SEC CHARGES CHINA NATURAL GAS AND ITS CHAIRMAN FOR CONCEALING LOANS TO BENEFIT HIS FAMILY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
May 14, 2012
The Securities and Exchange Commission today filed suit in U.S. District Court for the Southern District of New York against China-based China Natural Gas, Inc. and its chairman and former CEO Qinan Ji for defrauding investors by secretly loaning company funds to benefit Ji’s son and nephew while failing to disclose the true nature of the loans.

The SEC alleges that Ji coordinated two short-term loans totaling more than $14 million in January 2010. One loan went to a real estate firm co-owned by Ji’s son and nephew through a sham borrower. The other loan went to a business partner of the real estate firm. Ji signed the company’s SEC filings that falsely stated the loans were made to third parties. Ji then lied about the true borrower to China Natural Gas’s board, investors, and auditors as well as during the company’s internal investigation.

According to the SEC’s complaint, Ji’s nephew approached China Natural Gas in late 2009 to obtain a loan for a large real estate development project being run by Demaoxing Real Estate Co., a firm that was 90 percent owned by Ji’s son and 10 percent owned by Ji’s nephew. Ji recognized it was inappropriate for China Natural Gas to loan money directly to his nephew, so he asked his niece’s husband, who was the company’s internal audit chief, to use a sham borrower. The internal audit chief located an individual named Taoxiang Wang, and fabricated notes of a meeting with her to discuss loan terms. Wang signed a loan agreement for $9.9 million, and the money was wired directly into a Demaoxing bank account with a note stating that the amount was for “raw material expenses.”

The SEC alleges that around the same time, China Natural Gas made a $4.4 million loan to Shaanxi Juntai Housing Purchase Co., a business partner on Demaoxing’s real estate development project. Shaanxi Juntai’s then-general manager was Ji’s friend. The internal audit chief talked with Ji’s nephew about the project when arranging the loan, which directly benefitted Demaoxing.

According to the SEC’s complaint, Ji was the company CEO until he resigned in October 2011. He approved both loans without obtaining prior authorization from the board or informing the CFO. Ji repeatedly lied to conceal the related party nature of both loans. When questioned about the loans by the China Natural Gas board, Ji falsely stated that the loans involved senior Chinese government officers who were in charge of the company’s liquid natural gas project. During a May 10, 2010 conference call about quarterly earnings, Ji responded to a question about the loans by again stating that they were made to obtain approvals from government officials. He later told the board that he made the loans to earn quick and lucrative interest, and lied about the true nature of the loans during the company’s internal investigation. Ji also lied to the company’s auditors by signing a letter stating that the two loans were for business purposes and the borrowers were not related parties.

The SEC also alleges that in the fourth quarter of 2008, China Natural Gas paid $19.6 million to acquire a natural gas company but did not timely and properly report the transaction in its SEC filings. As with the loans, Ji approved the acquisition without obtaining prior authorization from the board.

The complaint alleges that China Natural Gas and Ji violated or aided and abetted violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 14a-9. The complaint further alleges that Ji violated Exchange Act Section 13(b)(5) and Rules 13a-14, 13b2-1 and 13b2-2. Ji also is charged with violating provisions of the Sarbanes-Oxley Act that require him to repay China Natural Gas the bonuses and stock sale profits he received after the company filed false reports with the SEC. The SEC’s complaint seeks a final judgment that imposes financial penalties, bars Ji from acting as an officer or director of a public company, and permanently enjoins Ji and China Natural Gas from future violations of these provisions.

SEC CHARGES SEATTLE-BASED FUND MANAGER FOR SECRETLY DIVERTING CLIENT FUNDS TO HIS OWN START-UP COMPANIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

May 18, 2012

On May 17 2012, the Securities and Exchange Commission charged a Seattle-based financial adviser and his firm with defrauding clients by secretly investing their money in two risky start-up companies he co-founded.

