UNREGISTERED ADVISOR CHARGED WITH FRAUD

The following excerpt is from the SEC website: September 27, 2011 “On September 27, 2011, the Securities and Exchange Commission filed a civil injunctive action against Shreyans Desai and ShreySiddh Capital, LLC (SSC) in the United States District Court for the District of New Jersey. The Commission's complaint alleges fraudulent conduct by Desai in connection with the purchase and sale of securities for individuals who provided Desai with more than $245,000 to invest on their behalf. According to the complaint, from April 2009 to February 2011, Desai, acting through SSC, an unregistered investment adviser founded by Desai, made numerous materially false and misleading statements to potential investors, including that SSC was a securities broker registered with the Commission and that potential investors would receive returns of at least 50% if they invested their money with SSC. Desai also guaranteed to investors that he would not lose their money. On the basis of Desai's misrepresentations, five individuals gave Desai money to invest on their behalf through SSC. Desai then misappropriated investor money, using it to, among other things, make donations to a local religious institution and pay the personal debts and expenses of Desai's family members. Desai also lost investor money through bad trades. To hide the fact that Desai had misappropriated or lost investor money, Desai provided SSC investors with account statements that overstated the value of the investors' accounts by as much as 300%. According to the Commission's complaint, Desai and SSC also acted as securities brokers by engaging in the regular business of effecting transactions in securities for the accounts of others and by holding themselves out as securities brokers that were registered with the Commission. At the time, however, neither Desai nor SSC was registered with the Commission as a broker and neither was associated with a registered broker-dealer. The Commission's complaint charges Desai and SSC with violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The Commission is seeking permanent injunctive relief, civil penalties and disgorgement against Desai and SSC.”

CLAIMS OF A 6300% RETURN ON INVESTMENT MAY NOT BE TRUE ACCORDING TO THE SEC

The following is from the SEC website: September 23, 2011 “The Securities and Exchange Commission today charged two San Francisco-area men with fraud for offering investors extraordinary returns as high as 6,300 percent when instead their money was spent on multi-million dollar home improvements and other luxuries. The SEC alleges that Jason G. Rivera, Jr., Marc C. Harmon, and two companies controlled by Rivera raised nearly $8 million from investors in two separate schemes, one involving purported trading in gold and diamonds and the other involving purported trading in collateralized mortgage obligations (CMOs). However, the funds raised from investors weren’t used for those purposes as Rivera diverted most of the money for his personal exploits, including a $360,000 surprise birthday party for his wife. According to the SEC’s complaint filed in federal court in San Francisco, Rivera previously worked in real estate and portrayed himself to investors as a successful financier. He raised approximately $4.5 million from investors in 2007 and 2008 through his company, the Joseph Rene Corporation (JRC). He touted JRC as a route to “financial freedom” and “maximum results with minimum risk” in a brochure he distributed to investors, assuring them high returns by pooling investor money and placing it in “hard assets” such as real estate, oil, diamonds, and gold. However, as Rivera instead spent investor money as his own and was unable to make payments to investors as promised, he tried to placate them with falsehoods. For example, Rivera claimed in a June 2008 e-mail to JRC investors that glitches in the banking system had delayed their payouts, but “your money is still making money.” In a follow-up e-mail, he maintained that despite the worldwide financial downturn, JRC was “thriving,” had “lost NO money,” and all investor funds were “safe.” The SEC alleges that Rivera later teamed up with Harmon, an unemployed construction worker at the time who had no training or experience in selling or managing investment programs. Together they raised an additional $3.2 million from 2008 to 2010 through a second company, Executive Members Management Group (EMMG). Rivera and Harmon led investors to believe they could make rapid profits of up to 6,300 percent by investing in trading programs involving CMOs and other financial instruments. Specifically, Harmon falsely claimed that EMMG used “licensed traders” and “trading platforms,” and he falsely boasted to investors that extremely wealthy individuals had invested millions of dollars with EMMG. Harmon even lied to several investors about a phony trip he took to the United Kingdom in an effort to place their money in a trading program. In both schemes, the SEC alleges that Rivera used investor funds to afford such personal luxuries as several Mercedes Benz automobiles, jewelry, restaurant meals, and basketball season tickets. Rivera misused investor funds in the JRC scheme to pay for approximately $1.5 million in improvements to his 8,000-square foot home in Alamo, Calif. He later misused investor funds in the EMMG scheme to make $1.1 million in additional improvements to his home. Rivera also paid approximately $180,000 to Harmon. The complaint charges Rivera, Harmon, JRC, and EMMG 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 (Exchange Act) and Rule 10b-5 thereunder. The complaint also charges Rivera with violating Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and Harmon with violating Section 15(a)(1) of the Exchange Act. The SEC seeks permanent injunctions, disgorgement with prejudgment interest, and civil monetary penalties.”

