FINAL JUDGEMENT ENTERED IN SUN VILLAGE CASE

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

October 5, 2012 the Honorable James C. Mahan, United States District Judge

for the District of Nevada, entered a Final Judgment against Derek F.C. Elliott

On May 24, 2012, the United States Securities and Exchange Commission filed a

complaint, in the United States District Court for the District of Nevada,

against James B. Catledge, Derek F.C. Elliott, EMI Resorts (S.V.G.) Inc., EMI

Sun Village, Inc. and Sun Village Juan Dolio alleging that James B. Catledge and

Elliott, and certain of their related entities, made material misrepresentations

to investors in connection with the unregistered sale of interests in two

resorts in the Dominican Republic. The Final Judgment against Elliot seeks no

civil penalty at this time, waives disgorgement and authorizes the Commission to

seek a civil penalty of not more than $250,000 by subsequent motion.

The Final Judgment enjoins Elliott from future violations of Sections 5(a),

5(c) and 17(a)(1), (2) and (3) of the Securities Act of 1933 and Section 15(a)

of the Securities Exchange Act of 1934. Elliott consented to the relief granted

in the Final Judgment.

A FAILURE TO COMPLY WITH A SETTLEMENT

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

James L. Cooper Held in Civil Contempt after Failing to Comply With Judgment

The Securities and Exchange Commission today announced that on August 20, 2012, the Honorable Jack Zouhary of the United States District Court for the Northern District of Ohio found James L. Douglas a/k/a James L. Cooper in civil contempt for failure to pay in full a judgment entered in 1983.

On January 18, 1982, the SEC filed a complaint against Douglas, alleging that he had raised more than $7.5 million by offering and selling unregistered oil and gas partnerships through false pretenses. Douglas subsequently settled. On August 26, 1983, the Court entered an Order Directing Ancillary Relief, ordering him to disgorge $200,000 within three years.

Douglas did not comply with the Court’s payment schedule, paying only $121,975.29 of the $200,000 judgment, and leaving an unpaid balance of $78,024.71 plus post-judgment interest. Counsel for Douglas at the time reported that Douglas lacked the ability to pay, and that Douglas may have moved to Scotland.

Based on the non-payment, the SEC filed a motion for contempt on July 8, 1988. On August 8, 1988, the Court granted the SEC’s motion, found Douglas in contempt, and issued a warrant for his arrest. The warrant was never executed because the U.S. Marshals could not locate Douglas. In 2010, the SEC learned that Douglas had returned to the U.S. and that his fortunes had changed. Douglas filed suit on behalf of his deceased wife’s estate against several tobacco companies in Florida state court. In March, 2010, the jury awarded $2.5 million to the Estate of Charlotte M. Douglas, of which Douglas is the sole beneficiary. The verdict is currently on appeal to the Supreme Court of Florida.

On January 23, 2012, the SEC filed a Motion for a Rule to Show Cause and for an Order of Civil Contempt, requesting that the Court hold Douglas in contempt for a second time. The Court presided over four days of evidentiary hearings. On August 20, 2012, the Court granted the SEC’s motion, holding Douglas in contempt for a second time. The Court ruled that "Defendant’s lavish lifestyle apparently is over, but he has dodged his legal debt long enough, and it is high time for him to pay what he owes." See August 20, 2012 Memorandum Opinion and Order. The Court also ruled that, under 28 U.S.C. § 1961, Douglas must pay post-judgment interest at the statutory rate of 10.74% from the "date of the entry of the judgment" in 1983. "That rate may seem high by today’s standards, but it is properly calculated. . . . And if [Douglas] finds the amount due unreasonable, it is the result of his own misconduct for avoiding payment for so long." See August 20, 2012 Memorandum Opinion and Order. Based on the SEC’s calculation, the post-judgment interest now exceeds $1.7 million.

FARR FINANCIAL INC., SETTLES CHARGES WITH CFTC FOR $280,000

FROM:  COMMODITY FUTURES TRADING COMMISSION

CFTC Orders Farr Financial Inc. to Pay $280,000 to Settle Charges of Improper Investment of Customer Segregated Funds and Supervision Failures

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the Farr Financial Inc. (Farr) of San Jose, Calif., agreed to pay a $280,000 civil monetary penalty to settle CFTC charges that it failed to properly invest customer segregated funds and failed to diligently supervise those investment activities. Farr is currently registered with the CFTC as an introducing broker and was registered as a futures commission merchant (FCM) during the period relevant to the settlement.

