SEC ALLEGES A FRAUDULENT "PRIME BANK" SCHEME

FROM:  SECURITIES AND EXCHANGE COMMISSION
May 8, 2012
SEC Charges Arizona Resident with Securities Fraud
The Securities and Exchange Commission (“Commission”) filed a civil injunctive action in Atlanta, Georgia on May 8, 2102, alleging that Gerald D. Kegley (“Kegley”) and the company he operates, Prism Financial Services, LLC (“Prism”), participated in a fraudulent “Prime Bank” scheme that violated the antifraud and securities and broker dealer registration provisions of the federal securities laws.

The Commission’s complaint alleges that from at least April 8, 2010 through at least August 20, 2010, the defendants were directly responsible for introducing six individuals, who invested $1.95 million, to the fraudulent scheme. The complaint alleges that in furtherance of the scheme, the defendants forwarded misrepresentations made by others to investors. These misrepresentations included: 1) that investors could draw upon bank issued guarantees worth millions of dollars without having to repay the withdrawn funds; and 2) that investor funds would be held in escrow until the bank guarantees were issued. The complaint alleges that defendants knew or were reckless in not knowing that both of these representations were false because no such bank guarantees existed and investor funds were misappropriated immediately upon receipt.

Defendants also misrepresented that they would be paid commissions only once the investor received the bank guarantee. In fact, defendants were paid commissions relatively soon after the investors transferred the money. Defendants further told investors that they had previously worked on a successful bank guarantee program. Defendants, however, had actually reported this purportedly successful bank guarantee program to the Federal Bureau of Investigation because they believed it was a fraud.

In its Complaint, the Commission alleges that the defendants violated Sections 5(a) and (c) and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Commission also alleges that defendants aided and abetted violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

SEC CHARGES MOVIE PRODUCER AND RING OF RELATIVES AND BUSINESS PARTNERS WITH INSIDER TRADING

FROM:  SECURITIES AND EXCHANGE COMMISSION
May 8, 2012
The Securities and Exchange Commission today charged a Hollywood movie producer along with his brother, cousin, and three others in his circle of friends and business partners with insider trading in the stock of a company for which he served on the board of directors.

The SEC alleges that Mohammed Mark Amin, prior to a company board meeting, learned confidential information about expanding business opportunities for DuPont Fabros Technology Inc., which develops and manages highly-specialized and secure facilities that maintain large computer servers for technology companies through long-term leases with them. The SEC alleges that Amin tipped his brother Robert Reza Amin, cousin Michael Mahmood Amin, and long-time friend and business manager Sam Saeed Pirnazar with nonpublic details about three new leases that DuPont Fabros was negotiating and three loans it was obtaining to develop new facilities.  The SEC also alleges that the three illegally traded on the basis of that inside information.  Reza Amin went on to tip his friends and business associates Mary Coley and Ali Tashakori, who also illegally traded.  Together they made more than $618,000 in insider trading profits when DuPont Fabros stock rose 36 percent after the company issued an earnings release highlighting the development of these new facilities.
Mark Amin and the five others agreed to settle the SEC’s charges by collectively paying nearly $2 million.

According to the SEC’s complaint filed in U.S. District Court for the Central District of California, Mark Amin is a motion picture executive with his own production company.  He lives in Los Angeles and is credited as the producer or executive producer for more than 75 Hollywood movies including Frida,Eve’s Bayou, and four movies in the Leprechaun series.  In 2007, Amin began serving on the board of directors at DuPont Fabros, a real estate investment trust (REIT) whose common stock is listed on the New York Stock Exchange.  DuPont Fabros develops and operates wholesale data centers that maintain computer servers for such companies as Microsoft, Facebook, and Google. Amin resigned from the board in February 2011.

The SEC alleges that Mark Amin first learned nonpublic information about new leases and loans pending for DuPont Fabros during a board meeting in December 2008, and he further discussed their status in a phone conversation with the company’s CEO on Jan. 7, 2009.  According to the SEC’s complaint, that same day, Mark Amin tipped his cousin Michael Amin of Los Angeles and his friend and business manager Pirnazar of Manhattan Beach, Calif.  The SEC alleges that in fact, Mark Amin initially asked Michael to lend him money and discussed Michael’s purchasing DuPont Fabros stock for both of them in Michael’s name.

