SEC ANNOUNCED DISTRIBUTION IN WG TRADING FRAUD CASE

The following excerpt comes from the SEC web site:

“SEC Announces Initial Distribution of $792 Million to Injured Investors in WG Trading Investment Fraud
On April 21, 2011, the court-appointed Receiver in the Commission’s case against defendants Paul Greenwood, Steven Walsh and their affiliated WG Trading entities made an initial distribution of approximately $792 million to investors injured in the investment fraud orchestrated by Walsh and Greenwood. On March 20, 2011, Judge George B. Daniels of the United States District Court for the Southern District of New York approved a pro rata net investment distribution plan proposed by the Receiver and recommended by the SEC and the Commodity Futures Trading Commission (CFTC). Today’s distribution marks the first distribution by the Receiver and constitutes a return to investors of nearly 85% of approved claims.
On February 25, 2009, the SEC and CFTC obtained emergency relief against Walsh, Greenwood and their WG Trading affiliated entities in SEC v. WG Trading Investors, L.P., et al., Civ. No. 09-1750 (GBD)(SDNY) and CFTC v. Walsh, et al., Civ. No. 09-1749 (GBD)(SDNY). The SEC has since obtained an order of permanent injunction against Greenwood, who also pleaded guilty to criminal violations in a criminal action based on the same underlying conduct. Criminal and civil cases against Walsh continue.
The Receiver responsible for the distribution is Robb Evans & Associates, LLC, of Sun Valley, California.”

STOCK PROMOTER CHARGED WITH WIRE FRAUD

The following is an excerpt from the SEC website:

"July 11, 2011
Securities and Exchange Commission v. Presto Telecommunications, Inc. and Alfred Louis Vassallo, Jr., United States District Court, Southern District of California, Case No. 04CV00162IEG (filed Jan. 24, 2004).
TELECOMMUNICATIONS STOCK PROMOTER ALFRED LOUIS “BOBBY” VASSALLO, JR. INDICTED FOR WIRE FRAUD
The Securities and Exchange Commission announced today that, at the request of the United States Attorney’s Office for the Central District of California, a federal grand jury in Santa Ana, California, returned an indictment against Alfred Louis “Bobby” Vassallo, Jr. on July 6, 2011 charging him with three felony counts of wire fraud. Vassallo, age 61, is a resident of La Jolla, California.

The indictment charges Vassallo with making false representations to an investor in connection with an investment in a wireless communication venture including failing to disclose that he had been sued by the Commission and that a permanent injunction and monetary judgment had been entered against him in the Commission’s action. United States of America v. Alfred Louis Vassallo, Jr. aka “Bobby Vassallo,” U. S. District Court, Central District of California, case no. 8:11-CR-00150 (filed July 6, 2011).

The Commission filed a civil complaint against Vassallo and his former company, Presto Telecommunications, Inc., in the U. S. District Court, Southern District of California, on January 27, 2004 that charged Vassallo with violating the securities registration and antifraud provisions of the federal securities laws for his role in perpetrating a fraudulent scheme through Presto, which raised approximately $26 million from more than 500 investors. The Court entered a Final Judgment of Permanent Injunction and Other Relief against Vassallo on August 24, 2005 that permanently enjoined him from violating the securities registration and antifraud provisions and ordered him to pay a total of $2,009,082 in disgorgement plus prejudgment interest, civil penalties, and the costs and expenses of the permanent receiver for Presto.

The Commission filed an application for an order to show cause re civil contempt against Vassallo on September 21, 2010 which alleged that Vassallo violated the Final Judgment by offering and selling unregistered securities of wireless ventures and telecommunications companies, by committing fraud in connection with the offer and sale of those securities, and by failing to pay any of the monetary relief he was ordered to pay. The Court issued an order to show cause on September 24, 2010 why Vassallo should not be held in civil contempt of the Final Judgment. The Court issued an order on October 26, 2011 referring Vassallo’s alleged violations of the permanent injunction to the United States Attorney for the Southern District of California for prosecution for criminal contempt. The Court subsequently stayed the civil contempt proceeding. "

FLORIDA BANK CLOSED BY REGULATORS

The following is an excerpt from an e-mail sent out as a press release by the FDIC:

July 15, 2011
"First Peoples Bank, Port Saint Lucie, Florida, was closed today by the Florida Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Premier American Bank, National Association, Miami, Florida, to assume all of the deposits of First Peoples Bank.

