SEC CHARGES GE FUNDING CAPITAL MARKETS SERVICES WITH MUNICIPAL BOND MARKET FRAUD

The following excerpt is from the SEC website:

“Washington, D.C., Dec. 23, 2011 — The Securities and Exchange Commission today charged GE Funding Capital Market Services with securities fraud for participating in a wide-ranging scheme involving the reinvestment of proceeds from the sale of municipal securities.

GE Funding CMS agreed to settle the SEC’s charges by paying approximately $25 million that will be returned to affected municipalities or conduit borrowers. The firm also entered into agreements with the Department of Justice, Internal Revenue Service, and a coalition of 25 state attorneys general and will pay an additional $45.35 million.

The settlements arise from extensive law enforcement investigations into widespread corruption in the municipal reinvestment industry. In the past year, federal and state authorities have reached settlements with four other financial firms, and 18 individuals have been indicted or pled guilty, including three former GE Funding CMS traders.

“Our in-depth investigations have uncovered pervasive corrupt practices in the municipal securities reinvestment market, and we are requiring financial firms one by one to step up and pay the price for their misconduct,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “More than $743 million has been recovered from financial institutions in these settlements, much of which has been returned to municipalities that have been harmed.”

Elaine C. Greenberg, Chief of the SEC’s Enforcement Division’s Municipal Securities and Public Pensions Unit, added, “GE Funding CMS’s fraudulent practices and misrepresentations undermined the competitive bidding process and negatively impacted the prices that municipalities paid for reinvestment products. The firm’s misconduct deprived municipalities of a conclusive presumption that reinvestment instruments were purchased at fair market value.”

According to the SEC’s complaint filed in U.S. District Court for the District of New Jersey, in addition to fraudulently manipulating bids, GE Funding CMS made improper, undisclosed payments to certain bidding agents in the form of swap fees that were inflated or unearned. These payments were in exchange for the assistance of bidding agents in controlling and manipulating the competitive bidding process.

The SEC alleges that from August 1999 to October 2004, GE Funding CMS illegally generated millions of dollars by fraudulently manipulating at least 328 municipal bond reinvestment transactions in 44 states and Puerto Rico. GE Funding CMS won numerous bids through a practice of “last looks” in which it obtained information regarding competitor bids and either raised a losing bid to a winning bid or reduced its winning bid to a lower amount so that it could make more profit on the transaction. In connection with other bids, GE Funding CMS deliberately submitted non-winning bids to facilitate bids set up in advance by certain bidding agents for other providers to win. GE Funding CMS’s fraudulent conduct also jeopardized the tax-exempt status of billions of dollars in municipal securities because the supposed competitive bidding process that establishes the fair market value of the investment was corrupted.
In settling the SEC’s charges without admitting or denying the allegations, GE Funding CMS agreed to pay a $10.5 million penalty along with disgorgement of $10,625,775 with prejudgment interest of $3,775,987. GE Funding CMS consented to the entry of a final judgment enjoining it from future violations of Section 17(a) of the Securities Act of 1933. The settlement is subject to court approval. The Commission recognizes GE Funding CMS’s cooperation in its investigation.

Other financial institutions charged prior to today’s settlement with GE Funding CMS:
Wachovia Bank N.A. – $148 million settlement with SEC and other federal and state authorities on Dec. 8, 2011.
J.P. Morgan Securities LLC – $228 million settlement with SEC and other federal and state authorities on July 7, 2011.
UBS Financial Services Inc. – $160 million settlement with SEC and other federal and state authorities on May 4, 2011.
Banc of America Securities LLC – $137 million settlement with SEC and other federal and state authorities on Dec. 7, 2010.

The SEC’s investigations have been conducted by Deputy Chief Mark R. Zehner and Assistant Municipal Securities Counsel Denise D. Colliers, who are members of the Municipal Securities and Public Pensions Unit in the Philadelphia Regional Office. The SEC thanks the Antitrust Division of the Department of Justice and the Federal Bureau of Investigation for their cooperation and assistance in this matter.”

CFTC ORDERS $350,000 CIVIL PENALTY AGAINST MERRILL LYNCH COMMODIITES, INC.

The following excerpt is from the commodity futures trading commission website:

December 7, 2011

"Washington, DC -- The U.S. Commodity Futures Trading Commission (CFTC) today announced that Merrill Lynch Commodities, Inc. (MLCI) agreed to pay a $350,000 civil monetary penalty to settle CFTC charges that it exceeded speculative position limits in Cotton No. 2 futures contracts in trading on the IntercontinentalExchange U.S. (ICE). MLCI also agreed to cease and desist from further such violations of Section 4a(b)(2) of the Commodity Exchange Act (CEA).

According to the CFTC order, MLCI held net futures equivalent positions in Cotton No. 2 futures contracts in excess of CFTC speculative position limits on ICE over four consecutive days from January 31, 2011, through February 3, 2011. These MLCI positions exceeded the CFTC’s speculative position limit of 5,000 contracts in all months and 3,500 contracts in any single month in Cotton No.2, the order finds, and violated the CEA’s prohibition against trading in excess of speculative position limits.

