NEW CHARGES IN INSIDER TRADING CASE

FROM: SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today announced a second round of charges in an insider trading case involving former professional baseball players and the former top executive at a California-based medical eye products company that was the subject of the illegal trading.
　
The SEC brought initial charges in the case last year, accusing former professional baseball player Doug DeCinces and three others of insider trading on confidential information ahead of an acquisition of Advanced Medical Optics Inc. DeCinces and his three tippees made more than $1.7 million in illegal profits, and they agreed to pay more than $3.3 million to settle the SEC’s charges.
　
Now the SEC is charging the source of those illegal tips about the impending transaction – DeCinces’s close friend and neighbor James V. Mazzo, who was the Chairman and CEO of Advanced Medical Optics. The SEC also is charging two others who traded on inside information that DeCinces tipped to them – DeCinces’ former Baltimore Orioles teammate Eddie Murray and another friend David L. Parker, who is a businessman living in Utah.
　
The SEC alleges that Murray made approximately $235,314 in illegal profits after Illinois-based Abbott Laboratories Inc. publicly announced its plan to purchase Advanced Medical Optics through a tender offer. Murray agreed to settle the SEC’s charges by paying $358,151. The SEC’s case continues against Parker and Mazzo, the latter of whom was directly involved in the tender offer and tipped the confidential information to DeCinces along the way.
　
According to the SEC’s complaint filed in U.S. District Court for the Central District of California, the total unlawful profits resulting from Mazzo’s illegal tipping was more than $2.4 million. Once Mazzo began tipping DeCinces with confidential information about the upcoming transaction, DeCinces soon began to purchase Advanced Medical Optics stock in several brokerage accounts. DeCinces bought more and more shares as the deal progressed and as he continued communicating with Mazzo. DeCinces tipped at least five others who traded on the inside information, including Murray, Parker, and the three traders who settled their charges along with DeCinces last year – physical therapist Joseph J. Donohue, real estate lawyer Fred Scott Jackson, and businessman Roger A. Wittenbach.
　
According to the SEC’s complaint, Mazzo and DeCinces had been close friends for quite some time and lived in the same exclusive gated community in Laguna Beach, Calif. They socialized together with their wives, belonging to the same Orange County country club and vacationing together overseas. They also communicated frequently by e-mail and through phone calls. Mazzo invested in the restaurant business of DeCinces’ son, and DeCinces’ daughter provided interior decorating services for Mazzo and his wife. Mazzo was directly involved in the impending Advanced Medical Optics/Abbott transaction from its inception in October 2008. With knowledge of confidential information about the deal and his duty not to disclose it, Mazzo illegally tipped DeCinces, who made significant purchases of Advanced Medical Optics shares on Nov. 5, 2008, and continuing up until and near the time of the public announcement of the acquisition.
　
The SEC alleges that Parker and DeCinces had been friends and business associates at the time of the illegal trading. Between Jan. 6 and Jan. 8, 2009, Parker bought 25,000 shares of Advanced Medical Optics stock on the basis of confidential information received from DeCinces about the impending transaction. Parker made approximately $347,920 when he sold the stock on the same day as the public announcement. Meanwhile on January 7, Murray used all of the available cash in his self-directed brokerage account to purchase 17,000 shares of Advanced Medical Optics stock on the basis of the confidential information that DeCinces communicated to him. Murray sold all of his shares following the public announcement.
　
Murray agreed to settle the charges against him without admitting or denying the SEC’s allegations by consenting to the entry of a final judgment permanently enjoining him from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. Murray agreed to pay disgorgement of $235,314, prejudgment interest of $5,180, and a penalty of $117,657 for a total of $358,151. The settlement is subject to final approval by the court.

SEC CHARGES HOME AND CONSTRUCTION LOAN COMPANIES AND THEIR PRINCIPAL WITH OFFERING FRAUD

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
On August 13, 2012, the Securities and Exchange Commission filed a civil injunctive action against Ivan Wade Brown (Brown) and two companies he wholly owns and solely controls: Highland Residential, LLC (Highland) and Avanti Capital Partners, LLC (Avanti).
　
In its Complaint, filed in the U.S. District Court for the District of Utah, the Commission alleges that Brown raised over $27 million from at least 93 investors through the fraudulent and unregistered sale of promissory notes in Highland and Avanti. Brown started selling unregistered promissory notes for Highland in 2004, and he formed Avanti in 2007 after the Utah Division of Securities investigated his and Highland’s conduct.
　
Brown represented to investors that Highland and Avanti would use investor funds to make secured bridge loans to individuals buying or building a residence under circumstances that he represented to investors would involve little-to-no risk. Instead of using investor funds as represented, Brown used a significant portion of investor funds for his personal use, to make Ponzi payments, to invest in properties other than the ones he had identified, and to invest in other suspected frauds, including a mineral refiner, a movie production, and a dubious contract scheme where he attempted to insure real estate above market value. By engaging in this conduct, Brown, Highland, and Avanti violated Sections 5(a), 5(c) and 17(a)(2) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5(b) thereunder.