The six branches of First Peoples Bank will reopen during their normal business hours beginning Saturday as branches of Premier American Bank. Depositors of First Peoples Bank will automatically become depositors of Premier American Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits. Customers of First Peoples Bank should continue to use their existing branch until they receive notice from Premier American Bank that it has completed systems changes to allow other Premier American Bank branches to process their accounts as well.

This evening and over the weekend, depositors of First Peoples Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of March 31, 2011, First Peoples Bank had approximately $228.3 million in total assets and $209.7 million in total deposits. In addition to assuming all of the deposits of the failed bank, Premier American Bank agreed to purchase essentially all of the assets.

Customers with questions about today's transaction should call the FDIC toll-free at 1-800-895-3212. The phone number will be operational this evening until 9:00 p.m., Eastern Daylight Time (EDT); on Saturday from 9:00 a.m. to 6:00 p.m., EDT; on Sunday from noon to 6:00 p.m., EDT; and thereafter from 8:00 a.m. to 8:00 p.m., EDT. Interested parties also can visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/firstpeoples.html.

As part of this transaction, the FDIC will acquire a value appreciation instrument. This instrument serves as additional consideration for the transaction.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $7.4 million. Compared to other alternatives, Premier American Bank's acquisition was the least costly resolution for the FDIC's DIF. First Peoples Bank is the 54th FDIC-insured institution to fail in the nation this year, and the seventh in Florida. The last FDIC-insured institution closed in the state was First Commerce Bank of Tampa Bay, Tampa, on June 17, 2011."

CFTC COMMISIONER SPEAKS

"Opening Statement: First Open Meeting to Consider Final Rules Pursuant to the Dodd-Frank Act
Commissioner Jill E. Sommers
Thursday July 7, 2011

Good Morning. Thank you Mr. Chairman and thank you to the five teams who have final rules before us today. Over the past year you have all been under an incredible amount of pressure to complete drafts by certain deadlines. We are all aware that you have worked late nights and weekends to meet those deadlines and we are very grateful to all of you for your dedication to your work and to this agency. Obviously we could not do this without you.

We are starting the process of finalizing rules today with a group of rules that do not relate to the structural and broader issues of trading and clearing swap transactions. Nonetheless, we are beginning without a plan. There have been no Commission decisions regarding the internal process or the implementation schedule for this very important and complicated task we have in front of us to finalize the rules and regulations required by the Dodd Frank Act. We have been discussing the appropriate sequencing of final rules as well as an implementation plan for many months and at this point I am still hopeful that the Commission will move forward to adopt a reasonable phased-in approach supported by market participants. A tentative calendar for consideration of final rules has been provided to Commissioners. That schedule would require the Commission to vote on no less than 17 rules during July and August, 20 rules in September and October, and nine rules in November and December. While a few of these rules will be relatively straightforward and noncontroversial, the vast majority are based on extremely complex proposals for which staff has yet to even complete a comment summary. If we stick to such a schedule, I foresee a process that haphazardly requires votes to be taken when the Commission has not had time to sufficiently consider all of the implications of the final rules. This schedule would also make it very difficult to coordinate with fellow regulators domestically or internationally.

As I have said on a number of occasions, while we were proposing rules last fall there was room for error. When we finalize rules this fall, we do not have that luxury. I reiterate, yet again, that we should adopt a plan that starts with finalizing the entity and product definitions, and builds from there, driven by a logical progression rather than an arbitrary deadline.

