SEC OBTAINS COURT ORDER TO HALT ALLEGED INVESTMENT SCHEME IN THE LIFE SETTLEMENT BUSINESS

The following excerpt is from the SEC website; “Washington, D.C., Sept. 2, 2011 – The Securities and Exchange Commission today announced that it has obtained an emergency court order to halt an alleged $4.5 million investment scheme by a Los Angeles-based company that purports to broker life settlements. The SEC alleges that Daniel C.S. Powell and his company Christian Stanley Inc. have spent the past seven years creating the illusion that it was a legitimate company involved in the life settlement industry. Contrary to what investors were told, Christian Stanley has never purchased or generated any revenue as a result of brokering the sale of a single life settlement, and has barely derived any revenue from any of its purported business ventures. Instead, Powell has simply used the Christian Stanley name as a vehicle to raise at least $4.5 million in an unregistered offering of debenture notes, and spent most of the money for purposes unrelated to its ostensible business operations. Powell misused investor funds to finance his stays at luxury hotels, visits to nightclubs and restaurants, and purchases of high-end vehicles. The Honorable George H. King for the U.S. District Court for the Central District of California yesterday granted the SEC’s request for a temporary restraining order and asset freeze against Powell and his companies. The court appointed Robb Evans & Associates LLC as temporary receiver over the entities. “Powell and Christian Stanley created the façade of an actual business when in reality they have virtually no revenue,” said Rosalind Tyson, Director of the SEC’s Los Angeles Office. “Most of the money raised from investors has been used to finance Powell’s extravagant lifestyle and for other purposes that have not been disclosed to investors.” A life settlement is a transaction in which an individual with a life insurance policy sells that policy to another person, who then assumes responsibility for paying the premiums. Typically, the seller no longer wants the policy or can no longer afford to pay the premiums. In exchange, the insured party typically receives a lump sum payment that exceeds the policy’s cash surrender value, but is less than the expected payout in the event of death. According to the SEC’s complaint, Powell raised funds from at least 50 investors nationwide in the fraudulent debenture offering, promising investors fixed interest returns ranging from 5 to 15.5 percent annually for five-year terms. Powell claimed the notes were backed by assets such as a gold mine in Nevada and a coal mine in Kentucky that he said held coal deposits valued at $11.8 billion. The SEC alleges that instead of using investor money to purchase life settlements or develop the coal and gold mines, Powell and Christian Stanley instead used investors’ money for such unrelated purposes as sales commissions and Ponzi-like payments to existing note holders. Among Powell’s other personal expenditures with investor funds were $21,000 toward his school loans, more than $5,000 for cowboy boots, and nearly $5,000 to register for a dating service. The SEC’s investigation was conducted by Lucee Kirka, Peter Del Greco, and Marc Blau and the litigation will be led by Spencer Bendell of the Los Angeles Regional Office. Judge King has scheduled a court hearing for Sept. 15, 2011, on the SEC’s motion for a preliminary injunction.”

