SEC ALLEGES PRIME BANK SCHEME WAS OPERATED BY WASHINGTON D.C. LAW FIRM

The following is an excerpt from the SEC website: “On November 30, 2011, the Securities and Exchange Commission filed an enforcement action under seal in federal court in Washington D.C. and obtained an emergency court order to halt a prime bank scheme that defrauded at least 13 investors out of more than $2 million since August 2010. The Court unsealed the action on December 5, 2011, at the SEC’s request. The SEC’s complaint alleges that Pennsylvania resident Frank L. Pavlico III and Washington D.C. attorney Brynee K. Baylor operated a prime bank scheme, offering investors risk-free returns of up to 20 times the original investment within as few as 45 days through the purported “lease” and “trading” of foreign bank instruments, including “standby letters of credit” and “bank guarantees,” in highly complex transactions with unidentified parties and secretive “trading platforms.” However, the bank instruments and trading programs were entirely fictitious. Pavlico and Baylor provided investors with phony contracts and legal documents, digitally-created computer screen shots, and copies of fictitious foreign bank instruments as purported proof of the ongoing success of the transactions. Baylor and her law firm Baylor & Jackson P.L.L.C. acted as “counsel” for Pavlico’s company The Milan Group, vouching for Pavlico and acting as an escrow agent that in reality was merely receiving and diverting the majority of investor funds. According to the SEC complaint, Pavlico and Baylor lured investors into believing they were being given an exclusive chance to participate in an international investing program involving complex financial instruments that generated astronomical profits. They used vague and complex terms in their communications to confuse investors, and claimed that confidentiality concerns prevented them from providing more complete details regarding the status of the investment. Pavlico and Baylor also provided investors with bogus excuses attempting to explain the delay in providing the promised returns, such as feigned illnesses and false representations that the European bankers supposedly involved in the transaction were on extended vacation. In furtherance of the scheme, the complaint alleges that Baylor provided investors with “attorney attestation” letters that assured them the investments were legitimate, and investor contracts that promised investment profits would be shared among investors, Milan, and Baylor & Jackson. Meanwhile, Pavlico was using a fake name of “Frank Lorenzo” to conceal his 2008 money laundering conviction from investors. He failed to disclose that he served 10 months in prison and was on supervised release at the time he was soliciting their investments. According to the SEC’s complaint, Pavlico and Baylor used investor funds to pay Baylor & Jackson business expenses as well as personal expenditures. Pavlico purchased a Range Rover and a Jaguar, and Baylor made purchases at expensive restaurants and retailers including Jimmy Choo, and financed a trip to the Bahamas in September 2010. Investor funds also were used to make payments to nine individuals and entities – including Baylor’s law partner Dawn R. Jackson – named as relief defendants in the SEC’s complaint for the purpose of recovering funds unrightfully in their possession. None of the defendants charged in the SEC’s enforcement action has ever registered with the SEC to sell securities. On November 30, 2011, the Honorable Rosemary M. Collyer granted the SEC’s request for a temporary restraining order to prevent Pavlico, Milan, Baylor, and Baylor & Jackson from further engaging in the alleged investment program. The Court also granted the SEC’s request for an order freezing the assets of all the defendants and relief defendants, requiring accountings, prohibiting the destruction or alteration of documents, and allowing for expedited discovery. The SEC’s complaint alleges that Pavlico, Baylor, Milan, and Baylor & Jackson violated various antifraud, broker-dealer, and securities registration provisions of the federal securities laws. Specifically, the complaint alleges that they each violated 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; that Pavlico, Baylor, and Baylor & Jackson aided and abetted violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5; that Baylor and Baylor & Jackson aided and abetted violations of Securities Act Sections 5(a) and 5(c); and that Pavlico and Baylor also violated Exchange Act Section 15(a). The SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest thereon, and civil penalties against each defendant, and bars prohibiting Pavlico and Baylor from serving as an officer or director of a public company. Separately, the Federal Bureau of Investigation arrested Pavlico on November 29, 2011, charging him with wire fraud. The SEC’s complaint alleges that the defendants in this matter offered fictitious investments involving so-called "bank guarantees," “stand-by letters of credit,” or foreign “trading platforms,” among other purported investment vehicles.”

