FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Sept. 7, 2012 – The Securities and Exchange Commission today announced that New York-based investment advisory firm ICP Asset Management and its founder and president Thomas C. Priore have agreed to settle the agency’s charges that they defrauded several collateralized debt obligations (CDOs) they managed.
ICP, Priore, and related entities have agreed to pay more than $23 million to settle the case the SEC filed against them in June 2010 in federal court in Manhattan. The SEC alleged they engaged in fraudulent practices and misrepresentations that caused the CDOs to overpay for securities and lose millions of
dollars. Priore and the ICP companies also improperly obtained fees and undisclosed profits at the expense of the CDOs and their investors.
"The settlement with Priore and ICP sends a clear message that investment advisers must always act in the best interests of their advisory clients, even if those clients are sophisticated investors," said George S. Canellos, Deputy Director of the SEC’s Division of Enforcement. "When advisers put their own interests ahead of their clients’ interests, the SEC will seek to hold them accountable."
The court approved the settlement terms on September 6. The final judgment orders Priore to pay disgorgement of $797,337, prejudgment interest of $215,045, and a penalty of $487,618. ICP and its holding company Institutional Credit Partners LLC are required, on a joint and several basis, to pay disgorgement of $13,916,005 and prejudgment interest of $3,709,028. ICP also must pay a penalty of $650,000. An affiliated broker-dealer ICP Securities LLC is ordered to pay disgorgement of $1,637,581, prejudgment interest of $301,893, and a penalty of $1,939,474. Priore also agreed to settle an administrative proceeding against him and be barred from association with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent, and from participating in any offering of a penny stock. He has a right to reapply for association or participation after a period of five years.
Priore and the ICP companies also consented, without admitting or denying the SEC’s allegations, to permanent injunctions enjoining them from future violations of the securities laws that they were alleged to have violated, which include Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(c)(1)(A) of the Securities Exchange Act of 1934 and Rules 10b-3 and 10b-5, and Sections 206(1), (2), (3), and (4) of the Investment Advisers Act of 1940 and Rules 204-2, 206(4)-7 and 206(4)-8.
The SEC’s investigation was conducted by Celeste A. Chase, Joseph Boryshansky, Joshua Pater, Susannah Dunn, and Kenneth Gottlieb of the New York Regional Office. Joseph Boryshansky led the litigation with assistance from Jack Kaufman, Mark Germann, Joshua Pater, and Susannah Dunn.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today filed fraud charges against a Portland, Oregon-based investment adviser who perpetrated a long-running Ponzi scheme that raised over $37 million from more than 100 investors in the Pacific Northwest and across the country.
The SEC alleges that Yusaf Jawed used false marketing materials that boasted double-digit returns to lure people to invest their money into several hedge funds he managed. He then improperly redirected their money into accounts he personally controlled. As part of the scheme, Jawed created phony assets, sent bogus account statements to investors, and manufactured a sham buyout of the funds to make investors think their hedge fund interests would soon be redeemed. Jawed misused investor money to pay off earlier investors, pay his own expenses and travel, and create the overall illusion of success and achievement to impress investors.
According to the SEC’s complaint filed in federal court in Portland, Jawed managed a number of hedge funds through at least two companies he controlled: Grifphon Asset Management LLC and Grifphon Holdings LLC. Jawed’s marketing materials claimed that the Grifphon funds earned double-digit returns year after year even as the S&P 500 Index declined. For certain funds, Jawed also falsely claimed they would invest in publicly-traded securities and that their assets were maintained at reputable financial institutions.
The SEC alleges that Jawed instead invested very little of the more than $37 million that he raised from investors. For one fund, 70 percent of the money raised was either paid in redemptions to investors in other funds, paid to finders, or merely transferred to accounts belonging to Grifphon Asset Management or other entities that Jawed controlled. Jawed concealed the fraud by telling Grifphon’s bookkeepers that the money transfers represented purchases of offshore bonds – though in reality the purported investment was a sham entity supposedly managed by Jawed’s unemployed aunt who lives in Bangladesh.
According to the SEC’s complaint, Jawed further deceived investors as the funds were collapsing by telling them that independent third parties were buying the Grifphon funds’ alleged assets at a premium. In truth, the so-called third-parties were sham entities originally formed by Grifphon and Jawed containing no assets, no income, and no ability to pay for the funds’ alleged assets.
The SEC’s complaint against Jawed additionally charges Robert P. Custis, an attorney who Jawed hired to assist him in the fraud. Custis sent false and misleading statements to investors about the status of the purported purchase of the Grifphon funds’ assets. Custis consistently misrepresented that this purchase was imminent and would result in investors’ investments being repaid at a profit.
