BROKER TO PAY $763,000 FOR DECEPTIVE MUTUAL FUND MARKET TIMING PRACTICES

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Court Orders Former Prudential Securities Broker to Pay Over $763,000 Related to Deceptive Mutual Fund Market Timing Practices
The Securities and Exchange Commission announced today that on March 12, 2013, a federal court in New York entered final judgment against Frederick J. O’Meally, the sole remaining defendant in a fraud action filed by the Commission on August 28, 2006. The Commission alleged that he used deceptive practices to evade blocks by mutual fund companies on his market timing trading. In issuing the final judgment, the Honorable Laura Taylor Swain, United States District Court Judge for the Southern District of New York, ordered O’Meally to pay over $763,000 in disgorgement, prejudgment interest, and a civil penalty.

On December 14, 2011, a federal jury returned a verdict in the Commission’s favor on securities fraud charges against O’Meally, a resident of Bay Shore, New York. O’Meally is a former registered representative of broker-dealer Prudential Securities Inc. The jury found O’Meally liable for violations of Sections 17(a)(2) and/or (3) of the Securities Act of 1933. The verdict against O’Meally followed a month-long trial in Manhattan before the Honorable Judge Swain.

The Commission filed its Complaint on August 28, 2006 against four registered representatives formerly employed by Prudential Securities, Inc. The Complaint alleged that, between 2001 and 2003, certain mutual fund companies detected market timing activity by the defendants and attempted to block the defendants and their hedge fund customers from further trading in their funds. The Complaint further alleged that the defendants used fraudulent and deceptive trading practices to conceal their and their customers’ identities to evade these blocks. Cases against the three other defendants had been resolved previously by settlement. In its final judgment against O’Meally, the court ordered him to pay $444,836 in disgorgement of his profits from illegal market timing transactions plus $258,401.55 in prejudgment interest and a civil penalty of $60,000, for a total of $763,237.55.

The Commission also brought related enforcement actions against several other parties associated with Prudential Securities concerning deceptive market timing activities, as well as a settled enforcement action against Prudential Securities itself on August 28, 2006, in which Prudential agreed to pay $270 million that was later distributed to harmed investors.

DEFENDANTS MUST PAY NEARLY $16,000,000 TO SETTLE UNREGISTERED STOCK SALES CASE

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Court enters final judgment against Defendants

The Securities and Exchange Commission ("Commission") announced today that the Honorable William J. Haynes, Jr., United States District Judge for the Middle District of Tennessee, entered final judgments on February 27, 2013 against J.C. Reed & Company ("JC Parent") and Barron A. Mathis ("Mathis"). The final judgment against JC Parent, to which JC Parent consented, held JC Parent liable for disgorgement of $11,000,000 and prejudgment interest of $3,910,003.07, for a total of $14,910,003.07. The final judgment against Mathis, to which he consented, restrained and enjoined him from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Mathis also was held liable for disgorgement of $11,000,000 and prejudgment interest of $4,944,175.39, for a total of $15,944,175.39.

The Commission’s Complaint, filed on November 18, 2008, alleged that, at various times from no later than 2005 through at least September 2008, JC Parent, J.C. Reed & Advisory Group (JC Advisory), John C. Reed ("Reed"), the founder of JC Parent and JC Advisory, and Mathis facilitated the offer and sale of more than $11 million of JC Parent stock in unregistered transactions to over 100 investors in several states. According to the Complaint, JC Parent, JC Advisory, and Reed misrepresented and omitted material facts to investors relating to the value of the investors’ stock, JC Parent’s revenues and profitability, the use of key man life insurance proceeds for redemptions of Reed’s JC Parent stock, and undisclosed sales commissions. The Complaint also alleges that Mathis promoted JC Parent stock to advisory clients and misrepresented material facts to investors about undisclosed sales commissions. In addition, the Complaint alleges that JC Advisory used JC Parent’s inflated stock values to falsely report assets under management as JC Advisory’s basis for registration with the Commission and on reports filed with the Commission.

