THOR INDUSTRIES SETTLES WITH SEC

The following is an excerpt from the SEC web site:

Litigation Release No. 21966 / May 13, 2011
Accounting and Auditing Enforcement Release No. 3280 / May 13, 2011
Securities and Exchange Commission v. Thor Industries, Inc., and Mark C. Schwartzhoff, Case No. 1:11-cv-00889-RMC. (D.D.C., filed May 12, 2011)
SEC Charges Thor Industries With Violating Commission Cease-and-Desist Order and Charges Former VP of Finance of Thor Subsidiary With Securities Fraud
The Securities and Exchange Commission filed a settled enforcement action in United States District Court for the District of Columbia charging Ohio-based producer of recreational vehicles Thor Industries, Inc. with issuer reporting, record-keeping, and internal control violations. Thor has agreed to be permanently enjoined and to pay a $1 million civil penalty for violating a 1999 Commission cease-and-desist Order prohibiting violations of the books and records and internal controls provisions. In the Matter of Thor Industries, Inc., Exchange Act Release No. 42021 (Oct. 18, 1999). The SEC also charged Mark C. Schwartzhoff, a former Vice President of Finance at Thor’s Dutchmen Manufacturing, Inc. subsidiary, with securities fraud and other violations. Schwartzhoff has agreed to be permanently enjoined, to be permanently barred from serving as an officer or director of a public company, and to be permanently suspended from appearing or practicing before the Commission as an accountant. Schwartzhoff also agreed to pay disgorgement of $394,830, which shall be deemed satisfied by the entry of a restitution order against Schwartzhoff in a parallel criminal case.
The SEC’s complaint alleges that from approximately December 2002 to January 2007, while serving as the senior financial officer of Dutchmen, one of Thor’s principal operating subsidiaries, Schwartzhoff engaged in a fraudulent accounting scheme to understate Dutchmen’s cost of goods sold in order to avoid recognizing inventory costs that were not reflected in Dutchmen’s financial accounting system. Instead of properly recording increased cost of goods sold, Schwartzhoff concealed the costs in various balance sheet accounts by making baseless manual journal entries to falsify the financial statements and other records he provided to Thor. To cover-up his false entries, the complaint alleges that Schwartzhoff created false supporting documentation and false account reconciliations. Schwartzhoff also submitted false documents and information to Thor’s external auditor.
As alleged in the complaint, Schwartzhoff’s fraud overstated Dutchmen’s pre-tax income by nearly $27 million from fiscal year 2003 to the second quarter of fiscal 2007, and allowed him to obtain nearly $300,000 in ill-gotten bonuses. In June 2007, Thor filed restated financial statements for fiscal years 2004 to 2006, each of the quarters of fiscal 2005 and 2006, and the first quarter of fiscal 2007, reducing its pre-tax income by approximately $26 million in the aggregate.
The SEC’s complaint further alleges that Thor failed to maintain accurate books and records and adequate internal accounting controls in violation of a 1999 Commission cease-and-desist Order. The Order directed Thor to cease and desist from committing future books and records and internal controls violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (“Exchange Act”), based on similar misconduct and internal control deficiencies that occurred over four years at a different Thor subsidiary.
The complaint alleges that Thor’s failure to implement adequate internal controls after the 1999 Order provided Schwartzhoff the opportunity to commit his fraud without detection. In particular, Thor failed to adequately implement and verify certain key segregation of duties within accounting and financial functions at Dutchmen, which allowed Schwartzhoff to have unfettered access rights to Dutchmen’s accounting system, the ability to create, enter and approve manual journal entries, and the ability to create and approve account reconciliations. As a result, Schwartzhoff was able to make fraudulent journal entries in various accounts and to disguise these entries through account reconciliations and supporting documents that he falsified. In addition, as alleged in the complaint, Thor failed adequately to monitor and verify account reconciliations and account information that Schwartzhoff submitted in reporting Dutchmen’s financial results. Thor also failed to implement an effective internal audit function for Dutchmen.
As the SEC’s complaint alleges, after Schwartzhoff's fraud came to light, Thor concluded that the internal control failures at Dutchmen constituted a material weakness in Thor’s internal controls over financial reporting. Thor also determined that similar lack of segregation of duties existed in varying degrees at each of its subsidiaries. For example, senior accounting officers (Controllers and Vice Presidents of Finance) at numerous subsidiaries had the ability to create, enter, and approve journal entries and reconciliations in accounts such as accounts receivable, accounts payable, and cash. At all but one subsidiary, various individuals had inappropriate access rights to accounting and information systems, including “super user” access by senior accounting officers at some subsidiaries. In addition, the complaint alleges Thor also determined that it lacked sufficient corporate level monitoring of account reconciliations for all of its subsidiaries.
Without admitting or denying the allegations in the complaint, Thor has consented to the entry of a final judgment: (1) requiring it to comply with the 1999 cease-and-desist Order; (2) permanently enjoining it from violating Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; (3) ordering it to pay a $1 million penalty pursuant to Exchange Act Section 21(d)(3) for violating the 1999 Order; and (4) ordering it to hire an independent consultant to review and evaluate certain of its internal controls and record-keeping policies and procedures.
Without admitting or denying the allegations in the complaint, Schwartzhoff has consented to the entry of a final judgment: (1) permanently enjoining him from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 12b-20, 13a-1 and 13a-13 thereunder; (2) ordering him to pay disgorgement of $299,805 plus prejudgment interest of $95,025, for a total of $394,830, with payment of this amount to be deemed satisfied by the entry of a restitution order against Schwartzhoff in a parallel criminal case that is equal to or greater than $394,830; and (3) permanently barring him from serving as an officer or director. Schwartzhoff also consented to the issuance of an order pursuant to Rule 102(e) of the Commission’s Rules of Practice, permanently suspending him from appearing or practicing before the Commission as an accountant.
These settlements are subject to the approval of the United States District Court for the District of Columbia. The settlement with Thor takes into account the company’s self-reporting and significant cooperation in the SEC’s investigation.
Separately, on May 12, 2011, the United States Attorney’s Office for the Northern District of Indiana filed a related criminal action against Schwartzhoff, and Schwartzhoff agreed to plead guilty to an Information charging him with one count of wire fraud and to pay restitution of approximately $1.9 million.”

