COURT ORDERS $1.5 MILLION IN SANCTIONS IN FOREX FRAUD CASE

FROM:  COMMODITY FUTURES TRADING COMMISSION 
Federal Court in Texas Orders $1.5 Million in Sanctions against Defendant Mark E. Rice for Fraudulent Forex Scheme

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court Order requiring Defendant Mark E. Rice, of Sugar Land, Texas, to pay $827,000 in restitution and a $673,000 civil monetary penalty to settle CFTC charges related to fraudulent solicitation and misappropriation of customer funds to trade leveraged off-exchange foreign currency contracts (forex). The Consent Order of Permanent Injunction, entered on January 13, 2014, by Judge Lee H. Rosenthal of the U.S. District Court for the Southern District of Texas, also imposes permanent trading and registration bans against Rice and prohibits him from violating provisions of the Commodity Exchange Act, as charged.

The Consent Order stems from a CFTC Complaint filed on June 29, 2011, against Rice and Rice’s company, Financial Robotics, Inc. (see CFTC Press Release 6067-11).

The Order finds that, from June 2008, Rice operated a fraudulent scheme that solicited approximately $1.7 million from one individual to trade leveraged off-exchange forex contracts. According to the Order, Rice falsely told his customer, among other things, that his investment was “risk free” and insured against loss and that the return of his principal was guaranteed. The Order further finds that Rice misappropriated at least $576,000 of his customer’s funds by transferring the money to unrelated Rice-controlled companies and, thereafter, spending at least $404,000 of those funds for Rice’s personal and business expenses.

The CFTC’s litigation continues against Financial Robotics, Inc.

The CFTC thanks the National Futures Association, the British Virgin Islands Financial Services Commission, The Netherlands Authority for the Financial Markets, and the United Kingdom’s Financial Conduct Authority for their assistance.

CFTC Division of Enforcement staff members responsible for this case are Kevin S. Webb, Michelle S. Bougas, James H. Holl, III, and Gretchen L. Lowe.

EXECUTIVES CHARGED BY SEC WITH FALSIFYING FINANCIAL RECORDS

FROM:  SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Former Senior Executives of Public Company Subsidiary with Falsifying Financial Records and Circumventing Internal Controls

The Securities and Exchange Commission announced that on January 14, 2014, the Commission filed a civil injunctive action in federal district court Milwaukee, Wisconsin, charging Christopher Hohol (“Hohol”) and Brian Poshak (“Poshak”), formerly the senior vice president for operations and the  controller, respectively, of Veolia Special Services (“Special Services”), a fourth-tier United States subsidiary of Veolia Environnement S.A. (“Veolia”), a multinational utilities and environmental services company, with falsifying books, records, and accounts and circumventing internal controls in order to overstate Special Services’ earnings before taxes (“EBT”) over a period of at least three years.

The Commission’s complaint alleges that beginning no later than January 2008 and continuing through February 2011, Hohol, who was the most senior executive at Special Services, and Poshak, among other things, made and caused others to make false accounting entries in Special Services’ general ledger, including entries for fictitious revenue accruals, and entries that improperly reclassified expenses as inventory and improperly reclassified expenses (such as rental equipment, including industrial tools and diving gear) as prepaid assets, in order to artificially increase Special Services’ monthly EBT to meet internal financial performance projections and create the false appearance that Special Services consistently was profitable.  The complaint further alleges that both Hohol and Poshak signed monthly certifications falsely verifying the accuracy of Special Services’ financial information and efficacy of Special Services’ internal controls.  The complaint also alleges that Poshak forged invoices and other documents to support the false accounting entries and to conceal the scheme.  According to the complaint, as a result of Hohol’s and Poshak’s misconduct, Special Services overstated its EBT by a total of approximately $64 million.  The complaint also alleges that, as a result of their misconduct, Hohol and Poshak received $136,000 and $28,000, respectively, in ill-gotten bonus payments that were triggered by the inflated financial performance of Special Services.  The complaint further alleges that the false financial information provided by Special Services was reported up through several intermediate subsidiaries and, ultimately, was consolidated into the parent company’s publicly disclosed financial statements, which were filed with and furnished to the Commission.

