FOUR CHARGED BY SEC WITH USING HIDDEN MARKUPS AND MARKDOWNS

FROM: U.S. DEPARTMENT OF JUSTICE

Washington, D.C., Oct. 5, 2012 – The Securities and Exchange Commission today charged four brokers who formerly worked on the cash desk at a New York-based broker-dealer with illegally overcharging customers $18.7 million by using hidden markups and markdowns and secretly keeping portions of profitable customer trades.

The SEC alleges that the brokers purported to charge customers very low commission fees that were typically pennies or fractions of pennies per transaction, but in reality they were reporting false prices when executing the orders to purchase and sell securities on behalf of their customers. The brokers made their scheme especially difficult to detect because they deceptively charged the markups and markdowns during times of market volatility in order to conceal the fraudulent nature of the prices they were reporting to their customers. The surreptitiously embedded markups and markdowns ranged from a few dollars to $228,000 and involved more than 36,000 transactions during a four-year period. Some fees were altered by more than 1000 percent of what was being told to customers.

The SEC further alleges that when a customer placed a limit order seeking to purchase shares at a specified maximum price, the brokers filled the order at the customer’s limit price but used opportune times to sell a portion of that order back to the market to obtain a secret profit for the firm. They falsely reported back to the customer that they could not fill the order at the limit price. Meanwhile, the brokers made millions of dollars in illicit performance bonuses based on the fraudulent earnings they were generating on the cash desk.

The brokers charged in the SEC’s complaint are Marek Leszczynski, Benjamin Chouchane, Gregory Reyftmann, and Henry Condron.

"These brokers stole millions of dollars by overcharging customers for trades involving stocks with high trading volumes and price volatility, which are characteristics they wrongly thought would conceal their illicit pricing scheme," said Robert Khuzami, Director of the SEC’s Division of Enforcement. "They underestimated the SEC’s ability and resolve to pursue such illegal schemes."
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Leszczynski and Chouchane. Condron has pled guilty to criminal charges.

According to the SEC’s complaint filed in federal court in Manhattan, the brokers were employed at an interdealer broker firm. Interdealer brokers typically operate only as agents and execute large volumes of securities trades on behalf of customers for low commissions. The cash desk where these brokers worked executed trades in U.S. and Canadian stocks, and customers were primarily large foreign institutions and foreign banks. The firm’s internal records show that customers were to be charged flat commission rates between $0.005 and $0.02 per share.

The SEC’s complaint alleges that the scheme spanned from 2005 to 2009. Reyftmann, Chouchane, and Leszczynski were sales brokers on the cash desk who were responsible for finding customers, developing relationships, and taking orders from customers. Reyftmann supervised the cash desk. Condron was a sales trader and middle-office assistant on the cash desk who entered orders received from the sales brokers and ensured the orders were executed.

The SEC alleges that the fraudulent scheme worked as follows:
Leszczynski, Chouchane, or Reyftmann received a customer order by phone, instant message, or e-mail and gave the order to Condron, who executed the trade.
Condron recorded the actual execution price on the trade blotter and informed the sales brokers of the execution.
Shortly after the trade was executed, Leszczynski, Chouchane, or Reyftmann examined other market executions around the time of the actual execution to determine whether the stock price fluctuated.
If the stock price’s fluctuation was favorable to the firm and sufficient to conceal the fraud from customers, the sales brokers instructed Condron to record a false execution price in the gross price field on their internal trade blotter.
Leszczynski, Chouchane, Reyftmann, or Condron then reported the false execution price and the commission to the customers.
The SEC alleges that the brokers further defrauded customers by stealing portions of their profitable trades and keeping them for the firm:
After receiving and executing a customer’s limit order to buy shares, Reyftmann, Chouchane, or Leszczynski looked for an opportunity to sell that same stock at a higher price than the price at which the customer’s trade was executed.
Leszczynski, Chouchane, or Reyftmann then instructed Condron to sell a portion of that customer execution back at the higher price.
Rather than properly recording the actual price and quantity of the order fill, Condron entered a partial fill into the trade blotter, keeping the secret profits for the firm.
Leszczynski, Chouchane, Reyftmann, or Condron then reported a partial fill to the customer, falsely stating that they were unable to fully execute the customer’s limit order.
Meanwhile, the SEC alleges that the brokers’ scheme enriched not only the firm but themselves as well. The four brokers received substantial performance bonuses totaling more than $15.6 million based, in part, on the fraudulent earnings generated by the cash desk.

