FORMER SEC ASSOCIATE DISTRICT DIRECTOR BANNED FROM PRACTICING BEFORE COMMISSION FOR ONE YEAR

FROM:  SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C., May 24, 2012 – The Securities and Exchange Commission today announced that it has barred Spencer Barasch, a former enforcement official in the Commission’s Fort Worth office, from appearing and practicing before the Commission for one year for violating federal conflict of interest rules.

The bar was imposed in an order instituting an administrative proceeding and resolves allegations involving Barasch’s representation of Stanford Group Company after Barasch went into private practice. Barasch consented to the Commission’s action without admitting or denying the Commission’s allegations.

Earlier this year, Barasch agreed to pay a $50,000 civil fine to the U.S. Justice Department for the same conduct.

Barasch, a Dallas resident, was the Associate District Director for the Division of Enforcement in the Commission’s Fort Worth office from June 1998 to April 2005. According to the Commission’s order, while at the Commission, Barasch took part “personally and substantially” in decisions involving allegations of securities law violations by entities associated with Robert Allen Stanford, including Stanford Group Company.

According to the Commission’s order, when Barasch joined a private law firm in 2005, he contacted the Commission’s Ethics Office about whether he could represent Stanford Group Company before the Commission and was told that he was permanently barred from doing so with respect to any matters on which he had participated while at the Commission. The order finds that Barasch declined to represent Stanford Group Company then, but that in the fall of 2006, he accepted an engagement from the Stanford entity and billed it for 12 hours of legal work related to Stanford matters Barasch had participated in while at the Commission.

During this representation, in violation of 18 U.S.C. § 207(a)(1), Barasch tried to obtain information about the Commission’s Stanford investigation from Commission staff in Fort Worth, but a staff attorney questioned whether Barasch could represent the firm. The staff attorney declined to have any substantive discussions with Barasch and suggested that Barasch contact the Commission’s Ethics Office on the matter. The order finds that Barasch did so and was again told that he was permanently barred from representing Stanford Group Company in the matter, prompting him to end his representation.

U.S. laws prohibit former federal officers and employees from knowingly seeking to influence or appear before any agency on a matter in which they had “participated personally and substantially” during their federal employment. The Commission’s order finds that Barasch violated this conflict of interest rule, which constitutes “improper professional conduct” under Rule 102(e) of the Commission’s rules of practice.

Before Barasch can resume appearing and practicing before the Commission, the Commission must determine that Barasch has truthfully sworn that he has satisfied several conditions that reflect on his character and fitness to practice before the Commission.

“This action shows that the Commission takes seriously ethical lapses by attorneys who appear and practice before it, and that such violations will result in serious disciplinary action,” said SEC Associate General Counsel Richard M. Humes.

The Commission’s case was investigated by Thomas J. Karr, Karen J. Shimp and Sarah E. Hancur of the Office of the General Counsel, following an investigation and report on the Stanford matter by the Commission’s Office of the Inspector General. The Commission acknowledges the assistance of the U.S. Attorney’s Office for the Eastern District of Texas.

MICHIGAN MAN AND INVESTMENT CLUB MANAGER GETS 12 YEARS FOR FRAUD

FROM:  U.S. JUSTICE DEPARTMENT
Wednesday, May 23, 2012
Investment Club Manager Sentenced in Virginia to 12 Years in Prison for $40 Million Fraud
WASHINGTON – Alan James Watson, 47, of Clinton Township, Mich., was sentenced today to 12 years in prison for fraudulently soliciting and accepting $40 million from more than 900 members of his investment club, Cash Flow Financial LLC (CFF).  Watson subsequently lost nearly all of the investors’ money through non-disclosed, high-risk investments.  Victims were located in Virginia and nationwide.  Watson was also ordered to forfeit $36,615,344.

U.S. District Judge Gerald Bruce Lee in the Eastern District of Virginia also sentenced Watson to three years of supervised release.  Watson pleaded guilty to one count of wire fraud on Sept. 22, 2011.

The sentencing was announced by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney for the Eastern District of Virginia Neil H. MacBride; James W. McJunkin, Assistant Director in Charge of the FBI’s Washington Field Office; and Postal Inspector in Charge of Criminal Investigations Gerald O’Farrell of the U.S. Postal Inspection Service (USPIS).

“Mr. Watson deceived members of his investment club from early on and drove his scheme deeper and deeper while investors remained none the wiser,” said Assistant Attorney General Breuer.  “His lies destroyed lives, and today’s sentence ensures he will pay for his destructive actions.  The 12-year prison sentence handed down today is a signal to fraudsters that criminal deception born from greed will not be tolerated.”
“The pitch Mr. Watson made to investors was a big fat lie, and he kept lying until his scheme collapsed and investors lost nearly everything,” said U.S. Attorney MacBride.  “Based on these lies, investors recommended Mr. Watson’s club to their friends and family, and the damage to these relationships was just as harmful as the financial devastation itself.”

