SEC SETTLES INSIDER TRADING CHARGES AGAINST CALIFORNIA WOMAN

The following excerpt is from the SEC website: October 25, 2011 “The United States District Court for the Northern District of California approved a proposed settlement of the Securities and Exchange Commission’s insider trading claims against Annabel McClellan. The Commission alleged that Ms. McClellan obtained confidential information about pending mergers and acquisitions from her husband, a former partner in the San Francisco offices of Deloitte Tax LLP, to tip her sister and brother-in-law in London. As alleged by the Commission, Ms. McClellan’s relatives used the information to place trades in advance of the public announcements of the transaction, making millions of dollars in illicit profits. Without admitting or denying the Commission’s allegations, Ms. McClellan consented to pay a $1 million civil money penalty. Ms. McClellan also consented to the entry of a final judgment that will enjoin her permanently from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The court entered the final judgment against Ms. McClellan on October 25, 2011. Ms. McClellan previously pleaded guilty to one count of obstructing the Commission’s investigation into the insider trading scheme. The United Kingdom Financial Services Authority filed insider trading charges against Ms. McClellan’s relatives and three others in November 2010. In a related action, the Commission requested the dismissal of the insider trading claims against Ms. McClellan’s husband, Arnold A. McClellan.”

COURT ORDERS INJUCTION AND CIVIL PENALTIES AGAINST ENERGY CO. EXECUTIVE

October 17, 2011 The following excerpt is from the SEC website: “The Securities and Exchange Commission announced that on October 14, 2011, the United States District Court for the Middle District of Florida entered by consent a final judgment against Daniel W. Nodurft permanently restraining and enjoining him from future violation of Section 5 and Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (“Securities Act”). The Court also ordered Nodurft to pay a civil penalty in the amount of $50,000. The Commission’s complaint alleged that Nodurft, a resident of Louisiana and the former vice-president and general counsel of Aerokinetic Energy Corporation (“Aerokinetic”), a Sarasota-based company purportedly in the business of developing and marketing alternative power technologies and products, violated the registration and antifraud provisions of the securities laws in connection with Aerokinetic’s fraudulent unregistered securities offering. On July 24, 2008, the U.S. District Court for the Middle District of Florida issued a temporary restraining order against Aerokinetic and its then president, Randolph E. Bridwell in a related case (Securities and Exchange Commission v. Aerokinetic Energy Corporation, Case No. 8:08-cv-1409-T27TGW). On January 19, 2011, the Court entered a final judgment against Aerokinetic and Bridwell imposing disgorgement of ill-gotten proceeds, jointly and severally, in the amount of $555,000, plus prejudgment interest in the amount of $59,571.09. Additionally, Aerokinetic and Bridwell were ordered to pay civil penalties of $250,000 and $130,000, respectively. Aerokinetic’s judgment was upheld on appeal to the Eleventh Circuit Court of Appeals.”

MARINER INSIDE TRADING CASE EXPANDS

The following excerpt is from the SEC website: October 24, 2011 "SEC v. H. Clayton Peterson, Drew Clayton Peterson, Drew K. Brownstein, and Big 5 Asset Management, LLC, Civil Action No. 11-CV-5448 (SDNY) (RPP) On October 21, 2011, the Securities and Exchange Commission filed an amended complaint in the case of SEC v. Clayton Peterson et al. (SDNY) adding charges against hedge fund manager Drew K. Brownstein and his hedge fund Big 5 Asset Management LLC for trading on confidential information in the securities of Mariner Energy Inc. ahead of the oil and gas company’s $3.9 billion takeover by Apache Corporation in April 2010. In its initial complaint filed on Aug. 5, 2011, the SEC alleged that Mariner Energy board member H. Clayton Peterson tipped his son with confidential details about Mariner Energy’s upcoming acquisition. Drew Clayton Peterson, who was a managing director at a Denver-based investment adviser, then used the inside information to purchase Mariner Energy stock for himself and others. The SEC now alleges that hedge fund manager Drew K. Brownstein who is a longtime friend of Drew Peterson, and the hedge fund advisory firm Brownstein controls, Big 5 Asset Management LLC traded Mariner Energy securities on the basis of inside information Brownstein received from Drew Peterson. Brownstein reaped illicit profits of more than $5 million combined in his own account, the accounts of his relatives, and the accounts of two hedge funds managed by Big 5. According to the SEC’s amended complaint, Drew Peterson repeatedly tipped Brownstein about the impending acquisition of Mariner Energy as he learned the information from his father. Brownstein caused two Big 5 hedge funds – the Lion Global Fund LLLP and the Lion Global Master Fund Ltd. – to purchase large quantities of Mariner Energy stock and call option contracts on the basis of the inside information. This was the first time that the Big 5 hedge funds had ever traded Mariner Energy stock or options. Brownstein also purchased thousands of shares of Mariner Energy stock and call option contracts for the accounts of his relatives and for his personal brokerage account. In the days following the announcement of the deal, Brownstein liquidated the positions he had accumulated in Mariner Energy securities. The SEC’s amended complaint charges each of the defendants with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks a final judgment permanently enjoining them from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay financial penalties. The SEC also seeks to permanently prohibit Clayton Peterson from acting as an officer or director of any publicly registered company."

