CHAIRMAN OF THE BOARD AT CYTOCORE,INC. CHARGED WITH FRAUD BY SEC

The following excerpt is from the SEC website:

“The Commission announced that on January 31, 2012, an Illinois federal court entered a default judgment against Daniel J. Burns (“Burns”), a defendant in an action filed by the Commission in January 2011. The Commission alleged in its complaint that from 2003 to 2008, Burns, the former Chairman of the Board of Directors of CytoCore, Inc. (“CytoCore”), employed fraudulent schemes to profit from CytoCore stock transactions and received hundreds of thousands of dollars in improper compensation and benefits from CytoCore as an unregistered broker. According to the complaint, in February 2008, Burns caused CytoCore to issue a press release touting Burns’ investment in CytoCore stock, and then secretly sold shares immediately following the announcement. According to the complaint, Burns’ secret selling also constituted insider trading because Burns was in possession of material, nonpublic information about an ongoing CytoCore private stock offering.

The complaint further alleged that, from 2003 to 2008, Burns improperly received transaction-based compensation as an unregistered broker soliciting investors in CytoCore stock. The complaint also alleged that Burns submitted false claims for commissions purportedly earned by a friend for soliciting CytoCore investors, and his friend, in turn, remitted those commission payments to Burns. The Complaint also alleged that Burns submitted to CytoCore false claims for expense reimbursements relating to his investor solicitations. The complaint further alleged that Burns violated insider reporting requirements.

The Court’s final judgment enjoins Burns from future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 14(a), 15(a), and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 14a-9, and 16a-3 thereunder, orders him to pay disgorgement in the amount of $804,100.00, plus prejudgment interest of $324,325.00, for a total amount of $1,128,425.00, and permanently bars him from acting as an officer or director of a public company.”

SENATOR LEVIN PROPOSES ENDING TAX LOOPHOLES FOR SPECULATORS

The following excerpt is from the Senator Carl Levin website:

January 23, 2012
WASHINGTON – Sen. Carl Levin, D-Mich., chairman of the Senate Permanent Subcommittee on Investigations, on Monday introduced legislation to end a tax loophole that subsidizes short-term speculation in derivatives.
The Closing the Derivatives Blended Rate Loophole Act [PDF] would end a tax loophole that allows traders in complex derivatives to buy and sell these instruments in days or even seconds, yet claim a large portion of the resulting income as a long-term capital gain. It is one of a series of bills from Levin to implement a seven-point deficit reduction plan he rolled out in September.

The bill would end a tax subsidy that allows people who make short-term investments in certain derivatives to treat much of their earnings as long-term capital gains. Generally speaking, taxpayers are allowed to claim the lower capital gains tax rate on earnings only if those earnings come from the sale of assets that they have held for more than a year. That’s the way the tax code encourages the long-term investment that helps our economy grow.

But under Section 1256 of the Internal Revenue Code, traders in covered derivatives can claim 60 percent of their income as long-term capital gains, no matter how briefly they hold the asset.

In December, the American Bar Association Tax Section called for ending the loophole, telling lawmakers in a letter: “Whatever the merits of extending preferential rates to derivative financial instruments generally, we do not believe that there is a policy basis for providing those preferential rates to taxpayers who have not made such long-term investments.”

Levin has repeatedly called for ending tax breaks and loopholes that benefit Wall Street and high-income tax payers, and has pointed out that a range of budget experts across the ideological spectrum say that addressing revenue, along with spending cuts, is essential to achieving real deficit reduction while avoiding damaging cuts in important federal programs such as education, alternative energy and defense. In September, he outlined a plan that would reduce the deficit by hundreds of billions of dollars. In addition to ending the blended-rate loophole, that plan would:

:
End the carried interest loophole that subsidizes the pay of hedge-fund managers.
End abusive offshore tax shelters.
End a tax loophole that subsidizes lucrative stock options given by corporations to their executives.
Replace the wasteful and inefficient paper tax lien system with a publicly available electronic database that is more efficient and increases scrutiny on those who have failed to pay what they owe.
Restore capital gains tax rates to those in place under President Reagan.
Restore Clinton-era income tax rates on incomes of $250,000 or more.
Levin’s Stop Offshore Tax Haven Abuse Act, introduced last year, would address the offshore tax loophole issue. He and Sen. Sherrod Brown, D-Ohio, last year introduced the Ending Excessive Corporate Deductions for Stock Options Act to end tax subsidies for stock-option pay. And with Sen. Mark Begich, D-Alaska, he introduced the legislation to modernize the tax lien system and improve enforcement.