By engaging in the above conduct, Jawed, GAM, and Grifphon Holdings violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. By engaging in the above conduct, Custis violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and aided and abetted violations of Section 206(4) and Rule 206(4)-8 thereunder. The Commission seeks a permanent injunction, disgorgement and prejudgment interest, civil penalty, and other relief as appropriate against them.
The SEC filed separate complaints against two others connected to Jawed’s scheme. Those complaints allege that Jacques Nichols – a Portland-based attorney – falsely claimed to investors that an independent third party would pay tens of millions of dollars to buy the hedge funds’ alleged assets at a premium, and that Jawed’s associate, Lyman Bruhn, of Vancouver, Wash., ran a separate Ponzi scheme and induced investments through false claims he was investing in "blue chip" stocks.
Without admitting or denying the allegations, Nichols, Bruhn, and two entities Bruhn controlled (Pearl Asset Management, LLC and Sasquatch Capital Management, LLC) agreed to settle the SEC’s charges. Along with other relief, Bruhn consented to the entry of permanent injunctions against violations of the Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2), 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. Along with other relief, Nichols consented to the entry of a permanent injunction against violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and aiding and abetting violations of Sections 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. The SEC’s litigation continues against Jawed, the two Grifphon entities, and Custis.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Sept. 20, 2012 – The Securities and Exchange Commission today obtained an emergency court order to freeze the assets of a stockbroker who used nonpublic information from a customer and engaged in insider trading ahead of Burger King’s announcement that it was being acquired by a New York private equity firm.
The SEC alleges that Waldyr Da Silva Prado Neto, a citizen of Brazil who was working for Wells Fargo in Miami, learned about the impending acquisition from a brokerage customer who invested at least $50 million in a fund managed by private equity firm 3G Capital Partners Ltd. and used to acquire Burger King in 2010. Prado misused the confidential information to illegally trade in Burger King stock for $175,000 in illicit profits, and he tipped others living in Brazil and elsewhere who also traded on the nonpublic information.
The SEC obtained the asset freeze in U.S. District Court for the Southern District of New York. The agency took the emergency action to prevent Prado from transferring his assets outside of U.S. jurisdiction. Prado recently abandoned his most current job at Morgan Stanley Smith Barney, put his Miami home up for sale, and began transferring all of his assets out of the country.
"Prado’s e-mails and other communications may have been sent from Brazil and may have been in Portuguese, but our commitment to prosecute illegal insider trading in U.S. markets knows no geographic or language barrier," said Sanjay Wadhwa, Deputy Chief of the SEC Enforcement Division’s Market Abuse Unit and Associate Director of the New York Regional Office.
According to the SEC’s complaint, Prado’s insider trading in Burger King stock occurred from May 17 to Sept. 1, 2010. At the time, Prado was the representative on the account used by the customer to transfer his investment to 3G Capital. The customer had been with Prado for more than 10 years and often shared his confidential financial information with the understanding that it was to remain confidential. Prado had repeated contact with the customer by phone and e-mail as well as in person in Brazil during the time period that Prado traded Burger King securities.
The SEC alleges that Prado began his illegal trading while on a business trip to Brazil, during which he sent an e-mail to a friend that – translated from Portuguese – read, "I’m in Brazil with information that cannot be sent by email. You can’t miss it…." Prado later told his friend on a phone call that night that he heard 3G Capital was going to take Burger King private. The friend, a hedge fund manager in Miami, warned Prado that he should not trade on this information and should not encourage any of his customers to trade either.
According to the SEC’s complaint, Prado went on to tip at least four of his customers who eventually traded in Burger King stock based on nonpublic information about the impending acquisition. For example, just minutes after Prado sent the May 17 e-mail to his friend in Miami, he sent an e-mail to one of those customers which, again translated from Portuguese, read, " … if you are around call me at the hotel … I have some info…You have to hear this." A 10-minute phone conversation followed, and the customer purchased out-of-the-money Burger King call options during the next two days. In August 2010 Prado was on another business trip to Brazil, the same customer sent Prado an e-mail which translated to, "[i]s the sandwich deal going to happen?" Prado replied, "Vai sim," which means, "Yes it’s going to happen." He continued, "[e]verything is 100% under control. I was embarrassed to ask about timing. The last ‘vol’ got in the way." Following these e-mails, the customer – identified as Tippee A in the SEC’s complaint – made additional purchases in Burger King call options. The customer’s total insider trading profits amounted to more than $1.68 million.
The SEC’s complaint against Prado seeks a permanent injunction from violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder, disgorgement with prejudgment interest and monetary penalties.