SEC, CFTC JOINT STATEMENT OF THE MF GLOBAL, INC., CRISIS

The following excerpt is from the SEC website: "Washington, D.C., Oct. 31, 2011 – The Securities and Exchange Commission and Commodity Futures Trading Commission today made the following joint statement: "For several days, the SEC, CFTC and other regulators had been closely monitoring developments affecting MF Global, Inc., a jointly registered futures commission merchant and broker-dealer, in anticipation of a transaction that would include the transfer of customer accounts to another firm. Early this morning, MF Global informed the regulators that the transaction had not been agreed to and reported possible deficiencies in customer futures segregated accounts held at the firm. The SEC and CFTC have determined that a SIPC-led bankruptcy proceeding would be the safest and most prudent course of action to protect customer accounts and assets. SIPC announced today that it is initiating the liquidation of MF Global under the Securities Investor Protection Act (SIPA)."

CIVIL INJUNCTION FILED AGAINST TWO MEN WHO TRIED TO EVADE LIMITS ON PUBLIC OFFERINGS

October 31, 2011 “The Securities and Exchange Commission today announced the filing of a civil injunctive action against Drake Asset Management, LLC (Drake), of Glen Head, NY, and Oliver R. Grace, Jr., of Hobe Sound, FL, for conducting a scheme to evade the group purchase limits of the public offerings of seven banks that were converting from mutual to stock ownership. The SEC’s complaint alleges that, from 2003 through 2007, Grace knowingly or recklessly failed to disclose his association with certain entities, including hedge funds managed by Drake, which participated in the offerings alongside Grace. Under Grace’s direction, Drake also knowingly or recklessly failed to disclose the hedge funds’ association with Grace. By failing to disclose these associations, the Drake hedge funds and Grace were able to acquire stock that exceeded the offerings’ group purchase limits, in violation of offering terms and banking regulations. The complaint alleges that Drake and Grace, to conceal their relationships and group activity from converting banks and their underwriters, arranged for the hedge funds and Grace’s other associated entities to take steps to prevent the banks from associating these group orders. Over the course of the scheme, Drake and Grace generated $610,781 in ill-gotten gains. Because the seven offerings at issue were oversubscribed, the scheme harmed other bank depositors by limiting the amount of stock available to them. The SEC’s complaint, which was filed in the United States District Court for the District of Columbia, charges Drake and Grace with violations of the antifraud provisions of the Securities Exchange Act of 1934, Section 10(b) and Rule 10b-5 thereunder. Drake, without admitting or denying the allegations in the complaint, has consented to the entry of a final judgment permanently enjoining it from violating the abovementioned provisions and imposing a civil monetary penalty of $175,000. Grace, without admitting or denying the allegations in the complaint, has consented to the entry of a final judgment permanently enjoining him from violating the abovementioned provisions, ordering him to pay $838,285 in disgorgement and prejudgment interest, and imposing a civil monetary penalty of $150,000. The settlements are subject to approval by the Court.”

