PRESIDENT OF TECH COMPANY SENTENCED FOR DEFRAUDING E-RATE PROGRAM

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

“MONDAY, JULY 18, 2011

WASHINGTON — The president and part owner of a Michigan-based Internet and technology services company was sentenced today to serve 15 months in prison for defrauding the federal E-Rate program, the Department of Justice announced.
Jeremy R. Sheets was also sentenced by Judge Paul L. Maloney of U. S. District Court in Kalamazoo, Mich., to pay a $12,000 criminal fine and to pay $115,534 in restitution for engaging in wire fraud in connection with the E-Rate applications of two school districts his company serviced in western Michigan. Sheets was charged with wire fraud on Dec. 9, 2010, and pleaded guilty on Jan. 24, 2011.
As a result of the Antitrust Division's investigation into fraud and anticompetitive conduct in the E-Rate program, a total of seven companies and 24 individuals have pleaded guilty, been convicted at trial or entered civil settlements. Those companies and individuals have been sentenced to pay criminal fines and restitution totaling more than $40 million. Eighteen individuals, including Sheets, have been sentenced to serve prison time.
According to the charge, Sheets violated E-Rate program rules by compensating two school districts for their share of E-Rate expenses. In addition, Sheets utilized E-Rate funds to purchase undisclosed items, some of which were not eligible for E-Rate funding. Sheets concealed his violation of E-Rate program rules from the E-Rate program by fraudulently misrepresenting that the schools had been billed for their E-Rate expenses when, in fact, Sheets had reimbursed the schools for their share of expenses. The department said Sheets engaged in the wire fraud beginning in or about December 2001 and continuing until about December 2007.
The E-Rate program was created by Congress in the Telecommunications Act of 1996 and is administered by the Universal Service Administrative Company, under the auspices of the Federal Communications Commission (FCC). The program provides subsidies to economically disadvantaged schools and libraries. Depending on the financial needs of the applicant schools, the program pays 20 to 90 percent of the cost for Internet access and telecommunications services, as well as internal computer and communications networks.
Today's sentencing resulted from an investigation by the Department of Justice Antitrust Division's Chicago Field Office, with the assistance of the U.S. Attorney's Office in Grand Rapids, the FBI's Grand Rapids Office of its Detroit Division and the FCC's Office of Inspector General. “

ALLEGED PYRAMID SCHEMER TO PAY OVER $1.254 MILLION

The following is an excerpt from the SEC website:

July 15, 2011
The Commission announced that the Honorable John Antoon II, Senior District Judge of the United States District Court for the Middle District of Florida granted the Commission’s Motions to Set Disgorgement and Civil Penalty Amounts as to Defendant Darrel West. The Court ordered West to pay disgorgement of $606,413.31 (representing profits gained as a result of the conduct alleged against him in the Complaint) together with prejudgment interest thereon in the amount of $42,148.81. The Court also ordered West to pay a civil penalty in the amount of $606,413.31 for a total liability of $1,254,975.43. West controlled Defendant Own My Travel, LLC. Previously, the Court entered Judgments of Permanent Injunction against West and Own My Travel. The Judgments, entered by consent, enjoin West and Own My Travel from violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. The Commission voluntarily dismissed with prejudice its previous claims for disgorgement and civil penalties against Own My Travel and disgorgement against Professionally Assisted Marketing, Inc. as both companies are currently defunct.
The Commission filed its complaint on August 14, 2009, against West, Own My Travel and Professionally Assisted Marketing, LLC as a relief defendant. The complaint alleged the defendants misrepresented Own My Travel as a legitimate multi-level marketing company when it was actually a fraudulent pyramid scheme premised on the sale of memberships and thus destined to collapse, leaving investors with substantial losses. The complaint also alleged that West and Own My Travel misled investors about Own My Travel’s business structure and how it generated revenue, the future commissions investors would purportedly receive on a monthly basis, the risks associated with the Own My Travel investment, and West’s failures running a similar predecessor company.”

CFTC CHAIR MAKES REMARKS

The following is an excerpt from the CFTC website:

Remarks Before the Financial Stability Oversight Council
Chairman Gary Gensler
July 18, 2011

Good morning. I thank Secretary Geithner for calling today’s meeting of the Financial Stability Oversight Council (FSOC). I also thank my fellow regulators and FSOC members for their coordination and consultation on the rule-writing process to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Lastly, I want to thank the staffs of all the agencies – and particularly the Treasury staff – for their efforts in coordinating amongst eight agencies.

This week is the one-year anniversary of the Dodd-Frank Act. And on this anniversary, it is important to remember why the President and Congress came together to pass this historic law.

The 2008 financial crisis occurred because the financial system failed the American public. The financial regulatory system failed as well. When large financial firms, such as AIG and Lehman Brothers faltered, we all paid the price.

The Dodd-Frank Act includes critical swaps market reforms to protect the American people. The law brings much-needed transparency to this marketplace and lowers the risk of the swaps market to the overall economy. It lowers the possibility of taxpayers standing behind large financial institutions.

The Dodd-Frank Act also included the establishment of this Council, which is an opportunity for regulators – now and in the future – to ensure that the financial system works better for all Americans.

