ASSETS OF FOUR CHINESE CITIZENS FROZEN BY SEC FOR INSIDER TRADING

The following excerpt is from the SEC website: “Washington, D.C., Dec. 6, 2011 — The Securities and Exchange Commission today announced that it has frozen the assets of four Chinese citizens and a Chinese-based entity charged with insider trading in advance of a merger announcement by educational companies based in London and Beijing. The SEC moved quickly to obtain an emergency court order to freeze assets just two weeks after the suspicious trading by Sha Chen, Song Li, Lili Wang, and Zhi Yao, who have U.S.-based brokerage accounts. Some of them already attempted to liquidate or transfer their illicit profits. The SEC alleges that they purchased American Depository Shares (ADS) of Beijing-based Global Education and Technology Group in the two weeks leading up to a November 21 public announcement of a planned merger with London-based Pearson plc. Some of their brokerage accounts were dormant until they bet heavily on Global Education shares, and some of the purchases made either equaled or exceeded the stated annual income of that trader. After the agreement was announced, they immediately began selling some of their Global Education shares. Their illicit gains totaled more than $2.7 million. “On the basis of non-public information, these traders suddenly purchased massive amounts of Global Education shares in U.S. brokerage accounts that had been largely inactive,” said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. “We’re pleased the court immediately granted our order to freeze these accounts before proceeds from the illegal trades could be transferred outside U.S. jurisdiction.” The SEC also charged All Know Holdings Ltd. and one or more unknown purchasers of Global Education stock in its complaint filed on December 5 in U.S. District Court for the Northern District of Illinois. According to the SEC’s complaint, Pearson and Global Education each announced before trading began on November 21 that Pearson agreed to acquire all of Global Education’s outstanding stock for $294 million ($11.006 per share traded in the U.S.). Global Education’s stock price increased 97 percent that day, from $5.37 to $10.60. The SEC alleges that Chen, Li, Wang, and Yao made their purchases of Global Education’s ADS shares while in possession of material, non-public information about the merger. A Global Education co-founder and Chairman of the Board apparently tipped Wang and possibly others about the potential acquisition. Wang then transferred new funds into her previously dormant brokerage account and bought 28,000 Global Education shares. The others also engaged in similarly suspicious trading in Global Education stock, which was typically thin. On November 18, the last trading day before the acquisition announcement, their purchases accounted for more than 35 percent of the entire day’s trading volume for the company’s shares, which trade on the NASDAQ. The SEC alleges that the defendants each violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to the emergency relief, the SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties. The emergency court order that the SEC obtained on December 5 on an ex parte basis freezes more than $2.7 million of defendants’ assets held in U.S. brokerage accounts and, among other things, grants expedited discovery and prohibits the defendants from destroying evidence. The SEC’s investigation, which is continuing, has been conducted by Allison M. Fakhoury, Brian N. Hoffman, Steven L. Klawans, Delia L. Helpingstine, John E. Kustusch, Felisha K. Clay and Terri Y. Roberts in the Chicago Regional Office. The SEC’s litigation effort will be led by Benjamin J. Hanauer and Daniel J. Hayes. The Commission thanks the Financial Industry Regulatory Authority for its assistance in this matter.”

SEC SETTLES WITH PARIDON CAPITAL MANAGEMENT LLC OF ELGIN, ILLINOIS

SEC RESOLVES FRAUD-BASED LAWSUIT AGAINST CHICAGO-AREA HEDGE FUND ADVISER AND ITS OWNER The following excerpt is from the SEC website: “The Securities and Exchange Commission announced today that on November 17 Judge John F. Grady of the U.S. District Court for the Northern District of Illinois entered a final judgment against Jeffrey R. Neufeld (Neufeld) and Paridon Capital Management LLC (Paridon) of Elgin, Illinois for defrauding the TCM Global Strategy Fund (TCM Fund or the fund), a hedge fund, and its investors. Without admitting or denying the Commission’s allegations, Neufeld and Paridon consented to the entry of the final judgment which imposed a $75,000 civil penalty against Neufeld. Previously, on April 27, 2011, the Court permanently enjoined Neufeld and Paridon from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2), 206(3), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Neufeld and Paridon also consented to pay disgorgement and prejudgment interest of $53,182.33 to an injured investor. According to the Commission’s complaint, Paridon, an investment adviser, and its owner, Neufeld, fraudulently operated the TCM Fund since 2006. Neufeld and Paridon allegedly lied about the fund’s assets under management and reported inflated returns that were not based on actual trading. They also used fictitious returns to lure investors into the TCM Fund. The complaint also alleges that Neufeld and Paridon caused the fund to use a significant portion of its investor money to buy “debt securities” issued by Paridon. Although called debt securities, this investment was in reality a loan from the fund to Paridon. The debt securities were also not permitted investments for the fund, were not disclosed and consented to by the fund, and were improperly marked up by Neufeld and Paridon to offset and hide significant trading losses.”

