GOVERNMENT GOING AFTER MORTGAGE FRAUDSTERS

The following excerpt is from the Department of Justice website:

“Friday, January 27, 2012U.S. Attorney General Holder, State and Federal Officials Announce Collaboration to Investigate Residential Mortgage-backed Securities Market

WASHINGTON – Attorney General Eric Holder along with Housing and Urban Development (HUD) Secretary Shaun Donovan, Securities and Exchange Commission (SEC) Director of Enforcement Robert Khuzami and New York Attorney General Eric T. Schneiderman today announced the formation of the Residential Mortgage-Backed Securities Working Group under President Obama’s Financial Fraud Enforcement Task Force (FFETF).

At the direction of the President, this Working Group brings together the Department of Justice (DOJ), several state attorneys general and other federal entities to investigate those responsible for misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities.  This effort will be in coordination with and in addition to the ongoing efforts and investigations by the Justice Department, FFETF members and state and federal law enforcement investigating and prosecuting other types of financial fraud.

Attorney General Holder announced that the new Working Group will consist of at least 55 Department of Justice attorneys, analysts, agents and investigators from around the country.  Currently, 15 civil and criminal attorneys are part of the Working Group, along with 10 FBI agents and analysts who will be assigned to the Working Group efforts.  An additional 30 attorneys, investigators and other staff around the country will join the Working Group efforts in the coming weeks.  This team will join existing state and federal resources investigating similar misconduct under those authorities.

The goals of this collaboration will be: to hold accountable any institutions that violated the law; to compensate victims and help provide relief for homeowners struggling from the collapse of the housing market, caused in part by this wrongdoing; and to help Americans finally turn the page on this destructive period in our nation’s history.

“This Working Group brings together federal and state partners to strengthen current and future efforts to investigate and prosecute instances of wrongdoing in the residential mortgage-backed securities market,” said Attorney General Holder.  “With this focus on collaboration – and by bringing our government’s full enforcement resources to bear – I have no doubt that we will improve our ability to recover losses, to prevent fraud, to bring abuses to light, and to hold those who violate the law accountable.  That’s what the challenge before us demands, and that’s what the American people deserve.”
The working group will be co-chaired by senior officials at the Department of Justice and SEC, including Lanny Breuer, Assistant Attorney General, Criminal Division, DOJ; Robert Khuzami, Director of Enforcement, SEC; John Walsh, U.S. Attorney, District of Colorado; and Tony West, Assistant Attorney General, Civil Division, DOJ.
The working group will also be co-chaired by New York Attorney General Schneiderman, who will lead the effort from the state level.  Other state Attorneys General have been and will be joining this effort.

“I am pleased to co-chair this important effort.  Each of us offers different tools and talents, but we are all united by a common and continuing desire to identify misconduct in the mortgage securitization process,” said SEC Enforcement Director Khuzami.  “The SEC has issued scores of subpoenas, obtained millions of documents, and interviewed dozens and dozens of key witnesses related to mortgage-backed securities.  This collaborative effort will enable us pool our knowledge and leverage our resources.”
“Millions of American families have been harmed by the foreclosure crisis,” said HUD Secretary Donovan.  “These families deserve justice.  They deserve relief.  That is why this investigation is so important.  With a new Residential Mortgage-Backed Securities Working Group led by Attorney General Holder and state leaders like New York Attorney General Schneiderman, we will build on the work of the President’s Financial Fraud Enforcement Task Force by investigating misconduct we know led directly to the financial crisis.  And I’m proud that the Office of the HUD Inspector General David Montoya —which over the past year has been central to uncovering wrongdoing with respect to faulty foreclosure servicing practices—will play a critical role in the mortgage origination component of this review.”

“I would like to thank President Obama and Attorney General Holder for their leadership in combating financial fraud in this country and I look forward to co-chairing this working group that marshals state and federal resources to build on those efforts by bringing justice on behalf the victims of the misconduct that caused the mortgage crisis,” said Attorney General Schneiderman.  “In coordination with our federal partners, our office will continue its steadfast commitment to holding those responsible for the mortgage crisis accountable, providing meaningful relief for homeowners commensurate with the scale of the misconduct, and getting our economy moving again.  The American people deserve a thorough investigation into the global financial meltdown to ensure nothing like it ever happens again, and today’s announcement is a major step in the right direction.”
The Obama Administration is committed to ensuring that justice and relief are provided for the millions of American families harmed by the financial crisis.

President Obama created the Financial Fraud Enforcement Task Force by executive order in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. Attorneys’ Offices and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud and bring to bear a powerful array of criminal and civil enforcement resources.

