ALLEGED ILLEGAL SALE OF STOCK SHARES IN THE PUBLIC MARKET

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

　

Washington, D.C., Aug. 22, 2012 – The Securities and Exchange Commission today charged a New York-based firm and its owner with conducting a penny stock scheme in which they bought billions of stock shares from small companies and illegally resold those shares in the public market.

　

The SEC alleges that Edward Bronson and E-Lionheart Associates LLC reaped more than $10 million in unlawful profits from selling shares they bought at deep discounts from approximately 100 penny stock companies. On average, Bronson and E-Lionheart were able to generate sales proceeds that were approximately double the price at which they had acquired the shares. No registration statement was filed or in effect for any of the securities that Bronson and E-Lionheart resold to the investing public, and no valid exemption from the registration requirements of the federal securities laws was available.

　

"By violating the registration provisions of the securities laws and dumping billions of unregistered shares into the over-the-counter market, Bronson deprived investors of important information about the companies in which they were investing," said Andrew M. Calamari, Acting Director of the SEC’s New York Regional Office.

　

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Bronson lives in Ossining, N.Y. E-Lionheart, which also does business under the name Fairhills Capital, is located in White Plains. Acting at Bronson’s direction, E-Lionheart personnel systematically "cold called" penny stock companies quoted on the OTC Link to ask if they were interested in obtaining capital. If the company was interested, E-Lionheart personnel would offer to buy stock in the company at a rate that was deeply discounted from the trading price of the company’s stock at that time. Typically, Bronson and E-Lionheart immediately began reselling the shares to the investing public through a broker within days of receiving the shares from the company.

　

Bronson and E-Lionheart purported to rely on an exemption from registration under Rule 504(b)(1)(iii) of Regulation D, which exempts transactions that are in compliance with certain types of state law exemptions. However, no such state law exemptions were applicable to these transactions. Bronson and E-Lionheart claimed to rely on a Delaware state law registration exemption, but the transactions in fact had little or no connection to the state of Delaware. The particular Delaware state law exemption claimed by Bronson and E-Lionheart is not an exemption that meets the specific requirements of Rule 504(b)(1)(iii). As a result, investors purchasing these shares did not have access to all of the information that a registration statement would have provided, including in many instances important information concerning the issuance of millions of new shares by the company to Bronson and E-Lionheart.

　

The SEC’s complaint charges E-Lionheart and Bronson with violations of the registration provisions of the federal securities laws, and seeks disgorgement of more than $10 million in ill-gotten gains, penalties. The SEC also seeks penny stock bars against E-Lionheart and Bronson. The complaint also names another entity owned and controlled by Bronson – Fairhills Capital Inc. – as a relief defendant for the purpose of recovering the illegal proceeds it received.

　

The SEC’s investigation was conducted in the SEC’s New York Regional Office by Senior Attorney William Edwards and Assistant Regional Director Wendy B. Tepperman. The SEC’s litigation will be led by Senior Trial Counsel Kevin McGrath.

Requiring Disclosure to Increase Transparency Regarding the Sourcing of Conflict Minerals

Requiring Disclosure to Increase Transparency Regarding the Sourcing of Conflict Minerals

SEC SUES PENNY STOCK DISTRIBUTOR

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Sues New York Penny Stock Distributor
The Commission announced today that on Aug. 14, 2012, it sued Jossef Kahlon, a/k/a/ Yossef Kahlon and TJ Management Group, LLC, of New York, New York, for selling the stock of several penny stock issuers into the public market in violation of the registration provisions of the federal securities laws.

According to the complaint, Kahlon and TJ Management Group, LLC abused and misused a federal securities law to buy hundreds of millions of shares of stock at steep discounts and to quickly resell all of the shares to the public at market rates, generating at least $7.7 million in profit. The SEC alleges that this conduct deprived investors of important business information to which they were legally entitled for at least the following issuers: My Vintage Baby, Inc., Lecere, Corporation, Landstar, Inc., Hard to Treat Disease, Inc., Good Life China Corporation, VIPR Industries, Inc., ChromoCure, Inc., Atlantis Internet Group Corp, Biocentric Energy Holdings, Inc., Skybridge Technology Group, Inc., and RMD Entertainment Group, Inc.

The SEC alleges that, by these activities, Kahlon and TJ Management Group, LLC violated Section 5 of the Securities Act of 1933. The Commission is seeking permanent injunctions, civil penalties, penny stock bars and disgorgement of ill-gotten gains.

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.