The SEC alleges that Mark Spangler, a former chairman of the National Association of Personal Financial Advisors, funneled approximately $47.7 million of client money into these private ventures despite representing that he would invest primarily in publicly traded securities. Spangler served as chairman and CEO of one of the companies, which is now bankrupt. Such risky investments were inconsistent with the investment strategies that Spangler promised his clients and contrary to their investment objectives.

The U.S. Attorney’s Office for the Western District of Washington also announced parallel criminal charges against Spangler.

According to the SEC’s complaint filed in federal court in Seattle, Spangler raised more than $56 million from his clients since 1998 for several private investment funds he managed. Beginning around 2003, without notifying investors in the funds, Spangler and his advisory firm The Spangler Group (TSG) began diverting the majority of client money into two private technology companies he created. One of the companies received nearly $42 million from the funds before shutting down operations. It had long been a cash-poor company with a history of net losses, generating less than $100,000 in revenue during its 11-year history. Yet Spangler continued to treat the funds as the company’s piggy bank.

The SEC alleges that Spangler also did not tell investors that TSG collected fees for “financial and operational support” from these companies, which were essentially paying these fees with the client money they had received from the funds. Therefore, Spangler and his firm secretly reaped $830,000 from the companies in addition to any management fees that TSG received from clients.

According to the SEC’s complaint, Spangler concealed his diversion of client funds for years. He disclosed it only after he placed TSG and the funds he managed into state court receivership in 2011.

The SEC’s complaint charges Spangler and TSG with violating, among other things, the antifraud provisions of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. The complaint seeks injunctive relief, disgorgement with prejudgment interest, and financial penalties.

The SEC’s investigation was conducted by Karen Kreuzkamp and Robert S. Leach of the San Francisco Regional Office with assistance from Michael Tomars, Peter Bloom, and Christine Pelham of the investment adviser/investment company examination program. Robert L. Tashjian will lead the SEC’s litigation.

The SEC thanks the U.S. Attorney’s Office for the Western District of Washington, the Federal Bureau of Investigation, and the Internal Revenue Service for their assistance in this matter.

YAHOO, AMERIPRISE FORMER EXECS CHARGE WITH INSIDER TRADING BY SEC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., May 21, 2012 — The Securities and Exchange Commission today charged a former executive at Yahoo! Inc. and a former mutual fund manager at a subsidiary of Ameriprise Financial Inc. with insider trading on confidential information about a search engine partnership between Yahoo and Microsoft Corporation.

The SEC alleges that Robert W. Kwok, who was Yahoo's senior director of business management, breached his duty to the company when he told Reema D. Shah in July 2009 that a deal between Yahoo and Microsoft would be announced soon. Shah had reached out to Kwok amid market rumors of an impending partnership between the two companies, and Kwok told her the information was kept quiet at Yahoo and only a few people knew of the coming announcement. Based on Kwok's illegal tip, Shah prompted the mutual funds she managed to buy more than 700,000 shares of Yahoo stock that were later sold for profits of approximately $389,000.

The SEC further alleges that a year earlier, the roles were reversed. Shah tipped Kwok with material nonpublic information about an impending acquisition announcement between two other companies. Kwok traded in a personal account based on the confidential information for profits of $4,754.

Kwok and Shah, who each live in California, have agreed to settle the SEC's charges. Financial penalties and disgorgement will be determined by the court at a later date. Under the settlements, Shah will be permanently barred from the securities industry and Kwok will be permanently barred from serving as an officer or director of a public company.
"Kwok and Shah played a game of you scratch my back and I'll scratch yours," said Scott W. Friestad, Associate Director in the SEC's Division of Enforcement. "When corporate executives and mutual fund professionals misuse their access to confidential information, they undermine the integrity of our markets and violate the trust placed in them by investors."

In a parallel criminal case announced today by the U.S. Attorney's Office for the Southern District of New York, Kwok has pled guilty to conspiracy to commit securities fraud, and Shah has pled guilty to both a primary and conspiracy charge. Both are awaiting sentencing.

