DALLAS INVESTMENT ADVISER PRINCIPAL SUED OVER ALLEGED FRAUDULENT HIGH-YIELD INVESTMENT SHCME

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Sues Dallas Investment Adviser Principal for Conducting a Fraudulent High-Yield Investment Scheme

The Securities and Exchange Commission today charged a Dallas investment adviser principal with defrauding investors out of $2.3 million in a high-yield investment scheme. The Commission's complaint, filed in Dallas federal court, alleges that Delsa U. Thomas, The D. Christopher Capital Group, LLC ("DCCMG"), and The Solomon Fund LP, lied to investors about the safety and potential returns of the investments. For example, the complaint alleges that Thomas promised that $1 million in investor funds would remain safely invested in U.S. Treasury securities and would yield 650 percent returns in 35 banking days, supposedly from profits in Thomas's high-yield investment program. While Thomas did purchase U.S. Treasury securities, she immediately margined those securities, commingled the margin proceeds with other investor funds, and sent the funds to a foreign intermediary, none of which was disclosed to investors. According to the Commission, Thomas used other investor funds to make Ponzi payments to investors in earlier investment programs she had sold, and for personal expenses. Finally, the complaint alleges that DCCMG was improperly registered with the Commission as an investment adviser, a violation that Thomas aided and abetted.

The complaint charges Thomas, DCCMG, and the Solomon Fund 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. The complaint also charges Thomas and DCCMG with violating Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The complaint also alleges that DCCMG violated Section 203A of the Advisers Act and that Thomas aided and abetted this violation. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest and civil penalties against each of the defendants.

The SEC's investigation was conducted by Ronda Blair and Barbara Gunn of SEC's Fort Worth Regional Office. The SEC acknowledges the assistance of the U.S. Secret Service, the Ontario Securities Commission, and the Alberta Securities Commission.

FINAL JUDGEMENT ENTERED IN INSIDER TRADING SCHEME

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Court Enters Final Judgments Against Former Wall Street Banker, Downstream Russian Trader and Trader’s Wife in Insider Trading Scheme

The Securities and Exchange Commission announced that on January 14, 2013, the Honorable Alvin K. Hellerstein of the United States District Court for the Southern District of New York entered a final judgment by default against defendant Alexander Vorobiev ("Vorobiev") and his wife, relief defendant Tatiana Vorobieva ("Vorobieva") (collectively, the "Vorobievs"), for their role in a serial scheme involving insider trading ahead of numerous health care-related acquisitions, tender offers, and other transactions.

Also, the Commission announced that on October 3, 2012, Judge Hellerstein entered a final judgment against Igor Poteroba ("Poteroba"), formerly an investment banker with UBS Securities LLC ("UBS"), who also had been charged in this matter with insider trading for misappropriating highly confidential inside information from UBS about those health care transactions and tipping that information to his friend, Aleksey Koval ("Koval"), also a financial professional, who, in turn, tipped Vorobiev.

The Commission's complaint, filed on March 24, 2010, alleges that, from at least July 2005 through February 2009, Poteroba, Koval, and Vorobiev participated in an insider trading ring that netted over $1 million in illicit profits. According to the complaint, Poteroba was the source of material, nonpublic information about eleven impending corporate transactions, which he obtained through his work as an investment banker in UBS's Global Healthcare Group. Poteroba misappropriated the material, nonpublic information from his employer and its clients in breach of duties of confidentiality that he owed them. Pursuant to the insider trading scheme as described in the complaint, Poteroba tipped defendant Koval, with the material, nonpublic information, and Koval, in turn, tipped his friend Vorobiev and placed trades through an account maintained by Vorobiev. The Commission's complaint alleges that both Koval and Vorobiev traded securities on the basis of that information. Because Vorobiev conducted some of the trading using his wife’s accounts, Vorobieva was named as a relief defendant.

Poteroba previously had been permanently enjoined from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and Rule 14e-3 thereunder (see Litigation Release No. 21681 (Oct. 4, 2010)). On September 28, 2010, the Commission entered an order barring Poteroba from association with any broker, dealer, or investment adviser. In a parallel criminal proceeding, on December 21, 2010, Poteroba pleaded guilty to securities fraud and conspiracy to commit securities fraud.

The final judgment in the civil action against Poteroba found him liable for disgorgement in the amount of $416,336, representing profits obtained as a result of the conduct alleged in the Complaint, together with prejudgment interest in the amount of $49,071. The final judgment deemed these amounts satisfied by Poteroba’s payment of a forfeiture of $465,095 in a parallel criminal proceeding. No civil penalty was imposed on Poteroba in the final judgment. In the criminal proceeding, Poteroba had been sentenced to twenty-two months of imprisonment and ordered to pay a penalty of $25,000.

The Vorobievs failed to respond to the complaint and the Commission moved for entry of judgment by default. The final judgment in the civil action against Vorobiev: (1) permanently enjoined him from violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and Rule 14e-3 thereunder; (2) found him liable for disgorgement in the amount of $146,541.20, representing profits obtained as a result of the conduct alleged in the Complaint, together with prejudgment interest in the amount of $21,389.80; and (3) imposed a civil penalty of $1,885,382.12, for a total judgment award of $2,053,313.73. In partial satisfaction of that award, the Court ordered that more than $220,000 in funds held in brokerage accounts in Vorobiev’s name, previously frozen by court order in the SEC’s action, be remitted to the SEC for transfer to the U.S. Treasury.

The final judgment against Vorobieva found her liable for disgorgement in the amount of $481,919.71, representing profits obtained as a result of the conduct alleged in the Complaint, together with prejudgment interest in the amount of $70,343.12, for a total judgment award of $552,262.83. In partial satisfaction of that award, the Court ordered that nearly $125,000 in funds held in brokerage accounts in Vorobieva’s name, also frozen by court order in the SEC’s action, be remitted to the SEC for transfer to the U.S. Treasury.

The Commission's civil action against defendant Koval remains pending before the Court.

SEC OBTAINS JUDGMENTS AGAINST FORMER OFFICERS OF GIBRALTAR ASSET MANAGEMENT GROUP, LLC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

On February 5, 2013, the Securities and Exchange Commission announced that the Honorable Robert L. Wilkins, United States District Judge for the District of Columbia, entered final judgments on January 16, 2013, against three defendants to settle charges related to their collaboration in a multi-million dollar Washington-area Ponzi scheme operated through Gibraltar Asset Management Group, LLC and Garfield Taylor, Inc. (GTI):

Benjamin C. Dalley, of Washington D.C., formerly Vice President of Operations at Gibraltar, without admitting or denying the allegations in the SEC's complaint, consented to the entry of a Final Judgment permanently enjoining him from aiding and abetting violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Final Judgment orders him to pay $72,500 in disgorgement and prejudgment interest and a civil penalty of $40,000.

Randolph M. Taylor, of Washington D.C., formerly Vice President for Organizational Development at Gibraltar, without admitting or denying the allegations in the SEC's complaint, consented to the entry of a Final Judgment permanently enjoining him from aiding and abetting violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Final Judgment orders him to pay $584,148.32 in disgorgement and prejudgment interest, but waives payment of all but $30,000 of this amount, and does not impose a civil penalty, based upon his sworn Statement of Financial Condition. In connection with the settlements reached with Dalley and Randolph Taylor, Relief Defendant Reverb Enterprises, LLC consented to a judgment, which the Court entered on December 13, 2012, ordering it to pay $165,635 in disgorgement, representing profits gained as a result of the scheme.

William B. Mitchell, of Middle River, Md., formerly Vice President for Finance at GTI and an Executive Vice President of Strategic Planning at Gibraltar, without admitting or denying the allegations in the SEC's complaint consented to the entry of a Final Judgment permanently enjoining him from violating Section 15(a)(1) of the Securities Exchange Act of 1934. The Final Judgment orders Mitchell to pay $164,131 in disgorgement and prejudgment interest, but waives payment of all but $15,000 of this amount, and does not impose a civil penalty, based upon his sworn Statement of Financial Condition.

Based upon the entry of the Court's injunction against Mitchell, on January 30, 2013, the Commission instituted settled administrative proceedings against Mitchell. Without admitting or denying the Commission's findings, except as to his admission of the entry of the Final Judgment by the Court, Mitchell consented to the entry of the Commission's Order, which bars him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; and from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock.

The Commission filed a complaint on November 18, 2011, alleging that Gibraltar's and GTI's former Chief Executive Officer, Garfield M. Taylor, operating through GTI. and Gibraltar, with the assistance of Benjamin C. Dalley, Randolph M. Taylor, William B. Mitchell, Jeffrey A. King and Maurice G. Taylor, conducted a multi-million Ponzi scheme targeting investors in the Washington D.C. metropolitan area. According to the SEC's complaint, the defendants defrauded more than $27 million from approximately 130 investors between 2005 and 2010.

