FROM: U.S SECURITIES AND EXCHANGE COMMISSION
SEC Charges China-based Company and Former Chief Financial Officer in Fraudulent Scheme involving Non-Existent Computing Business
The Securities and Exchange Commission announced today that it filed an enforcement action on May 8, 2013, in federal court in New York City charging Subaye, Inc., a company based in China whose stock trades in the U.S., and James T. Crane, its former Chief Financial Officer and a U.S. citizen believed to be recently living in southern California, with engaging in a fraudulent scheme during 2010-2011. The Commission alleges that Subaye and Crane misrepresented the company’s business and operations, deceived the company’s auditors, and misled investors about the company’s true status and revenues. According to the complaint, Subaye claimed to be operating a cloud computing business but investigations found no evidence of such a business. Subaye has offered to settle the case, while the action against Crane is unsettled.
The Commission’s complaint, filed in the U.S. District Court for the Southern District of New York, alleges that Subaye began promoting itself during 2010 as a provider of cloud computing services to Chinese businesses. According to the complaint, Subaye claimed to have over 1,400 sales and marketing employees in 2010, with reported revenues of $39 million that fiscal year and projected revenues of more than $71 million for 2011. However, by May 2011, according to the complaint, and Subaye was revealed to be a company with no verifiable revenues, few, if any, real customers, and no infrastructure to support its claimed cloud computing business. The complaint alleges that the business that Subaye had presented to investors and described in filings with the Commission was imaginary and non-existent.
The complaint further alleges that Crane signed Subaye’s materially misleading filings with the Commission that contained false statements about Subaye’s revenues, business, number of employees, and number of paying customers. According to the complaint, Crane also falsified the books, records, and accounts of Subaye and provided false information to Subaye’s outside auditors. The Commission’s complaint also charges Crane with violating a bar from the Public Company Accounting Oversight Board (PCAOB). According to the complaint, in January 2011, Crane and his Cambridge, Massachusetts-based accounting firm were sanctioned by the PCAOB, which permanently revoked his firm’s registration and barred him from being associated with a registered accounting firm or being associated with any public company in an accounting or financial management capacity. The complaint alleges that, in violation of the January 2011 PCAOB order, Crane remained as the CFO of Subaye until March 2011, even after the PCAOB denied his request to remain as Subaye’s CFO for those two months.
The complaint alleges that Crane violated Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2 thereunder, and Section 105(c)(7)(B) of the Sarbanes-Oxley Act of 2002; and that Crane aided and abetted Subaye’s violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, thereunder. The Commission is seeking a permanent injunction, disgorgement plus prejudgment interest, and civil penalties. It also seeks an order prohibiting Crane from serving as an officer or director of a public company.
The complaint alleges that Subaye violated Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1 and 13a-11 thereunder. Subaye has agreed to settle this matter, subject to Court approval, without admitting or denying the allegations in the Commission’s complaint, by consenting to the entry of a final judgment that would permanently enjoin it from future violations of the above law sections.
The Commission acknowledges the assistance of the Ontario Securities Commission and the Public Company Accounting Oversight Board.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Court Enters Final Judgments Against Richard Verdiramo and Vincent L. Verdiramo, Esq.
The U.S. Securities and Exchange Commission announced today that on April 29, 2013, the United States District Court for the Southern District of New York entered final judgments against Richard Verdiramo and Vincent L. Verdiramo, Esq., that require the defendants to pay full disgorgement and civil money penalties, and bar them from penny stock offerings and from serving as officers or directors of public companies. This relief supplements the injunctions and disgorgement that the SEC had previously obtained and concludes the SEC’s case against the defendants.
In March 2010, the SEC charged Richard Verdiramo, RECOV Energy Corp.’s former Chairman, CEO, President, and CFO, with, among other things, committing fraud and violating the securities registration requirements based on his issuances of RECOV stock for his and his father’s personal benefit. The SEC charged his father, Vincent Verdiramo, an attorney who facilitated the misconduct and who was a recipient of some of the RECOV stock, with aiding and abetting his son’s fraud and with violating the securities registration requirements.
The Court previously ordered all of the injunctive relief sought by the Commission in its Complaint against both Richard and Vincent Verdiramo for all of their misconduct. The Court had also previously ordered the defendants to pay full disgorgement for their violations of the securities registration requirements, including holding Richard Verdiramo jointly and severally liable with other defendants. In November 2011, the SEC issued an order suspending Vincent Verdiramo from appearing or practicing before the SEC as an attorney.