I believe another issue that we as a Commission need to address is the consideration of material changes to our proposed rules. I am comfortable admitting that we probably did not get everything right in our proposals. That is why the notice and comment period required by the Administrative Procedures Act is so critical to the rulemaking process. Through that process we have received many excellent and very helpful comment letters that go a long way toward helping us get it right. It is apparent to us that market participants, trade associations and law firms have spent many long hours developing detailed comments and alternative solutions to our proposals. In my view, if we truly consider and take into account the merits of these excellent comment letters, we will have no choice but to re-propose a number of the rules from last fall. And I believe it is important for us to do just that. We need to plan for this inevitability and start discussing internally which rules need to be re-proposed. I have no indication that we are doing that yet, and it concerns me. Our goal should be to promulgate the best final rule possible, without regard to whether that requires us to re-propose. Our objective should never be to reject valid comments in order to avoid re-proposing a rule.

I support all of the rules we are voting on today, but I have lingering concerns and questions about the anti-manipulation rules. Prior to the enactment of Dodd-Frank, the Commission had broad anti-fraud, false reporting, and anti-manipulation authority. Section 753 expands that authority by amending CEA Section 6(c) to, among other things; include the concept of a fraud-based manipulation. This fraud-based manipulation has a lower scienter standard than manipulation under Section 9(a)(2), and does not require an artificial price or an effect on prices to be proven. This aspect of Section 753’s amendments to Section 6(c) is clear.

Where the amendments to Section 6(c) are not clear, and where the final rules shed no additional light, is when we will prosecute false reporting under Section 9(a)(2), as opposed to the new “manipulation by false reporting” prohibition under new Section 6(c)(1)(A) and Regulation 180.1(a)(4), or what set of circumstances will give rise to a charge under the existing manipulation prohibition under Section 9(a)(2), as opposed to the new manipulation prohibition under new Section 6(c)(3) and Regulation 180.2.

In the end, we are left with Section 753 as it is written. The final rules are true to the language of Section 753. For that reason, I support them. However, as the Commission begins to exercise this new authority, I want to make sure that they are applied in a reasonable manner that seeks to address activity that affects or threatens the integrity of our markets and does not result in unfair surprise to market participants. Using this new authority in areas with little to no connection to our markets would not be a good use of our resources.

Thank you again to all the teams. I look forward to the discussion of these rules."

PRIVATE EQUITY ASSOCIATE ALLEGEDLY USED EMPLOYERS PRIVATE INFORMATION TO MAKE TRADES

July 15, 2011
The following is an excerpt from the SEC website:

“The Securities and Exchange Commission today announced that The Honorable Susan Illston of the United States District Court for the Northern District of California on July 14, 2011 ordered former TPG Capital, L.P. (“TPG”) private equity associate Vinayak S. Gowrish to pay in excess of $112,000, consisting of $12,000 in disgorgement (with interest to be calculated thereon) and a $100,000 civil penalty, for his role in a serial insider trading ring. Judge Illston also issued a permanent injunction against Gowrish enjoining him from future violations of the antifraud provisions of the federal securities laws (Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder). A federal jury on February 3, 2011 found Gowrish liable for illegally tipping material, nonpublic information that TPG was in negotiations to acquire three separate publicly traded companies: Sabre Holdings Corp. (“Sabre”), TXU Corp. (“TXU”), and Alliance Data Systems Corp. (“ADS”).
The Commission’s complaint alleged – and the jury found – that Gowrish, a former associate at multi-billion dollar private equity firm TPG, misappropriated material nonpublic information from his employer in connection with TPG’s negotiations to acquire Sabre, TXU, and ADS. Gowrish tipped the confidential acquisition information to his long-time friend, Adnan Zaman, a former investment banker at Lazard Frères & Co. LLC. Zaman, in turn, tipped the information to their two friends, Pascal S. Vaghar and Sameer N. Khoury. On the basis of the information provided by Gowrish through Zaman, Vaghar and Khoury then traded Sabre, TXU, and ADS securities, realizing approximately $375,000 in illicit profits. The Commission’s complaint alleged that, in exchange for the confidential information, Vaghar provided cash kickbacks to both Gowrish and Zaman. The jury found that Gowrish violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
Zaman, Vaghar, and Khoury previously consented to the entry of final judgments permanently enjoining them from violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Zaman and Vaghar were also enjoined from violations of Section 14(e) of the Exchange Act and Rule 14e-3 thereunder. Zaman is currently serving a 26-month federal prison sentence for his role in the scheme.”

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."