The Commission's case is still pending against the remaining defendants: Garfield M. Taylor, Jeffrey A. King, Maurice G. Taylor, GTI, Gibraltar, and The King Group, LLC. On December 13, 2012, the Court granted the Commission's motion for summary judgment on all charges sought by the Commission against Garfield Taylor. The Court will determine the appropriate injunctive relief, as well as the specific amount of disgorgement and penalty that Garfield Taylor will be ordered to pay, when it enters its Final Judgment against him.

SEC CHAIRMAN WALTER MAKES REMARKS AT TRAINING CONFERENCE

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Opening Remarks at Foreign Bribery and Corruption Training Conference
by Chairman Elisse Walter
U.S. Securities and Exchange Commission
Washington, D.C.
February 11, 2013

Good morning. On behalf the Securities and Exchange Commission and my colleagues at the Department of Justice and the Federal Bureau of Investigation, I am honored to have the opportunity to welcome you to Washington D.C. and this Foreign Bribery and Corruption Conference.

It’s a pleasure to look out over this group and see in attendance men and women representing more than 50 law enforcement and financial regulatory agencies from developed and developing nations in every corner of the globe.

We are a diverse group. And each of the different nations and agencies we represent has different priorities and strategies, mandates and jurisdictions, traditions and laws. But when I look around this room, I don’t see a hundred discrete agendas thrown randomly together. Instead I see the strong core of an international network, coming together in the shared pursuit of a global financial system that benefits honest competitors and drives growing prosperity in all nations.

While we differ in a variety of ways, we have one important thing in common: we understand that fair and honest financial markets are an important pillar of economic growth for countries of every size and in every region. And we understand that only by collaborating in pursuit of those fair and honest markets can we bring them about. We all benefit when we are able to limit corruption and manipulation, and we all suffer when even a few markets are tainted by greed and graft.

It’s basic common sense: whatever larger growth and development strategies our nations pursue, the ability to attract private capital and investment and to encourage trade are critical components of energetic economies.

In today’s financial environment, capital flows freely around the world in fractions of a second – rewarding economies with functioning financial systems, and avoiding those in which the normal risks of investing are compounded by the possibility of corruption and manipulation. This makes market regulation not merely a question of law and order, but of nation-building – of creating an environment in which available capital supports rapid development and broader prosperity for the people we represent.

In country after country, we see the people demanding – often in forceful public demonstrations – an end to cronyism, bribes, and corruption. They are passionate because they understand that applying the rule of law to market transactions opens markets and brings economic opportunity for all.

They know that the quality of their roads, their electrical grid, and their medical facilities suffers when the highest bribe, not the best proposal, determines contracts.

This is where you all come in, where you have an opportunity to not only prosecute wrongful conduct, but to change culture for the benefit of billions and help them build their children a better world.

Whatever our nation of origin, we are all in this together. Increasing investment and encouraging growth in any one nation benefits all of its neighbors and trading partners. Stable financial markets fueling growing economies can create a virtuous cycle of international trade and investment that benefits us all.

The same economic globalization that allows capital to move freely into stable financial markets around the world can impede as well as encourage our efforts, though. Failure to enforce laws can put honest companies at a disadvantage, harming those that play by the rules. It can mean higher costs and economic inefficiencies for countries that lack the will or the expertise to crack down on corruption – benefiting a few individuals or groups while harming the larger populace and a nation’s development goals.

And as Chairman of the U.S. Securities and Exchange Commission, I have a particular reason for looking forward to our collaboration in pursuit of corrupt practices. At the SEC, one of our primary mandates is to protect investors.

And we have found that corrupt practices by a registered company are generally indicators of larger problems within the business – problems with the potential to harm that business’s shareholder-owners.

Bribery and other corrupt practices may result in accounting fraud and falsified disclosures where shareholders are not getting an accurate picture of a company’s finances in their regulatory filings. Bribery means losing control of – or deliberately falsifying – books and records. Often, key executives or board members are kept in the dark, limiting their ability to make informed decisions about the company’s business. Obviously, engaging in corrupt practices means weakening or circumventing internal control mechanisms, leaving a company less able to detect and end not just corruption but other questionable practices.

A company that has lost its moral compass is in grave danger of losing its competitive roadmap, as well – while shareholders are kept in the dark.

And so, just as we are committed to fighting practices that encourage corruption, weaken markets and slow growth in all of the countries represented here, I look forward to working with you to uncover, investigate, and end practices by companies that harm our moral standing, our economic competitiveness, and the shareholders my agency represents.

I always come away from meetings like this encouraged. There will always be individuals and firms who look no further than their own short-term interests and care little for laws and regulation designed to promote and protect the greater good. And the global economy has given them a greater field to play on – to circumvent the rules in ways that harm us all.

But I know, as well, that the agencies you represent and people like you see the larger picture – you understand the damage done by corrupt practices. I see an increasing commitment to fighting corruption here in the U.S. – where our Foreign and Corrupt Practices Act activity has increased substantially in recent years – and around the globe. And I am pleased with the increasing collaboration I have seen over the many years I have served at the SEC, as nations increasingly come together to fight for fair and honest markets.

Thank you for coming to this conference. I hope that you will not only learn new skills and procedures and share with us those you have already mastered, but that you will meet your counterparts at my agency and the others represented here and begin building not just a legal framework, but a personal network against the practices we abhor.

Thank you.

SEC FILES CHARGES OF INVESTMENT FRAUD AGAINST FIVE FORMER EXECUTIVES OF CAY CLUBS RESORTS AND MARINIAS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Five Former Executives of Cay Clubs Resorts and Marinas in $300 Million Real Estate Investment Fraud

The Securities and Exchange Commission filed a civil fraud action in the United States District Court for the Southern District of Florida against five former executives of the defunct Florida-based companies known collectively as Cay Clubs Resorts and Marinas, for conducting an offering fraud and Ponzi scheme that raised more than $300 million from nearly 1,400 investors nationwide.

According to the SEC's complaint, from late 2004 through 2008, former Cay Clubs CEO and President Fred Davis Clark, Jr., former manager and sales agent Cristal R. Coleman, former Chief Accounting Officer David W. Schwarz and former Sales Directors Barry J. Graham and Ricky Lynn Stokes, conducted a multi-year scheme to defraud investors who purchased units at Cay Clubs' resort locations in Florida and Las Vegas, Nevada. Clark, Coleman, Graham and Stokes solicited investors directly and through a network of hundreds of sales agents touting the profitability of Cay Clubs' investments by promising investors immediate income from a guaranteed 15% return; instant equity in undervalued properties; historic appreciation; development of a network of luxury destination resorts at its nationwide locations; at least $30,000 of unit upgrades; and, a future income stream through the rental program Cay Clubs managed.

The SEC alleges that Cay Clubs, through Clark and Schwarz, used a web of entities and bank accounts to conceal a Ponzi scheme that commingled investors' funds and used new investor deposits to pay leaseback returns to earlier investors. Clark and the other executives paid themselves exorbitant salaries and commissions in excess of $30 million and failed to fulfill their promises. Additionally, Clark and Coleman misappropriated millions of dollars of investor funds to purchase airplanes, boats, and to pay for unrelated business ventures that included investments in precious metals and a liquor distillery that produced Pirate's Choice Rum.

The SEC further alleges that Cay Clubs' representations about investors' profitability and "instant equity" were false because the purported triple-digit returns were the result of undisclosed insider transactions among Cay Clubs and Coleman, Graham, and Stokes to make it appear that the units had enormous rates of appreciation over a short period of time when in fact the transactions were part of an insider flipping scheme. Cay Clubs continued to solicit new investors despite the fact that the company's financial condition had deteriorated so significantly that it did not have sufficient funds to make "guaranteed" leaseback or rental payments to investors. Clark and Coleman left the United States and now reside in the Cayman Islands.

The SEC's complaint alleges that Clark, Coleman, Graham, and Stokes violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. Additionally, the SEC's complaint alleges that Graham and Stokes violated Section 15(a)(1) of the Exchange Act, and that Schwarz violated Section 17(a)(1) and 17(a)(3) of the Securities Act and Section 10(b) and Rule 10b-5(a) and (c) of the Exchange Act. The SEC complaint seeks from all defendants disgorgement of ill-gotten gains plus prejudgment interest, injunctive relief to enjoin them from future violations of the federal securities laws, an accounting, civil money penalties from Clark, Coleman and Stokes, and an order to repatriate assets.

