SEC ANNOUNCES MULTI-MILLION DOLLAR PAYMENT TO FRAUD SCHEME WHISTLEBLOWER

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Pays More Than $3 Million to Whistleblower

07/17/2015 10:54 AM EDT

The Securities and Exchange Commission today announced a whistleblower award of more than $3 million to a company insider whose information helped the SEC crack a complex fraud.  The multi-million dollar payout is the third highest award to date under the SEC’s whistleblower program.

The whistleblower’s specific and detailed information comprehensively laid out the fraudulent scheme which otherwise would have been very difficult for investigators to detect. The whistleblower’s initial tip also led to related actions that increased the whistleblower’s award.

“Insiders may hold the key to helping our investigators unlock intricate fraudulent schemes,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.  “By providing significant financial incentives for people to come forward, the SEC’s whistleblower program continues to be profoundly effective in helping us protect investors and hold wrongdoers accountable.”

“The award made today is another testament to the agency’s commitment to reward those who provide high-quality information that leads to successful enforcement actions and related actions,” said Sean X. McKessy, Chief of the Office of the Whistleblower.  “Our office continues to receive thousands of whistleblower tips each year.  When those tips bear fruit, those individuals, like today’s whistleblower, may receive significant financial awards.”

Whistleblowers who provide the SEC with unique and useful information that contributes to a successful enforcement action are eligible for awards that can range from 10 percent to 30 percent of the money collected when financial sanctions exceed $1 million.  By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

Since its inception in 2011, the SEC’s whistleblower program has paid more than $50 million to 18 whistleblowers, including a more than $30 million award in 2014 and a more than $14 million award in 2013.  All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators.  No money is taken or withheld from harmed investors to pay whistleblower awards.

SEC SAYS TWO DEFENDANTS ADMIT TO TARGETING ASIAN-AMERICAN COMMUNITY IN CKB PYRAMID SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23306 / July 17, 2015

Securities and Exchange Commission v. CKB168 Holdings Ltd., et al., Civil Action No. 13-5584 (E.D.N.Y., filed October 9, 2013)

In the Matter of Chih Hsuan "Kiki" Lin; Administrative Proceeding File No. 3-16694

Two Defendants Admit Liability in CKB Pyramid Scheme Targeting Asian-American Community

The Securities and Exchange Commission (the "SEC") today announced that the United States District Court for the Eastern District of New York entered settled judgments against defendants Rayla Melchor Santos and Chih Hsuan "Kiki" Lin. In 2013, the SEC charged 16 defendants, including Santos and Lin, with perpetrating a worldwide pyramid scheme.

In settling the SEC's charges against her, Santos admitted that CKB was a pyramid scheme and that she was one of its three primary founders. Santos also admitted that she travelled to the United States and worked with other CKB founders and promoters to convince investors to join CKB by falsely telling them that CKB was a legitimate multi-level marketing company that sold online education courses for children when, in fact, Santos knew that CKB sold its products only to investors and had no significant retail sales.

In settling the SEC's charges against her, Kiki Lin admitted that CKB was an unlawful scheme and that she worked with CKB's founders and others to promote CKB to investors across the United States. Kiki Lin also admitted that she made false and misleading statements to investors and potential investors in order to induce them to join CKB. For instance, Kiki Lin admitted that she falsely told CKB investors and potential investors that they would receive profit reward points ("Prpts") with a value in U.S. dollars that would increase exponentially over time when, in fact, she knew that Prpts could not be converted to actual money.

Defendants Santos and Kiki Lin consented to the entry of Judgments, which: (i) permanently enjoin each of them from violating the unregistered offering provisions of Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act"), and the anti-fraud provisions of Sections 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5(a) and (c) thereunder. Kiki Lin also consented to the entry of the Judgment against her which permanently enjoins her from violating the antifraud provisions of the Section 17(a)(2) of the Securities Act and Rule 10b-5(b) under the Exchange Act and the unregistered broker-dealer provisions of Section 15(a) of the Exchange Act. Santos and Kiki Lin also agreed to conduct-based injunctions that prohibit each of them from participating in an illegal pyramid scheme disguised as a multi-level marketing program. Santos and Kiki Lin have agreed to pay disgorgement of ill-gotten gains, prejudgment interest, and civil penalties in amounts to be determined at a later date by the court upon motion of the Commission. Kiki Lin has also agreed that her wholly-controlled Relief Defendant, USA Trade Group, Inc. will pay disgorgement of ill-gotten gains and prejudgment interest in amounts to be determined at a later date by the court upon motion of the Commission.

As part of the settlement, Kiki Lin also agreed to the issuance of a Commission Order Instituting Administrative Proceedings Pursuant to Section 15(b)(6) of the Exchange Act Making Findings, and Imposition Remedial Sanctions ("Order"), which was issued today. This Order permanently bars Kiki Lin from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or national recognized statistical rating organization, and from participating in any offering of a penny stock.

The Commission's litigation in this matter continues against the remaining Defendants Hung Wai ("Howard") Shern, Rui Ling ("Florence") Leung, Daliang ("David") Guo, Yao Lin, Wen Chen Hwang (aka "Wen Chen Lee" and "Wendy Lee"), Joan Congyi Ma (aka "JC Ma"), Toni Tong Chen, Cheongwha ("Heywood") Chang, Heidi Mao Liu (aka "Heidi Mao"), CKB168 Holdings Ltd., WIN168 Biz Solutions Ltd., CKB168 Ltd., CKB168 Biz Solution, Inc., and Cyber Kids Best Education Ltd.

Opening Remarks at the Compliance Outreach Program for Broker-Dealers

Opening Remarks at the Compliance Outreach Program for Broker-Dealers

SEC CHAIR WHITE LEADS EVENT SUPPORTING MILITARY CONSUMER PROTECTION DAY 2015

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

07/15/2015 05:00 PM EDT

Securities and Exchange Commission Chair Mary Jo White led a multi-agency event today to support Military Consumer Protection Day 2015, highlighting how service members can best protect themselves and their finances from fraud and identity theft.

Chair White was joined at the Joint Base McGuire-Dix-Lakehurst event by officials from the U.S. Postal Inspection Service, the Department of Justice’s Service Members and Veterans Initiative, the U.S. Attorneys' Housing and Civil Enforcement Section of the Fair Housing Program, the FBI’s Securities Fraud Program and the U.S. Secret Service.

“Taking control of your finances starts with access to information about financial products and services and the people who sell them,” said SEC Chair Mary Jo White. “We want to ensure the men and women of our armed forces who protect us are themselves protected in the financial marketplace.”

White took questions from the base commander, Col. Frederick Thaden, as well as other senior base leadership, before an audience of several hundred at JBMDL’s Timmerman Center in New Jersey, consisting of service members and their families.

“We find that most people, service members included, want more information on how to better manage their finances and check out financial professionals, so they can make the best decisions for their families and for their future.” said Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy.

Questions ranged from what service members should consider before investing to how to avoid becoming victims of investment fraud. Both Chair White and Ms. Schock cautioned service members about offers that sound too good to be true, high-pressure sales tactics, and fraudulent opportunities that appear on social media.  Chair White also discussed cases the SEC has brought to halt frauds that targeted service members and advised the audience on how to best protect themselves from such scams.

Service members and their families are frequent targets for financial fraud and identity theft.  Military Consumer Protection Day aims to provide men and women in uniform with the knowledge and skills to better understand their finances so they can invest wisely and avoid fraud.

SEC CHARGES 15 INDIVIDUALS AND 19 ENTITIES IN MICROCAP MANIPULATION CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

07/14/2015 02:30 PM EDT

The Securities and Exchange Commission today charged 15 individuals and 19 entities for their roles in alleged schemes to manipulate the trading of microcap stocks.  The 34 defendants include six firms alleged to have acted as unregistered broker-dealers catering to customers who sought to conceal their stock ownership and manipulate the market for microcap securities.

Owners and employees at the six firms, several customers, stock promoters, and two microcap issuers – Warrior Girl Corp. and Nature’s Peak, formerly Everock, Inc.  –  also are among the defendants in the case filed in federal district court in Manhattan.  The SEC charged the defendants with fraud, manipulative trading, touting, and with registration violations.  Nine of the defendants were named in a criminal indictment charging them based on their roles in the alleged stock manipulation scheme.

The SEC complaint alleges that Costa Rica-based Moneyline Brokers and its founder Harold Bailey “B.J.” Gallison II unlawfully operated as a broker-dealer for U.S.-based customers who engaged in “pump and dump” schemes to artificially inflate a stock’s price and then sell their own shares.  According to the complaint, Moneyline and certain of its employees routinely accepted transfers of microcap stocks from the U.S. customers and had stock certificates reissued in Moneyline’s name to conceal the true owners of the shares.

Carl H. Kruse Sr. and Carl H. Kruse Jr., both of Miami, allegedly conspired with Moneyline and others to manipulate trading in Warrior Girl, a former shell company that the Kruses controlled.  Warrior Girl’s purported business changed from hydroelectric power (in 2008) to extracting oil from tar sands (in 2009) to online education (in 2010), and the Kruses allegedly engaged in multiple manipulations to profit from promotions to inflate the stock’s price. As a result of the various campaigns the Kruses are alleged to have obtained illegal profits estimated to total $2.3 million.

