M25 AND M37 REGISTRATIONS REVOKED AS TEXAS COMMODITY TRADERS

Whenever there is a market blow-up then ultimately cases of criminal and civil fraud are exposed. Fraud was uncovered duing the last stock market bust, real estate market bubble and, now the commodity prices seem to be falling apart. The following case is an excerpt from the CFTC web site and involves the revocation of registrations for two commodity trading advisors:

“Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) revoked the registrations of M25 Investments, Inc. (M25) and M37 Investments, LLC (M37), of Waxahachie, Texas, as registered Commodity Trading Advisors. The Initial Decision, issued on May 4, 2011 by a CFTC Administrative Law Judge (ALJ), resolves a CFTC statutory disqualification proceeding brought against M25 and M37 on February 23, 2011.

In the Initial Decision, the ALJ entered a default judgment against M25 and M37 and found that M25 and M37 were unfit for registration based upon the entry of an order for permanent injunction, other equitable relief, and for civil penalties on October 25, 2010 in the U. S. District Court for the Northern District of Texas (see CFTC Press Release 5927-10, October 27, 2010).

The federal district court’s October 25, 2010 order found that, from December 2007 to September 2009, the defendants and their representatives fraudulently solicited individuals, often targeting elderly persons through their churches, in West Virginia, Texas, Mississippi, Maryland and other states to trade forex and forex options. The order prohibits M25 and M37 from violating the Commodity Exchange Act as charged and from seeking registration with the CFTC in any capacity, among other sanctions. The district court also ordered M25 and M37, among other defendants, to jointly and severally pay restitution to defrauded customers of $7,404,036.56 and required M25 and M37 to jointly and severally pay a $7.1 million civil monetary penalty.”

SEC SUSPENDS TRADING IN 17 COMPANIES

The SEC alleges widespread fraud in microcap companies and has suspended trading in 17 firms. The following is an excerpt from the SEC website:

Washington, D.C., June 7, 2011 — The Securities and Exchange Commission today suspended trading in 17 microcap stocks because of questions about the adequacy and accuracy of publicly available information about the companies, which trade in the over-the-counter (OTC) market.
The trading suspensions spring from a joint effort by SEC regional offices in Los Angeles, Miami, New York, and Philadelphia; its Office of Market Intelligence; and its new Microcap Fraud Working Group, which uses a coordinated, proactive approach to detecting and deterring fraud involving microcap securities. The trading suspensions follow a similar suspension last week against Uniontown Energy Inc. (UTOG), based in Henderson, Nev., and Vancouver, Canada.