SEC CHARGED IT SPECIALISTS WITH INSIDER TRADING

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission charged two information technology specialists at a Bend, Oregon-based health insurance company with insider trading on confidential information about the acquisition of their employer.

The SEC alleges that Daniel Vance of Bend and Blake Wellington of Hillsboro, Oregon, learned that their employer Clear One Health Plans was involved in advanced merger negotiations with competitor PacificSource Health Plans. Rather than keep the information confidential, Wellington and Vance improperly used the information to personally profit by purchasing Clear One shares. Clear One's share price jumped by more than 150 percent after the companies announced the merger on Dec. 30, 2009.

According to the SEC's complaint filed in federal court in Oregon, Daniel Vance gained access to the confidential deal information on Dec. 16, 2009, when he was asked by Clear One's CEO to help resolve an e-mail issue. Vance saw confidential merger documents being sent to the CEO of PacificSource. Vance then informed Blake Wellington, who was his supervisor. The very next day, Wellington purchased 3,700 Clear One shares and Vance purchased 1,200 Clear One shares. Clear One's share price jumped by more than 150 percent after the companies announced the merger on Dec. 30, 2009. Wellington and Vance immediately began selling their stock, reaping more than $70,000 in profits.

The SEC alleges that Wellington and Vance took unusual steps to finance their purchases of Clear One shares. For instance, Wellington obtained a $25,000 loan from an online peer lending site. Vance borrowed $5,285 from his 401(k) retirement account, sold personal computer equipment, and sold his truck to finance his purchases of Clear One shares.

The complaint alleges that, by their conduct, Wellington and Vance violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Without admitting or denying the SEC's allegations, both Wellington and Vance consented to permanent injunctions against violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Wellington consented to pay full disgorgement of his trading profits totaling $55,891.50 plus prejudgment interest of $5,644.04 and a penalty of $55,891.50, and Vance consented to pay full disgorgement of his trading profits totaling 17,509.75 plus prejudgment interest of $1,768.18 and a penalty of $17,509.75.

The SEC thanks the Financial Industry Regulatory Authority (FINRA) for its assistance in this matter.

SEC SUES TO HALT HOUSTON-AREA INVESTMENT SCHEME TARGETING LEBANESE AND DRUZE COMMUNITIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today charged a day trader in Sugar Land, Texas, with defrauding investors in his supposed high-frequency trading program and providing them falsified brokerage records that drastically overstated assets and hid his massive trading losses.

The SEC alleges that Firas Hamdan particularly targeted fellow members of the Houston-area Lebanese and Druze communities, raising more than $6 million over a five-year period from at least 33 investors. Hamdan told prospective investors that he would pool their investments with his own money and conduct high-frequency trading using a supposed proprietary trading algorithm. Hamdan promised annual returns of 30 percent and assured investors that his program was safe and proven when in reality it was a dismal failure, generating $1.5 million in losses. As he failed to deliver the promised profits, Hamdan told investors that his funds were tied up in the Greek debt crisis and the MF Global bankruptcy among other phony excuses.

According to the SEC's complaint filed in federal court in Houston, Hamdan is well-known in the Lebanese and Druze communities in the Houston area and is a former treasurer of the Houston branch of the American Druze Society. Hamdan found investors for his trading program by talking with his friends and family in these communities. As word spread about his purported trading success, he asked existing investors to solicit their friends for investments.

The SEC alleges that Hamdan misrepresented to investors that he generated positive returns in 59 of 60 months between 2007 and 2012. He showed them phony documentation to support his false claims. For instance, a purported brokerage statement he provided investors for the first quarter of 2010 showed an opening balance of more than $2.3 million with quarterly trading gains of $2.7 million for a closing balance above $5.1 million. An actual brokerage statement obtained by SEC investigators for Hamdan's account during that same period shows the opening balance at just $27,970.76 and the closing balance at $148,210.02, with quarterly trading losses of $7,452.80.

According to the SEC's complaint, Hamdan made several other false claims to potential investors. For instance, he lied about the existence of a cash reserve account that secured their investments. Hamdan falsely stated that investments were further secured by a $5 million "key-man" insurance policy. He also falsely claimed that a well-known hedge-fund manager in the Dallas area had made a million-dollar investment with him and promised to invest more based on Hamdan's continuing success.

The SEC's complaint charges Hamdan with violating Section 17(a) of the Securities Act of 1933, Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking various relief including a temporary restraining order, preliminary and permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

HUSBAND AND WIFE ACCUSED OF DEFRAUDING SENIOR CITIZENS BY SEC

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Feb. 4, 2013 — The Securities and Exchange Commission today charged a husband and wife who raised millions of dollars selling investments for a purported charitable organization in Tallahassee, Fla., while defrauding senior citizens and significantly exaggerating the amount of contributions actually made to charity.

The SEC alleges that after Richard K. Olive and Susan L. Olive were hired at We The People Inc., the organization obtained $75 million from more than 400 investors in Florida, Colorado, and Texas among more than 30 states across the country by selling an investment product they described as a charitable gift annuity (CGA). However, the CGAs issued by We The People differed in several ways from CGAs issued legitimately, namely that they were issued primarily to benefit the Olives and other third-party promoters and consultants. Only a small amount of the money raised was actually directed to charitable services. Meanwhile the Olives received more than $1.1 million in salary and commissions, and they also siphoned away investor funds for their personal use.

The SEC further alleges that the Olives lured elderly investors with limited investing experience into the scheme by making a number of false representations about the purported value and financial benefits of We The People’s CGAs. The Olives also lied about the safety and security of the investments.

"The Olives raised millions from senior citizens by claiming that We The People’s so-called CGAs provided attractive financial benefits and were re-insured and backed by assets held in trust," said Julie Lutz, Associate Director of the SEC’s Denver Regional Office. "Investors were not given the full story about the true value and security of their investments."

According to the SEC’s complaint against the Olives filed in U.S. District Court for the Southern District of Florida, investors were coaxed to transfer assets including stocks, annuities, real estate, and cash to We The People in exchange for a CGA. We The People claimed to operate as a non-profit organization while it was offering the CGAs from June 2008 to April 2012. However, We The People was not operating as a charity but instead for the primary purpose of issuing CGAs and using the proceeds to pay substantial sums to the Olives, third-party promoters, and consultants. On rare occasions when We The People did actually direct money raised toward charitable services, it was insignificant. For instance, the organization made public statements that it donated $21.8 million in relief aid to AIDS orphans in Zambia, but in fact the supplies were donated by others and We The People merely made a small payment to the third party that was shipping the supplies.

The SEC alleges that We The People’s marketing and promotional materials for the CGA offering contained misrepresentations and omissions including:
False statements that the CGAs were worth the "full" accumulated value of the assets transferred by investors to We The People. Investors were not told in advance of transferring their assets that the value of the CGA as calculated by We The People was always substantially less than the "full" accumulated value of those assets because We The People took a significant percentage of the asset’s value and kept it as a purported "charitable gift."

False statements about the safety and security of the CGA program including that We The People held in trust a reserve equal to 110 percent of its liabilities and that it "reinsured" its products through "highly rated" commercial insurance companies. We The People did not in fact have any restricted-access trust accounts let alone maintain a reserve in them, and it did not purchase reinsurance from any insurance company to cover its potential liabilities under the CGAs.
Omissions of the previous indictments and regulatory sanctions against Richard and Susan Olive when they previously sold similar products.
Omissions of the sizable commissions that We The People paid to third-party promoters and the Olives on the sale of the CGAs, hiding from investors that these commissions totaled several million dollars.
The SEC’s complaint charges the Olives with violations, or aiding and abetting violations, of the antifraud provisions of the federal securities laws as well as violations of the securities and broker-dealer registration provisions of the federal securities laws. The SEC is seeking disgorgement of ill-gotten gains plus pre- and post-judgment interest and financial penalties against the Olives.

The SEC also filed separate complaints today against We The People as well as the company’s in-house counsel William G. Reeves. They both agreed to settle the charges without admitting or denying the allegations. The settlements are subject to court approval.

We The People consented to a final judgment that will enable the appointment of a receiver to protect more than $60 million of investor assets still held by the company. The final judgment also provides for disgorgement of ill-gotten gains and provides injunctive relief under the antifraud and registration provisions of the federal securities laws.

Reeves entered into a cooperation agreement with the SEC, and the terms of his settlement reflect his assistance in the SEC’s investigation and anticipated cooperation in its pending action against the Olives. Reeves agreed to be suspended from appearing or practicing before the SEC for at least five years, and consented to a final judgment providing injunctive relief under the provisions of the federal securities laws that he violated. The court will determine at a later date whether a financial penalty should be imposed against Reeves.