Another alleged scheme involved trading in Everock, Inc., a Canada-based mining company that relocated to Nevada and sold sandwich spreads after reorganizing itself with Nature’s Peak in 2008.  A concerted campaign promoting the mining-turned condiment company allegedly included videos and Facebook postings and produced more than $2.5 million in profits for defendants Charles S. Moeller, of Sea Cliff, N.Y., Mark S. Dresner, of Dix Hills, N.Y. and Frank J. Zangara, of Locust Valley, N.Y.

“This case demonstrates the Commission’s resolve to relentlessly pursue the villains behind these microcap fraud schemes wherever in the world they may be hiding,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  Michael Paley, Co-Chair of the SEC Enforcement Division’s Microcap Fraud Task Force, added: “This case presents an excellent example of the capacity the Microcap Fraud Task Force has developed to pierce the layers of sham entities and nominee accounts that predators employ to harm investors and evade detection by law enforcement.”

In addition to Moneyline, the complaint alleges that two Costa Rica-based firms, Sandias Azucaradas CR, S.A. and Vanilla Sky, S.A., and three Nevada-based firms, Bastille Advisors, Inc., Club Consultants, Inc., and Jurojin, Inc., operated as unregistered broker-dealers.  Employees of the firms who were charged are: Roger G. Coleman Sr., of Las Vegas, Ann M. Hiskey, of Costa Rica, Robin M. Rushing and David K. Rushing, both of Spokane, Wash., and Michael J. Randles, of Costa Rica.

Promoters who were charged include: Dresner, Antonio J. Katz, of Red Bank, N.J., Moeller, Richard S. Roon, of Rumson, N.J., AKAT Global LLC, Digital Edge Marketing LLC, Oceanic Consulting LLC, and Spectrum Research Group Inc.

The other defendants charged are: Allan M. Migdall, of Fort Lauderdale, Florida, Robert S. Oppenheimer, of Belvedere Tiburon, Calif., Core Business One, Inc., Bermuda-based Fry Canyon Corp., L.F. Technology Group LLC, Starburst Innovations LLC, and Tachion Projects, Inc., along with B.H.I. Group, Inc. and U D F Consulting Inc., both of New York.

The SEC is seeking return of allegedly ill-gotten gains with interest from all defendants.  It also is seeking civil monetary penalties from nearly all the defendants and seeks to bar nearly all of them from the penny stock business and bar some of them from serving as public company officers or directors.

The SEC’s investigation has been conducted by Laura Yeu, Christopher Ferrante and Eric Schmidt of the Microcap Fraud Task Force along with Joshua Newville and Nicholas Pilgrim in the New York Regional Office.  The SEC’s litigation will be led by Mr. Pilgrim.  The SEC appreciates the assistance of the Department of Justice, the U.S. Attorney’s Office for the Eastern District of Virginia, and the Federal Bureau of Investigation.

Ere Misery Made Me Wise[1] — The Need to Revisit the Regulatory Framework of the U.S. Treasury Market

Ere Misery Made Me Wise[1] — The Need to Revisit the Regulatory Framework of the U.S. Treasury Market

Opening Remarks at the Compliance Outreach Program for Broker-Dealers

Opening Remarks at the Compliance Outreach Program for Broker-Dealers

OZ MANAGEMENT LP TO PAY $4.25 MILLION PENALTY TO SETTLE CHARGES FOR MISIDENTIFYING TRADES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

07/14/2015 10:00 AM EDT

The Securities and Exchange Commission today charged OZ Management LP with providing inaccurate trade data to four prime brokers, causing inaccuracies in the brokers’ books and records and in data provided to the SEC in investigations.  OZ Management, an investment adviser for numerous Och-Ziff funds, admitted wrongdoing and agreed to pay a $4.25 million penalty to settle the charges.

According to the SEC’s order instituting a settled cease-and-desist proceeding, for nearly six years, ending in December 2013, OZ Management misidentified some trades in data provided to four of its prime brokers.  Although trade settlement was unaffected, the erroneous data had a significant impact, causing the four prime brokers to inaccurately list approximately 552 million shares in their own books and records.  The erroneous information also was incorporated into data that brokers provide electronically to regulators, resulting in approximately 14.4 million shares being inaccurately reported in response to the SEC’s “blue sheet” requests.  FINRA made several referrals to the Commission based on the incorrect trade data.

Detailed trade data on “blue sheets,” named for the original paper form, help the SEC investigate conduct such as insider trading and market manipulation, and reconstruct trading after extreme market volatility.  The SEC discovered OZ Management’s violations during an investigation in 2013, when it determined that the firm’s own files identified certain trades differently than the blue sheets.  The discrepancy arose for trades where OZ Management did not characterize sales as long or short based on how they were marked when they were sent to the market but filtered them based on other factors, such as the relevant fund’s position in the stock at the prime broker.  As a result, the way trades were identified sometimes changed, causing some long sales to be erroneously shown as short sales when OZ Management provided the data to its prime brokers.  OZ Management has since provided corrected historical information to the affected prime brokers who are working to make their own corrections.

“The SEC relies on the accuracy of the books and records of financial institutions and blue sheet data,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “OZ Management’s inaccurate data had a substantial ripple effect that the SEC staff discovered through diligent investigative work.”

This is the second recent SEC enforcement action involving blue sheets.  In 2014, the Commission sanctioned Scottrade for failing to provide accurate and complete blue sheet submissions to the SEC.

The SEC’s order finds that OZ Management’s conduct caused violations by four prime brokers of the federal securities laws and SEC rules requiring accurate books and records.  The SEC also found that OZ Management wrongfully purchased stock during a restricted period for a secondary offering in 2011, in violation of SEC Rule 105.  OZ Management admitted the facts in the SEC’s order and consented to a cease-and-desist order.  In addition to the $4.25 million penalty, OZ Management agreed to return $243,427 of ill-gotten trading gains and prejudgment interest from its trading in violation of Rule 105.

The SEC’s investigation was conducted by Ann Rosenfield, John Marino, Ainsley Kerr and Carolyn M. Welshhans of the Enforcement Division’s Market Abuse Unit.  The case was supervised by Daniel M. Hawke, Chief of the Market Abuse Unit, and co-deputy unit chief Robert A. Cohen.

ALLEGED PONZI/PYRAMID GOLD MINE INVESTMENT SCHEMERS CHARGED BY SEC WITH FRAUD

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

07/02/2015 01:10 PM EDT

The Securities and Exchange Commission announced fraud charges and an asset freeze against the operators of a pyramid and Ponzi scheme falsely promising a gold mine of investment opportunity to investors in Spanish and Portuguese-speaking communities in Massachusetts, Florida, and elsewhere in the U.S.

The SEC alleges that DFRF Enterprises, named for its founder Daniel Fernandes Rojo Filho, claimed to operate more than 50 gold mines in Brazil and Africa, but the company’s revenues came solely from selling membership interests to investors and not from mining gold.  With the help of several promoters, they lured investors with such false promises as their money would be fully insured, DFRF has a line of credit with a Swiss private bank, and one-quarter of DFRF’s profits are used for charitable work in Africa.  The scheme raised more than $15 million from at least 1,400 investors by recruiting new members in pyramid scheme fashion to keep the fraud afloat, and commissions were paid to earlier investors in Ponzi-like fashion for their recruitment efforts.  The SEC further alleges that Filho has withdrawn more than $6 million of investor funds to buy a fleet of luxury cars among other personal expenses.

“DFRF and its operators falsely claimed that they were running a lucrative gold mining business when in reality they were operating a Ponzi and pyramid scheme that preyed on investors in particular ethnic communities who stand to lose millions of dollars,” said John T. Dugan, Associate Regional Director of the SEC’s Boston Regional Office.  “Investors were not given the full story about the true value and security of their investments.”

According to the SEC’s complaint filed June 30 and unsealed today in federal court in Boston, Filho is a Brazilian native who lives in Winter Garden, Fla., and he orchestrated the scheme with assistance from six promoters also charged in the case: Wanderley M. Dalman of Revere, Mass.; Gaspar C. Jesus of Malden, Mass.; Eduardo N. Da Silva of Orlando, Fla.; Heriberto C. Perez Valdes of Miami; Jeffrey A. Feldman of Boca Raton; and Romildo Da Cunha of Brazil.

The SEC alleges that Filho and others began selling “memberships” in DFRF last year through meetings with prospective investors primarily in Massachusetts hotel conference rooms, private homes, and businesses.  DFRF promoted the investment opportunity through online videos in which Filho falsely claimed that the company had registered with the SEC and its stock would be publicly traded.  As DFRF’s marketing reach widened, membership sales dramatically increased from under $100,000 in June 2014 to more than $4 million in March 2015 alone.

The SEC’s complaint alleges that all defendants violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and registration provisions Section 5(a) and 5(c) of the Securities Act.

