OWNER AND COMPANY CHARGED WITH MISREPRESENTATIONS ON APPLICATION TO BECOME NRSRO FOR INSURERS OF ASSET BACKED SECURITIES

FROM:  THE SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., April 24, 2012 — The Securities and Exchange Commission today announced charges against Egan-Jones Ratings Company (EJR) and its owner and president Sean Egan for material misrepresentations and omissions in the company’s July 2008 application to register as a Nationally Recognized Statistical Rating Organization (NRSRO) for issuers of asset-backed securities (ABS) and government securities. EJR and Egan also are charged with material misrepresentations in other submissions furnished to the SEC and violations of record-keeping and conflict-of-interest provisions governing NRSROs.

The Commission issued an order instituting proceedings in which the SEC’s Division of Enforcement alleges that EJR — a credit rating agency based in Haverford, Pa. — submitted an application to register as an NRSRO for issuers of asset-backed and government securities in July 2008. EJR had previously registered with the SEC in 2007 as an NRSRO for financial institutions, insurance companies, and corporate issuers.
The SEC’s Division of Enforcement alleges that in its 2008 application, EJR falsely stated that as of the date of the application it had 150 outstanding ABS issuer ratings and 50 outstanding government issuer ratings. EJR further falsely stated in its 2008 application that it had been issuing credit ratings in the ABS and government categories as a credit rating agency on a continuous basis since 1995. In fact, at the time of its July 2008 application, EJR had not issued — that is, made available on the Internet or through another readily accessible means — any ABS or government issuer ratings, and therefore did not meet the requirements for registration as an NRSRO in these categories. EJR continued to make material misrepresentations regarding its experience rating asset-backed and government securities in subsequent annual certifications furnished to the SEC.

The SEC’s Division of Enforcement also alleges that EJR made other misstatements and omissions in submissions to the SEC by providing inaccurate certifications from clients, failing to disclose that two employees had signed a code of ethics different than the one EJR disclosed, and inaccurately stating that EJR did not know if subscribers were long or short a particular security.

The SEC’s Division of Enforcement further alleges that EJR violated other provisions of Commission rules governing NRSROs. EJR failed to enforce its policies to address conflicts of interest arising from employee ownership of securities, and allowed two analysts to participate in determining credit ratings for issuers whose securities they owned. EJR also failed to make and retain certain required records, including a detailed record of its procedures and methodologies to determine credit ratings and e-mails regarding its determination of credit ratings.

The SEC’s Division of Enforcement alleges that Egan provided inaccurate information that was included in EJR’s applications and annual certifications. He signed the submissions and certified that the information provided in them was “accurate in all significant respects,” when he knew that it was not. Egan also failed to ensure EJR’s compliance with the recordkeeping requirements and conflict-of-interest provisions.
The SEC’s Division of Enforcement alleges that, by the conduct described above, EJR willfully violated Exchange Act Sections 15E(a)(1), 15E(b)(2), 15E(h)(1) and 17(a), and Rules 17g-1(a), 17g-1(b), 17g-1(f), 17g-1(a)(2), 17g-2(a)(6), 17g-2(b)(2), 17g-2(b)(7), and 17g-5(c)(2). The Division of Enforcement further alleges that by the conduct described above, Egan willfully made, or caused EJR to make, material misstatements in its Form NRSRO, and caused or willfully aided, abetted, counseled, commanded, induced or procured EJR’s violations of Sections 15E and 17(a) of the Exchange Act and Rules 17g-1, 17g-2, and 17g-5.

The SEC’s investigation was conducted by Stacy Bogert, Pamela Nolan, Alec Koch, and Yuri Zelinsky. The SEC’s litigation will be led by James Kidney.

SEC OBTAINS $4.8 MILLION JUDGMENT AGAINST MARCO GLISSON, WHO WAS CHARGED WITH MAKING A MARKET IN DEREGISTERED SECURITIES OF CMKM DIAMONDS, INC.

FROM:  SECURITIES AND EXCHANGE COMMISSION
April 23, 2012
The Securities and Exchange Commission ("Commission") announced that a judgment was entered on April 11, 2012 in its civil injunctive action against Marco Glisson, filed in the United States District Court of Nevada. Without admitting or denying the allegations in the complaint, Glisson consented to entry of a permanent injunction against violations of the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933, and the broker dealer registration provisions of Section 15(a) of the Securities Exchange Act of 1934. Glisson was ordered to pay $2,765,650.65 in disgorgement, which represented profits gained as a result of the conduct alleged in the complaint, together with prejudgment interest in the amount of $670,574.79. In addition, Glisson was ordered to pay a civil penalty in the amount of $1,400,000, and was permanently barred from participating in the offering of penny stock.