“This is an agenda for ending wasteful policies that add to our deficit, raise the tax burden on hardworking Americans and make it harder for them to provide for their families,” Levin said. “By closing loopholes and ending tax breaks that overwhelmingly benefit wealthy taxpayers and corporations, we can reduce our budget deficit without crippling our ability to care for our seniors, educate our children and defend our nation.”

DOJ WANTS DIVESTMENT'S BEFORE TEMPLE INLAND & INTERNATIONAL PAPER MERGER

The following excerpt is from the Department of Justice website:

Friday, February 10, 2012
“WASHINGTON — The Department of Justice announced today that it will require International Paper Company and Temple-Inland Inc. to divest three containerboard mills in order to proceed with their $4.3 billion merger.  The department said that the merger, as originally proposed, would have substantially lessened competition in the production and sale of containerboard, the type of paper used to make corrugated boxes, in the United States.   
 
The department’s Antitrust Division filed a civil antitrust lawsuit today in U.S. District Court in Washington, D.C., to block the proposed transaction.  At the same time, the department filed a proposed settlement that, if approved by the court, will resolve the lawsuit by requiring International Paper and Temple-Inland to divest three containerboard mills to resolve the competitive concerns alleged in the lawsuit. 
 
“Corrugated boxes made from containerboard are used to ship more than 90 percent of all goods nationwide,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.  “With the mill divestitures, the transaction can proceed and American consumers and businesses across the country can be assured that competition is preserved in this important industry that is vital to the U.S. economy.” 
 
According to the complaint, International Paper and Temple-Inland are, respectively, the largest and third-largest producers of containerboard in North America.  The merger, as originally proposed, would have produced a single firm in control of approximately 37 percent of North American containerboard capacity. 
 
The department said that by combining the containerboard capacity of International Paper and Temple-Inland, the proposed merger would significantly expand the volume of containerboard over which International Paper would benefit from a price increase, and likely would have led International Paper to strategically reduce its output of containerboard in order to increase the market price.
 
The proposed settlement requires the divestiture of Temple-Inland’s containerboard mills in Waverly, Tenn., and Ontario, Calif., and either International Paper’s containerboard mill in Oxnard, Calif., or International Paper’s containerboard mill in Henderson, Ky., but not both of those mills.  Collectively, the divestitures account for approximately 950,000 tons of containerboard capacity.  The department’s Antitrust Division must approve the purchaser or purchasers of the divested mills. 
 
International Paper is a New York corporation headquartered in Memphis, Tenn.  International Paper owns and operates 12 containerboard mills and 133 box plants that convert containerboard into corrugated boxes in the United States.  In 2010, International Paper reported revenues of approximately $25.2 billion, with its North American Industrial Packaging Group, which produces containerboard and corrugated products, accounting for $8.4 billion.
 
Temple-Inland is a Delaware corporation headquartered in Austin, Texas.  Temple-Inland owns and operates seven containerboard mills and 53 box plants in the United States.  In 2010, Temple-Inland reported revenues of approximately $3.8 billion, with its corrugated-packing business accounting for approximately $3.2 billion.
 
The proposed settlement, along with the department’s competitive impact statement, will be published in the Federal Register, as required by the Antitrust Procedures and Penalties Act.  Any person may submit written comments concerning the proposed settlement within 60 days of its publication to Joshua H. Soven, Chief, Litigation I Section, Antitrust Division, U.S. Department of Justice, 450 Fifth Street, N.W., Suite 4100, Washington, D.C. 20530.  At the conclusion of the 60-day comment period, the court may enter the settlement upon a finding that it is in the public interest.”

HEDGE FUND AND MANAGER CHARGED BY SEC WITH INSIDER TRADING

The following excerpt is from the SEC website:

“Washington, D.C., Feb. 10, 2012 — The Securities and Exchange Commission today charged a hedge fund manager and his Menlo Park, Calif.-based firm for their involvement in the insider trading ring connected to Raj Rajaratnam and hedge fund advisory firm Galleon Management.

The SEC alleges that Douglas F. Whitman and Whitman Capital illegally traded based on material nonpublic information obtained from Rajaratnam associate Roomy Khan, who was Whitman's friend and neighbor. Khan tipped Whitman with confidential details about Polycom Inc.'s fourth quarter 2005 earnings and Google Inc.'s second quarter 2007 earnings prior to the public announcements of those financial results by the companies. Whitman Capital reaped nearly $1 million in ill-gotten gains by trading on Khan's illegal tips.

