ALLEGED FALSE CLAIMS LEADS TO SEC FRAUD CHARGES AGAINST INVESTMENT ADVISER

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC: Investment Adviser Boasted Phony Assets and Track Record, Stole From Client

FOR IMMEDIATE RELEASE

2016-161

Washington D.C., Aug. 11, 2016 — The Securities and Exchange Commission today announced fraud charges against a San Francisco man and his investment advisory firm accused of pretending to manage millions of dollars in assets and then stealing money from the first client who invested with them based on their misrepresentations.

The SEC alleges that Nicholas M. Mitsakos and Matrix Capital Markets, which is a state-registered investment adviser in California, solicited investors in a purported hedge fund while falsely marketing themselves as experienced money managers with a highly successful track record.  They claimed assets under management in the millions when in fact they did not manage any client assets at all, and they fabricated a hypothetical portfolio of investments earning 20 to 66 percent annual returns and passed it off to investors as real trading.  When Mitsakos and Matrix Capital Markets were given $2 million in client assets to manage in September 2015, they proceeded to steal approximately $800,000 from that client and used most of it to pay for unauthorized personal and business expenses.

“We allege that Mitsakos and his firm tried to lure prospective investors with a mirage of assets under management and phony performance results, and when they finally won some actual business from a client, they proceeded to steal a large portion of it,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Whenever pitched an investment opportunity with claims of lofty historical performance, it’s important for investors to take the time to verify the information and make sure they’re getting the truth before deciding to invest.”

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

The SEC’s complaint was filed in U.S. District Court for the Southern District of New York and charges Mitsakos and Matrix Capital Markets with violating the antifraud provisions of the federal securities laws.  Mitsakos also is charged with aiding and abetting Matrix Capital’s violations.  The SEC seeks permanent injunctions and disgorgement of ill-gotten gains plus penalties.

The SEC’s continuing investigation is being conducted by Alison R. Levine, Kerri Palen, Alex Janghorbani, and Valerie A. Szczepanik, and the case is supervised by Lara S. Mehraban.  The litigation will be led by Alex Janghorbani and Alison R. Levine.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York.

SEC OBTAINS JUDGEMENT AGAINST DEFENDANTS IN SECURITIES FRAUD CASE

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23114 / October 15, 2014

Securities and Exchange Commission v. Stephen D. Ferrone, et al., Civil Action No. 1:11-cv-05223, USDC, N.D.Ill.

SEC Obtains Summary Judgment Against Defendants in Securities Fraud Involving Biopharmaceutical Company

The Securities and Exchange Commission announced that on October 10, 2014, the Honorable Elaine E. Bucklo of the United States District Court for the Northern District of Illinois granted the SEC's motion for summary judgment and for partial summary judgment, respectively, against Defendants Douglas McClain, Sr. ("McClain Sr."), of Fair Oaks, Texas, and Douglas McClain Jr. ("McClain Jr."), formerly of Savannah, Georgia. The Court found that McClain Sr. violated the antifraud provisions of the federal securities laws by making misrepresentations and omissions and that McClain Sr. and McClain Jr. engaged in insider trading.

The SEC filed this action against the defendants in August 2011, alleging that McClain Sr., McClain Jr., Immunosyn Corporation ("Immunosyn") Argyll Biotechnologies, LLC ("Argyll"), Stephen D. Ferrone, and James T. Miceli ("Miceli") committed securities fraud in connection with materially misleading statements during 2006-2010 regarding the status of regulatory approvals for Immunosyn's sole product, a drug derived from goat blood referred to as "SF-1019." The SEC also charged Argyll, McClain, Jr., McClain, Sr., Miceli, Argyll Equities, LLC ("Argyll Equities"), and Padmore Holdings, Ltd. with insider trading.

The SEC's complaint, filed in federal court in Chicago, alleged, among other things, that the defendants misleadingly stated in public filings with the SEC and in oral presentations that Argyll, Immunosyn's controlling shareholder, planned to commence the regulatory approval process for human clinical trials for SF-1019 in the U.S. or that regulatory approval was underway. The complaint alleges that these statements misled investors because the statements omitted to disclose that the U.S. Food and Drug Administration ("FDA") had already twice issued clinical holds on drug applications for SF-1019, which prohibited clinical trials involving SF-1019 from occurring.