The complaint charges Hohol and Poshak with violating Section 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 13b2-1 thereunder, and aiding and abetting Veolia’s violations of Section 13(b)(2)(A) of the Exchange Act.

Without admitting or denying the allegations in the complaint, Hohol and Poshak have consented to the entry of final judgments that permanently enjoin them from violating Exchange Act Section 13(b)(5) and Rule 13b2-1 thereunder, and aiding and abetting violations of Exchange Act Section 13(b)(2)(A).  Hohol also has agreed to disgorge $106,000, and Poshak has agreed to disgorge $28,000, together with prejudgment interest in the amount of $3,500.  The settlements, which are subject to court approval, take into account Hohol's and Poshak’s current financial condition.

BURGER KING STOCK INSIDE TRADER ORDERED TO PAY $5.6 MILLION

FROM:  SECURITIES AND EXCHANGE COMMISSION 
Former Stockbroker Ordered to Pay $5.6 Million for Insider Trader in Burger King Stock

The Securities and Exchange Commission obtained a final judgment against a former registered representative who misappropriated material nonpublic information from his customer and used it to trade Burger King Holding, Inc.'s ("Burger King") securities and tip others before the company's September 2, 2010 announcement that it was being acquired by a New York private equity firm.

On January 7, 2014, the SEC obtained a final judgment against Waldyr Da Silva Prado Neto ("Prado"), a citizen of Brazil formerly employed by Wells Fargo Advisors, LLC in Miami. Prado learned about the impending acquisition from one of his customers who invested in a fund managed by the private equity firm that was used to acquire Burger King. Prado misused the confidential information to illegally trade in Burger King securities for $175,000 in illicit profits, and he tipped others living in Brazil and elsewhere.

The final judgment entered by the U.S. District Court for the Southern District of New York on the SEC's motion for a default judgment, permanently enjoins Prado from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The judgment orders Prado to disgorge $397,110 in ill-gotten gains from the illegal Burger King trading plus prejudgment interest of $41,622. Prado is also ordered to pay $5,195,500 in penalties.

TWO COMPANIES TO PAY $500,000 FOR CALL COTTON REPORTING VIOLATIONS

FROM:  COMMODITY FUTURES TRADING COMMISSION 
CFTC Orders Multigrain SA and Agricola Xingu SA to Pay $500,000 for Call Cotton Reporting Violations

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against Multigrain SA (Multigrain) and Agricola Xingu SA (Agricola Xingu), Brazil-based companies that produce and trade cotton and other agricultural products, for failing to comply with their legal obligation as reportable traders to submit weekly Form 304 Reports that show their call cotton purchases and sales.

The CFTC Order explains that CFTC Regulations specifically require cotton merchants and dealers that hold or control at least 100 cotton futures positions, the reportable level for cotton futures contracts under CFTC Regulations, to file CFTC Form 304 Reports that show their call cotton purchases and sales as of the close of business Friday, and no later than two business days following the date of the report. According to the Order, call cotton refers to physical cotton bought or sold, or contracted for purchase or sale, at a price to be fixed later based on a specified delivery month’s futures price. As stated in the Order, the CFTC uses information it gathers from CFTC Form 304 Reports in its weekly Cotton On-Call Reports, published with other Market Reports on the CFTC website at www.cftc.gov/MarketReports/CottonOnCall/index.htm.

The CFTC Order finds that on at least 24 occasions between January 1, 2013 and October 31, 2013, Multigrain and Agricola Xingu held or controlled at least 100 cotton futures positions, but failed to file CFTC Form 304 Reports as required, either by failing to file Form 304 Reports or filing Form 304 Reports late.

The CFTC Order requires Multigrain and Agricola Xingu to jointly pay a $500,000 civil monetary penalty and prohibits them from committing future violations of the CFTC Regulation requiring reports pertaining to cotton call purchases and sales, as charged. The Order also requires Multigrain and Agricola Xingu to adopt internal controls that are reasonably designed to ensure that they comply fully with enhanced written procedures they have adopted regarding future compliance with the CFTC cotton reporting Regulation.

