A CASE OF USE AND ABUSE OF CLIENT FUNDS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
July 9, 2012
Final Judgment Entered Against Connecticut Man Who Misappropriated Over $1 Million From Vulnerable Investors
The Securities and Exchange Commission (“Commission”) announced that, on July 5, 2012, the United States District Court for the District of Connecticut entered a final judgment by default against Florin S. Ilovici, formerly of Avon, Connecticut. The Commission’s action against Ilovici was originally filed in June 2011 and charged that, starting as early as 2008, Ilovici made material misrepresentations in raising over $1 million in investment funds from at least two elderly Connecticut women who lived alone, had little or no family, and had health problems. The complaint alleged that, instead of investing these funds on their behalf as he promised, Ilovici transferred the investor funds to his personal bank and brokerage accounts where he either lost the funds in risky securities or foreign currency exchange trading or used the funds for personal expenses, including mortgage and credit card payments, travel, and home improvements, all without the knowledge or authorization of his investors. The complaint alleged that Ilovici’s conduct violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

The final judgment entered by the Court came in response to a Commission motion for default judgment and permanently enjoined Ilovici from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The final judgment also ordered Ilovici to pay disgorgement in the amount of $1,094,984.52, representing profits gained as a result of the conduct alleged in the complaint, plus pre-judgment interest on the disgorgement in the amount of $54,935.50, and a civil penalty in the amount of $900,000.00. The complaint also named Ilovici’s wife, Diana Ilovici, as a relief defendant, as to whom the judgment requires a payment of $30,196.93 in unjust enrichment because she received proceeds of the conduct alleged in the complaint.

SEC Approves Rules and Interpretations on Key Terms for Regulating Derivatives

SEC Approves Rules and Interpretations on Key Terms for Regulating Derivatives

CFTC CHAIRMAN GENSLER SUPPORTS REOPENING OF COMMENTS ON MARGIN PROPOSAL

FROM:  COMMODITY FUTURES TRADING COMMISSION
Statement of Support
Chairman Gary Gensler
July 6, 2012
Washington, DC – Commodity Futures Trading Commission Chairman Gary Gensler today issued the following statement:
“I support the formal reopening of the comment period on the CFTC’s initial margin proposal so that we can hear further from market participants in light of work being done to internationally harmonize an approach to margin.

“The CFTC has been working with the Federal Reserve, the other U.S. banking regulators, the Securities and Exchange Commission and international regulators and policymakers to align margin requirements for uncleared swaps. I think it is essential that we align these requirements globally, particularly between the major market jurisdictions. The international approach to margin requirements in the consultative paper (sponsored by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions) released today is consistent with the approach the CFTC laid out in its margin proposal last year. It would lower the risk of financial entities, promote clearing and help avoid regulatory arbitrage.”
Last Updated: July 6, 2012

SEC CHARGES CEO, HIS COMPANY AND A STOCK PROMOTER WITH MARKET MANIPULATION

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
July 6, 2012
SEC Charges Company, CEO, and Stock Promoter With Market Manipulation
The Securities and Exchange Commission announced today that it charged Axius, Inc., its President and CEO, Roland Kaufmann, and stock promoter Jean-Pierre Neuhaus with engaging in a fraudulent broker bribery scheme designed to manipulate the market for Axius’ common stock. The Commission’s complaint, filed in federal court in Brooklyn, alleges that beginning in at least January 2012, Kaufmann and Neuhaus engaged in an undisclosed kickback arrangement with an individual (“Individual A”) who claimed to represent a group of registered representatives with trading discretion over the accounts of wealthy customers. Kaufmann and Neuhaus promised to pay kickbacks of between 26% and 28% to Individual A and the registered representatives he purported to represent in exchange for the purchase of up to $5 million of Axius stock through the customers’ accounts.

