CFTC COMMISISONER COMPLAINS ABOUT SLOW GOVERNMENTAL REFORM

The following is an excerpt from the CFTC website:

"The Waiting"
Statement by Commissioner Bart Chilton Regarding Anti-Fraud and Anti-Manipulation Final Rules, Washington, DC
July 7, 2011
It has been almost a year since the Dodd-Frank Act became law. If we were in school, we couldn't receive a grade. We'd get an incomplete since we still have so much work.
Folks have been waiting on issues like position limits, yet we haven't acted. We have said we won't get things done on time, and for many final rules that makes sense. For me, delaying on limits does not make sense. However, that's a matter for another time.
There is an old Tom Petty song, "The Waiting" in which he sings, "The waiting is the hardest part," and later "Don't let it get to you." Well, I'm trying not to let it get to me and very pleased that today we are moving forward and we may not have to wait any longer.
Before the Commission today are several final rules, including new anti-fraud and anti-manipulation authorities, which will be critical ammo in the Commission’s enforcement arsenal.
I particularly thank Senator Maria Cantwell for her leadership on the anti-fraud and anti-manipulation provisions. Without Senator Cantwell these provisions wouldn’t exist.
Currently, we have a nearly impossible manipulation standard, winning only one case in 35 years. We have had to prove intent, artificial price, market control and that the manipulators actually caused the artificial price. A very tall order. With the adoption of this new rule, the Commission will be able to prosecute a broader array of commodity law violations. Here are a few of them:
First, it will give us the ability to go after fraudulent practices that manipulate prices—like disseminating misinformation about the global availability of crude oil to manipulate the market.
Pocketing profits from the misuse of privileged information will now be prosecuted. We’ll be able to get at, for example, bad actors akin to insider traders.
Also, this new regulation moves us toward a reckless standard similar to that under securities laws as defined by the courts, and the law specifically gives us a reckless standard for false reporting.
The ability to effectively prosecute this type of unscrupulous activity is critically important. We now will be able to swiftly and aggressively “get at” these types of fraudulent market practices, which can contribute to uneconomic or false prices in commodities markets.
The waiting has been a hard part of this process. Hopefully, we will conclude some very important work today.
For the other regulations that we have not yet been able to complete, I'll take heed of Tom Petty’s advice and, "Don't let it kill ya’ baby, don't let it get to you."
Thanks.”

SEC CHAIRMAN SCHAPIRO SPEAKS AT SEC OPEN MEETING

The following is from the SEC website:

"Speech by SEC Chairman:
Opening Statement at SEC Open Meeting
by
Chairman Mary Schapiro
U.S. Securities and Exchange Commission
Washington, D.C.
June 29, 2011
Good morning. This is an Open Meeting of the United States Securities and Exchange Commission on June 29, 2011.

Today, we will consider proposing new rules that would establish business conduct standards for security-based swaps dealers and major security-based swap participants.

As with our prior proposals regarding security-based swaps, today’s proposal stems from Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That Act authorizes the Commission to implement a comprehensive framework for regulating the over-the-counter swaps markets.

In laying the groundwork for this new regulatory regime, Congress recognized the importance of having a regulatory framework that adequately protects investors. The rules we are proposing today would level the playing field in the security-based swap market by bringing needed transparency to this market and by seeking to ensure that customers in these transactions are treated fairly.

Among other things, the proposed rules would require security-based swap dealers and major security-based swap participants to communicate in a fair and balanced manner and to disclose conflicts of interest and material incentives to potential counterparties. Additional requirements would be imposed for dealings with special entities, which include municipalities, pension plans, endowments and similar entities.

In particular, when acting as a counterparty to a special entity, a security-based swap dealer or major security-based swap participant would need to have a reasonable basis to believe that the special entity has a qualified independent representative that can help it assess the transaction. In addition, a security-based swap dealer that is acting as an advisor to a special entity would need to act in the best interests of the special entity.

The standards we propose today are intended to establish a framework that protects investors and also promotes efficiency, competition, and capital formation. They are also intended to take into account the nature of the security-based swap market and existing business conduct requirements applicable for broker-dealers and other market participants. In this regard, the Commission staff has worked closely with CFTC staff in consulting with the public and other regulators including the Department of Labor. Indeed, we have had dozens of meetings with a broad range of interested parties including regulated entities, consumer and investor advocates, institutional investors, financial institutions, endowments, SROs, state and local governments, and end-users.

