SEC CHARGES FORMER MADOFF EMPLOYEE WITH CREATING FAKE TRADES

The following excerpt is from the SEC website: “Washington, D.C., Nov. 21, 2011 – The Securities and Exchange Commission today charged a longtime Bernie Madoff employee with fraud for his role in creating fake trades to facilitate the massive Ponzi scheme. The SEC alleges that David Kugel, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for nearly four decades, was asked by Madoff to provide the firm’s investment advisory operations with backdated arbitrage trade information to be formulated into fictitious trading on investors’ account statements. Kugel’s own account at BMIS was among those in which backdated trades were entered, and he withdrew nearly $10 million in “profits” from the fictitious trading over several years. "Kugel helped Madoff maintain the elaborate and enduring facade that his clients were engaged in actual trading when in fact no such trading occurred," said George S. Canellos, Director of the SEC's New York Regional Office. "Kugel withdrew millions of dollars of phony profits that he knew weren't from actual trading activity." The SEC previously charged two other longtime Madoff employees Annette Bongiorno and JoAnn Crupi for their roles in producing phony account statements that were sent to Madoff investors. According to the SEC’s complaint against Kugel filed in U.S. District Court for the Southern District of New York, Bongiorno and Crupi and other staff in Madoff’s investment advisory (IA) operations used the information provided by Kugel to formulate fictitious trades to appear on investor account statements. The SEC alleges that sometime in the early 1970s after Kugel began his career with Madoff as an arbitrage trader in the firm’s proprietary trading business, Madoff informed Kugel that BMIS managed money for outside clients. He asked Kugel to provide the firm’s IA operations with backdated convertible arbitrage trades for inclusion on investor account statements. Some of these trades replicated successful trades that Kugel had actually made for BMIS proprietary trading operations. Other trades were based on historical information that Kugel obtained from old newspapers. According to the SEC’s complaint, Bongiorno and Crupi regularly asked Kugel for backdated information about trades amounting to millions of dollars. After Kugel provided the information, Crupi and Bongiorno would then design trades that totaled that amount. These fictitious trades were highly profitable on an annualized basis, and appeared on account statements and trade confirmations sent to investors. Kugel, who opened his own BMIS account, received these account statements and trade confirmations as well. The SEC alleges that Kugel provided backdated trade information for IA accounts, including his own. He withdrew the purported “profits” of these trades even though he knew they weren’t proceeds of actual trading activity. One trade in S&P index options in 2007 earned Kugel a profit of more than $375,000 in just a few weeks. Kugel withdrew almost $10 million from his BMIS IA accounts from 2001 to 2008. The U.S. Attorney’s Office for the Southern District of New York has filed parallel criminal charges against Kugel, who has pled guilty and also agreed to settle the SEC’s civil charges. Subject to court approval, the civil case will result in a permanent injunction against Kugel, who must forfeit his ill-gotten monetary gains upon entry of a criminal forfeiture order in the criminal case. The SEC’s complaint against Kugel alleges that by engaging in this conduct, Kugel violated and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; aided and abetted violations of Sections 204, 206(1) and 206(2) of the Investment Advisers Act of 1940 and Rule 204-2 thereunder, and Sections 15(c) and 17(a) of the Exchange Act and Rules 10b-3 and 17a-3 thereunder. The SEC’s investigation was conducted by Kristine M. Zaleskas and Aaron P. Arnzen of the New York Regional Office. The Commission thanks the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation for its coordination and assistance. The SEC’s investigation is continuing.”