SEC ALLEGES EXECUTIVES COOKED THE BOOKS TO INFLATE FINANCIAL RESULTS

The following is an excerpt from the SEC website: “On August 30, 2011, the U.S. Securities and Exchange Commission filed charges in connection with a financial fraud perpetrated by senior management and members of the Board of Directors of Syntax-Brillian Corporation, a developer and distributor of high-definition LCD (liquid crystal display) televisions under the Olevia brand name. The SEC's Complaint alleges that the scheme was orchestrated by James Li, a Syntax Director who at times was also its President, Chief Operating Officer and Chief Executive Officer, and Thomas Chow, a Syntax Director and its Chief Procurement Officer. According to the SEC's Complaint, from at least June 2006 through April 2008, Li and Chow engaged in a complex scheme to overstate Syntax's financial results by publicly reporting significant sales of LCD televisions in China, when in fact the vast majority of these sales never occurred. Li and Chow initially concealed the scheme through the use of fake shipping and sales documents. As the scheme progressed, Li and Chow developed a circular cash flow scheme involving Syntax's primary manufacturer, Taiwan Kolin Co., Ltd., and its purported customer in Hong Kong, South China House of Technology Consultants Co. Ltd. (SCHOT). Kolin's Chairman of the Board, Christopher Liu, and Kolin's executive and board member, Roger Kao, assisted in the scheme, which created the façade of substantial revenues from Syntax's purported sales in China. Under the guise of paying various invoices, Li and Chow funneled millions of dollars from Syntax to Kolin. Liu and Kao then authorized the transmittal of these funds to SCHOT, which then transferred the funds back to Syntax. Syntax recorded these cash transfers as payments for the previously recorded fictitious sales. The SEC alleges that Wayne Pratt, Syntax's Chief Financial Officer, ignored red flags of improper revenue recognition and participated in preparing backdated documentation that was provided to Syntax's auditors to support fictitious fiscal 2006 year-end sales. Pratt also ignored indications of impaired assets, agency sales, and potential collectability issues. The SEC's Complaint alleges that between June 30, 2006, and September 30, 2007, Li, Chow, Liu, and Pratt signed various filings with the SEC containing material misstatements. In addition, Li, Chow, and Pratt signed management representation letters for Syntax's auditors that contained material misstatements regarding, among other things, sales to SCHOT, purchases from Kolin, and the relationships between Syntax, SCHOT, and Kolin. Li and Chow also engaged in insider trading. The SEC's Complaint charges Chow with violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2, and that he aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13. In connection with its civil action against Chow, the SEC is seeking a permanent injunction, disgorgement with prejudgment interest, a civil penalty up to a maximum of three times trading profits pursuant to Section 21A(a)(2) of the Exchange Act, a civil penalty pursuant to Section 20(d) of the Securities Act and Section 21(d)(3)(A) of the Exchange Act, and a bar against service as an officer or director of a public company ("officer and director bar"). Without admitting or denying the allegations in the SEC's Complaint or the Commission's findings, all of the other defendants have reached settlements with the SEC, as described below. Li consented to the entry of a final judgment permanently enjoining him from violating Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 13a-14, 13b2-1 and 13b2-2, and aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13, imposing a permanent officer and director bar against him, and providing that, upon motion of the Commission, the court shall order disgorgement of ill-gotten gains, prejudgment interest thereon, and a civil penalty in amounts the court deems to be appropriate. Kao consented to the entry of a final judgment permanently enjoining him from aiding and abetting violations of Sections 10(b), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 13b2-1 and 13b2-2, and ordering him to pay a civil penalty of $100,000. Liu consented to the entry of a final judgment permanently enjoining him from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, and aiding and abetting violations of Sections 10(b) and 13(a) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20 and 13a-1, ordering him to pay a civil penalty of $100,000, and imposing a permanent officer and director bar against him. Pratt consented to the entry of a final judgment permanently enjoining him from violating Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Exchange Act Rules 10b-5, 13a-14, 13b2-1 and 13b2-2, and aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13, ordering him to pay disgorgement in the amount of $88,000 and prejudgment interest of $17,000, a civil penalty of $90,000, and imposing a five-year officer and director bar against him. Pratt also consented to the institution of settled administrative proceedings pursuant to Rule 102(e)(3) of the Commission's Rules of Practice suspending him from appearing or practicing before the Commission as an accountant for a period of five years, based on the anticipated entry of an injunction against him.”

