SEC CHARGED RAYMOND JAMES & ASSOCIATES INC. WITH MAKING INACCURATE STATEMENTS

The following excerpt comes from the SEC website:

“Washington, D.C., June 29, 2011 — The Securities and Exchange Commission today charged Raymond James & Associates Inc. and Raymond James Financial Services Inc. for making inaccurate statements when selling auction rate securities (ARS) to customers.

Raymond James agreed to settle the SEC’s charges and provide its customers the opportunity to sell back to the firm any ARS that they bought prior to the collapse of the ARS market in February 2008.
According to the SEC’s administrative order, some registered representatives and financial advisers at Raymond James told customers that ARS were safe, liquid alternatives to money market funds and other cash-like investments. In fact, ARS were very different types of investments. Among other things, representatives at Raymond James did not provide customers with adequate and complete disclosures regarding the complexity and risks of ARS, including their dependence on successful auctions for liquidity.
“Raymond James improperly marketed and sold ARS to customers as safe and highly liquid alternatives to money market accounts and other short-term investments,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “Harmed investors who are covered by this settlement will have the opportunity to get full payment for their illiquid ARS.”
The SEC previously announced ARS settlements with Citigroup and UBS, Wachovia, Bank of America, RBC Capital Markets, Deutsche Bank, and TD Ameritrade. As a result of these settlements, more than $67 billion has been returned to ARS customers following the SEC’s investigation into the ARS market collapse of February 2008 that left tens of thousands of investors holding ARS they could not sell.
The SEC’s order against Raymond James finds that the firm willfully violated Section 17(a)(2) of the Securities Act of 1933. The Commission censured Raymond James, ordered it to cease and desist from future violations, and reserved the right to seek a financial penalty against the firm.
Without admitting or denying the SEC’s allegations, Raymond James consented to the SEC’s order and agreed to:
Offer to purchase eligible ARS from its eligible current and former customers.
Use its best efforts to provide liquidity solutions to customers who acted as institutional money managers who are not otherwise eligible customers.
Reimburse excess interest costs to eligible ARS customers who took out loans from Raymond James after Feb. 13, 2008.
Compensate eligible customers who sold their ARS below par by paying the difference between par and the sale price of the ARS, plus reasonable interest.
At the customer’s election, participate in a special arbitration process with those eligible customers who claim additional damages.
Establish a toll-free telephone assistance line and a public Internet page to respond to questions concerning the terms of the settlement.
Investors should be alerted that, in most instances, they will receive correspondence from Raymond James. Investors must then advise Raymond James that they elect to participate in the settlement. If they do not do so, they could lose their rights to sell their ARS to Raymond James. Investors should review the full text of the SEC’s order, which includes the terms of the settlement.
The Commission acknowledges the assistance and cooperation of the State of Florida Office of Financial Regulation, the Texas State Securities Board, and the North American Securities Administrators Association.”

Although financial penalties are becoming more common in cases like the one above criminal penalties are not really increasing. The problem is that it is hard to link upper levels of management with a business decision to commit a crime. A word used like “puffery” when selling a product is often confused with the word “fraud” by over zealous salespeople who are trying to earn a commission or large bonus check and pay their bills. Commission sales by definition; means that Salespeople are paid by their employers to talk up their products and overcome objections. This is a slippery slope and top management is responsible for making sure those directly offering the products to the public do not slip off the “slippery slope” and say things that might earn a nice check now but in the long run will seriously harm the reputation of the firm they are working for."

CFTC COMMISSIONER SPEECH ON "CAGING THE FINANCIAL CHEETAHS"

The following speech by CFTC Commissioner Bart Chilton addresses those who rapidly trade commodities and the affect such trading has on the prices of commodities. The speech is an excerpt from the CFTC website:

“Caging the Financial Cheetahs”
Speech by Commissioner Bart Chilton to American Soybean Association Legislative Forum, Washington, DC
July 12, 2011

Introduction

It’s good to be with you today. I especially want to thank John Gordley for the kind invitation to be here. John and I have kicked around this town for a long time and I’ve always admired him. So too, the ASA. You always make your positions clearly known and you are recognized here. I worked with you when I was on the Hill and at USDA and more often than not we agreed and I always respected your views and the way you presented them.