FCMs receive money, securities, and other property (funds) from their customers to margin, guarantee, or secure the customers’ futures and options trades. Under the Commodity Exchange Act (CEA) and CFTC regulations, FCMs are required to segregate customer funds from funds belonging to the FCM, and can invest customer funds only in investments enumerated in CFTC regulation 1.25, such as obligations of the United States, any state (or subdivision thereof), obligations fully guaranteed as to principal and interest by the United States, and other specified instruments that satisfy a general prudential standard consistent with the objectives of preserving principal and maintaining liquidity for customer funds.

During the period from late 2007 through the end of 2010, Farr invested customer funds in at least seven different accounts that failed to comply with the requirements of regulation 1.25, the CFTC order finds. These investments included (1) an investment in a money market mutual fund from which funds could not be withdrawn by the next business day as required by regulation 1.25, (2) five savings or money market deposit accounts, which are not permitted investments under regulation 1.25, and (3) a certificate of deposit whose issuer did not meet the then-existing credit rating requirement of regulation 1.25, the order finds.

Furthermore, Farr failed to diligently supervise its employees and agents in violation of regulation 166.3, the order finds. Farr failed to implement any written policies or procedures governing the opening and maintenance of customer segregated accounts and failed to implement an adequate supervisory structure to insure the proper segregation of funds, according to the order.

Farr also violated several other regulations involving customer funds, including failing to prepare and maintain certain required records and miscalculating the amount of money it was required to segregate for its customers, according to the order.

In addition to imposing the $280,000 civil monetary penalty, the CFTC order requires Farr to cease and desist from further violations of the CEA and CFTC regulations, as charged.

The CFTC thanks the National Futures Association for its assistance in this matter.

CFTC staff members responsible for this case are Theodore Z. Polley III, Ken Hampton, William P. Janulis, Scott Williamson, Rosemary Hollinger, and Richard B. Wagner of the CFTC’s Division of Enforcement, and Tom Bloom and Kurt J. Harms of CFTC’s Division of Swap Dealer and Intermediary Oversight.

ATTORNEY GENERAL ERIC HOLDER SPEAKS AT SOUTHEASTERN REGIONAL INVESTOR FRAUD SUMMIT

FROM: U.S. DEPARTMENT OF JUSTICE

Attorney General Eric Holder Speaks at the Southeastern Regional Investor Fraud Summit

Miami ~ Friday, October 12, 2012

Thank you, Willy, for that kind introduction, and for the great work that you – and your team in the United States Attorney’s Office – are leading here in the Southern District of Florida.

It’s a pleasure to be back in Miami this afternoon, and a privilege to join with so many critical leaders – including the outstanding U.S. Attorneys for the Middle and Northern Districts of Florida, Robert O’Neill and Pamela Marsh; the many dedicated investigators, law enforcement leaders, attorneys, and support staff who stand on the front lines of our anti-fraud efforts every day; as well as a broad range of critical partners – from the FBI, to state and local authorities, to the Federal Trade Commission, the Securities and Exchange Commission, and other agencies – as we explore strategies for advancing the Justice Department’s efforts to prevent and combat investor fraud; and to protect the rights, interests, and security of the American people.

Thank you all for being here. I also want to thank President [Eduardo] Padron, and the Miami Dade College community, for hosting this important Summit. And I want you to know that this entire community – and, especially, the victims of this week’s tragic accident – are in our thoughts and prayers at this difficult time.

Today marks the last of six regional summits that have been convened over the last twelve days in fraud "hot spots" across the country. And I’m grateful that we have such a large and diverse group gathered here. I’d like to extend a special welcome to the experts and allies from the AARP, FINRA , and other private sector, non-profit, and advocacy organizations – who are here to help drive this conversation forward. Finally, I’d like to recognize, and thank, Dr. John Gentile and Manuel Comella for courageously sharing their personal stories with us, for teaching us about the devastating impact that fraud crimes can have, and for raising their voices to help prevent others from being victimized.

Especially today – as our nation continues to recover from once-in-a-generation economic challenges, and as we move to confront a recent, and troubling, rise in investment fraud schemes – the urgency of this work has been brought into stark focus. And, as you’ve been discussing, the need to move both aggressively and collaboratively to help the American people safeguard their homes, their investments, and their hard-earned savings – and to bring fraudsters to justice – has never been more clear.

Recent estimates reveal that, since 2011, more than $20 billion has been lost to investment fraud schemes – and that, between 2008 and 2011, the incidence of these crimes increased by more than 130 percent. The FBI has indicated that these offenses represent an astonishing 60 percent of all corporate and securities fraud investigations that are currently being conducted. And their scope and complexity continues to increase.