The SEC’s investigation was conducted by Michael Cates and Ian Karpel in the Denver Regional Office. The SEC’s litigation against the Olives will be led by Nicholas Heinke and Dugan Bliss.

ALLEGED SHAM COMPANY SCHEME LEADS TO SANCTIONS AND MONEY JUDGEMENTS AGAINST INDIVIDUAL

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Yitzchak Zigdon Settles SEC Fraud Charges

On January 23, 2013, the U.S. District Court for the Southern District of Florida entered a final judgment by consent against Yitzchak Zigdon in the SEC's enforcement action against seven defendants concerning the common stock of CO2 Tech Ltd. The final judgment enjoins Zigdon from future 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. The Court also ordered Zigdon to pay disgorgement of $260,000, prejudgment interest of $74,516 and a civil penalty in the amount of $130,000 for a total of $464,516 in monetary sanctions. In addition, the Court barred Zigdon from participating in an offering of penny stock. Zigdon consented to the entry of the final judgment without admitting or denying any of the allegations of the Commission's Complaint.

According to the Commission's complaint filed in February of 2011, the defendants' coordinated misconduct enabled them to sell CO2 Tech stock at artificially inflated prices, resulting in profits of over $7 million. In the complaint, the Commission alleged that CO2 Tech Ltd. was a sham company without significant assets or operations whose stock prices were quoted in the Pink Sheets. According to the complaint, among other things, Zigdon provided the paper work necessary to establish the account that was used to dump the shares of CO2 Tech on to the market. The complaint also stated that he caused materially false and misleading information about CO2 Tech to be disseminated in press releases and on its website. In particular, the complaint alleged that CO2 Tech falsely touted business relationships that the company had not formed, including a relationship with the Boeing Company when, in fact, there had been no communications, correspondence or understandings between CO2 Tech and Boeing.

DAY TRADER CHARGED BY SEC WITH DEFRUADING INVESTORS IN ALLEGED HIGH-FREQUENCY TRADING PROGRAM

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Jan 29, 2013 — The Securities and Exchange Commission today charged a day trader in Sugar Land, Texas, with defrauding investors in his supposed high-frequency trading program and providing them falsified brokerage records that drastically overstated assets and hid his massive trading losses.

The SEC alleges that Firas Hamdan particularly targeted fellow members of the Houston-area Lebanese and Druze communities, raising more than $6 million during a five-year period from at least 33 investors. Hamdan told prospective investors that he would pool their investments with his own money and conduct high-frequency trading using a supposed proprietary trading algorithm. Hamdan promised annual returns of 30 percent and assured investors that his program was safe and proven when in reality it was a dismal failure, generating $1.5 million in losses. As he failed to deliver the promised profits, Hamdan told investors that his funds were tied up in the Greek debt crisis and the MF Global bankruptcy among other phony excuses.

The SEC is seeking an emergency court order to halt the scheme and freeze Hamdan’s assets and those of his firm, FAH Capital Partners.

"Hamdan’s affinity scam preyed upon people’s tendency to trust those who share common backgrounds and beliefs," said David R. Woodcock, Director of the SEC’s Fort Worth Regional Office. "Hamdan raised money by creating the aura of a successful day trader among friends and family in his community, and he continued to mislead them and hide the truth while trading losses mounted."

According to the SEC’s complaint filed in federal court in Houston, Hamdan is well-known in the Lebanese and Druze communities in the Houston area and is a former treasurer of the Houston branch of the American Druze Society. Hamdan found investors for his trading program by talking with his friends and family in these communities. As word spread about his purported trading success, he asked existing investors to solicit their friends for investments.

The SEC alleges that Hamdan misrepresented to investors that he generated positive returns in 59 of 60 months between 2007 and 2012. He showed them phony documentation to support his false claims. For instance, a purported brokerage statement he provided investors for the first quarter of 2010 showed an opening balance of more than $2.3 million with quarterly trading gains of $2.7 million for a closing balance above $5.1 million. An actual brokerage statement obtained by SEC investigators for Hamdan’s account during that same period shows the opening balance at just $27,970.76 and the closing balance at $148,210.02, with quarterly trading losses of $7,452.80.

According to the SEC’s complaint, Hamdan made several other false claims to potential investors. For instance, he lied about the existence of a cash reserve account that secured their investments. Hamdan falsely stated that investments were further secured by a $5 million "key-man" insurance policy. He also falsely claimed that a well-known hedge fund manager in the Dallas area made a million-dollar investment with him and promised to invest more based on Hamdan’s continuing success.

The SEC’s complaint alleges that Hamdan violated the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The complaint seeks various relief including a temporary restraining order, preliminary and permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

The SEC’s investigation was conducted by Jonathan Scott, Timothy Evans, and Mark Pittman of the Fort Worth Regional Office. Bret Helmer will lead the SEC’s litigation.

STORY OF ALLEGED DEVELOPEMENT OF FLORIDA AND LAS VEGAS RESORTS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Jan. 30, 2013 — The Securities and Exchange Commission today charged five former real estate executives who defrauded investors into believing they were funding the development of five-star destination resorts in Florida and Las Vegas when they were actually buying into a Ponzi scheme.

The SEC alleges that Cay Clubs Resorts and Marinas raised more than $300 million from nearly 1,400 investors nationwide through a network of hundreds of sales agents, marketing seminars, and podcasts that touted the profitability of purchasing units at Cay Clubs resort locations. Investors were promised immediate income from a guaranteed 15 percent return and a future income stream through a rental program that Cay Clubs managed. But instead of using investor funds to develop resort properties and units, the Cay Clubs executives used new investor deposits to pay leaseback returns to earlier investors. Meanwhile they paid themselves exorbitant salaries and commissions totaling more than $30 million, and investor funds also were misused to buy airplanes and boats. While still advertising itself as a profitable venture, Cay Clubs eventually abandoned its operations. Many investors’ properties went into foreclosure.

"These Cay Clubs executives lined their pockets with millions of dollars that they told investors would be used to develop five-star resort properties," said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. "They continued to defraud investors as Cay Clubs collapsed."

The SEC’s complaint filed in U.S. District Court for the Southern District of Florida charges the following former Cay Clubs executives:
Fred Davis Clark, Jr. – president and CEO
David W. Schwarz – chief accounting officer
Cristal R. Coleman – manager and sales agent
Barry J. Graham – sales director
Ricky Lynn Stokes – sales director
According to the SEC’s complaint, the scheme began in 2004. Clark, Coleman, Graham, and Stokes solicited investors with promises of guaranteed income, instant equity in undervalued properties, historic appreciation, and at least $30,000 in upgrades to the units they purchased at Cay Clubs resort locations in Florida and Las Vegas. The representations about investors’ profitability and instant equity were false because the purported triple-digit returns resulted from undisclosed insider transactions with Cay Clubs by Coleman, Graham, and Stokes. Their actions made it appear that Cay Clubs units had enormous rates of appreciation over a short period of time when in fact the transactions were merely part of an insider flipping scheme. Further, Stokes wrote letters directly to potential investors claiming that the leaseback payments and profits were "guaranteed" and that Cay Clubs was a "very stable financially healthy company worth BILLIONS."

The SEC alleges that Cay Clubs continued to solicit new investors despite the fact that the company’s financial condition had deteriorated so significantly that it did not have sufficient funds to make the "guaranteed" leaseback or rental payments to investors. Clark, Coleman, and Schwarz misappropriated millions of dollars in investor funds using the multitude of bank accounts they controlled. Besides purchasing airplanes and boats, they misused investor money for unrelated business ventures including investments in precious metals and a liquor distillery that produced Pirate’s Choice Rum. After Cay Clubs abandoned its operations in 2008, Clark and Coleman (who are now husband and wife) moved to the Cayman Islands and continued to dissipate assets and funnel at least $2 million to offshore accounts.

The SEC’s complaint seeks financial penalties from Clark, Coleman, and Stokes and the disgorgement of ill-gotten gains plus prejudgment interest by all five executives. The complaint also seeks injunctive relief to enjoin them from future violations of the federal securities laws as well as an accounting and an order to repatriate investor assets.

The SEC’s investigation was conducted in the Miami Regional Office by Senior Counsel Linda S. Schmidt and Senior Regional Accountant Fernando Torres under the supervision of Assistant Regional Director Jason R. Berkowitz. Senior Trial Counsel Amie R. Berlin will lead the SEC’s litigation.