SEC AND FBI FILE CHARGES ALLEGING ILLEGAL SCHEMES INVOLVING THINLY TRADED SECURITIES

The following excerpt is from the SEC website: “Washington, D.C., Dec. 1, 2011 — The Securities and Exchange Commission, U.S. Attorney for the District of Massachusetts, and Federal Bureau of Investigation today announced parallel cases filed in federal court against several corporate officers, lawyers and a stock promoter alleging they used kickbacks and other schemes to trigger investments in various thinly-traded stocks. The criminal case charged 13 defendants who engaged in criminal activity in the midst of an undercover FBI operation. According to the charges filed in U.S. District Court, the schemes involved secret kickbacks to an investment fund representative in exchange for having the investment fund buy stock in certain companies; the kickbacks were to be concealed through the use of sham consulting agreements. What the insiders and promoters did not know was that the purported investment fund representative was actually an undercover agent. The criminal defendants include Kelly Black-White and James Prange, both of whom were in the business of finding capital for emerging companies. The civil case names some of the individuals who were charged criminally, and the SEC also issued trading suspensions in the stocks of a number of the companies involved in the criminal cases. The charges follow a year-long investigation focusing on preventing fraud in the micro-cap stock markets. Microcap companies are small publicly traded companies whose stock often trades at pennies per share. Fraud in the microcap stock markets is of increasing concern to regulators as such markets have proven to be fertile grounds for fraud and abuse. This is, in part, because accurate information about microcap stocks may be difficult for the average investor to find, since many microcap companies do not file financial reports with the SEC. The SEC suspended trading in seven microcap companies involved in the kickback-for-investment schemes: 1st Global Financial Inc. (FGFB) based in Las Vegas Augrid Global Holdings Corp. (AGHD) based in Houston ComCam International, Inc. (CMCJ) based in West Chester, Pa. MicroHoldings US, Inc. (MCHU) based in Vancouver, Wash. Outfront Companies (OTFT) based in Fla. Symbollon Corp./Symbollon Pharmaceuticals, Inc. (SYMBA) based in Medfield, Mass. ZipGlobal Holdings Inc. (ZIPG) based in Hingham, Mass. MicroHoldings and ZipGlobal are also charged civilly by the SEC with fraud. These latest charges follow a series of similar cases filed by the SEC in October 2010 and June 2011 in which more than a dozen companies and penny stock promoters were charged in similar kickback-for-investment schemes. “The public has a right to invest in an honest and fair market. Companies that agree to pay illegal kickbacks harm investors and undermine fair competition in the markets,” said United States Attorney Carmen Ortiz. “Hard working Americans who invest their savings should not be subjected to backroom deals like those alleged today.” “We are committed to working with our law enforcement partners here in Massachusetts and around the country to stop abuses in the microcap sector and hold the perpetrators responsible,” said David Bergers, Director of the SEC’s Boston Regional Office. “Kickbacks and phony consulting agreements have no place in the financial strategies of any public company, and executives who engage in this kind of fraud are just selling out their own investors.” “Boston FBI agents initiated an undercover operation aimed at identifying corporate insiders engaged in illegal investment schemes. No one who is engaged in illegal activity while participating in the markets, including CEOs, traders, fund managers, equities analysts, lawyers and publicists, is exempt from the FBI's scrutiny," said Richard DesLauriers, Special Agent in Charge of the FBI in Boston. "Because the nation's economic security is intertwined with our overall national security, the Boston division of the FBI places a substantial emphasis on investigating white collar crimes. During these difficult economic times, now, more than ever, the well-being of the global economy rests on the diligent enforcement of laws designed to ensure the fair and orderly operation of the capital markets. The FBI will continue to use undercover operations and other sophisticated investigative tools at its disposal to protect the integrity and transparency of financial markets.” If convicted, the defendants charged with mail fraud and wire fraud each face up to 20 years in prison, to be followed by three years of supervised release and a $250,000 fine on each count. If convicted on the conspiracy to commit securities fraud charges, the defendants each face up to five years in prison, to be followed by three years of supervised release and a $250,000 fine on each count.”