The SEC’s investigation was conducted by Caitlyn M. Campbell, Mark Albers, John McCann, Frank C. Huntington, and Michele T. Perillo of the SEC’s Boston Regional Office, and assisted by Carlos Costa-Rodrigues in the agency’s Office of International Affairs.

The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Massachusetts, the Boston field office of the Federal Bureau of Investigation, the Massachusetts Securities Division of the Massachusetts Secretary of Commonwealth’s office, the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico, the British Columbia Securities Commission, the Swiss Financial Market Supervisory Authority, the Financial Services Commission  of Barbados, and the United Kingdom Financial Conduct Authority.

Statement on NYSE

Statement on NYSE

SEC ANNOUNCES CRIMINAL CONVICTION OF INDIVIDUAL INVOLVED WITH AMATEUR GOLFER INSIDER TRADING CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23289 / June 17, 2015

Securities and Exchange Commission v. Eric McPhail, et al., Civil Action No. 1:14-cv-12958 (District of Massachusetts, Complaint filed July 11, 2014)

United States v. Eric McPhail and Douglas Parigian, 1:14-cr-10201-DJC (District of Massachusetts filed July 9, 2014)

Jury in Criminal Case Convicts Individual in Insider Trading Case Involving Group of Amateur Golfers

The Securities and Exchange Commission announced that, on June 16, 2015, a federal jury in Massachusetts convicted Eric McPhail of criminal charges of conspiracy and securities fraud for his role in an insider trading ring that traded on inside information about Massachusetts-based American Superconductor Corporation. The criminal charges against McPhail arose out of the same fraudulent conduct for which the Commission instituted a securities fraud action against him and others during July 2014.

The U.S. Attorney's Office for the District of Massachusetts indicted McPhail and another defendant, Douglas Parigian, in July 2014. The indictment alleged that McPhail had a history, pattern and practice of sharing confidences with an individual who had material, nonpublic information concerning American Superconductor's quarterly earnings and other business activities (the "Inside Information"). This individual provided McPhail with the Inside Information with the understanding that it would be kept confidential. Instead, McPhail used email and other means to provide the Inside information to his friends, including Parigian, with the intent that they profit by buying and selling American Superconductor stock and options. Parigian, who used this information to profit on the purchase and sale of American Superconductor stock and options, pled guilty to criminal securities fraud and conspiracy charges on May 13, 2015.

In July 2014, the Commission filed a civil injunctive against Eric McPhail and six of his golfing buddies, including Parigian, alleging that McPhail repeatedly provided non-public information about American Superconductor. McPhail's source was an American Superconductor executive who belonged to the same country club as McPhail and was a close friend. According to the complaint, from July 2009 through April 2011, the executive told McPhail about American Superconducter's expected earnings, contracts, and other major pending corporate developments, trusting that McPhail would keep the information confidential. Instead, McPhail misappropriated the inside information and tipped his friends, who improperly traded on the information. Four defendants settled the SEC's charges, without admitting or denying the allegations, by consenting to the entry of judgments permanently enjoining them from violating the antifraud provisions of the Exchange Act, paying disgorgement and civil penalties. The SEC's case against Parigian, McPhail and another individual, Jamie Meadows, is ongoing.

TWO FIRMS CHARGED WITH EB-5 FOREIGN INVESTOR VIOLATIONS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

06/23/2015 03:10 PM EDT

The Securities and Exchange Commission charged two firms that illegally brokered more than $79 million of investments by foreigners seeking U.S. residency.  The charges are the first against brokers handling investments in the government’s EB-5 Immigrant Investor Program and follow earlier SEC actions against fraudulent EB-5 offerings.

Ireeco LLC, originally of Boca Raton, Fla., and its successor Ireeco Limited, a Hong Kong-based company operating in the U.S., were charged with acting as unregistered brokers for more than 150 EB-5 investors.  The EB-5 program administered by the U.S. Citizenship and Immigration Services (USCIS) provides a path to legal residency for foreigners who invest directly in a U.S. business or private “regional centers” that promote economic development in specific areas and industries.

According to the SEC’s order, Ireeco LLC and Ireeco Limited used their website to solicit EB-5 investors, some of whom were already in the U.S. on a temporary visa.  While Ireeco LLC and Ireeco Limited promised to help investors choose the right regional center to invest with, they allegedly directed most EB-5 investors to the same handful of regional centers, ones that paid them commissions of about $35,000 per investor once USCIS approved an investor’s petition for conditional residence (“green card”).

“While raising money for EB-5 projects in the U.S., these two firms were not registered to legally operate as securities brokers,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “The broker-dealer registration requirements are critical safeguards for maintaining the integrity of our securities markets, and the SEC will vigorously enforce compliance with these provisions.”

Without admitting or denying the SEC’s findings, Ireeco LLC and Ireeco Limited agreed to be censured and to cease and desist from committing or causing similar violations in the future.  They also agreed to administrative proceedings to determine whether they should be ordered to return their allegedly ill-gotten gains, pay penalties, or both based on their violations.

The SEC’s investigation was conducted by Brian Theophilus James in the Miami office, and the case was supervised by Assistant Regional Director Chedly C. Dumornay and Associate Regional Director Glenn S. Gordon.  The SEC appreciates the assistance of the USCIS.

SEC TAKES ENFORCEMENT ACTION AGAINST COMPANY OFFERING COMPLEX DERIVATIVE PRODUCTS TO RETAIL INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

06/17/2015 12:05 PM EDT

The Securities and Exchange Commission announced an enforcement action against a company that illegally offered complex derivatives products to retail investors.

The Dodd-Frank Act implemented two key requirements for any security-based swaps offering to a retail investor who doesn’t meet the high standard of an “eligible contract participant” defined in the law.  A registration statement must be effective for the offering, and the contracts must be sold on a national securities exchange.  These requirements are intended to make financial information and other significant details about the offering fully transparent to retail investors, and limit the transactions to platforms subject to the highest level of regulation.

An SEC investigation found that Silicon Valley-based Sand Hill Exchange was offering and selling security-based swaps contracts to retail investors outside the regulatory framework of a national securities exchange and without the required registration statements in effect.  The violations were detected shortly after the offering process began, and with cooperation from the company the platform was shut down before any investor harm occurred.

Sand Hill agreed to settle the SEC’s charges.

“The Dodd-Frank Act prohibits security-based swaps from being offered in the darkness to retail investors, and we were able to act quickly before any losses materialized in this offering that occurred outside the proper regulatory framework,” said Reid A. Muoio, Deputy Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit.  “We will continue to scrutinize this space for companies circumventing the law to offer security-based swaps without the safeguards provided to retail investors.”

According to the SEC’s order instituting a settled administrative proceeding against Sand Hill and two individuals:

Sand Hill began as two Silicon Valley entrepreneurs creating an online business involving the valuation of private startup companies in the region along the lines of a fantasy sports league.  But Gerrit Hall and Elaine Ou changed their business model multiple times, and earlier this year Sand Hill evolved to invite web users to use real money to buy and sell contracts referencing pre-IPO companies and their value.

Sand Hill sought people to fund accounts using dollars or bitcoins.  Hall and Ou did not ask users about their financial holdings or limit the offering to users with any specific amount of assets.  In fact, they wrote on the Sand Hill website: “We accept everybody regardless of accreditation status.”  Hall and Ou intended to pay users who profited from their contracts.

Hall and Ou understood that they were buying and selling derivatives linked to the value of private companies, and Ou falsely claimed that they were in the process of seeking regulatory approval for Sand Hill’s contracts.

For about seven weeks, Sand Hill offered, bought, and sold contracts through the website in violation of the Dodd-Frank provisions that limit security-based swaps transactions with people who don’t meet the definition of an eligible contract participant.  Hall and Ou exaggerated Sand Hill’s trading, operations, controls, and financial backing.

Sand Hill, Hall, and Ou ceased offering and selling security-based swaps following inquiries from the SEC in early April.

The SEC’s order finds that Sand Hill, Hall, and Ou violated Section 5(e) of the Securities Act and Section 6(l) of the Securities Exchange Act of 1934.  Without admitting or denying the findings, Sand Hill, Hall, and Ou agreed to cease and desist from committing or causing any future violations of the securities laws.  Sand Hill agreed to pay a $20,000 penalty.

The Complex Financial Instruments Unit will continue its scrutiny of the retail market for conduct that may violate the Dodd-Frank Act’s swaps provisions, including online competitions creatively monetizing what actually constitute security-based swaps transactions.  The SEC’s investigation of Sand Hill was conducted by Brent Mitchell and Creola Kelly, and the case was supervised by Michael Osnato and Mr. Muoio.  The investigation was assisted by Carol McGee and Andrew Bernstein of the Division of Trading and Markets as well as Amy Starr and Andrew Schoeffler of the Division of Corporation Finance.

SEC CHARGES INVESTMENT ADVISORY FIRM, OWNERS WITH INFLATING SECURITIES' PRICES IN HEDGE FUND

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

07/01/2015 10:30 AM EDT

The Securities and Exchange Commission charged a Greenwich, Conn.-based investment advisory firm and its two owners with fraudulently inflating the prices of securities in hedge fund portfolios they managed.