After completion of discovery, the SEC moved for summary judgment, and for partial summary judgment, respectively, against McClain Sr. and McClain Jr. In granting the SEC's motion for summary judgment, the Court found that McClain Sr. committed securities fraud by taking money from investors and failing to deliver Immunosyn shares and by telling investors that Immunosyn would secure approval for SF-1019 from the FDA in about a year and that the U.S. Department of Defense had purchased SF-1019. The Court also found that McClain Sr. and McClain Jr. engaged in insider trading by selling their Immunosyn stock based on the material, non-public information that the FDA had issued clinical holds on drug applications for SF-1019. The Court found that McClain Sr. and McClain Jr. violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5.

The Court will determine the appropriate remedies against McClain Sr. and McClain Jr. at a later date.

SEC ANNOUNCES THAT PENNY STOCK PROMOTER TO PAY $700,000 IN FRAUD CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23107 / October 8, 2014

Securities and Exchange Commission v. Geoffrey J. Eiten and National Financial Communications Corp., Civil Action No. 1:11-CV-12185 (District of Massachusetts, December 12, 2011)

Massachusetts-based Penny Stock Promoter Ordered to Pay Over $700,000 in SEC Fraud Case

The Securities and Exchange Commission announced that on October 7, 2014, the U.S. District Court for the District of Massachusetts entered a final judgment against stock promoter Geoffrey J. Eiten, a Massachusetts resident.  Eiten is a defendant in an action filed by the Commission in December 2011, alleging that Eiten and his company, National Financial Communications, Inc. (“NFC”), made material misrepresentations and omissions in penny stock publications they issued.  Among other things, the judgment orders Eiten to pay a total of $727,029.

The Commission’s complaint, file on December 12, 20122, alleged that Eiten and NFC issued a penny stock promotional publication called the “OTC Special Situations Reports.”  According to the complaint, the defendants promoted penny stocks in this publication on behalf of clients in order to increase the price per share and/or volume of trading in the market for the securities of penny stock companies.  The complaint alleged that Eiten and NFC made misrepresentations in these reports about the penny stock companies they promoted.  The Commission’s complaint alleged that in four reports, Eiten and NFC made material misrepresentations and omissions, concerning, among other things, the companies’ financial condition, future revenue projections, intellectual property rights, and Eiten’s interaction with company management as a basis for his statements.  According to the complaint, Eiten and NFC were hired to issue the above reports and used false information provided by their clients, without checking the accuracy of the information with the companies in question or otherwise ensuring that the statements they were making in the OTC Special Situations Reports were true.

The judgment enjoins Eiten from further violations of the antifraud provisions of the federal securities laws (Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder) and from certain specified activities related to penny stocks, including the promotion of a penny stock or deriving compensation from the promotion of a penny stock.  The judgment also imposed a penny stock bar against Eiten, which permanently bars him from participating in an offering of penny stock, including engaging in activities with a broker, dealer, or issuer for the purpose of issuing, trading, or inducing or attempting to induce the purchase or sale of any penny stock.  The judgment orders Eiten to pay disgorgement of $605,262, representing ill-gotten gains, plus prejudgment interest of $71,767 and a civil penalty of $50,000.

In a previous default judgment against NFC on July 24, 2013, the Court ordered NFC to pay over $1.6 million.

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.

SEC ANNOUNCES FORMER PORTFOLIO MANAGER BARRED FROM INDUSTRY OVER MISREPRESENTATIONS

FROM:  SECURITIES AND EXCHANGE COMMISSION 
01/22/2014 09:56 AM EST

The Securities and Exchange Commission today announced that a former Oppenheimer & Co. portfolio manager has agreed to be barred from the securities industry and pay a $100,000 penalty for making misrepresentations about the valuation of a fund consisting of other private equity funds.