Morphing Markets

Today, I want to talk primarily with you about how rapidly commodities markets are changing and whether they still play the same role they were intended to play—that is for commercial hedgers, like some of you, to use and for price discovery. The reason I bring it up is because of new species in the markets.

If you have time while you’re in town, if you haven’t been, a great place to go is the National Zoo. They have a couple of thousand animals from about 400 species. It was started by an act of Congress in 1889. At that time, right outside of USDA, bison used to roam the National Mall. They were moved to the zoo in 1891 and became its first residents. The zoo gets new species all the time. Likewise, in markets, we’re getting new species all the time, too. Let me talk about a couple.

Massive Passives

One big market morphing area that we need to be thinking about is the traders themselves, a new species of traders, if you will, the “Massive Passives.” They are the likes of pension funds, index funds, hedge funds and mutual funds. These are instruments that attract investors who could care less what a pork belly is used for or what a soybean field looks like. These funds are very large—massive—and have a fairly price-insensitive, passive trading strategy.

From 2005 to 2008, roughly $200 billion in new speculative massive passive money came into the commodity markets in the U.S. alone. At the time, consumers were outraged about gas prices and food prices. So, should we be worried that maybe that’s what’s going on today? Is that at least part of the reason gas is historically high in the U.S.? Consumers are certainly outraged again. Many producers are outraged at input prices. But, is speculation at the root or part of the problem? Here’s some food for thought: There are now even more speculative positions in commodity markets than in 2008—in fact, more than ever before. The number of futures equivalent contracts held by Massive Passives increased 64 percent in energy contracts between June of 2008 and January of 2011. In metals and agricultural contracts, those positions increased roughly 20 percent or more.

I think there’s good evidence that excessive speculation is heating up the market and prices have gotten out of line as a result. Rather than help to fairly discover and “make the price,” these speculators “shake and bake the price”—up or down, depending on which side of the market they’re in.

For years, we’ve heard oil companies, banks and politicians sing the same old song: that speculation in markets didn't have any effect whatsoever on the prices consumers pay. These days, though, some folks are singing a different tune. For example, the head of a major oil company recently acknowledged that speculators were “gunning” prices. In March, Goldman Sachs issued a little-noticed report linking speculation to rising oil prices. And, President Obama correctly spoke about speculators’ impact on consumers and established a high-level working group headed by our Attorney General to check into it.

You don’t have to take it from me or any of those folks, though. Researchers at Oxford, Princeton, and many other private researchers say that speculators have had an impact on prices—oil prices and food prices most notably.

Still, some exchange officials deny there is any evidence whatsoever that speculators impacted prices. Some even deny that anybody’s saying so. They don’t call the people who did these studies whack jobs or crazy. They deny the studies exist. Well, they are just wrong. I’ve put more than fifty studies, analyses and comments about this on the CFTC website. There was yet another study two weeks ago from the University of Massachusetts. There’s even a study that was done in 1957 linking speculators and price.

The point though, is that, if those studies have even the possibility of being credible—if they are right—what do we do to protect markets and consumers? The new U.S. financial reform law addresses this by requiring mandatory speculative position limits—to ensure that too much concentration doesn’t exist. We are now in the process of trying to get these limits in place. As far as I’m concerned, the sooner the better on that front.

Caging the Cheetahs

Technology is the other area where changes are occurring at breakneck speed. In financial markets, folks screaming at each other in trading pits have quickly become mostly a thing of the past. Instead, computers are screaming at each other all day and all night—most times regardless of time zones around the world.

