SEC CHAIR WHITE'S OPENING STATEMENT ON REGULATION A+ PROPOSAL

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Remarks at SEC Open Meeting
Opening Statement on Proposal for Regulation A+
 SEC Chair Mary Jo White
Washington, D.C.

Dec. 18, 2013

Good morning.   This is an open meeting of the U.S. Securities and Exchange Commission on Dec. 18, 2013, under the Government in the Sunshine Act.

Today we are considering an important rulemaking mandated by the Jumpstart Our Business Startups (JOBS) Act.  Title IV of the JOBS Act requires the Commission to adopt rules to create a new exemption from registration under the Securities Act for offerings of up to $50 million dollars in a 12-month period.

This new exemption is intended to build upon Regulation A, which is an existing exemption from registration for small issues of up to $5 million within a 12-month period.  We often have referred to this new exemption as Regulation A+.

At its core, the mandate of Regulation A+ is to help increase the access of smaller companies to capital.  This is obviously a very important objective.  Our rulemaking goal is to make Regulation A+ an effective, workable path to raising capital that – very importantly – also builds in the necessary investor protections.

As it exists today, Regulation A is little used by issuers.  A GAO Report last year found that various factors have contributed to this outcome, including the type of investors that businesses seek to attract, the process of filing with the Commission, state securities law compliance, and the cost-effectiveness of Regulation A relative to other exemptions.  The factors identified by the GAO Report were not a surprise to either regulators or market participants.

Responding to this record, the proposal we are considering today aims to increase the use of Regulation A by establishing two tiers – Tier 1 for offerings up to $5 million and Tier 2 for offerings up to $50 million.  The proposal builds on our existing regulation in several ways to put forward an effective exemption that maintains important investor protections and addresses the challenges of balancing the respective roles of federal and state law.

First, the proposed rules broadly preserve and modernize the essential, current framework of Regulation A, including existing provisions regarding issuer eligibility, offering circulars, “testing the waters,” and bad actor disqualifications.  The proposal also retains the review and qualification of offering statements by the Commission and its staff.  I believe that such review and qualification is a critically important investor protection.

Second, the proposed rules include additional investor protections designed to address the heightened risk to investors associated with increasing the annual offering limitation to $50 million.  Tier 2 offerings would, for example, impose a limitation on the amount of securities that investors can purchase and require audited financial statements and ongoing reporting from issuers.

Third, in light of these investor protections and the need to develop a workable exemption, the proposed rules would preempt state securities laws with respect to Tier 2 offerings, but preserve state review with respect to Tier 1 offerings.  The complexity, time, and cost of compliance with state securities laws for Regulation A offerings was cited by the GAO Report – and was repeatedly cited in the pre-rulemaking comments we received – as a key reason for the limited use of the exemption.  To ensure that the revised exemption will be a viable path for capital-raising, a calibrated preemption of state securities laws in connection with certain Regulation A offerings currently appears necessary.

Importantly, however, the proposal explores alternative approaches to addressing the challenge of balancing the respective roles of federal and state securities laws.  One recent significant development is the proposal by the North American Securities Administrators Association (NASAA) for coordinated reviews of Regulation A offerings, which, if fully implemented, could potentially reduce the costs of compliance with state securities law obligations and enhance the speed of state-level review.  NASAA has taken significant steps to develop a coordinated review program, including milestones they highlighted in a letter to the Commission just last week.  I will be closely watching the continued development of this program and would like to hear more about how this program could effectively resolve the challenges identified with the current approach to state securities law compliance.

The proposal we are considering today is very thoughtful and benefits from the staff’s careful analysis and work over many months, and it considers a range of approaches to developing a workable exemption that preserves investor protections.  It provides a strong basis for moving forward on this important initiative.  We should, however, be open to views on all of the issues raised by the proposal.

Before I turn the proceedings over to Keith Higgins, the Director of the Division of Corporation Finance, to discuss the recommendations, I would like to thank the staff for all of their efforts to develop this proposal.  Specifically, I would like to thank Keith Higgins, Mauri Osheroff, Sebastian Gomez Abero, Karen Wiedemann, Zachary Fallon, Shehzad Niazi, Paul Dudek, Amy Starr, Craig Olinger, and Mark Green in the Division of Corporation Finance; Annie Small, Rich Levine, David Fredrickson and Dorothy McCuaig in the Office of the General Counsel; Craig Lewis, Scott Bauguess, Erin Smith, Vladimir Ivanov , Rachita Gullapalli, and Christopher Meeks in the Division of Economic and Risk Analysis; Brian Croteau, Jeffrey Minton, John Cook, Kevin Stout, Ellen Gazlay, and Eric West in the Office of the Chief Accountant; Andrea Orr, Josephine Tao, Carla Carriveau, and John Guidroz in the Division of Trading and Markets; and James Curtis and Christian Sandoe in the Division of Investment Management.  I also would like to thank my fellow Commissioners and their counsels for their hard work on this proposal.