According to the SEC's complaint filed in U.S. District Court for the Southern District of New York, Shah and Kwok first met in January 2008 when Shah was attending a real estate conference in California at the same facility where Yahoo was holding a meeting. The two met in a hallway and began discussing their respective businesses, and thereafter they spoke frequently by phone or in person. Kwok provided Shah with information about Yahoo, including whether Yahoo's quarterly financial performance was expected to be in line with market estimates. In return, Shah provided Kwok with information she learned in the course of her work, and he used it to help make his personal investment decisions. Both Shah and Kwok benefitted from this exchange of information.

The SEC alleges that in early 2008, shortly after their initial meeting, Shah told Kwok that she had learned through an inside source at Autodesk Inc. that it intended to acquire Moldflow Corporation. Based on this illegal tip that Kwok received from Shah, he purchased 1,500 shares of Moldflow in a personal account from April 7 to April 25. Autodesk and Moldflow announced the acquisition on May 1, and the price of Moldflow stock increased 11 percent. Kwok then sold his shares for a profit.

According to the SEC's complaint, Shah followed Yahoo closely as a portfolio manager at Ameriprise subsidiary RiverSource Investments LLC and previously at J. & W. Seligman & Co. She believed that the announcement of a partnership between Yahoo and Microsoft would have a positive impact on Yahoo's stock. In July 2009, when certain media began reporting that a deal could be forthcoming with Microsoft making a large up-front payment to Yahoo, Shah reached out to Kwok for inside information. Both Kwok and Shah knew that Kwok was tipping Shah in breach of his duty to Yahoo. Based on the confidential information she received from Kwok, Shah prompted certain RiverSource funds she helped managed to purchase 700,300 shares of Yahoo on July 16. The largest purchase was made in the Seligman Communications and Information Fund, which alone added approximately 450,000 shares of Yahoo to its holdings. On July 28, the shares were sold and a profit was realized.

The SEC's complaint charges Kwok and Shah with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In the settlements that are subject to court approval, Kwok and Shah acknowledged the facts to which they pled guilty and consented to judgments that impose permanent injunctions. The settlements also include the bars and to-be-determined financial sanctions.

The SEC's investigation, which is continuing, has been conducted by Brian O. Quinn and Brian D. Vann in the SEC's Division of Enforcement. The SEC thanks the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation for their assistance in this matter.

Testimony of Deputy Assistant Secretary Lance Auer before the House Financial Services Financial Institutions Subcommittee on Implementing Title I of the Dodd-Frank Act: Regulating Ssystemically Important Nonbank Financial Institutions

Testimony of Deputy Assistant Secretary Lance Auer before the House Financial Services Financial Institutions Subcommittee on Implementing Title I of the Dodd-Frank Act: Regulating Ssystemically Important Nonbank Financial Institutions

FORMER CEO OF PRESSTEK, INC. SETTLES REGULATION FD CHARGES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
May 15, 2012
The Securities and Exchange Commission announced today that Edward J. Marino of Boston, Massachusetts, the former chief executive officer of Connecticut-based Presstek, Inc., has agreed to settle previously-filed charges that he aided and abetted Presstek’s violations of Section 13(a) of the Securities and Exchange Act of 1934 (“Exchange Act”) and Regulation FD. Regulation FD generally prohibits public companies from selectively disclosing material non-public information to certain investors without simultaneously disclosing it to all investors. Among other things, Marino has agreed to pay a $50,000 civil penalty.

On March 9, 2010, the Commission filed a civil injunctive action against Marino and Presstek, a manufacturer and distributor of high-technology digital imaging equipment. The Commission's complaint alleged that on September 28, 2006, while acting on behalf of Presstek, Marino selectively disclosed material non-public information regarding Presstek's financial performance during the third quarter of 2006 to partner of a registered investment adviser. According to the complaint, within minutes of receiving the information from Marino, the partner decided to sell all of the shares of Presstek stock managed by the investment adviser. The complaint alleged that Presstek violated of Section 13(a) of the Exchange Act and Regulation FD when it did not simultaneously disclose to the public the information provided by Marino to the partner, and that Marino aided and abetted those violations.