In the animal kingdom, cheetahs are the fastest, racing from zero to 60 miles per hour in a few seconds. (By the way, there are four adult cheetahs and two six-month-old cubs, Maggie and Nick at the National Zoo). In financial markets today, we also have cheetahs—otherwise known as high-frequency traders or HFTs. This new species of trader, due to the advent of high-speed computing technology and sensitive algorithmic programs, races in and out of markets trying to scoop up micro dollars in milliseconds. They aren't like traditional financial speculators because they are in markets fleetingly. At the end of every trading day, the cheetah's goal is to be flat, or neutral. They don't want to hold risk for very long, most of the time for only seconds. Are any of you interested in hedging your risk for five seconds? Not only are cheetahs new, but this highly sophisticated trading strategy is new, too. It is a different strategy and the cheetahs are a different trading species than producers are used to seeing in markets.

We recall that cheetahs were part and parcel to the infamous Flash Crash on May 6, 2010 where markets tumbled and the Dow lost nearly 1,000 points before recovering. But, mini flash crashes are taking place often. Here too, cheetahs seem like a likely place to look for potential problems. For example, on May 1st, a Sunday, in 12 minutes the silver market plunged 13 percent. Then, on June 9, in the evening’s electronic trading, the natural gas market free fell 7 percent in 14 short seconds!

If markets are going to be efficient and effective and less volatile, we need to cage the cheetahs. I'm not saying they should be extinct, and overly burdensome regulations shouldn't endanger them as a species, but they need to be confined. After all, financial markets impact all of us in one way or another. Prices for everything from milk to mortgages are set in these markets. Markets need to operate without the influence of traders merely trying to prey upon infinitesimal market movements in order to survive and thrive in the trading kingdom.

We all know technology can be a great equalizer, bridging people across oceans, between rural and urban and rich and poor. However, there will be a steep price to pay if regulators and exchanges around the globe don't effectively manage the change taking place as a result of computerized trading by cheetahs.

A range of policy reforms are needed, including: testing of algorithmic programs before they go live; some type of pre-approval or accreditation process to ensure the cheetahs are who they say they are and not those interested in financial terrorism; kill switches to stop programs that go feral; and, accountability for the cheetahs who do damage to markets and cost people money.

Exchanges welcome the cheetahs. But even the exchanges themselves may be part of their prey. Allocation algorithms that some exchanges use to direct which trades get placed where may be adding to the problem by not necessarily accepting the first or best bid or offer but weighing the size of the trade, too. From an exchange business purpose, I get it. More volume equals more money, and they want deep, liquid markets. However, cheetahs may be gaming the system by bidding or offering more contracts than they believe will be filled simply to cut in line ahead of other traders. They may receive an advantage and then have their order partially filled. There is every reason to believe cheetah programs determine the size of the order that would allow them to get in first and understand they won’t get a full fill.

Regulators have simply accepted that all is well with how market technology is working. That needs to stop. We need to be more inquisitive and think about these kinds of things before they reach trouble points manifested in market anomalies.

The market morphing cheetah technology has moved so fast that even the financial reform law approved a year ago in the U.S. did not address it in any way.

Simply put, regulators need to do a better job of keeping up with the cheetahs and the ramifications of technology in trading that effect consumers and investors.

Technology does add access. Where do you think the third largest trader by volume on the Chicago Mercantile Exchange (CME) is based? In Prague. Now, that’s access that wasn’t there ten years ago. I’d think we want to ensure that these market participants actually register with the agency. We need to know who they are. Without registration of cheetahs, there is no way of actually regulating these cats and the results could be horrendous. We also want to guard against financial terrorism. After all, we’ve seen a lot of hacking of entities, like Citi and the U.S. Senate and others, that is at the very least a warning for us to be careful.

Just a few days ago, a CME employee was arrested for stealing source code from the exchange. The FBI picked him up before he boarded a plane for China. Was this industrial espionage? It is too early to tell. The bottom line is that we need to be careful and have some basic accreditation of who is trading and from where in safeguarding sensitive exchange information.