An SEC investigation found that AlphaBridge Capital Management told investors and its auditor that it obtained independent price quotes from broker-dealers for certain unlisted, thinly-traded residential mortgage-backed securities.  AlphaBridge instead gave internally-derived valuations to broker-dealer representatives to pass off as their own.  The inflated valuation of these assets caused the funds to pay higher management and performance fees to AlphaBridge.

AlphaBridge and its owners Thomas T. Kutzen and Michael J. Carino agreed to pay $5 million combined to settle the charges.

“The integrity of the portfolio valuation process is critical to fund investors, especially when it involves illiquid securities,” said Julie M. Riewe, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “AlphaBridge claimed to use market-grounded price quotes from brokers when in fact it relied on its own rosy view of market conditions to price its portfolio.”

The SEC separately charged Richard L. Evans, who lives in Houston, for assisting in the pricing scheme while working as a broker-dealer representative.  Evans, who cooperated with the SEC’s investigation, agreed to pay a $15,000 penalty and be barred from working in the securities industry for at least one year to settle charges that he aided and abetted and caused violations by AlphaBridge.  Evans neither admitted nor denied the findings.

According to the SEC’s orders instituting settled administrative proceedings, AlphaBridge also misled the funds’ auditor during two year-end audits by suggesting that Evans independently generated data to support AlphaBridge’s prices.  Carino actually developed the data himself.

The SEC’s order finds that AlphaBridge violated and Kutzen and Carino aided and abetted and caused violations of the antifraud and other provisions of the Investment Advisers Act of 1940. AlphaBridge, Kutzen, and Carino consented to the entry of the SEC’s order without admitting or denying the findings.  AlphaBridge and Kutzen are censured and Carino is barred from working in the securities industry for at least three years.  AlphaBridge will return more than $4 million in disgorgement and nearly $1 million in penalties to compensate for the funds’ overpayment of management and performance fees, and the firm will then close down the funds.

The SEC’s investigation was conducted by staff in the Asset Management Unit and Boston Regional Office, including Robert Baker, Brian Fitzpatrick, Patrick Noone, Naomi Sevilla, and Kathleen Shields.  The examination that led to the investigation was conducted by Lily Chan-Sann, Michael McGrath, and Di Tu.  The SEC appreciates the assistance of the Bermuda Monetary Authority as well as the New Orleans office of the Financial Industry Regulatory Authority and the Boston office of the U.S. Department of Labor’s Employee Benefits Security Administration.

SEC PROPOSES RULES ON EXECUTIVE COMPENSATION CLAWBACKS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Proposes Rules Requiring Companies to Adopt Clawback Policies on Executive Compensation

07/01/2015 12:45 PM EDT

The Securities and Exchange Commission today proposed rules directing national securities exchanges and associations to establish listing standards requiring companies to adopt policies that require executive officers to pay back incentive-based compensation that they were awarded erroneously.  With this proposal, the Commission has completed proposals on all executive compensation rules required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under the proposed new Rule 10D-1, listed companies would be required to develop and enforce recovery policies that  in the event of an accounting restatement, “claw back” from current and former executive officers incentive-based compensation they would not have received based on the restatement.  Recovery would be required without regard to fault.  The proposed rules would also require disclosure of listed companies’ recovery policies, and their actions under those policies.

“These listing standards will require executive officers to return incentive-based compensation that was not earned,” said SEC Chair Mary Jo White.  “The proposed rules would result in increased accountability and greater focus on the quality of financial reporting, which will benefit investors and the markets.”

Under the proposed rules, the listing standards would apply to incentive-based compensation that is tied to accounting-related metrics, stock price or total shareholder return.  Recovery would apply to excess incentive-based compensation received by executive officers in the three fiscal years preceding the date a listed company is required to prepare an accounting restatement.

Each listed company would be required to file its recovery policy as an exhibit to its annual report under the Securities Exchange Act.  In addition, a listed company would be required to disclose its actions to recover in its annual reports and any proxy statement that requires executive compensation disclosure if, during its last fiscal year, a restatement requiring recovery of excess incentive-based compensation was completed, or there was an outstanding balance of excess incentive-based compensation from a prior restatement.

The comment period for the proposed rules will be 60 days after publication in the Federal Register.

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FACT SHEET

Listing Standards for Clawing Back Erroneously Awarded Executive Compensation

SEC Open Meeting

July 1, 2015

Action

The Commission will consider whether to propose rules directing national securities exchanges and associations to establish listing standards requiring companies to develop and implement policies to claw back incentive-based executive compensation that later is shown to have been awarded in error.  The proposed rules are designed to improve the quality of financial reporting and benefit investors by providing enhanced accountability.  The proposed new rules required by Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act would be the last of the executive compensation rules to be proposed.

Highlights of the Proposed Rules

Listing Standards – Proposed Rule 10D-1 under the Securities Exchange Act

The proposed rules would require national securities exchanges and associations to establish listing standards that would require listed companies to adopt and comply with a compensation recovery policy in which:

Recovery would be required from current and former executive officers who received incentive-based compensation during the three fiscal years preceding the date on which the company is required to prepare an accounting restatement to correct a material error.  The recovery would be required on a “no fault” basis, without regard to whether any misconduct occurred or an executive officer’s responsibility for the erroneous financial statements.

Companies would be required to recover the amount of incentive-based compensation received by an executive officer that exceeds the amount the executive officer would have received had the incentive-based compensation been determined based on the accounting restatement.  For incentive-based compensation based on stock price or total shareholder return, companies could use a reasonable estimate of the effect of the restatement on the applicable measure to determine the amount to be recovered.

Companies would have discretion not to recover the excess incentive-based compensation received by executive officers if the direct expense of enforcing recovery would exceed the amount to be recovered or, for foreign private issuers, in specified circumstances where recovery would violate home country law.
Under the proposed rules, a company would be subject to delisting if it does not adopt a compensation recovery policy that complies with the applicable listing standard, disclose the policy in accordance with Commission rules or comply with the policy’s recovery provisions.
Definition of Executive Officers

The proposed rules would include a definition of an “executive officer” that is modeled on the definition of “officer” under Section 16 under the Exchange Act.  The definition includes the company’s president, principal financial officer, principal accounting officer, any vice-president in charge of a principal business unit, division or function, and any other person who performs policy-making functions for the company.  

Incentive-Based Compensation Subject to Recovery

Under the proposal, incentive-based compensation that is granted, earned or vested based wholly or in part on the attainment of any financial reporting measure would be subject to recovery.  Financial reporting measures are those based on the accounting principles used in preparing the company’s financial statements, any measures derived wholly or in part from such financial information, and stock price and total shareholder return.

Proposed Disclosure

Each listed company would be required to file its compensation recovery policy as an exhibit to its Exchange Act annual report.

In addition, if during its last completed fiscal year the company either prepared a restatement that required recovery of excess incentive-based compensation, or there was an outstanding balance of excess incentive-based compensation relating to a prior restatement, a listed company would be required to disclose:

The date on which it was required to prepare each accounting restatement, the aggregate dollar amount of excess incentive-based compensation attributable to the restatement and the aggregate dollar amount that remained outstanding at the end of its last completed fiscal year.
The name of each person subject to recovery from whom the company decided not to pursue recovery, the amounts due from each such person, and a brief description of the reason the company decided not to pursue recovery.
If amounts of excess incentive-based compensation are outstanding for more than 180 days, the name of, and amount due from, each person at the end of the company’s last completed fiscal year.
The proposed disclosure would be included along with the listed company’s other executive compensation disclosure in annual reports and any proxy or information statements in which executive compensation disclosure is required.

Listed companies would also be required to block tag the disclosure in an interactive data format using eXtensible Business Reporting Language (XBRL).

Covered Companies

The proposed rules would apply to all listed companies except for certain registered investment companies to the extent they do not provide incentive-based compensation to their employees.

Transition Period

The proposal requires the exchanges to file their proposed listing rules no later than 90 days following the publication of the adopted version of Rule 10D-1 in the Federal Register.  The proposal also requires the listing rules to become effective no later than one year following the publication date.

Each listed company would be required to adopt its recovery policy no later than 60 days following the date on which the listing exchange’s listing rule becomes effective.  Each listed company would be required to recover all excess incentive-based compensation received by current and former executive officers on or after the effective date of Rule 10D-1 that results from attaining a financial reporting measure based on financial information for any fiscal period ending on or after the effective date of Rule 10D-1.

Listed companies would be required to comply with the new disclosures in proxy or information statements and Exchange Act annual reports filed on or after the effective date of the listing exchange’s rule.

What’s Next?

If approved for publication by the Commission, the proposed rules will be published on the Commission’s website and in the Federal Register.  The comment period for the proposed rules would be 60 days after publication in the Federal Register.

SEC CHARGES FOR STOCKBROKER FOR ROLE IN PONZI SCHEME

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

07/01/2015 11:55 AM EDT

The Securities and Exchange Commission charged a former stockbroker in Pennsylvania with conducting a Ponzi scheme and stealing investor money to purchase a condominium in Florida and afford his own vacations and other luxuries.

