MASSACHUSETTS RESIDENT SENTENCED FOR DEFRAUDING RARE COIN INVESTMENT CUSTOMERS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Defendant in SEC Action Sentenced On Related Criminal Charges, Receives 17 Year Sentence

The Securities and Exchange Commission announced today that on April 26, 2013, Arnett L. Waters of Milton, Massachusetts, a principal of a broker-dealer and investment adviser who is a defendant in a securities fraud action filed by the Commission in May 2012, was sentenced to 17 years in federal prison in a separate criminal action for orchestrating a securities fraud and for defrauding rare coin investment customers. Waters was also sentenced to three years of supervised release and $9,025,691 in restitution and forfeiture. The criminal charges were brought by the U.S. Attorney for the District of Massachusetts. Waters' guilty plea to securities fraud and other charges occurred on November 29, 2012, and followed an earlier guilty plea by Waters in October 2012 to criminal contempt charges for violating a preliminary injunction order obtained by the Commission in its case. The Commission's Order barring Waters from the securities industry was issued on December 3, 2012.

The Commission filed an emergency enforcement action against Waters on May 1, 2012, alleging that he and two companies under his control, broker-dealer A.L. Waters Capital, LLC and investment adviser Moneta Management, LLC, defrauded investors from at least 2009-2012 by, among other things, misappropriating investor funds and spending it on personal expenses. On May 3, 2012, the Court entered a preliminary injunction order that, among other things, froze Waters' assets and required him to provide an accounting of all his assets to the Commission. On August 7, 2012, the Commission filed a civil contempt motion against Waters, alleging that he had violated the court's preliminary injunction order by establishing an undisclosed bank account, transferring funds to that account, dissipating assets, and failing to disclose the bank account to the Commission, as required by the Court's order. On August 9, 2012, the U.S. Attorney for the District of Massachusetts filed a separate criminal contempt action against Waters based on the same allegations. On October 2, 2012, Waters pleaded guilty to the criminal contempt charges, and the Court ordered him detained pending sentencing.

On December 3, 2012, the Commission barred Waters from the securities industry, based on his October 2, 2012 guilty plea to criminal contempt. The Order bars Waters from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock.

The U.S. Attorney for the District of Massachusetts charged Waters with an array of securities fraud and other violations on October 17, 2012. On November 29, 2012, Waters pleaded guilty to sixteen counts of securities fraud, mail fraud, money laundering, and obstruction of justice. The counts of the criminal information to which Waters pleaded guilty alleged that, from at least 2007 through 2012, he used fictitious investment-related partnerships to draw in investors, misappropriate their investment money, and spend the vast majority of it on personal and business expenses and debts. Waters raised at least $839,000 from at least thirteen investors, including $500,000 from his church in March 2012. Waters also pleaded guilty to engaging in a criminal scheme to defraud clients of his rare coin business. Under this scheme, Waters defrauded coin customers out of as much as $7.8 million by selling coins at prices inflated, on average, by 600% and by inducing coin purchasers to return coins to him, on the false representation that he would sell those coins on the customers' behalf, when, in fact, he sold most or all of the coins and kept the proceeds for himself. The criminal information to which Waters pleaded guilty further alleged that he engaged in money laundering through two transactions totaling $77,000. Finally, Waters pleaded guilty to allegations that he made multiple misrepresentations to Commission staff, including that there were no investors in his investment-related partnerships, in order to conceal the fact that investor money was misappropriated in a fraudulent scheme. Waters was charged with obstruction of justice related to this conduct.

The Commission acknowledges the assistance of the United States Attorney's Office for the District of Massachusetts, the Federal Bureau of Investigation and FINRA in this matter.

SEC ALLEGES CANADIAN RESIDENT USED BUSINESS AS PONZI SCHEME

The following excerpt is from the SEC website: November 17, 2011 “The Securities and Exchange Commission announced that, on November 16, 2011, it charged a New Hampshire business directed by a Canadian resident with obtaining over $1.3 million from investors in a fraudulent Ponzi scheme. The SEC also announced that Judge Joseph N. Laplante of the U.S. District Court in New Hampshire has issued a temporary restraining order that, among other things, freezes the assets of the company and its principal and prohibits them from continuing to solicit or accept investor funds. In its complaint, the SEC alleges that Henry Roche, a Canadian resident, through New Futures Trading International Corporation has been engaged in an ongoing unregistered offering of securities in the United States through operations in New Hampshire and Ontario, Canada. According to the Complaint, since December 2010 Roche has raised over $1.3 million from at least 14 investors in nine states through the offer and sale of high yield promissory notes purportedly yielding either 5-10% per month, or a 200% return within 14 months. The Complaint alleges that Roche represented to some investors that funds supplied would be invested in bonds, Treasury notes and/or 10-year Treasury note futures contracts, and to others that the funds would be invested directly in New Futures, an on-line futures day-trading training business Roche was operating from Canada. According to the complaint, instead of using the funds for either purpose, Roche used approximately $937,000 provided by New Futures investors to make Ponzi “interest” payments to investors in prior Roche-controlled entities. The Complaint also alleges that Roche misappropriated at least another $359,000 to support his lifestyle, to operate a horse breeding venture, Majestic Horses, and to buy horses. The Complaint alleges that Roche’s present activity through New Futures appears to be the continuation of an ongoing investment scheme Roche has been operating over the past three years under a series of entity names, including Masters Palace, Inc., and Third Realm Institute (a/k/a Third Realm, Inc.). The Commission’s complaint charges Roche and New Futures Trading International Corporation with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission acknowledges the assistance of the Ontario Securities Commission and the New Hampshire Bureau of Securities in this matter.”