High speed trading has become all about latency—how fast you can place an order given your technology. It’s not just the speed of the computer. It’s how fast you can get your order in from Prague or Chicago. I toured CME’s new data center last fall. It’s the size of four football fields and it’s where traders will be leasing space so they can be as close as possible to CME’s computers. They will have virtually no latency. Just like the zoo, where species are kept in close confines, the space exchanges lease in buildings like CME’s are called cages. Many of them are in cages already, but we need policy confines for the cheetahs, too.

It is amazing how quickly these markets morphed. In the U.S., well over 90 percent of the trading is done electronically. HFTs alone account for roughly 50 percent of the trades in Europe and roughly a third of the trades in the U.S.

With such a significant part of the trading being done electronically, it would be naïve to think there won’t be glitches. That’s why I think additional safeguards are needed after there’s been a problem. When a plane crashes, for example, the airlines reprogram their simulators to create the exact circumstances that led to the crash so that pilots can train to avoid a future problem. They call this upset recovery training. In markets, we need to improve our upset recovery training with regard to cheetahs. Finally, we need the enforcement tools to go after cheaters (with a Boston accent). The cheater cheetahs.

For example, just last Thursday, we finalized rules regarding anti-fraud and anti-manipulation practices—for all types of traders—not just cheetahs. They are sorely needed. In the CFTC’s thirty-five year existence, how many market manipulation cases do you think we have successfully prosecuted? Go ahead and guess. Here’s how many: one. One. Now, we’ve settled dozens but only won one that’s gone all the way through court and the appeals process. It’s not because our lawyers are for crap. We have great lawyers. It’s because the standard of proof was so high, we could never prove it. We had to prove intent, a false price and that manipulation actually caused that false price, among other things. The new rule lowers the bar so we can get the bad guys, Batman. It gives us new ammo in our enforcement arsenal and we will use it. Specifically, pocketing profits from the misappropriation of privileged information may now be prosecuted. Also, this new regulation moves us toward a recklessness standard similar to that under securities laws as defined by the courts, and the law specifically gives us a reckless standard for false reporting.

Financial Crisis Inquiry Commission

Why do we need to be careful to monitor the markets and especially the new species? Earlier this year, in the U.S., the Financial Crisis Inquiry Commission (FCIC) issued a report. FCIC was established by Congress to examine the economic fiasco that started in ’07 and ‘08. Anyway, the FCIC website asks the question: “How did it come to pass that in 2008 our nation was forced to choose between two stark and painful alternatives—either risk the collapse of our financial system and economy, or commit trillions of taxpayer dollars to rescue major corporations and our financial markets, as millions of Americans still lost their jobs, their savings and their homes?”

That’s a good question. FCIC concluded that the entire mess never had to take place. They concluded that the financial crisis was avoidable. They noted widespread failures in financial regulation, excessive risk-taking on Wall Street, policymakers who were ill-prepared for the crisis, and systemic breaches in accountability and ethics at all levels. The bulk of the blame went to regulators and the captains of Wall Street.

We changed course a little over a decade ago and let the free markets go. Some of it worked out, but there were some major trouble spots. Instead of a great system of checks and balances, we temporarily became a system of just checks. In fact, as a result of lax regulation, the U.S. Government wrote a lot of checks. In fact, hundreds of billions to bail out troubled financial players in an effort to stabilize the economy. However, just because a mess was made, and is still being cleaned up, that doesn’t mean we aren’t on the road to fix the problems.

Financial Reform

We now have the most sweeping set of financial reforms in our history—the Wall Street Reform and Consumer Protection Act. It was necessary if we were ever going to protect ourselves from the kind of financial meltdown that occurred in 2008. We regulators are trying to do the right thing as we write all the new rules associated with the law. Among the various options is how we go about constructing regulations in light of similar reforms taking place the European Union and, for that matter, the rest of the world.

Conclusion: We Can Do Better

I want to leave you with one last thought. I’m optimistic that we can get through all of these different policy options. However, we need to do more than is common for regulators. We need to work cooperatively and try to look around the corner and see what may or may not need to be done.

In regulation, we need to look ahead, scope things out, and do our best to predict the market ramifications of new products, new exchanges, cheetah traders, massive passives and whatever other new trading elements come our way.