CFTC DISSENTING COMMISSIONERS MAKE STATEMENT

FROM:  COMMODITY FUTURES TRADING COMMISSION
Joint Statement of Dissent by Commissioners Jill Sommers and Scott O’Malia
Clearing Exemption for Swaps Between Certain Affiliated Entities

　
We respectfully dissent from the notice of proposed rulemaking to exempt swaps between certain affiliated entities from the clearing requirement. While we wholly support a clearing exemption for swaps between affiliated entities within a corporate group, we cannot support the proposal before the Commission today because in certain instances it imposes an unnecessary requirement for variation margin on corporate entities that engage in inter-affiliate trades.

Inter-affiliate swaps enable a corporate group to aggregate risk on a global basis in one entity through risk transfers between affiliates. Once aggregated, commercial risk of various affiliates is netted, thereby reducing overall commercial and financial risk. This practice allows for more comprehensive risk management within a single corporate structure.

Another benefit to this practice is that it allows one affiliate to face the market and hedge the risk of various operating affiliates within the group. Notably, inter-affiliate swaps between majority owned affiliates do not create external counterparty exposure and therefore do not pose the systemic risks that the clearing requirement is designed to protect against. The practice actually reduces risk and simply allows for more efficient business management of the entire group.

We believe it is entirely appropriate that the Commission exempt inter-affiliate swaps from the clearing mandate. Unfortunately, this proposal inserts a requirement that most financial entities engaging in inter-affiliate swaps post variation margin to one another. It is not clear that this requirement will do anything other than create administrative burdens and operational risk while unnecessarily tying up capital that could otherwise be used for investment.

The variation margin requirement is also largely inconsistent with the requirements included in the European Market Infrastructure Regulation. As we have both made clear during the implementation process, we believe coordination with our global counterparts is critical to the success of this new framework.

Finally, the legislative history on this issue is clear. During the passage of the Dodd-Frank Act many Members’ statements directly addressed the concerns regarding inter-affiliate swaps. Additionally, Members of the U.S. House of Representatives passed, by an overwhelming bi-partisan majority, an inter-affiliate swap exemption that does not include a variation margin requirement.

We believe this proposal may have the unintended consequence of imposing substantial costs on the economy and consumers. With this in mind, we welcome comments from the public as to the costs and benefits of the variation margin requirement and hope that we incorporate those views in adopting the final rule.

COURT ENTERS FINAL JUDGMENT AGAINST ALERO ODELL MACK, JR.

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The U.S. Securities and Exchange Commission announced today that on August 7, 2012, the United States District Court for the Central District of California granted the Commission’s motion for summary judgment and entered a Final Judgment against defendant Alero Odell Mack, Jr. ("Mack") in a pending civil action. The Final Judgment enjoins Mack from violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. In addition, the Court ordered Mack to pay disgorgement of $1,079,879, prejudgment interest of $58,905.32, and a civil penalty of $150,000.

According to the complaint, from 2007 through as late as March 2010, Mack, Steven Enrico Lopez, Sr., and various entities under Mack’s control, obtained approximately $4 million in investor funds through various fraudulent investment schemes that primarily involved the offer and sale of investments in various purported hedge funds, as well as in an investment adviser to a hedge fund. The Commission previously obtained judgments against defendants Steven Enrico Lopez, Sr., Easy Equity Asset Management, Inc., Easy Equity Management, L.P., Easy Equity Partners, L.P, Alero Equities The Real Estate Company, L.L.C., and Alero I.X. Corporation.