From illegal kickback and market manipulation plots, to Ponzi schemes, business opportunity scams, affinity fraud, and "strike it rich" scams – we’ve seen that these crimes are as diverse as the imaginations of those who perpetrate them, and as sophisticated as modern technology will permit. Their costs can be measured not only in dollars and cents – but in lives turned upside down.

Far more compelling than any statistics I can cite are the stories you heard this morning – and thousands like them that play out every day in cities and towns across the country. Heartbreaking stories of bankruptcies, foreclosures, forced moves, and unexpected debt; of individual lives and families shattered by fraud; and of entire communities devastated by the actions of those who violate the law to take advantage of their fellow citizens – and, all too often, their own neighbors, coworkers, and family members.

You’ve all heard these tragic stories – and some of you have seen and experienced the consequences of investor fraud crimes firsthand. Not only do you understand what we’re up against, you also recognize that this problem has reached crisis proportions – that fraud is most frequently committed by seemingly trustworthy individuals who prey upon their fellow community members; and that these schemes often target senior citizens and other vulnerable members of society.

Even more importantly, you know – as I do – that, despite our record of success, and despite the Justice Department’s commitment to fighting investor fraud, government won’t be able to make the progress we need – and attain the results that the American people deserve – on its own. By taking part in today’s Summit, you’ve proven your dedication to helping us confront these challenges. And I want to assure you that you’ll always have a strong partner – and a steadfast ally – in our nation’s Department of Justice, and in your local United States Attorney’s Office.

At every level, my colleagues and I have made the fight against financial fraud a top priority. We’re more determined than ever to eradicate these crimes – and, alongside more than two dozen additional federal government agencies and private sector partners, we’ve made an historic commitment to advancing this work at the national level. We’ve also made remarkable progress.

Driving this effort forward is the Financial Fraud Enforcement Task Force, which constitutes the largest coalition ever assembled to combat financial fraud. I am honored to chair this Task Force – and we can all be encouraged by what it is enabling us to achieve. Since its inception in 2009, the Task Force has helped to leverage the tremendous strength of federal, state, local, and tribal partnerships; to streamline the investigative and enforcement efforts of multiple agencies that can operate across jurisdictions and state lines; and to advance cutting-edge strategies for recovering – and more effectively utilizing – precious taxpayer resources.

Already, this approach is paying dividends. In February, in cooperation with the Department of Housing and Urban Development, 49 state attorneys general, and other partners, the Justice Department reached the largest residential mortgage fraud settlement ever obtained – totaling $25 billion – with five of the nation’s top mortgage servicers. Earlier this year, the Financial Fraud Enforcement Task Force launched a Residential Mortgage-Backed Securities Working Group and a Consumer Protection Working Group to help take our comprehensive fraud-fighting efforts to a new level. On Tuesday of this week, I was proud to join HUD Secretary Donovan and other federal officials in announcing the results of an historic initiative that has helped tens of thousands of homeowners in distress. And just yesterday, I joined with Health and Human Services Secretary Kathleen Sebelius to convene the first-ever meeting of the interagency Elder Justice Coordinating Council – a group that will help guide national efforts to safeguard America’s seniors from neglect, abuse, and financial exploitation, including the fraud crimes we’ve gathered to discuss today.

All of this is only the beginning in our fight against investor fraud. As a result of the cooperation made possible by the Task Force – and thanks to the hard work of investigators, prosecutors, law enforcement officials, and analysts at every level of the Justice Department, in each of our U.S. Attorneys’ Offices, and across a variety of partner agencies and organizations, many of which are represented here – we’ve devoted substantial resources, and an unprecedented level of attention, to stemming the rise in investment fraud schemes. Since the beginning of last year, federal prosecutors have brought a total of roughly 500 cases involving approximately 800 defendants who have been charged, tried, pled, or sentenced because of their alleged involvement in these crimes. And we have secured a 97 percent rate of incarceration for convicted defendants, with many receiving sentences of 10 years or more.

These include a prison sentence of 50 years that was obtained against an individual who preyed on more than 400 elderly victims in a $40 million Ponzi scheme – as well as a sentence of 30 years against another perpetrator who used roughly $15 million that had been entrusted to him by more than 160 retirees to build a home for himself, buy jewelry and luxury cars, pay his friends and family, and make private investments of his own. Right here in the Southern District of Florida, just over two years ago, a high-profile attorney from Ft. Lauderdale pleaded guilty to running a massive $1.2 billion Ponzi scheme – for which he is currently serving a 50-year prison sentence. And last November, we secured a sentence of 20 years against another Florida man who orchestrated a $30 million fraud scheme that victimized more than 500 people.