DODD-FRANK ON CONGO CONFLICT MINERALS ROUNDTABLE OCTOBER 18, 2011

The following is an excerpt from an SEC e-mail: “Washington, D.C., Sept. 29, 2011 — The Securities and Exchange Commission today announced that it will host a public roundtable next month to discuss the agency’s required rulemaking under Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which relates to reporting requirements regarding conflict minerals originating in the Democratic Republic of the Congo and adjoining countries. The event will take place on October 18 from 12:30 p.m. to 5:15 p.m. and will provide a forum for various stakeholders to exchange views and provide input on issues related to the SEC’s required rulemaking. The panel discussions will focus on key regulatory issues such as appropriate reporting approaches for the final rule, challenges in tracking conflict minerals through the supply chain, and workable due diligence and other requirements related to the rulemaking. “We are committed to writing an effective rule as soon as possible, and the roundtable will help us do that,” said Meredith Cross, Director of the SEC’s Division of Corporation Finance. Roundtable panelists are expected to reflect the views of different constituencies, including affected issuers, human rights organizations, and other stakeholders. A final agenda including a list of participants will be announced closer to the date of the roundtable. The roundtable will be held in the auditorium at the SEC’s headquarters at 100 F Street NE in Washington D.C. The roundtable will be open to the public with seating on a first-come, first-served basis, and the discussion also can be viewed via live webcast on the SEC website.”

SEC DISMISSED CLAIMS IN CIVIL FRAUD CASE IN LIEU OF PARALLEL CRIMINAL CONVICTION

The following excerpt is from the SEC website: September 26, 2011 “The Securities and Exchange Commission has voluntarily dismissed its claims for disgorgement, prejudgment interest, and civil penalties against former Jefferson County, Alabama Commission president Larry Langford. The Commission dismissed its claims against Langford due to the 15-year prison sentence and significant restitution and forfeiture orders entered against Langford in a parallel criminal case that arose out of the Commission’s investigation. The Eleventh Circuit Court of Appeals recently upheld the criminal sentence, which included orders to pay $119,985 in restitution to the Internal Revenue Service and forfeit $241,843.65 in benefits he received to the government. Following the Commission’s dismissal notice, the Honorable Abdul K. Kallon, United States District Judge for the Northern District of Alabama dismissed the claims against Langford and dismissed the now-completed case. The Commission’s complaint against Langford alleged he accepted approximately $156,000 in cash, loans, and other benefits in exchange for steering County bond and swap business to a long-time friend and local broker dealer. On August 8, 2011, the Court granted the Commission’s motion for summary judgment against Langford and permanently enjoined him from further violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5.”

