ACCOUNTANT CHARGED WITH BEING A TIPSTER OF NON-PUBLIC INFORMATION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

On August 28, 2012, the Securities and Exchange Commission filed a civil injunctive action in the Northern District of Georgia against R. Jeffrey Rooks ("Rooks"), a Griffin, Georgia based CPA. The Commission alleges that Thomas D. Melvin ("Melvin"), a Griffin, Georgia based CPA and partner of Rooks, disclosed material non-public information about the pending tender offer for Chattem, Inc. ("Chattem") securities to Rooks. The Commission also alleges that Rooks tipped one other individual. The Commission further alleges that Rooks traded in the securities of Chattem based on that material non-public information and caused the other individual to also trade.

According to the Commission’s complaint, on December 21, 2009, Sanofi-Aventis ("Sanofi"), a French pharmaceutical company, announced its intent to make a tender offer for Chattem, a Tennessee-based distributor of over-the-counter pharmaceutical products, at the price of $93.50 per share ("Announcement"). Shares of Chattem closed 32.60% higher on the day of the Announcement than the prior trading day’s close of $69.98 and volume increased more than 3,000% to 10.3 million shares.

The Commission alleges that in early December 2009, several weeks before the Announcement, an independent board member of Chattem who owned Chattem options that would automatically exercise in the event of an ownership change at Chattem, initiated a series of confidential conversations and meetings with his longtime accountant, Melvin, to discuss potential methods of ameliorating the effect of an acquisition of Chattem on his tax liability. The Chattem board member told Melvin sufficient facts such that, given Melvin’s knowledge of the board member’s affairs, Melvin would have clearly known that the board member was discussing Chattem. Melvin and the Chattem board member also discussed the price impact of the tender offer on the board member’s options.

The Commission further alleges that Melvin misappropriated material non-public information regarding the impending tender offer for Chattem securities. Within days of his first meeting with the board member, Melvin disclosed material non-public information about the impending tender offer to Rooks. Rooks traded in Chattem securities based on the material non-public information disclosed by Melvin, and Rooks caused another individual to trade based on that information.

Rooks has agreed to settle the Commission claims against him by consenting to the entry of a final judgment providing permanent injunctive relief under Sections 10(b) and 14(e) of the Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder and by agreeing to pay disgorgement of $18,482.14, prejudgment interest of $1,432.68, and a penalty of $4,620.54. The terms of Rooks’ settlement reflect credit given to him for his cooperation and substantial assistance to the investigation. Rooks neither admits nor denies the Commission’s allegations, and his settlement is subject to court approval.

SEC CHARGES CHINA BASED COMPANY WITH "COOKING THE BOOKS" TO INCREASE REVENUES

FROM: U.S. SECURITIES AND EXCHANGE DEPARTMENT

The Securities and Exchange Commission today charged a China-based company and its chief executive with fraud for recording fake sales of a weight loss product to inflate revenues in the company’s financial statements by millions of dollars.

The SEC alleges that China Sky One Medical Inc. (CSKI) falsely stated in 2007 annual and quarterly reports that it had entered into a strategic distribution agreement with a Malaysian company that would become the "exclusive" distributor of CSKI’s "slim patch" in Malaysia and generate $1 million per month in sales. However, the company never actually entered into any such agreement. CSKI instead created approximately $19.8 million in phony export sales to Malaysia that were recorded as revenue in its financial results for 2007 and 2008. CEO Yan-qing Liu certified the overstated financial results, which appear in CSKI’s financial statements through 2010 and continue to impact the company’s retained earnings on its balance sheet.

"Accurate and reliable financial reporting is the bedrock of our capital markets, and CSKI blatantly defrauded investors by fabricating sales and overstating its financial results," said John M. McCoy III, Associate Director of the SEC’s Los Angeles Regional Office

According to the SEC’s complaint filed in U.S. District Court for the Central District of California, CSKI is based Harbin, China. In addition to weight loss patches, the company produces and sells sprays, ointments, and other Chinese traditional pain relief and health and beauty products. CSKI became a public company trading on the U.S. markets through a reverse merger in May 2006.