Here in the Southern Florida, your United States Attorney’s Office has brought together a number of federal and state authorities to fight back against these crimes. To date, their efforts have resulted in charges against more than 100 defendants and over $1.5 billion in restitution ordered. And their work remains ongoing. In fact, just two days ago, Willy and his team – and their colleagues in the Consumer Protection Branch of the Justice Department’s Civil Division – announced yet another indictment charging 10 defendants with participating in a scam that allegedly defrauded thousands of victims – by persuading them to invest in a vending machine business, then failing to deliver on their promises.

Now, these are just a few examples of the significant results we’ve obtained – and the meaningful, measurable progress that’s been made – in our efforts to prevent, deter, and punish fraud targeting investors. Yet there’s no question that serious challenges remain before us. Significant threats are all too common. And it’s only by working together, engaging with relevant authorities at every level, and enlisting the support of an informed public – that we’ll be able to make the difference we need, and capitalize on the momentum we’ve built.

That’s why I made it a priority to be here this afternoon: not only to listen, to learn, and to hear from all of you – but also to pledge my strongest support, and my own best efforts, in carrying this extraordinary work into the future.

Today’s event may mark the last in this series of Regional Investor Fraud Summits – but it proves that our anti-fraud efforts are only just beginning. And, as I look out over this crowd – of dedicated colleagues and indispensible partners – that’s gathered here today, I can’t help but feel confident in where this work will lead us from here. Though this effort is the responsibility of us all, I pledge that this Department of Justice will do whatever is needed to ensure the outcome we want. Our work will not be easy and the completion of our task will take time. But if we remain focused, if we continue to work together, we can, and will, hold accountable those who would prey on our fellow citizens, bring relief to those who have been victimized, and make our nation more safe and more secure.

Thank you.

SEC CHARGES PAIR OF HEDGE FUND MANAGERS WITH LYING

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Oct. 3, 2012 — The Securities and Exchange Commission separately charged a pair of hedge fund managers and their firms with lying to investors about how they were handling the money invested in their respective hedge funds. The charges are the latest in a series of actions taken by the SEC Enforcement Division and its Asset Management Unit against hedge fund-related misconduct in the markets.

In one case, the SEC alleges that San Francisco-based hedge fund manager Hausmann-Alain Banet and his firm Lion Capital Management stole more than a half-million dollars from a retired schoolteacher who thought she was investing her retirement savings in Banet’s hedge fund. In the other case, the SEC charged Chicago-based hedge fund managers Norman Goldstein and Laurie Gatherum and their firm GEI Financial Services with fraudulently siphoning at least $147,000 in excessive fees and capital withdrawals from a hedge fund they managed.

Since the beginning of 2010, the SEC has filed more than 100 cases involving hedge fund malfeasance such as misusing investor assets, lying about investment strategy or performance, charging excessive fees, or hiding conflicts of interest. The SEC issued an investor bulletin detailing some of those cases as examples of why investors must rigorously evaluate a hedge fund investment before making one.

"These hedge fund frauds have lured even the most sophisticated investors using the siren song of outsized returns or secured and guaranteed investments," said Robert Khuzami, Director of the SEC’s Division of Enforcement. "As fraudsters increasingly capitalize on the cachet of hedge funds, we will maintain our strong presence in policing this industry."

In the past few weeks alone, the SEC has charged an Atlanta-based private fund manager and his firm with defrauding investors in a purported "fund-of-funds" and then trying to hide trading losses, charged a hedge fund adviser in Oregon with running a $37 million Ponzi scheme through several hedge funds he managed, and charged a New York-based hedge fund manager who touted a diversified and controlled-risk investment strategy for his fund while in reality misusing investor assets to prop up a failing private company. The New York-based fund manager also failed to disclose conflicts of interest, and he falsely overstated his firm’s assets under management in various magazine articles he authored.

"The most serious hedge fund frauds involve advisers who play fast and loose with investor money," said Bruce Karpati, Chief of the SEC Enforcement Division’s Asset Management Unit. "Investors can complement the SEC’s vigilant enforcement against hedge fund misconduct by becoming increasingly wary of hedge fund managers who boast extreme performance measures and asking well-informed questions about investment strategy, fees, and potential conflicts of interest."

According to the SEC’s complaint filed against Banet and Lion Capital Management in federal court in San Francisco, Banet led the teacher to believe that his hedge fund would invest in the stock market using a long/short equity investing strategy. Instead, Banet brazenly took the teacher’s investment totaling $550,000 and used it to pay unauthorized personal and business expenses, including his home mortgage, office rent, and staff salaries. Banet also provided phony account statements showing non-existent investment gains and listing an independent administrator that performed no actual work for the fund.