The SEC alleges that Leszczynski, Chouchane, Reyftmann, and Condron violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking disgorgement of ill-gotten gains with prejudgment interest, financial penalties, and a permanent injunction against the brokers.

The SEC’s investigation, which is continuing, has been conducted by Mary P. Hansen (Assistant Director in the Market Abuse Unit in the Philadelphia Regional Office), A. Kristina Littman (Senior Counsel in the Philadelphia office) and Darren Boerner (Specialist in the Market Abuse Unit in the Chicago Regional Office). G. Jeffrey Boujoukos (Regional Trial Counsel) and John V. Donnelly (Senior Trial Counsel) in the Philadelphia office are handling the litigation.

The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation

TIPS ON SELECTING FINANCIAL PROFESSIONAL

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Investor Bulletin: Top Tips for Selecting a Financial Professional


Choosing a financial professional-whether a stockbroker, a financial planner, or an investment adviser-is an important decision. Consider the tips below as you make your choice. Also the third page of this document has a list of questions you can ask a financial professional whose services you are considering.

Tip 1. Do your homework and ask questions.

A lot of the information you’ll need to make a choice will be in the documents the financial professional can provide you about opening an account or starting a relationship. You should read them carefully. If you don’t understand something, ask questions until you do. It’s your money and you should feel comfortable asking about it.

Tip 2. Find out whether the products and services available are right for you.

Financial professionals offer a range of financial and investment services such as:
Financial planning
Ongoing money management
Advice on choosing securities
Tax and retirement planning
Insurance advice
Just like a grocery store offers more products than a convenience store, some financial professionals offer a wide range of products or services, while others offer a more limited selection. Think about what you might need, and ask about what would be available to you. For example, do you want or need:

Access to a broad range of securities, such as stocks, options and bonds, or will you mostly want a few types such as mutual funds, exchange traded funds, or insurance products?
A one-time review or financial plan?
To do your own research, but use the financial professional to make your trades or to provide a second opinion occasionally?
A recommendation each time you think about changing or making an investment?
Ongoing investment management, with the financial professional getting your permission before any purchase or sale is made?
Ongoing investment management, where the financial professional decides what purchases or sales are made, and you are told about it afterwards?
Tip 3. Understand how you’ll pay for services and products, and how your financial professional gets paid as well.

Many firms offer more than one type of account. You may be able to pay for services differently depending on the type of account you choose. For example, you might pay:
An hourly fee for advisory services;
A flat fee, such as $500 per year, for an annual portfolio review or $2,000 for a financial plan;
A commission on the securities bought or sold, such as $12 per trade;
A fee (sometimes called a "load") based on the amount you invest in a mutual fund or variable annuity
A "mark-up" when you buy "house" products (such as bonds that the broker holds in inventory), or a "mark-down" when you sell them
Depending on what services you want, one type of account may cost you less than another. Ask about what alternatives make sense for you.
And remember: even if you don’t pay the financial professional directly, such as through an annual fee, that person is still getting paid. For example, someone else may be paying the financial professional for selling specific products. However, those payments may be built into the costs you ultimately pay, such as the expenses associated with buying or holding a financial product.

While some of these fees may seem small, it is important to keep in mind that they can add up, and in the end take away from the profits you otherwise could be making from your investments.

Tip 4. Ask about the financial professional’s experience and credentials.