SEC CHARGES INDIVIDUALS WITH SELLING AT LEAST 15 SHELL COMPANIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Six Individuals in $6 Million "Shell-Factory" Scheme

　
On August 13, 2012, the SEC filed suit in the United States District Court for the Eastern District of Texas against Thomas D. Coldicutt, Jr., Elizabeth L. Coldicutt, Robert C. Weaver, Jr., Christopher C. Greenwood, Linda S. Farrell, and Susana Gomez. According to the complaint, between 2006 and 2011, Defendants engaged in an elaborate scheme to create and sell at least 15 public shell companies, from which they derived nearly $6 million in ill-gotten gains. The SEC alleges that the husband and wife team of Thomas and Elizabeth Coldicutt installed nominee officers and directors in corporations that they secretly funded and controlled, and that they directed and helped the corporate nominees, including Farrell, Weaver, Greenwood, and Gomez, submit materially false and misleading registration statements and reports to the SEC. These false documents gave the companies the appearance of legitimacy and permitted their securities to be quoted on the OTC Bulletin Board.

In the present case, the SEC alleges that the shell companies filed registration statements and reports with the SEC that misrepresented that the companies were formed to pursue mining activities, when in fact they neither conducted nor were intended to conduct any real mining activities. The SEC further contends that these companies' SEC filings failed to disclose that the Coldicutts controlled and funded the companies. In addition, the SEC alleges that the Coldicutts obtained nominees to purchase stock in the companies, and then provided these nominees with all or most of the funds to purchase the stock. Farrell, Weaver, Greenwood, and Gomez each substantially assisted the scheme by, among other things, acting as corporate nominees, recruiting other nominees to hold stock in the shells, and signing materially false and misleading SEC filings. In addition, Weaver, Greenwood, and Farrell each formed, registered, marketed, and ultimately sold at least one shell, together with the Coldicutts.

The complaint alleges that the Coldicutts, Farrell, Weaver, Greenwood, and Gomez violated, or aided and abetted violations of, the anti-fraud provisions of the federal securities laws including Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint further alleges that the Coldicutts are liable as control persons under Section 20(a) of the Exchange Act for the other Defendants' violations of Section 10(b) and Rule 10b-5. The complaint further charges the Coldicutts, Farrell, Weaver, and Gomez with aiding and abetting violations of Exchange Act 15(d) and Rules 12b-20, 15d-1, and 15d-13 thereunder, and charges Greenwood with aiding and abetting violations of Section 15(d) and Rules 12b-20 and 15d-13 thereunder. Finally, the complaint alleges that Farrell, Weaver, Greenwood, and Gomez each aided and abetted violations of Exchange Act Rule 15d-14. The SEC seeks permanent injunctions, disgorgement with prejudgment interest, the assessment of civil penalties, permanent officer and director bars, and permanent penny stock bars as to each of the Defendants.

CFTC SETTLES ACTIONS AGAINST DOUGLAS ELSWORTH WILSON AND THREE COMPANIES

FROM: U.S.COMMOITY FUTURES TRADING COMMISSION
CFTC Settles Action against Douglas Elsworth Wilson and Three California Companies for Solicitation Fraud, Misappropriating Customer Funds, and Issuing False Statements in Commodity Futures and Forex Scheme Federal court orders defendants to pay over $5.4 million in restitution and civil monetary penalties

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that on August 9, 2012, a federal court in California entered a consent order that requires defendants Douglas Elsworth Wilson of Poway, Calif., and three companies he controls and manages, Elsworth Berg Capital Management LLC (EBCM), Elsworth Berg Inc., and Elsworth Berg FX LLC (collectively, Elsworth Berg) jointly and severally to pay $3,965,670.71 in restitution to customers as well as a $1.5 million civil monetary penalty. The order also imposes permanent trading and registration bans and permanent injunctions against further violations of federal commodities law, as alleged.

The order follows a CFTC civil complaint filed on July 27, 2011, in the U.S. District Court for the Southern District of California . The order finds that the defendants solicited over $4.4 million from over 60 customers to trade commodity futures contracts and foreign currency (forex). According to the order, the defendants misappropriated customer funds, committed solicitation fraud, and issued false statements in the commodity futures and forex scheme.

Specifically, the order finds that defendants misrepresented to customers and prospective customers that regardless of Elsworth Berg’s commodity futures or forex trading results, the return of customers’ investment principal was guaranteed at the end of a five-year period through use of a purportedly innovative "Collateral Reserve" structure, which owned life insurance policies on third parties.

The order further finds that Wilson and EBCM issued false statements to some customers that overstated the value of their investments. Wilson and EBCM misappropriated approximately $72,000 in customer funds and used the money for purposes other than trading, according to the order.

The CFTC appreciates the assistance of the California Department of Corporations and the United Kingdom Financial Services Authority (FSA).

The CFTC Division of Enforcement staff members responsible for this case are Theodore Z. Polley III, Melissa Glasbrenner, William P. Janulis, Scott Williamson, Rosemary Hollinger, and Richard B. Wagner.