SEC TOP LEVEL GUY COMMENTS ON THE CITIGROUP CASE

The following excerpt is from the SEC website:

“Washington, D.C., Dec. 15, 2011 — The Securities and Exchange Commission’s Director of the Division of Enforcement, Robert Khuzami, today made the following statement on the Citigroup case:
Last month, a federal district court declined to approve a consent judgment because, in its view, the underlying allegations were ‘unsupported by any proven or acknowledged facts.’ As a result, the court rejected a $285 million settlement between the SEC and Citigroup that reasonably reflected the relief the SEC would likely have obtained if it prevailed at trial.
We believe the district court committed legal error by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits. For this reason, today we filed papers seeking review of the decision in the U.S. Court of Appeals for the Second Circuit.
We believe the court was incorrect in requiring an admission of facts — or a trial — as a condition of approving a proposed consent judgment, particularly where the agency provided the court with information laying out the reasoned basis for its conclusions. Indeed, in the case against Citigroup, the SEC filed suit after a thorough investigation, the findings of which were described in extensive detail in a 21-page complaint.
The court’s new standard is at odds with decades of court decisions that have upheld similar settlements by federal and state agencies across the country. In fact, courts have routinely approved settlements in which a defendant does not admit or even expressly denies liability, exactly because of the benefits that settlements provide.
In cases such as this, a settlement puts money back in the pockets of harmed investors without years of courtroom delay and without the twin risks of losing at trial or winning but recovering less than the settlement amount - risks that always exist no matter how strong the evidence is in a particular case. Based on a careful balancing of these risks and benefits, settling on favorable terms even without an admission serves investors, including investors victimized by other frauds. That is due to the fact that other frauds might never be investigated or be investigated more slowly because limited agency resources are tied up in litigating a case that could have been resolved.
In contrast, the new standard adopted by the court could in practical terms press the SEC to trial in many more instances, likely resulting in fewer cases overall and less money being returned to investors.
To be clear, we are fully prepared to refuse to settle and proceed to trial when proposed settlements fail to achieve the right outcome for investors. For example, in the cases that the SEC identifies as core financial crisis cases, we filed unsettled actions against 40 of the 55 (70 percent) of the individuals charged — including the action filed against Brian Stoker in this matter. Similarly, we filed unsettled actions against 11 of the 26 (42 percent) of the entities we charged — eight of which we did not litigate against because they were bankrupt, defunct or no longer operating.
In deciding whether to settle, the SEC considers, among other things, limitations under the securities laws. In a case like Citigroup, the applicable statute does not entitle the SEC to recover the amount lost by investors. Instead, in addition to recovering a defendant’s ill-gotten gains, the statute allows a monetary penalty only up to the amount of a defendant’s gain.
The $285 million obtained from Citigroup under the proposed settlement, while less than investor losses, represents most of the total monetary recovery that the SEC itself could have sought at trial. An SEC settlement does not limit the ability of injured investors to pursue claims for additional relief.
Moreover, while the court alluded to Citigroup’s size, the law does not permit the Commission to seek penalties based upon a defendant’s wealth“.



FATHER AND SON CHARGED IN UTAH FOR ALLEGED PONZI REAL ESTATE SCHEME

The following excerpt is from the SEC website:

“Washington, D.C., Dec. 15, 2011 — The Securities and Exchange Commission today charged a father and son in Utah with securities fraud for selling purported investments in their real estate business that turned out to be nothing more than a wide-scale $220 million Ponzi scheme.