The SEC announced administrative proceedings against Brian Williamson last August based on allegations that he disseminated information falsely claiming that the reported value of the fund’s largest investment came from the portfolio manager of the underlying fund.  Williamson, who managed the fund of funds, actually had valued the investment himself at a significant markup to the value estimated by the underlying fund’s portfolio manager.  Williamson sent marketing materials to potential fund investors reporting a misleading internal rate of return that failed to deduct the fund’s fees and expenses.  Williamson also made false and misleading statements to investor consultants and others in an effort to cover up his fraud.

“Investors rely on truthful and complete disclosures about valuation methodologies and fund fees and expenses, especially when committing to a long-term private equity investment,” said Julie M. Riewe, co-chief of the SEC Enforcement Division’s Asset Management Unit.  “Williamson misled prospective investors by marking up the fund’s interim valuations and concealing his role in enhancing its reported performance.”

Last year, Oppenheimer agreed to pay $2.8 million in a settlement of related charges.

The SEC’s order against Williamson finds that he willfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8.  Without admitting or denying the findings, Williamson consented to the order requiring him to pay a $100,000 penalty and barring him from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization for at least two years.

The SEC’s investigation was conducted by Panayiota K. Bougiamas, Joshua M. Newville, and Igor Rozenblit of the Asset Management Unit along with Jack Kaufman and Lisa Knoop of the New York Regional Office.  The case was supervised by Valerie A. Szczepanik.  The SEC’s litigation was handled by Mr. Kaufman, Mr. Newville, and Charu Chandrasekhar.

SEC ANNOUNCES PRISON TERM AND RESTITUTION PAYMENT ORDER FOR INVESTMENT ADVISOR

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Massachusetts Investment Adviser Sentenced to 36 Months in Jail for Defrauding Investors

The Securities and Exchange Commission (Commission) announced that, on December 11, 2013, Judge Denise J. Casper of the United States District Court for the District of Massachusetts sentenced former Plymouth, Massachusetts investment adviser Jeffrey A. Liskov (Liskov) to serve a prison term of 36 months, followed by a supervised probationary period of 3 years, and to pay $3,003,147 in restitution. The sentence was imposed in connection with Liskov’s guilty plea in July 2013 to a one-count criminal Information charging him with willfully violating Section 206 of the Investment Advisers Act of 1940 (Advisers Act).

The Commission previously filed a civil action against Liskov and his former advisory firm, EagleEye Asset Management, LLC (EagleEye), for defrauding their clients in connection with foreign currency exchange (forex) investments. The factual allegations in the criminal Information are substantially similar to those in the Commission’s complaint in the civil case.  The Commission’s complaint, filed on September 8, 2011, alleged that, between at least November 2008 and August 2010, Liskov made material misrepresentations to several advisory clients to induce them to liquidate investments in securities and instead invest in forex. The forex investments resulted in client losses totaling nearly $4 million, while EagleEye and Liskov pocketed over $300,000 in performance fees. The Commission alleged that Liskov’s strategy was to generate temporary profits on client forex investments to enable him to collect performance fees, after which client forex investments invariably quickly declined in value.

According to the Commission’s complaint, Liskov made material misrepresentations or failed to disclose material information to clients concerning the nature of forex investments, the risks involved in forex, and Liskov’s poor track record in forex trading for himself and other clients. The Commission’s complaint further alleged that, as to two clients, without their knowledge or consent, Liskov liquidated securities in their brokerage accounts and transferred the proceeds to their forex trading accounts where he lost nearly all their funds, but not before first collecting performance fees on temporary profits in these clients’ forex accounts. The complaint alleged that Liskov accomplished the unauthorized transfers by using “white out” correction fluid to change dates, amounts, and other data on asset transfer documentation. Liskov also opened multiple forex trading accounts in the name of one client, without obtaining the client’s consent, thereby maximizing his ability to earn performance fees on the client’s forex investments.

As result of the foregoing conduct, the Commission alleged that EagleEye and Liskov violated Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Advisers Act. The Commission also alleged that EagleEye failed to maintain certain books and records required of investment advisers in violation of Section 204 of the Advisers Act and Rule 204-2 thereunder, and that Liskov aided and abetted EagleEye’s violations of these recordkeeping provisions.