SEC GETS EMERGENCY COURT ORDER HALTING AN ALLEGED PONZI SCHEME

The following excerpt is from the SEC website: "Washington, D.C., Oct. 6, 2011 – The Securities and Exchange Commission announced that it obtained an emergency court order today to halt a Ponzi scheme that promised investors rich returns on water-filtering natural stone pavers, but bilked them of approximately $26 million over a four-year period. The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, alleges that convicted felon Eric Aronson and others defrauded investors in PermaPave Companies, a group of firms based on Long Island, N.Y., and controlled by Aronson. About 140 individuals, many working in the construction or landscaping business, invested in the scheme between 2006 and 2010, the SEC alleged. Investors were told that PermaPave Companies had a tremendous backlog of orders for pavers imported from Australia, which could be sold in the U.S. at a substantial mark-up, yielding monthly returns to investors of 7.8% to 33%. In reality, the complaint states that there was little demand for the product, and the cost of the pavers far exceeded the revenue from sales. Lacking the profits promised to investors, Aronson and two other PermaPave Companies executives, Vincent Buonauro Jr., and Robert Kondratick, used new investments to make payments to earlier investors and then siphoned off much of the rest for themselves, buying luxury cars, gambling trips to Las Vegas, and jewelry. In addition, the complaint alleges that Aronson used investors’ money to make court-ordered restitution payments to victims of a previous scheme to which he pleaded guilty to conducting in 2000. “Aronson and his associates operated the PermaPave Companies as a classic Ponzi scheme,” said George S. Canellos, Director of the New York Regional Office. “They created the façade of a profitable business, promised investors extraordinary rates of return, and used much of their investors’ money to fund their own lavish lifestyle.” The U.S. Attorney’s Office for the Eastern District of New York, which conducted a parallel investigation of the matter, today filed criminal charges against Aronson, Buonauro, and Kondratick, who were arrested earlier today. According to the SEC’s complaint, when investors began demanding money owed to them, Aronson accused them of committing a felony by lending the PermaPave Companies money at the interest rates he promised them, which he suddenly claimed were usurious. Aronson and his attorney, Fredric Aaron, then allegedly made false statements to persuade investors to convert their securities into ones that deferred payments owed them for several years. The SEC also alleges that the defendants used some of the money raised through the Ponzi scheme to purchase a publicly traded company, Interlink-US-Network, Ltd. Several months later, the SEC said Interlink issued a Form 8-K, signed by Kondratick, which falsely stated that LED Capital Corp. had agreed to invest $6 million in Interlink. According to the complaint, LED Capital Corp. did not have $6 million and had no dealings, let alone any agreements, with Interlink. U.S. District Court Judge Jed S. Rakoff granted the SEC’s request to freeze assets of the defendants and eight relief defendants. The SEC is seeking preliminary and permanent injunctions against the defendants, and to have them return their allegedly illicit profits with prejudgment interest, and pay civil monetary penalties. In addition, the SEC seeks to bar Aronson, Kondratick, and Aaron from participating in penny-stock offerings and from serving as officers or directors of public companies. The SEC’s complaint charges Aronson, Kondratick, Buonauro, the PermaPave Companies, and Interlink with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and charges Aaron with aiding and abetting the Section 10(b) and Rule 10b-5 violations. The complaint charges Interlink with violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-11 thereunder, and charges Aronson, Kondratick, and Aaron with aiding and abetting these violations. The complaint also asserts violations of Section 5(a) and 5(c) of the Securities Act as to Aronson, Buonauro, and the PermaPave Companies and violations of Section 15(a) of the Exchange Act as to Aronson and Buonauro. The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Eastern District of New York and the Securities Fraud Squad of Federal Bureau of Investigation in connection with this matter. Celeste Chase, Daniel Michael, and Desiree M.C. Marmita, conducted the SEC’s investigation; Howard Fischer of the SEC’s New York Regional Office will lead the litigation."

MILLIONS MISAPPROPRIATED IN PONZI SCHEME

The following is from the SEC website: “The Securities and Exchange Commission announced today that the United States District Court for the District of Utah entered a final judgment, dated September 16, 2011, against Erin O’Malley, f/k/a Erin O. Mowen. Ms. O’Malley is the former spouse of convicted felon and securities law recidivist, Jeffrey L. Mowen. On May 4, 2011, Mowen pled guilty to committing wire fraud in a related criminal action, United States of America v. Mowen, Case No. 2:09-cr-00098-DB (D. Utah). In pleading guilty, Mowen acknowledged operating a Ponzi scheme from around October 2006 to around October 2008, wherein he received over $18 million from investors for use in a purported foreign currency trading program. The SEC Complaint alleges that the investor funds provided to Mowen were raised by Thomas Fry and the other defendants, Fry’s promoters, from the unregistered offer and sale of high-yield promissory notes to over 150 investors in several states. Mowen acknowledged in his guilty plea that, rather than using investor funds for their intended purpose, he used the money for his personal benefit, misappropriating over $8 million. According to the SEC’s Complaint, Mowen transferred approximately $650,000 of the misappropriated funds to his then wife, relief defendant Erin O’Malley. The SEC sought the return of those funds in its complaint from Ms. O’Malley, whom it alleged had no bona fide right to the funds. The SEC did not allege that Ms. O’Malley personally committed any securities law violation. Ms. O’Malley did not respond to the SEC’s allegations and the court therefore ordered the default judgment against her, ordering her to disgorge $654,101 in funds that the SEC had shown, through bank records, Mowen had transferred to her. The SEC’s action is continuing against Mowen, Fry, and Fry’s promoters.”