Since its formation, the Task Force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.  Task Force members have charged a record number of  mortgage fraud cases in the past two years, trained more than 100,000 professionals responsible for awarding and overseeing Recovery Act funds and held regional summits around the country to discuss strategies, resources and initiatives as well as to meet with communities most affected by the financial crisis.”
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SEC ALLEGES HYPING STOCK PRICE SCHEME IN FLORIDA

The following excerpt is from the SEC website:

Washington, D.C., Jan. 26, 2012 – The Securities and Exchange Commission today charged a Fort Lauderdale-based firm and its founder with conducting a fraudulent boiler room scheme in which they hyped stock in two thinly-traded penny stock companies while behind the scenes they sold the same stock themselves for illegal profits.

The SEC alleges that First Resource Group LLC and its principal David H. Stern employed telemarketers who fraudulently solicited brokers to purchase stock in TrinityCare Senior Living Inc. and Cytta Corporation. While recommending the securities in these two microcap companies, Stern sold First Resource’s shares of TrinityCare and Cytta stock unbeknownst to investors who were purchasing them – a practice known as scalping. As Stern was selling the stocks, he also purchased small amounts in order to create the false appearance of legitimate trading activity and induce investors to purchase shares in both companies.
“First Resource and Stern used a telephone sales boiler room to make inflated claims and defraud investors while simultaneously manipulating the price of the stocks and making profits for themselves,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “The SEC will continue to aggressively pursue perpetrators of microcap stock fraud schemes that hound potential investors to buy stock.”
Since the beginning of fiscal year 2011, the SEC has filed more than 50 enforcement actions for misconduct related to microcap stocks, and issued 63 orders suspending the trading of suspicious microcap issuers. Microcap stocks are issued by the smallest of companies and tend to be low priced and trade in low volumes. Many microcap companies do not file financial reports with the SEC, so investing in microcap stocks entails many risks.

According to the SEC’s complaint filed against Stern and First Resource in U.S. District Court for the Southern District of Florida, they violated federal securities laws by acting as unregistered broker-dealers. Stern hired and trained First Resource’s salespeople and gave them information about TrinityCare to prepare sales scripts and pitch the stock to potential investors. Stern reviewed the draft scripts, made edits, and approved the scripts before the salespeople were allowed to use them.
The SEC alleges that Stern gave the salespeople a list of potential investors to cold call and pitch the stocks. First Resource’s salespeople falsely claimed TrinityCare stock “is going to be $5-7 in 6-12 months” and the company “is going to be a half-a-billion dollar company in five years or roughly a $40 stock.” Stern also disseminated a research report on Cytta to investors and falsely touted: “Sales projections for 2010-2014 should exceed $500 million with a pre-tax net of over $400 million.”
The SEC’s complaint alleges that First Resource Group and Stern violated Section 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. The SEC is seeking permanent injunctions, disgorgement plus prejudgment interest, and financial penalties as well as a penny stock bar against Stern.

The SEC’s investigation was conducted by Jorge L. Riera under the supervision of Elisha L. Frank in the SEC’s Miami Regional Office in coordination with an examination of First Resource conducted by Anson Kwong, Michael J. Nakis, George Franceschini, and Nicholas A. Monaco of the SEC’s Miami office. Edward D. McCutcheon will lead the SEC’s litigation efforts.
The SEC’s investigation is continuing."

SEC OBTAINS FINAL JUDGMENTS AGAINST BARAI CAPITAL MANAGEMENT AND OTHERS

 

The following excerpt is from the SEC website:

January 25, 2012

"The SEC announced that the Honorable Jed S. Rakoff, United States District Judge, United States District Court for the Southern District of New York, entered a Final Judgment on Consent as to Noah Freeman on December 23, 2011, and entered Final Judgments on Consent as to Bob Nguyen, Samir Barai and Barai Capital Management on January 23, 2012, in the SEC's insider trading case, SEC v. Mark Anthony Longoria, et al., 11-CV-0753 (SDNY) (JSR).

This case alleges insider trading by ten individuals and one investment adviser entity, all of whom are consultants, employees, or clients of the so-called "expert network" firm, Primary Global Research LLC ("PGR"). The SEC filed its Complaint on February 3, 2011, charging two PGR employees and four consultants with insider trading for illegally tipping hedge funds and other investors. On February 8, 2011, the SEC filed an Amended Complaint, charging a New York-based hedge fund and four hedge fund portfolio managers and analysts who illegally traded on confidential information obtained from technology company employees moonlighting as expert network consultants. The scheme netted more than $30 million from trades based on material, nonpublic information about such companies as Advanced Micro Devices, Seagate Technology, Western Digital, Fairchild Semiconductor, and Marvell Technology Group Ltd. The charges were the first against traders in the SEC's ongoing investigation of insider trading involving expert networks.