The SEC alleges that after CSKI devised the purported strategic distribution agreement with Takasima Industries – which is a Malaysian fitness equipment manufacturer and retailer – CSKI went on to falsely report export sales to Malaysia of more than $12.2 million for 2007, which constituted 25 percent of its total revenues. CSKI then falsely recorded $7.5 million (8.2 percent of total revenues) in such sales for 2008. Virtually all of CSKI’s reported sales to Malaysia via Takasima were bogus. Takasima only purchased $167,542 in slim patches from CSKI in 2007, and none in 2008. And it never entered into any distribution agreement with CSKI and never undertook – much less satisfied – any minimum purchase commitment.

According to the SEC’s complaint, CSKI also falsely claimed in its public filings that its top two customers for 2007 were sales agents for Takasima. CSKI identified those customers as Ningbo Yuehua International Trading Company and Guangzhou Xinghe International Trading Company, which collectively accounted for the phony 25 percent of CSKI’s total revenues for 2007. CSKI claimed that all of these purported sales to Ningbo Yuehua and Guangzhou Xinghe went through Takasima, while in fact Takasima never had any relationship with these two entities.

CSKI and Liu are charged with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and various Exchange Act provisions including corporate reporting, recordkeeping, internal controls, and false statements to auditors.

The SEC’s complaint seeks financial penalties against CSKI and Liu as well as disgorgement of ill-gotten gains by Liu, who personally benefited from the overstated financial statements through the company’s 2008 private placement of securities. The SEC also seeks to have Liu reimburse CSKI for certain incentive-based compensation he received during the period affected by the fraud pursuant to Section 304 of the Sarbanes-Oxley Act, and to have Liu barred from acting as an officer or director of a public company. The SEC also seeks to have CSKI and Liu permanently enjoined from future violations of these provisions of the federal securities laws

In addition to the court action, the SEC instituted administrative proceedings to determine whether to revoke or suspend registration of CSKI’s securities due to the company’s failure to file its annual report for 2011 or any quarterly reports for 2012.

The SEC’s investigation, which is continuing, has been conducted by Junling Ma, Rhoda Chang, and Marshall S. Sprung of the SEC’s Los Angeles Regional Office. The SEC’s Cross Border Working Group – which focuses on U.S. companies with substantial foreign operations – and the SEC’s Office of International Affairs assisted in the investigation. The SEC’s litigation will be led by David Van Havermaat.

ISIDER TRADING ON KNOWLEDGE OF INTENDED TENDOR OFFER

FROM: SECURITIES AND EXCHANGE COMMISSION

SEC Charges Georgia Resident with Insider Trading

On August 28, 2012, the Securities and Exchange Commission filed a civil injunctive action in the Northern District of Georgia against Casey D. Jackson ("Jackson"). The Commission alleges that Thomas D. Melvin ("Melvin"), a Griffin, Georgia based CPA and friend of C. Roan Berry ("Berry"), disclosed material non-public information about the pending tender offer for Chattem, Inc. ("Chattem") securities to Berry. The Commission also alleges that Berry tipped his next door neighbor, Ashley J. Coots. The Commission further alleges that Coots tipped Casey D. Jackson ("Jackson"), and that Jackson traded in the securities of Chattem based on that material non-public information.

According to the Commission’s complaint, on December 21, 2009, Sanofi-Aventis ("Sanofi"), a French pharmaceutical company, announced its intent to make a tender offer for Chattem, a Tennessee-based distributor of over-the-counter pharmaceutical products, at the price of $93.50 per share ("Announcement"). Shares of Chattem closed 32.60% higher on the day of the Announcement than the prior trading day’s close of $69.98 and volume increased more than 3,000% to 10.3 million shares.

The Commission alleges that in early December 2009, several weeks before the Announcement, an independent board member of Chattem who owned Chattem options that would automatically exercise in the event of an ownership change at Chattem, initiated a series of confidential conversations and meetings with his longtime accountant, Melvin, to discuss potential methods of ameliorating the effect of an acquisition of Chattem on his tax liability. The Chattem board member told Melvin sufficient facts such that, given Melvin’s knowledge of the board member’s affairs, Melvin would have clearly known that the board member was discussing Chattem. Melvin and the Chattem board member also discussed the price impact of the tender offer on the board member’s options.

The Commission further alleges that Melvin misappropriated material non-public information regarding the impending tender offer for Chattem securities. Within days of his first meeting with the board member, Melvin disclosed material non-public information about the impending tender offer to Berry. Berry tipped Coots, who tipped Jackson. Jackson traded in Chattem securities based on the material non-public information Coots disclosed to him.

