FORMER STARMEDIA EXECUTIVE AGREES TO SETTLEMENT IN SEC LITIGATION

The following excerpt is from the U.S. Securities and Exchange Commission website:
March 13, 2012
The U.S. Securities and Exchange Commission today announced that on March 12, 2012, the U.S. District Court for the Southern District of New York entered a settled final judgment as to Adriana J. Kampfner, the former Senior Vice President for Global Sales for StarMedia Network, Inc., a now-defunct Internet portal, in Securities and Exchange Commission v. Fernando J. Espuelas et al., Civil Action No. 06 CV 2435 (PAE) (S.D.N.Y. filed Mar. 29, 2006). The Commission’s injunctive action alleged violations of the federal securities laws by eight former StarMedia executives. The Commission’s amended complaint alleges, in relevant part, that for fiscal year 2000 and the first two quarters of fiscal year 2001, StarMedia’s books and records misstated the company’s revenue.

Without admitting or denying the allegations in the amended complaint, Kampfner consented to the entry of the Final Judgment permanently enjoining her from future violations of Rule 13b2-1 promulgated under the Securities Exchange Act of 1934 (Exchange Act), and from aiding and abetting violations of Section 13(b)(2)(A) of the Exchange Act.

COURT ORDERS FORMER BROKER TO PAY OVER $500,000 FOR DEFRAUDING 9/11 WIDOW

The following excerpt is from the SEC website:
The Securities and Exchange Commission announced that a federal judge in Massachusetts entered a final judgment on March 14, 2012 ordering defendant James J. Konaxis, formerly a registered representative of Beverly-based broker-dealer Sentinel Securities, Inc., to disgorge more than $483,000 in commissions earned over a two-year period by defrauding a former customer who was left widowed by the September 11, 2001 terrorist attacks. Together with prejudgment interested and a civil penalty, Konaxis has been ordered to pay a total of $514,954. In granting the Commission’s motion for monetary remedies, Judge Denise L. Casper found that Konaxis was liable in the amount of all commissions earned from three of the victim’s accounts over a two-year period because he “misled the victim into thinking her investments were safe, while churning (e.g., excessively trading) her funds in a manner contrary to her interests[.]”

According to the Commission’s complaint, Konaxis violated Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder by excessively trading his customer’s funds while knowingly or recklessly disregarding her interests. During a two-year period, the Commission alleges that the value of his customer’s accounts (funded by payments made to the victim and her family by the September 11th Victim Compensation Fund) decreased from approximately $3.7 million to approximately $1.6 million, much of which was due to Konaxis’s investments and the resulting commissions paid to Konaxis.

At the time the Commission’s complaint was filed, Konaxis entered into a partial settlement with the Commission, in which he consented to be enjoined from future violations of the antifraud provisions of the Securities Act and Exchange Act, and to be barred from participating in any offering of penny stock. In addition, as part of the settlement, Konaxis agreed to be barred in related administrative proceedings from any future association with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent. However, the Commission also filed a motion with the Court seeking disgorgement of ill-gotten gains plus pre-judgment interest, and the imposition of a civil penalty, which Konaxis opposed.

After a hearing on March 1, 2012, Judge Denise L. Casper issued an order granting the Commission’s motion for monetary remedies, including disgorgement in the full amount of Konaxis’ commissions earned over a two-year period from the three accounts churned, totaling $483,460.23, prejudgment interest in the amount of $31,494.44, and a civil penalty of $10,000, for a total of $514,954.

SEC CHARGES INVESTMENT ADVISER WITH GIVING INVESTORS A BOGUS AUDIT REPORT

The following excerpt is from a SEC e-mail:
Washington, D.C., March 15, 2012 – The Securities and Exchange Commission today charged a San Francisco-area investment adviser with defrauding investors by giving them a bogus audit report that embellished the financial performance of the fund in which they were investing.

The SEC alleges that James Michael Murray raised more than $4.5 million from investors in his various funds including Market Neutral Trading LLC (MNT), a purported hedge fund that claimed to invest primarily in domestic equities. Murray provided MNT investors with a report purportedly prepared by independent auditor Jones, Moore & Associates (JMA). However, JMA is not a legitimate accounting firm but rather a shell company that Murray secretly created and controlled. The phony audit report misstated the financial condition and performance of MNT to investors.