FORMER MERCURY INTERACTIVE GENERAL COUNSEL SETTLES SUIT ALLEGING STOCK OPTIONS BACKDATING AND OTHER MISCONDUCT

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Susan Skaer, former General Counsel of Mercury Interactive Corporation, to be Permanently Enjoined and to Pay Civil Penalties and Disgorgement, and to be Barred from Practicing or Appearing as an Attorney Before the Commission

The Securities and Exchange Commission today settled civil fraud charges against Susan Skaer, the former General Counsel and Secretary of Mercury Interactive Corporation (Mercury), arising from an alleged scheme to backdate stock option grants and from other alleged misconduct.

On May 31, 2007, the Commission charged three other former senior Mercury officers and Skaer with perpetrating a scheme from 1997 to 2005 to award Mercury executives and other employees undisclosed, secret compensation by backdating stock option grants and failing to record hundreds of millions of dollars of compensation expense. The Commission's Complaint also alleged other misconduct by Skaer related to the award of stock options to Mercury executives and employees.

Without admitting or denying the allegations in the Commission's complaint, Skaer consented to the entry of a final judgment permanently enjoining her from violating and/or aiding and abetting violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, as well as the financial reporting, record-keeping, internal controls, false statements to auditors, and proxy provisions of the federal securities laws. Skaer will pay $628,037 in disgorgement and prejudgment interest, representing the "in-the-money" benefit from her exercise of backdated option grants, and a $225,000 civil penalty. The settlement is subject to the approval of the United States District Court for the Northern District of California.

As part of the settlement, and following the entry of the proposed final judgment, Skaer, without admitting or denying the Commission's findings, has consented to the entry of a Commission order, pursuant to Rule 102(e)(3) of the Commission's Rules of Practice, suspending her from appearing or practicing before the Commission as an attorney.

The settlement with Skaer, if approved, will conclude the litigation. The Commission previously filed settled charges against Mercury and three former outside directors of Mercury. On May 31, 2007, the Commission filed civil fraud charges against Mercury based on the stock option backdating scheme and other fraudulent conduct noted above. Mercury, which was acquired by Hewlett-Packard Company on November 8, 2006, after the alleged misconduct, settled the matter by agreeing to pay a $28 million penalty and to be permanently enjoined. See Litigation Release No. 20136 (May 31, 2007). On September 17, 2008, in a separate action, the Commission filed settled charges against three former outside directors of Mercury alleging that they recklessly approved backdated stock option grants and reviewed and signed public filings that contained materially false and misleading disclosures about the company's stock option grants and company expenses. The outside directors settled the matter by consenting to permanent injunctions and the payment by each director of a $100,000 penalty. See Litigation Release No. 20724 (Sept. 17, 2008). Mercury and the outside directors settled the charges without admitting or denying the allegations in the Commission's complaint. The Commission also previously settled with three of the four senior officers in its contested action. On March 20, 2009, the Commission settled with former Mercury CFO Sharlene Abrams by which she agreed to entry of a permanent injunction against the antifraud and certain other securities law provisions, to pay $2,287,914 in disgorgement which was deemed partially satisfied by payment to Mercury, to pay a $425,000 civil penalty, to be permanently barred from serving as an officer and director of any public company, and to a Commission order barring her from appearing or practicing before the Commission as an accountant. See Litigation Release No. 20964 (March 20, 2009). On February 21, 2013, the Commission settled with former Mercury CEO Amnon Landan and former Mercury CFO Douglas Smith. Landan agreed to entry of a permanent injunction against the antifraud and certain other securities law provisions, to pay $1,252,822 in disgorgement and prejudgment interest, to pay a $1,000,000 civil penalty, to be barred from serving as an officer and director of any public company for five years, and to reimburse Mercury, pursuant to Section 304 of the Sarbanes-Oxley Act, $5,064,678 for cash bonuses and profits from the sale of Mercury stock. Smith agreed to a permanent injunction against future violations of certain of the antifraud provisions, to pay $451,200 in disgorgement satisfied by a prior repayment to Mercury, to pay a $100,000 civil penalty, and to reimburse Mercury, pursuant to Section 304 of the Sarbanes-Oxley Act, $2,814,687 for profits received from the sale of Mercury stock, all but $250,000 of which was deemed satisfied by prior cash repayments and foregoing of rights to exercise vested options to the benefit of Mercury. See Litigation Release No. 22623 (Feb. 21, 2013). Landan, Abrams and Smith each settled without admitting or denying the allegations in the Commission's complaint