SEC PROPOSES CRACKDOWN ON NAKED ACCESS TO EXCHANGES

The following information was recently released on the SEC government web site. It is in regards to brokers allowing certain customers direct access to the exchanges without going through a broker/dealer.
Broker/dealers are subject to certain regulations when using the exchanges which customers do not have to follow. Unfiltered trades lead to trades which may be improper which can cause instability in the market.

“Washington, D.C., Jan. 13, 2010 — The Securities and Exchange Commission today voted unanimously to propose a new rule that would effectively prohibit broker-dealers from providing customers with "unfiltered" or "naked" access to an exchange or alternative trading system (ATS).
The SEC's proposed rule would require brokers with market access, including those who sponsor customers' access to an exchange, to put in place risk management controls and supervisory procedures. Among other things, the procedures would help prevent erroneous orders, ensure compliance with regulatory requirements, and enforce pre-set credit or capital thresholds.

"Unfiltered access is similar to giving your car keys to a friend who doesn't have a license and letting him drive unaccompanied," said SEC Chairman Mary L. Schapiro. "Today's proposal would require that if a broker-dealer is going to loan his keys, he must not only remain in the car, but he must also see to it that the person driving observes the rules before the car is ever put into drive."

Broker-dealers use a 'special pass' known as their market participant identifier (MPID) to electronically access an exchange or ATS and place an order for a customer. Broker-dealers are subject to the federal securities laws as well as the rules of the self-regulatory organizations that regulate their operation.

However, those laws and rules do not apply to a non-broker-dealer customer who a broker-dealer provides with their MPID in order to individually gain access to an exchange or ATS. Under this arrangement known as "direct market access" or "sponsored access," the customer can sometimes place an order that flows directly into the markets without first passing through the broker-dealer's systems and without being pre-screened by the broker-dealer in any manner. This type of direct market access arrangement is known as "unfiltered" access and "naked" access. A recent report estimated that naked access accounts for 38 percent of the daily volume for equities traded in the U.S. markets.

Through sponsored access, especially "unfiltered" or "naked" sponsored access arrangements, there is the potential that financial, regulatory and other risks associated with the placement of orders are not being appropriately managed. In particular, there is an increased likelihood that customers will enter erroneous orders as a result of computer malfunction or human error, fail to comply with various regulatory requirements, or breach a credit or capital limit.

The SEC's proposed rule would require broker-dealers to establish, document and maintain a system of risk management controls and supervisory procedures reasonably designed to manage the financial, regulatory and other risks related to its market access, including access on behalf of sponsored customers.

Broker-dealers would be required to:
Create financial risk management controls reasonably designed to prevent the entry of orders that exceed appropriate pre-set credit or capital thresholds, or that appear to be erroneous.
Create regulatory risk management controls reasonably designed to ensure compliance with all regulatory requirements applicable in connection with market access.
Have financial and regulatory risk management controls applied automatically on a pre-trade basis before orders route to an exchange or ATS.
Maintain risk management controls and supervisory procedures under the direct and exclusive control of the broker-dealer with market access.
Establish, document and maintain a system for regularly reviewing the effectiveness of its risk management controls and for promptly addressing any issues.

The SEC today also approved a new Nasdaq rule that requires broker-dealers offering sponsored access to Nasdaq to establish certain controls over the financial and regulatory risks of that activity. The proposed Commission rule would extend beyond the new Nasdaq rule in several respects. For example, the Commission's proposal would require the broker-dealer to automatically apply its controls on a pre-trade basis, and to retain exclusive control over those controls without delegation of this critical function to the customer or another third party. The Commission's proposal also would require broker-dealers to establish a supervisory system, including an annual CEO certification, to assure the ongoing effectiveness of its controls In addition, the Commission's proposed risk management controls would apply market-wide, whenever a broker-dealer directly accesses any exchange or ATS.”

THE SEC STOPS FRAUD IN BEVERLY HILLS

The following article was released by the SEC on January 11, 2010. It is in regards to a fraud scheme in Beverly Hills which targeted the Iranian Americans community.