MAN CHARGED WITH UNREGISTERED SECURITES OFFER AND STOCK MANIPULATION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Jonathan C. Gilchrist with the Unregistered Offer and Sale of Securities and Stock Manipulation

The Securities and Exchange Commission today filed a civil injunctive action in the U.S. District Court for the Southern District of Texas against Jonathan C. Gilchrist, alleging that he effected the unregistered offer and sale of shares of The Alternative Energy Technology Center, Inc. and engaged in a stock manipulation scheme in violation of the registration and antifraud provisions of the federal securities laws.

The Commission’s complaint alleges that in December 2007, Gilchrist, acting as the president and chairman of Mortgage Xpress, Inc. (subsequently renamed The Alternative Energy Technology Center, Inc.), authorized the unregistered offer and sale of six million company shares at a deep discount to himself and two entities he controlled, improperly maintaining that the offer and sale were exempt from registration under Rule 504 of Regulation D of the Securities Act of 1933. The complaint alleges that the company could not claim a Rule 504 exemption from registration because it was a development stage company which, at the time, planned to merge with another entity. The complaint further alleges that the shares issued to the two entities controlled by Gilchrist should have been subject to restriction on resale based on Gilchrist being an affiliate of the company, but were not. As a result, according to the complaint, the share issuance improperly gave Gilchrist control over at least 94% of the public float.

The complaint further alleges that from January through March 2008, Gilchrist effected 25 wash trades in company securities through brokerage accounts he controlled and, in March 2008, arranged for promoters to tout the company. Gilchrist allegedly thereby drove the per share price from $1.00 per share immediately after the reverse stock split on January 18, 2008 to $3.75 per share on April 1, 2008, the day before the Commission suspended trading in the stock. During this time period, Gilchrist made unregistered sales of 229,661 shares, resulting in illicit proceeds of $692,146.38.

Based on the facts alleged, the Commission charged Gilchrist with violating Sections 5(a), 5(c), 17(a)(1) and 17(a)(3) of the Securities Act, and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder. The Commission is seeking to have Gilchrist permanently enjoined, ordered to pay disgorgement and a civil money penalty, barred from participating in any penny stock offering, and prohibited from serving as an officer or director.

The SEC thanks the Financial Industry Regulatory Authority's (FINRA) Office of Fraud Detection and Market Intelligence for its assistance in this matter

NEW TIPSTER BOSS AT SEC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Jan. 22, 2013 — The Securities and Exchange Commission today announced that Vincente L. Martinez has been named Chief of the Enforcement Division’s Office of Market Intelligence, which collects and evaluates thousands of tips, complaints, and referrals that come into the SEC each year.

Mr. Martinez was one of the first assistant directors in the SEC’s Office of Market Intelligence, which was created in 2010 as part of a major restructuring of the Enforcement Division. He left the SEC in 2011 to become the first director of the whistleblower office at the Commodity Futures Trading Commission (CFTC). He will return to the SEC next month to begin his new role.

“Our Office of Market Intelligence employs next-generation technology and data analysis to inform and drive our enforcement effort and priorities in the years to come,” said Robert Khuzami, Director of the SEC’s Enforcement Division. “Vince has the vision and dedication to lead that effort given his talent, commitment, and prior service to the SEC.”

Adam Storch, Managing Executive of the SEC’s Enforcement Division, added, “Vince understands the task at hand and is ready to further leverage the valuable intelligence we get from the public, cultivate our relationships with our regulatory partners, and tackle the increasing sophistication of the schemes victimizing investors.”

Mr. Martinez said, “I am honored and pleased to rejoin the SEC staff and have this opportunity to advance the Office of Market Intelligence’s meaningful contributions to the protection of investors by further developing our ability to proactively identify risks and ferret out misconduct.”

At the CFTC, Mr. Martinez has interacted with whistleblowers and their representatives, developed the CFTC’s policies and procedures for handling whistleblower matters, and worked to raise awareness of the CFTC’s whistleblower program – which was created under the Dodd-Frank Act.

Mr. Martinez previously worked for eight years in the SEC’s Enforcement Division, beginning in 2003 as a staff attorney and later becoming a senior counsel. He served on a task force devoted to pursuing accounting frauds. When he shifted to the Office of Market Intelligence, he played a key role in developing Enforcement Division and SEC-wide policies and procedures for handling tips, complaints, and referrals. He helped cultivate cooperative relationships with other government agencies and self-regulatory organizations. Mr. Martinez received two SEC awards in 2011 (Chairman’s Award for Excellence and Business Operations Award) and an Enforcement Division Director’s Award in 2007.

Prior to joining the SEC staff, Mr. Martinez was a litigator and corporate lawyer in private practice for six years. He is a graduate of Georgetown University and the Boalt Hall School of Law at the University of California at Berkeley.

The Enforcement Division and Mr. Martinez extend their recognition and gratitude for the outstanding contributions of Lori Walsh, who is currently serving as the Acting Chief of the Office of Market Intelligence. Ms. Walsh will continue her leadership role as Deputy Chief of the office, and she will provide an instrumental contribution as the architect of its risk assessment tools and capabilities.

SEC ALLEGES INSIDE TIPPING

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Jan. 25, 2013 — The Securities and Exchange Commission today charged a financial adviser in Boca Raton, Fla., with illegally tipping inside information he learned about the upcoming sale of a pharmaceutical company in exchange for $35,000 and a jet ski dock.

The SEC alleges that Kevin L. Dowd got details about the impeding acquisition of Princeton, N.J.-based Pharmasset Inc. by California-based Gilead Sciences from one of his supervisors at the brokerage firm where he worked. The supervisor learned about the deal from a customer who sat on Pharmasset’s board of directors. Dowd, who knew the customer, breached his duty to keep the information confidential by tipping a friend in the penny stock promotion business who bought Pharmasset stock on the last trading day before the public announcement of the deal. The trader also tipped another individual who bought Pharmasset call options, and collectively they made $708,327 in illicit insider trading profits in just two trading days. The SEC’s investigation is continuing.

The SEC alleges that Dowd profited from the scheme in a roundabout way, receiving the jet ski dock from his tippee and a cashier’s check for $35,000, which he used for expensive upgrades to a pool at his home.

"As an industry professional, Dowd surely knew what he was doing was wrong, but he incorrectly thought that his scheme was clever enough to avoid detection by investigators," said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit. "Professionals in the securities industry or any sector should know that you’ll be held accountable for violating insider trading laws, even if you don’t trade the securities yourself."

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

According to the SEC’s complaint filed in federal court in New Jersey, the Pharmasset director told Dowd’s supervisor in confidence as his financial adviser that Pharmasset was going to be sold and the price would be in the high $130s per share. Dowd’s supervisor provided Dowd with the information along with an instruction that he was restricted from trading or recommending Pharmasset securities. Despite the warning, Dowd tipped his penny stock promoter friend, who wired $196,000 into a brokerage account with a zero balance and bought 2,700 shares of Pharmasset stock on Friday, Nov. 18, 2011. Dowd’s friend tipped another individual who bought 100 out-of-the-money call options, which are securities that derive their value from the underlying common stock of the issuer and give the purchaser the right to buy the underlying stock at a specific price within a specified time period. Investors typically purchase call options when they believe the value of the underlying securities is going up.

According to the SEC’s complaint, Gilead and Pharmasset announced the acquisition on Monday, November 21. Dowd’s tippees immediately sold all of their Pharmasset securities to obtain their illegal profits.

The SEC alleges that Dowd violated Sections 10(b) and (14)(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The SEC is seeking disgorgement of ill-gotten gains with prejudgment interest, a financial penalty, and a permanent injunction against Dowd.

The SEC’s investigation is being conducted by Market Abuse Unit staff Mary P. Hansen, Paul T. Chryssikos, and John S. Rymas in the Philadelphia Regional Office. The litigation will be handled by G. Jeffrey Boujoukos and Christopher R. Kelly. The SEC has coordinated its action with the U.S. Attorney’s Office for the District of New Jersey, and appreciates the assistance of the Federal Bureau of Investigation and the Options Regulatory Surveillance Authority.

RANDY M. CHO SENTENCED TO PRISON TERM OF 12 YEARS IN CRIMINAL ACTION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
 
The Securities and Exchange Commission (SEC) announced that on January 18, 2013, in a criminal action brought by the U.S. Attorney’s Office for the Northern District of Illinois, the Honorable James B. Zagel, U.S. District Judge of the Northern District of Illinois, sentenced Randy M. Cho to 12 years in federal prison on charges of wire fraud and tax fraud. Cho was charged for perpetrating an investment scheme between 2001 and October 2009, which resulted in almost $8 million in losses from 57 investors. Cho was also ordered to pay restitution of $7,995,707. Cho’s sentence was lengthened, in part, because Cho lied to the SEC during its investigation into his scheme. [USA v. Randy M. Cho, Case No. 1:10 cr 01099, USDC, N.D. Ill.]