In a parallel action, the U.S. Attorney’s Office for the Northern District of California today announced criminal charges against Banet. The SEC acknowledges the assistance and cooperation of the U.S. Attorney’s Office, Federal Bureau of Investigation (FBI), and Immigration and Customs Enforcement (ICE).

According to the SEC’s complaint against Goldstein, Gatherum, and GEI Financial Services filed in federal court in Chicago, investors in the hedge fund were not told that its adviser removed various performance hurdles when calculating fees. Furthermore, inappropriate capital withdrawals were made from the fund. Goldstein, Gatherum, and their firm never told their advisory clients that Illinois regulators had stripped Goldstein of his securities registrations in 2011, barring him from providing investment advisory services in the state. But even after losing his registration status, Goldstein continued to make all investment decisions on behalf of clients, and he and Gatherum caused GEI Financial Services to violate compliance rules applicable to SEC-registered investment advisers.

The SEC’s investigation of Lion Capital Management was conducted by Sahil Desai and Robert Leach of the Asset Management Unit in the San Francisco Regional Office. John Yun is leading the SEC’s litigation. The SEC’s investigation of GEI Financial Services – which stemmed from an Asset Management Unit initiative to detect misconduct by pursuing registered investment advisers with repeated compliance examination deficiencies – was conducted by Andrew Shoenthal, Jeson Patel, Malinda Pileggi, Vanessa Horton, and Paul Montoya of the Chicago Regional Office. John E. Birkenheier is leading the litigation.

The SEC’s investor bulletin on hedge funds was prepared by the Office of Investor Education and Advocacy. It recommends that investors understand a hedge fund’s investment strategy and its use of leverage and speculative techniques before making the investment. It also explains the need to evaluate a hedge fund manager’s potential conflicts of interest and take other steps to research those managing the fund.

"Hedge fund investments generally perform differently, involve higher fees and less liquidity, and may carry greater investment and fraud risk than the mutual funds that investors are accustomed to," said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy. "This investor bulletin describes the rigorous due diligence steps that financially-qualified investors should consider before making any hedge fund investment."

SEC REPORT ON BROKER-DEALER HANDLING OF CONFIDENTIAL INFORMATION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC, Sept. 27, 2012 –The Securities and Exchange Commission today issued a staff report intended to help broker-dealers safeguard confidential information from misuse, such as insider trading. The report by the Office of Compliance Inspections and Examinations (OCIE) describes strengths and weaknesses identified in examinations into how broker-dealers keep material nonpublic information from being misused.

This report should help broker-dealers assess the effectiveness of their controls over sensitive information," said OCIE Director Carlo di Florio. "The report illustrates the types of conflicts of interest that may arise between a broker-dealer’s obligations to clients that provide confidential information for business purposes and the potential misuse of such information for insider trading or other improper ends. It also describes various methods that broker-dealers use to identify and effectively manage such conflicts, including information barriers that limit the flow of sensitive information."

Conflicts of interest and other issues of concern raised by the report include:
A significant amount of informal, undocumented interaction occurred between groups that have material nonpublic information and internal and external groups with sales and trading responsibilities that might profit from the misuse of such material nonpublic information
At some broker-dealers, a senior executive might have access to material nonpublic information from one business unit while overseeing a different unit that could potentially profit from misuse of that information, with few if any restrictions or monitoring to prevent such misuse
Some broker-dealers did not have risk controls to address certain business units that possess material nonpublic information such as sales, trading or research personnel who receive confidential information for business purposes; institutional and retail customers or asset management affiliates with access to material nonpublic information, or firm personnel who receive information through business activities outside of investment banking, such as participation in bankruptcy committees or through employees serving on the boards of directors of public companies.
The report also highlights effective practices that examiners observed at some broker-dealers, such as:
Broker-dealers sometimes adopted processes that differentiate between types of material nonpublic information based on the nature of the information or where it originated. In some cases, broker-dealers create tailored "exception" reports that take into account the different characteristics of the information
Some broker-dealers expanded reviews for potential misuse of confidential information to include trading in credit default swaps, equity or total return swaps, loans, components of pooled securities such as unit investment trusts and exchange traded funds, warrants, and bond options
Broker-dealers often considered electronic sources of confidential information and instituted monitoring to identify which employees had accessed the information
Broker-dealers often monitored access rights for key cards and computer networks to confirm that only authorized personnel had access to sensitive areas.
The types of issues identified in this report may be helpful to firms as they review their conflict of interest risk management programs. In particular, in any review of information barriers control programs, broker-dealers should be alert to changes in business practices and available compliance tools.