The SEC alleges that Malcolm Segal fraudulently sold so-called certificates of deposits (CDs) to his brokerage customers by falsely claiming that he could get them higher interest rates of return on FDIC-insured CDs than otherwise available to the general public.  In some instances, Segal purchased CDs on behalf of investors but secretly redeemed them early and took the proceeds.  Other times, Segal did not purchase CDs at all despite telling customers he had.  He raised approximately $15.5 million from at least 50 investors.  Besides spending investor money on himself, Segal used it in Ponzi scheme fashion for purported interest payments and principal repayments to earlier investors.

The SEC further alleges that Segal eventually started stealing directly from his customers’ brokerage accounts in a last-ditch effort to keep funding the Ponzi payments.  He forged letters of authorization to facilitate the transfer of customer funds to accounts he controlled, notably forging the signature of one customer’s wife who had died before the date of the transfer.  The scheme collapsed in July 2014.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of Pennsylvania today announced criminal charges against Segal.

“As alleged in our complaint, Segal duped investors by pretending to sell them safe investments while stealing their money for his own benefit and making Ponzi payments to earlier investors,”  said Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office.  “Segal put his own greed above his obligations to customers and violated the law.”

The SEC’s complaint filed in federal court in Philadelphia charges Segal with violations of Section 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The SEC seeks disgorgement plus prejudgment interest and penalties as well as a permanent injunction.

The SEC’s continuing investigation is being conducted by Michael F. McGraw and Brendan P. McGlynn in the Philadelphia Regional Office.  The SEC’s litigation will be led by David L. Axelrod and Michael J. Rinaldi, and the case is being supervised by G. Jeffrey Boujoukos.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of Pennsylvania and the Federal Bureau of Investigation.

SEC SAYS DELOITTE & TOUCHE TO PAY $1 MILLION TO SETTLE ALLEGED AUDITOR INDEPENDENCE RULES VIOLATION

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

07/01/2015 01:35 PM EDT

The Securities and Exchange Commission today charged Deloitte & Touche LLP with violating auditor independence rules when its consulting affiliate maintained a business relationship with a trustee serving on the boards and audit committees of three funds it audited.  Deloitte agreed to pay more than $1 million to settle the charges.

The SEC charged the trustee Andrew C. Boynton with causing related reporting violations by the funds, and charged the funds’ administrator ALPS Fund Services with causing related compliance violations.  They also agreed to settle the charges.

Auditor independence rules require outside auditors to remain independent from their clients to ensure there is not even the appearance of a firm compromising its objectivity and impartiality when auditing financial statements.  According to the SEC’s order instituting a settled administrative proceeding, Deloitte violated the rules with respect to the appearance of independence by failing to follow its own policies and conduct an independence consultation prior to entering into a new business relationship with Boynton.  Deloitte failed to discover that the required initial independence consultation was not performed until nearly five years after the independence-impairing relationship had been established between Deloitte Consulting LLP and Boynton, who was paid consulting fees for his external client work.  Meanwhile, Deloitte represented in audit reports that it was independent of the three funds while Boynton simultaneously served on their boards and audit committees.

“The investing public depends on independent auditors like Deloitte to test the reliability of publicly-reported financial statements, and they have front-line responsibility for ensuring their own independence,” said Stephen L. Cohen, Associate Director of the SEC’s Division of Enforcement. “But they are not alone in safeguarding the audit process, and the other fiduciaries charged in this case failed to fulfill their roles and preserve investor confidence.”

According to the SEC’s order:

Deloitte Consulting acquired a proprietary brainstorming business methodology from Boynton in 2006 and collaborated with Boynton to implement it and serve both internal and external firm clients through 2011.

As a member of the three funds’ boards and audit committees, Boynton was required to complete annual trustee and officer (T&O) questionnaires designed in part to identify conflicts of interest.  Boynton did not identify his business relationship with Deloitte Consulting in response to a question calling for identification of his “principal occupation(s) and other positions.”  Relying on his understanding that Deloitte Consulting was a separate legal entity from Deloitte, Boynton also did not identify the business relationship in his responses to a question added to the questionnaire in 2009 inquiring whether he had any “direct or material indirect business relationship” with Deloitte.

ALPS contractually agreed to assist the funds in discharging their responsibilities yet failed to adopt sufficient written policies and procedures as required to prevent auditor independence violations. The funds’ audit committee charter addressed auditor independence generally, but the T&O questionnaires did not expressly cover business relationships with the auditor’s affiliates.  The funds also did not have sufficient written policies and procedures to prevent other types of auditor independence violations, nor did they provide sufficient training to assist board members in the discharge of their responsibilities related to auditor independence.

The SEC’s order censures Deloitte for violating the auditor independence standards of Rule 2-02(b) of Regulation S-X, and sanctioned Deloitte for causing the funds to violate Sections 20(a) and 30(a) of the Investment Company Act and Rule 20a-1 thereunder.  The order finds that Boynton was a cause of the same reporting violations and ALPS caused the funds’ related compliance violations under Rule 38a-1 of the Investment Company Act.  Each party agreed to cease and desist from future violations without admitting or denying the findings.  Deloitte agreed to pay disgorgement of audit fees in the amount of $497,438 plus prejudgment interest of $116,478 and a penalty of $500,000.  Boynton agreed to pay disgorgement of $30,000 plus prejudgment interest of $5,329 and a penalty of $25,000.  ALPS agreed to pay a $45,000 penalty.

The SEC’s investigation was conducted by James J. Bresnicky and Brian M. Privor, and supervised by J. Lee Buck II.

The Role of Chief Compliance Officers Must be Supported

The Role of Chief Compliance Officers Must be Supported

SEC.gov | Making Executive Compensation More Accountable – To Keep It, It Should Be Earned

SEC.gov | Making Executive Compensation More Accountable – To Keep It, It Should Be Earned

SEC CHARGES INVESTMENT ADVISORY FIRM, OWNER WITH "CHERRY-PICKING"

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
06/29/2015 01:10 PM EDT

The Securities and Exchange Commission announced fraud charges against a Wisconsin-based investment advisory firm and its owner accused of improperly allocating to his personal and business accounts certain options trades that appreciated in value during the course of a trading day while allocating to his clients other trades that depreciated in value.

The SEC Enforcement Division has engaged in a data-driven initiative to identify potentially fraudulent trade allocations known as “cherry-picking,” and this enforcement action is the first arising from that effort.  Working with economists in the agency’s Division of Economic and Risk Analysis, enforcement investigators analyze large volumes of investment advisers’ trade allocation data and identify instances where it appears an adviser is disproportionately allocating profitable trades to favored accounts.

The SEC Enforcement Division alleges that Mark P. Welhouse purchased options in an omnibus or master account for Welhouse & Associates Inc. and delayed allocation of the purchases to either his or his clients’ accounts until later in the day after he saw whether or not the securities appreciated in value.  Welhouse allegedly reaped $442,319 in ill-gotten gains by unfairly allocating options trades in an S&P 500 exchange-traded fund named SPY.  His personal trades in these options had an average first-day positive return of 6.28 percent while his clients’ trades in these options had an average first-day loss of 5.05 percent.

As described in the SEC order instituting administrative proceedings against Welhouse and his firm, SEC staff conducted a statistical analysis to determine whether Welhouse’s profitability in these accounts could have resulted from a coincidental or lucky combination of trades.  After running a simulation test one million times, the staff concluded it could not.

“Cherry-picking schemes can be extremely difficult to detect without an investor astutely noticing that something may be amiss and coming to us with a complaint about the adviser,” said Julie M. Riewe, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “We devised this initiative to identify specific custodians providing services to investment advisers and their clients and leverage their trading records and other data to efficiently target preferential trade allocations occurring outside the detection of even the most observant client.”

The SEC Enforcement Division alleges that Welhouse and his firm violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, Section 17(a) of the Securities Act of 1933, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.  The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.

The SEC’s data-driven enforcement initiative to combat cherry-picking has been led by the Asset Management Unit and the regional offices in Boston and Los Angeles.  The investigation into Welhouse and his firm has been conducted by Robert Baker of the Asset Management Unit and Rachel Hershfang of the Boston Regional Office.  The Enforcement Division’s litigation will be led by Ms. Hershfang, Mr. Baker, and Cynthia Baran of the Asset Management Unit.

SEC CHARGES GOLDMAN, SACHS WITH ACCESS RULE VIOLATION

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
06/30/2015 12:15 PM EDT

The Securities and Exchange Commission today charged Goldman, Sachs & Co. with violating the market access rule in connection with a trading incident that resulted in erroneous executions of options contracts.

Goldman Sachs agreed to pay a $7 million penalty to settle the charges.

An SEC investigation found that Goldman Sachs did not have adequate safeguards to prevent the firm from erroneously sending approximately 16,000 mispriced options orders to various options exchanges in less than an hour on Aug. 20, 2013, after the firm implemented new electronic trading functionality designed to match internal options orders with client orders.  A software configuration error inadvertently converted the firm’s “contingent orders” for various options series into live orders and assigned them all a price of $1.  These orders were then sent to the options exchanges during pre-market trading, and approximately 1.5 million options contracts were executed within minutes after the opening of regular market trading.  Many of the executed trades were later canceled or received price adjustments pursuant to the options exchanges’ rules on clearly erroneous trades.