In October 2009, the SEC filed an emergency district court action against Cho for his fraudulent scheme, and obtained orders that froze Cho’s assets and permanently enjoined Cho from violating the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. In August 2010, the SEC obtained a final judgment against Cho in which Cho was ordered to pay approximately $7.78 million in disgorgement, prejudgment interest, and a $150,000 statutory civil penalty.

RATINGS COMPANY SETTLES MISSTATEMENTS CASE WITH SEC

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Jan. 22, 2013 — The Securities and Exchange Commission today announced that Egan-Jones Ratings Company (EJR) and its president Sean Egan have agreed to settle charges that they made willful and material misstatements and omissions when registering with the SEC to become a Nationally Recognized Statistical Rating Organization (NRSRO) for asset-backed securities and government securities.

EJR and Egan consented to an SEC order that found EJR falsely stated in its registration application that the firm had been rating issuers of asset-backed and government securities since 1995 — when in truth the firm had not issued such ratings prior to filing its application. The SEC’s order also found that EJR violated conflict-of-interest provisions, and that Egan caused EJR's violations.

EJR and Egan made a settlement offer that the Commission determined to accept. Under the settlement, EJR and Egan agreed to be barred for at least 18 months from rating asset-backed and government securities issuers as an NRSRO. EJR and Egan also agreed to correct the deficiencies found by SEC examiners in 2012, and submit a report – signed by Egan under penalty of perjury — detailing steps the firm has taken.

"Accuracy and transparency in the registration process are essential to the Commission’s oversight of credit rating agencies," said Robert Khuzami, Director of the SEC’s Division of Enforcement. "EJR and Egan’s misrepresentation of the firm’s actual experience rating issuers of asset-backed and government securities is a serious violation that undercuts the integrity of the SEC’s NRSRO registration process."

Antonia Chion, Associate Director of the SEC’s Division of Enforcement, added, "Provisions requiring NRSROs to retain certain records and address conflicts of interest are central to the SEC’s oversight of credit rating agencies. EJR’s violations of these provisions were significant and recurring."

Eagan and his firm were charged last year for falsely stating on EJR’s July 2008 application to the SEC that it had 150 outstanding asset-backed securities (ABS) issuer ratings and 50 outstanding government issuer ratings, and had been issuing credit ratings in these categories on a continuous basis since 1995. Egan signed and certified the application as accurate. According to the SEC’s order, EJR had not issued any ABS or government issuer ratings that were made available through the Internet or any other readily accessible means. Therefore, EJR did not meet the requirements for registration as a NRSRO in these classes. The Commission found that EJR continued to make material misrepresentations about its experience in subsequent annual certifications. EJR also made other misstatements in submissions to the SEC, and violated recordkeeping and conflict-of-interest provisions governing NRSROs — which are intended to safeguard the integrity of credit ratings.

EJR and Egan agreed to certain undertakings in the SEC’s order, including that they must conduct a comprehensive self-review and implement policies, procedures, practices, and internal controls that correct issues identified in the SEC’s order and in the 2012 examination of EJR conducted by the SEC’s Office of Credit Ratings. EJR and Egan consented to the entry of the order without admitting or denying the findings. The order requires them to cease and desist from committing or causing future violations.

The SEC’s investigation was conducted by Stacy Bogert, Pamela Nolan, Alec Koch, and Yuri Zelinsky. The SEC’s litigation was led by James Kidney with assistance from Alfred Day and Ms. Nolan. The related examinations of EJR were conducted by staff from the SEC’s Office of Credit Ratings, Office of Compliance Inspections and Examinations, and Division of Trading and Markets. Examiners included Michele Wilham, Jon Hertzke, Mark Donohue, Kristin Costello, Scott Davey, Alan Dunetz, Nicole Billick, David Nicolardi, Natasha Kaden, and Abe Losice.

SUMMARY JUDGEMENT GIVEN IN PRIME BANK INVESTMENT SCHEME

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

SEC OBTAINS SIGNIFICANT RELIEF IN SUMMARY JUDGMENT WIN AGAINST DEFENDANTS CHARGED WITH DEFRAUDING INVESTORS IN FICTITIOUS OFFERINGS

On December 17, 2012, the United States District Court for the Central District of California granted the Securities and Exchange Commission's motion for summary judgment against all defendants and relief defendants in a civil action arising from two "prime bank" or "high yield" investment schemes that defrauded investors out of more than $11 million. The judgment permanently enjoins Francis E. Wilde, Steven E. Woods, Mark A. Gelazela, Bruce H. Haglund, and entities they control, from violations of the antifraud and other securities law provisions. The judgment also requires the defendants to pay disgorgement and penalties, and bars Wilde and Haglund from acting as officers or directors of any public company. In addition, the court issued a separate judgment requiring relief defendants IBalance LLC, Maureen Wilde, and Shillelagh Capital Corporation to disgorge illegally-obtained profits.

The Commission's complaint, filed on February 24, 2011, alleged that Wilde, through his company Matrix Holdings LLC, orchestrated two fraudulent investment schemes. The first scheme began in April 2008 when Wilde obtained a U.S. Treasury bond with a market value of nearly $5 million from an investor by making false and misleading promises of outsized returns from what he claimed was a "private placement program." Wilde (through Matrix) then used the bond to secure a line of credit that he drew down to pay personal expenses, to pay investors, creditors and debt holders of his public company, and to make failed attempts to acquire fictitious prime bank instruments or to invest in high yield programs. Wilde eventually exhausted all of the funds obtained with the investor's bond and never produced a return for the investor.

The Commission further claimed that, beginning in October 2009, Wilde concocted another fraudulent scheme with Woods and Gelazela in the form of a "bank guarantee funding" program using the services of Haglund as escrow attorney. Between October 2009 and mid-March 2010, Woods (through BMW Majestic LLC) and Gelazela (through IDLYC Holdings Trust ("IDLYC") and IDLYC Holdings Trust LLC ("IDLYC LLC")) signed contracts with 24 investors who sent over $6.3 million to Haglund's trust account. Wilde never successfully acquired or leased a single legitimate financial instrument and exhausted all $6.3 million of the investors' funds, much of which was taken by the defendants in the form of undisclosed fees. The Commission alleged that Haglund aided the fraud by receiving and sending wires of investors' funds in and out of his trust account according to instructions from Wilde, thus allowing Wilde to utilize funds for undisclosed purposes. Haglund also knowingly made, and Wilde knowingly authorized, Ponzi-like payments to old investors using new investor deposits.

The court found that Wilde, Woods, Gelazela, Matrix, BMW Majestic, IDLYC, and IDLYC LLC violated 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; that Woods and Gelazela also violated Section 15(a) of the Exchange Act; and that Haglund and Wilde aided and abetted the other defendants' violations of Section 10(b) and Rule 10b-5.

The judgment permanently enjoins Wilde, Woods, Gelazela, Matrix, BMW Majestic, IDLYC, and IDLYC LLC from violating Sections 5 and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; Woods and Gelazela from violating Section 15(a)(1) of the Exchange Act; and Haglund from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The court ordered Wilde and Matrix to pay, jointly and severally, disgorgement of their ill-gotten gains in the amount of $12,106,810.75 plus pre-judgment interest, for a total of $13,589,505.56. The court further ordered Wilde and Matrix to pay a civil penalty equal to the amount of disgorgement plus prejudgment interest. In addition, the court ordered Woods, Gelazela, Haglund, BMW Majestic, IDLYC and IDLYC LLC to pay, jointly and severally, disgorgement of their ill-gotten gains in the amount of $6,195,908 plus pre-judgment interest, for a total of $6,744,083.49. The court's order also required Woods, Gelazela, Haglund, BMW Majestic, IDLYC and IDLYC LLC to pay a civil penalty equal to the amount of disgorgement plus prejudgment interest. The judgment also permanently bars Wilde and Haglund from acting as an officer or director of a public company.

The court also ordered several relief defendants, all of which are related to defendants, to disgorge a total of $2,153,000 in ill-gotten gains that they received:
IBalance LLC, an entity partially owned by Gelazela, was ordered to pay disgorgement of $1,000,000, plus prejudgment interest of $88,743.79;
Maureen Wilde, the wife of Francis Wilde, was ordered to pay disgorgement of $829,500, plus prejudgment interest of $67,412.85; and
Shillelagh Capital Corporation, an entity Wilde controls, was ordered to pay disgorgement of $323,500, plus prejudgment interest of $27,475.06.