We look forward to public comment on today’s proposed rules. We welcome and need the input of commenters, and we hope they will provide analysis, data, and other information to help the Commission further evaluate the proposal and make any appropriate changes.

Before I ask Robert Cook, Director of the Division of Trading and Markets, and Lourdes Gonzalez, Co-Acting Chief Counsel of the Division of Trading and Markets, to discuss the proposed rules, I would like to express my thanks to the CFTC for their effort in crafting these proposed rules along with our team at the SEC.

I would also like to thank Robert, as well as James Brigagliano, Lourdes Gonzalez, Joanne Rutkowski, Cindy Oh, Leila Bham, Jack Habert, Peter Curley, Tom Eady, Gregg Berman, Catherine McGuire, and David Sanchez from the Division of Trading and Markets for their tremendous work on this rulemaking.

Thanks as well to David Blass, Bob Bagnall and Jeff Berger from the Office of the General Counsel; Scott Bauguess, Burt Porter and Adam Glass from the Division of Risk, Strategy, and Financial Innovation; Amy Starr and Tamara Brightwell from the Division of Corporation Finance; and Douglas Scheidt from the Division of Investment Management.

Finally, I would like to thank the Commissioners and all of our counsels for their work and comments on the proposed rules.

Now I'll turn the meeting over to Robert Cook to hear more about the Division's recommendations."

JPMORGAN CHASE AGREES TO PAY $228 MILLION FOR ANTICOMPETITIVE CONDUCT

Market manipulation is not a victimless crime. Many of the painful choices federal, state and, local governments have to make now are a direct result of large Wall Street companies manipulating markets. It would be the right thing to do if each company that is guilty of such crimes was to apologize to the people of America and the world for ever entertaining such criminal actions. Instead, only by threat of prosecution do large institutions admit to crimes and agree to pay some fine or other penalty. Meanwhile, societies crumble. The following excerpt is from the Department of Justice website from July 7, 2011:

“WASHINGTON — JPMorgan Chase & Co. has entered into an agreement with the Department of Justice to resolve the company’s role in anticompetitive activity in the municipal bond investments market and has agreed to pay a total of $228 million in restitution, penalties and disgorgement to federal and state agencies, the Department of Justice announced today.
As part of its agreement with the department, JPMorgan admits, acknowledges and accepts responsibility for illegal, anticompetitive conduct by its former employees. According to the non-prosecution agreement, from 2001 through 2006, certain former JPMorgan employees at its municipal derivatives desk, entered into unlawful agreements to manipulate the bidding process and rig bids on municipal investment and related contracts. These contracts were used to invest the proceeds of, or manage the risks associated with, bond issuances by municipalities and other public entities.

“By entering into illegal agreements to rig bids on certain investment contracts, JPMorgan and its former executives deprived municipalities of the competitive process to which they were entitled,” said Assistant Attorney General Christine Varney in charge of the Department of Justice’s Antitrust Division. “Today’s agreements ensure that JPMorgan will pay restitution to the municipalities harmed by its anticompetitive conduct, disgorge its profits from the illegal activity and pay penalties for the criminal conduct. We are committed to rooting out anticompetitive activity in the financial markets and our investigation into the municipal bond derivatives industry, which has led to criminal charges against 18 former executives, remains active and ongoing.”

Under the terms of the agreement, JPMorgan agrees to pay restitution to victims of the anticompetitive conduct and to cooperate fully with the Justice Department’s Antitrust Division in its ongoing investigation into anticompetitive conduct in the municipal bond derivatives industry. To date, the ongoing investigation has resulted in criminal charges against 18 former executives of various financial services companies and one corporation. One of these charged executives, James Hertz, is a former JPMorgan employee. Nine of the 18 executives charged have pleaded guilty, including Hertz.

The Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS), the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (Fed) and 25 state attorneys general also entered into agreements with JPMorgan requiring the payment of penalties, disgorgement of profits from the illegal conduct and payment of restitution to the victims harmed by the manipulation and bid rigging by JPMorgan employees, as well as other remedial measures.

As a result of JPMorgan’s admission of conduct; its cooperation with the Department of Justice and other enforcement and regulatory agencies; its monetary and non-monetary commitments to the SEC, IRS, OCC, Fed and state attorneys general; and its remedial efforts to address the anticompetitive conduct, the department agreed not to prosecute JPMorgan for the manipulation and bid rigging of municipal investment and related contracts, provided that JPMorgan satisfies its ongoing obligations under the agreement.