The SEC alleges that Wendell A. Jacobson and his son Allen R. Jacobson operate from a base in Fountain Green, Utah, and offer investors the opportunity to invest in limited liability companies (LLCs) in order to share ownership of large apartment communities in eight states. The Jacobsons solicit investors personally and through word of mouth, and appear to be using their memberships in the Church of Jesus Christ of Latter-Day Saints to make connections and win over the trust of prospective investors.
The SEC alleges that the Jacobsons represent that they buy apartment complexes with low occupancy rates at significantly discounted prices. They then renovate them and improve their management, and aim to resell them within five years. Investors are said to share in the profits derived from rental income at the apartment complexes as well as the eventual sales. But in reality, the LLCs are suffering significant losses and the Jacobsons are merely pooling the money raised from investors into large bank accounts from which they are siphoning money to pay family expenses and the operating expenses of their various companies. They also are paying earlier investors with funds received from new investors in classic Ponzi scheme fashion.
After filing its complaint today in federal court in Salt Lake City, the SEC obtained an emergency court order freezing the assets of the Jacobsons and their companies.
“Wendell and Allen Jacobson misled investors to believe they were financially supporting what was portrayed as a widespread and reputable operation to revamp apartment communities and turn a significant profit,” said Ken Israel, Director of the SEC’s Salt Lake Regional Office. “Their promises were anything but truthful.”
According to the SEC’s complaint, the Jacobsons raised more than $220 million from approximately 225 investors through a complex web of entities under the umbrella of Management Solutions, Inc. They have operated the fraudulent scheme since at least 2008. They sold the securities in the form of investment contracts without filing any registration statement with the SEC as required under the federal securities laws. Wendell and Allen Jacobson are acting as unregistered brokers in connection with their offers and sales of membership interests in LLCs.
The SEC alleges that the Jacobsons falsely assure investors that the principal amount of their investment will be safe, and their funds will be used to acquire, rehabilitate, and manage certain identified properties. Investors are promised annual returns ranging from 5 to 8 percent per year depending upon the particular apartment complexes pertaining to their LLC, with additional profits promised when the properties are sold. Wendell and Allen Jacobson tell investors that their funds are designated for a particular LLC. Wendell Jacobson has told investors that only one time has he ever lost money on a property, and on that occasion he covered the loss personally so that investor returns would not be reduced.
According to the SEC’s complaint, investor funds are never held and used exclusively to acquire, rehabilitate, and operate rental properties as represented by the Jacobsons. In fact, the LLCs are experiencing significant net losses. Nevertheless, the LLCs continue to pay returns to investors, falsely leading those investors to believe their LLCs are operating at a profit. When investor funds are received, they are almost always transferred or pooled immediately in accounts of various Jacobson-owned entities, most commonly in the account of Thunder Bay Mortgage Company. Investor funds are then used for a variety of purposes that have not been disclosed to investors.
The SEC further alleges that on numerous occasions since Jan. 1, 2010, investors have been told that the property owned in their LLC has been sold, and that they have realized a profit on the sale. In fact, those properties were not sold, and the Jacobsons used the alleged “sales” as a means of shifting investors into and out of certain properties. They have essentially been operating a shell game intended to raise additional funds from new or existing investors in order to meet the rapidly growing financial obligations of their operation.
The SEC’s complaint charges Wendell and Allen Jacobson with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder as well as disgorgement of ill-gotten gains, prejudgment interest and financial penalties. The Honorable Bruce S. Jenkins granted the SEC’s request for a temporary restraining order, asset freezes, appointment of a receiver and other emergency relief to prevent the Jacobsons from continuing to solicit investments in the Management Solutions program. The SEC seeks permanent injunctive relief, disgorgement and financial penalties against Management Solutions and the Jacobsons.
The SEC’s investigation was conducted by Alison Okinaka, Scott Frost, Paul Feindt and Norm Korb in the Salt Lake Regional Office. The litigation will be headed by Dan Wadley and Tom Melton.
The SEC thanks the U.S. Attorney’s Office for the District of Utah, Federal Bureau of Investigation, and Internal Revenue Service for their assistance in this matter.”

SEC ALLEGES SIPC HAS FAILED TO START LIQUIDATION PROCEEDINGS WITH STANFORD GROUP

The following excerpt is from the SEC website:

December 15, 2011
“On December 12, 2011, the Securities and Exchange Commission filed an application with the federal district court in the District of Columbia to compel the Securities Investor Protection Corporation (SIPC) to file an application to begin a liquidation proceeding with regard to Stanford Group Company (SGC), a broker-dealer registered with the Commission and a SIPC-member brokerage firm.
In February 2009, the Commission brought a civil enforcement action against Robert Allen Stanford, SGC, and others, alleging that they operated a multi-billion dollar Ponzi scheme. As a result of that enforcement action, a federal district court in Texas ordered that SGC be placed into receivership.
On June 15, 2011, the Commission directed SIPC to take steps to initiate a liquidation proceeding with regard to SGC because there were customers in need of the protections of the Securities Investor Protection Act of 1970 (SIPA). Among other things, SIPA provides for coverage of up to $500,000 to customers of a defunct brokerage firm in the event that funds available at the firm are insufficient to satisfy claims covered by the statute. This coverage is provided from a fund maintained by SIPC.
Despite the Commission's directive, SIPC has failed to take steps to initiate a liquidation proceeding as to SGC.”