The SEC alleged that Nguyen was a PGR employee who facilitated the transfer of material nonpublic information from PGR consultants to PGR clients and, in certain instances, acted as a conduit by receiving material nonpublic information from PGR consultants and passing that information directly to PGR clients. The SEC also alleged that Freeman, Barai and Barai Capital were among the recipients of the material nonpublic information supplied by PGR consultants and employees, and either traded on the information or directly or indirectly caused hedge funds they managed or were otherwise affiliated with to trade based on the information.

The Final Judgment entered against Freeman: (1) permanently enjoins him from violations of Section 10(b) of the Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5; and (2) orders him liable for disgorgement of ill-gotten gains of $833,480, together with prejudgment interest of $180,548, for a total of $1,014,028. Based on Freeman's agreement to cooperate with the SEC, the Commission did not seek a civil penalty. In addition, on January 20, 2012, the Commission issued an order on consent in a related administrative proceeding that bars Freeman from association with any broker, dealer, investment adviser, municipal securities dealer or transfer agent.

The Final Judgment entered against Nguyen: (1) permanently enjoins him from violations of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5; and (2) orders him liable for disgorgement of ill-gotten gains of $190,890.04, together with prejudgment interest of $11,449.16, for a total of $202,339.20. Based on Nguyen's agreement to cooperate with the SEC, the Commission did not seek a civil penalty. In addition, Nguyen has agreed to be barred in a separate administrative proceeding from association with any broker, dealer, investment adviser, municipal securities dealer or transfer agent, and from participating in any offering of a penny stock.

The Final Judgment entered against Barai: (1) permanently enjoins him from violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), 10(b) of the Exchange Act and Exchange Act Rule 10b-5; and (2) orders him liable for disgorgement of ill-gotten gains of $3,000,000, together with prejudgment interest of $434,225.47, for a total of $3,434,225,47. Based on Barai's agreement to cooperate with the SEC, the Commission did not seek a civil penalty. In addition, Barai has agreed to be barred in a separate administrative proceeding from association with any broker, dealer, investment adviser, municipal securities dealer or transfer agent.

The Final Judgment entered against Barai Capital: (1) permanently enjoins it from violations of Section 17(a) of the Securities Act, 10(b) of the Exchange Act and Exchange Act Rule 10b-5; and (2) orders it liable, jointly with Barai, for disgorgement of ill-gotten gains of $3,000,000, together with prejudgment interest of $434,225.47, for a total of $3,434,225,47."

SEC ANNOUNCES TEMPORARY SUSPENSION OF TRADING IN "ONYX" SECURITIES

The following excerpt is from the SEC website:

"UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934

Release No. 66262 / January 27, 2012
The Securities and Exchange Commission (“Commission”) announced the temporary
suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the “Exchange
Act”), of trading in the securities of Onyx Service & Solutions, Inc. (“ONYX”), of Greenwood
Village, CO commencing at 9:30 a.m. on January 27, 2012, and terminating at 11:59 p.m. on
February 9, 2012.

The Commission temporarily suspended trading in the securities of ONYX because of questions
that have been raised about the accuracy and adequacy of publicly disseminated information
concerning, among other things, the company’s business projects and prospects.
The Commission cautions broker-dealers, shareholders, and prospective purchasers that they
should carefully consider the foregoing information along with all other currently available
information and any information subsequently issued by the company.

Further, brokers and dealers should be alert to the fact that, pursuant to Rule 15c2-11 under the
Exchange Act, at the termination of the trading suspension, no quotation may be entered unless
and until they have strictly complied with all of the provisions of the rule. If any broker or dealer
has any questions as to whether or not he has complied with the rule, he should not enter any
quotation but immediately contact the staff in the Division of Trading and Markets, Office of
Interpretation and Guidance, at (202) 551-5777.  If any broker or dealer is uncertain as to what is
required by Rule 15c2-11, he should refrain from entering quotations relating to ONYX
securities until such time as he has familiarized himself with the rule and is certain that all of its
provisions have been met.  If any broker or dealer enters any quotation which is in violation of
the rule, the Commission will consider the need for prompt enforcement action. “

BOTH FIRMS AND INDIVIDUALS CHARGED IN ALLEGED HIJACKED BROKERAGE ACCOUNT SCHEME

The following excerpt is from the SEC website:

January 26, 2012
“The Securities and Exchange Commission today charged a trader in Latvia for conducting a widespread online account intrusion scheme in which he manipulated the prices of more than 100 NYSE and Nasdaq securities and caused more than $2 million in harm to customers of U.S. brokerage firms.

The SEC also instituted related administrative proceedings today against four electronic trading firms and eight executives charged with enabling the trader’s scheme by allowing him anonymous and unfiltered access to the U.S. markets.

According to the SEC’s complaint filed in federal court in San Francisco, Igors Nagaicevs broke into online brokerage accounts of customers at large U.S. broker-dealers and drove stock prices up or down by making unauthorized purchases or sales in the hijacked accounts. This occurred on more than 150 occasions over the course of 14 months. Nagaicevs – using the direct, anonymous market access provided to him by various unregistered firms – traded those same securities at artificial prices and reaped more than $850,000 in illegal profits.