The Commission’s complaint alleged that from December 2005 through April 2007, Glisson acted as an unregistered broker or dealer and illegally sold deregistered securities of CMKM Diamonds, Inc. CMKM's registration with the Commission was revoked and the stock delisted on October 28, 2005. According to the complaint, Glisson, a retired auto worker and part-time restaurant worker who used the name “Deli Dog” or “Deli” in Internet chat rooms, identified potential buyers and sellers by frequenting CMKM related internet chat rooms and through referrals from past buyers and sellers. Glisson then negotiated the terms of the transaction and consummated it by exchanging money for the pertinent CMKM stock certificate. Through these practices, Glisson made a market in deregistered CMKM securities at a time when legitimate broker-dealers refused to execute such purchases or sales because of the Commission's deregistration of CMKM.

See Litigation Release No. 20855/January 15, 2009, for information on the filing of the original action and a link to the Commission’s Complaint.

SEC CHARGES FORMER CALPERS CEO AND FRIEND WITH FALSIFYING LETTERS IN $20 MILLION PLACEMENT AGENT FEE SCHEME

FROM: U.S.  SECURITIES AND EXCHANGE COMMISSION

April 23, 2011

The Securities and Exchange Commission today charged the former CEO of the California Public Employees’ Retirement System (CalPERS) and his close personal friend with scheming to defraud an investment firm into paying $20 million in fees to the friend’s placement agent firms.

The SEC alleges that former CalPERS CEO Federico R. Buenrostro and his friend Alfred J.R. Villalobos fabricated documents given to New York-based private equity firm Apollo Global Management. Those documents gave Apollo the false impression that CalPERS had reviewed and signed placement agent fee disclosure letters in accordance with its established procedures. In fact, Buenrostro and Villalobos intentionally bypassed those procedures to induce Apollo to pay placement agent fees to Villalobos’s firms. The false letters bearing a fake CalPERS logo and Buenrostro’s signature were provided to Apollo, which then went ahead with the payments.

“Buenrostro and Villalobos not only tricked Apollo into paying more than $20 million in placement agent fees it would not otherwise have paid, but also undermined procedures designed to ensure that investors like CalPERS have full disclosure of such fees,” said John M. McCoy III, Associate Regional Director of the SEC’s Los Angeles Regional Office.

According to the SEC’s complaint, Apollo began requiring signed investor disclosure letters in 2007 from investors such as CalPERS before it would pay fees to a placement agent that assisted in raising funds. Villalobos’s firm ARVCO Capital Research LLC (which later became ARVCO Financial Ventures LLC) agreed to this contractual provision in a placement agent agreement with Apollo related to CalPERS’s investment in Apollo Fund VII. However, when ARVCO requested an investor disclosure letter from CalPERS’s Investment Office to provide Apollo, it was informed that CalPERS’s Legal Office had advised it not to sign a disclosure letter. ARVCO never again contacted CalPERS’s Investment Office for an investor disclosure letter.

The SEC alleges that in January 2008, Villalobos instead fabricated a letter using a phony CalPERS logo. At Villalobos’s request, Buenrostro then signed what appeared to be a CalPERS disclosure letter. Upon receipt of the fake disclosure letter for Apollo Fund VII, Apollo paid ARVCO about $3.5 million in placement agent fees.

The SEC’s complaint further alleges that less than two weeks later, Villalobos and Buenrostro created false CalPERS disclosure letters for at least four more Apollo funds under similarly suspicious circumstances. As part of the scheme, Buenrostro signed blank sheets of fake CalPERS letterhead that Villalobos and ARVCO then used to generate additional investor disclosure letters as they needed them. Based on these false documents, Apollo was induced to pay ARVCO more than $20 million in placement agent fees it would not have paid without the disclosure letters.

The SEC seeks an order requiring Buenrostro, Villalobos, and ARVCO to disgorge any ill-gotten gains, pay financial penalties, and be permanently enjoined from violating the antifraud provisions of the federal securities laws.

As alleged in the SEC’s complaint, the defendants violated Section 17(a)(1) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and 10b-5(c) thereunder.