In May 2011, UBS AG agreed to pay a total of $160 million in restitution, penalties and disgorgement to federal and state agencies for its participation in anticompetitive conduct in the municipal bond derivatives market.

The department’s ongoing investigation into the municipal bonds industry is being conducted by the Antitrust Division, the FBI and the IRS-Criminal Investigation. The department is coordinating its investigation with the SEC, the OCC and the Federal Reserve Bank of New York. The department thanks the SEC, IRS, OCC, Fed and state attorneys general for their cooperation and assistance in this matter."

COURT ORDERS DEFENDANTS TO PAY OVER 2.5 MILLION IN UNIVERSAL LEASES CASE

The following is an excerpt from the SEC website:

"June 28, 2011
SEC v. Michael E. Kelly, et al., Case No. 1:07-CV-4979 in the United States District Court for the Northern District of Illinois
Court Enters Final Judgment Against Georgia Resident William K. Boston, Jr., Texas Resident Warren T. Chambers And Their Business, Century Estate Planning, Inc.

The Securities and Exchange Commission announced today that on June 22, 2011, Judge Elaine Bucklo of the United States District Court for the Northern District of Illinois entered a final judgment against William K. Boston, Jr., of Canton, Georgia, Warren T. Chambers, of Leander, Texas, and Century Estate Planning, Inc. (Century Estate), their business. The final judgment: (1) enjoined Boston, Chambers and Century Estate from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rules 10b-5 and 10b-10 promulgated thereunder, and enjoined Boston and Chambers from aiding and abetting violations of Rule 10b-10 of the Exchange Act; (2) ordered Boston, Chambers and Century Estate to pay disgorgement in the amount of $1,347,601.44 plus prejudgment interest of $617,269.01, for a total of $1,964,870.45; and (3) ordered Boston and Chambers to each pay a civil penalty of $120,000,and Century Estate to pay a civil penalty in the amount of $600,000.

The SEC’s complaint in this matter charges that Michael E. Kelly and 25 other defendants, including Boston, Chambers and Century Estate, participated in a massive fraud on U.S. investors that involved the offer and sale of securities in the form of Universal Leases. Universal Lease investments were structured as timeshares in several hotels in Cancun, Mexico, coupled with a pre-arranged rental agreement that promised investors a high, fixed rate of return. The SEC’s complaint alleges that from 1999 until 2005, Kelly and others, including Boston, Chambers and Century Estate, raised at least $428 million through the Universal Lease scheme from investors throughout the United States, with more than $136 million of the funds invested coming from IRA accounts. The SEC further alleges that a nationwide network of unregistered salespeople who sold the Universal Leases, including Boston, Chambers and Century Estate, collected undisclosed commissions totaling more than $72 million. The SEC also alleges that Kelly and others ran the scheme from Cancun, Mexico, through a number of foreign entities in Mexico and Panama. According to the SEC's complaint, Kelly and others told investors that Universal Leases would generate guaranteed income through the leasing of investor timeshares by a large, independent leasing agent. In fact, the complaint alleges, the leasing agent was a small Panamanian travel agency controlled by Kelly, and for most of the scheme, its payments to investors came from accounts funded by money raised from new investors. Further, the complaint alleges that Kelly and the other defendants, including Boston, Chambers and Century Estate, failed to disclose key facts about the Universal Lease investment, including the risks of the investment and that Kelly was paying commissions as high as 27% to the selling brokers. The SEC’s action against the remaining defendants is pending."

TWO FORMER VICE PRESIDENTS OF ARTHROCARE CORPORATION SETTLE WITH THE SEC

The following is an excerpt from the SEC website:

"On June 27, 2011, the Securities and Exchange Commission filed a settled civil action in United States District Court in Austin, Texas against John Raffle and David Applegate, two former senior vice presidents of ArthroCare Corporation. The Commission alleges that, between 2006 and the first quarter of 2008, Raffle and Applegate caused ArthroCare to improperly record revenue from shipments of spine products to various distributors, even though the distributors often did not need the products or have the ability to pay for them. Most of the improper transactions occurred at or near the end of quarters and were intended to enable ArthroCare to satisfy external revenue and earnings targets. As a result of these transactions, ArthroCare's publicly reported revenue and earnings were materially misstated. The Commission further alleges that Raffle misled ArthroCare's accountants and auditor about aspects of these transactions.
Raffle and Applegate agreed to settle the Commission's charges, without admitting or denying the complaint's allegations. Under the settlement, Raffle consents to a judgment permanently enjoining him from violating Section 17(a) of the Securities Act of 1933 ("Securities Act") and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 13b2-1, and 13b2-2 thereunder, and from aiding and abetting violations of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. The judgment also orders him to pay $1,782,742.43 in disgorgement plus prejudgment interest of $329,230.44, but waives payment of all but $175,000 of this amount, and does not impose a civil penalty, based upon his sworn financial statements.
Applegate has consented to a judgment permanently enjoining him from violating Section 17(a) of the Securities Act and aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. The judgment orders him to pay $621,754.60 in disgorgement plus prejudgment interest of $106,469.70, but waives payment of all but $55,000 of this amount, and does not impose a civil penalty, based upon his sworn financial statements.
Under the settlement, Raffle and Applegate both will be barred from serving as officers or directors of public companies for five years.
The Commission also settled with Raffle's ex-wife, Kathy Raffle, to recover $200,000 of incentive compensation and profits from sales of ArthroCare stock John Raffle obtained during the course of the earnings management scheme, which Kathy Raffle received in a divorce agreement. The Commission does not allege any wrongdoing by Kathy Raffle.
The proposed judgments are subject to court approval."

INSIDE TRADER TO PAY FINE, PAY BACK MONEY ON PENNY STOCK DEAL

The following is from the SEC website:

"June 29, 2011
SEC v. Richard Verdiramo, Vincent L. Verdiramo, Edward Meyer, Jr., and Victoria Chen, Civil Action No. 10-CIV-1888 (S.D.N.Y.)
COURT ENTERS FINAL JUDGMENT AGAINST EDWARD MEYER, JR.
The U.S. Securities and Exchange Commission announced today that on June 27, 2011, the United States District Court for the Southern District of New York entered a Final Judgment that enjoins Edward Meyer, Jr. from violating the registration and antifraud provisions of the federal securities laws, orders him to disgorge $62,050 in ill-gotten gains, and requires him to pay civil penalties of $62,000. In addition, the Court barred Meyer from participating in any penny stock offering and from serving as an officer or director of any reporting company. Meyer consented to the entry of the Final Judgment without admitting or denying any of the allegations of the Commission’s Complaint.

In its Complaint, the SEC charged that Meyer violated the registration provisions of the federal securities laws when he sold shares of RECOV Energy Corporation between April and November 2005. According to the Complaint, RECOV issued these shares to Meyer after he and defendant Victoria Chen entered into a contract to buy a controlling interest in RECOV from RECOV’s principal, defendant Richard Verdiramo, and his father, defendant Vincent L. Verdiramo. The Complaint alleges that shortly after receiving the RECOV shares, Meyer began selling them on the open market. The SEC charged that Meyer violated Section 5(a) of the Securities Act of 1933 because his sales of RECOV shares were not registered with the SEC or subject to any exemptions from the registration provisions. The Final Judgment orders Meyer to disgorge his ill-gotten gains from these violations, which totaled approximately $48,000, and to pay a $48,000 penalty for these claims.

The SEC also charged Meyer with insider trading based on his sales of RECOV stock in August 2005. According to the Complaint, in October 2004, Meyer began working as a consultant for a private company that subsequently engaged in merger negotiations with RECOV. Meyer signed a confidentiality agreement in connection with his engagement as the private company’s consultant. The Complaint alleges that in July 2005, the private company’s principal told Meyer that he intended to terminate merger negotiations with RECOV. The Complaint alleges that Meyer sold RECOV shares after he learned of the principal’s intention to terminate merger negotiations and before the August 2005 public announcement that the parties had terminated merger negotiations. As a consequence of these trades, the Complaint alleges that Meyer avoided losses of $14,000. The SEC charged that the private company’s intention to terminate merger negotiations was material, non-public information, and that Meyer violated Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5 when he sold RECOV stock while in possession of that information without disclosing his intention to trade. The Final Judgment orders Meyer to disgorge the $14,000 of ill-gotten gains from these violations and to pay a $14,000 penalty for these claims.

The Commission’s pending litigation against the other defendants in this matter is ongoing."