SEC FILES INJUCTION IN ALLEGED SCHEME TO OVERVLUE ILLIQUID ASSETS

The following excerpt is from the SEC website: December 2, 2011 “The Securities and Exchange Commission announced today that it filed a civil injunctive action in the United States District Court for the Southern District of New York charging two individuals with engaging in a fraudulent scheme to overvalue illiquid asset holdings of the now insolvent hedge fund, Millennium Global Emerging Credit Fund (the "Fund"), and thereby inflate the Fund's reported returns and net asset value. The defendants named in the Commission's complaint are Michael Balboa, the Fund's former portfolio manager, and Gilles De Charsonville, a broker with BCP Securities, LLC. The SEC's complaint alleges that from January through October 2008, Balboa surreptitiously provided De Charsonville and another broker with fictional prices for them to pass on to the Fund's outside valuation agent and its auditor. Specifically, Balboa had De Charsonville and the other broker portray the valuations for two of the Fund's illiquid securities holdings, Nigerian and Uruguayan warrants, as ostensibly independent month-end "marks" that were provided by third-party sources. In fact, Balboa completely fabricated the prices which De Charsonville and the other broker were complicit in passing onto the valuation agent and auditor for these two securities. This scheme caused the Fund to drastically overvalue these two securities holdings by as much as $163 million in August 2008, which, in turn, allowed the Fund to report inflated and false-positive monthly returns. By overstating the Fund's returns and overall net asset value, Balboa was able to attract at least $410 million in new investments, deter about $230 million in eligible redemptions and generate millions of dollars in inflated management and performance fees. The SEC's complaint charges the defendants with committing and/or aiding and abetting violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 206 of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder and, as to Balboa, Section 17(a) of the Securities Act of 1933. De Charsonville is also charged with violating Financial Industry Regulatory Authority Rule 5210. As to both defendants, the SEC's complaint seeks a permanent injunction against future violations, disgorgement of ill-gotten gains plus prejudgment interest, and monetary penalties. The United States Attorney's Office for the Southern District of New York ("USAO"), which conducted a parallel investigation of this matter, has also announced the arrest of Balboa and the simultaneous filing of a criminal complaint against him. The SEC acknowledges the assistance and cooperation of the USAO, United States Postal Inspection Service, U.K. Financial Services Authority, Bermuda Monetary Authority, the Comisión Nacional del Mercado de Valores, the Guernsey Financial Services Authority, and Nigeria Securities and Exchange Commission in this matter. The SEC's investigation is continuing.”

COURT ORDERS FOUNDERS OF INTEGRITY FINANCIAL TO PAY $4.2 MILLION FOR FRAUDULANT PROMISSORY NOTES

The following excerpt is from the SEC website: "The U.S. Securities and Exchange Commission (Commission) today announced that, on November 23, 2011, the U.S. District Court for the Northern District of Ohio entered final judgments against Steven R. Long and Stanley M. Paulic in a Commission injunctive action, United States Securities and Exchange Commission v. Integrity Financial AZ, LLC, Steven R. Long, Stanley M. Paulic, Walter W. Knitter, and Robert C. Koeller, Civil Action No. 10-CV-782 (SO) (N.D. Ohio filed Apr. 15, 2010). The Commission’s complaint alleges that Long and Paulic founded Integrity Financial AZ, LLC (IFAZ) and, with assistance from Walter W. Knitter and Robert C. Koeller, used the company to raise more than $8 million in a fraudulent unregistered offering of promissory notes purportedly secured by real estate in Arizona. The final judgments were entered after the district court granted the Commission’s motion for summary judgment against Long and Paulic. The order granting summary judgment found that Long “knowingly made misrepresentations or omissions of material fact regarding the offer and sale of securities, while utilizing investors’ money for his own gain” and that “Paulic misrepresented material facts in connection with the offer and sale of securities” and “acted recklessly in conjunction with his activities and responsibilities as CEO and co-owner of IFAZ.” The final judgments against Long and Paulic permanently enjoin each of them from further violations of Sections 5 and 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rule 10b‑5. The final judgment against Long also finds him liable for disgorgement in the amount of $1,481,736, plus prejudgment interest thereon in the amount of $97,723.32, and a civil penalty in the amount of $1,465,306. The final judgment against Paulic also finds him liable for disgorgement in the amount of $586,225, plus prejudgment interest thereon in the amount of $38,662.65, and a civil penalty in the amount of $586,225. The Commission also announced today, that on October 7, 2011, the district court entered a default judgment against IFAZ permanently enjoining it from violations of Sections 5 and 17(a) of the Securities Act, Sections 10(b) and 15(a) of the Exchange Act, and Exchange Act Rule 10b‑5, and finding it liable for disgorgement in the amount of $5,598,717, plus prejudgment interest thereon in the amount of $429,403.44, and a civil penalty in the amount of $650,000. Knitter settled with the Commission previously. The remaining defendant, Koeller, reached a partial settlement with the Commission on September 28, 2011."