Jackson has agreed to settle the Commission claims against him by consenting to the entry of a final judgment providing permanent injunctive relief under Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 and by paying disgorgement of $2,369.78, prejudgment interest of $221.93, and a penalty of $1,184.89. Jackson neither admits nor denies the Commission’s allegations, and his settlement is subject to court approval.

MAN CHARGED WITH GIVING INSIDER INFORMATION TO HEDGE FUND MANAGER

FROM: U.S. SECURITITES AND EXCHANGE COMMISSION

Washington, D.C., September 4, 2012 - The Securities and Exchange Commission today charged a California man with illegally tipping a hedge fund manager with inside information about Nvidia Corporation’s quarterly earnings that he learned from his friend who worked at the company.

The SEC alleges that Hyung Lim of Los Altos, Calif., received $15,000 and stock tips about a pending corporate acquisition for regularly providing a fellow poker player, Danny Kuo, with nonpublic details ahead of Nvidia’s quarterly earnings announcements. Kuo, a hedge fund manager, illegally traded on the information and passed it on to multi-billion dollar hedge fund advisory firms Diamondback Capital Management LLC and Level Global Investors LP. The SEC charged Kuo and the firms among others earlier this year as part of its widespread investigation into the trading activities of hedge funds.

"These hedge fund traders were eager to find an edge in an otherwise competitive marketplace, and Lim provided them that edge for a price," said Sanjay Wadhwa, Associate Director of the SEC’s New York Regional Office and Deputy Chief of the SEC Enforcement Division’s Market Abuse Unit. "Now one more participant in this sprawling scheme is being held accountable for his illegal transgressions."

In a parallel action, the U.S. Attorney for the Southern District of New York today announced criminal charges against Lim.

According to the SEC’s complaint filed in federal court in Manhattan, Kuo and the hedge funds made nearly $16 million trading in Nvidia securities based on Lim’s inside information. Lim lives in Los Altos, Calif., and is employed in the accounting department of a semiconductor firm. Lim and Kuo met at poker parties organized by a mutual friend.

The SEC alleges that during at least 2009 and 2010, Lim regularly obtained detailed information about the contents of Nvidia’s upcoming quarterly earnings announcements from his friend who worked at Nvidia. Lim’s source provided him with not just one but a series of tips, which grew more accurate and reliable as Nvidia finalized its financial results for a given quarter and prepared to report them publicly. Lim typically learned the nonpublic information in phone conversations with his Nvidia friend, and within one minute of ending a conversation Lim would immediately call Kuo to relay the latest inside information. Lim provided Kuo such nonpublic details as Nvidia’s calculation of its revenues, gross profit margins, and other important financial metrics before the company made those figures public in its quarterly earnings announcements.

The SEC alleges that Lim was compensated by Kuo for the confidential Nvidia information that he provided. Kuo wired $5,000 to a Las Vegas casino to pay a debt for Lim, and later Kuo made two $5,000 cash payments to Lim. Kuo also provided Lim with nonpublic information about a pending corporate acquisition, which Lim used to make more than $11,000 in trading profits.

The SEC’s complaint charges Lim with violating the anti-fraud provisions of U.S. securities laws and seeks a final judgment ordering him to disgorge his ill-gotten gains and those of his tippees plus interest, ordering him to pay a financial penalty, permanently enjoining him from future violations, and barring him from serving as an officer or director of a public company.

The SEC’s investigation, which is continuing, has been conducted by Stephen Larson, Daniel Marcus and Joseph Sansone, who are members of the SEC’s Market Abuse Unit in New York, along with Matthew Watkins, Neil Hendelman, Diego Brucculeri and James D’Avino of the New York Regional Office. 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.

MUNICIPAL SECURITIES PROFESSIONALS AND CAMPAIGN CONTRIBUTIONS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Aug. 31, 2012 – The Securities and Exchange Commission today issued an alert to strengthen compliance with a Municipal Securities Rulemaking Board rule that limits political contributions by municipal securities professionals to campaigns of public officials of issuers with whom they are doing or seek to do business.