Financial professionals hold different licenses. For example, financial professionals who are broker-dealers must take an exam to hold a license, while state regulators often require investment advisers to hold certain licenses. Financial professionals also have a wide range of educational and professional backgrounds. They may also have certain designations after their names, which are titles given by industry groups that themselves are not regulated or subject to standards other than their own. If a financial professional has an industry designation, like "CFA," you can look up what it stands for at the "Understanding Investment Professional Designations" page on FINRA’s website at www.finra.org. Don’t accept a professional designation as a badge of knowledge without knowing what it means.

Tip 5. Ask the financial professional if he or she has had a disciplinary history with a government regulator or had customer complaints.
Even if a close friend or relative has recommended a financial professional, you should check the person’s background for signs of any potential problems, such as a disciplinary history by a regulator or customer complaints. The SEC, FINRA, and state securities regulators keep records on the disciplinary history of many of the financial professionals they regulate.
Check the background of your financial professional to learn more or to help confirm what he or she has told you:
For financial professionals who are brokers: you can find background information on the person and his/her firm at FINRA’s BrokerCheck website.
For financial professionals who are investment advisers registered with the SEC: you can find background information on the person and his/her firm at the SEC’s Investment Adviser Public Disclosure database.
State securities regulators also have background information on brokers as well as certain investment advisers. You can find your state regulator at www.nasaa.org.

Investor Checklist
Some Key Questions for Hiring a Financial Professional

Expectations of the Relationship
How often should I expect to hear from you?
How often will you review my account or make recommendations to me?
If my investments aren’t doing well, will you call me and recommend something else?
If I invest with you, how can I keep track of how well my investments are doing?
Experience and Background
What experience do you have, especially with people like me? What percentage of your time would you estimate that you spend on people with situations and goals that are similar to mine?
What education have you had that relates to your work?
What professional licenses do you hold?
Are you registered with the SEC, a state securities regulator, or FINRA?
How long have you done this type of work?
Have you ever been disciplined by a regulator? If yes, what was the problem and how was it resolved?
Have you had customer complaints? If yes, how many, what were they about, and how were they resolved?
Products
What type of products do you offer?
How many different products do you offer?
Do you offer "house" products? If so, what types of products are they, and do you receive any incentives for selling these products, or for maintaining them in a customer’s account? What kind of incentives are they?
Payments and Fees
Given my situation and what I’m looking for, what is the [best / most cost effective] way for me to pay for financial services? Why?
What are the fees that I will pay for products and services?
How and when will I see the fees I pay?
Which of those fees will I pay directly (such as a commission on a stock trade) and which are taken directly from the products I own (such as some mutual fund expenses)
How do you get paid?
If I invested $1000 with you today, approximately how much would you get paid during the following year, based on my investment?
Does someone else (such as a fund company) pay you for offering or selling these products or services?

PONZI FRAUD FOR SENIORS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Brings Charges in $42 Million Offering Fraud Targeting Seniors

The Securities and Exchange Commission today announced charges against Bradley A. Holcom, of Welches, Oregon, and Jose L. Pinedo, of San Diego, California, in connection with a fraudulent scheme that sold $42 million of promissory notes to more than 150 investors located across the United States, many of whom are senior citizens.

According to the complaint against Holcom, he lured investors by offering them guaranteed monthly interest payments on purportedly safe deals. He promised that their funds would be used to finance the development of specific pieces of real estate, and that each investment would be fully secured. In reality, the investments were unsecured, and the same piece of underlying property was often pledged as purported collateral on numerous investors’ promissory notes.

In addition to his misrepresentations, the complaint alleges that Holcom was also running a classic Ponzi scheme. While Holcom used some of the investors’ money to develop real estate, he also relied on those funds to make interest and principal payments on promissory notes as they came due. Holcom also used investor funds for personal use and on unrelated business ventures. By 2008, as the real estate market declined, Holcom’s scheme collapsed. Investors lost principal in excess of $25 million.

