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.

SUNTRUST MORTGAGE TO PAY $320 MILLION SETTLEMENT

FROM:  U.S. JUSTICE DEPARTMENT 
Thursday, July 3, 2014
SunTrust Mortgage Agrees to $320 Million Settlement
Money Will Provide Relief to Harmed Borrowers and Establish Prevention Fund

The Department of Justice today announced an agreement with SunTrust Mortgage Inc. that resolves a criminal investigation of SunTrust’s administration of the Home Affordable Modification Program (HAMP).

As detailed in documents filed today, SunTrust misled numerous mortgage servicing customers who sought mortgage relief through HAMP.  Specifically, SunTrust made material misrepresentations and omissions to borrowers in HAMP solicitations, and failed to process HAMP applications in a timely fashion.  As a result of SunTrust’s mismanagement of HAMP, thousands of homeowners who applied for a HAMP modification with SunTrust suffered serious financial harms.

SunTrust has agreed to pay $320 million to resolve the criminal investigation into SunTrust’s HAMP Program.  The money is divided as follows:
Restitution – SunTrust will pay $179 million in restitution to compensate borrowers for damage caused by its mismanagement of HAMP.  That money will be distributed to borrowers in eight pre-determined categories of harm.  If more than $179 million is needed, the bank will also guarantee an additional $95 million for additional restitution.  SunTrust will also pay $10 million in restitution directly to Fannie Mae and Freddie Mac.
Forfeiture – SunTrust will pay $16 million in forfeiture.  This money will be available to law enforcement agencies working on mortgage fraud and other matters related to the misuse of TARP funds.
Prevention – SunTrust will pay $20 million to establish a fund for distribution to organizations providing counseling and other services to distressed homeowners. Specifically, SunTrust will pay this amount to a grant administrator selected by the government, which funds will in turn be awarded to housing counseling agencies and other non-profits devoted to consumer counseling and advocacy.

In addition to the significant payment, SunTrust has agreed to implement certain remedial measures aimed at preventing future problems like those that led to this investigation.  Specifically, it will increase loss mitigation staff, monitor their mortgage modification process, and provide semi-annual reports regarding compliance with the agreement.

This settlement makes clear the Department’s commitment to supplementing its enforcement work with support for prevention programs.  The grant fund established by this settlement will help distressed homeowners avoid the harms that befell SunTrust customers.  This is real relief for housing agencies, which will compete for grants to increase their counseling and other services to homeowners across the country.

“Instead of helping distressed homeowners, SunTrust’s mismanagement drove up foreclosures, disseminated individual credit and increased costs for hardworking men and women across our nation,” said Attorney General Eric Holder.  “This resolution will provide much-needed restitution for victims. It will make available substantial funds to help other homeowners avoid foreclosure. And it will result in the kinds of systemic changes needed to ensure that this will not happen again.  This outcome demonstrates yet again that the Justice Department will never waver in its ongoing pursuit of those whose reckless and willful actions harm the American people and undermine our financial markets.”

“The $320 million resolution of this long-running investigation requires SunTrust Mortgage to compensate its customers for the harm caused by the company’s false promises in administration of the Home Affordable Modification Program in 2009 and 2010 – conduct thoroughly described in the Statement of Facts that accompanies the settlement documents,”  U.S. Attorney Timothy J. Heaphy said today.  “Up to $284 million will be paid in restitution directly to the victims of SunTrust’s conduct.  SunTrust will also establish a $20 million grant fund which will be distributed to agencies working with distressed homeowners and provide $16 million in asset forfeiture funds that will be used by law enforcement for future mortgage fraud investigations.  The company has also agreed to make specific changes in its operations designed to prevent similar problems in the future.

“SunTrust has done the right thing by agreeing to this novel package of restitution, remediation, and prevention, which represents a significant victory not only for SunTrust customers, but also for Americans who will receive counseling and other assistance when faced with financial challenges,” U.S. Attorney Heaphy said.  “This settlement demonstrates the commitment of the Department of Justice and the Special Inspector General for the Troubled Asset Relief Program to hold financial institutions accountable and provide restitution to those harmed by their conduct.”

“Today’s agreement with SunTrust underlines the importance of holding accountable those individuals and companies who pledge to ensure that homeowners are protected at all times; especially during times when the homeowner is seeking to save their home through a loan modification.  SunTrust has conceded that their HAMP program had numerous deficiencies and has harmed a significant amount of homeowners.  This behavior will not be tolerated.  We are proud to have worked with our law enforcement partners on this case,” said Michael P. Stephens, Acting Inspector General of the Federal Housing Finance Agency Office of Inspector General.