“Washington, D.C., Jan. 11, 2010 — The Securities and Exchange Commission today announced that it has charged Beverly Hills, Calif.-based NewPoint Financial Services, Inc. and its co-owners and controller for conducting an unregistered offering fraud aimed at Iranian-Americans in the Los Angeles area. The SEC obtained an emergency court order to freeze their assets and preserve remaining funds that were collected from investors.
The SEC’s complaint, filed in U.S. District Court for the Central District of California, alleges that NewPoint, co-owners John Farahi and Gissou Rastegar Farahi, and its controller Elaheh Amouei targeted investors in the Iranian-American community by touting New Point on a daily finance radio program that John Farahi hosts on a Farsi language radio station in the Los Angeles area. The SEC alleges that the Farahis or Amouei would then make appointments with interested listeners to discuss investment opportunities offered by NewPoint, and misled more than 100 investors into purchasing more than $20 million worth of debentures that they falsely told them were low-risk. Many investors also were falsely told that they were investing in FDIC-insured certificates of deposit, government bonds, or corporate bonds issued by companies backed by funds from the Troubled Asset Relief Program (TARP). The SEC alleges that most of the money raised was instead transferred to accounts controlled by the Farahis to, among other things, fund construction of their multi-million dollar personal residence in Beverly Hills.

“They lured victims with false promises of investment safety while secretly enriching themselves and diverting investor funds for their personal use,” said Rosalind R. Tyson, Director of the SEC’s Los Angeles Regional Office.

The SEC’s complaint further alleges that investor funds were used to engage in risky options futures trading in the stock market in which the Farahis lost more than $18 million in 2008 and the beginning of 2009. Since approximately June 2009, John Farahi and Amouei have made further misrepresentations to investors in an effort to lull them into keeping their money with NewPoint, saying that their money is safe and that they are guaranteed to get the entirety of their investment back. According to the SEC’s complaint, NewPoint lacks sufficient funds to make all investors whole, and John Farahi has been paying back some investors on a selective basis while failing to return money to other investors asking for a return of their investment.

The SEC has obtained a court order (1) freezing the assets of NewPoint, the Farahis, and Triple “J”; (2) appointing a temporary receiver over NewPoint and Triple “J”; (3) preventing the destruction of documents; (4) requiring accountings from NewPoint, the Farahis, and Triple “J”; and (5) temporarily enjoining NewPoint, the Farahis, and Amouei from future violations of the registration and antifraud violations of the federal securities laws. The SEC also seeks preliminary and permanent injunctions and civil penalties against the defendants and disgorgement with prejudgment interest against NewPoint, the Farahis, and Triple “J.” A hearing on whether a preliminary injunction should be issued against the defendants and whether a permanent receiver should be appointed is scheduled for Jan. 15, 2010, at 10:00 a.m.”

MAKER OF ATM AND VOTING MACHINES CHARGED WITH FRAUD

The security firm Diebold, Inc., of Canton Ohio, has been charged along with three former executives with fraudulent accounting. Diebold is listed on Wikipedia as one of the largest ATM manufacturing companies in the United States. The executives at Diebold Inc., tried to get their earnings numbers to correspond to the estimates given by Wall Street analysts. Companies who miss estimates often have their market value slide lower and can even have more difficulty in obtaining credit. Most importantly to many executives is the fact their bonus might not be as lucrative if the stock price takes a nose dive because the management did not meet the expectations of market analysts. The following is an excerpt of the post the SEC has put up:

“Washington, D.C., June 2, 2010 — The Securities and Exchange Commission today charged Diebold, Inc. and three former financial executives for engaging in a fraudulent accounting scheme to inflate the company's earnings. The SEC separately filed an enforcement action against Diebold's former CEO seeking reimbursement of certain financial benefits that he received while Diebold was committing accounting fraud.

The SEC alleges that Diebold's financial management received "flash reports" — sometimes on a daily basis — comparing the company's actual earnings to analyst earnings forecasts. Diebold's financial management prepared "opportunity lists" of ways to close the gap between the company's actual financial results and analyst forecasts. Many of the opportunities on these lists were fraudulent accounting transactions designed to improperly recognize revenue or otherwise inflate Diebold's financial performance.

Diebold — an Ohio-based company that manufactures and sells ATMs, bank security systems and electronic voting machines — agreed to pay a $25 million penalty to settle the SEC's charges. Diebold's former CEO Walden O'Dell agreed to reimburse cash bonuses, stock, and stock options under the "clawback" provision of the Sarbanes-Oxley Act.

The SEC's case against Diebold's former CFO Gregory Geswein, former Controller and later CFO Kevin Krakora, and former Director of Corporate Accounting Sandra Miller is ongoing.

