THE PASTOR AND THE PONZI SCHEME

The following is an excerpt from the CFTC website: “Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a federal court consent order imposing more than $2 million in restitution and civil monetary penalties on defendants Jeremiah C. Yancy (a.k.a. Jeremiah C. Glaub) of Atoka, Okla., and his company, Longbranch Group International LLC (a.k.a. Longbranch LLC) (Longbranch) of Houston, Texas. The CFTC charged Yancy and Longbranch with operating a million dollar foreign currency (forex) Ponzi scheme and misappropriating customer funds (see CFTC Press Release 5875-10, August 19, 2010). The consent order, entered by the Honorable Vanessa Gilmore of the U.S. District Court for the Southern District of Texas, requires the defendants jointly and severally to pay $692,000 in restitution and each to pay a $692,000 civil monetary penalty. The order also permanently bars the defendants from engaging in any commodity-related activity, including trading and applying for registration or claiming exemption from registration with the CFTC, and from violating the anti-fraud provisions of the Commodity Exchange Act. The order finds that, from July 2008 to August 2010, Yancy and Longbranch solicited 64 customers, including members of Yancy’s church in Idaho where he was a pastor, to open forex accounts. Defendants told prospective customers that they managed forex trading for non-profit organizations, including churches and orphanages, and solicited customers through various “fund-raising entities” to trade forex through them and to invest in their other financial schemes, according to the order. Defendants made misrepresentations to prospective customers through telephone conference calls set up by the fund-raising entities. Defendants’ misrepresentations were passed along to customers via emails from the entities, the order finds. Additionally, the order finds that Yancy and Longbranch promised customers monthly returns of 20 to 40 percent and told some customers that their principal was guaranteed. Defendants also sent prospective customers account statements showing high returns, telling customers that the statements were for forex accounts purportedly holding up to $10 million traded by the defendants, according to the order. Defendants, however, did not inform customers that the account statements were for demonstration and/or test accounts and did not represent actual trading of any customer funds, the order finds. Additionally, Yancy and Longbranch were running a Ponzi scheme because they told at least one customer that his funds were never actually used to trade forex, but instead went to pay another customer, according to the order. The court found that based on defendants’ misrepresentations, 64 customers opened forex trading accounts funded with a net total of $630,000. The majority of the accounts had net losses of up to 95 percent and, on the whole, the accounts lost $230,000, according to the order. Yancy and Longbranch also commingled at least $330,000 of customer funds with their own funds and deposited those funds into forex trading accounts in their names, the order finds. In total, the defendants misappropriated $462,000 of customer funds, according to the order. The CFTC appreciates the assistance of the State of Idaho Department of Finance, which filed a related action against Yancy and Longbranch.”

FORMER PORTFOLIO MANAGER SETTLES WITH SEC

The following is an excerpt from the SEC website: “The Securities and Exchange Commission today filed a settled civil enforcement action against Anthony Scolaro, a former portfolio manager at the hedge fund investment adviser Diamondback Capital Management, LLC, charging Scolaro with using inside information to trade ahead of the November 29, 2009 announced acquisition of Axcan Pharma Inc. The SEC's complaint also names Diamondback as a relief defendant. In its complaint, the SEC alleges that Arthur Cutillo and Brien Santarlas, two former attorneys with the international law firm of Ropes & Gray LLP, misappropriated from their law firm material, nonpublic information concerning the acquisition of Axcan. As alleged in the complaint, they tipped the inside information, through another attorney, to Zvi Goffer, a proprietary trader at the broker-dealer Schottenfeld Group LLC, in exchange for kickbacks. The SEC alleges that Goffer tipped the inside information to fellow Schottenfeld proprietary trader Franz Tudor, who traded in the securities of Axcan, and tipped the information to his friend Scolaro. The SEC alleges that based on this inside information, Scolaro traded in the securities of Axcan on behalf of a Diamondback hedge fund, resulting in illicit profits for the fund of approximately $1.1 million. To settle the SEC's charges, Scolaro consented to the entry of a final judgment that: (i) permanently enjoins him from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and (ii) orders him to pay disgorgement of $125,980, prejudgment interest of $14,420, and a civil penalty of $62,945. Diamondback, as a relief defendant, has consented to a final judgment ordering it to disgorge $962,486 in gains resulting from Scolaro's trades, plus prejudgment interest of $110,246. In addition, Scolaro consented to the entry of an SEC order barring him from association with any investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization. Scolaro previously pled guilty to charges of securities fraud and conspiracy to commit securities fraud in a related criminal case, United States v. Anthony Scolaro, 11-CR-429 (S.D.N.Y.) (WHP), and is awaiting sentencing.”

GEORGIA COMMERCE BANK ACQUIRES BANKING OPERATIONS OF PATRIOT BANK OF GEORGIA

The following is an excerpt from the FDIC website: “Georgia Commerce Bank, Atlanta, Georgia, acquired the banking operations, including all the deposits, of Patriot Bank of Georgia, Cumming, Georgia, and CreekSide Bank, Woodstock, Georgia. The two banks were closed today by the Georgia Department of Banking and Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Georgia Commerce Bank. Patriot Bank of Georgia had one branch, and CreekSide Bank had two branches. Due to the Labor Day holiday, the three branches of the two failed banks will reopen as branches of Georgia Commerce Bank on Tuesday, September 6. Depositors of the two failed banks will automatically become depositors of Georgia Commerce 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 the two failed banks should continue to use their existing branches until they receive notice from Georgia Commerce Bank that it has completed systems changes to allow other branches of Georgia Commerce Bank to process their accounts as well. This evening and over the weekend, depositors 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 June 30, 2011, Patriot Bank of Georgia had approximately $150.8 million in total assets and $111.2 million in total deposits; and CreekSide Bank had total assets of $102.3 million and total deposits of $96.6 million. In addition to assuming all of the deposits of the two Georgia banks, Georgia Commerce Bank agreed to purchase essentially all of their assets. The FDIC and Georgia Commerce Bank entered into loss-share transactions on the failed banks' assets. The loss-share transaction for Patriot Bank of Georgia covers $136.2 million of its assets, and the loss-share transaction for CreekSide Bank covers $69.2 million of its assets. Georgia Commerce Bank will share in the losses on the asset pools covered under the loss-share agreements. The loss-share transactions are projected to maximize returns on the assets covered by keeping them in the private sector. The transactions also are expected to minimize disruptions for loan customers. The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) for Patriot Bank of Georgia will be $44.4 million and for CreekSide Bank, $27.3 million. Compared to other alternatives, Georgia Commerce Bank's acquisition of the two institutions was the least costly resolution for the FDIC's DIF. The closings are the 69th and 70th FDIC-insured institutions to fail in the nation so far this year and the eighteenth and nineteenth in Georgia. The last FDIC-insured institution closed in the state was First Southern National Bank, Statesboro on August 19, 2011.”

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.”