“HAMP was designed to be a beacon of hope and opportunity for homeowners in dire straits, but TARP recipient SunTrust, rather than assist homeowners in need, financially ruined many through an utter dereliction of its HAMP program,” said Christy Romero, Special Inspector General for TARP (SIGTARP).  “This criminal investigation uncovered that SunTrust so bungled its administration of the program, that many homeowners would have been exponentially better off having never applied through the bank in the first place.  Unwilling to put resources into HAMP despite holding billions in TARP funds, SunTrust put piles of unopened homeowners’ HAMP applications in a room.  SunTrust’s floor actually buckled under the sheer weight of unopened document packages.  Documents and paperwork were lost.  Homeowners were improperly foreclosed upon.  Treasury was lied to.  The negligence with which SunTrust administered its HAMP program is appalling, miserable, inexcusable, and repulsive.  Real people lost their homes, and many others faced financial ruin.  Ending this behavior and, where necessary, forcing institutions to change their culture through law enforcement by SIGTARP and our partners will help begin the process of restoring faith in financial institutions and healing public trust.”

The investigation of the case was conducted by the United States Attorney’s Office for the Western District of Virginia, the Office of the Special Inspector General for the Troubled Asset Relief Program, and the Office of the Inspector General for the Federal Housing Finance Agency (FHFA) and the United States Postal Inspection Service.

SEC SETTLES CHARGES AGAINST ALLEGED PRIME BACK INVESTMENT SCHEME PROMOTER

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Files Settled Charges Against Arizona Resident in Prime Bank Investment Scheme

On June 26, 2014, the Securities and Exchange Commission charged Cheryl L. Robinson with violating the antifraud and registration provisions of the federal securities laws in connection with an advance-fee high-yield investment scam perpetrated by Switzerland-based Malom Group AG ("Malom") and Las Vegas-based M.Y. Consultants, Inc. As alleged in the complaint, Robinson acted as a promoter who recruited investors for Malom Group AG and M.Y. Consultants, Inc. from approximately 2009 to 2011. In this role, Robinson made materially false and misleading statements to investors about, among other things, Malom's background, its financial resources, and history of success. She also failed to inform investors that none of her clients had received any profits from a transaction with Malom and that all had lost their entire investment. Finally, she omitted to tell any of the investors that she would be paid approximately 25% of the investors' advance fees regardless of whether a transaction produced profits. The complaint also alleged that Robinson acted as an unregistered broker dealer and sold unregistered Malom securities. By virtue of this conduct, the complaint alleges Robinson violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and aided and abetted violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5.

Without admitting or denying the SEC's allegations, Robinson agreed to settle the case against her. The settlement is pending final approval by the court. Specifically, Robinson consented to the entry of a final judgment that (1) permanently enjoins her from future violations of Securities Act Sections 5(a), 5(c), and 17(a), Exchange Act Sections 10(b), 15(a), and Rule 10b-5 thereunder, and from aiding and abetting violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5; (2) permanently enjoins her from directly or indirectly participating in the issuance, offer, or sale of any security, including but not limited to joint venture agreements, proofs of funds, bank guarantees, medium term notes, standby letters of credit, structured notes, and similar instruments, with the exception of the purchase or sale of securities listed on a national securities exchange; (3) orders that she is liable for disgorgement in the amount of $204,417 and $13,802 in prejudgment interest, for a total of $218,219, and waives that amount based on her demonstrated inability to pay. The Commission also decided to forego a civil penalty based on her demonstrated financial condition.

As part of the settlement, and following the entry of the proposed final judgment, Robinson, without admitting or denying the Commission's findings, has consented to the entry of a Commission order, pursuant to Exchange Act Section 15(b)(6), permanently barring her from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, or from participating in an offering of penny stock.

The SEC previously charged Malom Group AG, its principals, and agents with violating the antifraud and securities registration provisions of the federal securities laws in SEC v. Malom Group AG, et al, 2:13-cv-2280 (D. Nev. Dec. 16, 2013), SEC v. Erwin et al., 2:14-cv-623 (D. Nev. Apr. 23, 2014), and SEC v. Smith, 1:14-cv-192 (D.N.H. May 2, 2014). For additional information about these cases, see Litigation Release Number 22890 (Dec. 16, 2013); Litigation Release Number 22978 (Apr. 28, 2014); and Litigation Release Number 22984 (May 2, 2014).

