SEC ACCUSES TWO FLORIDA MEN OF OPERATING A PONZI SCHEME

There have been so many Ponzi schemes uncovered lately by the SEC and others it just seems very difficult to imagine that investors ae still not investigating potential investments that are purport to be able to generate huge profits. The case below alleges yet another Ponzi scheme. The following excerpt is from the Sec Website: "Washington, D.C., Aug. 29, 2011 – The Securities and Exchange Commission today charged two Florida men with operating a Ponzi scheme disguised as a purported private equity fund that fraudulently raised approximately $22 million from more than 100 investors, many of whom were Florida teachers or retirees. According to the SEC’s complaint filed in U.S. District Court for the Middle District of Florida, James Davis Risher of Sanibel was responsible for handling the fund’s trading operations, and Daniel Joseph Sebastian of Lakeland distributed offering materials and solicited investors for the fund. Risher boasted to investors that he had substantial experience in trading equities and providing wealth and asset management services. In reality, Risher had no such experience but rather a lengthy criminal history, spending 11 of the last 21 years in jail instead of growing a thriving retail brokerage business as he claimed. The SEC alleges that Risher and Sebastian falsely told investors that the fund earned annual returns ranging from 14 percent to 124 percent by investing in public equity securities through a broker-dealer. They sent investors fabricated account statements indicating such high returns to support their false claims. Only a fraction of the money raised was actually invested, and Risher instead misspent investor funds on such personal purchases as jewelry, gifts, and property in North Carolina and Florida. Risher and Sebastian also paid themselves millions of dollars in phony management and performance fees. “Risher, who masqueraded as a highly successful equity trader, teamed up with Sebastian to tout sophisticated trading strategies they claimed would generate substantial profits for investors. Instead, Risher and Sebastian used investors’ life savings and retirement nest eggs to line their own pockets,” said Eric Bustillo, Director of the SEC’s Miami Regional Office. According to the SEC’s complaint, Risher and Sebastian marketed the fund under the names Safe Harbor Private Equity Fund, Managed Capital Fund, and Preservation of Principal Fund. They described themselves in fund offering documents as “two unique individuals” who used their expertise to “create an investment vehicle that would allow investors to capitalize from both bull and bear markets.” The SEC alleges that Sebastian often solicited his former customers at his prior job as an insurance broker. He primarily pitched the investment opportunity to educators, retirees, and members of several churches in Florida, but also solicited investors in California, other states, and Canada. Sebastian persuaded former customers to roll over money in their insurance and annuity products into the fund. He told them the fund would provide a higher rate of return than they could receive from the products he had previously sold them. At least one investor liquidated an annuity she had purchased from Sebastian and invested the proceeds in the fund. The SEC alleges that Risher and Sebastian made a number of material false statements and omissions to investors about Risher’s criminal history, the fund’s investment strategy, the fund’s investment returns, the safety of investors’ principal, and the existence of audited financial statements. Risher misrepresented that the fund was registered in Bermuda, and he and Sebastian falsely claimed that the fund was audited annually by a Bermudan auditor. Sebastian verbally told investors during telephone calls and meetings that they would never lose their principal investments in the fund. He even provided some investors with written guarantees from a company he owned that would reimburse any loss. In reality, Sebastian knew that the company had no assets to reimburse investors for losses, making his guarantee meaningless. The SEC charged Risher and Sebastian with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC further charged Risher with violating Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, and Sebastian with aiding and abetting Risher’s violations of Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. The SEC seeks permanent injunctions, disgorgement, and financial penalties against Risher and Sebastian. The U.S. Attorney’s Office for the Middle District of Florida, which conducted a parallel investigation of this matter, has filed criminal charges against Risher. The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Middle District of Florida, Federal Bureau of Investigation, Internal Revenue Service, U.S. Postal Inspector Service, Florida Department of Law Enforcement, and Florida Office of Financial Regulation.”

COMMODITY POOL OPERATOR SETTLES CHARGES WITH CFTC

The following excerpt is from the CFTC website: Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today issued an order filing and simultaneously settling charges against Dearborn Trading, Inc. (Dearborn), a commodity pool operator (CPO), and Joel Bronstein (Bronstein), Dearborn’s owner and principal, for failing to file a closing Annual Report (liquidation statement) for Dearborn Trading Fund, LLC, a commodity pool operated by Dearborn. The CFTC order requires Dearborn to pay a $180,000 civil monetary penalty and file the pool’s liquidation statement within 30 days of the entry of the order. The CFTC order finds that from about January 2009 until approximately June 2009, Dearborn was operating the pool when it ceased trading on or about June 30, 2009. Dearborn failed to file the pool’s closing Annual Report (liquidation statement) within 90 calendar days after the pool ceased trading, in violation of CFTC regulation 4.22(c), 17 C.F.R. § 4.22(c) (2009). The CFTC thanks the National Futures Association for its assistance."