SEC COMMISSIONER GALLAGHER SPEAKS TO U.S. CHAMBER CENTER FOR CAPITAL MARKETS COMPETITIVENESS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Remarks before the U.S. Chamber Center for Capital Markets Competitiveness
byCommissioner Daniel M. Gallagher
U.S. Securities and Exchange CommissionWashington, D.C.
January 16, 2013

Thank you, David [Hirschmann], for that kind introduction. I’m very pleased to be here this afternoon addressing such strong supporters of American global leadership in capital formation, one of the foremost goals of the Commission. Before I continue, I must tell you that my comments today are my own, and do not necessarily represent the positions of the Commission or my fellow Commissioners.

As I’m sure you’re all aware, next Monday the nation will observe both the Inauguration and Martin Luther King Jr.’s birthday. What you may not be aware of is that Monday also marks the two-and-a-half-year anniversary of the enactment of the Dodd-Frank Act. To commemorate the occasion, I’d like to take a few moments today to talk about the Act — specifically, the misallocation of resources and opportunity costs that have arisen from the many false assumptions underlying the Act and how they continue to impact the Commission's everyday efforts to carry out its mission to protect investors, maintain fair, orderly, and efficient markets, and to facilitate and capital formation.

You can say this about the Dodd-Frank Act: it’s a perfect example of not letting a crisis go to waste. Indeed, the Act is a model of the new paradigm of legislation — a core concept, in this case regulatory reform, overwhelmed by a grab bag of wish-list items. What continues to amaze me about the Act is not only what it covers in its 2319 pages, but also the crucial regulatory issues it does not address. The juxtaposition of the two is jarring. The Act tasks the SEC with a mandate to create unprecedented new disclosure rules relating to conflict minerals from the Congo — but not to reform money market mutual funds, which, we were later told, are ticking time bombs of systemic risk. Dodd-Frank addresses extractive resource payments made by U.S. listed oil, gas and mining companies — but leaves the reform of Freddie Mac and Fannie Mae for another day. The Act fundamentally restructures the nation’s financial regulatory infrastructure by establishing the Financial Stability Oversight Council, not to mention the Consumer Financial Protection Bureau — but failed to eliminate the redundancy of having the SEC and the CFTC share jurisdiction over substantially similar and interrelated markets and products. Dodd-Frank creates a system of regulation for so-called SIFIs but does not address the shortcomings of the short-term funding model of banks that continue to be too big to fail. The Dodd-Frank Act's attempts to "solve" the financial crisis illustrate the peril of false narratives — it justifies its mandates as answers, but only after asking the wrong questions.

I suppose that this shouldn’t be a surprise given that the statute was not the product of bipartisan compromise and was enacted shortly after the onset of the crisis — and many months before the bodies charged with examining the causes of the crisis issued their reports. This was a markedly different approach than the deliberative process undertaken after the 1929 stock market crash.<sup>1

In total, the Dodd-Frank Act contains approximately 400 specific mandates to be implemented by agency rulemaking, with approximately a hundred applying directly to the SEC. The SEC has adopted final rules implementing nearly a third of those statutory mandates and continues to devote tremendous amounts of resources to drafting additional proposals, completing required studies, and implementing the new rules. The result has been a dramatic increase in both the volume and pace of SEC rulemaking. As I’ve said in the past, it’s no exaggeration to say that the Commission is handling ten times its normal rulemaking volume, with "normal" being the post Sarbanes-Oxley normal, itself a marked increase from the pace before that law’s enactment.

As a result, the SEC, like other regulators, is now dealing with the problem of rushed, inadequate rule proposals that were pushed out in a bid to meet arbitrary congressional deadlines. As you might expect, it is not easy to promulgate high quality final rules from faulty proposals. The Volcker Rule serves as a case in point.

This increased pace raises two sets of concerns. The first stems from the difference between getting rules done and getting them done right. Smart regulation requires taking the time to understand the problem that needs to be addressed, including not only the proximate cause of the problem but also the often complex and hidden factors underlying that problem. It is at this stage where the peril of false narratives is at its greatest, for incorrectly identifying the causes of a problem — whether outright or by oversimplifying complicated issues— makes finding the right solution far more difficult, if not impossible. And, it should go without saying that we need to ensure that we are performing a rigorous cost-benefit analysis of all rules, whether proposed or final.

The second set of concerns centers around the concept of opportunity cost and the misallocation of limited resources. I have no doubt that the businesses represented by the Chamber understand the concept of limited resources and the need to set clear and sensible priorities far better than does the federal government. Every hour spent by the SEC staff on drafting rules or carrying out studies to implement Dodd-Frank mandates represents one less staff hour spent focusing on the Commission’s core regulatory responsibilities.

I’m not here to enumerate the flaws of the legislation as a whole, but I'd like to spend a few moments using the Volcker Rule to illustrate both of these sets of concerns. As I’m sure you all know, the Dodd-Frank Act requires the three Federal banking agencies, the SEC, and the CFTC to adopt rules to implement two significant prohibitions on banking entities and their affiliates: a prohibition on engaging in proprietary trading, and a prohibition on sponsoring or investing in "covered funds" such as hedge funds or private equity funds. The Rule identifies certain specified "permitted activities," including underwriting, market making, and trading in certain government obligations, that are excepted from these prohibitions but also establishes limitations on those excepted activities. The legislative text of the Volcker Rule defines — in expansive terms — key concepts such as "proprietary trading" and "trading account" and grants the Federal Reserve Board, the FDIC, the OCC, the SEC, and the CFTC the rulemaking authority to further add to those definitions.

The banking agencies and the SEC issued a proposal in October 2011, with the CFTC following in February of last year. Fifteen months later, the rulemaking remains at the proposal stage, with ongoing talks between the agencies aiming to address the myriad concerns raised in over 18,000 comment letters regarding the dire, albeit presumably unintended, consequences they argue would result from the proposed implementing regulations.

And yet, "If you look at the crisis, most of the losses that were material for the weak institutions — and the strong, relative to capital — did not come from those [proprietary trading] activities. They came overwhelmingly from what I think you can describe as classic extensions of credit." Those aren’t my words — Treasury Secretary Geithner spoke them in September 2009. In case Secretary Geithner merely misspoke, I’ll provide another quote from a different speaker, this time from March 2010: "[P]roprietary trading in commercial banks was there but not central" to the financial crisis. That speaker? Paul Volcker.

Don’t get me wrong — as illustrated by notable hedging failures last year, bank trading and hedging practices can indeed be a whale of a problem. It’s just not a problem the Volcker Rule, or the Dodd-Frank Act as a whole, purport to address. Like much of the Act, the Volcker Rule is a solution in search of a problem.

The Act, however, is still the law of the land, and banks have long since accepted the Rule and its implications for their business activities. In fact, I’ve been told by several firms that although the implementing rules have yet to be finalized, they’ve taken significant steps to shut down their U.S. prop trading activities and, in some cases, have already done so completely. Even as firms have looked to the statutory text and spirit of the Rule and proactively taken action to bring their hedging and trading practices into compliance, however, high-level staff from five regulatory agencies continue to work behind closed doors to refine a rulemaking proposal that, according to a letter sent to the agencies by a bipartisan group of six Senators, "as drafted, could adversely affect Main Street businesses by reducing market liquidity and increasing the cost of capital."
2

In another comment letter, Senators Merkley and Levin, both strong supporters of the Volcker Rule, wrote, "The Volcker Rule demands Wall Street change its culture. Implemented in a smart, vigorous way, the Volcker Rule can both protect the U.S. economy and taxpayers from some of the gravest risks created by the nation's largest financial institutions, while providing plenty of space for these financial institutions to provide the plain vanilla, low-risk, client-oriented financial services that help the real economy grow."
3 These are certainly laudable goals. Almost uniformly, however, critics of the Volcker Rule argue that it is those very "plain vanilla," Main Street customer-facing products that will be harmed, not necessarily by the text of the Volcker Rule as set forth in the Dodd-Frank Act, but by the draconian interpretation of the Rule that the October 2011 proposed rules would impose upon the financial industry — and its customers. Notably, our foreign regulatory counterparts in Europe, Canada, and Japan have been some of the fiercest critics of the proposed implementing rules.