SEC FILES ACTION AGAINST IMPRISONED FORMER STOCK PROMOTER

FROM:  SECURITIES AND EXCHANGE COMMISSION 

SEC Files Action Against Former Stock Promoter Now in Prison for Lying to SEC Investigators

On April 23, 2014, the Securities and Exchange Commission filed suit in United States District Court for the Southern District of Florida against defendants Robert J. Vitale ("Vitale") and Realty Acquisitions & Trust, Inc. ("RATI"), and relief defendant Coral Springs Investment Group, Inc. ("CSIG"). The Commission's complaint alleges that between 2004 and 2010, Vitale and RATI fraudulently raised at least $8.7 million from investors through four real estate securities offerings. According to the complaint, Vitale and RATI made numerous materially false and misleading statements and omissions concerning, among other things, the credentials and experience of Vitale and other purported RATI officers, Vitale's supposed reputation for honesty in the investment world, the safety of investing in RATI, and the ownership of the properties purchased with RATI investor proceeds. The complaint further alleges that Vitale also effected transactions in securities for the account of others without being registered as a broker in connection with his RATI activities, and, by so doing, violated both the unregistered-broker statute and a 2006 Commission Order that barred him from association with any broker or dealer. The complaint further alleges that no registration statement was on file with the Commission or in effect with respect to any of the RATI offerings or sales.

The Commission charges Vitale and RATI with violating Sections 5 and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The Commission also charges Vitale with violating Sections 15(a) and 15(b)(6)(B) of the Exchange Act. The Commission seeks disgorgement of the ill-gotten gains related to these violations with prejudgment interest from Vitale, RATI, and relief defendant CSIG, and civil money penalties against Vitale and RATI.

Vitale is currently an inmate at the Federal Detention Center in Miami. He was sentenced in September 2013 to two years in prison after being convicted of obstruction of justice and providing false testimony in the investigation that led to the SEC case filed today.

The Commission acknowledges the assistance of the United States Attorney's Office, the Federal Bureau of Investigation, and the Florida Office of the Attorney General in this matter.

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.

MAN INDICTED IN $20 MILLION PROMISSORY NOTE FRAUD CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Joseph Paul Zada Indicted for Fraud

The Securities and Exchange Commission announced today that on September 4, 2013, a Grand Jury sitting in the United States District Court for the Southern District of Florida returned an Indictment charging Joseph Paul Zada with 21 counts of mail fraud, two counts of wire fraud, two counts of money laundering, and two counts of interstate transportation of stolen property. The Indictment also seeks forfeiture of properties obtained as a result of the alleged criminal violations.

The Indictment alleges that from at least January 1998 through August 2009, Zada caused over twenty investors to invest over $20 million based on materially false statements and omissions. According to the Indictment, Zada attracted investors by projecting an image of great wealth, portraying himself as a successful businessman and investor with connections to Saudi Arabian oil ventures. He also hosted extravagant parties, drove expensive luxury vehicles, and maintained expensive homes in Wellington, Florida and Grosse Pointe, Michigan. The investors sent money to Zada with the understanding that he would use the funds to invest in various oil ventures on their behalf. The investors usually received promissory notes reflecting the principal amount of their investment. Zada deposited investors' funds into bank accounts he controlled. Instead of investing the funds in oil ventures, Zada used the money to support his lavish lifestyle and to make purported returns on investments to prior investors.

The Indictment's allegations are based on the same conduct underlying the Commission's November 10, 2010 Complaint against Zada in the United States District Court for the Eastern District of Michigan. The Commission charged Zada with violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. On July 31, 2013, the Court granted the Commission's motion for summary judgment against Zada, finding that Zada had violated the provisions alleged by the Commission in its Complaint. The Court set a hearing for October 9, 2013 on the Commission's claims for disgorgement and civil penalties against Zada.

SEC CHARGES CITY OF MIAMI WITH SECURITIES FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged the City of Miami and its former Budget Director with securities fraud in connection with several municipal bond offerings and other disclosures made to the bond investing public. The SEC's action also charges the City with violating a 2003 SEC Cease-and-Desist Order which was entered against the City based on similar misconduct. This case is the SEC's first ever injunctive action against a municipality already under an existing SEC cease-and-desist order.