The recent judgment requires Richard Verdiramo to disgorge an additional $145,000 in ill-gotten gains plus $61,968 in prejudgment interest, and requires him to pay a civil penalty of $100,000. In addition, the Court barred Richard Verdiramo from participating in any penny stock offering and from serving as an officer or director of any reporting company for five years. The Judgment against Vincent Verdiramo orders him to disgorge an additional $462,000 in ill-gotten gains, plus $197,444 in prejudgment interest, and requires him to pay a civil penalty of $100,000. The Court also permanently barred Vincent Verdiramo from participating in any penny stock offering and from serving as an officer or director of any reporting company. Both Richard and Vincent Verdiramo consented to the entry of the final judgments against them without admitting or denying any of the allegations of the SEC’s Complaint.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., May 6, 2013 — The Securities and Exchange Commission charged four individuals with ties to a New York City brokerage firm in a scheme involving millions of dollars in illicit bribes paid to a high-ranking Venezuelan finance official to secure the bond trading business of a state-owned Venezuelan bank.
According to the SEC's complaint filed in federal court in Manhattan, the global markets group at broker-dealer Direct Access Partners (DAP) executed fixed income trades for customers in foreign sovereign debt. DAP Global generated more than $66 million in revenue for DAP from transaction fees - in the form of markups and markdowns - on riskless principal trade executions in Venezuelan sovereign or state-sponsored bonds for Banco de Desarrollo Económico y Social de Venezuela (BANDES). A portion of this revenue was illicitly paid to BANDES Vice President of Finance, María de los Ángeles González de Hernandez, who authorized the fraudulent trades.
"These traders triggered a fraud that was staggering in audacity and scope," said Andrew M. Calamari, Director of the SEC's New York Regional Office. "They thought they covered their tracks by using offshore accounts and a shadow accounting system to monitor their illicit profits and bribes, but they underestimated the SEC's tenacity in piecing the scheme together."
The SEC's complaint charges the following individuals for the roles in the kickback scheme:
Tomas Alberto Clarke Bethancourt, who lives in Miami and is an executive vice president at DAP. Known as "Tomas Clarke," he was responsible for executing the fraudulent trades and maintaining spreadsheets tracking the illicit markups and markdowns on those trades.
Iuri Rodolfo Bethancourt, who lives in Panama and received more than $20 million in fraudulent proceeds from DAP via his Panamanian shell company, which then paid Gonzalez a portion of this amount.
Jose Alejandro Hurtado, who lives in Miami and served as the intermediary between DAP and Gonzalez. Hurtado was paid more than $6 million in kickbacks disguised as salary payments from DAP, and he remitted some of that money to Gonzalez.
Haydee Leticia Pabon, who is Hurtado's wife and received approximately $8 million in markups or markdowns on BANDES trades that were funneled to her from DAP in the form of sham finders' fees.
In a parallel action, the U.S. Attorney's Office for the Southern District of New York announced criminal charges against Gonzalez as well as Clarke and Hurtado.
According to the SEC's complaint, the scheme began in October 2008 and continued until at least June 2010. BANDES was a new customer to DAP brought in by DAP Global executives through their connections to Hurtado. As a result of the kickbacks to Gonzalez, DAP obtained BANDES' lucrative trading business and provided Gonzalez with the incentive to enter into trades with DAP at considerable markups or markdowns without regard to the prices paid by BANDES. Gonzalez used her senior role at the Caracas-based bank to ensure that its bond trades would continue to be steered to DAP. As the scheme evolved over time, the traders deceived DAP's clearing brokers, executed internal wash trades, inter-positioned another broker-dealer in the trades to conceal their role in the transactions, and engaged in massive roundtrip trades to pad their revenue.
For example, the SEC alleges that in January 2010, the traders and Gonzalez arranged for two fraudulent roundtrip trades with BANDES as both buyer and seller. These trades - which lacked any legitimate business purpose - caused BANDES to pay DAP more than $10 million in fees, a portion of which was diverted to Gonzalez for authorizing the blatantly fraudulent trades.
The SEC further alleges that, giving rise to the adage of no honor among thieves, Clarke and Hurtado frequently falsified the size of DAP's fees in their reports to Gonzalez, which enabled the traders to retain a greater share of the fraudulent profits.