According to the SEC’s order instituting a settled administrative proceeding, Goldman Sachs further violated Securities Exchange Act Rule 15c3-5 by having deficient controls for preventing orders that would cause the firm to exceed its pre-set capital threshold.

“Firms that have market access need to have proper controls in place to prevent technological errors from impacting trading,” said Andrew Ceresney, Director of the SEC Enforcement Division.  “Goldman’s control environment was deficient in several ways, significantly disrupted the markets, and failed to meet the standard required of broker-dealers under the market access rule.”

Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit, added, “It is crucial for broker-dealers with market access to understand and control  the interaction of multiple electronic trading systems, not only to comply with Rule 15c3-5 but also to ensure the orderly operation of the markets as a whole.”

The SEC’s order made the following findings:

Goldman employed unreasonably wide price checks for its options orders during pre-market hours.  Had appropriate price bands been in place similar to those Goldman used during regular trading hours, thousands of the erroneous orders all priced at $1 would have been intercepted and not sent to exchanges.

On Aug. 20, 2013, a Goldman employee lifted several electronic circuit breaker blocks that automatically shut off outgoing options order messages once the rate of messages exceeded a certain level.

Goldman’s policies regarding these circuit breakers were not properly disseminated or fully understood by employees with responsibilities relating to the circuit breakers.

Goldman’s written policies relating to the implementation of software changes did not require several precautionary steps that, if taken, would likely have prevented the erroneous options incident.

In a separate failure that did not relate to the trading incident, Goldman did not maintain adequate controls designed to prevent the entry of orders that exceed the firm’s capital threshold.  The firm only computed its capital usage level every 30 minutes, did not have an automated mechanism to shut off orders in the event that the firm exceeded its capital threshold, and failed for several months to include a number of business units in the firm’s capital utilization calculation, thereby underestimating the firm’s trading risk.

Goldman consented to the SEC’s order without admitting or denying the findings.  In addition to paying the $7 million penalty, Goldman agreed to cease and desist from further violations of Section 15(c)(3) of the Exchange Act and Exchange Rule 15c3-5.

The SEC’s investigation was conducted by Market Abuse Unit staff Daniel Marcus, Charles Riely, and Matthew Koop and supervised by Mr. Hawke and the unit’s co-deputy chiefs Robert Cohen and Joseph Sansone.  Substantial assistance was provided by Rosanne Smith, Stephanie Morena, and Jennifer Conwell of the SEC’s National Exam Program and David Shillman, John Roeser, Richard Vorosmarti, and Carl Emigholz of the agency’s Division of Trading and Markets.

SEC ACCUSES FORMER PRESIDENT INVESTMENT ADVISORY FIRM WITH STEALING CLIENT FUNDS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

06/15/2015 02:20 PM EDT

The Securities and Exchange Commission announced fraud charges against a Washington D.C.-based investment advisory firm’s former president accused of stealing client funds.  The firm and its chief compliance officer separately agreed to settle charges that they were responsible for compliance failures and other violations.

SFX Financial Advisory Management Enterprises is wholly-owned by Live Nation Entertainment and specializes in providing advisory and financial management services to current and former professional athletes.  The SEC Enforcement Division alleges that SFX’s former president Brian J. Ourand misused his discretionary authority and control over the accounts of several clients to steal approximately $670,000 over a five-year period by writing checks to himself and initiating wires from client accounts for his own benefit.

The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.

The SEC separately charged SFX and its CCO Eugene S. Mason, finding that the firm failed to supervise Ourand, violated the custody rule, and made a false statement in a Form ADV filing.  The SEC finds that Mason caused some of SFX’s compliance failures by negligently failing to conduct reviews of cash flows in client accounts, which was required by the firm’s compliance policies, and not performing an annual compliance review.  Mason also was responsible for a misstatement in SFX’s Form ADV that client accounts were reviewed several times each week.  SFX and Mason agreed to pay penalties of $150,000 and $25,000 respectively.

“Investment advisers have a fiduciary obligation to safeguard client assets,” said Marshall S. Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “SFX failed to detect an alleged misappropriation for years because it had insufficient internal controls to limit Ourand’s ability to withdraw client funds for personal use.”

The SEC’s continuing investigation is being conducted by Payam Danialypour and C. Dabney O’Riordan, members of the Asset Management Unit in the Los Angeles Regional Office. The Enforcement Division’s litigation against Ourand will be conducted by Mr. Danialypour, Donald Searles, and Lynn Dean.

CFTC CHARGES MAN, COMPANY WITH DEFRAUDING INVESTOR PARTICIPANTS IN INVESTMENT POOL

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

June 24, 2015

CFTC Charges Illinois Resident Nick A. Wurl and His Company Ludiera Capital LLC with Fraud and Misappropriation in $9 Million Scheme

Defendants allegedly defrauded at least 46 participants in an investment pool

Wurl was charged with wire fraud in a related criminal action

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) filed a federal enforcement action in the U.S. District Court for the Northern District of Illinois against Defendants Nick A. Wurl and his company Ludiera Capital LLC, both of Chicago, Illinois, charging them with fraud, misappropriation, and the issuance of false statements in connection with an investment pool they operated that traded commodity futures contracts and options on futures contracts. According to the CFTC Complaint, “In reality, the pool was little more than a shell company used to defraud pool participants and enrich Defendants at their expense.”

On May 27, 2015, the U.S. Department of Justice (DOJ), in a related criminal complaint filed in the U.S. District Court for the Northern District of Illinois, charged Wurl with wire fraud. In conjunction with that action, DOJ obtained writs of garnishment against known accounts in the names of Wurl and Ludiera.

The CFTC’s Complaint alleges that Defendants fraudulently solicited over $9 million from at least 46 investors for the represented purpose of trading physical commodities, such as soybeans and other agricultural commodities, as well as energy products. In their solicitations, Defendants fraudulently represented that (1) Defendants would only invest participants’ funds in the buying and selling of physical commodities; (2) Defendants’ physical commodity trading was generating profits for participants; (3) Defendants were not engaged in the trading of futures or options; (4) participants’ funds would be maintained in segregated accounts; and (5) the worst potential outcome for investors was 0 percent return on investment.

According to the Complaint, and contrary to the represented investment strategy, Defendants never engaged in physical commodity trading. Rather, the bulk of participants’ funds — over $6.8 million — was pooled and used by Defendants to trade futures and options. Defendants never disclosed to participants the risk of trading futures and options and never disclosed that a significant portion of participants’ funds would be used for trading futures and options. Further, Defendants never disclosed that Defendants were sustaining significant trading losses. Rather, Defendants operated to conceal their commingling and misappropriation of customer funds and trading losses by providing pool participants with false reports and account statements showing fictitious profits.

The CFTC Complaint also alleges that Defendants misappropriated at least $600,000 of participants’ funds to pay down personal credit card debt and purchase vehicles, among other things. Akin to a Ponzi scheme, and in order to further disguise their trading losses and misappropriation, the Defendants also distributed approximately $1.8 million to pool participants in redemptions, utilizing other pool participants’ principal to fund these payments.

In its continued litigation, the CFTC seeks restitution, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and preliminary and permanent injunctions from further violations of the federal commodities laws, as charged.

The CFTC thanks and acknowledges the assistance of the U.S. Attorney’s Office for the Northern District of Illinois and the Federal Bureau of Investigation.

CFTC Division of Enforcement staff members responsible for this action are Rachel Hayes, Rebecca Jelinek, Stephen Turley, Lauren Fulks, Diane Romaniuk, Peter Riggs, and Charles Marvine.

Building Meaningful Communication and Engagement with Shareholders

Building Meaningful Communication and Engagement with Shareholders

SEC CHARGES MICROCAP PROMOTER WITH ILLEGALLY SOLD PENNY STOCK USING OFFSHORE FRONT COMPANIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

06/23/2015 04:55 PM EDT

The Securities and Exchange Commission charged a microcap promoter with illegally selling more than 83 million penny stock shares that he secretly obtained through at least 10 different offshore front companies.

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of New York, Gregg R. Mulholland surreptitiously accumulated at least 84 percent of the issued and outstanding shares of Vision Plasma Systems Inc.  Once he effectively controlled the company through this majority ownership, Mulholland liquidated his shares for proceeds of at least $21 million.  No registration statement was filed or in effect covering Mulholland’s sales, and no exemption from registration was available.

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

“Mulholland’s intricate web of offshore entities failed to hide his alleged illicit sales,” said Stephen L. Cohen, Associate Director in the SEC’s Division of Enforcement.  “We are committed to holding accountable those who abuse the microcap markets, regardless of the elaborate steps they take to conceal their misconduct.”

According to the SEC’s complaint, Mulholland lives in Canada and was previously charged by the SEC in 2011 for the fraudulent pump-and-dump manipulation of a sports drink company founded by Daniel “Rudy” Ruettiger, known for having inspired the motion picture “Rudy.”  In 2013, the SEC obtained a monetary judgment against Mulholland for more than $5.3 million in disgorgement, prejudgment interest, and penalties that remains unpaid.