CFTC CHARGES FLORIDA RESIDENT WITH COMMODITY GOLD AND OIL OPTIONS FRAUD

FROM:  CFTC

CFTC Charges Florida Resident Abraham Gutterman and His Companies, Alliance Capital Metals LLC and AR Goldman Wealth Management, LLC with Commodity Gold and Oil Options Fraud and Misappropriation

Defendants allegedly stole more than $480,000 from customers

Federal court enters emergency order freezing defendants’ assets and protecting books and records

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a federal court action against Abraham Gutterman, Alliance Capital Metals LLC (ACM), and AR Goldman Wealth Management, LLC (ARGWM) (doing business as U.S. Principal Financial Services), all of South Florida, charging them with commodity options fraud and misappropriation.

On March 15, 2012, the same day the complaint was filed, Judge Cecilia M. Altonaga of the U.S. District Court for the Southern District of Florida, entered an emergency order freezing the defendants’ assets. The order also prohibits the defendants from destroying or altering books and records. The judge set a hearing date for April 11, 2012.

The CFTC complaint alleges that from at least November 2009 to the present, the defendants fraudulently solicited and accepted at least $483,725 from at least 15 customers to trade gold and oil commodity options contracts. Defendants allegedly never disclosed to customers that their funds would be used for any purposes other than trading gold and oil options. Instead, the defendants misappropriated all of the customers’ funds, and spent the money on various personal expenses, including restaurants, gambling, entertainment, and retail purchases, according to the complaint.

The defendants allegedly lured customers using cold-calls, a website, and at least one face-to-face meeting in a bar in Hialeah, Fla. ACM and ARGWM allegedly used high pressure sales tactics, calling customers repeatedly and promising large profits to convince them to invest. Defendants did not provide customers with any documentation of their investments or account activity statements, and when one customer asked how his investment was doing, ACM and ARGWM advised him to watch the price of gold on business news television stations, according to the complaint.

Specifically, ACM and ARGWM, by and through their employees and agents, allegedly made the following misrepresentations and omissions of material fact to persuade customers to invest:

 customers would “make a killing” if they invested in commodity options through ACM and ARGWM;

 customers would make approximately $200,000 to $300,000 in less than three months with a $20,000 investment in gold options;

 the majority of ACM’s and ARGWM’s prior customers bought gold options in 20 contract lots and those customers’ investments had increased significantly;

 customers needed to “get in now” because the price of gold was about to rise from prices of approximately $1,700 to $1,800 per ounce to $2,500 per ounce;

 for every dollar the price per ounce of gold goes up, the customer’s options contracts would increase in value by $500 to $2,000; and

 gold options are a good investment for retirement savings and, after investing with ACM and ARGWM, the customer would have more than enough money to retire within just a few months.

Within a few months of investing, ACM and ARGWM allegedly advised customers that all their funds had been lost trading commodity options and the only way to recoup their investments was to invest additional funds. When customers requested that ACM and ARGWM sell their purported commodity options and return the balance of their funds, ACM and ARGWM allegedly refused and instead pressured customers not to sell their investments. No money was ever returned to the customers, according to the complaint.

In its continuing litigation, the CFTC seeks civil monetary penalties, restitution, rescission, disgorgement of ill-gotten gains, trading and registration bans, and preliminary and permanent injunctions against further violations of the federal commodities laws, as charged.

The CFTC appreciates the assistance of the Aventura, Florida, Police Department.

CFTC Division of Enforcement staff responsible for this case are Robert Howell, Joseph Patrick, Susan Gradman, Scott Williamson, Rosemary Hollinger, and Richard Wagner.

SEC CHARGES CHINA-BASED COMPANY WITH MISLEADING INVESTORS ABOUT ASSET VALUES

FROM:  U.S. SECURITIES AND EXCHANGE COMISSION  
Washington, D.C., April 23, 2012 — The Securities and Exchange Commission today charged a China-based oil field services company and two senior officers involved in a scheme to intentionally mislead investors about the value of its assets and its use of $120 million in IPO proceeds. The SEC additionally charged the company’s chairman of the board involved in a separate $40 million theft from the company.

The SEC alleges that SinoTech Energy Limited grossly overstated the value of its primary operating assets in financial statements, specifically the lateral hydraulic drilling (LHD) units that are central to its business. The company’s IPO registration statement in November 2010 promised investors it would spend $120 million raised in the IPO to acquire LHD units, but the company’s purchase contracts and other documents otherwise show it acquired far fewer LHD units, lied about the number it acquired, and grossly overstated the value of the units. SinoTech CEO Guoqiang Xin and former CFO Boxun Zhang were responsible for the fraud.