The SEC's complaint charges Clarke, Bethancourt, Hurtado, and Pabon with fraud and seeks final judgments that would require them to return ill-gotten gains with interest and pay financial penalties.
The SEC's investigation, which is continuing, was conducted by Wendy Tepperman, Amanda Straub, and Michael Osnato of the New York Regional Office. The SEC's litigation will be led by Howard Fischer. An SEC examination of DAP that that led to the investigation was conducted by members of the New York office's broker-dealer examination staff. The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation
FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
May 6, 2013
CFTC Charges Bostonian David Prescott with Forex Pool Fraud
Court enters order freezing Defendant’s assets and protecting books and records
Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that on May 3, 2013, the Honorable C.N. Clevert, Jr. of the U.S. District Court for the Eastern District of Wisconsin issued an Order freezing the assets of Defendant David Prescott, individually and doing business as Cambridge Currency Partners (Prescott). The court’s Order also prohibits the destruction of books and records and sets a telephonic status hearing for May 15, 2013.
The court’s Order stems from a CFTC civil Complaint filed on April 30, 2013, charging Prescott with fraudulently soliciting individuals to invest in Cambridge’s off-exchange foreign currency (forex) pool and then misappropriating their monies. According to the Complaint, from at least June 2010 to the present, Prescott misappropriated at least $455,000 of pool participants’ monies, using some of those funds for air travel, hotel accommodations, and gambling. The Complaint also alleges that Prescott defrauded pool participants and prospective pool participants by misrepresenting the risks involved in forex trading and executing demand promissory notes in their favor that promised the repayment of the note amount and monthly interest payments, knowing or recklessly disregarding that he could not make those payments by his forex trading.
Additionally, the Complaint alleges that Prescott failed to inform participants and prospective participants that under the name of David Weeks, he previously had been convicted of conspiracy to commit securities fraud, mail fraud and wire fraud, and perjury, and had been ordered to pay restitution of over $1 million to defrauded investors and was permanently enjoined from violating the anti-fraud provisions of the Securities Exchange Act.
The Complaint also charges Prescott with engaging in the alleged misconduct without the benefit of registration as a Commodity Pool Operator.
In the continuing litigation, the CFTC is seeking repayment of pool participants’ losses, repayment of funds received by the Defendant, civil monetary penalties, and permanent injunctions prohibiting the Defendant from violating the federal commodity laws and from engaging in further trading.
The CFTC appreciates the assistance of the Milwaukee, Wisconsin, office of the Federal Bureau of Investigation.
The following CFTC Division of Enforcement staff members are responsible for this case: Diane M. Romaniuk, Mary Elizabeth Spear, Ava M. Gould, Scott R. Williamson, Rosemary Hollinger and Richard B. Wagner.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Court Orders Former Hedge Fund Manager Gad Grieve and Firm to Pay Over $26 Million in Disgorgement and Penalties
The Securities and Exchange Commission announced today that, on April 26, 2013, the Honorable Alvin K. Hellerstein, U.S. District Court Judge for the Southern District of New York, entered final judgments against former New York-based hedge fund manager Grant Ivan (Gad) Grieve and his Finvest advisory firms, ordering them to jointly and severally pay disgorgement of $14,164,780 and civil penalties in the amount of $12,192,302.
The final judgments stem from a civil injunctive action that the Commission filed on February 10, 2009. The SEC’s complaint alleged that defendants Grieve and Finvest fabricated and disseminated false financial information for their Finvest Primer hedge fund that was "certified" by a sham back-office administrator and phony auditing firm that Grieve himself created. The complaint also alleged that Grieve and Finvest provided current and prospective investors in the Finvest Primer and Finvest Yankee hedge funds with false monthly account statements, newsletters, and fact sheets that materially overstated the funds’ performance and assets. According to the Commission, beginning in late 2008, Grieve engaged in similar misconduct overseas, including luring new investors and placating existing investors with counterfeit documents.
The Commission charged Grieve and the Finvest firms with 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 Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. On January 26, 2010, Judge Hellerstein entered a default judgment against Grieve, enjoining him from future violations of these provisions and ordering disgorgement and civil penalties with amounts to be determined in later proceedings. The Court entered similar judgments for monetary relief against the Finvest firms on April 23, 2010.
On July 29, 2010, following SEC administrative proceedings, Grieve was barred by default from association with any investment adviser.
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