The SEC alleges in its complaint that beginning in 2008, the City and Michael Boudreaux made materially false and misleading statements and omissions concerning certain interfund transfers in three 2009 bond offerings totaling $153.5 million, as well as in the City's fiscal year 2007 and 2008 Comprehensive Annual Financial Reports ("CAFRs") distributed to broad segments of the investing public, including investors in previously issued City debt. The interfund transfers moved monies from the City's Capital Improvement Fund to its General Fund. Boudreaux orchestrated the transfers in order to mask the increasing deficits in the City's General Fund, its primary operating fund, viewed by investors and bond rating agencies as a key indicator of financial health, at a time when the City was actively marketing bonds to the investing public.

The SEC's complaint, which was filed in the United States District Court for the Southern District of Florida, alleges that the City, through Boudreaux, transferred a total of approximately $37.5 million from its Capital Improvement Fund and a Special Revenue Fund to the General Fund in 2007 and 2008 in order to mask increasing deficits in the General Fund. The SEC also alleges that the City and Boudreaux omitted to disclose to bondholders that the transferred funds included legally restricted dollars which, under City Code, may not be commingled with any other funds or revenues of the City. They also failed to disclose that the funds transferred were allocated to specific capital projects which still needed those funds as of the fiscal year end or, in some instances, already spent that money. The transfers enabled the City to meet or come close to meeting its own requirements relating to General Fund reserve levels. In the wake of the transfers, the City's bond offerings were all rated favorably by credit rating agencies.

After reversing most of the transfers following a report by its Office of Independent Auditor General (OIAG), the City had to declare a state of fiscal urgency once it failed to meet statutorily mandated fund levels in its General Fund, and bond rating agencies downgraded their ratings on the City's debt.

The SEC's complaint charges the City with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. It also charges the City with violating the SEC's 2003 Cease-and-Desist Order. The complaint charges Boudreaux with violations of Section 17(a) of the Securities Act and violations and aiding and abetting violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC's complaint seeks injunctive relief and financial penalties against the City and Boudreaux, and an order commanding the City to comply with the SEC's 2003 Order.

COURT ORDERS $22.8 MILLION IN SANCTIONS AND RESTITTION IN INVESTMENT FRAUD CASE

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION

Federal Court in Florida Imposes over $22.8 Million in a Monetary Sanction and Restitution against Floridian David Merrick and His Company, Trader’s International Return Network

In a parallel criminal action, Merrick was convicted on fraud charges and sentenced to 97 months imprisonment

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Charlene Edwards Honeywell of the U.S. District Court for the Middle District of Florida entered an order requiring defendants David Merrick, previously of Apopka, Fla., and his company, Trader’s International Return Network (TIRN), to jointly pay a civil monetary penalty of over $11.4 million for fraud in connection with a foreign currency trading program that victimized more than 700 customers. The order also requires TIRN, a Panamanian corporation, to pay restitution of $11,437,573 to defrauded customers.

The CFTC order, entered on January 22, 2013, stems from a complaint filed by the CFTC in 2009, charging the defendants with solicitation fraud and misappropriation of customer funds involving at least $22.5 million. The complaint alleged that the defendants provided customers and prospective customers with written and/or electronic documents that contained materially false and misleading statements and omissions regarding the actual investment of customer funds, the risks of trading, and profits achieved (see CFTC Press Release 5733-09, October 15, 2009).

The court previously entered consent orders of permanent injunction against Merrick on April 22, 2010 and TIRN on September 8, 2010, finding that they violated the anti-fraud provisions of the Commodity Exchange Act, as charged. Both orders reserved the issue of monetary sanctions for future order.

In a related criminal case, United States v. David Merrick, No. 10-cr-00109-MSS-DAB (M.D. Fla.), on January 19, 2012, Merrick was found guilty of one count of conspiracy to commit wire fraud, money laundering, and securities fraud and one count of money laundering. He was sentenced to 97 months imprisonment and ordered to pay $11,437,573.15 in restitution to 735 customer-victims.

The CFTC thanks the U.S. Attorney’s Office for the Middle District of Florida, the Federal Bureau of Investigation, and the Securities and Exchange Commission for their assistance in this matter.

CFTC staff members are responsible for the action are William P. Janulis, Barry R. Blankfield, Scott Williamson, Rosemary Hollinger, and Richard B. Wagner.