The new law goes a long way toward doing many of those things, but it took a market meltdown before government acted, and as we have discussed, there are still folks who may not see the need for reform.

If we can do better, be better public servants, it can help ensure more efficient and effective markets and economies and it will help keep markets devoid of fraud, abuse and manipulation. That’s good for commercial traders, for the cheetahs, for traditional investors, and especially for the consumers who depend on these markets for the price discovery of just about everything they purchase.

Thank you for your attention. Oh, and if you go to the zoo, don’t feed the cheetahs!"

CHARGES BROUGHT IN ALLEGED REVERSE MORTGAGE/LOAN MODIFICATION FRAUD SCHEME

The following is an excerpt from the Department of Justice website:

"Department of Justice
Office of Public Affairs
FOR IMMEDIATE RELEASE Wednesday, July 6, 2011
Coinciding with One-Year Anniversary of “Operation Stolen Dreams,” Three Loan Officers and a Title Agent Charged in $2.5 Million Reverse Mortgage and Loan Modification Scheme
WASHINGTON – The Justice Department announced today the unsealing of a criminal information earlier today, charging four defendants – Louis Gendason, 42, of Delray Beach, Fla.; Kimberly Mackey, 46, of Pittsburgh; John Incandela, 24, and Marcos Echevarria, 29, both of Palm Beach, Fla. – with conspiracy to commit wire fraud involving a nation-wide reverse mortgage scam that defrauded elderly borrowers, financial institutions and the Department of Housing and Urban Development (HUD). A reverse mortgage allows borrowers, who are at least 62 years of age, to convert the equity in their homes into a monthly stream of income, or a line of credit. Three of the defendants made their initial appearances at the federal courthouse in Fort Lauderdale, Fla., earlier today. If convicted, the defendants each face a statutory maximum term of up to 30 years in prison and a fine of up to $1 million. These charges coincide with the one-year anniversary of “Operation Stolen Dreams,” the department’s anti-mortgage fraud enforcement initiative announced by Attorney General Eric Holder last June.

These latest charges demonstrate the department’s continued commitment to the identification and eradication of mortgage fraud. The scheme charged today contains many of the characteristics common to mortgage fraud around the country. The information charges Louis Gendason, John Incandela and Marcos Echevarria with using a Florida-based loan modification business known as Lower My Debts.com L.L.C. as a front to identify elderly borrowers who were financially-vulnerable. They are alleged to have in their capacity as loan officers at 1st Continental Mortgage LLC. solicited borrowers to refinance their existing mortgages with a reverse mortgage loan financed by Genworth Financial Home Equity Access Inc. To induce Genworth and HUD to fund and insure the reverse mortgage loans, the defendants allegedly changed the unwitting borrowers’ real estate appraisal reports to fraudulently represent equity in the properties. The information alleges that Gendason, Incandela and Echevarria originated fraudulent loans on properties located in seven different states between May 2009 and November 2010 exceeding $2.5 million.

As a further part of the charged conspiracy, a fourth defendant, Kimberly Mackey, a licensed title agent and proprietor of the Pittsburgh title agency Real Estate One Land Services Inc., fraudulently closed the Genworth loans by failing to pay off the seniors’ existing liens. Instead, Mackey wired nearly $1 million in Genworth loan proceeds to the business checking account for Lower My Debts.com. She conspired to conceal the fraudulent loan closings from financial institutions by preparing written settlement documents which falsely represented that the borrowers’ existing mortgages had, in fact, been paid off. In some instances, after Mackey wired the loan proceeds to bank accounts in Florida controlled by her co-conspirators, she is alleged to have assisted them with defrauding the banks holding the borrowers’ first mortgages by negotiating fake short sales. This was designed to induce these banks to release their valid liens on the seniors’ properties at a fraction of their existing loan balance. All of the defendants are accused of pocketing the illegally-obtained loan proceeds.