After an eight-day trial in the Commission’s civil case, on November 26, 2012, a jury found that EagleEye and Liskov violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 206(1) of the Advisers Act. After a further hearing, United States District Court Judge William G. Young found that EagleEye and Liskov violated Section 204 of the Advisers Act and Rule 204-2 thereunder, concerning recordkeeping obligations relating to EagleEye’s business. On December 12, 2012, the Court entered a final judgment against EagleEye and Liskov in the Commission’s action, ordering that they be permanently enjoined from future violations of the foregoing provisions of the securities laws. The Court also ordered EagleEye and Liskov to pay, jointly and severally, disgorgement of their ill-gotten gains in the amount of $301,502.26, plus pre-judgment interest on that amount of $29,603.59, and each to pay a civil penalty of $725,000.

On December 27, 2012, the Commission instituted public administrative proceedings against each of EagleEye and Liskov to determine what sanctions against them, if any, would be appropriate and in the public interest. On July 24, 2013, an administrative law judge revoked EagleEye’s registration as an investment adviser and barred Liskov from, among other things, associating with any investment adviser. On September 23, 2013, the Commission issued orders of finality in the administrative proceedings against EagleEye and Liskov.

The Commission acknowledges the assistance of Secretary of the Commonwealth of Massachusetts William F. Galvin’s Securities Division and the United States Commodity Futures Trading Commission, both of which filed cases against EagleEye and Liskov in September 2011.

FDIC ANNOUNCES SETTLEMENT WITH JP MORGAN CHASE & CO. IN RESIDENTIAL MORTGAGE-BACKED SECURITIES CASE

FROM:  U.S. FEDERAL DEPOSIT INSURANCE CORPORATION

The Federal Deposit Insurance Corporation (FDIC) as Receiver for six failed banks has announced a $515.4 million settlement with JPMorgan Chase & Co. and its affiliates (JPMorgan) of the receiverships' federal and state securities law claims based on misrepresentations in the offering documents for 40 residential mortgage-backed securities (RMBS) purchased by the failed banks. The settlement funds will be distributed among the receiverships for the failed Citizens National Bank, Strategic Capital Bank, Colonial Bank, Guaranty Bank, Irwin Union Bank and Trust Company, and United Western Bank. As part of the settlement, JPMorgan has agreed to waive any claims for indemnification from the FDIC in its corporate capacity or its capacity as Receiver for the failed Washington Mutual Bank based on any part of JPMorgan's $13 billion settlement with the United States Department of Justice and other government entities of claims relating to the sale of RMBS, including the $515.4 million settlement with the FDIC.

FDIC Chairman Martin J. Gruenberg said, "The settlement announced today will provide a significant recovery for the six FDIC receiverships. It also fully protects the FDIC from indemnification claims out of this settlement. The FDIC will continue to pursue litigation where necessary in order to recover as much as possible for FDIC receiverships, money that is ultimately returned to the Deposit Insurance Fund, uninsured depositors and creditors of failed banks."

As receiver for failed financial institutions, the FDIC may sue professionals and entities whose conduct resulted in losses to those institutions in order to maximize recoveries. From May 2012 to September 2012, the FDIC as Receiver for five of the failed banks filed ten lawsuits against JPMorgan, its affiliates, and other defendants for violations of federal and state securities laws in connection with the sale of RMBS. As of October 30, 2013, the FDIC has authorized lawsuits based on the sale of RMBS to a total of eight failed institutions and has filed 18 lawsuits seeking damages for violations of federal and state securities laws.

Citizens National Bank and Strategic Capital Bank were each placed into receivership on May 22, 2009; Colonial Bank was placed into receivership on August 14, 2009; Guaranty Bank was placed into receivership on August 21, 2009; Irwin Union Bank and Trust Company was placed into receivership on September 18, 2009; and United Western Bank was placed into receivership on January 21, 2011.

SEC ANNOUNCES CHARGES AGAINST 10 FORMER BROKERS IN $125 MILLION INVESTMENT SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced charges against 10 former brokers at an Albany, N.Y.-based firm at the center of a $125 million investment scheme for which the co-owners have received jail sentences.