ADVISORS AT OPPENHEIMERS & CO. CHARGED WITH MISLEADING INVESTORS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION  

Washington, D.C., March 11, 2013 — The Securities and Exchange Commission today charged two investment advisers at Oppenheimer & Co. with misleading investors about the valuation policies and performance of a private equity fund they manage.

An SEC investigation found that Oppenheimer Asset Management and Oppenheimer Alternative Investment Management disseminated misleading quarterly reports and marketing materials stating that the fund’s holdings of other private equity funds were valued "based on the underlying managers’ estimated values." However, the portfolio manager of the Oppenheimer fund actually valued the fund’s largest investment at a significant markup to the underlying manager’s estimated value, a change that made the fund’s performance appear significantly better as measured by its internal rate of return.

Oppenheimer agreed to pay more than $2.8 million to settle the SEC’s charges. The Massachusetts Attorney General’s office today announced a related action and additional financial penalty against Oppenheimer.

"Honest disclosure about how investments are valued and how performance is measured is vital to private equity investors," said George S. Canellos, Acting Director of the SEC’s Division of Enforcement. "This action against Oppenheimer for misleadingly writing up the value of illiquid investments is clear warning that the SEC will not tolerate lax disclosure practices in the marketing of private equity funds."

According to the SEC’s order instituting settled administrative proceedings, the Oppenheimer advisers marketed Oppenheimer Global Resource Private Equity Fund I L.P. (OGR) to investors from around October 2009 to June 2010. OGR is a fund that invests in other private equity funds, and it was marketed primarily to pensions, foundations, and endowments as well as high net worth individuals and families.

According to the SEC’s order, OGR’s largest investment — Cartesian Investors-A LLC — was not valued based on the underlying managers’ estimated values. OGR’s portfolio manager himself valued Cartesian at a significant markup to the underlying manager’s estimated value. OAM’s change in valuation methodology resulted in a material increase in OGR’s performance as measured by its internal rate of return, which is a metric commonly used to compare the profitability of various investments. For the quarter ended June 30, 2009, the portfolio manager’s markup of OGR’s Cartesian investment increased the internal rate of return from approximately 3.8 to 38.3 percent.

"Particularly in the current difficult fundraising environment that can incentivize private equity managers to artificially inflate portfolio valuations, firms must implement policies and procedures to ensure that investors receive performance data derived from the disclosed valuation methodology," said Julie M. Riewe, Deputy Chief of the SEC Enforcement Division’s Asset Management Unit. "Oppenheimer failed to implement such procedures and provided investors with misleading information about its valuation policies and performance numbers."

The SEC’s order found that former OAM employees made the following misrepresentations to potential investors:
The increase in Cartesian’s value was due to an increase in Cartesian’s performance when, in fact, the increase was attributable to the portfolio manager’s new valuation method.
A third-party valuation firm used by Cartesian’s underlying manager wrote up the value of Cartesian, which was untrue.
OGR’s underlying funds were audited by independent third-party auditors when, in fact, Cartesian was unaudited.
The SEC’s order also found that Oppenheimer Asset Management’s written policies and procedures were not reasonably designed to ensure that valuations provided to prospective and existing investors were presented in a manner consistent with written representations to investors and prospective investors.