INVESTMENT ADVISORS IN HOT WATER WITH SEC FOR FAILURE TO COMPLY

The following excerpt is from the SEC website: “Washington, D.C., Nov. 28, 2011 — The Securities and Exchange Commission today charged three investment advisers for failing to put in place compliance procedures designed to prevent securities law violations. The cases stem from an initiative within the SEC Enforcement Division’s Asset Management Unit to proactively prevent investor harm by working closely with agency examiners to ensure that viable compliance programs are in place at firms. Investment advisers are required by law to adopt and implement written compliance policies and procedures. When SEC examiners identify deficiencies in a firm’s compliance program, those deficiencies need to be corrected before they lead to other securities law violations that could harm investors. Investment advisers that essentially ignore SEC examination warnings risk being the subject of SEC enforcement actions. The firms being charged with compliance failures in separate cases today are Utah-based OMNI Investment Advisors Inc., Minneapolis-based Feltl & Company Inc., and Troy, Mich.-based Asset Advisors LLC. The SEC also charged OMNI’s owner Gary R. Beynon, who served as the firm’s chief compliance officer despite living in Brazil and performing virtually no compliance responsibilities. Feltl & Company, Asset Advisors, and Beynon will pay financial penalties and institute a series of corrective measures to settle the SEC’s charges. In two of the cases — OMNI and Asset Advisors — SEC examiners previously warned the firms about their compliance deficiencies. “Not all compliance failures result in fraud, but many frauds take root in compliance deficiencies,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “That simple truth underlies our renewed focus on identifying and charging firms and individuals that fail their legal obligations to maintain adequate compliance programs.” Carlo di Florio, Director of the SEC’s Office of Compliance Inspections and Examinations, added, “When SEC examiners identify compliance deficiencies, firms are expected to remediate them. The Commission will take enforcement action against registrants that fail to do so.” Under Rule 206(4)-7 of the Investment Advisers Act, which is known as the “Compliance Rule,” registered investment advisers are required to adopt and implement written policies and procedures that are reasonably designed to prevent, detect, and correct securities law violations. The Compliance Rule also requires annual review of the policies and procedures for their adequacy and the effectiveness of their implementation, and designation of a chief compliance officer to be responsible for administering the policies and procedures. “The failure to adopt and maintain adequate compliance policies and procedures is a significant violation of the federal securities laws,” said Robert Kaplan, Co-Chief of the SEC Division of Enforcement’s Asset Management Unit. “We will continue to work with our counterparts in the national exam program to identify investment advisers that put their investors at risk by failing to take their compliance obligations seriously.” OMNI Investment Advisors and Gary R. Beynon According to the SEC’s order in the case against OMNI and Beynon, the firm failed to adopt and implement written compliance policies and procedures after SEC examiners informed OMNI of its deficiencies. Between September 2008 and August 2011, OMNI had no compliance program and its advisory representatives were completely unsupervised. Beynon assumed the chief compliance officer responsibilities in November 2010 while living abroad. OMNI failed to establish, maintain, and enforce a written code of ethics, and failed to maintain and preserve certain books and records. In response to a subpoena, OMNI produced client advisory agreements with Beynon’s signature evidencing his supervisory approval when, in fact, Beynon had never reviewed the agreements. Beynon backdated his signature on those agreements one day before the documents were produced to the Commission. Under the settlement, Beynon agreed to pay a $50,000 penalty. He also agreed to be permanently barred from acting within the securities industry in any compliance or supervisory capacity and from associating with any investment company. Additionally, as part of the settlement, OMNI agreed to provide a copy of the proceeding to all of its former clients between September 2008 and August 2011. Feltl & Company, Inc. According to the SEC’s order against Feltl & Company, the firm failed to adopt and implement written compliance policies and procedures for its growing advisory business. It further neglected to adopt a code of ethics and collect the required securities disclosure reports from its staff. As a result of its compliance failures, Feltl engaged in hundreds of principal transactions with its advisory clients’ accounts without informing them or obtaining their consent as required by law. Feltl also improperly charged undisclosed commissions on certain transactions in clients’ wrap fee accounts. Under the settlement, Feltl & Company agreed to pay a penalty of $50,000 and return more than $142,000 to certain advisory clients. Additionally, the firm will hire an independent consultant to review its compliance operations annually for two years, provide a copy of the SEC’s order to past, present and future clients, and prominently post a summary of the order on its website. Asset Advisors LLC According to the SEC’s order against Asset Advisors, SEC examiners found that the firm had failed to adopt and implement a compliance program. After SEC examiners brought it to the firm’s attention, Asset Advisors adopted policies and procedures but never fully implemented them. Similarly, Asset Advisors only adopted a code of ethics at the behest of the SEC exam staff and then failed to adequately abide by the code. Under the settlement, Asset Advisors agreed to pay a $20,000 penalty, cease operations, de-register with the Commission, and — with clients’ consent — move advisory accounts to a firm with an established compliance program. Feltl & Company, Asset Advisors, OMNI Investment Advisors and Beynon did not admit or deny the allegations. In addition to the penalties, they all consented to cease-and-desist orders and agreed to be censured.”