“Protecting Americans from financial fraud is one of our top priorities,” said Tony West, Assistant Attorney General of the Justice Department’s Civil Division. “With these charges, we are taking another important step in the effort we began with Operation Stolen Dreams by holding accountable those whom we believe lined their own pockets with money that should have gone to help vulnerable seniors.”

“These defendants preyed on senior citizens on fixed and modest incomes. While legitimate loan modifications and reverse mortgages are useful tools to help those who need it, we will remain vigilant to make sure these tools are not misused by those who seek to line their own pockets,” said Wifredo Ferrer, U.S. Attorney for the Southern District of Florida. “We urge potential borrowers to use caution when entrusting their homes and savings to those offering financial alternatives, including loan modifications and reverse mortgages.”

This case was investigated by agents from the HUD-Office of Inspector General; the Internal Revenue Service-Criminal Investigation; the U.S. Postal Inspection Service; the FBI Miami Field Office; and the state of Florida’s Office of Financial Regulation. The case was prosecuted by Trial Attorney Kevin J. Larsen from the Civil Division’s Office of Consumer Protection Litigation, along with Assistant U.S. Attorneys Jeffrey H. Kay and Thomas P. Lanigan from the U.S. Attorney’s Office for the Southern District of Florida.

Initiated in June 2010, Operation Stolen Dreams targeted mortgage fraudsters throughout the country and was the largest collective enforcement effort ever brought to bear in confronting mortgage fraud. The operation was organized by the Mortgage Fraud Working Group of President Obama’s interagency Financial Fraud Enforcement Task Force, which was established to lead an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The President’s Financial Fraud Enforcement Task Force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. Operation Stolen Dreams targeted 1,517 criminal defendants nationwide, included 525 arrests, and involved an estimated loss of more than $3 billion.

The operation also resulted in 191 civil enforcement actions and the recovery of more than $196 million. Combating mortgage fraud continues to be a primary focus of the Civil Division. Since the end of Operation Stolen Dreams last June, Civil Division attorneys have continued to vigorously pursue mortgage fraud cases throughout the country, working with our partners in the U.S. Attorneys’ Offices and various federal agencies, specifically including HUD."

11-884

SEC GETS FAVORABLE JURY VERDICT AGAINST COMPANY CFO

July 12, 2011
The following case is an excerpt from the SEC website:

On July 8, 2011, following a February 25, 2011 jury verdict in favor of the Commission and partial summary judgment granted in the Commission’s favor on November 18, 2009, the Honorable William Q. Hayes of the United States District Court for the Southern District of California issued a final judgment permanently enjoining Ran H. Furman, the former CFO of Island Pacific, Inc., and a resident of San Diego, California, from violating the antifraud, books and records, lying to auditors, and certification provisions of the federal securities laws, prohibiting him for seven years from acting as an officer or director of a public company, and assessing a $75,000 civil penalty.
On September 4, 2008, the Securities and Exchange Commission filed a Complaint alleging that
Island Pacific improperly recorded and reported $3.9 million in revenue from a sham transaction that was based on a License Agreement that had been altered by Furman, unbeknownst to the other party to the transaction. In its June 23, 2011 Order granting relief, the Court found, among other things, “the evidence presented at trial and on summary judgment demonstrates that Furman knowingly participated in and facilitated the alteration of the License Agreement, [engaged in] repeated violations of GAAP and the company’s revenue recognition policy, [participated in] the firing of [a whistle-blowing company employee] and [made] repeated misrepresentations to the auditors” which merited imposition of requested relief. The Court further concluded that “Furman played an essential and knowing role in the securities law violations at issue.”
The Court permanently enjoined Furman from future violations of the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, the record-keeping and internal control provisions of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, the false statements to auditors provisions of Exchange Act Rule 13b2-2, and the officer certification provisions of Rule 13a-14 of the Exchange Act, and aiding and abetting violations of the issuer reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. In addition, the Court prohibited Furman from acting as an officer or director of a public company for a period of seven years and assessed a third tier civil penalty of $75,000.
Previously, on October 16, 2008, the Court entered final judgments of permanent injunction and other relief against Island Pacific and former CEOs Barry M. Schechter and Harvey Braun, pursuant to their consents, and on October 24, 2008, the Commission instituted an administrative proceeding against Schechter, pursuant to which he was permanently suspended from appearing or practicing before the Commission as an accountant."