Consistent with this filing, the CFTC issued a market advisory on May 8, 2013 to remind cotton market participants of their ongoing obligation to comply in a timely manner with applicable reporting obligations. See CFTC Staff Advisory No. 13-14 (Obligation of Reportable Market Participants to File CFTC Form 304 Reports for Call Cotton in a Timely Manner as Required by Commission Regulation 19.02) (May 8, 2013).

FINAL JUDGEMENTS ENTERED FOR ALLEGED INSIDER TRADING OF NON-PUBLIC INFORMATION

FROM:  SECURITIES AND EXCHANGE COMMISSION 
Court Enters Final Judgment Against Officer, Broker and Relief Defendant Broker-Dealer in Settlement of Insider Trading Charges

The Securities and Exchange Commission announced today that, pursuant to settlement agreements, the Honorable Thomas L. Ludington of the United States District Court for the Eastern District of Michigan entered final judgments on January 13, 2014 against defendants Mack D. Murrell and Charles W. Adams, and relief defendant Raymond James Financial Services, Inc. (Raymond James) in the SEC's insider trading case, SEC v. Mack D. Murrell, et al., Civil Action No. 2:13-cv-12856 (E.D. Mich.). The final judgments permanently enjoin Murrell and Adams from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Murrell was ordered to pay a civil penalty in the amount of $367,250 and is prohibited from acting as an officer or director of a publicly traded company. Adams was ordered to disgorge $64,450, plus prejudgment interest of $13,285, and to pay a civil penalty in the amount of $107,046.Raymo Jndames was ordered to disgorge $373,497 plus prejudgment interest of $8,692. Without admitting or denying the SEC's allegations, Murrell, Adams, and Raymond James consented to the entry of the final judgments.

The SEC charged Murrell, who was the Vice President of Information Systems for The Dow Chemical Company (Dow), with unlawfully tipping material, non-public information to his long-time friend, David A. Teekell, in advance of Dow's July 10, 2008 announcement of its acquisition of Rohm & Haas Co. The SEC also charged Teekell and Adams, Teekell's broker at Raymond James, with trading on the confidential information. Teekell previously settled the SEC's charges.Raymond James was charged as a relief defendant because profits from certain trades by Teekell were held in its firm account.

COURT ORDERS INTRODUCING BROKER TO PAY FINE FOR RECORD-KEEPING VIOLATIONS

FROM:  COMMODITY FUTURES TRADING COMMISSION 
Federal Court in Illinois Orders Chicago-based Introducing Broker New World Holdings, LLC to Pay $50,000 to Settle Record-Keeping Violation Action

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court Order against Defendant New World Holdings, LLC (NWH) of Chicago, Illinois, requiring NWH to pay a $50,000 civil monetary penalty for destroying business records and failing to diligently supervise employees.

The Consent Order for Permanent Injunction, entered by U.S. District Court Judge Robert W. Gettleman of the Northern District of Illinois on January 8, 2014, also permanently prohibits NWH from violating the Commodity Exchange Act and CFTC Regulations, as charged in the Complaint filed against NWH and two other Defendants on July 22, 2010 (see CFTC Press Release 5861-10). NWH is registered with the CFTC as an Introducing Broker and Commodity Trading Advisor.

The Order finds that, beginning on or about March 10, 2006, NWH introduced an account in the name of Idylic Solutions Pty Ltd. (Idylic) to a Futures Commission Merchant. In addition to the Idylic account, NWH introduced a number of other accounts from the same individuals who opened the Idylic account, or associated with them, including but not limited to accounts in the name of Unifund, Ltd., 888 Management, Inc., Secured Bond, Ltd., and Sagacity, Ltd. (collectively referred to as the “Pooled Accounts”). Deposits into the Idylic account and the Pooled Accounts in the aggregate exceeded $21 million throughout the relevant period, according to the Order.

NWH failed to retain all of the business records related to the Idylic account and Pooled Accounts, relating to NWH’s business of dealing in commodity futures, commodity options, and cash commodities, including but not limited to emails that were prepared in the course of its business of dealing in commodity futures, and further failed to keep said records for a period of five years from the date thereof, according to the Order.

The CFTC appreciates the assistance of the Australian Securities and Investments Commission in this matter.

CFTC staff members responsible for this case are Eugene Smith, Elizabeth N. Pendleton, Michael Amakor, Timothy J. Mulreany, and Paul Hayeck.