“Financial executives borrowed from many different chapters of the deceptive accounting playbook to fraudulently boost the company's bottom line," said Robert Khuzami, Director of the SEC's Division of Enforcement. "When executives disregard their professional obligations to investors, both they and their companies face significant legal consequences."

Scott W. Friestad, Associate Director of the SEC's Division of Enforcement, added, "Section 304 of Sarbanes-Oxley is an important investor protection provision because it encourages senior management to proactively take steps to prevent fraudulent schemes from happening on their watch. We will continue to seek reimbursement of bonuses and other incentive compensation from CEOs and CFOs in appropriate cases."
Section 304 of the Sarbanes-Oxley Act deprives corporate executives of certain compensation received while their companies were misleading investors, even in cases where that executive is not alleged to have violated the securities laws personally. The SEC has not alleged that O'Dell engaged in the fraud. Under the settlement, O'Dell has agreed to reimburse the company $470,016 in cash bonuses, 30,000 shares of Diebold stock, and stock options for 85,000 shares of Diebold stock.

According to the SEC's complaint against Diebold, filed in U.S. District Court for the District of Columbia, the company manipulated its earnings from at least 2002 through 2007 to meet financial performance forecasts, and made material misstatements and omissions to investors in dozens of SEC filings and press releases. Diebold's improper accounting practices misstated the company's reported pre-tax earnings by at least $127 million. Among the fraudulent accounting practices used to inflate earnings and meet forecasts were:

Improper use of "bill and hold" accounting.
Recognition of revenue on a lease agreement subject to a side buy-back agreement.

Manipulating reserves and accruals.
Improperly delaying and capitalizing expenses.
Writing up the value of used inventory.

Without admitting or denying the SEC's charges, Diebold consented to a final judgment ordering payment of the $25 million penalty and permanently enjoining the company from future violations of the antifraud, reporting, books and records, and internal control provisions of the federal securities laws.

The SEC charged Geswein, Krakora, and Miller, in a complaint filed in U.S. District Court for the Northern District of Ohio, with violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Exchange Act Rules 10b 5 and 13b2-1; and aiding and abetting Diebold's violations of 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. In addition, the SEC charged Geswein and Krakora with violating Exchange Act Rules 13a-14 and 13b2-2 and Section 304 of the Sarbanes-Oxley Act. The Commission seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties. The SEC also seeks officer-and-director bars against Geswein and Krakora as well as their reimbursement of bonuses and other incentive and equity compensation.”

Most people should feel just a bit uneasy to know that the company responsible for the security of their bank and many other financial transactions has just been found guilty of accounting fraud. Diebold Inc. seems to have a lot of issues in regards to honesty and integrity. The following is from Wikapedia and helps to outline some of the company’s ongoing problems.

“In August 2003, Walden O'Dell, then the chief executive of Diebold, announced that he had been a top fund-raiser for President George W. Bush and had sent a get-out-the-funds letter to 100 wealthy and politically inclined friends in the Republican Party, to be held at his home in a suburb of Columbus, Ohio.

In December 2005, O'Dell resigned following reports that the company was facing securities fraud litigation surrounding charges of insider trading.
In March 2007, it was reported by the Associated Press that Diebold was considering divesting itself of its voting machine subsidiary because it was "widely seen as tarnishing the company's reputation".
In August 2007, Wikipedia Scanner found that edits via the company's IP addresses occurred to Diebold's Wikipedia article, removing criticisms of the company's products, references to its CEO's fund-raising for President Bush and other negative criticism from the Wikipedia page about the company in November 2005.”

CEO CHARGED WITH STEALING

It is sad that we have so many businessmen that are just pure thieves. This makes us all look bad and undermines our cherrished free enterprise system. These very successful fraudsters also set a bad example for the kids. Hard work does not pay off nearly as well as being a Wall Street Fraudster. The following is another exerpt from the SEC web site that shows how very bad many executives behave:

"Washington, D.C., March 15, 2010 — The Securities and Exchange Commission today charged three former senior executives and a former director of an Omaha-based database compilation company for their roles in a scheme in which the CEO funneled illegal compensation to himself in the form of perks worth millions of dollars.
The SEC alleges that Vinod Gupta, the former CEO and Chairman of infoUSA Inc. and infoGROUP Inc. (Info), fraudulently used corporate funds to pay almost $9.5 million in personal expenses to support his lavish lifestyle. He additionally caused the company to enter into $9.3 million of undisclosed business transactions between Info and other companies in which he had a personal stake.
The SEC also charged the former chairman of Info's audit committee, Vasant H. Raval, and two of the company's former chief financial officers, Rajnish K. Das and Stormy L. Dean, for enabling Gupta to carry out the scheme.