FORMER DELPHI EXEC.S PAY FINES AND DISGORGEMENT FOR SECURITIES LAWS VIOLATIONS

The following excerpt is from the SEC website: “ Securities and Exchange Commission today announced that the Honorable Avern Cohn, U.S. District Judge for the Eastern District of Michigan, entered final judgments as to Paul Free, the former Chief Accounting Officer and Controller of Delphi Corporation, and J.T. Battenberg, III, the former Chief Executive Officer of Delphi, and ordered them to pay disgorgement and penalties for federal securities law violations found by a jury. The Court also entered a permanent injunction for fraud and other securities law violations against Free. Delphi is an auto parts manufacturer with headquarters in Troy, Michigan. On January 13, 2011, a jury returned a verdict in favor of the SEC and against Free and Battenberg for violating the federal securities laws. Specifically, the jury found that Battenberg violated the books and records and misrepresentations to accountants provisions of the federal securities laws for his role in the improper accounting for Delphi’s portrayal of $202 million of Delphi’s $237 million warranty settlement with General Motors Corporation (“GM”) in September 2000 as related to pension and other post-employment benefits. As a result, Delphi filed materially false and misleading financial statements in the company’s third quarter 2000 quarterly report on Form 10-Q and its fiscal year 2000 annual report on Form 10-K. In addition, the jury found Free liable on fraud and other charges brought by the Commission for his role in Delphi’s false and misleading accounting for two financing transactions at year-end 2000 -- one involving nearly Delphi’s entire inventory of precious metals necessary to the manufacture of catalytic converters, and one involving Delphi’s inventory of generator cores and batteries – which Delphi falsely claimed as inventory sales; as well as Delphi’s false and misleading accounting for a $20 million payment that it received from Electronic Data Systems (“EDS”) in December 2001 as a rebate (income) rather than as a loan. The jury further found that Free violated the books and records and misrepresentations to accountants provisions of the federal securities laws for his role in the GM warranty transaction. On March 8, 2011, the Court entered partial judgment on liability in accord with the jury’s findings. Thereafter, on October 31, 2011, at the conclusion of the remedies phase of the case, and based upon the jury verdicts, the Court entered final judgments as to Free and Battenberg. The Court enjoined Free from future violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”), Rules 10b-5, 13b2-1 and 13b2-2 promulgated thereunder, and Section 20(e) of the Exchange Act for aiding and abetting Delphi’s violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 promulgated thereunder. The Court further ordered Free to disgorge $38,000 in profits and to pay a penalty of $80,500. In addition, the Court found Battenberg liable for violations of Section 13(b)(5) of the Exchange Act, and Rules 13b2-1 and 13b2-2 promulgated thereunder. The Court ordered Battenberg to disgorge $198,500 in profits and to pay a penalty of $16,500. During the trial, the Commission settled with two individual defendants – Catherine Rozanski, Delphi’s former Director of Financial Accounting and Reporting, and Milan Belans, Delphi’s former Director of Capital Planning, Structured Finance and Pension Analysis. Rozanski consented to the entry of an injunction from future violations of Section 17(a) of the Securities Act of 1933 (Securities Act) and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and13a-1 thereunder. Rozanski also consented to pay a $40,000 civil money penalty. In settling the Commission’s claims, Rozanski neither admitted nor denied the Commission’s allegations. In addition, separately, without admitting or denying the Commission’s findings, Rozanski consented to the institution of administrative proceedings pursuant to Rule 102(e)(3) of the Commission’s Rules of Practice, suspending her from appearing or practicing before the Commission as an accountant, with a right to apply for reinstatement after three years, based on the entry of the injunction. The Commission’s Complaint against Rozanski alleged that as a result of her participation in the EDS $20 million payment transaction, described above, Delphi filed materially false and misleading financial statements in the company’s 2001 Form 10-K. Moreover, during the trial, Belans consented to the entry of an injunction from future violations of Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Belans also consented to pay disgorgement of $17,835, together with prejudgment interest thereon in the amount of $13,865, and a $55,800 civil money penalty. In settling the Commission’s claims, Belans neither admitted nor denied the Commission’s allegations. In addition, separately, without admitting or denying the Commission’s findings, Belans 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, with a right to apply for reinstatement after five years, based on the entry of the injunction. The Commission’s Complaint against Belans alleged that Belans engaged in the GM warranty settlement transaction and the inventory transactions described above, which resulted in Delphi filing materially false and misleading financial statements in the company’s quarterly report on Form 10-Q for third quarter 2000, and on the company’s annual report on Form 10-K for the fiscal year ended December 31, 2000. The Commission originally filed suit against Delphi and 13 individual defendants on October 30, 2006. Delphi and six individual defendants settled with the Commission at that time. The Commission entered into settlements with two individual defendants and voluntarily dismissed another prior to trial. Finally, based upon the Court’s permanent injunction of Free, the Commission entered an order instituting public administrative proceedings and imposing remedial sanctions pursuant to Rule 102(e) of the Commission’s Rules of Practice. The Commission temporarily suspended Free from appearing or practicing before the Commission. The suspension may become permanent if Free does not file a petition with the Commission within thirty days. This concludes the Commission’s federal district court litigation.”