“An independent financial audit is one of the best protections available to investors,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office. “Murray conjured up an accounting firm and deliberately faked the audit to induce investors into believing the fund was in better shape than it actually was.”

The U.S. Attorney’s Office for the Northern District of California also has filed criminal charges against Murray in a complaint unsealed yesterday.

According to the SEC’s complaint filed in federal court in San Francisco, Murray began raising the funds from investors in 2008. The following year, MNT distributed the phony audit report to investors claiming the audit was conducted by a legitimate third-party accounting firm. However, JMA is not registered or licensed as an accounting firm in Delaware, where it purports to do business. JMA’s website was paid for by a Murray-controlled entity and listed 12 professionals with specific degrees and licenses who supposedly work for JMA. However, at least five of these professionals do not exist, including the two named principals of the firm: “Richard Jones” and “Joseph Moore.” Murray has attempted to open brokerage accounts in the name of JMA, identified himself as JMA’s chief financial officer, and called brokerage firms falsely claiming to be the principal identified on most JMA documents.

The SEC alleges that the bogus audit report provided to investors understated the costs of MNT’s investments and thus overstated the fund’s investment gains by approximately 90 percent. The JMA audit report also overstated MNT’s income by approximately 35 percent, its member capital by approximately 18 percent, and its total assets by approximately 10 percent.

The SEC’s complaint charges Murray with violating an SEC rule prohibiting fraud by investment advisers on investors in a pooled investment vehicle. The complaint seeks injunctive relief and financial penalties from Murray.

The SEC’s investigation was conducted by Karen Kreuzkamp and Robert S. Leach of the San Francisco Regional Office following an examination of MNT conducted by Yvette Panetta and Doreen Piccirillo of the New York Regional Office’s broker-dealer examination program. The SEC’s litigation will be led by Robert L. Mitchell of the San Francisco Regional Office. The SEC thanks the U.S. Attorney’s Office for the Northern District of California and the U.S. Secret Service for their assistance in this matter.

FORMER EXECUTIVE AT CKE RESTAURANTS CHARGED WITH INSIDER TRADING

The following excerpt is from the SEC website:
March 16, 2012
SEC CHARGES FORMER EXECUTIVE AT CKE RESTAURANTS WITH INSIDER TRADING
On March 15, 2012, the Securities and Exchange Commission charged a former executive at the parent company of Carl’s Jr. and Hardee’s fast food restaurants with insider trading in the company’s securities based on confidential information he learned on the job.

The SEC alleges that Noah J. Griggs, Jr., who was executive vice president of training and leadership development at CKE Restaurants Inc., made two purchases totaling 50,000 shares of CKE stock after attending an executive meeting during which he learned that the company was in discussions with private equity investors about a possible acquisition. Griggs made a potential profit of $145,430 after the stock price soared when the merger was announced publicly. Griggs has agreed to pay $268,000 to settle the SEC’s charges without admitting or denying the allegations.

According to the SEC’s complaint filed in U.S. District Court for the Central District of California, Griggs attended a monthly strategic planning meeting on Friday, Nov. 20, 2009. CKE’s CEO cautioned the executives that information about the potential merger was confidential and nonpublic, and that no one should act on it. Nonetheless, on Monday morning November 23, Griggs bought 30,000 shares of CKE. He bought an additional 20,000 shares on Jan. 8, 2010. CKE and Thomas H. Lee Partners (THL) publicly announced a definitive merger on February 26 in which THL would acquire CKE. On news of the announcement, the value of Griggs’s shares increased significantly as CKE stock closed at $11.37 per share, up more than 27 percent from the previous day’s closing price of $8.91.

CKE Restaurants, Inc. is based in Carpinteria, California, and is the parent company of Carl Karcher Enterprises, which owns the fast-food restaurant brands of Carl’s Jr. and Hardee’s. Its common stock was listed on the NYSE under the ticker symbol CKR until July 13, 2010, when the NYSE suspended trading of the stock following the company’s acquisition by Columbia Lake Acquisition Holdings, Inc.

The SEC’s complaint charges Griggs with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c). Griggs agreed to pay disgorgement of $145,430, prejudgment interest of $11,035.74, and a penalty of $111,730. He also agreed to the entry of a final judgment permanently enjoining him from violating Section 10(b) of the Exchange Act and Rule 10b-5 and barring him from serving as an officer or director of a public company for 10 years. The settlement is subject to court approval.