SEC OFFERS MORE GUIDANCE ON SECURITY-BASED SWAPS

The following excerpt came from the SEC website:

“Washington, D.C., July 1, 2011 — The Securities and Exchange Commission today provided additional guidance to clarify which U.S. securities laws will apply to security-based swaps starting July 16 -- the effective date of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

That Act created a new regulatory framework for over-the-counter derivatives, authorizing the SEC to regulate security-based swaps and the Commodity Futures Trading Commission to regulate other swaps. Under the Dodd-Frank Act, starting July 16, 2011, security-based swaps are defined as “securities” subject to existing federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934.

As one part of today’s action, the Commission approved an order granting temporary relief and interpretive guidance to make clear that a substantial number of the requirements of the Exchange Act applicable to securities will not apply to security-based swaps when the revised definition of “security” goes into effect on July 16. Nevertheless, federal securities laws prohibiting fraud and manipulation will continue to apply to security-based swaps after that date. To enhance legal certainty for market participants, the Commission also provided temporary relief from provisions of U.S. securities laws that allow the voiding of contracts made in violation of those laws.

“As we move forward with the implementation of the Dodd-Frank Act, this temporary relief will help maintain the existing legal framework for security-based swaps under the Exchange Act until the Commission adopts new rules for these transactions,” said Robert Cook, Director of the SEC’s Division of Trading and Markets.

In addition, the Commission approved an interim final rule providing exemptions from the Securities Act, Trust Indenture Act and other provisions of the federal securities laws to allow certain security-based swaps to continue to trade and be cleared as they have pre-Dodd-Frank. That interim relief will extend until the Commission adopts rules further defining “security-based swap” and “eligible contract participant.”
The Commission previously issued guidance in this area on June 15 and plans additional steps in coming days related to the July 16 effective date. Although these actions have been approved, the Commission is seeking input from the public on today’s actions.”

SEC SAYS THAT 300% RETURNS FROM A RISK FREE TRADING PLATFORM: DOES NOT EXIST

Who would invest in a risk free 300% guaranteed investment which was returned every 14 days? Common since should tell us that such an investment is too good to be legitimate. The following excerpt is from the SEC website:

"July 1, 2011
Securities and Exchange Commission v. Michael L. Rothenberg, et al., Civil Action Number 1:11-CV-1803-JOF (N.D. GA.)
The Securities and Exchange Commission (“Commission”) announced that on July 1, 2011, the Honorable J. Owen Forrester, United States District Judge for the Northern District of Georgia, entered an order permanently enjoining Michael L. Rothenberg (“Rothenberg”) and Four Five, LLC (“Four Five”) (collectively “Defendants”). The order restrained and enjoined Defendants from violating of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 (“Exchange Act”). Defendants were also ordered to pay disgorgement, pre-judgment interest and a civil penalty in amounts to be resolved upon motion of the Commission at a later date, and directed that for purposes of that motion, the allegations of the Commission’s Complaint shall be deemed true. Defendants consented to the entry of the order without admitting or denying the allegations of the Commission’s Complaint.