“More than 900 unwitting victims thought they had done their homework and calculated their investment wisely; instead, they were met with false documentation that yielded no return on their investment,” said FBI Assistant Director in Charge McJunkin.  “Investigating white collar crime has been and will continue to be a priority for the FBI and our law enforcement partners, as demonstrated by this case and today’s sentence.”
According to court documents, Watson created CFF in 2004 and served as the club’s chief executive officer.  From 2006 to 2009, Watson received almost $40 million from investors.  Watson purported that the money would be invested through an equities-trading system developed by an expert consultant, Trade LLC, with a promised return on investment of 10 percent per month.  In reality, Watson admitted that only $6 million of the $40 million was ever invested in Trade LLC, while the remaining $34 million was secretly invested in miscellaneous, high-risk ventures without the consent of investment club members.  These high-risk investments resulted in a near complete loss of the $34 million.

According to court documents, despite the losses for the investors, Watson continued to create false monthly account statements showing net gains from their investments.  In addition, Watson included “bonus” items on the account statements that appeared as trading profits, the result of a Ponzi scheme he orchestrated to use new investor funds to pay off earlier investors.

In March of 2009, Watson ceased investing in Trade LLC and re-deposited those funds in separate unauthorized ventures.  In 2010, nearly a year after he had fully withdrawn finances from Trade LLC, Watson informed investment club members that he had not invested their money as promised, and that none of the reported returns had ever materialized.  This resulted in a combined $40 million loss for investment club members.
The Commodity Futures Trading Commission (CFTC) has filed a related civil case in the Eastern District of Michigan.

This case was investigated by the FBI’s Washington Field Office, USPIS, the CFTC and the U.S. Securities and Exchange Commission.  The department thanks these agencies for their substantial assistance in this matter.

Trial Attorney Kevin B. Muhlendorf of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Mark D. Lytle of the Eastern District of Virginia are prosecuting the case on behalf of the United States.

The investigation has been coordinated by the Virginia Financial and Securities Fraud Task Force, an unprecedented partnership between criminal investigators and civil regulators to investigate and prosecute complex financial fraud cases in the nation and in Virginia.  The task force is an investigative arm of the President’s Financial Fraud Enforcement Task Force, an interagency national task force.

President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

SEC CHARGES TWO FLORIDA RESIDENTS WITH ALLEGED RUNNING A $157 MILLION PONZI SCHEME

FROM:  SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., May 22, 2012 — The Securities and Exchange Commission today charged two individuals who provided the biggest influx of investor funds into one of the largest-ever Ponzi schemes in South Florida.

The SEC alleges that George Levin and Frank Preve, who live in the Fort Lauderdale area, raised more than $157 million from 173 investors in less than two years by issuing promissory notes from Levin's company and interests in a private investment fund they operated. They used investor funds to purchase discounted legal settlements from former Florida attorney Scott Rothstein through his prominent law firm Rothstein Rosenfeldt and Adler PA. However, the settlements Rothstein sold were not real and the supposed plaintiffs and defendants did not exist. Rothstein simply used the funds in classic Ponzi scheme fashion to make payments due other investors and support his lavish lifestyle. Rothstein's Ponzi scheme collapsed in October 2009, and he is currently serving a 50-year prison sentence.

The SEC alleges that Levin and Preve misrepresented to investors that they had procedural safeguards in place to protect investor money when in fact they often purchased settlements without first seeing any legal documents or doing anything to verify that the settlement proceeds were actually in Rothstein's bank accounts. Moreover, as the Ponzi scheme was collapsing and Rothstein stopped making payments on prior investments, Levin and Preve sought new investor money while falsely touting the continued success of their investment strategy. With their fate tied to Rothstein, Levin and Preve's settlement purchasing business collapsed along with the Ponzi scheme.

"Levin and Preve fueled Rothstein's Ponzi scheme with the false sense of security they gave investors," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "They promised to safeguard investors' assets, but gave Rothstein money with nothing to show for it."

According to the SEC's complaint filed in federal court in Miami, Levin and Preve began raising money to purchase Rothstein settlements in 2007 by offering investors short-term promissory notes issued by Levin's company - Banyon 1030-32 LLC. In 2009, seeking additional funds from investors, they formed a private investment fund called Banyon Income Fund LP that invested exclusively in Rothstein's settlements. Banyon 1030-32 served as the general partner of the fund, and its profit was generated from the amount by which the settlement discounts obtained from Rothstein exceeded the rate of return promised to investors.