SEC FILES ORDER TO SHOW CAUSE FOR DEFENDANT TO SELL FROZEN ASSETS

The following is an excerpt from the SEC website: "On August 29, 2011, the Securities and Exchange Commission filed an emergency application for an Order to Show Cause why Defendant Stanley J. Kowalewski (“Kowalewski”) should not be held in civil contempt for failing to comply with the Court’s Orders freezing his assets. The Court has ordered a hearing on the Commission’s application for August 31, 2011. The emergency application arises out of a complaint filed earlier this year by the Commission to stop an alleged offering and investment advisory fraud being perpetrated by Kowalewski against investors, primarily consisting of pension funds, school endowments, hospitals and foundations. See LR-21800, January 7, 2011. According to the Commission, Kowalewski misappropriated, misused and misspent at least $12.5 million of investor money entrusted to his management by, among other things, having his hedge fund: (1) buy his personal home for $2.8 million, (2) purchase a vacation beach home for his use for $3.9 million, and (3) pay his investment management company over $10 million in unfounded fees, of which he paid himself $7.6 million in “advances” and “salary draws”. To further conceal his scheme, the Commission alleges that Kowalewski sent fraudulent monthly account statements to the investors that grossly inflated the actual asset values and returns. Following the filing of the Commission’s complaint, the U.S. District Court entered and subsequently extended an asset freeze over Kowalewski’s assets, including over the house that he had previously caused his hedge fund to “purchase” from him for $2.8 million. As set forth in its emergency application, Kowalewski violated and is violating the Court’s asset freeze by removing and selling from that same house: kitchen and wall-mounted cabinets, light fixtures, doors, and other structural elements, with an estimated value of at least $176,000, while substantially damaging the house in the process. By its emergency application, the Commission seeks to stop the on-going harm, require Kowalewski to account for and return to the Receiver the items taken from the house, and pay the Receiver for the damage he has caused to it. The Commission previously filed a motion with the Court for disgorgement and penalties against Kowalewski seeking disgorgement of $8.4 million, plus prejudgment interest, and penalties in an amount to be determined by the Court, but which could be as high as an additional $67 million. That motion is currently pending." The SEC alleges in the above case that the defendant removed items from his home (a court ordered frozen asset) such as light fixtures and doors. This type of thing happens a lot in low rent districts when landlords evict tenants.

SEC ANNOUNCES A CONTINUED FREEZE ON ALLEGED INSIDER TRADER FUNDS

The following is an excerpt from the SEC website: August 1, 2011 The Securities and Exchange Commission announced today that it has obtained court orders continuing asset freezes on more than $32 million in assets controlled by three Swiss entities charged with insider trading ahead of a July 11, 2011 public announcement that Swiss-based Lonza Group Ltd. will acquire Connecticut-based Arch Chemicals, Inc. The Commission filed its action on July 15, 2011, in the U.S. District Court for the Southern District of New York, and the court issued a temporary asset freeze that day against defendants Compania International Financiera S.A. (Compania”), Coudree Capital Gestion S.A. (“Coudree”), and Chartwell Asset Management Services (“Chartwell”). The District Court has now entered orders continuing those asset freezes in specific amounts based on the size of the defendants’ profits plus potential penalty amounts. The Court entered an asset freeze order by consent as to defendants Compania and Coudree on July 26, 2011, freezing approximately $14.7 million of their assets. After a hearing as to defendant Chartwell on July 28, 2011, the court entered an order on July 29, 2011, freezing over $18 million of its assets. The Commission’s complaint was filed within days of the alleged insider trading. According to the Commission’s filings, Compania and Coudree purchased more than 687,000 common shares of Arch Chemicals between July 5 and July 8, mostly in accounts based in London, England. During the same time period, Chartwell purchased contracts for difference (“CFDs”) equivalent to 425,300 Arch Chemicals common shares through a brokerage account in London. The Court noted in its opinion and order that CFDs constitute securities as defined by the federal securities laws. Immediately after the acquisition announcement on July 11, the firms began selling the recently-purchased Arch Chemicals common stock and CFDs for millions of dollars in profits. The Commission’s complaint alleges that, at the time the defendants purchased the securities, they are believed to have been in possession of material, non-public information about Lonza’s proposed acquisition of Arch Chemicals. After a hearing on July 28, 2011, before the Honorable Denise L. Cote in the United States District Court for the Southern District of New York, the District Court on July 29, 2011, ordered an asset freeze against Chartwell in the amount of the trading profits ($4,651,995) plus a potential civil penalty of three times that amount ($13,955,985), totaling $18,607,980. The Court further ordered Chartwell to repatriate all assets obtained from the activities described in the Complaint to the United States, and to refrain from destroying any potentially discoverable materials related to the Complaint. In the Court’s Opinion and Order issued on July 29, Judge Cote found that “the discovery collected by the [Commission] … reveals a pattern of trading [by Chartwell] in the context of a tip that is not just consistent with, but also suggestive of, insider trading,” and concluded that the relief sought by the Commission was thus warranted because “there is a likelihood that the [Commission] will succeed on the merits in establishing a 10(b) violation” by Chartwell. Previously, on July 26, 2011, the District Court issued an asset freeze order by consent as to defendants Compania and Coudree. Those defendants have deposited $14,784,006 into a court-controlled bank account pending the outcome of the Commission’s action, including more than $7 million in trading profits, after agreeing to the entry of the asset freeze. The Commission’s complaint charges the defendants with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In addition to a preliminary injunction, asset freeze and other equitable relief, the complaint seeks a permanent injunction, disgorgement of illegal trading profits plus prejudgment interest, and civil monetary penalties. The Commission’s investigation is continuing. The Commission acknowledges the assistance of the FINRA Office of Fraud Detection and Market Intelligence in its investigation.”