MONEY MANAGING SCHEME GETS JUDGED

The following is an excerpt from the SEC website: “The Securities and Exchange Commission announced that on September 14, 2011, the Honorable Lawrence E. Kahn, United States District Court Judge for the Northern District of New York, entered a default judgment against Defendants Christopher W. Bass, Swiss Capital Harbor-USA, LLC, Swiss Capital Harbor Fund A Partners, L.P., Swiss Capital Harbor Fund B Partners, L.P. and Swiss Capital Harbor Fund C Partners, L.P. (collectively, the "Defendants"). The default judgment permanently enjoins the Defendants from future violations of 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 default judgment also grants leave to the SEC to file for disgorgement, prejudgment interest, and civil monetary penalties against the Defendants following sentencing in the pending criminal case against Bass, U.S. v. Christopher Bass, 10-cr-166 (N.D.N.Y) (LEK). On May 24, 2010, the SEC filed its complaint against the Defendants alleging that from at least January 2007 through at least June 2009, the Defendants conducted a Ponzi scheme, through which they fraudulently obtained approximately $5.9 million from over 400 investors. Bass told prospective investors that he would pool their money to be invested in various enterprises by European money managers. Bass claimed that these managers historically had generated monthly returns ranging from 2.8 % to 6 %. According to the SEC's complaint, Bass's representations were false, and Bass did not invest investors' money as claimed. Instead, Defendants used most of the funds to pay Bass's personal expenses, to pay Defendants' corporate operating expenses, and to satisfy certain investors' redemption requests. The SEC acknowledges the assistance of the United States Attorney's Office for the Northern District of New York.”

SEC COMPLAINT ALLEGES FRAUDULENT AND UNREGISTERED OFFERINGS

The following excerpt is from the SEC website: September 15, 2011 The Securities and Exchange Commission announced the filing of a complaint in federal district court against James O’Reilly (O’Reilly), James P. McAluney (McAluney), and Martin Cutler (Cutler) (collectively, “Defendants”). The complaint alleges that O’Reilly, McAluney, and Cutler were the managers and control persons involved in a series of fraudulent and unregistered offerings in Shale Synergy, LLC (Shale), Shale Synergy II, LLC (Shale II), and Ranch Rock Properties, LLC (Ranch Rock). The Complaint alleges that from at least December 2007 until July 2009, Defendants solicited funds from investors through a series of Rule 506 Regulation D offerings of membership interests in Shale, Shale II and Ranch Rock. The Defendants raised approximately $16 million from about 130 investors. The companies were to generate returns of from 7.5% to 9% a quarter from investments in oil and gas interests purchased by Shale, Shale II and Ranch Rock. However, instead of purchasing oil & gas assets, approximately $13 million of the funds raised from investors were transferred to Joseph S. Blimline (Blimline) and various Blimline-controlled entities. Throughout Defendants’ solicitations, Blimline acted as a secret partner. Defendants never disclosed Blimline’s involvement and control, or his past securities disciplinary action to investors. According to the Commission’s complaint filed in U.S. District Court for the Eastern District of Texas, the Defendants falsely represented to investors that Shale would acquire the promissory notes issued by two Blimline entities and acquire substantially all of the entities’ underlying assets. The Complaint alleges that, the defendants failed to disclose that investor funds of Shale, Shale II, and Ranch Rock would be commingled to pay expenses, and that Blimline would be making all investment decision. The Complaint further alleges that although Shale failed to make its December 2008 investor distributions, the Defendants continued to solicit investors for Shale II and Ranch Rock without disclosing the financial difficulties at Shale. The Commission’s complaint seeks to enjoin the defendants from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and civil penalties.”