CFTC CHAIRMAN GENSLER ADRESSES CONFERENCE ON COMMODITY MARKETS

The following is an excerpt from the Commodity Futures Trading Commission website: Opening Remarks, Conference on Commodity Markets Chairman Gary Gensler August 25, 2011 Good morning and welcome to the Commodity Futures Trading Commission (CFTC). It’s great to see economists from so many fine universities across the globe gathered here along with an impressive group of government experts. Thank you for graciously sharing your time to discuss the issues affecting commodity markets. Your insights should be helpful to our surveillance and enforcement efforts at this agency. I want to thank Andrei Kirilenko and the Office of the Chief Economist for putting this conference together and for their contributions to this agency. Before you get started, I’m going to give you an update about where we stand today with the CFTC’s response to the aftermath of the 2008 financial crisis. 2008 Crisis Three years ago, our country’s largest financial institutions were trading swaps in the shadows and this marketplace contributed to and helped accelerate the financial system’s downward spiral. Though the crisis had many causes, it is clear that the swaps market played a central role. Swaps added leverage to the financial system – more risk was backed by less capital. There was a belief that certain financial institutions were not only too big to fail but too interconnected to fail. But when AIG, Lehman and others collapsed, it was the taxpayers who had to pick up the bill to prevent the economy from diving further into a depression. And it wasn’t just the financial system that failed. The regulatory system that was put in place to protect the public failed too. The Dodd-Frank Act Congress and the President came together and responded to this crisis by passing a historic law, the Dodd-Frank Wall Street Reform and Consumer Protection Act. The law includes many important provisions, but two overarching goals of reform include: bringing transparency to the swaps market and lowering the risks of this market to the overall economy. Both of these reforms protect taxpayers from again bearing the brunt of a crisis and lower costs for businesses and their customers. Promoting Transparency The first overarching goal of reform will resonate well with the economists in this room. The law brings critical transparency to the derivatives marketplace. As you know, the more transparent a marketplace is, the more liquid it is, the more competitive it is and the lower the costs for hedgers, borrowers and their customers. In short, when markets are open and transparent, they are safer and sounder and, again, costs will be lower for companies and the people who buy their products. The Dodd-Frank Act promotes both pre-trade and post-trade transparency. It moves certain standardized swaps transactions to exchanges or swap-execution facilities. This will allow buyers and sellers to meet in an open marketplace where prices are publicly available. It also requires real-time reporting of the price and volume of transactions, which ensures that everyone has this information. By minimizing what economists call “information asymmetry,” we reduce the advantages that Wall Street has over Main Street. Lowering Risk The second overarching goal of reform is equally as important. The law lowers risk to the overall economy by directly regulating dealers for their swaps activities and moving standardized swaps into central clearing, which will reduce interconnectedness in the swaps markets. Clearinghouses, which guarantee the obligations of both parties, have lowered risk for the public in the futures markets since the late-19th Century, and it’s time that we modernize the swaps market and provide the same protections for taxpayers. Turning the Corner This summer, we turned an important corner at the CFTC. We have now completed 11 final Dodd-Frank rules, and we have a robust schedule this fall to consider more final rules. We substantially completed the proposal phase this past spring. Starting next month, we are likely to take up rules relating to position limits, clearinghouse core principles, business conduct and entity definitions, trading, data reporting and the end-user exemption. It is important to point out that each of our final rules includes a careful consideration of costs and benefits completed with the involvement of the CFTC’s Office of the Chief Economist. We’ve also reached out broadly on what we call “phasing of implementation,” which is the timeline that our rules will take effect for various market participants. This is critically important so that market participants can take the time now to plan for new oversight of this industry. Next month, it is my hope that we vote on two proposed rulemakings seeking additional public comment on the implementation phasing of swap transaction compliance that would affect the broad array of market participants. The proposed rulemakings would provide the public an opportunity to comment on compliance schedules applying to core areas of Dodd-Frank reform, including the swap clearing and trading mandates, and the internal business conduct documentation requirements and margin rules for uncleared swaps. These proposed rules are designed to smooth the transition from an unregulated market structure to a safer market structure. When all of our Dodd-Frank rules are completed, I believe that it is appropriate that the Commission take a step back at the appropriate time in the future and carefully evaluate the new regulatory landscape as a whole – and how it is actually working. This is another example of our efforts to thoughtfully implement the reforms in the Dodd-Frank Act. Conclusion A year after the Dodd-Frank Act became law, there are those who would like to roll back its provisions and even return to the environment that led to the 2008 crisis. But as you know, economists have agreed for decades that transparency actually reduces costs. This law and our corresponding rules are about transparency. In addition, until we complete our reforms, the public remains at risk. That’s why the CFTC is working so hard to think through the Dodd-Frank law’s swap-market reforms and implement them in a way that promotes more open and transparent markets, lowers costs for companies and their customers, and protects taxpayers."