The SEC alleges that the offering materials for the promissory notes and the private fund contained material misrepresentations and omissions. They misrepresented to investors that prior to any settlement purchase, Banyon 1030-32 would obtain certain documentation about the settlements to ensure the safety of the investments. Levin and Preve, however, knew or were reckless in not knowing that Banyon 1030-32 often purchased settlements from Rothstein without obtaining any documentation whatsoever.

Furthermore, the SEC alleges that Banyon Income Fund's private placement memorandum misrepresented that the fund would be a continuation of a successful business strategy pursued by Banyon 1030-32 during the prior two-and-a-half years. Levin and Preve failed to disclose that by the time the Banyon Income Fund offering began in May 2009, Rothstein had already ceased making payments on a majority of the prior settlements Levin and his entities had purchased. They also failed to inform investors that Levin's ability to recover his prior investments from Rothstein was contingent on his ability to raise at least $100 million of additional funding to purchase more settlements from Rothstein.

The SEC's complaint seeks disgorgement of ill gotten gains, financial penalties, and permanent injunctive relief against Levin and Preve to enjoin them from future violations of the federal securities laws.

The SEC's investigation, which is continuing, has been conducted by senior counsels D. Corey Lawson and Steven J. Meiner and staff accountant Tonya T. Tullis under the supervision of Assistant Regional Director Chad Alan Earnst. Senior trial counsels James M. Carlson and C. Ian Anderson are leading the litigation.

The SEC acknowledges the assistance of the U.S. Attorney's Office for the Southern District of Florida, the Federal Bureau of Investigation, and the Internal Revenue Service.

TWO INDIVIDUALS TO PAY $7.5 MILLION FOR FOREX PONZI SCHEME

FROM:  U.S  CFTC
Federal Court in South Carolina Orders Ronald E. Satterfield and Nicholas and Patricia Bos to Pay over $7.5 Million for Fraud in Connection with a Forex Ponzi Scheme
Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) obtained two federal court consent orders of permanent injunction, one order requiring defendant Ronald E. Satterfield, of Charleston, S.C., to pay $957,146 of restitution and a $2,871,438 civil monetary penalty, and the other order requiring defendant Nicholas Bos (Bos) of Ludington, Mich., to pay $849,146 of restitution and a $2,547,438 civil monetary penalty, for operating a foreign currency (forex) Ponzi scheme.  The Bos order also requires Patricia Bos (P. Bos), a relief defendant and Bos’ wife, to disgorge $295,000 in ill-gotten gains.  The orders also impose permanent trading and registration bans against Satterfield and Bos.

The consent orders, entered by Judge Richard M. Gergel, of the U.S. District Court for the District of South Carolina, Charleston Division, arise from a CFTC complaint filed on November 8, 2010, that charged the defendants with operating a forex Ponzi scheme involving the fraudulent solicitation of at least $3.3 million from at least 70 individuals – residing in South Carolina, North Carolina, Michigan, and Maryland – to engage in leveraged or margined forex transactions (see CFTC Press Release 5935-10, November 15, 2010).

The Satterfield order, entered on May 9, 2012, finds that Satterfield fraudulently solicited customers by representing that his forex trading was profitable and that customers could receive monthly returns ranging from two to four percent.  The order also finds that Satterfield issued false account statements reflecting the promised returns when, in fact, a large amount of customer deposits were used to pay purported returns to other customers, rather than to trade forex.  The forex trading Satterfield actually did, according to the order, resulted in losses in almost every month.

The Bos order, entered on April 25, 2012, finds that Bos fraudulently solicited customers to trade forex through accounts managed by Satterfield.  The order also finds that Bos falsely represented to customers that there would be no risk to their deposits and failed to disclose that he was collecting commissions and fees paid from customer funds and that he misappropriated $295,000 in customer funds to purchase a house in Ludington, Mich., titled in his name and in that of his wife.

Default order entered against corporate defendants in June 2011
Earlier, on June 14, 2011, the CFTC obtained a default judgment order from Judge Gergel against the corporate defendants in this action: Graham Street Forex Group, LLC and Shore-2-Summit Financial, LLC.  The default order requires the corporate defendants jointly and severally to pay over $5.6 million in equitable relief and a monetary sanction and imposes permanent trading and registration bans against them.
The CFTC appreciates the assistance of the U.S. Attorney’s Office, District of South Carolina, and the South Carolina Attorney General’s Office.
CFTC Division of Enforcement staff members responsible for this case are Eugene Smith, Patricia Gomersall, Christine Ryall, Paul G. Hayeck, and Joan Manley.

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.