Though the crisis had many causes, it is clear that the swaps market played a central role. Swaps added leverage to the financial system with more risk being backed by less capital. They contributed, particularly through credit default swaps, to the bubble in the housing market and helped to accelerate the financial crisis. They contributed to a system where large financial institutions were thought to be not only too big to fail, but too interconnected to fail.

At the CFTC, working with our partners at the SEC, we have been working diligently to write rules to implement swaps provisions in the Dodd-Frank Act that will ensure swaps no longer operate in the shadows and financial institutions pose less risk to taxpayers. We have substantially completed the proposal phase of the rule-writing process and have now turned toward final rules. Tomorrow, we are holding the second public commission meeting to consider approving final rules, and in the coming months, we will continue considering final rules. But until the CFTC completes its rule-writing process and implements and enforces these new rules, the public remains unprotected.

Final Rulemaking on Designating Financial Market Utilities as Systemically Important

I support the final rulemaking on the Authority to Designate Financial Market Utilities as Systemically Important. This is a significant rulemaking that will enable the Financial Stability Oversight Council (FSOC) to identify and designate systemically important financial market utilities, including clearinghouses.

Comprehensive and robust regulatory oversight of clearinghouses, in particular their risk management activities, is essential to our country’s financial stability. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, standardized swaps between financial entities must be brought to clearinghouses.

The Commodity Futures Trading Commission (CFTC) has overseen clearinghouses for decades. The Dodd-Frank Act provides for enhanced oversight of these clearinghouses. In close consultation with our fellow domestic and international regulators, including the Federal Reserve Board and the Securities and Exchange Commission, the CFTC proposed rulemakings on risk management for clearinghouses. These rulemakings take into account relevant international standards, particularly those developed by the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions (CPSS-IOSCO).

The Dodd-Frank Act gives both the Council and the Federal Reserve Board important roles in clearinghouse oversight by authorizing the Council to designate certain clearinghouses as systemically important and by permitting the Federal Reserve Board to recommend heightened prudential standards in certain circumstances.

The Council’s final rulemaking complements the CFTC’s rulemaking efforts and enhances the regulation of systemically important financial market utilities, which will mitigate systemic risk and promote financial stability.

Report to Congress on Secured Creditor Haircuts

I will vote to approve the Report to Congress on Secured Creditor Haircuts. The report appropriately addresses the arguments in favor of and against legislation to mandate secured creditor haircuts, and also provides a helpful analysis of the academic literature on this subject.

The report also covers the issues Congress specified, including a comparison of the relevant aspects of resolution under the Bankruptcy Code, Federal Deposit Insurance Act, and Dodd-Frank Title II Orderly Liquidation Authority. And it discusses other means to promote market discipline."

SEC ISSUES BULLETIN ON FOREIGN CURRENCY EXCHANGE TRANSACTIONS

The following bulletin is an excerpt from the SEC website: “Washington, D.C., July 20, 2011 — The Securities and Exchange Commission today issued an investor bulletin highlighting some of the most significant risks that foreign currency exchange (forex) transactions may pose for individual investors. The forex market is a large and generally liquid financial market. Banks, insurance companies, and other financial institutions as well as large corporations use the forex markets to manage the risks associated with fluctuations in currency rates. However, the risk of loss for individual investors who trade forex contracts can be substantial. “Forex trading can be very risky and is not appropriate for all investors,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy. “Individual investors considering forex trading need to fully understand the unique characteristics of this market and consult their financial adviser before making any investment decisions.” Last week, the Commission issued an interim final temporary rule to permit registered broker-dealers to continue to engage in retail forex transactions for up to one year under the existing regulatory framework that applies to them when effecting such transactions. Under Section 742(c) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, retail forex transactions would have been prohibited as of July 16, 2011, in the absence of Commission action. The interim rule provides the Commission with time to collect additional information regarding the retail forex activities of broker-dealers and take such regulatory action as may be appropriate to reduce forex risk for investors purchasing or selling foreign securities.”

TWO FORMER PRUDENTIAL REPRESENTATIVES ORDERED T PAY BACK OVER $1.1 MILLION

Martin J. Druffner Ordered to Pay $1,131,157 in Ill-Gotten Gains and Prejudgment Interest; Skifter Ajro Ordered to Pay $124,427

The following is an excerpt from the SEC website:

The Commission today announced that, on July 13, 2011, a Massachusetts federal court entered an order against Martin J. Druffner of Hopkinton, Massachusetts, and Skifter Ajro of Milford, Massachusetts, two defendants in a civil injunctive action filed by the Commission on November 4, 2003, requiring them to pay $1,131,157 and $124,427, respectively, in disgorgement and prejudgment interest. The court had previously entered judgments against Druffner and Ajro on October 10, 2006 enjoining them from future violations of the federal securities laws. The Commission alleged in its complaint that Druffner and Ajro, former registered representatives of broker-dealer Prudential Securities, Inc., committed fraud in connection with their deceptive market timing trades in dozens of mutual funds.
The Commission filed its complaint against Druffner and Ajro, three other former Prudential Securities registered representatives, and their former branch manager, on November 4, 2003, and amended its complaint on July 14, 2004. The amended complaint alleged that Druffner and Ajro were part of a group of registered representatives that defrauded mutual fund companies and the funds' shareholders by placing thousands of market timing trades worth more than $1 billion for five hedge fund customers from at least January 2001 through September 2003. According to the amended complaint, Druffner and Ajro knew that the mutual fund companies monitored and attempted to restrict excessive trading in their mutual funds. The amended complaint alleged that, to evade those restrictions when placing market timing trades, members of the group disguised their own identities by establishing multiple broker identification numbers and disguised their customers' identities by opening numerous customer accounts for what were, in reality, only a handful of customers.
The order was entered by the Honorable Nathaniel M. Gorton of the United States District Court for the District of Massachusetts.
In addition to the Commission's civil injunctive action, Druffner pled guilty to four counts of securities fraud and four counts of wire fraud on September 15, 2006. He was sentenced to 6 months of home confinement, three years of probation, and a $4,000 fine. He was also barred from associating with any broker, dealer, or investment adviser on March 17, 2006. Similarly, Ajro pled guilty to four counts of securities fraud and four counts of wire fraud on August 9, 2006. He was sentenced to two years of probation and a $2,000 fine. He was also barred from associating with any broker, dealer, or investment adviser on February 2, 2006.”

CFTC COMMISSIONER MICHAEL DUNN'S SPEECH ON DODD-FRANK

The following is an excerpt from the CFTC website:

Opening Statement, Public Meeting on Dodd-Frank Act
Commissioner Michael V. Dunn
July 19, 2011

Thank you all for joining us today for our second meeting to consider final rules promulgated pursuant to the Dodd-Frank Act. Today we consider three final rules:

Part 40, Provisions Common to Registered Entities;
The Process for Review of Swaps for Mandatory Clearing;
Removing any Reference to or Reliance on Credit Ratings in Commission Regulations; Proposing Alternatives to the Use of Credit Ratings
Before even considering any final rule, I ask each rule writing team to answer a set of questions. First and foremost among these questions is whether or not the proposed final rule adheres to the agency’s principle-based regulatory approach, an approach that has served the futures industry well both before and after the financial crisis. I am concerned that the final rule regarding Part 40 is too prescriptive and does not adhere to our principle-based approach. Despite staff’s efforts to soften this rule in response to comments on our original proposal, I still believe that the requirements in the final rule regarding documentation are prescriptive in nature. Additional requirements for the self-certification of products may unnecessarily delay exchange innovation for little to no benefit to the CFTC.

Part 40 also includes rules pertaining to rule certifications for systemically important designated clearing organizations. Like both the CME and OCC, I believe that a SIDCO attempting to implement a risk reducing rule change should not have to wait up to 60 days to change their rules. While I understand that the CFTC must consult with the Federal Reserve regarding certain matters relating to SIDCOs, such consultation should not jeopardize the public interest. This portion of Part 40 seems to not only slow down a SIDCO seeking to reduce systemic risk, but it may slow down our ability to approve such a change as well.

From early in the proposed rule phase of Dodd-Frank implementation, I have stated my concern that budget constraints and the efforts of those who would delay, weaken, or eliminate Dodd-Frank would force us to be more prescriptive than we would otherwise be in promulgating our final rules. I fear that my concerns have come to fruition in this rule. If not for our budget constraints, I would vote against this rule. As it stands, I must weigh my disdain for prescriptive, perhaps restrictive, rules against the competing interest of having a rule that we can implement and enforce with an undersized and overworked staff.

I also expressed concerns and questions to the Chairman’s office and the rule team regarding the final rule on the process for review of swaps for mandatory clearing. As has been the case throughout this process, the Chairman’s office and the rule team were accommodating in answering my questions, making necessary changes, and working collaboratively with my office. I continue to give the Chairman high marks for conducting an open and transparent rulemaking process.

In addition to the final rules considered today, we are also considering a proposed rule on Customer Clearing Documentation, Timing of Acceptance for Clearing and Clearing Member Risk Management. While I again have concerns that this proposed rule is too prescriptive, I will look to the public comments to guide my ultimate decision on whether or not to vote for this rule.

I would like to acknowledge that this week will mark the first anniversary of the Dodd-Frank Act. Over the past year, the Chairman and his staff have done a tremendous job moving forward on implementation of Dodd-Frank despite limited resources. As we move forward in the coming months on the bulk of the new regulations required by Dodd-Frank, I urge the Chairman to place special emphasis on rules pertaining to the regulation of swaps transactions, which were, in my opinion, largely responsible for the financial meltdown. With all of the Commission’s new responsibilities under Dodd-Frank, this is not the time for us to make significant changes to regulations pertaining to the futures industry which functioned properly during the financial crisis. We need to focus our limited resources on regulations that will provide real safeguards to our financial service industry.

I would like to thank the staff at the CFTC for all their hard work on these very important rules. The rule writing teams have put in incredibly long hours answering difficult and time consuming questions from the Commissioners’ offices. I appreciate their effort and look forward to their presentations."