Oppenheimer Asset Management’s conduct violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Section 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-7 and 206(4)-8. Without admitting or denying the findings, Oppenheimer agreed to pay a $617,579 penalty and return $2,269,098 to those who invested in OGR during the time period when the misrepresentations were made. Oppenheimer consented to a censure and agreed to cease and desist from committing or causing any future violations of the securities laws. The firm is required to retain an independent consultant to conduct a review of its valuation policies and procedures.

Oppenheimer will pay an additional penalty of $132,421 to the Commonwealth of Massachusetts in the related action taken by the Massachusetts Attorney General.

The SEC’s investigation, which is continuing, was conducted by Panayiota K. Bougiamas and Igor Rozenblit of the Asset Management Unit and Lisa Knoop. It was supervised by Valerie A. Szczepanik. The SEC acknowledges the assistance of the Massachusetts Attorney General’s office.

DODD-FRANK SWAPS CLEARING RULES HAVE BEGUN

FROM: COMMODITY FUTURES TRADING COMMISSION
CFTC Announces that Mandatory Clearing Begins

Washington, DC – Today, swap dealers, major swap participants and private funds active in the swaps market are required to begin clearing certain index credit default swaps (CDS) and interest rate swaps that they entered into on or after March 11, 2013. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended the Commodity Exchange Act (CEA) to require clearing of certain swaps. The Dodd-Frank Act also requires the Commission to determine whether a swap is required to be cleared by either a Commission-initiated review or a submission from a DCO for the review of a swap, or group, category, type, or class of swap. The clearing requirement determination does not apply to those who are eligible to elect an exception from clearing because they are non-financial entities hedging commercial risk.

"One of the most significant Dodd-Frank reforms begins implementation today," said CFTC Chairman Gary Gensler. "Central clearing lowers the risk of the highly interconnected financial system. It promotes competition in and broadens access to the market by eliminating the need for market participants to individually determine counterparty credit risk, as now clearinghouses stand between buyers and sellers."

As of today, swap dealers and private funds active in the swaps market began clearing certain CDS and interest rate swaps that they entered into on or after March 11. The clearing requirement applies to newly executed swaps, as well as changes in the ownership of a swap. The five swap classes that are required to be cleared include the swaps can be found here: See Related Link.

Market participants electing an exception from mandatory clearing under section 2(h)(7) of the CEA do not have to comply with the reporting requirements for electing the exception until September 9, 2013.

"This week’s implementation of mandatory clearing continues the process of implementing key goals of the Dodd-Frank Act," Chairman Gensler said. "It is an historic change for the markets that will benefit the public and the economy at large. This achievement is a real testament to the dedication and excellence of the CFTC staff working as a team and with other regulators, both domestic and international. I also would like to thank Commissioners Sommers, Chilton, O’Malia and Wetjen for their significant contributions to making the implementation of these reforms now a reality."

MAN SETTLES WITH SEC REGARDING WASH SALES TO MANIIPULATE STOCK PRICES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Robert Crane for Market Manipulation

On February 26, 2013, the Securities and Exchange Commission filed a complaint charging Robert Crane, a former registered representative, with manipulating the market in two penny stocks-Argentex Mining Corporation and ERHC Energy Inc. The United States District Court for the Eastern District of Virginia entered the judgment to which Crane consented on March 4, 2013

The Commission's settled action, filed in federal district court for the Eastern District of Virginia, alleges that Crane executed six wash sales in June 2010 to create the false appearance of an active and liquid market for two securities. He placed his orders through the Internet for trades in three accounts at two brokerage firms. His trades resulted in no change of beneficial ownership in the stock he already owned. However, Crane did not profit from his scheme. The complaint alleges violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and the Court's order permanently enjoins Crane from violating those laws. The Court's order also provides for a penny stock bar against Crane. The Commission did not seek a penalty against Crane due to his sworn representations concerning his financial condition.