The SEC’s investigation was conducted by Los Angeles Regional Office enforcement staff Lorraine Echavarria and Carol Lally. The SEC acknowledges the assistance of NYSE Regulation, Inc. in this matter.

SEC RELEASES DATA ON CREDIT DEFAULT SWAPS

The following excerpt is from the SEC website:
Washington, D.C., March 15, 2012 –The staff of the Securities and Exchange Commission today has made available publicly an analysis of market data related to credit default swap transactions.  The analysis, which was conducted by the staff of the SEC’s Division of Risk, Strategy, and Financial Innovation, is available for review and comment as part of the comment file for rules the SEC proposed, jointly with the Commodity Futures Trading Commission, to further define the terms “swap dealer," "security-based swap dealer," "major swap participant," "major security-based swap participant," and "eligible contract participant."  The SEC and CFTC jointly proposed those rules in December 2010 as one part of the implementation of Title VII of the Dodd-Frank Act.

The SEC staff believes that the analysis of market data has the potential to be informative for evaluating certain final rules under Title VII, including rules that further define “major security-based swap participant” and “security-based swap dealer,” and rules implementing the statutory de minimis exception to the latter definition.  Analyses of this type particularly may supplement other information considered in connection with those final rules, and the SEC staff is making this analysis available to allow the public to consider this supplemental information.  The SEC staff expects that the Commission will consider the adoption of rules defining these terms in the next several weeks.

SEC CHARGES FIRM WITH FRAUD IN STOCK LENDING SCHEME

The following excerpt is from the SEC website:
March 16, 2012
SEC Charges Senior Executives at California-Based Firm in Stock Lending Scheme
The Securities and Exchange Commission today charged two senior executives and their California-based firm with defrauding officers and directors at publicly-traded companies in an elaborate $8 million stock lending scheme.

The SEC alleges that Argyll Investments LLC’s purported stock-collateralized loan business is merely a fraud perpetrated by James T. Miceli and Douglas A. McClain, Jr. to acquire publicly traded stock from corporate officers and directors at a discounted price from market value, separately sell the shares for full market value in order to fund the loan, and use the remaining proceeds from the sale of the collateral for their own personal benefit. Miceli, McClain, and Argyll typically lied to borrowers by explicitly telling them that their collateral would not be sold unless a default occurred. However, since Argyll had no independent source of funds other than the borrowers’ collateral, Argyll often sold the collateral prior to closing the loan and then used the proceeds to fund it.
Also charged in the SEC’s complaint filed in U.S. District Court for the Southern District of California is a broker through which Argyll attracted potential borrowers. The SEC alleges that AmeriFund Capital Finance LLC and its owner Jeffrey Spanier violated the federal securities laws by brokering numerous transactions for Argyll while not registered with the SEC.

The SEC alleges that Miceli and McClain induced at least nine corporate officers and directors since 2009 to transfer ownership of millions of shares of stock to Argyll as collateral for purported loans. Miceli and McClain promised to return the stock to the borrowers when the loans were repaid. However, rather than retaining the collateral shares as required, they sold the shares without the borrowers’ knowledge before or soon after funding the loans. In many cases, they used the proceeds from the collateral sales to fund the loans. Because Argyll typically loaned the borrowers 30 to 50 percent less than the current market value of the shares, the company retained substantial proceeds even after funding the loans. As a result of the scheme, Argyll reaped more than $8 million in unlawful gains that Miceli and McClain used in part toward their personal expenses.
In addition to the fraud charges against Miceli, McClain, and Argyll, the SEC alleges that they violated the federal securities laws by improperly selling the collateral shares — all of which were restricted securities — into the public markets in unregistered transactions. They also failed to register with the SEC as brokers or dealers.

The SEC’s complaint alleges that Miceli, McClain, and Argyll violated Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 5(a) and 5(c) of the Securities Act of 1933, and that Spanier and AmeriFund violated Section 15(a) of the Exchange Act. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.
The SEC’s investigation was conducted by Jacob D. Krawitz, Anthony S. Kelly, and Anik Shah, and supervised by Julie M. Riewe. The SEC’s litigation effort will be led by Dean Conway.
The SEC thanks the U.S. Attorney’s Office for the Southern District of California and the Federal Bureau of Investigation for their assistance with this matter.