BITCOIN PONZI-SCHEMER ORDERED BY U.S. DISTRICT COURT TO PAY $40 MILLION

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23090 / September 22, 2014

Securities and Exchange Commission v. Trendon T. Shavers and Bitcoin Savings and Trust, Civil Action No. Civil Action No. 4:13-CV-416

Final Judgment Entered Against Trendon T. Shavers, A/K/A/ "Pirateat40" - Operator of Bitcoin Ponzi Scheme Ordered to Pay More Than $40 Million in Disgorgement and Penalties

The Securities and Exchange Commission announced that, on September 18, 2014, a United States District Court in Sherman, Texas entered final judgment against Trendon T. Shavers and Bitcoin Savings and Trust ("BTCST"), the online entity Shavers created and used to operate his Ponzi scheme, and through which he defrauded investors out of more than 700,000 bitcoins. The Court's judgment requires Shavers and BTCST to pay more than $40 million in disgorgement and prejudgment interest, and orders each Defendant to pay a civil penalty of $150,000.

The Commission established, and the Court found, that from February 2011 through August 2012, Shavers offered and sold investments in BTCST over the internet. Shavers solicited all investments, and paid all purported returns, in bitcoins. 

Operating under the internet name, "pirateat40," Shavers solicited investors in online chat rooms and on the Bitcoin Forum, an online forum dedicated to Bitcoin, promising them up to 7% returns weekly based on his claimed trading of bitcoin against the U.S. dollar, including selling bitcoins to individuals who wanted to buy them "off the radar." In reality, Shavers used new bitcoins received from BTCST investors to pay purported returns on outstanding BTCST investments, and diverted BTCST investors' bitcoins for his personal use. The Court further found that, even as he publicly denied the Ponzi scheme on the Bitcoin Forum, Shavers knowingly and intentionally operated BTCST as a sham and a Ponzi scheme, and repeatedly made materially false and misleading representations to BTCST investors and potential investors concerning the use of their bitcoins, how he would generate the promised returns, and the safety of their investments.

The Court's judgment permanently enjoins Shavers and BTCST from future violations of Sections 5 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; orders them to disgorge, on a joint and several basis, $39,638,569, plus $1,766,098 prejudgment interest thereon, for a total of $40,404,667; and orders Shavers and BTCST each to pay a $150,000 penalty.

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B OF A PAYING $7.65 MILLION TO SETTLE SEC CHARGES OF VIOLATING INTERNAL CONTROLS AND RECORD-KEEPING LAWS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

09/29/2014 11:25 AM EDT

The Securities and Exchange Commission today charged Bank of America Corporation with violating internal controls and recordkeeping provisions of the federal securities laws after it assumed a large portfolio of structured notes and other financial instruments as part of its acquisition of Merrill Lynch.


Bank of America agreed to pay a $7.65 million penalty to settle the charges stemming from regulatory capital overstatements that it made due to its internal accounting control deficiencies and books and records failures.


Regulatory capital refers to the amount of capital that a bank must hold under applicable rules, and it is intended to provide a buffer against adverse market conditions.  According to the SEC’s order instituting a settled administrative proceeding, at the time of its Merrill Lynch acquisition, Bank of America permissibly recorded the inherited notes at a discount to par.  Bank of America was required to realize losses on the notes as they matured because it redeemed the notes at par.  For the purposes of calculating and reporting its regulatory capital, applicable rules required Bank of America to deduct the realized losses as they occurred.


However, according to the SEC’s order, by the time 90 percent of the notes had matured as of March 31, 2014, Bank of America had yet to deduct any of the realized losses from its regulatory capital.  Therefore, with each passing fiscal quarter and fiscal year since 2009 as more and more notes matured, Bank of America overstated its regulatory capital by greater and greater amounts in its regulatory filings, eventually reaching billions of dollars.  Bank of America internally discovered the regulatory capital overstatements in mid-April 2014.  After analyzing the issue, it disclosed the overstatements in a Form 8-K filing on April 28, 2014.  Besides correcting its regulatory capital figures in its Form 8-K filing, Bank of America cooperated with SEC staff during the investigation and voluntarily took steps to remediate the insufficiencies that led to the regulatory capital overstatements.


“Bank of America self-reported its regulatory capital overstatements, remediated the issues quickly, and cooperated in our investigation,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. “This penalty reflects credit for that cooperation, which allowed us to conduct our investigation efficiently and effectively.”


Michael J. Osnato, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, added, “The federal securities laws require all public companies to maintain accurate books and records as well as a system of internal accounting controls sufficient to assure transactions are recorded as necessary.  Bank of America violated these legal requirements, which are specifically geared to ensure the integrity and accuracy of information that eventually is disclosed to investors.”