Specifically, at the end of the trading day on January 31, 2011, MLCI held a net short position of 5,502 contracts, which was 502 contracts over the all months speculative position limit, according to the order. The following day, on February 1, 2011, MLCI held a net short position of 6,059 contracts, which was 1,059 contracts over the all months speculative limit. MCLI also held a net short position of 3,727 contracts in the March 2011 contract, which was 227 contracts over the single month speculative position limit, the order also finds."

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FORMER CEO AND CFO OF A CLEAN COAL TECH. COMPANY CHARGED WITH MISLEADING INVESTORS

The following excerpt is from the SEC website:

“Washington, D.C., Dec. 21, 2011 — The Securities and Exchange Commission today charged the former CEO and CFO at a Minnesota-based clean coal technology company for making false and misleading statements to investors, and separately charged a network of brokers who sold the company’s securities without being registered with the SEC to do so.

According to the SEC’s complaints filed in U.S. District Court for the District of Minnesota, Bixby Energy Systems raised at least $43 million from more than 1,800 investors during a nine-year period through a series of purported private placement offerings of stocks, warrants, and promissory notes. The company used this capital raising activity to help fund operations, pay salaries, and pay commissions to brokers that sold Bixby securities.

The SEC alleges that Bixby’s former CEO Robert Walker and former CFO Dennis DeSender made repeated misstatements both verbally and in writing to investors about the company’s core product – a machine that supposedly produced synthetic natural gas through a proprietary clean coal technology. They told investors that Bixby’s coal gasification machine was proven and operating when in fact it had substantial technological defects, did not function properly, and was at risk of self-destruction. Walker and DeSender never disclosed these problems to investors.

“Investors were falsely informed that Bixby’s coal gasification technology was proven, fully functional, and ready for market,” said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. “Investors who purchased Bixby shares through the unregistered brokers were deprived of the protections afforded under the federal securities laws requiring the registration of broker-dealers and securities offerings like these.”
According to the SEC’s complaint, among the other false and misleading statements or omissions to investors in offering materials or solicitations:

Investors were told that company officers would not be compensated for their sale of Bixby securities. However, Bixby actually paid DeSender at least $3.6 million in cash and warrants related to his sale of Bixby securities. DeSender kicked back more than $600,000 to Walker in an undisclosed and fraudulent commission-sharing scheme.

DeSender was convicted for bank fraud in 1998. However, this was never disclosed to investors in offering materials, which instead touted DeSender’s “25 years of financial consulting and operations management experience” and “extensive background in management and operations.”

Walker and DeSender induced investors to purchase Bixby securities by telling them that Bixby was going to conduct an initial public offering of its shares in the near term, even though they knew that Bixby could not do so.
The SEC further alleges that DeSender and his corporation DLD Financial Ltd. acted as unregistered brokers and that Walker aided and abetted the violations. Walker and DeSender are charged with violations of the securities offering provisions of the Securities Act of 1933.

According to the SEC’s separate complaint against the unregistered brokers, they and DeSender sold more than $21.7 million in Bixby securities to at least 560 investors. As compensation for their sale of Bixby securities, the unregistered brokers and DeSender were paid a total of at least $4.9 million in transaction-based cash commissions. They also received warrants to purchase more than 900,000 shares of Bixby common stock. The SEC alleges that these brokers induced the purchase or sale of securities when they were not registered with the SEC as a broker or dealer or associated with an entity registered with the SEC as a broker or dealer.
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The unregistered brokers are charged with violations of Section 15(a) of the Securities Exchange Act of 1934.”

UNREGISTERED STOCK SALES NETS OVER $1.3 MILLION IN DISGORGEMENT, INTEREST AND CIVIL PEALTY

The following excerpt is from the Securities and Exchange Commission website:

“The United States Securities and Exchange Commission announced that on December 19, 2011, the Honorable Dora L. Irizarry, United States District Court Judge for the Eastern District of New York, entered a judgment against Myron Weiner. The judgment permanently enjoins Weiner from violating the registration provisions of Section 5 of the Securities Act of 1933 (“Securities Act”) and imposes a one-year penny stock bar against Weiner. The judgment also ordered Weiner to pay $1,215,057 in disgorgement, $80,135 in prejudgment interest, and a $50,000 civil penalty. Weiner consented to the entry of the judgment, without admitting or denying the allegations of the Commission’s complaint. Weiner also settled a related forfeiture action brought by the Civil Division of the U.S. Attorney’s Office for the Eastern District of New York.
The Commission’s civil action against Myron Weiner, filed on November 22, 2011, relates to his unregistered sales of shares of Spongetech Delivery Systems, Inc. (“Spongetech”) in 2009. In its complaint, the Commission alleges that Weiner purchased the shares from a Spongetech affiliate at a discounted price of 5 cents, and then sold the shares into the public market less than three months later for 20 cents, for a profit of $1,215,057. The Commission alleges that Weiner’s conduct violated the registration provisions of Section 5 of the Securities Act, since his sales were not registered with the Commission, and no exemption from the registration requirements of the federal securities laws applied.
The Commission wishes to thank the U.S. Attorney’s Office, the Federal Bureau of Investigation and the Internal Revenue Service for their assistance and cooperation in connection with this matter.”