The SEC’s investigation, which is continuing, has been conducted by Megan Bergstrom, David Brown, and Diana Tani in Los Angeles, and Charles D. Riely in New York, who are members of the SEC Enforcement Division’s Market Abuse Unit. The investigation was supervised by Unit Chief Daniel M. Hawke and Deputy Chief Sanjay Wadhwa. The SEC appreciates the assistance of the Comissão de Valores Mobliliários (Securities and Exchange Commission of Brazil), Options Regulatory Surveillance Authority, and Financial Industry Regulatory Authority (FINRA).
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Sep. 17, 2012 – The Securities and Exchange Commission today charged a former director at Port Washington, N.Y.-based consumer electronics retailer Systemax Inc. for fraudulently reaping hundreds of thousands of dollars in undisclosed compensation over a five-year period.
The SEC alleges that Gilbert Fiorentino, who in addition to serving on the board was the former chief executive of Systemax’s Technology Products Group in Miami, obtained more than $400,000 in extra compensation directly from firms that conducted business with Systemax. Fiorentino also stole several hundred thousand dollars’ worth of company merchandise that was used to market Systemax’s products. Because Fiorentino was one of Systemax’s highest-paid executives, U.S. securities laws required the company to disclose all compensation, perks, and other personal benefits he received each year. Fiorentino failed to disclose his extra compensation and perks to Systemax or its auditors, so that the amounts reported to shareholders were understated.
Systemax placed Fiorentino on administrative leave in April 2011. After the SEC began investigating the conduct, Fiorentino agreed to resign from all of his positions with Systemax, surrender stock and stock options valued at approximately $9.1 million, and repay his 2010 annual bonus of $480,000.
Fiorentino has agreed to settle the SEC’s charges by paying an additional $65,000 penalty and consenting to a permanent bar from serving as an officer or director of any publicly held company.
"Fiorentino brazenly stole from Systemax and betrayed the trust of its shareholders," said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. "His actions demonstrate that he is unfit to serve as an officer or director of a public company."
According to the SEC’s complaint filed in federal court in Miami, the misconduct occurred from January 2006 to December 2010. Systemax sells personal computers and other consumer electronics through its websites, retail stores, and direct mail catalogs. Fiorentino arranged the extra compensation as he dealt directly with external service providers, manufacturer representatives, and others that conducted business with Systemax. For example, he demanded and received $5,000 to $10,000 monthly from an entity that supplied materials to Systemax’s subsidiaries for use in retail and mail order operations.
The SEC further alleges that through his executive position at Systemax, Fiorentino had access to company merchandise used to market Systemax products in mail order catalogs and online. Fiorentino routinely misappropriated some of this merchandise and failed to disclose it to Systemax and its auditors.
According to the SEC’s complaint, as a result of Fiorentino’s actions, the information that Systemax filed with the SEC and provided to investors materially understated his compensation and omitted his personal financial interest in certain related-party transactions. Fiorentino reviewed and signed each Systemax Form 10-K from fiscal year 2006 to 2010 while knowing that it failed to make the required disclosures. Fiorentino also routinely signed management representation letters to Systemax’s independent auditors stating that he did not know of any fraud or suspected fraud involving Systemax’s management.
Fiorentino agreed to settle the SEC’s charges without admitting or denying the allegations. The settlement is subject to court approval. In addition to the financial penalty and officer-and-director bar, Fiorentino agreed to a permanent injunction from further violations of the antifraud and other provisions of the federal securities laws.
The SEC’s investigation was conducted by Staff Accountant Kathleen Strandell and supervised by Assistant Regional Director Thierry Olivier Desmet of the Miami Regional Office.
FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
CFTC Charges Florida Resident William Jeffery Chandler with Forex Fraud and Misappropriation
Federal court enters emergency order freezing defendant’s assets and protecting books and records
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that on September 11, 2012, Judge James D. Whittemore of the U.S. District Court for the Middle District of Florida entered an emergency order freezing the assets of defendant William Jeffery Chandler of Ft Myers, Fla. The court’s order also prohibits Chandler from destroying or altering books and records. The judge set a hearing on the CFTC’s motion for a preliminary injunction for September 26, 2012.
The court’s order arises out of a civil enforcement action filed by the CFTC on September 10, 2012, charging Chandler with foreign currency (forex) fraud and misappropriation. Chandler has never been registered with the CFTC in any capacity, according to the complaint.
The CFTC complaint alleges that, since at least July 2010, and continuing to the present, Chandler has solicited at least six individuals to contribute at least $773,100 to a pooled account to trade off-exchange forex contracts in Chandler’s account at Dukascopy Bank SA, a Switzerland-domiciled bank. To entice prospective pool participants to invest, Chandler allegedly guaranteed a two percent to 12.5 percent monthly return on participants’ principal.