In addition to the $7.65 million penalty, the SEC’s order requires Bank of America to cease and desist from committing or causing any violations or future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.


The SEC’s investigation was conducted by Tony Frouge and supervised by Michael Osnato, Reid Muoio, and Daniel Michael.  The SEC appreciates the assistance of the Board of Governors of the Federal Reserve System and the Public Company Accounting Oversight Board.

OHIO RESIDENT CHARGED BY CFTC WITH COMMODITY POOL FRAUD

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

CFTC Charges Ohio Resident Glen Galemmo with Commodity Pool Fraud in a Multi-Million Dollar Ponzi Scheme

CFTC alleges that Galemmo solicited at least $116 million from pool participants and only deposited approximately $4.7 million of the funds into futures accounts

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) filed a civil enforcement Complaint against Defendant Glen Galemmo of Cincinnati, Ohio, charging him with operating a multi-million dollar Ponzi scheme through his firm, QFC, LLC, from February 18, 2010 through at least July 17, 2013.

According to the Complaint filed on September 15, 2014, Galemmo, among other things, made material misrepresentations to commodity pool participants, including the misrepresentation that the pool generated returns of 17 percent to 40 percent from 2008 through 2012. The Complaint also alleges that Galemmo failed to disclose that he failed to trade pool participants’ funds from at least 2003 through May 2011. As alleged, beginning in April 2011, Galemmo only deposited approximately $4.7 million of over $116 million solicited from pool participants into futures accounts that he controlled and sustained total trading losses of approximately $1.2 million. Galemmo also allegedly withdrew or caused to be withdrawn $2.7 million in pool participants’ funds from these futures accounts.

The Complaint further alleges that Galemmo misappropriated pool participant funds for personal and other business uses, and to conceal his fraudulent scheme and misappropriation, Galemmo issued or caused to be issued false account statements to pool participants.

The Complaint also notes that on January 15, 2014, Galemmo formally pleaded guilty in a related criminal case. See United States v. Glen Galemmo, Case No. 1:13-cr-00141-HJW (S.D. Ohio).

In its continuing litigation, the CFTC seeks a return of ill-gotten gains, restitution, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of the federal commodities laws, as charged.

CFTC Division of Enforcement staff members responsible for this case are Eugene Smith, Peter M. Haas, Dmitriy Vilenskiy, and Paul G. Hayeck.

SEC OBTAINS ASSET FREEZE AGAINST COMPANY BEHIND PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Obtains Asset Freeze Against Company in Turks and Caicos Islands Behind South Florida-Based Ponzi Scheme

09/16/2014 04:30 PM EDT

The Securities and Exchange Commission announced an emergency asset freeze against a company located in Turks and Caicos Islands in connection with its operation of a South Florida-based Ponzi scheme.

The SEC’s request for the emergency asset freeze against Abatement Corp. Holding Company Limited was granted in the U.S. District Court for the Southern District of Florida last week.  The SEC’s complaint alleged that Abatement Corp. and its now-deceased principal Joseph Laurer – who commonly used the name Dr. Josef V. Laurer – falsely promised investors safe, guaranteed returns while engaging in an offering fraud and Ponzi scheme from November 2004 until Laurer’s death on May 15, 2014.

The SEC’s complaint also names Laurer’s widow Brenda Davis and another Laurer-controlled company International Balanced Fund as relief defendants because they received investor funds.

“Unknowing investors were led to believe that Abatement Corp. and Laurer were watching out for their financial best interests when, in fact, they were callously stealing their hard-earned money,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.

The SEC’s complaint alleges that Laurer, through Abatement Corp., raised more than $4.6 million from approximately 50 investors residing primarily in South Florida.  Laurer, who was a member of the City of Homestead’s General Employee Pension Board and president of the South Dade chapter of AARP, convinced investors to give him money through false claims that he would put their money into Abatement Corp.’s purported bond fund that invested in triple-A rated corporate and government bonds.  Laurer also told investors that the fund would pay a guaranteed fixed return, with no risk to principal because of insurance from either or both the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation.

The SEC alleges that by at least 2007, Laurer was operating a full-fledged Ponzi scheme and putting virtually no new investor money into securities, instead using investor funds to pay returns to investors, fund investor withdrawals, and pay personal expenses.  At the time of Laurer’s death, approximately $900,000 remained in Abatement Corp.’s bank account in the Turks and Caicos Islands, and another $82,000 remains in a domestic bank account held by International Balanced Fund.  The SEC further alleges that Laurer used investor funds for the benefit of his wife, including paying premiums with investor funds on a half million dollar life insurance policy she received upon his death.