SEC CHARGES FORMER SECURITIES TRADER OF PARTICIPATING IN AN "INTERPOSITIONING SCHEME"

The following excerpt is from the SEC website:

“Washington, D.C., Dec. 23, 2011 — The Securities and Exchange Commission today charged a former securities trader at a San Diego-based brokerage firm with orchestrating an illegal trading scheme.

The SEC alleges that Aurelio Rodriguez acted in concert with a Mexican investment adviser, InvesTrust, and unnecessarily inserted a separate broker-dealer as a middleman into securities transactions in order to generate millions of dollars in additional fees. Rodriguez, who resided in Coronado, Calif., at the time and currently lives in Mexico, agreed to pay $1 million to settle the SEC’s charges. The SEC also charged his former firm Investment Placement Group (IPG) and its CEO with failing to properly supervise Rodriguez. IPG agreed to pay more than $4 million to settle the charges.

In an interpositioning scheme, an extra broker-dealer is illegally added as a principal on trades even though no real services are being provided. The SEC alleges that Rodriguez colluded with InvesTrust and needlessly inserted a broker-dealer based in Mexico into securities transactions between IPG and InvesTrust’s pension fund clients, causing the pension funds to pay approximately $65 million more than they would have without the middleman.

“Rodriguez repeatedly abused his position as a securities industry professional to commit this cross-border fraudulent scheme to the detriment of the pension funds,” said Rosalind R. Tyson, Director of the SEC’s Los Angeles Regional Office. “The scheme’s participants reaped millions of dollars from these illicit activities.”

According to the SEC’s order instituting administrative proceedings against Rodriguez, the scheme occurred from January to November 2008. Rodriguez in coordination with InvesTrust acquired 10 different credit-linked notes in an IPG proprietary account. Rodriguez knew that the notes were slated for InvesTrust’s pension fund clients.
The SEC alleges that IPG, through Rodriguez, added a markup of roughly 1.5 to 4.5 percent to the purchase price and then sold the notes to the middleman Mexican brokerage firm. IPG, through Rodriguez, repurchased the notes from the Mexican brokerage firm within a day or so at a slightly higher price. IPG added another markup and then sold the securities to InvesTrust’s pension fund clients.

According to the SEC’s order, in some instances Rodriguez repeated the buy-sell pattern with the middleman Mexican brokerage firm multiple times, driving up the price with each successive trade before finally selling the notes to the pension funds at artificially inflated prices. Rodriguez received millions of dollars in additional markups generated from the interpositioned transactions.

The SEC’s order finds that Rodriguez violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5. Without admitting or denying the SEC’s findings, Rodriguez consented to the order and agreed to pay $1 million in ill-gotten gains and to be barred from the securities industry as well as from participating in any penny stock offering, for five years. The order also requires him to cease and desist from committing or causing any violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5.
The SEC instituted separate but related administrative proceedings against IPG and its CEO Adolfo Gonzalez-Rubio, who was Rodriguez’s direct supervisor. IPG and Gonzalez-Rubio each agreed to settle their cases without admitting or denying the SEC’s findings. IPG agreed to be censured, pay approximately $3.8 million in disgorgement and prejudgment interest, pay a $260,000 penalty, and comply with certain undertakings. Gonzalez-Rubio agreed to a three-month suspension as a supervisor with any broker, dealer, investment adviser, or certain other registered entities.”

ANOTHER COURT ACTION REGARDING CHINA VOICE HOLDING'S CASE

The following excerpt is from the SEC website:

December 22, 2011
“On December 21, 2011, the Honorable Reed O’Connor, United States District Judge for the Northern District of Texas, entered an order permanently enjoining Robert Wilson and his company, Strategic Capital.

Without admitting or denying the allegations in the Commission’s complaint, Wilson and Strategic Capital consented to the entry of a judgment that permanently enjoins them from violating Section 17(b) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The judgment also provides that upon motion of the Commission, the Court may order disgorgement of ill-gotten gains and prejudgment interest thereon against Wilson, Strategic Capital, and another Wilson company, Green Horseshoe Holdings, Inc. In addition, pursuant to the judgment, the Court may order civil penalties in amounts the Court deems appropriate against Wilson and Strategic Capital, as well as a penny stock bar against Wilson.

The Commission’s complaint, originally filed on April 28, 2011, alleged that China Voice Holding Corp., its former CFO and co-founder David Ronald Allen, and former CEO and President William F. Burbank IV made a series of false and misleading statements and omissions regarding China Voice’s financial condition and business prospects. In addition, the SEC charged China Voice shareholders Ilya Drapkin and Gerald Patera with financing stock promotion campaigns regarding China Voice. These campaigns included a blast fax campaign conducted by Robert Wilson and Strategic Capital, which the SEC alleged contained false and misleading statements and failed to accurately disclose the amount and source of the compensation Wilson, Strategic Capital, and Green Horseshoe Holdings, Inc. received.

The Commission previously entered into settlements with the other defendants in this matter: Allen, Burbank, China Voice, Drapkin, Patera, Alex Dowlatshahi, Christopher Mills, and various of their companies.”