On February 4, Mark Amin received materials for a special board meeting to approve the three new loans.  The SEC alleges that the next morning, he tipped this inside information to his brother Reza Amin of Los Angeles, who began buying DuPont Fabros stock just 17 minutes after receiving the tip.  The board approved the three new loans later that day.
According to the SEC’s complaint, Reza Amin tipped Coley, a British citizen who lives in Los Angeles with whom he has a daughter.  They are also business partners in a small chain of video stores.  On February 6, he brought Coley into the local E*Trade branch office where he maintained a brokerage account so she could open a new brokerage account to purchase DuPont Fabros shares.  The SEC alleges that Reza Amin also tipped his friend Tashakori, who lives in Rolling Hills, Calif. and as a self-employed licensed general contractor was engaged in various construction projects for both Mark and Reza Amin.  The SEC also alleges that Tashakori purchased DuPont Fabros stock based on Reza Amin’s tip.

According to the SEC’s complaint, DuPont Fabros issued its 2008 earnings release after the market closed on February 11, 2009, and highlighted that it had obtained the three new loans and entered into the three new leases.  The SEC alleges that from January 8 to February 10, Michael Amin had purchased 145,000 DuPont Fabros shares that yielded him $318,646 in insider trading profits when the stock price soared upon news of the earnings release.  The SEC also alleges that Pirnazar purchased 10,500 shares and made $19,915 in illicit profits.  From February 5 to February 11, Reza Amin purchased 214,600 DuPont Fabros shares for an eventual illegal profit of $241,767.  Coley purchased 20,050 shares and realized insider trading profits of $23,690.  Tashakori purchased 15,000 shares and profited $14,479.

The SEC’s complaint charges the Amins, Pirnazar, Coley, and Tashakori with violating Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5(a) and (c) thereunder.  They have agreed to collectively pay disgorgement of $618,497, prejudgment interest of $78,000, and penalties totaling $1,236,994.  They also have agreed to the entry of a final judgment permanently enjoining them from violating Section 10(b) of the Exchange Act and Rule 10b-5.  Mark Amin has additionally agreed to a bar 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 attorney John Britt.  The SEC thanks the Financial Industry Regulatory Authority (FINRA) for its assistance in this matter.

PARALEGAL AND DAD CHARGED WITH INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Montana-Based Paralegal and Her Father in Insider Trading Scheme
Washington, D.C., May 7, 2012 — The Securities and Exchange Commission today charged a former paralegal at a Kalispell, Mont.-based semiconductor company and her father with insider trading on confidential information about the 2009 acquisition of the company.

The SEC alleges that Angela Milliard wired money to her boyfriend’s brokerage account so she could illegally trade on nonpublic details she learned while working as a legal assistant on Semitool Inc.’s then-secret deal with a Silicon Valley company. She also tipped her father Kenneth Milliard with the confidential information. He then traded on the nonpublic information and tipped his sons, who also made trades. The morning the acquisition was announced, the Milliards sold their shares for illicit profits of more than $67,000.

Angela and Kenneth Milliard have agreed to settle the SEC’s charges by paying more than $175,000.  “Angela Milliard exploited her access to confidential merger and acquisition information to illicitly enrich herself and her family,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office. “As a member of a legal department entrusted with sensitive deal documents, she had a duty to safeguard that information, not trade on it.”

According to the SEC’s complaint filed in federal court in Montana, Angela Milliard first gained access to confidential deal information in October 2009, when she learned that Semitool and the acquiring company – Applied Materials Inc. – had entered into advanced merger negotiations. After learning that the tender offer was to happen in mid-November at a nearly 30 percent premium over Semitool’s then-trading price, she wired money to her boyfriend’s brokerage account and used it to surreptitiously buy shares of Semitool.
The SEC alleges that Angela Milliard tipped her father, who also purchased Semitool shares and encouraged his sons to do the same, which they did. They reaped their illegal insider trading profits following the public announcement of the merger on Nov. 17, 2009.

The Milliards settled the SEC’s charges without admitting or denying the allegations. Angela Milliard agreed to pay full disgorgement of her trading profits totaling $20,355 plus prejudgment interest of $1,614.60 and a penalty of $54,022.11. Kenneth Milliard agreed to pay full disgorgement of his and his sons’ trading profits totaling $47,805 plus prejudgment interest of $3,765.19 and a penalty of $47,805.11.
The SEC’s investigation was conducted by Jennifer J. Lee and Jina L. Choi of the San Francisco Regional Office.