The complaint further alleges that on February 16 and 17, 2012, Kaufmann instructed Individual A to purchase approximately 14,000 shares of Axius stock for a total of approximately $49,000 through matched trades using detailed instructions concerning the size, price and timing of the purchase orders. Thereafter, Kaufmann paid Individual A bribes of approximately $13,700.

The complaint charges Neuhaus, Kaufmann, and Axius with violating Section 17(a)(1) and (a)(3) of the Securities Act of 1933 and Sections 9(a)(1) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c). The Commission seeks permanent injunctive relief, disgorgement of ill-gotten gains, plus pre-judgment interest, and civil penalties from all defendants, an order prohibiting Neuhaus and Kaufmann from participating in any offering of penny stock, and an order prohibiting Kaufmann from serving as an officer or director of a public company.

The Commission acknowledges assistance provided by the U.S. Attorney’s Office for the Eastern District of New York, and the Federal Bureau of Investigation in this matter.

TWO INDICTED FOR ALLEGEDLY BRIBING STOCK BROKERS TO MANIPULATE A STOCK PRICE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Thursday, July 5, 2012
CEO of Axius Inc. and Finance Professional Indicted for Alleged Roles in Scheme to Bribe Stock Brokers and Manipulate Stock Prices
WASHINGTON – The chief executive officer (CEO) of Axius Inc., a Nevada corporation, and a finance professional were indicted today on multiple charges for their alleged roles in a scheme to bribe stock brokers and manipulate the share price of Axius stock, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney Loretta E. Lynch for the Eastern District of New York.

Roland Kaufmann, a Swiss citizen and the CEO of Axius, and Jean-Pierre Neuhaus, a Swiss citizen and finance professional, were each charged in an indictment filed today in the Eastern District of New York with one count of conspiracy to commit securities fraud and to violate the Travel Act, one count of securities fraud, one count of wire fraud, one count of violating the Travel Act, one count of conspiracy to commit money laundering and one count of money laundering.  According to court documents, Axius is incorporated in Nevada and its principal offices are in Dubai, United Arab Emirates.  Axius is a “holding company and business incubator” that develops other businesses.

“As CEO of Axius, Mr. Kaufmann allegedly conspired with Mr. Neuhaus to fraudulently manipulate the value of his company’s stock,” said Assistant Attorney General Breuer.  “According to today’s indictment, he attempted to bribe stock brokers into artificially propping up the value of Axius stock.  With our partners in the U.S. Attorneys’ Offices, the Criminal Division’s Fraud Section is pursuing a nationwide effort to investigate and prosecute fraudulent conduct in our securities markets.”

“Rather than rely on the market to set the true value of Axius’ stock, the defendants allegedly sought to buy the best price possible through bribery and deception,” said U.S. Attorney Lynch.  “Their scheme stood to enrich themselves at the expense of the investing public.  We will vigorously investigate and prosecute any such corruption in the securities markets.”

“Conspiring to inflate the price of Axius shares artificially was likely to result in unjust enrichment for the defendants and undeserved losses for investors,” said Assistant Director-in-Charge Janice K. Fedarcyk of the FBI in New York.  “Market-driven fluctuations in share prices are risks investors have to accept. Illegal manipulations become the subject of FBI investigations.”

The indictment alleges that Kaufmann, 60, agreed with Neuhaus, 55, to defraud investors in Axius common stock by bribing stock brokers and manipulating the share price.  As part of the scheme, they enlisted the assistance of an individual they believed to have access to a group of corrupt stock brokers; this individual was in fact an undercover law enforcement agent.  Kaufmann and Neuhaus believed that the undercover agent controlled a network of stockbrokers in the United States with discretionary authority to trade stocks on behalf of their clients.