"Gupta stole millions of dollars from Info shareholders by treating the company like it was his personal ATM," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Other corporate officers also abused their positions of trust by looking the other way instead of standing up for investors and bringing the scheme to a halt."
Donald M. Hoerl, Director of the SEC's Denver Regional Office, added, "Officers and directors must ensure that shareholders receive accurate and complete disclosure of all compensation paid to executives. Raval, as chairman of the audit committee, neglected these duties and allowed the money to flow to Gupta unbeknownst to investors."
The SEC's complaints, filed in federal district court in Nebraska, allege that from 2003 to 2007, Gupta improperly used corporate funds for more than $3 million worth of personal jet travel for himself, family, and friends to such destinations as South Africa, Italy, and Cancun. He also used investor money to pay $2.8 million in expenses related to his yacht; $1.3 million in personal credit card expenses; and other costs associated with 28 club memberships, 20 automobiles, homes around the country, and three personal life insurance policies. The SEC also alleges that Gupta failed to inform Info's other board members of the material fact that he had purchased shares of an Info acquisition target for his own ill-gotten financial benefit.
The SEC alleges that Raval failed to respond appropriately to various red flags concerning Gupta's expenses and Info's related party transactions with Gupta's other entities. Two Info internal auditors raised concerns to Raval that Gupta was submitting requests for reimbursement of personal expenses, yet Raval failed to take meaningful action to further investigate the matter and he omitted critical facts in a report to the board concerning Gupta's expenses.
The SEC further alleges that Das and Dean allowed Gupta to support his lavish lifestyle by rubber-stamping hundreds of his expense reimbursement requests. Das and Dean approved Gupta's expense reimbursement requests despite the fact that the requests lacked sufficient explanation of business purpose and supporting documentation, even in the face of concerns raised by several Info employees. Das and Dean also signed management representation letters to Info's outside auditor falsely representing that all related party transactions with Gupta's entities had been properly recorded and disclosed in Info's financial statements.
Gupta, Raval, and Info agreed to settle the SEC's charges without admitting or denying the allegations against them.
Gupta agreed to pay disgorgement of $4,045,000, prejudgment interest of $1,145,400, and a penalty of $2,240,700. He consented to an order barring him from serving as an officer or director of a public company, and placing restrictions on the voting of his Info common stock. Gupta consented to a final judgment enjoining him from violations of Sections 10(b), 13(b)(5), and 14(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-3, and 14a-9 and from aiding and abetting Info's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 13a-1, 13a-13, and 12b-20.
Raval agreed to pay a $50,000 penalty and consented to an order barring him from serving as an officer or director of a public company for five years. He also consented to a final judgment enjoining him from violations of Exchange Act Sections 10(b) and 14(a) and Rules 10b-5, 14a-3, and 14a-9, and from aiding and abetting Info's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20 and 13a-1.
Info consented to the issuance of an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order without admitting or denying any of the findings in the SEC's order. The Order orders Info to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 14a-3, and 14a-9.
The SEC's case against Das and Dean is ongoing. They are charged with violating Exchange Act Sections 10(b), 13(b)(5), and 14(a), and Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-3, and 14a-9, and for aiding and abetting Info's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Rules 12b-20 and 13a-1. Additionally, Das is charged with violating Exchange Act Rule 13a-13. The Commission's complaint seeks permanent injunctions, financial penalties, prejudgment interest, and an officer and director bar against both defendants."

FLASH ORDERS: THE WAY INVESTORS WERE BEAT

The Securities and Exchange Commission voted unanimously to ban flash orders. According to the SEC filing "A flash allows a person who has not publicly displayed a quote to see orders less than a second before the public is given an opportunity to trade with those orders. Investors who have access only to information displayed as public quotes may be harmed if market participants are able to flash orders and avoid the need to make the order publicly available."

"Flash orders may create a two-tiered market by allowing only selected participants to access information about the best available prices for listed securities," said SEC Chairman Mary Schapiro. "These flash orders provide a momentary head-start in the trading arena that can produce inequities in the markets and create disincentives to display quotes."