The SEC filed an emergency action in 2010 to halt the scheme at McGinn Smith & Co. and freeze the assets of the firm and its owners Timothy M. McGinn and David L. Smith, who were later charged criminally by the U.S. Attorney’s Office for the Northern District of New York and found guilty.

The SEC’s Enforcement Division alleges that 10 brokers who recommended the unregistered investment products involved in the scheme made material misrepresentations and omissions to their customers.  The registered representatives ignored red flags that should have led them to conduct more due diligence into the securities they were recommending to their customers.

“As securities professionals, these brokers had an important duty to determine whether the securities they recommended to customers were suitable, especially when red flags were apparent.  These registered representatives performed inadequate due diligence and failed to fulfill their duties,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

The SEC’s order names 10 former McGinn Smith brokers in the administrative proceeding:

Donald J. Anthony, Jr. of Loudonville, N.Y.
Frank H. Chiappone of Clifton Park, NY.
Richard D. Feldmann of Delmar, N.Y.
William P. Gamello of Rexford, N.Y.
Andrew G. Guzzetti of Saratoga Springs, N.Y.
William F. Lex of Phoenixville, Pa.
Thomas E. Livingston of Slingerlands, N.Y.
Brian T. Mayer of Princeton, N.J.
Philip S. Rabinovich of Roslyn, N.Y.
Ryan C. Rogers of East Northport, N.Y.
According to the SEC’s order, the scheme victimized approximately 750 investors and led to $80 million in investor losses.  Guzzetti was the managing director of McGinn Smith’s private client group from 2004 to 2009, and he supervised brokers who recommended the firm’s offerings.  The SEC’s Enforcement Division alleges that despite his knowledge of serious red flags, Guzzetti failed to take any action to investigate the offerings and instead encouraged the brokers to sell the notes to McGinn Smith customers.

The SEC’s Enforcement Division alleges that the other nine brokers charged in the administrative proceeding should have conducted a searching inquiry prior to recommending the products to their customers.  The brokers continued to sell McGinn Smith notes even after being told that customers placed in some of the firm’s offerings could only be redeemed if a replacement customer was found.  This was contrary to the offering documents.  In January 2008, the brokers learned that four earlier offerings that raised almost $90 million had defaulted, yet they failed to conduct any inquiry into subsequent offerings and continued to recommend McGinn Smith notes.

The SEC’s order alleges that the misconduct of Anthony, Chiappone, Feldmann, Gamello, Lex, Livingston, Mayer, Rabinovich, and Rogers resulted in violations of 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.  The order alleges that Guzzetti failed to reasonably supervise the nine brokers, giving rise to liability under Section 15(b)(6) of the Exchange Act, incorporating by reference Section 15(b)(4).

The SEC’s civil case continues against the firm as well as McGinn and Smith, who were sentenced to 15 and 10 years imprisonment respectively in the criminal case.
The SEC’s investigation was conducted by David Stoelting, Kevin P. McGrath, Lara Shalov Mehraban, Haimavathi V. Marlier, Joshua Newville, Kerri Palen, Michael Paley, and Roseann Daniello of the New York office.  Mr. Stoelting, Ms. Marlier and Michael Birnbaum will lead the Enforcement Division’s litigation.

SEC ANNOUNCES FINAL JUDGEMENT AGAINST DEFENDANT IN "U TURN" PRICING INFORMATION SCHEME

FROM:  SECURITIES AND EXCHANGE COMMISSION 
SEC Obtains Final Judgment Against Edward O'connor

The Securities and Exchange Commission announced today that on July 30, 2013, the Honorable George B. Daniels of the United States District Court for the Southern District of New York entered a final judgment against defendant Edward O'Connor. The final judgment permanently bars O'Connor from service as an officer or director of a public company, orders him to pay disgorgement of $550,000 and a civil penalty of $150,000, and imposes permanent injunctions against future violations of the antifraud, corporate reporting, books and records, and internal accounting controls provisions of the federal securities laws cited in the Commission's complaint.