Without admitting or denying the Commission’s allegations, Marino has consented to the entry of a civil judgment requiring him to pay a $50,000 civil penalty. The civil judgment is subject to approval of the U.S. District Court for the District of Massachusetts. Marino also consented to the issuance of an administrative order making findings that he caused Presstek’s violations and ordering him to cease and desist from committing or causing any violations and any future violations of Section 13(a) of the Exchange Act and Regulation FD.

At the time the case was originally filed in March 2010, Presstek agreed to settle the Commission's charges by consenting to a judgment that enjoins Presstek from further violations of Section 13(a) of the Exchange Act and Regulation FD and ordered it to pay a $400,000 civil penalty.

SEC CHARGES U.S. PERPETRATORS IN $35 MILLION INTERNATIONAL BOILER ROOM SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
May 16, 2012
The Securities and Exchange Commission announced that the SEC filed an action today against SEC recidivist Nicholas Louis Geranio, Keith Michael Field, The Good One, Inc. and Kaleidoscope Real Estate, Inc. for their roles in a $35 million scheme to manipulate the market and to profit from the issuance and sale of certain U.S. companies’ (“Issuers’”) stock through offshore boiler rooms. The scheme ran from approximately April 2007 to October 2009.

According to the SEC’s complaint, the scheme worked as follows:  Geranio organized eight U.S. Issuers, installed management (including Field), and entered into consulting agreements with them through his alter-ego entities The Good One and Kaleidoscope.  Geranio then allegedly set up a common system to raise money through the Issuers’ sale of Regulation S shares to offshore investors by boiler rooms that Geranio recruited.  Field allegedly drafted materially misleading business plans, marketing materials, and website material for the Issuers, which the offshore boiler rooms provided to investors as part of their fraudulent solicitation efforts.

The complaint further alleges that Geranio directed traders, including Field, to engage in matched orders and manipulative trades to establish artificially high prices for at least five of the Issuers’ stock and to deceptively convey to the market the impression that legitimate transactions had created bona fide prices for the stock.  According to the complaint, this manipulation of the publicly-traded stock price allowed the boiler rooms to sell the Regulation S shares at a higher price to the overseas investors.   The complaint alleges that the boiler rooms, teams of unregistered telemarketers operating mostly from Spain, used high-pressure sales tactics and materially false statements and omissions to induce the investors (many of them elderly and located in the United Kingdom) to buy the Issuers’ Regulation S stock.  Investors then sent their money to U.S.-based escrow agents, who paid 60% to 75% of the approximately $35 million in proceeds to the boiler rooms as their sales markups, kept 2.5% as their fee, and paid the remaining proceeds to the Issuers.  The Issuers (or in some cases the escrow agents) then funneled approximately $2.135 million of the proceeds of the Regulation S sales to Geranio, through The Good One and Kaleidoscope, and paid Field approximately $279,000.

The SEC filed its action in the U.S. District Court for the Central District of California, alleging that: Geranio, Field, The Good One and Kaleidoscope violated Sections 17(a)(1) and (3) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5(a) and (c) thereunder; Field also violated Section 17(a)(2) of the Securities Act and aided and abetted the Issuers’ violations of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder; and Geranio also is liable as a control person of The Good One and Kaleidoscope under Exchange Act Section 20(a). The SEC seeks in its action permanent injunctions, disgorgement plus prejudgment interest, civil penalties, and penny stock bars against all defendants, and also officer and director bars against Geranio and Field. The complaint further seeks disgorgement and prejudgment interest against relief defendant BWRE Hawaii, LLC based on its alleged receipt of investor funds.

The Issuers from April 2007 through October 2009 were: Green Energy Live, Inc.; Spectrum Acquisition Holdings, Inc.; United States Oil & Gas Corp.; Mundus Group, Inc.; Blu Vu Deep Oil & Gas Exploration, Inc.; Wyncrest Group, Inc.; Microresearch Corp.; and Power Nanotech, Inc.