Flash orders are one of the many ways that wealthy investors have been taking individual investors and traders to the cleaners for years. Up until now, politicians and agencies created to oversea criminal activities on WallStreet, have turned a blind eye to practices such as these. This is a sad time in America when a few wealthy bankers on Wallstreet can manipulate markets with the blessing of the government. Even casino's are better regulated. The very existence of the SEC has for decades gave people the confidence to invest their hard earned savings. The SEC has just been operating as a co-conspirator in the Wallstreet confidence game.

At least finally, the SEC is doing it's job but, will people trust them in the future? Obviously, it would be shear ignorance to trust the Wallstreet banking elite.

The following is more detail regarding their decision on flash orders, released on the SEC web site:

"The Commission today voted unanimously to propose the elimination of the flash order exception from Rule 602. If adopted, the proposed amendment would effectively prohibit all markets - including equity exchanges, options exchanges, and alternative trading systems - from displaying marketable flash orders.

In its proposal, the Commission is seeking public comment and data on a broad range of issues relating to flash orders, including the costs and benefits associated with the proposal. It also seeks comment on whether the use of flash orders in the options markets should be evaluated differently than their use in the equity markets.

* * *
Public comments on today's proposal must be received by the Commission within 60 days after its publication in the Federal Register."

T

SEC CONTINUES TO INVESTIGATE FRAUD

The following information was presented on the SEC website. The information is regarding a case of securities fraud. The SEC is bringing charges of securities fraud against family members who managed a hedge fund based in Florida. This is a follow-up to the charges brought against Arthur G. Nadel last year.

“Washington, D.C., Jan. 11, 2010 — The Securities and Exchange Commission today charged two Sarasota, Fla.-based investment advisers with securities fraud for misleading investors about the financial condition of three hedge funds they managed, and misrepresenting that they controlled the funds' investment and trading activities when in fact they were being handled by Arthur G. Nadel.

The SEC alleges that Neil V. Moody and his son, Christopher D. Moody, distributed offering materials, account statements, and newsletters to investors that misrepresented the hedge funds' historical investment returns and overstated their asset values by as much as $160 million. The Moody’s based their materials on grossly overstated performance numbers that Nadel created and provided to them. The Moodys failed to independently verify the accuracy of the figures despite multiple red flags, and relied exclusively on Nadel’s inaccurate information when communicating with investors.

The SEC last year obtained an emergency court order to freeze his assets.
"The Moodys led investors to believe that they were faithfully managing funds invested with them," said Glenn S. Gordon, Associate Director of the SEC’s Miami Regional Office. "Instead, they abdicated their responsibilities to investors and ignored warning signs that should have alerted them to the fraud that was occurring all around them."

According to the SEC's complaint, filed in federal court in Tampa, Fla., Neil and Christopher Moody disseminated misleading materials to investors about their hedge funds Valhalla Investment Partners L.P., Viking IRA Fund LLC, and Viking Fund LLC from at least 2003 through December 2008.
The SEC's complaint further alleges that the Moodys misled investors regarding their role in managing the assets of the three hedge funds by claiming that they controlled all of the investment and trading decisions. In truth, under an arrangement that the Moodys had with Nadel, he controlled nearly all of the funds’ investment and trading activities with no meaningful supervision or oversight by the Moodys.

In its complaint against the Moodys, the SEC seeks permanent injunctions, financial penalties, and disgorgement of illegal gains. Without admitting or denying the SEC's allegations, the Moodys have consented to permanent injunctions against future securities fraud violations. The Moodys also consented to the entry of a Commission order that will bar them for five years from associating with any investment adviser.”

CALIFORNIA TELECOM CO. CHARGED WITH BRIBERY

On Dec. 31, 2009, the SEC charged UTStarcom, with corrupton charges. The following was found on the SEC Governmental page. It seems that UTStarcom had a very lavish and intricate scheme for bribing officials in Asia. The Department of Justice was also involved with this case. The following is an exerpt from the SEC web page:

"Washington, D.C., Dec. 31, 2009 — The Securities and Exchange Commission today charged Alameda, Calif.-based telecommunications company UTStarcom, Inc. with violations of the Foreign Corrupt Practices Act (FCPA) for authorizing millions of dollars in unlawful payments to foreign government officials in Asia.

UTStarcom agreed to settle the SEC's charges and pay a $1.5 million penalty among other remedies. In a related criminal case, the U.S. Department of Justice announced today that UTStarcom agreed to pay an additional $1.5 million fine.

"UTStarcom spent millions of dollars on illegal bribes to win and keep customers in Asia," said Marc J. Fagel, Director of the SEC's San Francisco Regional Office. "It is important for corporate America to recognize that resorting to these methods of boosting profits contributes to a culture of corruption that cannot be condoned under U.S. law."