The SEC’s complaint charges Mulholland with violating Sections 5(a) and 5(c) of the Securities Act of 1933.  

The SEC’s continuing investigation is being conducted in coordination with the Microcap Fraud Task Force by John P. Lucas and Andrew R. McFall.  The case is being supervised by J. Lee Buck II, and will be litigated by Derek Bentsen and Michael J. Roessner.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York, Federal Bureau of Investigation, Internal Revenue Service, Department of Homeland Security, and Financial Industry Regulatory Authority.

Activism, Short-Termism, and the SEC: Remarks at the 21st Annual Stanford Directors’ College

Activism, Short-Termism, and the SEC: Remarks at the 21st Annual Stanford Directors’ College

TWO CRIMINALLY CHRGED IN SEC CASE INVLOVLING PROFESSIONAL ATHLETE LOANS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23286 / June 15, 2015
Securities and Exchange Commission v. Capital Financial Partners, LLC et al., Civil Action No. 15-cv-11447-IT (D. Mass.)
United States of America v. Will D. Allen and Susan C. Daub, Case No. 15-mj-7095-JCB (D. Mass.)
Defendants in SEC Case Involving Loans to Professional Athletes Are Criminally Charged

The Securities and Exchange Commission announced that, on June 12, 2015, the U.S. Attorney's Office in Massachusetts filed a criminal complaint against William D. Allen and Susan C. Daub charging them with securities fraud. The criminal charges are in connection with the same conduct on which the SEC filed a civil fraud case on April 1, 2015 alleging that Allen and Daub, through various corporate entities, operated a Ponzi scheme that raised more than $31 million from investors who were promised profits from loans to professional athletes. In the civil fraud case, the federal court in the District of Massachusetts granted the SEC's request for emergency relief against Allen, Daub, and various corporate entities registered to them, and issued an order freezing their assets and affording other injunctive relief.

The criminal complaint alleges that Allen and Daub solicited and collected money from investors for loans to athletes that were never issued on multiple occasions. On one occasion, according to the criminal complaint, one investor received forged loan documents from Daub in connection with a purported loan to an athlete that was never made. The criminal complaint also alleges that Allen and Daub collected money for oversubscribed loans. As one example, according to the criminal complaint, Daub collected approximately $2.5 million from several investors to fund a $500,000 loan to an athlete in March 2013. The criminal complaint alleges that investor funds collected on both occasions were used to make payments to other investors, to make payments to an entity registered to Allen, and to make transfers directly to Allen.

In the SEC's earlier, related enforcement action, the SEC named Allen, Daub, Florida-based Capital Financial Partners Enterprises LLC, and Boston-based Capital Financial Partners LLC and Capital Financial Holdings LLC, alleging that they violated federal anti-fraud laws and related SEC anti-fraud rules. Four other entities owned or controlled by Allen, Daub, or both were named in the complaint as relief defendants based on their receipt of investor funds - WJBA Investments LLC, Insurance Depot of America LLC, Simplified Health Solutions LLC, and Simplified Health Solutions 2 LLC. On April 28, 2015, the defendants assented to a preliminary injunction restraining them from violating Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. The preliminary injunction also froze the assets of all defendants and relief defendants, restrained the defendants from accepting additional investor funds in furtherance of the alleged fraud, and restrained the defendants from destroying or concealing documents related to the alleged fraud.

Allen and Daub are scheduled to appear in federal court for a hearing in the criminal case on July 7, 2015.

SEC CHARGES MUTUAL FUND ADVISER'S BOARD MEMBERS WITH FAILING TO HAVE PROPER OVERSIGHT

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
06/17/2015 12:55 PM EDT

The Securities and Exchange Commission charged a mutual fund adviser, its principal, and three mutual fund board members with failing to satisfy their statutory obligations in connection with the evaluation and approval of mutual fund advisory contracts.

Richmond, Va.-based advisory firm Commonwealth Capital Management was charged with violating Section 15(c) of the Investment Company Act of 1940 for providing incomplete or inaccurate information to two mutual fund boards, and the firm’s majority owner John Pasco III was charged with causing the violations.  They and former trustees J. Gordon McKinley III, Robert R. Burke, and Franklin A. Trice III have agreed to settle the SEC’s charges.

Commonwealth Capital Management acted as the investment adviser to various mutual funds within World Funds Trust (WFT) and World Funds Inc. (WFI).  Commonwealth Capital Management was part of a turnkey mutual fund platform that provided various services to small to mid-size mutual funds.  An SEC investigation found that as part of what’s known as the 15(c) process, the WFT board of trustees requested that Commonwealth Capital Management and Pasco provide certain information regarding advisory fees paid by comparable funds as well as the nature and quality of the firm’s services.  There was no documentary evidence that Commonwealth Capital Management provided or that the trustees evaluated fees paid by comparable funds.  Commonwealth Capital Management also provided incomplete responses about the nature and quality of services provided by Commonwealth Capital Management versus services provided by the funds’ sub-adviser and administrator, and the trustees did not request or receive additional materials.  Nevertheless, the trustees approved the advisory contracts without having all of the information they requested as reasonably necessary to evaluate the contracts.

“As the first line of defense in protecting mutual fund shareholders, board members must be vigilant,” said Andrew J. Ceresney, Director of the SEC Enforcement Division.  “These trustees failed to fully discharge their fund governance responsibilities on behalf of fund shareholders.”

Julie M. Riewe, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, added, “The advisory fee typically is the largest expense reducing investor returns.  The WFT trustees fell short as the shareholders’ watchdog by essentially rubber-stamping the adviser’s contract and related fee.”

According to the SEC’s order instituting a settled administrative proceeding, Commonwealth Capital Management also omitted or provided inaccurate information requested by independent directors in the WFI series of mutual funds in connection with board meetings to approve the firm’s advisory contract.  Commonwealth Capital Management supplied a fee chart containing inapt comparisons and erroneous information while omitting other details.  The firm additionally failed to provide certain information about profitability and an expense limitation agreement that had been in place to limit the relevant fund’s expenses.  Commonwealth Capital Management also informed the WFI independent directors that the fund had appropriate breakpoints when, in fact, breakpoints were omitted from the advisory contract.

The SEC’s order finds that Commonwealth Capital Management, McKinley, Burke, and Trice violated Section 15(c) of the Investment Company Act, and Pasco caused the firm’s violations.  The order finds that Commonwealth Capital Management’s affiliated administrator Commonwealth Shareholder Services was contractually responsible for preparing the shareholder reports on behalf of the WFI funds, and failed to include required information concerning the 15(c) process in one fund’s 2010 shareholder report in violation of Section 30(e) of the Investment Company Act and Rule 30e-1.  Without admitting or denying the findings, they each consented to the order and agreed to cease and desist from committing or causing any such violations.  Pasco and the firms agreed to jointly and severally pay a $50,000 penalty, and the trustees each agreed to pay $3,250 penalties.

The SEC’s investigation was conducted by Jacob Krawitz, Brian Privor, and John Farinacci, and the case was supervised by Anthony Kelly of the Asset Management Unit.  Christian Schultz assisted with the investigation.  The SEC examination that led to the investigation was conducted by Miguel A. Torres, Andrew B. Green, Cormac J. Logue, and Tamara D. Young, and managed by Margaret Jackson.

SEC CHARGES TEXAS-BASED OIL COMPANY AND CEO WITH DEFRAUDING INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
06/18/2015 03:00 PM EDT

The Securities and Exchange Commission today charged a Texas-based oil company and its CEO with defrauding investors about reserve estimates and drilling plans, and charged the author of a stock-picking newsletter for his role in a fraudulent promotional campaign encouraging readers to buy the oil company’s penny stock shares.

The SEC alleges that shortly after becoming Norstra Energy’s CEO in March 2013, Glen Landry began making false and misleading claims about business prospects on Norstra’s website as well as in press releases and SEC filings.  Landry and Norstra Energy misled investors about the location of the company’s property in order to make the wells appear more promising and twice disclosed an inaccurate date to begin drilling operations to make the potential for oil riches appear imminent.

The SEC’s complaint filed in federal court in Manhattan alleges that promotional materials issued by Eric Dany falsely proclaimed that “Norstra Energy could be sitting on top of as much as 8.5 billion barrels of oil!” and said the planned wells had a 99 percent chance of profitability.  After the exaggerated statements about its property and prospects caused Norstra Energy’s stock price to increase nearly 600 percent in a three-month period, the SEC suspended trading in June 2013.

“When microcap companies appear to be misleading the investing public, the SEC investigates those promoting the stock as well as the culpability of company officers,” said Michael Paley, Co-Chair of the SEC Enforcement Division’s Microcap Fraud Task Force.  “We allege that as a longtime geologist, Landry was well aware that Norstra Energy did not have the oil reserves or drilling plans being touted to investors.  And as a self-proclaimed expert in oil-and-gas stocks, Dany knew that claims made about the company were false but touted the stock anyway in a spam e-mail campaign and a hard-copy mailer he was paid to endorse.”