Meanwhile, the company’s chairman Qinzeng Liu is accused of secretly siphoning at least $40 million from a SinoTech bank account in the summer of 2011. He then stood silently by as SinoTech – attempting to counter negative Internet reports that the company was potentially fraudulent – falsely assured investors that the company had that money and more in the bank. Liu later admitted his theft to SinoTech’s auditor and board of directors, but he retained his position and investors were not informed of the incident.
“SinoTech’s brief life as a public company in the U.S. markets has been rife with falsehoods,” said David Woodcock, Director of the SEC’s Fort Worth Regional Office. “Investors deserve the utmost honesty and transparency from companies and their officers when they tap public markets in the United States.”

According to the SEC’s complaint filed in U.S. District Court for the Western District of Louisiana (Lake Charles Division), SinoTech’s public filings certified by both Xin and Zhang represented that the company had purchased 16 LHD units worth $94 million. In fact, the company only acquired 11 such units worth less than $17 million. SinoTech continually misled investors about the value of its equipment in press releases and SEC filings between December 2010 and November 2011. Xin went so far as to try (unsuccessfully) to convince SinoTech’s LHD unit supplier to issue public statements verifying the company’s false valuations to investors. The supplier refused.

The SEC’s complaint alleges that Liu’s admitted theft of $40 million in company funds occurred sometime between June 30 and August 17. Liu withdrew the money from SinoTech’s primary bank account at the Agricultural Bank of China. SinoTech did not record Liu’s withdrawal in the company’s books and records, and it retained Liu as its chairman despite his confession.

The SEC alleges that the theft remained hidden when SinoTech attempted to rebut an Internet report alleging fraud in August 2011. In an effort to persuade investors that SinoTech was legitimate, the company issued a press release stating that SinoTech’s bank balances totaled more than $93 million and included $54 million on deposit at the Agricultural Bank of China. Liu knew this claim was false due to his earlier theft from that account.

The SEC’s complaint seeks permanent injunctive relief and financial penalties against all defendants as well as disgorgement of ill-gotten gains by SinoTech and Liu. The SEC also requests bars against each of the individual defendants from serving as officers or directors of U.S. public companies.

ALLEGEDLY ROBOTS ARE SMARTER THAN PEOPLE WHEN IT COMES TO SECURITIES FRAUD

FROM:  SEC

April 20, 2012

Securities and Exchange Commission v. Thomas Edward Hunter and Alexander John Hunter, Civil Action No. 12-CV-3123 (S.D.N.Y.)

The Securities and Exchange Commission today charged twin brothers from the U.K. with defrauding approximately 75,000 investors through an Internet-based pump-and-dump scheme in which they touted a fake “stock picking robot” that purportedly identified penny stocks set to double in price. Instead, the brothers were merely touting stocks they were being paid separately to promote.

The SEC alleges that Alexander John Hunter and Thomas Edward Hunter were just 16 years old when they set their fraud in motion beginning in 2007. They disseminated e-mail newsletters through a pair of websites they created to tout stocks selected by the robot – which they described as a highly sophisticated computer trading program that was the product of extensive research and development. Their claims were persuasive as the Hunters received at least $1.2 million from investors primarily in the U.S. who paid $47 apiece for annual newsletter subscriptions. Some investors paid an additional fee for the “home version” of the robot software.

The SEC alleges that the brothers separately created a third website where they marketed their newsletter subscriber list to penny stock promoters and boasted, “One email to this list of people rockets a stock price.” The Hunters were in turn paid to send selected penny stock ticker symbols to their subscribers, who were misled to believe that the stock “picks” were the product of the robot. The Hunters sent out their newsletters near the beginning of the trading day, and the price and volume of the promoted stocks spiked dramatically as newsletter subscribers rushed to purchase shares. However, the stocks typically fell precipitously shortly thereafter, leaving investors in most cases with shares worth less than they had purchased them for earlier in the day.

According to the SEC’s complaint, the Hunters also offered subscribers a downloadable version of the stock picking robot for an additional fee of $97. Rather than performing the analysis advertised, the software was actually designed to deliver users a stock pick supplied by the brothers.

The Commission’s complaint further alleges that the Defendants violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeks permanent injunctions against future violations by the Defendants and disgorgement of all ill-gotten gains, including prejudgment interest and civil penalties.