SEC CHARGES ATTORNEY AND CLIENTS IN SCHEME TO UNLAWFULLY SELL BILLIONS OF PENNY-STOCK SHARES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
May 1, 2012
On April 30, 2012, the Securities and Exchange Commission charged a mother-and-daughter pair and their attorney with a scheme to unlawfully acquire and sell billions of shares of penny stock that were never registered for sale to the public.

The SEC charged Florida attorney Cameron H. Linton, Esq., his clients, Christel S. Scucci and her mother Karen S. Beach, and their companies, Protégé Enterprises, LLC, and Capital Edge Enterprises, LLC with a scheme to unlawfully sell large quantities of stock in violation of Section 5 of the Securities Act of 1933, which generally requires that securities transactions be registered with the SEC, unless exempt. According to the SEC, over an approximately 20-month period ending in October 2011, Scucci and her mother sold about 3.3 billion shares of purportedly unrestricted stock that they acquired through so-called debt conversion “wrap around” transactions, reaping proceeds of more than $1.5 million from the sales. The SEC alleges that Scucci and Beach were able to sell most of this stock only because Linton issued baseless legal opinions for them stating that the stock could be issued without a warning on the stock certificate limiting the transfer or sale of the security, which is commonly referred to as a “restrictive legend.” The opinion concluded that their resale was exempt from the federal registration requirements.

According to the SEC’s complaint filed in federal court in Orlando, FL, the transactions involved notes issued by microcap companies representing debts supposedly owed to affiliates or others often closely associated with the companies. Under the wrap around agreements, the affiliates assigned the right to collect the debts from the issuers to Protégé or Capital Edge. The wrap around agreements also purported to amend the initial debt agreements thereby allowing Protégé and Capital Edge to convert the money owed to them into shares of the issuers’ common stock at a deep discount to the prevailing market price. Protégé and Capital Edge almost always elected to receive stock from the issuers shortly after execution of the wrap around agreements, and regularly sold the stock into the public market, often for large profits, within days or weeks of acquiring it. None of the sales were registered with the SEC.

The complaint alleges that Protégé and Capital Edge paid Linton to write attorney opinion letters for them stating that the stock acquired under these wrap around agreements lawfully could be issued to them by the transfer agent without a restrictive legend and immediately sold to the public. According to the SEC, Linton lacked any basis for the opinions he issued, which were premised on the notion that through the wrap around agreements and debt conversion, Protégé and Capital Edge could rely on a safe harbor for resale of securities held for at least one year by “tacking” the 12-month period that the affiliates claimed to have held the original debt before transferring it to Protégé and Capital Edge. However, the complaint alleges that when Linton wrote the opinion letters, he lacked an understanding of the applicable legal principles and failed to substantiate the factual predicate for his opinions. Furthermore, the complaint alleges that in mid-2010, Linton became aware of an injunction issued in SEC v. K&L Enterprises, Inc., involving a similar scheme in which his letters were used to effectuate unregistered sales. But for Linton’s opinion letters, transfer agents would not have issued the stock to Protégé and Capital Edge so that they could quickly turn around and sell it into the public market.

The SEC’s complaint alleges that Protégé, Capital Edge, Scucci and Beach violated Section 5 of the Securities Act. The complaint further alleges that Linton violated, or aided and abetted the violation of, Section 5 of the Securities Act. The SEC is seeking to have the defendants return their ill-gotten gains, pay penalties, be subject to injunctions, and be barred from participating in future penny-stock offerings.

SEC FILES CHARGES AGAINST FORMER ATTORNEY FOR MUTUAL BENEFITS

FROM:  U.S SECURITIES AND EXCHANGE COMMISSION  
April 30, 2012
The Securities and Exchange Commission announced today that it filed a complaint against Defendant Michael J. McNerney, charging him with violations of the federal securities laws arising from his involvement in Mutual Benefits Corp.’s (“MBC”) offering fraud which raised more than $1 billion from approximately 29,000 investors. From 1995 through at least May 2004, McNerney served as primary securities regulatory counsel for MBC. The complaint alleges thatin this role, he helped conceal the fraud, met with investors, and supervised the filing of false reports with state regulators. The Commission’s complaint charges McNerney with aiding and abetting MBC’s violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. The Commission seeks permanent injunctive relief against McNerney, who has consented to the entry of Final Judgment providing for full injunctive relief.