SEC ANNOUNCES ASSET FREEZE AGAINST MONEY MANAGER AND HEDGE FUND ADVISORY FIRM

The following excerpt is from the SEC website: Washington, D.C., August 31, 2011 – The Securities and Exchange Commission today announced an asset freeze against a Chicago-area money manager and his hedge fund advisory firm that the SEC charged with lying to prospective investors in their startup quantitative hedge fund. A federal court today entered a preliminary injunction order in the case, which was unsealed earlier this week. The SEC alleges that Belal K. Faruki of Aurora, Ill., and his advisory firm Neural Markets LLC solicited highly sophisticated individuals to invest in the "Evolution Quantitative 1X Fund," a hedge fund they managed that supposedly used a proprietary algorithm to carry out an arbitrage strategy involving trading in liquid exchange-traded funds (ETFs). Faruki and Neural Markets falsely represented the existence of investor capital and that trading was generating profits when, in fact, losses were being incurred. They defrauded at least one investor out of $1 million before confessing the losses, and were soliciting other wealthy investors before the SEC obtained a court order to halt the scheme. "Faruki and Neural Markets lied throughout this elaborate scheme in order to attract capital from sophisticated investors," said Bruce Karpati, Co-Chief of the Asset Management Unit in the SEC's Division of Enforcement. "Even sophisticated institutional investors should be wary of unscrupulous hedge fund managers who cloak their misrepresentations in lofty pitches about a complex investment strategy." According to the SEC's complaint filed in federal court in Chicago, Faruki and Neural Markets told investors that their hedge fund began trading in 2009. From January 2010 until at least October 2010, Faruki and Neural Markets distorted the hedge fund's performance track record, misrepresented that wealthy investors had invested $5 million in the fund, and misstated that it had engaged a top-tier auditor to assist in preparing the fund's quarterly and annual financial statements. Faruki also falsely told investors that he had invested his own money in the hedge fund so that his interests were aligned with the other supposed investors. According to the SEC's complaint, Faruki boasted that he was making his investors rich at a time when he actually had no investors. He falsely stated that the names of other wealthy investors had to remain confidential because they did not want their identities revealed. The lone investor in the hedge fund has unsuccessfully attempted to redeem his investment and recover the remaining balance of his funds from Faruki and Neural Markets, who in turn threatened that they would use the investor's funds to defend themselves if help was sought from regulators. The SEC filed its complaint under seal on Aug. 10, 2011, and that same day the court granted the SEC's request for emergency relief including a temporary restraining order and asset freeze. The court lifted the seal order on August 29, and the preliminary injunction order entered today with the defendants' consent continues the terms of the temporary restraining order until the final resolution of the case.”

SEC ANNOUNCES FINAL JUDGEMENTS AGAINST ALLEGED FRAUDULENT STOCK OFFERING

"The Securities and Exchange Commission announced that on August 29, 2011, the United States District Court for the Southern District of Florida entered final judgments of permanent injunction against Pharma Holdings, Inc. ("Pharma Holdings"), Edward Klapp IV ("Klapp IV") and Edward Klapp, Jr. ("Klapp Jr."). The judgment against Klapp IV also imposed a disgorgement of $1,180,682.80, representing profits gained as a result of the conduct alleged in the complaint, together with prejudgment interest thereon in the amount of $65,407.39; and a civil penalty in the amount of $130,000. The judgment against Klapp Jr. also imposed a disgorgement of $504,696.86, representing profits gained as a result of the conduct alleged in the complaint, together with prejudgment interest thereon in the amount of $27,959.17; and a civil penalty in the amount of $130,000. In addition, both Klapp IV and Klapp Jr. are prohibited from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Securities and Exchange Act, 15 U.S.C. § 78, or that is required to file reports pursuant to Section 15(d) of the Exchange Act , 15 U.S.C. § 78o(d). The SEC's complaint alleged that from 2005 through September 2009, Pharma Holdings, purportedly in the pharmaceutical supply business, and the Klapps raised approximately $5 million from at least 80 European investors, primarily residing in the United Kingdom, through the fraudulent offer and sale of Pharma Holdings stock. In connection with its stock offerings, Pharma Holdings issued false press releases and made false postings on its website overstating Pharma Holdings' sales revenues and net profits, and touting non-existent business agreements with multinational corporations, including a purported IPO and/or acquisition by a large corporation or mutual fund. Further, Pharma Holdings and the Klapps failed to disclose that Edward Klapp IV had been criminally convicted of a felony involving fraud."