The Risk Alert issued by the agency’s Office of Compliance Inspections and Examinations notes that SEC examiners have observed practices that raise concerns about firms’ compliance with their obligations under MSRB Rule G-37, which clamped down on so-called "pay to play" practices. These concerns include:
Compliance with the rule’s ban on doing business with a municipal issuer within two years of a political contribution to officials of the issuer by any of the firm’s municipal finance professionals
Possible recordkeeping violations
Failure to file accurate and complete required forms with regulators regarding political contributions
Inadequate supervision
The Risk Alert identifies practices that examiners have seen some firms use to comply with applicable federal, state, and local rules on contributions. These include training programs for municipal finance professionals, self-certification of compliance with restrictions on political contributions, surveillance for unreported political contributions, and preclearance or restrictions on political contributions when permitted by state or local law. The Risk Alert stresses that the practices are described only to inform firms about approaches being used to strengthen compliance efforts; these practices may not be applicable to a particular firm, and other practices may be appropriate to consider instead.

"This Risk Alert is intended to help firms to strengthen their compliance and risk management efforts with regard to political contributions," said OCIE Director Carlo di Florio. "We hope that by describing practices that our examiners have observed, we will promote compliance by helping firms to consider how each of them can most effectively meet their obligations under MSRB rules."

The alert is the fourth this year and the sixth in a continuing series of Risk Alerts that the SEC’s examination staff began issuing in 2011. It is intended to assist senior management, risk management, and legal and compliance staff as they review compliance with Rule G-37 by brokers, dealers, and municipal securities dealers.

The following staff contributed substantially to preparing this Risk Alert: Robert Miller, Suzanne McGovern, Julius Leiman-Carbia, and George Kramer.

MAN ORDERED TO PAY OVER $17 MILLION FOR RUNING FOREX POOLED INVESTMENT FRAUD

FROM U.S. COMMODITY FUTURES TRADING COMMISSION

Federal Court in Texas Orders Christopher B. Cornett to Pay over $17 Million in Sanctions in Foreign Currency Fraud Action

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a federal court order of default judgment and permanent injunction requiring defendant Christopher B. Cornett of Buda, Texas, to pay $10.16 million in restitution and a $6.78 million civil monetary penalty in connection with a foreign currency (forex) pooled investment fraud. The order, entered on August 24, 2012, by Judge Lee Yeakel of the U.S. District Court for the Western District of Texas, also imposes permanent trading and registration bans against Cornett and permanently prohibits him from further violations of federal commodities law, as charged.

The court’s order stems from a CFTC complaint filed on February 2, 2012, charging Cornett with solicitation fraud, issuing false account statements, misappropriating pool participants’ funds, and failing to register with the CFTC as a commodity pool operator.

The order finds that, from at least June 2008 through at least October 2011, Cornett solicited prospective pool participants to invest in a pooled forex investment and that he acted as the manager and operator of the pool. The pool was referred to at various times as ITLDU, ICM, International Forex Management, LLC, and/or IFM, LLC, according to the order. In his solicitations, Cornett falsely told prospective pool participants that, while there were weeks when he either lost money or broke even trading forex, he had never experienced a losing month or a losing year trading forex, the order finds.

The order also finds that, from June 18, 2008 through September 2010, Cornett solicited approximately $7.07 million from pool participants, participants redeemed approximately $1.64 million, and Cornett lost approximately $4.17 million of the pool’s funds trading forex. During this period, Cornett had only one profitable month trading forex and earned little, if any, fees for acting as the pool’s operator, the order finds. Thus, during this period, Cornett misappropriated approximately $1.26 million of the pool’s funds and for most, if not all of the period, provided participants with false weekly reports/account statements, the order finds.

The court’s order further finds that, from October 2010 through October 2011, Cornett solicited an additional approximately $6.95 million from pool participants. Cornett transferred approximately $3.37 million to forex trading accounts at six foreign brokers and lost approximately $2.3 million at five of the brokers, and likely lost an additional $905,000 at the sixth broker trading forex with pool funds, the order finds. As of October 2011, Cornett had misappropriated approximately $1 million of the pool’s funds and less than $520,000 remained in bank accounts in the names of the pool, according to the order.

The CFTC appreciates the assistance of the U.S. Attorney’s Office for the Western District of Texas, Internal Revenue Service Criminal Investigation, and the Federal Bureau of Investigation.

The CFTC also appreciates the assistance of the U.K. Financial Services Authority, the British Virgin Islands Financial Services Commission, the Ontario Securities Commission, Germany’s BaFin, the Swiss Financial Market Supervisory Authority, the Eastern Caribbean Securities Regulatory Commission, and St. Vincent and the Grenadines’ International Financial Services Authority.

CFTC Division of Enforcement staff members responsible for this action are Patrick M. Pericak, Daniel Jordan, Jessica Harris, Rick Glaser, and Richard B. Wagner.