In addition to the civil action against McNerney, the Commission simultaneously issued an Order pursuant to Rule 102(e)(2) of the Commission’s Rules of Practice forthwith suspending McNerney from appearing or practicing before the Commission based on the entries of a felony conviction against him. On August 26, 2011, the Honorable Adalberto Jordan, United States District Judge for the Southern District of Florida, sentenced McNerney to 5 years in prison, followed by three years of supervised release, and ordered him to pay restitution, along with his co-conspirators, in the amount of $826,839,642.

On May 3, 2004, the Commission first halted the on-going fraud at MBC when it filed a contested emergency civil enforcement action against MBC and its principals. In its complaint, the Commission alleged that the defendants raised over $1 billion from thousands of investors through a fraudulent, unregistered offering of securities in the form of fractionalized interests in viatical and life settlements. The Commission obtained a restraining order to halt the alleged fraud at MBC, and thereafter the United States District Court for the Southern District of Florida appointed a receiver to identify and trace the assets of MBC.

The Commission’s actions regarding MBC have resulted in nine injunctions and other relief against nine defendants and eight relief defendants, and orders to pay disgorgement and civil penalties totaling $30 million. In addition, the United States Attorney’s Office for the Southern District of Florida has charged 12 defendants in criminal actions for their roles in the fraud.

The SEC acknowledges the work of the United States Attorney’s Office for the Southern District of Florida, the Federal Bureau of Investigation, Miami Field Office, and the Internal Revenue Service, Criminal Investigation Division in this matter.

SEC ALLEGES FLORIDA MAN SOLD STOCK TO CAPITALIZE ON EARTHQUAKE IN HAITI

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., May 2, 2012 — The Securities and Exchange Commission today charged a Florida man and 10 cohorts involved in two separate schemes to illegally sell stock, including one that sought to capitalize on circumstances in Haiti following the earthquake that destroyed much of the country's infrastructure in January 2010.

The SEC alleges that Kevin Sepe of Miami masterminded the schemes involving two microcap companies — Recycle Tech and HydroGenetics — with the help of three licensed attorneys and several others who collectively reaped illegal profits of more than $3.5 million. Aventura, Fla.-based attorneyRonny Halperin assisted Sepe in both schemes. The Recycle Tech scheme involved a promotional campaign to pump the price and volume of the purported home container building company's stock in the wake of the Haiti earthquake. The HydroGenetics scheme took millions of unregistered shares of the company — purportedly in the business of acquiring emerging alternative energy companies — and improperly converted its debt into free-trading shares that were dumped on the investing public.

Six of the 11 individuals involved have agreed to settlements ordering them and companies they own to collectively pay more than $3.2 million.

"Sepe, Halperin, and others chose to ignore the laws governing stock sales and play by their own set of rules," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "Some of these individuals were attorneys and corporate officers who should have known better, and we will continue to crack down on any such gatekeepers who put investors at risk with their harmful activities to manipulate the markets."

According to the SEC's complaint filed in federal court in Miami, Sepe and Halperin evaded registration requirements by converting backdated and fabricated promissory notes into unrestricted stock of Recycle Tech, quoted on the Pink Sheets. With help from Recycle Tech's CEO and president Ryan Gonzalez, they conducted a pump-and-dump scheme from January to March 2010 by enlisting the help of two promoters — Anthony Thompson andJay Fung — who touted Recycle Tech in their newsletters. David Rees, a Utah-based attorney, became involved in the scheme when he drafted an improper legal opinion letter authorizing the issuance of unrestricted Recycle Tech shares.

The SEC alleges that the participants collectively made more than $1 million in illegal profits through the scheme, which touted that Recycle Tech signed a binding letter of intent to build up to 50 container homes in Haiti following the earthquake. However, Recycle Tech failed to disclose to investors that it had no funds, no finished container homes, and minimal operations. Sepe orchestrated, coordinated, and funded the scheme and sold Recycle Tech stock along with Halperin and Rees without any exemption from registering those securities with the SEC. Gonzalez, who lives in Miami, made the scheme possible by incorporating a sham private company, turning the public shell of that company into Recycle Tech through a reverse merger, and signing various fraudulent documents to authorize the issuance of Recycle Tech securities. Gonzalez also drafted and issued false press releases used to hype Recycle Tech stock. Thompson and Fung — through their firms OTC Solutions LLC and Pudong LLC — touted Recycle Tech in their newsletters without disclosing that they were selling shares or adequately disclosing the compensation they received for their touts.