CHARGES OF INSIDER TRADING BY POLYCOM, INC., FORMER EXECUTIVE ARE SETTLED

September 21, 2011 “The Securities and Exchange Commission announced today that, on September 19, 2011, the Honorable Jed S. Rakoff of the United States District Court for the Southern District of New York entered a consent judgment against Defendant Sunil Bhalla in SEC v. Feinblatt, 11-CV-0170, the last remaining defendant in an insider trading case the SEC filed on January 10, 2011. The Complaint alleged that Bhalla, then a senior executive at Polycom, Inc. (“Polycom”) tipped Roomy Khan, an individual investor, to material, nonpublic information concerning Polycom’s financial performance and anticipated financial performance. The Complaint alleged that Khan traded on the information, and passed it on to certain other defendants in the case, who then traded on the basis of the Polycom inside information and other inside information given to them by Khan, reaping illicit trading profits, in the aggregate, of more than $15 million. The illicit trading profits resulting from Bhalla’s Polycom tip to Khan alleged in the complaint totaled approximately $2.5 million. To settle the SEC’s charges, Bhalla consented to the entry of a judgment that: (i) permanently enjoins him from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; (ii) orders him to pay a civil penalty of $85,000; and (iii) bars him from serving as an officer or director of a public company for 5 years from the date of the entry of the judgment.”

BOSS AT SEC SPEECH ON CONFLICTS OF INTERESTS IN ASSET BACKED SECURITIES BUSINESS

The following is an excerpt from the SEC website: by Chairman Mary Schapiro U.S. Securities and Exchange Commission Washington, D.C. September 19, 2011 Good Morning. This is an open meeting of the U.S. Securities and Exchange Commission on Sept. 19, 2011. “The Commission today will consider whether to propose a rule related to conflicts of interest in the structuring and offering of asset backed securities. It stems from Section 621 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This rule is designed to ensure that those who create and sell asset-backed securities cannot profit by betting against those same securities at the expense of those who buy them. At the same time, the rule is not intended to interfere with traditional securitization practices in which loans are originated, packaged into asset-backed securities, and offered to investors in different structures. In drafting the proposed rule, the staff considered several different types of conflicts that could occur with securitizations. For instance, a firm might package an asset-backed security, sell that security to an investor, and then subsequently short the security to potentially profit as the investor incurs a loss. Or a firm might allow a third party to help assemble an asset-backed security in a way that creates an opportunity for the third party to short the security and reap a profit. The staff’s proposal addresses potential conflicts like these. Consistent with the Dodd-Frank Act, the proposed rule would prohibit entities that create and distribute asset-backed securities from engaging in any transaction that would involve or result in a material conflict of interest with someone investing in the security. It would also apply to the entities’ affiliates and subsidiaries. The rule also would provide exceptions for risk-mitigating hedging activities, as well as activity consistent with liquidity commitments and bona fide market-making. As many already know, throughout our Dodd-Frank rule-writing process, we have welcomed public comments even before we propose a rule – and today’s proposal has benefited from that input. Nevertheless, we continue to seek public comment regarding all aspects of this proposal. Among other things, we seek comment on the practical implications of the proposal for the markets, whether it achieves its stated objectives and on whether disclosure of a conflict should have any impact on the proposal. The SEC has made significant progress in writing rules required by Dodd-Frank. Of the nearly 100 mandatory rulemaking provisions, the SEC has now proposed or adopted rules for about three-quarters of them. And today’s proposal is just one of several rulemaking efforts aimed at addressing issues associated with asset-backed securities. For instance, the Commission has adopted rules that require asset-backed security issuers to provide disclosures on the use of representations and warranties in the market for asset-backed securities. We also have adopted rules that require issuers to conduct a review of the assets underlying those securities and disclose the nature of such review with respect to registered asset-backed offerings. Together with other agencies, the SEC also has proposed rules that generally require the sponsor of asset-backed securities to retain no less than five percent of the credit risk of the underlying assets. And in July, the Commission re-proposed some of the rules that we initially proposed pre-Dodd-Frank that related to the shelf registration of asset-backed securities. I want to also note another initiative under the Dodd-Frank Act commonly referred to as the “Volcker Rule.” This rulemaking, which we anticipate proposing along with other financial regulatory agencies in the near future, will prohibit proprietary trading at certain financial entities affiliated with banks. Like Section 621, the Volcker Rule generally would permit risk mitigating hedging activities and market making. As such, we are also asking for comment regarding the interplay of the exceptions in today’s proposed rule with the similar exceptions that we expect to discuss in the Volcker Rule proposal. Before I turn to the staff to provide a detailed discussion about the Division’s recommendation, I would like to thank Robert Cook, Jamie Brigagliano, Nathaniel Stankard, Catherine McGuire, Gregg Berman, Jack Habert, Josephine Tao, Liz Sandoe, Anthony Kelly, and Barry O’Connell for their long hours and hard work devoted to preparing the recommendation before us. I also would like to thank their colleagues. In the Division of Corporation Finance: Paula Dubberly, Katherine Hsu, and David Beaning. From the Division of Enforcement: Jason Anthony and Jeffrey Leasure. In the Office of the General Counsel: Meredith Mitchell, David Blass, Paula Jenson, Janice Mitnick, and Bryant Morris. In the Division of Risk, Strategy, and Financial Innovation: Jennifer Marrietta-Westberg, Eric Carr, Stas Nikolova, and Chuck Dale.”