“They may be called ‘penny stocks,’ but victims of microcap fraud can suffer devastating losses,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “The SEC’s new Microcap Fraud Working Group is targeting the insiders and promoters, as well as the transfer agents, attorneys, auditors, broker-dealers, and other “gatekeepers” who flourish in the shadows of this less-than-transparent market.”
George Canellos, Director of the SEC’s New York Regional Office, added, “The investing public does not have accurate or adequate information about these securities to use in making informed investment decisions. Nonetheless, stock-touting websites, twitter users, and often anonymous individuals posting to Internet message boards have hyped many of these companies, and these promotional campaigns have been followed by spikes in share price and trading volume.”
The 17 companies and their ticker symbols are:
American Pacific Rim Commerce Group (APRM), based in Citra, Fla.
Anywhere MD, Inc. (ANWM), based in Altascadero, Calif.
Calypso Wireless Inc. (CLYW), based in Houston.
Cascadia Investments, Inc. (CDIV), based in Tacoma, Wash.
CytoGenix Inc. (CYGX), based in Houston.
Emerging Healthcare Solutions Inc. (EHSI), based in Houston.
Evolution Solar Corp. (EVSO), based in The Woodlands, Texas.
Global Resource Corp. (GBRC), based in Morrisville, N.C.
Go Solar USA Inc. (GSLO), based in New Orleans.
Kore Nutrition Inc. (KORE), based in Henderson, Nev.
Laidlaw Energy Group Inc. (LLEG), based in New York City.
Mind Technologies Inc. (METK), based in Cardiff, Calif.
Montvale Technologies Inc. (IVVI), based in Montvale, N.J.
MSGI Security Solutions Inc. (MSGI), based in New York City.
Prime Star Group Inc. (PSGI), based in Las Vegas, Nev.
Solar Park Initiatives Inc. (SOPV), based in Ponte Verde Beach, Fla.
United States Oil & Gas Corp. (USOG), based in Austin, Texas.
Some examples of the promotions are as follows:
Calypso Wireless Inc. has not filed periodic reports since February 2008, when it filed a report for the period ending Sept. 30, 2007. Despite that, the company’s share price rose from 4 cents on Sept. 21, 2010 to an intra-day high of 17 cents on Sept. 24, 2010. Over the same period, trading volume jumped to nearly six million shares, up from 376,000 shares. On Sept. 24, 2010, a stock-promoting website encouraged investors to continue buying Calypso Wireless shares (PINK: CLYW, CLYW message board), stating, in part, “Over the week, CLYW stock has been running wild … This CLYW stock rush happened just like that, on no company’s news and on old, well known SEC filings, done for the investment community.”
Shares in Kore Nutrition Inc. began to spike on Aug. 31, 2010, following the release of a company-paid research report setting a target price of $10.50. Moreover, on Sept. 1 and 8, 2010, the company issued press releases announcing new distribution agreements to market its energy drinks. The research report and distribution agreement claims were reiterated on numerous stock-promotion websites, touting Kore Nutrition as a “winner.” Kore Nutrition’s quarterly report for the period ending Sept. 30, 2010, filed with the SEC on Nov. 15, 2010, made no mention of the announced distribution agreements.
Montvale Technologies Inc. announced the dissolution of the company on Feb. 12, 2010, and last filed financial statements with the SEC for the third quarter of 2009. The company’s shares have nonetheless continued to trade, and to be promoted. On Dec. 22, 2010, a website recommended a “closer look” at Montvale Technologies, claiming it “has the potential to do very well in the short term.” That day, the share price rose 75 percent from 12 cents to 20 cents, and trading volume soared 500 percent over the prior day.
The Microcap Fraud Working Group is a joint initiative of the SEC’s Division of Enforcement and Office of Compliance Inspections and Examinations. The Working Group is pursuing a strategic approach to combating microcap fraud by focusing on recidivists and insiders, and on the attorneys, auditors, broker-dealers, transfer agents and other gatekeepers that facilitate a large volume of the fraud in this sector. The Working Group is comprised of staff from the SEC’s headquarters in Washington D.C., each of its 11 regional offices, and from the Office of Market Intelligence, Division of Corporation Finance, Division of Risk, Strategy, and Financial Innovation, Office of General Counsel, Division of Trading and Markets, and the Division of Investment Management.”

It is great to see how the SEC is now able to coordinate all its different pieces to go after fraudsters. The microcap world of securities has always been a mystery to me. Perhaps some investors have the knowledge and resources to navigate through the world of microcaps and make a profit. For most of us because microcaps are so had to get real information on, investing in microcap securities often feels like gambling. And, whenever someone offers up an investment to make gigantic returns in a hurry it seems that in every case some sort of fraud is being perpetrated.

SEC ALLEGES NAME DROPPING FOR PROFIT FRAUD

Using the names of the rich and famous in order to get people to invest in projects or securities is nothing new. Certainly Donald Trump is perhaps the most famous of those dropped names however, others like Ted Turner and Paul Allen would be names to arouse most peoples interest when they are looking at an investment. However,just dropping the names as investors and these celebrities actually being investors is not the same thing in the fraudster world. The SEC has alleged this practice by two individuals. The following excerpt is from the SEC website:

“The Securities and Exchange Commission today charged Ronald Abernathy and Arthur Weiss with orchestrating a $560,000 securities fraud through their company, Sovereign International Group, LLC (“SIG”).

The SEC alleges that Abernathy and Weiss fraudulently obtained investor deposits by telling investors that they would use those funds to trade securities. According to the complaint, they used no investor funds to trade securities. Instead, Abernathy and Weiss misappropriated investor funds for their own personal use. Several investors have demanded that Abernathy and Weiss return their money. With the exception of a limited number of investors who received Ponzi-like payments, Abernathy and Weiss have failed to repay these investors. Instead, they have lulled the investors with various excuses for the delay and by promising repayment in the near future.