In its Complaint, as amended, the Commission alleged that O'Connor, a former director and executive officer of publicly traded commodities brokerage firm Optionable, Inc., took part in a scheme to "u turn" pricing information from defendant David Lee, a natural gas options trader at Bank of Montreal ("BMO"), back to reviewers at BMO as if the information had been independently verified. As a result of this scheme, the Commission alleged, BMO's financial results for the fiscal year ended October 31, 2006 and for the first quarter of fiscal year 2007 were materially overstated. The Commission also alleged that O'Connor and another defendant made misrepresentations in Optionable's periodic reports about the firm's valuation services, among other things, and deceived the operator of the New York Mercantile Exchange (NYMEX) through misrepresentations, in a stock purchase agreement, about the truthfulness of Optionable's SEC filings and its compliance with law. O'Connor consented to the entry of the final judgment without admitting or denying the Commission's allegations.

The litigation was handled by Joe Boryshansky, Jess Velona, and Daniel Walfish.

DEFAULT JUDGMENT ENTERED AGAINST DAVID E. HOWARD II, FLATIRON CAPITAL PARTNERS, LLC, AND FLATIRON SYSTEMS, LLC

FROM:  SEC 

April 11, 2012

DEFAULT JUDGMENT ENTERED AGAINST DAVID E. HOWARD II, FLATIRON CAPITAL PARTNERS, LLC, AND FLATIRON SYSTEMS, LLC

The U.S. Securities and Exchange Commission announced that on April 6, 2012, the United States District Court for the Central District of California entered a Final Judgment against David E. Howard II, Flatiron Capital Partners, LLC (FCP), and Flatiron Systems, LLC (FS). Between December 2007 and March 2009, FCP and FS operated as investment companies that purported to trade securities using an automated trading system. Howard, a resident of New York City, was a co-managing member of FCP and the sole managing member of FS. The Commission’s complaint alleged, among other things, that, between December 2007 and January 2009, approximately 192 investors, located in at least 38 states, purchased LLC membership interests in FCP and FS. Investors were persuaded through false and misleading statements made by Howard and others to invest approximately $2.15 million in FCP and FS, and in addition, paid approximately $1.1 million in purported license fees for access to the trading systems. Thereafter, Howard misused and/or misappropriated almost $500,000 of the investor money and he and other principals lost the majority of the remaining funds through unsuccessful trading. Investors lost over $3 million in the scheme.

Howard, FCP and FS did not respond to the SEC’s allegations and the court therefore ordered default judgment against them. Howard, FCP and FS have each been enjoined from committing future violations of 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. In addition, Howard has been enjoined from future violations of Sections 206(1), 206(2), 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, and FCP and FS have each been enjoined from future violations of Section 7(1) of the Investment Company Act of 1940. The Judgment also found Howard and FCP jointly and severally liable to pay disgorgement of $487,028 plus prejudgment interest of $79,838.69 on that disgorgement for a total of $566,866.69 and Howard and FS jointly and severally liable to pay disgorgement of $1,124,218.95 plus prejudgment interest of $127,192.86 on that disgorgement for a total of $1,251,411.81. Finally, Howard was ordered to pay a penalty of $390,000.

SEC FILES INJUNCTION AGAINST BOND SELL AND HIS COMPANY

"The Securities and Exchange Commission today announced its filing of a civil injunctive action alleging fraud in the offer and sale of municipal bonds by Charles A. Aiken and his entity, Aiken Continental, L.L.C.

Filed December 29, 2011 in the U.S. District Court for the Southern District of West Virginia, the SEC’s complaint alleges that Aiken and Aiken Continental made material misrepresentations and omissions in connection with the 2006 offer and sale of $2.96 million of industrial development revenue bonds. Raleigh County, West Virginia issued the bonds in October 2006 to facilitate Aiken Continental’s acquisition of Continental Casket, Inc., a casket manufacturing facility located within its jurisdiction. Aiken formed Aiken Continental in August 2006 for the sole purpose of acquiring Continental Casket’s assets, and served as its sole principal.