The Commission’s complaint, filed on June 2, 2011, 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."

CHARGES FILED IN AN OHIO $14 MILLION DOLLAR REAL ESTATE INVESTMENT FRAUD

The following is an excerpt from the SEC website:

"June 30, 2011
SEC v. Edward A. Allen, David L. Olson, and A&O Investments, LLC, Case No. 1:10-cv-01143 (N.D. Ohio, filed May 20, 2010)
The Securities and Exchange Commission announced today that the U.S. Attorney's Office for the Northern District of Ohio filed criminal charges against Edward A. Allen and David L. Olson, residents of Lakeland, Florida, accusing them of securities fraud, mail fraud, wire fraud, and conspiracy for their roles in a $14 million real estate investment fraud.

The criminal case includes many of the same allegations in a civil injunctive action previously filed by the Commission on May 20, 2010 in the United States District Court in Cleveland, Ohio against Allen, Olson, and A&O Investments, LLC (A&O). According to the Commission's complaint, from approximately September 2005 through December 2008, Allen and Olson raised approximately $14.8 million from at least 100 investors through the offer and sale of promissory notes issued by A&O. The complaint alleges that Allen and Olson recruited promissory note investors from customers of Georgia-based registered broker-dealer World Group Securities, Inc., for which Allen and Olson were registered representatives, and through other means. The complaint alleges that Allen and Olson told investors that they would use the investors' money to purchase, rehabilitate, and sell real estate. The complaint alleges that Allen and Olson's representations about their use of offering proceeds, the collateral securing the investments, and the success of the investments were all false. According to the complaint, in reality Allen and Olson operated a Ponzi scheme by using approximately $4.4 million of investors' funds to pay "interest" and, in some cases, principal to previous investors and spent only $5.1 million of the $14.8 million raised to purchase and rehabilitate real estate. The complaint further alleges that Allen and Olson used $2.2 million to pay personal expenses for themselves and their family members. According to the complaint, Allen and Olson also misrepresented and omitted to state material facts regarding the collateral securing the notes, in that as much as approximately $5.5 million worth of A&O promissory notes purportedly were secured by the same piece of property in Lakeland, Florida. This property's value was grossly inadequate to secure the notes. The complaint charges Allen, Olson, and A&O with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder.

On November 9, 2010, the Commission obtained a judgment against Defendants Olson and A&O, which includes permanent injunctions against future violations of the securities laws and orders them to pay disgorgement of $10,339,849, representing ill-gotten gains, and prejudgment interest of $736,631. On June 6, 2011, an administrative law judge issued an order pursuant to Section 15(b)(6) of the Exchange Act barring Olson from association with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent, and from participating in any offering of penny stock. The Commission's case against Allen is still pending."

CFTC ORDERS FLORIDA MAN TO PAY $140,000 PENALTY FOR FOREIGN CURRENCY SCHEME

THE FOLLOWING IS AN EXCERPT FROM THE CFTC WEBSITE:

"CFTC Orders Mark Adrian of Florida to Pay $140,000 Civil Penalty in Fraudulent Foreign Currency Scheme
Adrian pleaded guilty to federal criminal wire fraud and faces sentencing on August 2, 2011.
Washington, DC ― The U.S. Commodity Futures Trading Commission (CFTC) today filed and simultaneously settled charges against Mark Adrian of Delray Beach, Fla., for his role in issuing false statements to customers in a fraudulent foreign currency (forex) scheme. The CFTC order requires Adrian to pay a $140,000 civil monetary penalty and prohibits him from trading for or on behalf of any other person and applying for registration with the CFTC. Adrian is currently not registered with the CFTC.

The CFTC order finds that, from approximately 2005 through approximately August 2008, KJW Capital Management, LLC (KJW), where Adrian was an employee and member, solicited customers — directly and indirectly through brokers — to open managed accounts in which KJW would trade off-exchange forex on behalf of these customers. KJW used purported proprietary trading methodologies and obtained more than $18.4 million from at least 58 customers, according to the order. KJW traded forex in individual customer accounts at Avidus Trading, LLC (Avidus), where Adrian was also an employee and member, and where all of KJW’s customers were required to open and maintain forex trading accounts, according to the order.