FORMER CFO BEAZER HOMES USA AGREES TO GIVE BACK NEARLY $1.5 MILLION

The following is an excerpt from the SEC website: “Washington, D.C., Aug. 30, 2011 – The Securities and Exchange Commission today announced a settlement with the former chief financial officer of Beazer Homes USA to recover his bonus compensation and stock sale profits from the period when the Atlanta-based homebuilder was committing accounting fraud. According to the SEC’s complaint filed in federal court in Atlanta, James O’Leary is not personally charged with misconduct, but is still required under Section 304 of the Sarbanes-Oxley Act to reimburse Beazer more than $1.4 million that he got after Beazer filed fraudulent financial statements during fiscal year 2006. The SEC’s settlement with O’Leary is subject to court approval. Earlier this year, the SEC reached a settlement with Beazer CEO Ian McCarthy to recover several million dollars in bonus compensation and stock profits that he received. Beazer settled an SEC enforcement action in September 2008, and the SEC charged its former chief accounting officer Michael Rand in July 2009. The litigation against Rand, who perpetrated the fraud, is still ongoing. “Section 304 of the Sarbanes-Oxley Act encourages senior management to take affirmative steps to prevent fraudulent accounting schemes from occurring on their watch,” said Rhea Kemble Dignam, Director of the SEC’s Atlanta Regional Office. “O’Leary received substantial incentive compensation and stock sale profits while Beazer was misleading investors and fraudulently overstating its income.” Section 304 requires reimbursement by some senior corporate executives of certain compensation and stock sale profits received while their companies were in material non-compliance with financial reporting requirements due to misconduct. This can include an individual who has not been personally charged with the underlying misconduct or alleged to have otherwise violated the federal securities laws. Without admitting or denying the SEC’s allegations, O’Leary agreed to reimburse Beazer $1,431,022 in cash within 30 days of entry of the court order approving the settlement. This amount includes O’Leary’s entire fiscal year 2006 incentive bonus: $1,024,764 in cash incentive compensation and $131,733 previously received from Beazer in exchange for all restricted stock units he received as additional incentive compensation for fiscal year 2006. The settlement amount also includes $274,525 in stock sale profits.”

SEC FILES ORDER TO SHOW CAUSE FOR DEFENDANT TO SELL FROZEN ASSETS

The following is an excerpt from the SEC website: "On August 29, 2011, the Securities and Exchange Commission filed an emergency application for an Order to Show Cause why Defendant Stanley J. Kowalewski (“Kowalewski”) should not be held in civil contempt for failing to comply with the Court’s Orders freezing his assets. The Court has ordered a hearing on the Commission’s application for August 31, 2011. The emergency application arises out of a complaint filed earlier this year by the Commission to stop an alleged offering and investment advisory fraud being perpetrated by Kowalewski against investors, primarily consisting of pension funds, school endowments, hospitals and foundations. See LR-21800, January 7, 2011. According to the Commission, Kowalewski misappropriated, misused and misspent at least $12.5 million of investor money entrusted to his management by, among other things, having his hedge fund: (1) buy his personal home for $2.8 million, (2) purchase a vacation beach home for his use for $3.9 million, and (3) pay his investment management company over $10 million in unfounded fees, of which he paid himself $7.6 million in “advances” and “salary draws”. To further conceal his scheme, the Commission alleges that Kowalewski sent fraudulent monthly account statements to the investors that grossly inflated the actual asset values and returns. Following the filing of the Commission’s complaint, the U.S. District Court entered and subsequently extended an asset freeze over Kowalewski’s assets, including over the house that he had previously caused his hedge fund to “purchase” from him for $2.8 million. As set forth in its emergency application, Kowalewski violated and is violating the Court’s asset freeze by removing and selling from that same house: kitchen and wall-mounted cabinets, light fixtures, doors, and other structural elements, with an estimated value of at least $176,000, while substantially damaging the house in the process. By its emergency application, the Commission seeks to stop the on-going harm, require Kowalewski to account for and return to the Receiver the items taken from the house, and pay the Receiver for the damage he has caused to it. The Commission previously filed a motion with the Court for disgorgement and penalties against Kowalewski seeking disgorgement of $8.4 million, plus prejudgment interest, and penalties in an amount to be determined by the Court, but which could be as high as an additional $67 million. That motion is currently pending." The SEC alleges in the above case that the defendant removed items from his home (a court ordered frozen asset) such as light fixtures and doors. This type of thing happens a lot in low rent districts when landlords evict tenants.