According to the SEC’s orders instituting administrative proceedings against the four electronic trading firms, they allowed Nagaicevs to trade through their electronic platforms without first registering as brokers. Each of the trading firms provided him online access to trade directly in the U.S. markets through an account held in the firm’s name. These firms gave Nagaicevs a gateway to the U.S. securities markets while circumventing the protections of the federal securities laws, including requirements for brokers to maintain and follow adequate procedures to gather information about customers and their trading.

The electronic trading firms and individuals named in the SEC’s administrative proceedings are:
Alchemy Ventures, Inc. of San Mateo, Calif.
Mark H. Rogers, the firm’s president, who lives in San Carlos, Calif.
Steven D. Hotovec, the firm’s vice president, who lives in Redwood City, Calif.
KM Capital Management, LLC of Philadelphia
Joshua A. Klein, the firm’s founder and co-owner, who lives in Philadelphia
Yisroel M. Wachs, the firm’s co-owner, who lives in Philadelphia
Zanshin Enterprises, LLC of Boise, Idaho
Frank K. McDonald, managing member of the firm, who lives in Boise
Richard V. Rizzo, an associate of the firm, who lives in Oceanside, N.Y.
Mercury Capital of La Jolla, CA
Lisa R. Hyatt, the firm’s president, who lives in Escondido, Calif.
Douglas G. Frederick, an associate of the firm, who lives in Brighton, Mich.
Mercury Capital, Hyatt, and Rizzo each agreed to a settlement in which they consented to SEC orders finding that they willfully committed or aided and abetted and caused violations of Section 15(a) of the Securities Exchange Act of 1934 (“Exchange Act”). Hyatt and Rizzo each agreed to pay a $35,000 penalty.
The SEC’s administrative action will determine whether the non-settling trading firms and principals willfully violated Section 15(a) of the Exchange Act, or whether the non-settling principals willfully aided and abetted and caused violations of Section 15(a) of the Exchange Act, and what sanctions, if any, are appropriate as a result. The SEC’s complaint alleges that Nagaicevs violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, and seeks injunctive relief, disgorgement with prejudgment interest, and financial penalties.”

ALLEGED FAMILY TIPS HAS LED TO INSIDER TRADING CHARGES

January 24, 2012

"The Securities and Exchange Commission today charged three people with insider trading in the securities of Oak Hill Financial, Inc. (“Oak Hill”) ahead of a July 20, 2007 announcement that Oak Hill would be acquired by WesBanco, Inc. (Nasdaq: WSBC). The Commission alleges Dale Shafer, who at the time was Oak Hill’s interim CFO, shared information with his cousin, Jason Gonski, about the anticipated merger. Gonski purchased Oak Hill stock in his account and another account and made approximately $35,500 in illicit profits. In addition, Gonski tipped his friend Joseph Mroz, and the two men together made approximately $15,099 from illegal trading in Oak Hill stock.

The case was filed in the U.S. District Court for the Southern District of Ohio. The complaint alleges that:

Shafer learned of the planned merger on May 14, 2007, and told Gonski about it. Gonski misappropriated the information by trading on it. He later told Shafer that he bought Oak Hill stock. Shafer did not tell Gonski to stop trading and did not tell anyone at Oak Hill what had happened. Over the next several weeks, Shafer continued to provide material, nonpublic information about the merger to Gonski and during this time period, Gonski substantially increased his position in Oak Hill. Gonski also tipped his friend Mroz, and they both bought shares of Oak Hill using Mroz’s brokerage account. Total profits in the accounts Gonski traded in were approximately $50,000, which includes $15,099 in profits from trading in the account of Mroz.

Without admitting or denying the allegations in the complaint, Shafer, Gonski and Mroz have offered to settle the case by consenting to the entry of a final judgment permanently enjoining them from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The three settling defendants have agreed to pay disgorgement, prejudgment interest, and penalties totaling more than $150,000, as follows:

Gonski will pay disgorgement and prejudgment interest totaling $59,565.24 for which Shafer is jointly and severally liable for $38,957.81 of that amount and Mroz is jointly and severally liable for $8,766.74. Gonski will pay a civil penalty of $50,686.38. Shafer will pay a civil penalty of $33,484.08. Mroz will pay a civil penalty of $7,459.95. In addition, Shafer has agreed to be barred for five years from serving as an officer or director of a publicly traded company. Shafer has also consented to the issuance of an order under Rule 102(e)(3) suspending him from appearing or practicing before the Commission as an accountant with a right to apply for reinstatement after five years. The proposed settlements are subject to the court’s approval.

The Commission acknowledges the assistance of FINRA in this matter."