FINAL JUDGMENT ENTERED AGAINST FRAUDSTERS

The following is an excerpt from the SEC website: “The Securities and Exchange Commission announced today that the United States District Court for the District of Utah entered a final judgment, dated September 16, 2011, against Erin O’Malley, f/k/a Erin O. Mowen. Ms. O’Malley is the former spouse of convicted felon and securities law recidivist, Jeffrey L. Mowen. On May 4, 2011, Mowen pled guilty to committing wire fraud in a related criminal action, United States of America v. Mowen, Case No. 2:09-cr-00098-DB (D. Utah). In pleading guilty, Mowen acknowledged operating a Ponzi scheme from around October 2006 to around October 2008, wherein he received over $18 million from investors for use in a purported foreign currency trading program. The SEC Complaint alleges that the investor funds provided to Mowen were raised by Thomas Fry and the other defendants, Fry’s promoters, from the unregistered offer and sale of high-yield promissory notes to over 150 investors in several states. Mowen acknowledged in his guilty plea that, rather than using investor funds for their intended purpose, he used the money for his personal benefit, misappropriating over $8 million. According to the SEC’s Complaint, Mowen transferred approximately $650,000 of the misappropriated funds to his then wife, relief defendant Erin O’Malley. The SEC sought the return of those funds in its complaint from Ms. O’Malley, whom it alleged had no bona fide right to the funds. The SEC did not allege that Ms. O’Malley personally committed any securities law violation. Ms. O’Malley did not respond to the SEC’s allegations and the court therefore ordered the default judgment against her, ordering her to disgorge $654,101 in funds that the SEC had shown, through bank records, Mowen had transferred to her. The SEC’s action is continuing against Mowen, Fry, and Fry’s promoters“.

SEC FILES INJUNCTION AGAINST INVESTMENT SOLICITOR IN DEAF COMMUNITY

The following excerpt is from the SEC website: “On September 9, 2011, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Eastern District of Texas against Jody Dunn (Dunn). The complaint alleges that, over a three-year period, Dunn, who is deaf, solicited investments from others in the deaf community for Imperia Invest IBC (Imperia). The Commission previously charged Imperia with securities fraud and obtained an emergency court order to freeze its assets. According to the complaint, Dunn solicited more than $3.45 million as part of Imperia’s investment scheme from several thousand deaf investors. Dunn failed to tell investors that he was using a portion of their funds to pay his mortgage, car loans, car insurance and a variety of other personal expenses. Dunn sent the remaining amounts to Imperia’s offshore bank accounts in Costa Rica, Panama, the British Virgin Islands, Cyprus and New Zealand. Investors have never been paid any interest after giving their money to Dunn to invest, nor were their funds ever invested. Even after the Commission charged Imperia and issued an investor alert about the scheme, Dunn continued to reassure investors that Imperia was legitimate and they would be paid. The Commission alleges that Dunn did not attempt to verify whether Imperia was actually investing the money as promised. He also failed to verify whether Imperia was licensed to sell securities in any state, whether any registration statements relating to the offers or sales of Imperia securities were filed with the Commission, or whether Imperia was registered with the Commission in any capacity. The Commission’s complaint charges Dunn with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. The Commission also seeks civil penalties and disgorgement against Dunn.”