"Whitman engaged in what even he termed 'slimeball' activity and together with Khan brought new illicit meaning to the maxim 'help thy neighbor,'" said George S. Canellos, Director of the SEC's New York Regional Office.

Sanjay Wadhwa, Associate Director of the SEC's New York Regional Office and Deputy Chief of the Market Abuse Unit, added, "This action should send a strong signal that the SEC will continue to pursue every angle of the Galleon investigation to hold accountable those who have undermined the integrity of our markets by engaging in illegal insider trading."

According to the SEC's complaint, filed in federal court in Manhattan, the inside information about Polycom and Google used by Whitman is the same information that the SEC has previously alleged Khan provided to many of her hedge fund contacts, including Rajaratnam as well as Robert Feinblatt and Jeffrey Yokuty at Trivium Capital.
The SEC alleges that Khan illegally tipped Whitman in January 2006 with information about Polycom's quarterly financial results, and she noted that these details were nonpublic and acquired from a source at Polycom. Whitman Capital accumulated 132,263 shares of Polycom stock in the next two weeks. When the company announced its results on January 25, Whitman Capital liquidated its entire Polycom position for a profit of more than $360,000. On at least one later occasion, in September 2008, Whitman asked Khan to contact her Polycom source to obtain inside information about the company's upcoming earnings so the two could "short it." When Khan rebuffed Whitman citing a fear of getting caught, Whitman suggested that she use "Skype" to avoid detection. Whitman later stated that he would stop speaking to Khan if she wasn't going to be a "slimeball" anymore.
The SEC further alleges that Khan illegally tipped Whitman with inside information about Google's quarterly financial results shortly before the company's post market-close earnings announcement on July 19, 2007. At Whitman's insistence, Khan identified her Google source as an employee of an investor relations firm used by Google. Whitman Capital funds then purchased 2,761 Google put option contracts based on the tip from Khan. On July 20, Whitman Capital closed the put option positions and generated ill-gotten profits of more than $620,000. Afterwards, Whitman sent Khan a large floral arrangement to thank her for the tip.

The SEC's complaint charges Whitman and Whitman Capital with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The complaint seeks a final judgment permanently enjoining the defendants from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay financial penalties.

The SEC has charged 30 defendants in its Galleon-related enforcement actions, which have exposed widespread and repeated insider trading at numerous hedge funds and by other traders, investment professionals, and corporate insiders located throughout the country. The insider trading occurred in the securities of more than 15 companies for illicit profits totaling more than $91 million.

The SEC's investigation, which is continuing, has been conducted by John Henderson and Joseph Sansone - members of the SEC's Market Abuse Unit in New York - and Diego Brucculeri and James D'Avino of the New York Regional Office. Kevin McGrath and Valerie Szczepanik will lead the SEC's litigation effort. The SEC thanks the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation for their ongoing assistance in the matter.”

SEC ALLEGES A FORMER EMPLOYEE OF TAKEDA PHARMACEUTICALS TRADED ON INSIDE INFORMATION

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

“On February 9, 2012, the Securities and Exchange Commission charged that a former employee of Takeda Pharmaceuticals International, Inc. traded on inside information about the Japanese firm’s business alliances and corporate acquisitions.

Brent Bankosky, a former Senior Director in Takeda’s U.S.-based business development group, has agreed to pay more than $136,000 to settle the SEC’s charges. The proposed settlement is subject to the approval of Judge Harold Baer, Jr. of the U.S. District Court for the Southern District of New York. Under the proposed settlement, the Court, upon motion by the Commission, will determine whether to impose an officer-and-director bar against Bankosky.

The SEC’s complaint, filed in federal court in Manhattan, alleges that Bankosky reaped more than $63,000 of profits, achieving a 169% rate of return, by trading on non-public information about two business transactions in 2008. Takeda’s business development group worked on the transactions, a strategic alliance with Cell Genesys, Inc., and the acquisition of Millennium Pharmaceuticals, Inc., which were referred to internally by their code names, Project Ceres and Project Mercury. Bankosky’s trading violated U.S. securities laws and Takeda’s policies, which forbade employees from disclosing or trading based on inside information.