The indictment alleges that Kaufmann and Neuhaus instructed the undercover agent to direct brokers to purchase Axius shares that were owned or controlled by Kaufmann in return for a secret kickback of approximately 26 to 28 percent of the share price.  Kaufmann and Neuhaus allegedly instructed the undercover agent as to the price the brokers should pay for the stock, and Kaufmann specifically instructed the undercover agent that the brokers would have to pay gradually higher prices for the shares they were buying.  The indictment alleges that Kaufmann and Neuhaus directed the undercover agent that the brokers were to refrain from selling the Axius shares they purchased on behalf of their clients for a one-year period.  By preventing sales of Axius stock, Kaufmann and Neuhaus allegedly intended to maintain the fraudulently inflated share price for Axius stock.

Kaufmann and Neuhaus were originally charged in a criminal complaint filed in the Eastern District of New York on March 8, 2012.  They were arrested on March 8, 2012.  No investors were actually defrauded in the undercover operation.

In a related action, the Securities and Exchange Commission (SEC) today filed a civil enforcement action against Kaufmann and Neuhaus in the Eastern District of New York.  The department thanks the SEC for its cooperation in this matter.

This case is being prosecuted by Trial Attorney Justin Goodyear of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Shannon Jones of the Eastern District of New York.  The case was investigated by the FBI and the Internal Revenue Service.

THE PROTECTION OF INVESTORS FROM FRAUDSTERS

FROM:  U.S. DEPARTMENT OF JUSTICE
Protecting Investors from Fraud
The following post appears courtesy of Barbara L. McQuade, the U.S. Attorney for the Eastern District of Michigan
Investor fraud schemes are among the most pervasive types of cases handled by the White Collar Crime Unit of the U.S. Attorney’s Office for the Eastern District of Michigan.
In the past year, our prosecutors have charged a number of investment advisors and stock brokers with defrauding their investors. In one case, a defendant encouraged elderly investors to liquidate legitimate investments to invest with him. In fact, he kept their funds for his own use, depleting many of the victims of their life savings, totaling $4 million. In another case, a defendant offered investments over the Internet, promising high returns and taking in $72 million in investor dollars. Instead, the investments either generated losses or were never made at all.

Victims of fraud include individual investors with modest portfolios as well as institutional investors with large investments, such as pension funds.

President Obama’s Financial Fraud Enforcement Task Force was designed to attack fraud, waste and abuse by increasing coordination among agencies and fully leveraging the government’s law enforcement and regulatory system. As part of that effort, the U.S. Attorney’s Office for the Eastern District of Michigan is aggressively prosecuting financial fraud cases. In the largest investment scheme in the history of the district, a defendant was recently convicted of defrauding more than 1,200 individuals by convincing them to invest more than $350 million in fictitious limited liability corporations. He was sentenced to 16 years in prison.

In addition to prosecuting perpetrators, we are also combating fraud by raising public awareness to help investors protect themselves. Knowledge of common fraud schemes can help prevent individuals from becoming victims of these crimes.

One of the most common investor fraud schemes is the classic “Ponzi” scheme, named for Charles Ponzi, who devised the concept in the 1920s. In a Ponzi scheme, the investment promoter promises investors a high rate of return for their investment and then uses the funds of new investors to pay the promised return to the earlier investors. These early investors then unwittingly help advance the scheme by bragging about the high rate of return on their investment. Eventually, of course, the scheme collapses when the swindler needs to pay out more than he can take in. A recent example of this type of fraud was the massive scheme Bernard Madoff operated that cost investors billions of dollars.

Another common scheme is known as affinity fraud. In these schemes, perpetrators prey on members of an identifiable group, such as a church community, a school parent-teacher organization, a country club or a professional group. The investment advisor will join the group, or pretend to be part of it. As a result, he enjoys an inflated credibility that encourages members of the group to trust him and be less cautious than they might otherwise be when making an investment.

Another frequently used tactic used by perpetrators of investment fraud is to ingratiate themselves with their victims. In one recent case, a defendant regularly visited his clients at home, shared details of his personal life with them, attended family functions, such as birthday parties and weddings, provided gifts to family members, made donations to the clients’ preferred charities, and assisted clients in life decisions. After obtaining their trust, he took their money for his own use.