The SEC’s complaint charges Norstra Energy, Landry, and Dany with fraud and seeks final judgments ordering permanent injunctions, return of allegedly ill-gotten gains with interest, and financial penalties.  The SEC also seeks to bar Landry from serving as an officer or director of a public company or participating in a penny stock offering.

The SEC’s investigation has been conducted by Yitzchok Klug and Michael Paley of the Microcap Fraud Task Force along with Christopher Castano and Nancy Brown in the New York Regional Office.  The SEC’s litigation will be led by Ms. Brown, and the case is being supervised by Sanjay Wadhwa.

SEC ANNOUNCES CHARGES IN ALLEGED PONZI SCHEME TARGETING CHURCHGOERS

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

06/16/2015 12:55 PM EDT

The Securities and Exchange Commission announced charges against an Ohio-based self-directed IRA provider accused of ignoring red flags for accounts with investments that turned out to be fraudulent.

The SEC Enforcement Division alleges that Equity Trust Company took an active role in marketing investments offered by Ephren Taylor, who targeted churchgoers while running a Ponzi scheme, and Randy Poulson, who has been indicted in federal district court for an alleged offering fraud targeting investors in New Jersey.  The Enforcement Division alleges that Taylor and Poulson defrauded more than 100 investors out of $5 million invested through accounts at Equity Trust, and that Equity Trust was a cause of violations of Section 17(a) of the Securities Act of 1933 by Taylor and Poulson.  

“We allege that Equity Trust failed to protect the interests of its customers when it acted as more than a passive custodian,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “When custodians like Equity Trust are aware of red flags suggesting an ongoing fraud, they must take action to try to prevent it.”

In its order instituting proceedings, the Enforcement Division alleges among other things:

Equity Trust representatives participated at events hosted by Taylor and Poulson, and they encouraged attendees to transfer their retirement savings from traditional IRAs to self-directed IRAs at Equity Trust so they could invest in the Taylor or Poulson offerings.  Equity Trust also sponsored Poulson dinner events with prospective investors.

Equity Trust processed investments in notes offered by Taylor and Poulson in spite of serious red flags.  These included knowing that Taylor and Poulson had not provided them with documentation of the investments’ collateral as it required as custodian of the self-directed IRAs, and that Taylor made false statements to thousands of people at a church near Atlanta.

Equity Trust continued to charge fees to customers invested in Taylor’s notes as recently as this year despite the fraud charges announced against him in 2012.
The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.

The SEC’s investigation was conducted by Andrew Dean and Lara Shalov Mehraban in the New York Regional Office and Luke Fitzgerald in the Asset Management Unit.  The case was supervised by Julie M. Riewe and Amelia A. Cottrell, and the SEC’s litigation will be led by Mr. Dean, Mr. Fitzgerald, and David Stoelting.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of New Jersey, the U.S. Attorney’s Office for the Northern District of Georgia, the Federal Bureau of Investigation, and the U.S. Secret Service.

SEC ANNOUNCES THAT A SWISS TRADER WILL PAY OVER $2.8 MILLION TO SETTLE INSIDER TRADING CHARGES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

06/15/2015 12:50 PM EDT

The Securities and Exchange Commission announced that a Swiss trader has agreed to pay more than $2.8 million to settle charges that he traded on nonpublic information ahead of a Florida-based biometrics company’s acquisition by Apple Inc.

A SEC investigation found that Helmut Anscheringer purchased stock and call options in AuthenTec Inc. upon learning from a longtime friend related to an AuthenTec executive that Apple proposed to buy the company, which provided fingerprint sensors and software for use in electronic devices.  The call options accounted for nearly all of the series volume on the days he purchased them.  Just days later, AuthenTec publicly announced that it had agreed to become a wholly-owned subsidiary of Apple for $355 million in cash.  The positive news led to the stock price closing approximately 60 percent higher than the previous day.  Through his unlawful trading, Anscheringer garnered more than $1.8 million in illicit profits.

“Anscheringer attempted to profit by freely trading on inside information,” said Glenn Gordon, Associate Director of the SEC’s Miami Regional Office.  “Foreign traders in U.S. stocks are not exempt from SEC scrutiny as we traced the misconduct back to Anscheringer when investigating these significant purchases in a trading account belonging to an entity in the British Virgin Islands for which he was listed as the beneficiary.”

The SEC’s order instituting a settled administrative proceeding finds that Anscheringer, who lives in Basel, Switzerland, violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Without admitting or denying the findings, Anscheringer agreed to pay disgorgement of $1,820,024, prejudgment interest of $121,732, and a penalty of $910,012 for a total of $2,851,768.  He must cease and desist from committing or causing any violations and any future violations of the antifraud provisions of the federal securities laws.

The SEC’s continuing investigation is being conducted by Sunny H. Kim and Kathleen E. Strandell in the Miami Regional Office with assistance from Mathew Wong of the Market Abuse Unit in the New York Regional Office.  The case is being supervised by Jason R. Berkowitz and the litigation is being led by Robert K. Levenson.  The SEC appreciates the assistance of the Swiss Financial Market Supervisory Authority, Options Regulatory Surveillance Authority, and Financial Industry Regulatory Authority.

Mutual Funds - The Next 75 Years

Mutual Funds - The Next 75 Years

SEC CHARGES THREE WITH INSIDER TRADING RELATED TO STOCK,OPTIONS OF BIOTECH COMPANY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

06/09/2015 03:00 PM EDT

The Securities and Exchange Commission charged three men living in California with insider trading in the stock and options of a biotechnology company where one of them worked.

The SEC alleges that Michael J. Fefferman learned material nonpublic information as senior director of information technology at Ardea Biosciences Inc.  He tipped his brother-in-law Chad E. Wiegand in advance of major public announcements related to two pharmaceutical trials, a licensing agreement for a cancer drug, and eventually the acquisition of the company by AstraZeneca PLC.  Wiegand, a stockbroker, purchased Ardea stock in various customer accounts based on the confidential information he received from Fefferman, and he tipped his friend and fellow stockbroker Akis C. Eracleous so he could similarly buy stock on behalf of his customers.  The alleged insider trading resulted in illegal profits of approximately $530,000.

One of Eracleous’s customers, his cousin, has been named as a relief defendant in the SEC’s complaint for the purpose of recovering insider trading profits in his brokerage account.  The cousin agreed to pay back the entire amount of illicit profits in his account totaling $219,175 in disgorgement and interest.

Fefferman, Wiegand, and Eracleous have agreed to settlements that are subject to court approval.  Disgorgement, prejudgment interest, and penalties will be determined at a later date.  Wiegand and Eracleous have agreed to be barred from the securities industry.

In a parallel action, the U.S. Attorney’s Office for the Southern District of California today announced criminal charges against Wiegand and Eracleous.

“As a corporate insider, Fefferman breached his duty to Ardea’s shareholders by tipping confidential information about significant corporate events before they were announced,” said Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office.  “Wiegand and Eracleous took unfair advantage of the investing public by trading on confidential company knowledge unknown to others.”

According to the SEC’s complaint filed in federal court in San Diego, the insider trading occurred from April 2009 to April 2012.  The complaint charges Fefferman, Wiegand, and Eracleous with violating the antifraud provisions of the federal securities laws.

The SEC’s continuing investigation is being conducted by Patricia A. Paw, John S. Rymas, and Daniel Koster in the Philadelphia office.  The case is being supervised by Brendan P. McGlynn, and the litigation will be led by David L. Axelrod and Michael J. Rinaldi.  The SEC appreciates the assistance of the U. S. Attorney’s Office for the Southern District of California, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.

SEC BRINGS CHARGES FOR OPERATION OF UNREGISTERED BROKERAGE BUSINESS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23283 / June 11, 2015

Securities and Exchange Commission v. Joshua A. Yudell and OCFB LLC, et al., Civil Action No. 1:15-cv-4548 (S.D.N.Y. June 11, 2015)

SEC Charges Individual with Operating an Unregistered Brokerage Business

The Securities and Exchange Commission charged a New York-based individual, operating through numerous doing-business-as entities, with effecting transactions in securities while neither he nor any of the entities he controlled were registered with the Commission as a broker or dealer.

The SEC alleges that, beginning at least as early as April 2010, Joshua A. Yudell, operating through OCFB LLC; Oxford Advisors, Inc.; Oxford Capital Advisors, LLC; Oxford Capital Alternative Investments, Inc.; Oxford Capital Fund, LP; and Oxford Capital Fund, LLP; entered into numerous agreements with securities owners pursuant to which he would obtain custody and control over their securities, attempt to sell the securities into the market, and then provide the net proceeds, minus Yudell's fees, to the securities owners. Yudell agreed to pay a total of $4,420,568.87 to settle the SEC's charges.

Without admitting or denying the allegations in the SEC's complaint, Yudell consented to the entry of a final judgment that, among other things, orders him to pay disgorgement, prejudgment interest, and financial penalties, and permanently enjoins him from violating Section 15(a)(1) of the Securities Exchange Act of 1934.

The proposed settlement is subject to court approval.