According to the SEC’s complaint filed in the Western District of Michigan, Abernathy and Weiss told investors that funds invested by SIG were earning a profit. The SEC further alleges that Abernathy and Weiss did not invest any of those funds and none of the investors earned any actual profits. Additionally, at different times during the scheme, Abernathy and Weiss have told investors that SIG is engaged in the trading of securities, receiving fees in connection with the monetization of multi-million and multi-billion dollar financial instruments, brokering the sale of fine art and, most recently, brokering the sale of and/or refining precious metal ore concentrate. They also falsely told prospective investors that Abernathy was appointed “the director of a highly exclusive group of investors who are purchasing a Major League Baseball Franchise” and that this group of investors includes billionaires Paul Allen (co-founder of Microsoft) and Ted Turner (founder of CNN). Despite their repeated promises of imminent multimillion dollar payouts to SIG from these purported business ventures, SIG, in its entire existence, has not earned any profits, realized any returns or generated any revenue from any business operations. SIG’s only income has consisted of money received from investors.
The SEC’s complaint charges Abernathy, Weiss and SIG with securities fraud in violation of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and the imposition of monetary penalties against all defendants.”

SEC ALLEGES FOUR FIVE LLC COMMITTED SECURITIES FRAUD

When a company selling investments touts “risk-free” and “triple digit returns” then most likely the investments are not legitimate. Most fraudsters tout that their way of making fantastic returns is unique and unknown to most people and that is why the returns are so compelling for potential investors. Of course it does not make since that only people working at a certain company know of some secret way to trade markets that always leads to a huge rate of return. Common since dictates that most money managers that have been in the business 20 or 30 years have seen every system legitimate and illegitimate for making money. As such, over long periods of time nothing that generates profits escapes their notice. After all, that is what they have been doing for a living over a 20-30 year period. The following excerpt is from the SEC web site and involves a company called Four Five, LLC:

“The United States Securities and Exchange Commission (“Commission”) announced the filing of a civil injunctive action in Atlanta, Georgia on June 2, 2011, alleging that Michael L. Rothenberg (“Rothenberg”) and the company he controlled, Four Five, LLC (“Four Five”) operated a fraudulent “Prime Bank” scheme that violated the antifraud provisions of the federal securities laws.

The Commission’s complaint alleges that between at least February 2010 and March 2010, Rothenberg, through Four Five, used misrepresentations and omissions of material fact to induce investors to participate in a secret and allegedly risk-free trading platform or trading facility. This trading platform or trading facility purportedly involved transactions among international banks that would generate substantial return on a recurring basis. Specifically, Rothenberg represented that the trading platform would produce returns in excess of 300% every fourteen days. Rothenberg and Four Five also represented to investors, both orally and in writing, that the majority of their funds would remain at all times in Rothenberg’s attorney trust account, and that all funds invested, along with the profits, would be returned to the investors at the conclusion of the trades. Rothenberg further represented to the investors that the investment was risk-free because their funds would remain in his attorney trust account. Contrary to Defendants’ representations, a risk-free trading process providing the returns promised by Defendants does not exist. Moreover, contrary to Rothenberg’s representations that investor funds would remain in his attorney trust account, Rothenberg began disbursing investor funds within days of receipt of those funds. Between March 2010 and October 2010, at least $210,000 in investor funds were transferred to a bank account designated for contributions to Rothenberg’s judicial election campaign. Rothenberg used another $190,000 of investor funds for personal expenses. Although Rothenberg ultimately returned approximately $910,000 to investors, Defendants have misappropriated at least $800,000 of investor funds.
In its Complaint, the Commission alleges that Rothenberg and Four Five Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.”

SEC CHARGES ADVISOR WITH FRAUD INVOLVING REAL ESTATE FUNDS

With the extremely low rates that banks pay on CD’s and the government pays on treasuries many investors who saved their money hoping to use their savings to generate income or at least a steady rate of return are often desperate enough to try placing their money into traditionally non-secure investments. In the following case from the SEC web site the SEC alleges that fraud was committed by an investment advisor who allegedly touted a rate of return that was not justified:

“Washington, D.C., May 13, 2011 – The Securities and Exchange Commission today charged a Monticello, N.Y.-based investment adviser with fraudulently offering and selling securities in two upstate New York real estate funds he managed.
The SEC alleges that Lloyd V. Barriger told investors in the Gaffken & Barriger Fund (G&B Fund) that it was a relatively safe and liquid investment that generated a minimum return of 8 percent per year. However, the fund’s actual performance did not justify these performance claims. The SEC further alleges that Barriger defrauded investors in Campus Capital Corp. by raising money from them to prop up the ailing G&B Fund without disclosing that was how their money was actually being used. Barriger also caused Campus to engage in other transactions that personally benefitted him, unbeknownst to Campus investors.