The Commission also alleges that Pinedo, who served as Holcom’s bookkeeper and as an officer or manager of Holcom’s numerous corporate entities, routinely signed promissory notes and other false and misleading documents that were sent to investors.

The Commission alleges that Holcom violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The Commission is seeking a permanent injunction, disgorgement plus pre- and post-judgment interest, and civil penalties against Holcom. Without admitting or denying the allegations in the Commission’s complaint against him, Pinedo has agreed to settle the matter, and consented to a final judgment enjoining him from violations of Sections 5(a), 5(c), 17(a)(2) and 17(a)(3) of the Securities Act.

DARK POOL OPERATOR AGREES TO PAY $800,000 PENALTY

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Oct. 3, 2012 — The Securities and Exchange Commission today charged Boston-based dark pool operator eBX LLC with failing to protect the confidential trading information of its subscribers and failing to disclose to all subscribers that it allowed an outside firm to use their confidential trading information.

According to the SEC’s order instituting a settled administrative proceeding, eBX operates the alternative trading system LeveL ATS, which it calls a "dark pool" trading program. Dark pools do not display quotations to the public, meaning that investors who subscribe to a dark pool have access to potential trade opportunities that other investors using public markets do not. eBX inaccurately informed its subscribers that their flow of orders to buy or sell securities would be kept confidential and not shared outside of LeveL. eBX instead allowed an outside technology firm to use information about LeveL subscribers’ unexecuted orders for its own business purposes. The outside firm’s separate order routing business therefore received an information advantage over other LeveL subscribers because it was able to use its knowledge of their orders to make routing decisions for its own customers’ orders and increase its execution rate. eBX had insufficient safeguards and procedures to protect subscribers’ confidential trading information.

eBX agreed to pay an $800,000 penalty to settle the charges.

"Dark pools are dark for a reason: buyers and sellers expect confidentiality of their trading information," said Robert Khuzami, Director of the SEC’s Division of Enforcement. "Many eBX subscribers didn’t get the benefit of that bargain – they were unaware that another order routing system was given exclusive access to trading information that it used for its own benefit."

According to the SEC’s order, eBX and the outside firm it hired to run LeveL signed a subscription agreement in February 2008, after which the outside firm’s separate order routing business began to use certain LeveL subscribers’ confidential trading data. In November 2008, eBX signed a new agreement with the outside firm that allowed its order routing business to remember and use all LeveL subscribers’ unexecuted order information. As a result of the agreements, the outside firm’s order routing business began to fill far more of its orders than other LeveL users did. Its order router also knew how other eBX subscribers’ orders in LeveL were priced and could use that information to determine whether to route orders to LeveL or another venue based on where it knew it might get a better price for its own customers’ orders.

According to the SEC’s order, eBX failed to disclose in required SEC filings that it allowed LeveL subscribers’ unexecuted order information to be shared outside of LeveL.

In addition to the $800,000 penalty, eBX was censured and ordered to cease and desist from committing or causing further violations of certain provisions of the federal securities laws regulating alternative trading systems.

The SEC’s investigation was conducted by Mark Gera, James Goldman, Kathleen Shields, and Dawn Edick in the SEC’s Boston Regional Office. Mr. Gera led the related examination with assistance from Paul D’Amico and Rhonda Wilson under the supervision of Associate Regional Director Lucile Corkery.

SEC CHARGES REGISTERED REPRESENTATIVE WITH FRAUD FOR ISSUING FALSE ACCOUNT STATEMENTS AND MISAPPROPRIATING INVESTOR FUNDS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission announced that on Friday, September 21, 2012, it filed an injunctive action in the United States District Court for the Eastern District of Pennsylvania against David L. Rothman of Richboro, PA, a registered representative, Vice President, and minority owner of Rothman Securities, Inc., a registered broker-dealer, for conducting a fraud by issuing false account statements and misappropriating investor funds.