FINAL JUDGEMENT OBTAINED BY SEC AGAINST INSIDER TRADER

The case below is a excerpt from the SEC website:

July 15, 2011
“The SEC announced that the Honorable Jed S. Rakoff, United States District Judge, United States District Court for the Southern District of New York, entered a Final Judgment as to Danielle Chiesi on July 12, 2011, in the SEC’s insider trading case, SEC v. Galleon Management, LP, et al., 09-CV-8811 (SDNY) (JSR). The SEC filed its action on October 16, 2009, against Raj Rajaratnam, Galleon Management, LP, Danielle Chiesi and others, alleging a widespread insider trading scheme involving hedge funds, industry professionals, and corporate insiders.
At the time of the alleged conduct, Chiesi was a consultant and portfolio manager at New Castle Funds LLC, formerly a registered hedge fund investment adviser. The SEC alleged that Chiesi traded on and tipped others to material, nonpublic information she learned from corporate insiders about Akamai Technologies, Inc., Sun Microsystems, Inc., IBM, and Advanced Micro Devices Inc.
The Final Judgment entered against Chiesi: (1) permanently enjoins her from violations of Section 10(b) of the Exchange Act of 1934 (“Exchange Act”) and Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act of 1933 (“Securities Act”); and (2) orders her liable for disgorgement of ill-gotten gains of $500,000, together with prejudgment interest of $40,534.90, for a total of $540,534.90. Chiesi awaits sentencing in a parallel criminal action against her in which she pleaded guilty, United States v. Chiesi, 10 CR 1184 (RJH) (SDNY).
In addition, since the case was filed the SEC has:
entered into a settlement with David Plate, a proprietary trader at broker/dealer Schottenfeld Group, LLC. Pursuant to that settlement, Plate is permanently enjoined from violations of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5; and is liable for disgorgement of $43,876.37, plus prejudgment interest of $9,415.54. The judgment further provides that the Court later will determine issues relating to a civil penalty. Plate has agreed to cooperate with the SEC in connection with this action and related investigations.
entered into a settlement with Gautham Shankar, a proprietary trader at Schottenfeld. Pusuant to that settlement, Shankar is permanently enjoined from violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5; and is liable for disgorgement of $243,105.59, plus prejudgment interest of $34,462.35. The judgment further provides that the Court later will determine issues relating to a civil penalty. Shankar has agreed to cooperate with the SEC in connection with this action and related investigations.
entered into a settlement with Ali Hariri, an Atheros Communications, Inc. executive. Pursuant to that settlement, Hariri is permanently enjoined from violations of Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act; and is permanently barred him from acting as an officer or director of any public company. Hariri also is liable for disgorgement of ill-gotten gains, together with prejudgment interest, for a total of $2,665.68.
entered into a settlement with Robert Moffat, Senior Vice President and Group Executive of IBM’s Systems and Technology Group. Pursuant to that settlement, Moffat is permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, and barred from acting as an officer or director of any public company.
entered into a settlement with Mark Kurland, Chief Executive Officer of New Castle Funds LLC. Pursuant to that settlement, Kurland is permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act. Kurland is also liable for disgorgement of $4,213,630.18, representing profits made and/or losses avoided as a result of the unlawful trading alleged to have occurred at New Castle, together with prejudgment interest thereon in the amount of $204,553.59, for a total of $4,418,183.77.
dismissed its claims against New Castle, which is no longer operating as an investment advisor and has filed Form ADV-W with the Commission, withdrawing its registration as an investment advisor. New Castle has agreed to cooperate with the Commission’s staff and has represented, as a condition of the dismissal of the Commission's action against it, that it will not engage in further operations.