SEC ANNOUNCES FINAL JUDGMENT IN AOL TIME WARNER MISSTATEMENT OF REVENUES CASE

The following excerpt is from the SEC website: September 29, 2011 “The U.S. Securities and Exchange Commission today announced that, on September 6, 2011, the United States District Court for the Southern District of New York entered a settled final judgment against J. Michael Kelly, the former Chief Financial Officer of AOL Time Warner Inc. and that on July 19, 2010, the district court entered a settled final judgment against Joseph A. Ripp, the former Chief Financial Officer of the AOL Division of AOL Time Warner, in SEC v. John Michael Kelly, Steven E. Rindner, Joseph A. Ripp, and Mark Wovsaniker, Civil Action No. 08 CV 4612 (CM)(GWG) (S.D.N.Y. filed May 19, 2008). The final judgments resolve the Commission’s case against Kelly and Ripp. The Commission’s complaint alleges that, from at least mid-2000 to mid-2002, AOL Time Warner overstated the company’s online advertising revenue with a series of round-trip transactions. The complaint further alleges that the defendants participated in this effort and that their actions contributed to this overstatement. Online advertising revenue was a key measure by which analysts and investors evaluated the company. Without admitting or denying the allegations in the complaint, Kelly consented to entry of a final judgment permanently enjoining him from future violations of Section 17(a)(2) and (3) of the Securities Act of 1933 and ordering him to pay disgorgement of $200,000 and a civil penalty of $60,000. Without admitting or denying the allegations in the complaint, Ripp consented to the entry of a final judgment permanently enjoining him from future violations of Rule 13b2-1 promulgated under the Securities Exchange Act of 1934 (Exchange Act) and from aiding and abetting violations of Exchange Act Section 13(b)(2)(A) and ordering him to pay disgorgement of $130,000 and a civil penalty of $20,000. Steven E. Rindner and Mark Wovsaniker remain as defendants in the Commission’s action.”

SEC ISSUES RISK ALERT WARNING IN REGARDS TO TRAIDING IN SUB-ACCOUNTS

The following is an excerpt from the SEC website: “Washington, D.C., Sept. 29, 2011 — The staff of the Securities and Exchange Commission today issued a Risk Alert warning of significant concerns regarding trading through sub-accounts, and offered suggestions to help securities industry firms address those risks. Money laundering, insider trading, market manipulation, account intrusions, unregistered broker-dealer activity, and excessive leverage are all potential risks associated with the master/sub-account trading model, according to the alert. Customers who open master accounts with a registered broker-dealer usually subdivide it for use by individual traders or groups of traders. In some instances, the sub-accounts may be divided to such an extent that the master account customer and the firm where the account is held might not know the identity of the traders in the sub-accounts. “Although master/sub-account arrangements have legitimate business purposes, some customers may use them as vehicles for illegal activity, or in an attempt to avoid or minimize regulatory obligations and oversight,” said Carlo di Florio, Director of the SEC’s Office of Compliance Inspections and Examinations, whose national examination staff issued the alert. The alert includes suggestions for broker-dealers to address concerns arising from trading in sub-accounts and to comply with the SEC’s Market Access Rule, which requires broker-dealers to have controls and procedures to limit risks associated with offering market access to customers, including those with master/sub-accounts. “When a broker-dealer offers master/sub-accounts, this includes an obligation to reasonably design controls and procedures that address the types of risks that we identify in this report. Our national examination staff intends to scrutinize the controls and procedures at broker-dealers that offer market access to master/sub-account customers,” Mr. di Florio said. Possible approaches include: Obtaining and maintaining the names of all traders authorized to trade in each master account, including all sub-account traders; verifying the identities of all such traders, using fingerprints if appropriate, background checks and interviews; and periodically checking the names of all such traders through criminal and other databases. Monitoring trading patterns in both the master account and sub-accounts for indications of insider trading, market manipulation, or other suspicious activity. Physically securing information of customer or client systems and technology. Establishing requirements that validate the trader’s identity. Logging and tracking incidents of attempted hacking or other unauthorized penetration-of-system by outside parties. Determining that traders who have access to the broker-dealer’s trading system and technology have received training in areas relevant to their activity, including market trading rules. Regularly reviewing the effectiveness of all controls and procedures around sub-account due diligence and monitoring. Creating written descriptions of all controls and procedures for sub-account due diligence and monitoring, including the frequency of reviews, the identity of those responsible for conducting such reviews, and a description of the review process.”