The Commission alleges that from 2006 to 2011, Rothman created and issued false account statements to certain elderly and unsophisticated investors that materially overstated the value of their investment accounts. The Commission's Complaint further alleges that when the investors discovered that Rothman had misrepresented the value of their investments, Rothman engaged in a scheme to conceal his fraudulent conduct by agreeing to pay those investors the investment returns he reported on the false account statements. When Rothman could no longer afford to make those payments, he misappropriated funds from another elderly and unsophisticated investor and from two trust accounts for which he serves as trustee. Rothman also used a substantial portion of the misappropriated funds for his personal benefit.

As a result of the conduct described in the Complaint, the Commission alleges that Rothman violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Complaint seeks a permanent injunction, disgorgement together with prejudgment interest, and civil penalties from Rothman. Criminal charges have also been filed against Rothman in a parallel criminal case.

The Commission thanks the United States Attorney for the Eastern District of Pennsylvania and the Federal Bureau of Investigation for their assistance in this matter.

ALLEGED FRAUDULENT INVESTMENT SCHEME BASED ON "UNIQUE TRADING STRATEGY"

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

SEC CHARGES FOUR DEFENDANTS IN FRAUDULENT INVESTMENT SCHEME
The Securities and Exchange Commission today filed a complaint in the United States District Court for the Southern District of Indiana, charging Rudolf D. Pameijer, Lindsay R. Sayer, Ryan W. Koester and his entity Rykoworks Capital Group, LLC ("Rykoworks") with running a fraudulent investment scheme. The complaint alleges that the defendants in this scheme misappropriated nearly $1.7 million from investors.

As alleged in the complaint, Koester held himself out as an expert foreign currency trader, and falsely represented to investors that his unique trading strategy offered investors a principal guaranteed investment opportunity. As alleged in the complaint, Koester and Pameijer, a career insurance salesman, agreed to a profit sharing arrangement for clients Pameijer brought to Rykoworks. The complaint alleges that, starting in 2010, Pameijer and his daughter, Sayer, began soliciting clients to invest with Rykoworks through promissory notes which purported to guarantee investor principal while offering risk free returns from forex trading.

As alleged in the complaint, Pameijer and Sayer misappropriated the majority of funds they raised from investors for personal use. The complaint alleges that Pameijer used investor money to pay for luxury automobiles, a motorcycle, a boat, home renovations, his son’s college tuition, and Sayer’s wedding and honeymoon in St. Lucia. The complaint further alleges that Sayer used investor money to pay rent and wedding expenses, and for other personal expenditures. According to the complaint, the remaining investor funds Pameijer and Sayer transferred to Koester and Rykoworks, and additional funds Koester raised from investors directly, Koester depleted through trading losses and misappropriation of funds for personal expenses. The SEC alleges that, as part of the scheme, each of the proposed defendants made materially false representations to investors, including providing investors with false account statements and information.

By engaging in this conduct, the SEC alleges that each of the defendants violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. In addition, the complaint alleges that Pameijer and Sayer violated Section 15(a) of the Exchange Act by acting as unregistered brokers. The SEC action seeks injunctions, disgorgement with prejudgment interest, and civil monetary penalties.

Pameijer and Sayer have agreed to judgments, which are subject to Court approval, that permanently enjoin them from violating Section 17(a) of the Securities Act, and Sections 15(a) and 10(b) of the Exchange Act and Rule 10b-5 thereunder, and provide that upon subsequent motion the Court will determine issues relating to monetary relief. In addition, Pameijer and Sayer each have consented to a Commission order, pursuant to Section 15(b)(6) of the Exchange Act, barring them from future association with any investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; and barring them from participating in any offering of a penny stock.

Koester and Pameijer also are subject to pending Indiana state criminal charges. The SEC thanks the Indiana Division of Securities for its assistance in this matter.