THREE PLEAD GUILTY TO BID RIGGING MUNICIPAL TAX LIEN AUCTIONS

The following is from the Department of Justice website: Wednesday, August 24, 2011 Three New Jersey Investors Plead Guilty to Bid Rigging at Municipal Tax Lien Auctions WASHINGTON – Three financial investors who purchased municipal tax liens at auctions in New Jersey pleaded guilty today for their roles in a conspiracy to rig bids at tax liens auctions held by municipalities, the Department of Justice announced. Charges were filed today in U.S. District Court for the District of New Jersey in Newark, N.J., against Isadore H. May of Margate, N.J.; Richard J. Pisciotta Jr. of Long Beach Township, N.J.; and William A. Collins of Medford, N.J. According to the felony charges, from at least 2003 through approximately February 2009, the investors participated in a conspiracy to rig bids at auctions for the sale of municipal tax liens in New Jersey by agreeing to allocate among certain bidders which liens each would bid on. The investors proceeded to submit bids in accordance with their agreements and purchased tax liens at collusive and non-competitive interest rates. “The collusion taking place at these auctions is artificially raising the interest rates that financially distressed home and property owners must pay, and is lining the pockets of the colluding investors,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “The Antitrust Division will vigorously pursue these kinds of collusive schemes that eliminate competition from the marketplace.” The department said that the primary purpose of the conspiracy was to suppress and restrain competition to obtain selected municipal tax liens offered at public auctions at non-competitive interest rates. When the owner of real property fails to pay taxes on that property, the municipality in which the property is located may attach a lien for the amount of the unpaid taxes. If the taxes remain unpaid after a waiting period, the lien may be sold at auction. State law requires that investors bid on the interest rate delinquent homeowners will pay upon redemption. By law, the bid opens at 18 percent interest and, through a competitive bidding process, can be driven down to zero percent. If a lien remains unpaid after a certain period of time, the investor who purchased the lien may begin foreclosure proceedings against the property to which the lien is attached. According to the court documents, May, Pisciotta and Collins conspired with others not to bid against one another at municipal tax lien auctions in New Jersey. Because the conspiracy permitted the conspirators to purchase tax liens with limited competition, each conspirator was able to obtain liens which earned a higher interest rate. Property owners were therefore made to pay higher interest on their tax debts than they would have paid had their liens been purchased in open and honest competition. Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for a Sherman Act violation may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than the $1 million statutory maximum.”

DEFENDANT AND MANAGED COMPANIES CHARGED IN COMMODITY FUTURES AND FOREX SCHEME

The following excerpt is from the CFTC website: “Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that on August 18, 2011 a federal court in California entered an order freezing the assets of defendants Douglas Elsworth Wilson of Poway, Calif., and three California companies that he controls and manages, Elsworth Berg Capital Management LLC (EBCM), Elsworth Berg Inc., and Elsworth Berg FX LLC (collectively, Elsworth Berg). The order also prohibits the destruction of their books and records. The order arises out of a CFTC civil complaint filed on July 27, 2011 in the U.S. District Court for the Southern District of California. The complaint alleges that the defendants solicited at least $4.4 million from over 60 customers to trade commodity futures contracts and foreign currency (forex). The defendants allegedly misappropriated customer funds, committed solicitation fraud, and issued false statements in the commodity futures and forex scheme. In connection with their fraud, defendants allegedly misrepresented to customers and prospective customers that regardless of Elsworth Berg’s commodity futures or forex trading results, the return of customers’ investment principal was guaranteed at the end of a five-year period through use of a purportedly innovative “Collateral Reserve” structure, which owned life insurance policies on third-parties. Wilson and EBCM also allegedly issued false statements to some customers that overstated the value of their investments. Wilson and EBCM misappropriated approximately $72,000 in customer funds and used the money for purposes other than trading, according to the complaint. In its continuing litigation against the defendants, the CFTC seeks restitution to defrauded customers, civil monetary penalties, permanent trading and registration bans, and permanent injunctions against further violations of federal commodities law."

CFTC: INDICATIONS OF FRAUD

The following excerpt is from the CFTC website. The article involves watching out for the signs of fraud: "Watch Out For These Warning Signs of Fraud Get-rich-quick schemes that sound too good to be true. There’s never a free lunch. Be very careful if you recently retired or came into money and you’re looking for a safe investment. You could be a very attractive target for a crook. Once your money is gone, it can be impossible to get it back. Predictions or guarantees of large profits. Always get as much information as you can about a firm or individual’s track record and verify that information—even if you know the people involved or they are recommended by friends or relatives. If you can’t get solid information about your investment and the company, don’t invest. Before you invest, always check it out with someone whose financial advice you can trust. Promises of little or no financial risk. Be suspicious if the firm or individual says there is little risk. Be suspicious if someone tells you that a written risk disclosure statement is only a routine formality. Written risk disclosure statements are important to read thoroughly and understand. Claims of trading in the “Interbank Market.” If a firm claims that they will trade foreign currency for you in the interbank market, or that you should trade in the interbank market, be cautious. The term “interbank market” refers to a loose network of currency transactions negotiated between financial institutions, usually banks and investment banks, and other large companies. Unsolicited telephone calls about investing. Be skeptical if someone you don’t know calls you about investment opportunities. Someone asking you to send cash immediately. Be very cautious if someone tries to convince you to send cash or transfer money to them immediately by overnight express, the Internet, mail, or any other method."