owner J. Jeffrey Kinsell, and KND Vice President Janees L. Williams were responsible for false and misleading statements made in the Airport Authority’s 2008 bond offering, the SEC alleged. It also charged that KND, working through a related party, misused more than $2.7 million of bond proceeds to keep itself afloat.

"Financing redevelopment projects by selling municipal bonds based on inflated valuations violates the public trust as well as the antifraud provisions of the federal securities laws," said George S. Canellos, Co-Director of the SEC’s Division of Enforcement. "Public officials have the same obligation as corporate officials to tell the truth to their investors."

Elaine C. Greenberg, Chief of the SEC’s Municipal Securities and Public Pensions Unit, said, "Investors are entitled to full disclosure of material financial arrangements entered into by related parties. Underwriters who secretly line their own pockets by taking unauthorized fees will be held accountable."

The SEC alleges the Airport Authority, which is controlled by the City of Victorville, undertook a variety of redevelopment projects, including the construction of four airplane hangars on a former Air Force base. It financed the projects by issuing tax increment bonds, which are solely secured by and repaid from property-tax increases attributable to increases in the assessed value of property in the redevelopment project area.

According to the SEC’s complaint filed in U.S. District Court for the Central District of California, by April 2008, the Airport Authority was forced to refinance part of the debt incurred to construct the hangars, and other projects, by issuing additional bonds. The principal amount of the new bond issue was partly based on Metzler, Williams, and Kinsell using a $65 million valuation for the airplane hangars even though they knew the county assessor valued the hangars at less than half that amount. The inflated figure allowed the Airport Authority to issue substantially more bonds and raise more money than it otherwise would have. It also meant that investors were given false information about the value of the security available to repay them.

In addition, the SEC’s investigation found that Kinsell, KND, and another of his companies misappropriated more than $2.7 million in bond proceeds that were supposed to be used to build airplane hangars for the Airport Authority. According to the SEC’s complaint, the scheme began when Kinsell learned of allegations that the contractor building the hangars had likely diverted bond proceeds for his own personal use. When the contractor was removed, Kinsell stepped in to oversee the hangar project through another company he owned, KND Affiliates, LLC, even though Kinsell had no construction experience.

The SEC alleges that the Airport Authority loaned KND Affiliates more than $60 million in bond proceeds for the hangar project and agreed that as compensation for the project, KND Affiliates would receive a construction management fee of two percent of the remaining cost of construction. However, Kinsell and KND Affiliates took an additional $450,000 in unauthorized fees to oversee the construction and took $2.3 million in fees that the Airport Authority was unaware of and never agreed to, purportedly as compensation to "manage" the hangars. The SEC alleges that Kinsell and KND Affiliates hid these fees from the Airport Authority representatives and from the auditors who reviewed KND Affiliates’ books and records.

The SEC’s complaint alleges that the Airport Authority, Kinsell, KND, and KND Affiliates violated the antifraud provisions of U.S. securities laws and that KND violated 15B(c)(1) of the Exchange Act and Municipal Securities Rulemaking Board Rules G-17, G-27 and G-32(a)(iii)(A)(2). The complaint also alleges that Victorville, Metzler, KND, Kinsell, and Williams aided and abetted various violations. The SEC is seeking the return of ill-gotten gains with prejudgment interest, financial penalties, and permanent injunctions against all of the defendants, as well as the return of ill-gotten gains from relief defendant KND Holdings, the parent company of KND.

The SEC’s investigation was conducted by Robert H. Conrrad and Theresa M. Melson in the Municipal Securities and Public Pensions Unit, and Lorraine B. Echavarria, Todd S. Brilliant, and Dora M. Zaldivar of the Los Angeles Regional Office. Sam S. Puathasnanon will lead the SEC’s litigation.

BIG MULTINATIONAL BANK CHARGED BY SEC WITH VIOLATIONS OF THE FEDERAL SECURITIES LAWS

The following excerpt is from the SEC website: “Washington, D.C., Oct. 24, 2011 – The Securities and Exchange Commission today charged multinational banking conglomerate Banco Espirito Santo S.A. (BES) with violations of the broker-dealer and investment adviser registration provisions and the securities transaction registration provisions of the federal securities laws. The SEC's enforcement action finds that Lisbon, Portugal-based BES offered brokerage services and investment advice between 2004 and 2009 to approximately 3,800 U.S.-resident customers and clients who were primarily Portuguese immigrants. However, during this time, BES was not registered with the SEC as a broker-dealer or investment adviser, and it offered and sold securities to its U.S. customers and clients without the intermediation of a registered broker-dealer. None of these securities transactions was registered and many of the securities offerings did not qualify for an exemption from registration. BES agreed to settle the SEC's charges and pay nearly $7 million in disgorgement, prejudgment interest and penalties. In determining to accept BES's offer to settle, the SEC considered remedial acts promptly undertaken by BES and its cooperation with SEC staff. "The registration provisions are core safeguards of the integrity of our securities markets and the financial institutions that act as gatekeepers of those markets," said George S. Canellos, Director of the SEC's New York Regional Office. "BES brazenly ignored those provisions over the course of many years by acting as an investment adviser and broker-dealer without registration and by offering and selling securities to members of the U.S. public without any of the disclosures required by the law." Sanjay Wadhwa, Associate Director of the SEC's New York Regional Office, added, "Foreign entities seeking to provide financial or securities-related services in the U.S. must familiarize themselves with the statutory and regulatory framework in this arena. A failure to do so, as was the case here, can be a costly misstep." The SEC's order instituting administrative proceedings against BES describes the various ways that the bank offered and sold securities and provided brokerage and advisory services to its U.S. customers and clients. BES used its Portugal-based Departmento de Marketing de Comunicacao & Estudo do Consumidor (Department of Marketing, Communications, and Consumer Research) to mail U.S. residents marketing materials. A customer service call center operated by a third party and located in Portugal (known as the ES Contact Center) employed individuals who were dedicated to servicing BES's U.S. customers and offered such U.S. customers various financial products. BES also used a state-licensed money transmission service named Espirito Santo e commercial Lisbona Inc. with offices in Connecticut, New Jersey, and Rhode Island. BES also had U.S.-dedicated International Private Banking relationship managers who visited the U.S. approximately twice a year to meet with clients and serviced U.S. clients from Portugal. The SEC's order finds that by acting as an unregistered broker-dealer and investment adviser to U.S. customers and clients, BES willfully violated Section 15(a) of the Securities Exchange Act of 1934, and Section 203(a) of the Investment Advisers Act of 1940. According to the SEC's order, BES also willfully violated Sections 5(a) and 5(c) of the Securities Act of 1933 by offering and selling securities in the U.S. without registration and without an applicable exemption from registration. Without admitting or denying the SEC's findings, BES has agreed to cease and desist from committing or causing any violations of Sections 5(a) and 5(c) of the Securities Act, Section 15(a) of the Exchange Act, and Section 203(a) of the Advisers Act, and to pay nearly $7 million in disgorgement, prejudgment interest and penalties. BES also has agreed to an undertaking that requires it to pay a certain minimum rate of interest to its U.S. customers and clients on securities purchased through BES, and to make whole each of its U.S. customers and clients for any realized or unrealized losses with respect to any securities purchased through BES. The SEC's investigation was conducted by Amelia A. Cottrell, John C. Lehmann, and Charles D. Riely of the SEC's New York Regional Office. The office's broker-dealer examination team of Robert A. Sollazzo, Ellen N. Hersh, Ashok Ginde, and Jennifer A. Grumbrecht provided assistance with the investigation.”