“Brent Bankosky was entrusted with highly confidential information of Takeda and betrayed that trust to line his own pocket,” said George S. Canellos, Director of the SEC’s New York Regional Office.  “His is another cautionary tale of an employee who succumbed to greed and the delusion that he wouldn’t get caught.”

Sanjay Wadhwa, Associate Director of the SEC’s New York Regional Office and Deputy Chief of the Market Abuse Unit, added, “We are determined to rid the U.S. marketplace of illegal insider trading, and we will pursue it wherever we find it, irrespective of whether it’s a hedge fund reaping millions of dollars in illicit gains or an individual investor hoping to fly under the radar by making relatively small insider trading profits.”

According to the SEC’s complaint, almost immediately after Bankosky joined Takeda in January 2008 as a Director in its business development group, he began to misuse confidential corporate information for his personal benefit. In February 2008, Bankosky began placing trades in his personal brokerage account based on non-public information about Takeda’s proposed strategic alliance with Cell Genesys, which was announced in March. Starting in March 2008, Bankosky made additional trades for his own account based on non-public information about Takeda’s plan to acquire Millennium, which was announced in April. Bankosky also traded on other confidential information in 2009 and 2010, purchasing call options in the securities of Arena Pharmaceutical, Inc., and AMAG Pharmaceutical, Inc., respectively, when the firms were engaged in confidential discussions on business transactions with Takeda. Bankosky, who was promoted to Senior Director of Takeda’s business development group in September 2010, resigned from Takeda in May 2011.

The SEC’s complaint charges Bankosky with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, as well as Section 14(e) of the Exchange Act and Rule 14e-3.  The complaint seeks a final judgment ordering Bankosky to pay a financial penalty and disgorge his ill-gotten gains plus prejudgment interest, preventing him from serving as an officer or director of a public company, and permanently enjoining him from future violations of those provisions of the federal securities laws.” 

CFTC ASSERTS THAT TEXAS MAN OPERATED FRAUDULENT FOREIGN CURRENCY BUSINESS

The following excerpt is from the CFTC website:

February 8, 2012
“Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of an enforcement action against Christopher B. Cornett of Buda, Texas, charging him with solicitation fraud, issuing false account statements, misappropriating pool participants’ funds, and failing to register in connection with an off-exchange foreign currency (forex) fraud.

According to the CFTC complaint, filed on February 2, 2012, in the U.S. District Court for the Western District of Texas, from at least June 2008 through at least October 2011, Cornett solicited prospective pool participants to provide funds for a pooled investment in forex. Cornett acted as the manager and operator of the pool, which was referred to at various times as ITLDU, ICM, International Forex Management, LLC and/or IFM, LLC. In soliciting prospective pool participants for the forex pool, Cornett allegedly falsely told prospective pool participants that, while there were weeks when Cornett either lost money or broke even trading forex, Cornett had never experienced a losing month or a losing year trading forex.

During the period from June 18, 2008, through September 2010, Cornett allegedly solicited approximately $7.07 million from pool participants, pool participants redeemed approximately $1.64 million and Cornett lost approximately $4.17 million of the pool’s funds trading forex. During this period, Cornett allegedly had only one profitable month trading forex with pool funds. As a result, Cornett allegedly misappropriated approximately $1.26 million of the pool’s funds. Furthermore, most, if not all, of the profits, losses and account balances that Cornett reported to pool participants were false, according to the complaint.

From October 2010 through October 2011, Cornett allegedly solicited an additional approximately $6.95 million from pool participants, and pool participants redeemed an additional approximately $2.22 million. During this period, Cornett transferred approximately $1.81 million of pool participant funds to accounts at three foreign firms and lost all but approximately $1,600 trading forex, according to the complaint. Cornett also is alleged to have transferred approximately $1.56 million of pool participant funds to three additional foreign firms during this period. Because Cornett was acting as a commodity pool operator (CPO) from October 18, 2010, through at least October 13, 2011, he was required to be registered as a CPO. As of October 13, 2011, Cornett allegedly had failed to register as a CPO.

In the litigation, the CFTC seeks restitution, disgorgement, civil monetary penalties, trading and registration bans and a permanent injunction prohibiting further violations of the federal commodities laws.

The CFTC appreciates the assistance of the U.K. Financial Services Authority, the British Virgin Islands Financial Services Commission, the Ontario Securities Commission, Germany’s BaFin, and the Swiss Financial Market Supervisory Authority.”