I had the opportunity last week to meet with regulators and industry participants in the UK and Ireland, where I encountered a distinct lack of enthusiasm for either the Volcker Rule or its "ring-fencing" counterpart proposals set forth by the UK Independent Commission on Banking and the European Union’s Liikanen Group. Indeed, Sir John Vickers, chairman of the Independent Commission, has already criticized the UK coalition government for backing away from his original proposal,
4 while the European Commission’s recent report summarizing the responses received to the Liikanen Report acknowledges the widespread opposition to the proposal in a charmingly understated fashion, stating, "In general, banks welcomed the Group's analysis, but argued that a compelling case for mandatory separation of trading activities has not been made. They felt that the proposal was not backed by the required evidence, and that there was a need for a thorough impact assessment."5 With all due respect to my friends in the European financial regulatory community, when a regulatory proposal is viewed within the European Union as being too harsh on the financial industry and harmful to markets, I think that’s a clear sign that it’s time to take a step back and reevaluate.

Regardless of what happens with respect to the Vickers or Liikanen proposals, even if all of the most vitriolic allegations Wall Street's harshest critics set forth are true — even if our financial giants act solely and ruthlessly out of craven self-interest — those financial institutions know that the Volcker Rule isn't going away. As such, they have already begun the process of determining which of their activities would be prohibited under the Rule as set forth in the text of the Dodd-Frank Act and proactively moving to shut down their truly proprietary trading desks as appropriate. Accordingly, as my friend and colleague Troy Paredes and I have often stated, the final regulations implementing the Volcker Rule should, for the most part, simply be a codification of what most banks have already done in response to the requirements set forth in the legislative text. The critics of the proposing release are no longer, if they ever did, realistically contemplating repeal of the Volcker Rule. They simply want us to get its implementing regulations right.

The October 2011 proposal fails to accomplish this goal by focusing only on the latter part of Senators Merkeley and Levin's call for the implementation of the Act in "a smart, vigorous way." Operating on the narrative that banks' proprietary trading practices were a central cause of the crisis, the proposal eschews a focus on smart regulation in favor of pursuing the most vigorous possible interpretation of the Rule's mandates. The proposal throws the baby out with the bathwater — along with the rubber ducky, the bathtub and all of the plumbing as well for good measure. Rather than carefully examining banks' trading practices to determine which of those practices constitute proprietary trading and which are instead customer-facing activities providing liquidity and reducing the cost of capital, it stretches its definitions of covered activity on an almost punitive basis, as if based on an assumption that any trading that could result in profits for the trading entity must fall within the ambit of the Volcker Rule's prohibitions.

This failure to separate market-critical, customer-facing activities from true proprietary trading illustrates the second set of concerns — opportunity costs and the misallocation of resources. The entire rulemaking exercise so far has been carried out in a manner that has wasted the resources of all of the agencies involved. By every account, the bank regulators have taken the lead role throughout the rulemaking process. Presumably, this stems from the fact that the Rule applies to the vast financial firms regulated at the bank holding company level by the bank regulators, coupled with the Byzantine nature of interagency rulemaking and the Washington power game. The Volcker Rule, however, isn't about the financial entities involved — or the relative political standing of the different regulatory agencies — but instead the activities in which those entities engage. Those activities — the trading and hedging practices of those entities — unquestionably fall within the core competencies of the SEC. For example, the SEC has built an extensive library of rulemaking and interpretive releases concerning exceptions for bona fide hedging or market making in the context of short sales. These exceptions, which date back to the early 1980s, built upon the bona fide hedging exceptions to the Commission’s proprietary trading rules for members of national securities exchanges set forth in a 1979 rulemaking. The Rule expressly envisions that quintessential market-making activity continue to be carried out by the firms affected by the Volcker Rule, yet the agency that has regulated securities market-making in order to facilitate liquidity and promote the efficient allocation of capital for decades has played a secondary role in drafting regulations to implement the Rule.

All of this comes with a cost. Both the Commission staff playing second fiddle and the banking regulators struggling to convert the widely lambasted proposing release into workable regulation could be focusing on other matters rather than spinning their wheels with no end in sight. Simply put, we could be spending our time in a far more productive manner, focusing on mandates that are critically important such as those in the JOBS Act, as well as addressing the SEC’s basic "blocking and tackling." Indeed, one personal frustration of mine has been the Commission's inability to fully implement what I believe is the most useful and important provision of the Dodd-Frank Act, the Section 939A mandate to remove all references to Commission-registered credit rating agencies, formally referred to as nationally recognized statistical rating organizations, from all agency regulations. This clear and direct mandate is actually responsive to one of the core problems underlying the financial crisis — overreliance on inaccurate credit ratings by both investors and regulators — yet the most important rules continue to include such references.

Meanwhile, FSOC, charged with averting the next financial crisis, is apparently spending more time hectoring the Commission — a purportedly "independent " agency — on the reform of money market funds — an issue that falls directly, and solely, within the Commission's regulatory sphere of responsibility but that was somehow not important enough to be addressed by the Dodd-Frank Act — than they are focusing on the bubbles that have the potential to cause another crisis. On the issue of money market funds, I am happy to report that Craig Lewis and his fine staff in our economic analysis division have completed the rigorous study and economic analysis that a bipartisan majority of Commissioners had long asked for in advance of considering new rulemaking. We are currently working with the economic analysis staff and the Division of Investment Management to shape a reform proposal based on that rigorous economic analysis.

Separately, I'm encouraged by Chairman Walter’s commitment, even as we continue to implement the Dodd-Frank mandates, to focusing as well on the everyday, core blocking-and-tackling issues that affect investors most. In the coming months, I look forward to working together to address the Commission's priorities — both short-term priorities such as the long-overdue amendments to the Commission's net capital and customer protection rules commonly referred to as the Onnig amendments and longer-term ones such as engaging in a formal, thorough evaluation of equity market structure issues, last done in a comprehensive manner in the Commission's Market 2000 Report all the way back in 1994.

For all the recent talk of gridlock in a divided Commission, I believe that notwithstanding our party and policy differences, this Commission is fully united in its desire to carry out the Commission’s mandate to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. With a clear, data and analysis-based understanding of the problems we face and the complexity of their underlying causes coupled with a deliberate, measured allocation of our resources, I believe that the Commission can accomplish great things, and can avoid the mistakes of the past, over the course of the coming year. I thank you all for your attention as well as for your commitment to advancing our nation's global leadership in capital formation by supporting capital markets that are the most fair, efficient, and innovative in the world, and I wish you a productive and successful conference.</sup>

TWO FORMER CORPOATE OFFICERS OF VOLT INFOMATION SCIENCES, INC., CHARGED WITH SECURITIES FRAUD

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Charges Volt Information Sciences, Inc. and Two Former Officers with Securities Fraud
The Securities and Exchange Commission yesterday filed civil injunctive complaints in the U.S. District Court for the Southern District of New York in connection with improper accounting at Volt Information Sciences, Inc. ("Volt" or the "Company"), a company located in New York, New York.

In its complaint against Jack J. Egan, Jr. Volt’s former Chief Financial Officer, the Commission alleges that Egan participated in a scheme to materially overstate revenue. For Volt’s fourth quarter and fiscal year ended October 28, 2007, Egan signed and filed financial statements reporting $7.55 million of revenue that had not been earned and was not recognizable under U.S. Generally Accepted Accounting Principles. The $7.55 million of improper revenue caused Volt’s net income for its fourth quarter and fiscal year ended October 28, 2007, to be materially overstated. The complaint further alleges that the scheme relied on fabricated paperwork purporting to be a contract selling software to a customer. Egan knew that any sale of the software was impossible because Volt intended to lease the same software to the same customer the following year. Nevertheless, Egan authorized that the $7.55 million in improper revenue be included in the Company’s consolidated income statement for 2007, which were included in Volt’s: (1) 2007 Form 10-K filed with the Commission on January 11, 2008, as amended by Form 10-K/A filed with the Commission on February 25, 2008; and (2) earnings release on Form 8-K furnished to the Commission on December 20, 2007. Egan signed the fraudulent 2007 Form 10-K and subsequent SEC filings that included the same overstatement of revenue. In addition, the complaint alleges that Egan mislead Volt’s external auditors and he signed one or more certifications required by Section 302 of the Sarbanes Oxley Act that were false and misleading.

The Commission’s complaint charges Egan with violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"); Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"); and Exchange Act Rules 10b-5, 13b2-1, 13b2-2, and 13a-14. The complaint further charges Egan with aiding and abetting violations by the Company. The Commission seeks that Egan be permanently enjoined, be ordered to pay a civil money penalty, and be prohibited from acting as an officer or director.

In addition to the complaint against Egan, the Commission filed a settled civil action against Volt and Debra L. Hobbs ("Hobbs"), the former chief financial officer of the Volt subsidiary where the fraud originated. Without admitting or denying the complaint's allegations, Volt agreed to be enjoined from violating Section 17(a) of the Securities Act , and Sections 10(b),13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, and 13a-11. The Company cooperated during the Commission’s investigation and has undertaken significant remediation efforts.