Customers suffered significant forex trading losses, and, instead of informing customers of these losses, Adrian created false bank records and spreadsheets to hide the losses from customers, the order finds. For example, one of Avidus’ Dresdner Bank (Dresdner) account statements that Adrian falsified had the same font, color and account number as the actual Dresdner statement; however, the balances were vastly different, the order finds. The actual Dresdner balance totaled $181,000, whereas the Dresdner balance per Adrian was $2,488,000, according to the order.

The information contained in these false bank records and spreadsheets became the basis for numerous oral and written material misrepresentations and omissions made to customers, the order finds. By these misrepresentations and omissions, Adrian deceived customers into not withdrawing their funds, which resulted in customers suffering losses of at least $2.3 million, according to the order.

In a related criminal proceeding, the U.S. Attorney’s Office for the Northern District of Illinois filed an information against Adrian on September 13, 2010 (Case No. 1:10-cr-00754). Adrian pleaded guilty to wire fraud on October 26, 2010. Sentencing is scheduled for August 2, 2011.

The CFTC thanks the U.S. Attorney’s Office for the Northern District of Illinois, the Federal Bureau of Investigation and the U.K.’s Financial Services Authority for their assistance in this matter.

CFTC staff members responsible for this case are Charles Marvine, Rick Glaser and Richard Wagner."

SEC GOES AFER CEOS FOR MICROCAP STOCK PRICE MANIPULATION

The following is an excerpt from the SEC website:

"The Securities and Exchange Commission today charged three CEOs, their companies, and two penny stock promoters with securities fraud for their roles in various schemes to manipulate the volume and price of microcap stocks and illegally generate stock sales. The schemes featured illicit kickbacks, a bribe to a purported corrupt broker, and the creation of a website to deliver e-mail blasts to potential investors.

The SEC worked closely with the U.S. Attorney's Office for the Southern District of Florida and the Federal Bureau of Investigation as the separate schemes were uncovered through an FBI undercover operation. The operation was conducted in such a way that no investors suffered harm. The U.S. Attorney's Office today announced criminal charges against the same individuals facing SEC civil charges.

According to the SEC's complaints filed in U.S. District Court for the Southern District of Florida, most of the schemes involved the payment of kickbacks to a purportedly corrupt pension fund manager, in exchange for the fund's purchase of restricted shares of stock in the various microcap companies. Another scheme involved a bribe that was to be paid to a purported corrupt stockbroker who agreed to use his ability to buy stock in his customers' discretionary accounts to purchase a microcap company's stock in the open market. What the insiders and promoters did not know was that the people with whom they arranged these illegal transactions were actually undercover FBI agents or confidential sources participating in an undercover operation. A final scheme involved a stock promoter who created a website to tout a penny stock company through a volley of e-mail blasts and who posted phony testimonials from fake investors. The defendants reside or are based in South Florida, California, Texas, and Nevada.

These charges follow a series of cases filed in October and December 2010, in which the SEC charged more than fourteen penny stock promoters and their companies with similar stock manipulation schemes.

The SEC alleges that the company officers and a promoter in most of the schemes understood they needed to disguise the kickbacks as payments to phony consulting companies, which they knew would perform no actual work. They also knew the purported corrupt fund trustee would be violating his fiduciary duties to his clients by taking part in the kickbacks. In other instances, they knew that their illegal activities were meant to artificially inflate the companies' stock price.

The SEC's complaints allege the defendants violated Section 17(a) of the Securities Act of 1933, and/or Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. The SEC is seeking permanent injunctions and financial penalties against all the defendants; disgorgement plus prejudgment interest against the defendants who received ill-gotten gains; and penny stock bars against all the individual defendants.

The SEC acknowledges the assistance and cooperation of the United States Attorney's Office for the Southern District of Florida and the Federal Bureau of Investigation, Miami Division in investigating these matters.

SEC Complaint in this matter against Brian Gibson
SEC Complaint in this matter against Douglas Newton and Real American Brands, Inc. n/k/a Real American Capital Corp.
SEC Complaint in this matter against Donald W. Klein and KCM Holdings Corp.
SEC Complaint in this matter against Thomas Schroepfer"