The SEC's complaint, filed in the U.S. District Court for the Northern District of California, alleges that UTStarcom's wholly-owned subsidiary in China paid nearly $7 million between 2002 and 2007 for hundreds of overseas trips by employees of Chinese government-controlled telecommunications companies that were customers of UTStarcom, purportedly to provide customer training. In reality, the trips were entirely or primarily for sightseeing.

The SEC further alleges that UTStarcom provided lavish gifts and all-expenses paid executive training programs in the U.S. for existing and potential foreign government customers in China and Thailand. UTStarcom also purported to hire individuals affiliated with foreign government customers to work in the U.S. and provided them with work visas, when in reality the individuals did no work for UTStarcom. According to the SEC's complaint, UTStarcom also made improper payments to sham consultants in China and Mongolia while knowing that they would pay bribes to foreign government officials.

The SEC's complaint charges UTStarcom with violations of the anti-bribery, books and records, and internal controls provisions of the FCPA. UTStarcom agreed, without admitting or denying the charges, to the entry of a permanent injunction against FCPA violations and to provide the SEC with annual FCPA compliance reports and certifications for four years, in addition to paying the $1.5 million penalty.

The SEC acknowledges the assistance of the Department of Justice during the investigation."

SEC GETS TOUGH ON WALL STREET FRAUDSTERS

Following is the speech by the new Securities and Exchange Commission Chairman, Mary Schapiro. She wants to get tough on Wall Street. She will have a lot law makers who are in the pocket of Wall Street who, will fight her at every turn. An edited copy of her speech is included in this blog because unlike most Washington speeches, her speech is not too boring and is full of needed information. Because this is a speech to SEC employees, part of this speech was removed to better highlight the changes she wants to make to at least get some justice (revenge) for Americans who are being so devastated by trillionaires on Wall Street and their government stooges. This speech was lifted from the SEC web site where the speech can be read in its entirety:

Speech by SEC Chairman:
Address to Practising Law Institute's "SEC Speaks in 2009" Program
by
Chairman Mary L. Schapiro
U.S. Securities and Exchange Commission
February 6, 2009

I have been back at the Commission for less than two weeks, after a nearly 15-year hiatus. I am extremely proud to return to the agency that I know is so important to investors and our economy.

We must take our cues from the current environment. Trillions of dollars of wealth have been lost. Our economy is in recession. And investor confidence has been badly shaken. Middle-class families who were relying on that nest egg to send a son or daughter to college or for a secure retirement now don't know where to turn.

It is precisely during times like these that we need the SEC as the "investor's advocate." An SEC with the staff, the will, and the resources necessary to move with great urgency to:bring transparency and accountability to all corners of the marketplace,vigorously prosecute those who have broken the law and cheated investors, andmodernize our country's regulatory system to match the realities of today's global, interdependent markets.

As the current market crisis has unfolded, the SEC, along with the entire regulatory structure, has been put under a microscope. This crisis has exposed weaknesses and gaps in the regulatory system and areas where the SEC particularly must re-commit its resources and talents in order to restore investor confidence. We must help to restore that lost confidence — that is our challenge.

Success in this endeavor demands that we as an organization engage in serious self-evaluation. That means taking an honest look at everything we are doing and how we do it. I know there is so much being done right, but there is also much that can be done better. I learned long ago that one of the SEC's greatest strengths has been its ability to adapt to change, while never forgetting that it is the American people we are here to serve.

The challenges we face are historic. But they're not insurmountable. It will take determination, hard work, toughness, and above all, an unrelenting will to stand up for investors.

But make no mistake. Regulation is a two-way street. The "regulated" need not wait for a regulator's reforms, though they will come. At a time when investors are appalled at the ways of Wall Street, it is there that change must begin. A strong and reinvigorated SEC will be on the beat like never before to catch wrongdoers. But there needs to be a new era of responsibility on Wall Street and throughout our markets to ensure that wrongs don't occur in the first place. The sooner that Wall Street works to repair its own problems, the sooner investors will once again find the confidence to invest in what should be the finest markets in the world.

There is much we can do to accelerate that process, including giving shareholders a greater say on who serves on corporate boards, and how company executives are paid.

There is much to be accomplished, but this morning I'm here to describe how we will approach the challenges we face, and the actions we've already taken.

At my confirmation hearing, I emphasized the need for the SEC to move with the sense of urgency that investors demand — to be willing and able to move quickly, precisely, and decisively to take actions that will restore investor trust and confidence in our financial markets.