SEC WANTS "ROBUST" INSPECTIONS AT BROKER-DEALER BRANCH OFFICES

The following excerpt was received as an e-mail from the SEC: "Washington, DC, November 30, 2011 – The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) and the Financial Industry Regulatory Authority (FINRA) today issued a Risk Alert and a Regulatory Notice on broker-dealer branch inspections, and offered suggestions to help securities industry firms better perform this key supervisory function. “A robust process for self-inspection of branch offices is a critical element of a firm’s compliance and supervision process, and a vital part of a comprehensive risk management program,” said Carlo di Florio, Director of OCIE. “This Risk Alert highlights practices that are characteristic of effective branch office supervisory systems, and describes major deficiencies that SEC and FINRA examiners have found in the branch inspection process.” “An effective risk based branch office inspection program is an important component of a broker-dealer’s supervisory system and, when constructed and implemented reasonably, it can better protect investors and the firm’s own interests,” said Stephen Luparello, Vice Chairman of FINRA. “FINRA encourages broker-dealers to review this guidance and consider enhancements to their own branch office inspection programs.” Along with specific requirements outlined in the report, effective practices observed by examiners include: Using risk analysis to identify whether individual non-supervising branches should be inspected more frequently than the FINRA-required minimum three-year cycle, with more frequent inspections of branches meeting certain risk criteria. In addition, some firms conduct “re-audits” when routine inspections reveal a high number of deficiencies, repeat deficiencies, or serious deficiencies. Typically, these re-audits and audits for cause are conducted as unannounced inspections. Using surveillance reports and employing current technology and techniques to help identify risks and develop a customized approach for branch office inspections based on the type of business conducted at each branch. Employing comprehensive checklists that incorporate previous inspection findings and trends noted in internal reports such as audit reports. Conducting unannounced branch inspections either randomly or based on certain risk factors. “Surprise” exams may yield a more realistic picture of a broker-dealer’s supervisory system as they reduce the risk that individual RRs and principals might attempt to falsify, conceal, or destroy records in anticipation for an internal inspection. Involving qualified senior personnel in several branch office examinations each year. Incorporating findings of branch office inspections into management information or risk management systems and using a centralized, comprehensive compliance database that enables compliance personnel in various offices to access to information about all of the firm’s RRs and their business activities. Such a system appears to be very useful when supervising independent contractor RRs dispersed across a broad geographic area. Providing branch office managers with the firm’s internal inspection findings and requiring them to take and document corrective action. Tracking corrective action taken by each branch office manager in response to branch audit findings. Elevating the frequency of branch inspections, or their scope, or both, in cases where registered personnel are allowed to conduct business activities other than as associated persons of a broker-dealer, for example away from the firm. This is the second in a continuing series of Risk Alerts that the SEC’s national examination staff expects to issue. These documents are intended to alert senior management, risk management, and compliance managers in the securities industry to significant risks identified by the SEC’s national examination staff, so that industry members can more effectively address those risks. The following SEC staff contributed substantially to preparing this Risk Alert: Julius Leiman-Carbia, Daniel Gregus, Rich Hannibal, George Kramer, Barbara Lorenzen and Karol Pollock The following FINRA staff also contributed substantially to preparing this Risk Alert: Michael Rufino, Paul Fagone, Donald Litteau and George Walz."