PIPELINE TRADING SYSTEMS LLC WILL PAY $1 MILLION TO SETTLE IMPROPER DISCLOSURE CHARGES WITH SEC

The following excerpt is from the SEC website: “Washington, D.C., Oct. 24, 2011 – The Securities and Exchange Commission today charged Pipeline Trading Systems LLC and two of its top executives with failing to disclose to customers of Pipeline’s “dark pool” trading platform that the vast majority of orders were filled by a trading operation affiliated with Pipeline. Pipeline, without admitting or denying the findings of an SEC administrative order, agreed to pay a $1 million penalty to settle the matter. Pipeline’s founder and chief executive officer, Fred J. Federspiel, and its chairman and former chief executive, Alfred R. Berkeley III, a former president and vice chairman of the NASDAQ Stock Market, each agreed to pay $100,000. In settling the matter, Federspiel and Berkeley did not admit to or deny the SEC’s findings. New York-based Pipeline was launched in 2004 as an SEC-registered alternative trading system, a privately operated platform to trade securities outside of traditional exchanges. Alternative trading systems that display little or no information about customer orders are known as “dark pools.” Institutional investors use these venues to hide their trading intentions from others and avoid moving the market with large orders to buy or sell stock. According to the SEC’s order, Pipeline described its trading platform as a “crossing network” that matched customer orders with those from other customers, providing “natural liquidity.” Pipeline’s claims were false and misleading because its parent company owned a trading entity that filled the vast majority of customer orders on Pipeline’s system, the SEC found. It said the affiliate, most recently known as Milstream Strategy Group LLC, sought to predict the trading intentions of Pipeline’s customers and trade elsewhere in the same direction as customers before filling their orders on Pipeline’s platform. The SEC’s order found that Pipeline generally did not provide the “natural liquidity” it advertised. Pipeline took certain steps to address the conflict of interest it created, including by paying the affiliate’s traders using a formula that rewarded them in part for giving favorable prices to Pipeline’s customers. The SEC’s order found that Pipeline failed to disclose the compensation formula or Milstream’s activities to its customers or in its filings to the SEC. “However orders are placed and executed, be it on an exchange floor or in an automated venue, whether dark or displayed, one principle remains fundamental – investors are entitled to accurate information as to how their trades are executed. Pipeline and its senior executives are being held to account because they misled their customers about how Pipeline’s dark pool really worked,” said Robert Khuzami, Director of the SEC’s Enforcement Division. George S. Canellos, Director of the SEC’s New York Regional Office, added, “Today’s action underscores the importance of full disclosure by those who operate alternative trading systems about their operations and the execution services they provide.” The SEC’s order also found that, although Pipeline represented that all users were treated the same, it provided Milstream with certain advantages over other users, including special access to certain information about the operations of the dark pool and to data connections that made it easier for Milstream to track history and activity in the dark pool. The SEC’s order also found that Pipeline failed adequately to protect customers’ confidential trading information, allowing access to it by the research director at Pipeline’s parent company, who acted as the manager for the affiliated trading entity from 2004 to 2006. The order does not allege that the research director sought to take advantage of the customer information. The SEC’s order found that Pipeline violated: Section 17(a)(2) of the Securities Act of 1933, which prohibits the use of false or misleading statements in the sale of securities. Rule 301(b)(2) of Regulation ATS under the Securities Exchange Act of 1934, which requires an ATS operator to disclose certain information in required filings with the SEC. Rule 301(b)(10) of Regulation ATS, which requires an ATS operator to implement safeguards and procedures for protecting ATS users’ confidential trading information. The SEC’s order found that Federspiel and Berkeley caused Pipeline to violate Section 17(a)(2) of the Securities Act and Rules 301(b)(2) and 301(b)(10) of Regulation ATS. Without admitting or denying the findings, Pipeline, Federspiel, and Berkeley consented to the SEC’s order, which requires Pipeline to pay a $1 million penalty and Federspiel and Berkeley each to pay $100,000. It also requires Pipeline, Federspiel, and Berkeley to cease and desist from committing or causing any violations of Section 17(a)(2) of the Securities Act or Regulation ATS. Gerald Gross, Daniel Walfish, Stephen Larson, and Alexander Janghorbani of the SEC’s New York Regional Office conducted the investigation. Mr. Walfish is a member of the SEC’s Market Abuse Unit.”