Investors are looking to the SEC to protect them. To do that well, we have to act swiftly to respond to market events, and that means we must be willing to change the way we do business.

Those who break the law and take advantage of investors need to know that they will face an unrelenting law enforcement agency in the SEC — an agency that will pursue them until the full force of the law is the sure, certain, and sole reward for their wrongdoing. No one should be heard credibly to question whether enforcement is a priority at the SEC. It is, and always will remain, a foundation of our mission.

As the first SEC Chairman, Joseph Kennedy, told the nation 75 years ago in explaining the agency's role, "The Commission will make war without quarter on any who sell securities by fraud or misrepresentation."

As a first, but significant, step in empowering our Enforcement staff, I am this week taking action to end the Commission's two-year "penalty pilot" experiment, which had required the Enforcement staff to obtain a special set of approvals from the Commission in cases involving civil monetary penalties for public companies as punishment for securities fraud.

In speaking to our Enforcement staff, I've been told that these special procedures have introduced significant delays into the process of bringing a corporate penalty case; discouraged staff from arguing for a penalty in a case that might deserve a penalty; and sometimes resulted in reductions in the size of penalties imposed.

At a time when the SEC needs to be deterring corporate wrongdoing, the "penalty pilot" sends the wrong message. The action I am taking to end the penalty pilot is designed to expedite the Commission's enforcement efforts to ensure that justice is swiftly served to those public companies who commit serious acts of securities fraud.

Another immediate change I am putting in place to bolster the SEC's enforcement program is to provide for more rapid approval of formal orders of investigation — the permission slips given out by the Commission that allow SEC staff to use the power of subpoenas to compel witness testimony and the production of documents. When I was a Commissioner, formal orders were routinely reviewed and approved within a couple of days by written approval of the Commission or by "duty officer" — a single Commissioner acting promptly and on behalf of the entire Commission.

Today, however, many formal orders of investigation are made subject to full review at a meeting of all five Commissioners, necessitating that they be placed on the calendar sometimes weeks in advance. In investigations that require use of subpoena power, time is always of the essence, and every additional day of delay can be costly. To ensure that subpoena power is available to SEC staff when needed, I've given direction for the agency to return to the prior policy of timely approval of formal orders by seriatim approval or where appropriate, by a single Commissioner acting as duty officer.

In addition to these immediate actions, I have also spent much of my first week and a half on the job in meetings with my fellow Commissioners and the agency's senior staff to discuss other ways in which we can reinvigorate the SEC's enforcement program, including improving the handling of tips and whistleblower complaints and focusing on areas where investors are most at risk. And I anticipate that we'll be making further improvements in the coming weeks and months to ensure swift and vigorous enforcement.

In deciding upon regulatory priorities, it is vital that the SEC re-engage with the people we serve: investors. The investor community — from the largest pension fund to the family who has saved in their 401(k) or 529 plan — needs to feel that they have someone on their side — that they can go to the SEC to seek redress, or to have their opinions heard.

To that end, we will form an Investor Advisory Committee to ensure that the Commission hears first hand about the issues most concerning to investors.

The crisis facing our capital markets will require aggressive and timely action to restore investor trust and confidence. To this end, allow me to highlight a few of the initiatives that I hope to pursue as priorities:

Improving the quality of credit ratings by addressing the inherent conflicts of interest credit rating agencies face as a result of their compensation models and limiting the impact of credit ratings on capital requirements of regulated financial institutions.

Reducing systemic risk to investors and markets by promoting — and regulating appropriately — centralized clearinghouses for credit default swaps.

Strengthening risk-based oversight of broker-dealers and investment advisers.

Improving the quality of audits for nonpublic broker-dealers and promoting the safe and sound custody of customer assets by any broker-dealer or investment adviser.

Seventy-five years after the SEC was founded, the Commission finds itself in a situation where, once again, it must play a critical role in reviving our markets, bolstering investor confidence, and rejuvenating our economy.

The American people want and expect us to update the regulatory system that has failed them — and to prevent the kinds of abuses that have contributed to the economic crisis we now face.

Even as we pursue these regulatory priorities, the SEC will also be working closely with Congress to ensure that legislative restructuring of our financial regulatory system will preserve and strengthen our commitment to transparency, accountability, disclosure, and most of all, investor protection.

I am under no illusion that this will be an easy job. There is a lot of work to be done — quickly and diligently — in the months ahead. I look forward to this challenge, to helping the millions of investors who rely on strong markets and a strong economy, and to working with the professionals at the SEC.

The above speech sounds like we will have a great improvment in the confidnece the American people feel for their government.




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