According to the SEC’s complaint, Aiken concealed from key participants to the transaction, including the issuer, bond counsel, the underwriter, and the bondholders’ trustee, that he had been indicted for felony financial fraud in late 2005. Aiken also concealed the fact that he was in the process of negotiating a plea agreement just before the bonds were issued in October 2006, which included a term of imprisonment. In addition, Aiken failed to disclose material information about a $200,000 loan to Aiken and Aiken Continental from an entity partially owned by their attorney, in order to facilitate the closing of the transaction. This loan required a $100,000 interest payment, and gave the lender a twenty percent equity interest in Aiken Continental if the loan plus interest was not fully repaid within six months. Aiken’s failure to disclose details about his criminal proceeding and the loan rendered certain statements in the bonds’ Official Statement materially misleading. For example, one section of the Official Statement contained information about Aiken’s background, but failed to mention his felony indictment for financial fraud. Another section of the Official Statement contained projected financial statements for Aiken Continental, but failed to take into account the repayment of the $200,000 loan plus $100,000 interest. Aiken Continental supplied and authorized the use of information in the Official Statement. Aiken signed the Official Statement on behalf of Aiken Continental, and authorized it to be distributed to investors.

According to the SEC’s complaint, Aiken served 90 days in federal prison and 90 days of home detention in Georgia following the close of the transaction. Aiken’s six-month absence negatively affected the operations of the casket company and the Raleigh County bonds are now in default, with the entire principal amount and accrued interest due.

Based on this conduct, the SEC’s complaint alleges that Aiken and Aiken Continental violated Section 17(a)(2) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(b) thereunder. The SEC’s complaint seeks permanent injunctions, disgorgement, prejudgment interest, and civil money penalties."

SEC OBTAINS ASSET FREEZE CHARGING TEXAS MAN OF LYING TO INVESTORS

The following excerpt is from the SEC website: “Washington, D.C., Oct. 18, 2011 – The Securities and Exchange Commission today announced that it has obtained an emergency court order to freeze the assets of a Texas resident and his company charged with falsely telling investors he was using their money to buy and restructure pools of non-performing home mortgages in the wake of the housing market’s decline. The SEC alleges that James G. “Jay” Temme and Stewardship Fund LP raised at least $35 million since 2008 from various investor groups. To lure those investors, Temme developed relationships with people and entities who “vouched” for Temme, including an investment adviser representative with a major investment bank’s private wealth management group and a Texas-based public company that provides mortgage restructuring services. Investors and their advisers, including the bank representative, were told by Temme that he was using the investors’ money to purchase “tapes” of non-performing mortgages from mortgage lenders at a discount and then paying returns based on principal and interest payments he collected from the homeowners, or based on the resale of the mortgages or underlying properties. In several instances, however, Temme was claiming to own mortgages he had never acquired or purporting to transfer the same pool of mortgages to multiple sets of investors. To carry out his scheme, Temme created false documents, made unauthorized financial transactions, and used new investor funds to pay off earlier investors. “Temme took advantage of investors who believed their investments were helping homeowners restructure their mortgages,” said David Woodcock, Director of the SEC’s Fort Worth Regional Office. “In many instances, it appears Temme was just pocketing the investments and using the proceeds for his own illicit purposes.” According to the SEC’s complaint unsealed by the judge today in federal court in the Eastern District of Texas, Temme has been the subject of at least one state court asset freeze and various private lawsuits by different investor groups. However, rather than stopping his scheme, Temme ignored the asset freezes, opened new bank accounts, and raised money from new investors to settle suits filed by earlier investors. The SEC’s complaint charges, among other things, that the defendants violated the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. In addition to emergency and interim relief that has been obtained, the SEC seeks a preliminary injunction and a final judgment permanently enjoining the defendants from future violations of the relevant provisions of the federal securities laws and ordering them to pay financial penalties and disgorgement of ill-gotten gains with prejudgment interest. The case is assigned to U.S. District Judge Michael H. Schneider. The court has scheduled a hearing on the Commission’s motions to appoint a receiver and for a preliminary injunction for Thursday, Oct. 27, 2011, at 2 p.m. CT before U.S. Magistrate Judge Amos L. Mazzant at the U.S. Courthouse in Sherman, Texas. Jonathan Scott, Michael Jackman and Ty Martinez of the Fort Worth Regional Office are conducting the SEC’s investigation, and trial attorney David Reece will lead the litigation. The SEC’s investigation is continuing.”