entered into a settlement with Rajiv Goel, a former managing director in the treasury group of Intel Corp., as well as the Director of Strategic Investments at Intel Capital, an Intel subsidiary that makes proprietary equity investments in technology companies. Pursuant to the settlement, Goel is permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act. Goel is also required to pay disgorgement in the amount of $230,570.52, plus prejudgment interest in the amount of $23,447.21, for a total of $254,017.73. The Court will determine at a later date whether any civil penalty is appropriate as to Goel. Finally, Goel is barred from acting as an officer or director of any public company. Goel has agreed to cooperate with the SEC in connection with this action and related investigations.
entered into a settlement with Roomy Khan, an individual investor who had been employed at Intel in the late 1990s and had been subsequently employed at Galleon, pursuant to which Khan is permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act, and is required to pay disgorgement in the amount of $1,552,566.94, plus prejudgment interest in the amount of $304,398.77, for a total of $1,856,965.71. The Court will determine at a later date whether any civil penalty is appropriate as to Khan. Khan has agreed to cooperate with the SEC in connection with this action and related investigations.
entered into a settlement with Anil Kumar, a former director at the global consulting firm McKinsey & Co., pursuant to which Kumar is permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act, and is required to pay disgorgement in the amount of $2.6 million, plus prejudgment interest in the amount of $190,621, for a total of $2,790,621. The Court will determine at a later date whether any civil penalty is appropriate as to Kumar. Kumar has agreed to cooperate with the SEC in connection with this action and related investigations.
entered into a settlement with Schottenfeld Group, LLC, a New York limited liability company and registered broker-dealer, pursuant to which Schottenfeld is permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act, and is required to pay disgorgement in the amount of $460,475.28, plus prejudgment interest in the amount of $72,202.72, and a civil penalty of $230,237.64, representing fifty percent of the disgorgement amount, a discount from a one-time penalty in recognition of its agreement to cooperate. Schottenfeld also agreed to implement enhanced policies and procedures to prevent future securities laws violations, as well as to retain an independent consultant to review its policies and procedures.
entered into settlements with Choo-Beng Lee and Ali T. Far, who were both managing members of Far & Lee LLC, a Delaware limited liability company. In addition, Lee was president and Far a managing member of Spherix Capital LLC, an unregistered hedge fund investment adviser based in San Jose, California. Pursuant to the settlements, Lee and Far are permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act, and are required, jointly and severally, to pay disgorgement in the amount of $1,335,618.17, plus prejudgment interest in the amount of $96,385.52, and a civil penalty of $667,809.09, representing fifty percent of the disgorgement amount, a discount from a one-time penalty in recognition of their cooperation.
dismissed its claims against Far & Lee and Spherix, which are now defunct or nearly so, in exchange for their agreement to cooperate and cease doing business.”

SEC WILL USE INFLATION GUIDE TO DETERMINE WHEN ADVISERS CAN CHARGE CLIENTS PERFORMANCE FEES

The following is an excerpt from the SEC website:

“Washington, D.C., July 12, 2011 – The Securities and Exchange Commission today issued an order that raises, to adjust for inflation, two of the thresholds that determine whether an investment adviser can charge its clients performance fees. The order carries out a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Rule 205-3 under the Investment Advisers Act allows an investment adviser to charge a client performance fees if the client meets certain criteria, including two tests that have dollar amount thresholds. Under today’s order, an investment adviser will be able to charge performance fees if the client has at least $1 million under the management of the adviser, or if the client has a net worth of more than $2 million. Either of these tests must be met at the time of entering into the advisory contract. The previous thresholds were $750,000 and $1.5 million respectively, and were last revised in 1998.
The Dodd-Frank Act requires that the Commission issue an order to adjust for inflation these dollar amount thresholds by July 21, 2011 and every five years thereafter. The Commission published a notice of its intent to issue the order on May 10, 2011. The Commission also proposed amendments to rule 205-3, which are currently under consideration.
The order will be effective on September 19, 2011, which will be approximately 60 days after its publication in the Federal Register.”