The court order issued on September 12 temporarily freezes the assets of Abatement Corp. and International Balanced Fund and sets a hearing for September 22.  Davis agreed to a temporary freeze of certain assets of hers until November 6, pending a determination of the SEC’s claim against Davis for disgorgement.  If the SEC and Davis have not resolved the claims against her or agreed to an extension of the temporary asset freeze by October 22, then the court will hold a hearing on the SEC’s motion against Davis on October 24.

The SEC’s complaint charges Abatement Corp. with violating Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  In addition to seeking an asset freeze, the SEC also seeks an order directing Abatement Corp. and the relief defendants to pay disgorgement with prejudgment interest and provide a sworn accounting of all proceeds received and an order directing repatriation of any funds held at any offshore bank or other financial institution not subject to the jurisdiction of the court.

The SEC’s investigation was conducted by Terence M. Tennant and Mark S. Dee under the supervision of Elisha L. Frank in the SEC’s Miami Regional Office.  They were assisted by Anson Kwong, Debra E. Williamson, George Franceschini, Nicholas A. Monaco and John C. Mattimore of the Miami office’s examination program.  The SEC’s litigation is being led by Andrew Schiff.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority and the Turks and Caicos Islands Financial Services Commission.

LAW FIRM IT EMPLOYEE CHARGED WITH INSIDER TRADING AHEAD OF MERGER ANNOUNCEMENTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges IT Employee at Law Firm With Insider Trading Ahead of Merger Announcements

09/16/2014 01:40 PM EDT

The Securities and Exchange Commission today charged an employee in an international law firm’s IT department with insider trading ahead of several mergers and acquisitions involving firm clients being advised on the deals.

The SEC alleges that Dimitry Braverman, a senior information technology professional at Wilson Sonsini Goodrich & Rosati, had access to nonpublic information in the firm’s client-related databases and garnered more than $300,000 in illicit profits by trading in advance of merger announcements.  Braverman began by insider trading in accounts in his own name, but shifted course when a lawyer at his firm was charged by the SEC and criminal authorities in an entirely separate insider trading scheme.  After immediately liquidating the remaining securities that he had purchased on the basis of nonpublic information, Braverman waited about 18 months and then continued his insider trading in a brokerage account held in the name of a relative living in Russia.  His concealment efforts failed, however, when SEC investigators were able to dissect a suspicious pattern of trades and trace them back to Braverman.

“Insider trading by employees of law firms and other professional organizations is an important enforcement focus for us,” said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit.  “We’ve enhanced our detection capabilities and we’re refining our investigative approaches to enable us to more easily identify those who abuse their positions of trust and confidence.”

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

According to the SEC’s complaint filed in federal court in Manhattan, Braverman began his scheme in 2010 by using nonpublic information to trade the stock or stock options in one of the companies involved in an upcoming merger or acquisition.  He typically sold his stock or exercised his options shortly after the deals were made public.  In advance of two deals, Braverman tipped his brother, who consequently made approximately $1,800 in profits.

The SEC alleges that Braverman conducted insider trading in four companies prior to the separate insider trading charges against the Wilson Sonsini lawyer in 2011, and four more companies after he opened a brokerage account in late 2012 in the name of Vitaly Pupynin, a relative who that summer had visited Braverman’s home in San Mateo, Calif., during a trip to the U.S. from Russia.  The e-mail address associated with the account was same one that Braverman had used twice before to open other brokerage accounts.  However, Braverman later created a new e-mail address using Pupynin’s first name and changed the e-mail address associated with the brokerage account to that address instead.  After Pupynin left the U.S. in October 2012, Braverman used the account to continue insider trading and profiting on the basis of material nonpublic information that he obtained.  Braverman continued his insider trading through 2013.

“Believing he could conceal his trades by hiding them in a relative’s account, Braverman abused Wilson Sonsini’s trust by repeatedly using confidential information about the law firm’s clients to reap insider trading profits,” said Joseph G. Sansone, Co-Deputy Chief of the SEC Enforcement Division’s Market Abuse Unit.  “SEC staff methodically identified the trades and traced a trail of evidence back to Braverman, who must now face the consequences of his actions.”          

The SEC’s complaint charges Braverman with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Section 14(e) of the Exchange Act and Rule 14e-3.  Pupynin is named as a relief defendant in the SEC’s complaint for the purposes of recovering Braverman’s ill-gotten gains in the trading account held in Pupynin’s name.

The SEC’s investigation, which is continuing, has been conducted by Charu A. Chandrasekhar and John Rymas of the Market Abuse Unit and Jordan Baker and Thomas P. Smith Jr. of the New York Regional Office.  The case has been supervised by Mr. Hawke and Mr. Sansone, and the litigation will be led by Preethi Krishnamurthy and Ms. Chandrasekhar.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, Federal Bureau of Investigation, Financial Industry Regulatory Authority, and Options Regulatory Surveillance Authority.