However, according to the complaint, Chandler’s Dukascopy Bank account was closed on or about July 15, 2011, due to changes in U.S. regulations. The Dukascopy Bank account was transferred to Alpari US LLC, a U.S.-based registered Retail Foreign Exchange Dealer, on August 8, 2011, according to the complaint. At that time, the pooled account allegedly had a balance of only $292.49, far less than the amount contributed by pool participants.
Chandler allegedly continues to solicit and receive funds from pool participants to trade in his Dukascopy Bank account, even after it had closed, and continues to represent to pool participants that their funds remain in the pool in his Dukascopy Bank account. Although Chandler has received requests from many pool participants to return their funds, he refuses to refund participant’s principal, instead asserting a litany of fabricated excuses, according to the complaint. Chandler has misappropriated the vast majority of the pool’s funds for his personal use, the complaint charges.
Furthermore, pool participants received statements from a purported accounting firm named A.R. Watkins; however, upon information and belief, A.R. Watkins is a fictitious entity controlled by Chandler, according to the complaint.
In its continuing litigation, the CFTC seeks civil monetary penalties, restitution, rescission, disgorgement of ill-gotten gains, trading and registration bans, and preliminary and permanent injunctions against further violations of the Commodity Exchange Act and CFTC regulations, as charged.
The CFTC appreciates the assistance of the Pasco County Sheriff’s Office.
CFTC Division of Enforcement staff responsible for this case are Jo Mettenburg, Jeff Le Riche, Stephen Turley, Rick Glaser, and Richard Wagner.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Sept. 13, 2012 – The Securities and Exchange Commission today charged a broker and his company based in Danbury, Conn., with stealing at least $600,000 from customers who he persuaded to withdraw money from their brokerage accounts he managed at other firms and instead invest with him directly.
The SEC alleges that Stephen B. Blankenship lured about a dozen customers – including some retirees and others he met at church – into his scheme by assuring them they could obtain a greater rate of return on their money by transferring it to his firm, Deer Hill Financial Group. Blankenship claimed he was investing their money in established securities such as publicly-traded mutual funds. But in reality he made no investments and merely transferred customer money to his own bank account, and he misused it to pay his mortgage, travel, and grocery bills among other personal expenses. Blankenship also paid some business expenses and made Ponzi-like payments to other customers who requested a return of all or part of their investment.
In a parallel action, the U.S. Attorney's Office for the District of Connecticut today announced criminal charges against Blankenship.
"Blankenship took advantage of fellow churchgoers and senior citizens who relied on their savings for retirement and placed their trust in him," said David P. Bergers, Director of the SEC's Boston Regional Office. "He betrayed that trust by using their money to make personal credit card payments and home improvements."
According to the SEC's complaint filed in the U.S. District Court for the District of Connecticut, most of the investors deceived by Blankenship became his brokerage customers at Santa Monica-based Syndicated Capital and later at Melville, N.Y.-based Vanderbilt Securities. Some had been his customers for as long as two decades. Beginning in at least 2002, Blankenship took advantage of those longstanding relationships and began convincing customers to withdraw money from their brokerage accounts at those firms with promises that he could achieve a greater rate of return for them directly by investing their money through Deer Hill.
The SEC alleges that in order to conceal his scheme, Blankenship often created fake account statements that falsely represented that he had invested their money in a variety of investments. The purported account statements were printed on Deer Hill letterhead and provided to customers. In all instances, the investments described on the account statements did not exist.
The SEC's complaint alleges that Deer Hill and Blankenship violated the antifraud provisions of the federal securities laws and acted as unregistered brokers. The complaint seeks disgorgement of ill-gotten gains plus prejudgment interest, monetary penalties, and the entry of a permanent injunction against Deer Hill and Blankenship, who lives in New Fairfield, Conn.
Based on the same misconduct, the U.S. Attorney's Office for the District of Connecticut charged Blankenship with criminal violations. The Connecticut Department of Banking's Securities Division has obtained, by consent, a revocation of Blankenship's registration and has barred Blankenship and Deer Hill from operating in Connecticut. The SEC thanks the U.S. Attorney's Office for the District of Connecticut, the Connecticut Department of Banking's Securities Division, and the police department in Danbury, Conn., for their assistance in this matter.
The SEC's investigation, which is continuing, has been conducted by Kevin B. Currid, Robert B. Barry, and Michele Perillo in the Boston Regional Office with assistance from Mark Gera and Andrew Caverly of the broker-dealer examination program. Mr. Currid will lead the SEC's litigation.
Posts