“In the midst of the credit crisis, Barriger chose to lie about the solvency and liquidity of his fund rather than admit the somber truth of a collapsing business,” said George Canellos, Director of the SEC's New York Regional Office. “He continued to solicit new investor funds based on the same misrepresentations up until the day before the fund collapsed.”
According to the SEC’s complaint filed in federal court in Manhattan, the G&B Fund raised approximately $20 million from January 1998 to March 2008, and Campus raised approximately $12 million from October 2001 to July 2008. Barriger froze the G&B Fund in March 2008 and disclosed its true financial condition to investors.
The SEC’s complaint alleges that Barriger misused G&B Fund assets by causing the fund to pay cash distributions of “Preferred Returns” to those investors who requested them. Barriger also caused the fund to redeem investors at values reflecting the purported accrued 8 percent per year return when the fund lacked the income to support those allocations and payments.
According to the SEC’s complaint, Barriger caused Campus to inject a total of nearly $2.5 million into the G&B Fund between August 2007 and April 2008 when the G&B Fund was in distress. Barriger did not disclose this information to investors.
The SEC’s complaint alleges that Barriger violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.
In its complaint, the SEC seeks a final judgment permanently enjoining Barriger from future violations of the foregoing provisions and ordering him to pay civil penalties and disgorgement of ill-gotten gains with prejudgment interest.
The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.”
Whether or not the SEC allegations are true will be determined. However, this might be more of a case of very poor judgment instead the out and out fraud cases that involve selling completely bogus securities or in targeting people for goal of stealing their hard earned cash.

I personally know what a difficult time it is to get people to make a large investment whether it is in real estate or an IRA. Of course it is always tempting to tweak the truth here and there in order to make the sale. The problem is that once you tweak the truth it is not much of a stretch to telling out and out lies to sell your product. Financial hard times make it easier still to take out some investor cash here and there in order to shore up personal finances. Many think they might pay it back one day but, financial hard times often stretch out long past the hoped for day of financial recovery. In short, it is easier to have some sympathy for those who commit fraud to save their business than for those who set up their business in order to commit fraud.

SEC MAKES CHARGES MAM WEALTH MANAGEMENT WITH FRAUD

On the Securities and Exchange Commission web site the SEC announced it has filed investment fraud charges as follows:

“U.S. Securities and Exchange Commission
Litigation Release No. 21921 / April 7, 2011
SECURITIES AND EXCHANGE COMMISSION v. MAM WEALTH MANAGEMENT, LLC, MAMW REAL ESTATE FUND GENERAL PARTNER, LLC, ALEX MARTINEZ, AND RAPHAEL R. SANCHEZ, Civil Action No. CV 11-2934 SJO (JCx) (C.D. Ca.)]
SEC CHARGES INVESTMENT ADVISER, FUND MANAGER AND TWO INDIVIDUALS WITH SECURITIES FRAUD INVOLVING CLIENT FUNDS
The Securities and Exchange Commission announced the filing of a civil injunctive action in U.S. District Court in Los Angeles, California against MAM Wealth Management, LLC (MAM), MAMW Real Estate General Partner, LLC (MAMW), Alex Martinez and Ralph Sanchez, alleging fraud in connection with client investments in a $10.3 million risky real estate venture. According to the Commission's complaint, from July 2007 through March 2009, Martinez, a MAM and MAMW principal, and Ralph Sanchez, a MAM registered representative and MAMW principal, had 50 of their advisory clients invest in MAM Wealth Management Real Estate Fund, LLC (Fund). The complaint alleges that Martinez and Sanchez misrepresented to some clients that the Fund was a safe, relatively liquid investment, was earning 9% per year, and would show profits in three years. The complaint alleges that they used their discretionary authority over other clients’ funds to invest them in the Fund, even though it was unsuitable for their conservative investment goals. The complaint alleges that many accounts were retirement accounts and that the Fund was an unsuitable investment for clients who did not have the ability and willingness to accept the risks of losing their entire investment. The complaint further alleges that the defendants caused the Fund to use client funds to make risky mortgage loans.
The complaint alleges that the defendants have violated the antifraud provisions of the federal securities laws, including violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder by MAM, MAMW, Martinez and Sanchez and Sections 206(1) and 206(2) of the Investment Advisers Act by MAM and Martinez and aiding and abetting violations of Sections 206(1) and 206(2) of the Investment Advisers Act by Sanchez. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and monetary penalties.”