According to the SEC's other complaint filed in Miami, Sepe and Halperin schemed with Miami-based attorney Melissa Rice and others to illegally issue and liquidate 90 million unregistered shares of HydroGenetics from April 2008 until at least June 2009. Sepe headed a group that purchased convertible debt of a South Florida publicly-held company. He then formed HydroGenetics and parsed out portions of the convertible debt to friends, family, and others who converted the debt to stock that they then sold publicly. Sepe sold HydroGenetics stock without any exemption from registration the securities with the SEC. Halperin was the HydroGenetics CEO and a director. He executed corporate resolutions to help issue millions of shares of HydroGenetics stock, including 11 million shares to his daughter who he told to sell it and funnel a portion of the illegal proceeds back to him. Rice assisted Sepe in converting convertible debt to unrestricted HydroGenetics shares, and wrote four opinion letters improperly opining that the Rule 144 safe harbor was applicable and the debt could be converted to unrestricted HydroGenetics shares. Rice also sold her shares of HydroGenetics stock.

The SEC alleges that three other Miami residents also received illegal profits in the HydroGenetics scheme: Luz Rodriguez, who worked as an office administrator and assistant to Sepe; Howard Ettelman, a provider of accounting services to various companies owned by Sepe and Rice; and Seth Eber, a self-employed jeweler who was on the list of individuals that Sepe provided Rice to assign shares.

The SEC further alleges that Charles Hansen III of Lighthouse Point, Fla., succeeded Halperin as HydroGenetics CEO in April 2009 and signed five corporate resolutions authorizing HydroGenetics to illegally issue stock that Rice then used along with her opinion letter to facilitate the scheme.

The individuals agreeing to settle the SEC's charges in the complaints without admitting or denying the allegations are Sepe, Halperin, Rees, Rice, Ettelman, and Hansen.

Sepe agreed to disgorgement of $1,416,466.16, prejudgment interest of $126,761.86, and penalties of $185,000 as well as a permanent bar from participating in an offer or sale of penny stocks.
Halperin agreed to disgorgement of $427,609.95, prejudgment interest of $33,595.33, and a penalty of $100,000 as well as a permanent penny stock bar and a five-year officer and director bar. He also agreed to surrender 1.97 million shares of HydroGenetics stock.

Rees agreed to disgorgement of $5,982, prejudgment interest of $406.25, and a penalty of $7,500 as well as a one-year prohibition from providing professional legal services connected to the offer or sale of securities.

Rice agreed to disgorgement of $422,445, prejudgment interest of $39,239.18, and a penalty of $60,000 as well as a five-year penny stock bar and three-year prohibition from providing professional legal services connected to the offer or sale of securities.

Ettelman agreed to disgorgement of $32,667, prejudgment interest of $3,093.27, and a penalty of $25,000 as well as a five-year penny stock bar and the surrender of 300,000 shares of HydroGenetics stock.
Hansen agreed to a $37,500 penalty.

Two companies — Charter Consulting Group (owned and controlled by Sepe) and West Coast Investments Enterprises (owned by Rice) — were named as relief defendants in the SEC's complaints because they received a portion of the illegal trading profits in the schemes. They each settled the case, with Charter agreeing to disgorgement of $150,000 and prejudgment interest of $9,125 and West Coast agreeing to disgorgement of $125,000 and prejudgment interest of $11,262.71.

Separately, the SEC issued orders to suspend trading in the securities of Recycle Tech and HydroGenetics and to institute administrative proceedings against each company to determine whether the registration of their securities should be revoked or suspended based on their failure to file required periodic reports.

The SEC also instituted separate settled administrative proceedings against HydroGenetics in which the company, without admitting or denying the findings, consented to an order requiring it to cease and desist from committing or causing violations of the registration provisions of the federal securities laws.

The SEC's investigations were conducted by staff in its Miami Regional Office. Accountant Kathleen Strandell was involved in the Recycle Tech investigation under the supervision of Thierry Olivier Desmet, and James Carlson is leading the litigation. Special Investigations Counsel Gary Miller and accountants Karaz Zaki and Timothy Galdencio were involved in the HydroGenetics investigation under the supervision of Elisha Frank, and Amie Riggle Berlin is leading the litigation.

The SEC acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in these cases.