FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
Federal Court Orders Ohioans Kevin and Keelan Harris, Canada-based Karen Starr, and their Companies, Complete Developments, LLC and Investment International Inc., to Pay over $23 Million for Fraud in Foreign Currency Ponzi Scheme
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court Judgment requiring Defendants Kevin Harris, Keelan Harris, Complete Developments, LLC (CDL), and Investment International Inc. (a/k/a/ I3), all of Warren, Ohio, and Karen Starr of Barrie, Ontario, Canada, collectively to pay restitution and civil monetary penalties of over $23 million for solicitation fraud and misappropriation in connection with operating a multi-million dollar off-exchange foreign currency (forex) Ponzi scheme.
Judge David D. Dowd, Jr. of the U.S. District Court for the Northern District of Ohio entered the default Judgment and Memorandum Opinion on May 8, 2013, requiring CDL, I3, Kevin Harris, Keelan Harris, and Karen Starr to pay over $15.7 million in restitution to defrauded investors. The Judgment also imposes civil monetary penalties of $2.49 million on Kevin Harris, $2.49 million on Keelan Harris, and $2.64 million on Starr and permanently bans them, CDL, and I3 from trading and registering with the CFTC and from violating anti-fraud provisions of the Commodity Exchange Act (CEA), as charged.
The Court’s Memorandum Opinion finds that CDL, I3, Kevin Harris, and Starr violated anti-fraud provisions of the CEA by fraudulently soliciting customers to trade forex and misappropriating customer funds. The Opinion further finds that, from about November 2006 until October 2008, CDL and I3 fraudulently solicited and accepted funds from customers seeking to open "professionally managed" forex trading accounts and that customers invested more than $23 million. Rather than trading forex on their customers’ behalf, the Opinion finds that CDL and I3 operated as a Ponzi scheme and used customers’ money to make payments to other customers and for Kevin Harris, Keelan Harris, and Starr’s own personal use. The Opinion also finds that Kevin Harris, Keelan Harris, and Star controlled CDL and I3 and are liable for CDL and I3’s fraudulent conduct.
Relief Defendants Ordered to Disgorge over $1 Million of Ill-Gotten Gains to Investors
The Judgment orders Relief Defendants Majestic Enterprises Collision Repair, Inc. and UCAN Overseas Corporation S.A. to disgorge $302,277 and $768,000, respectively, consisting of customers funds that they received, but are not entitled to, as a result of the Defendants’ fraudulent conduct. The amounts disgorged are to be applied to the restitution ordered for CDL and I3 customers, according to the Judgment.
CFTC Division of Enforcement staff members responsible for this case are Karin N. Roth, Linda Y. Peng, Michael C. McLaughlin, David W. MacGregor, Lenel Hickson, Jr., Stephen J. Obie, and Vincent A. McGonagle.
FROM: U.S. SECURITIES AND EXCHANGE COMISSION
Washington, D.C., May 9, 2013 — The Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA) today issued an investor alert.
The investor alert informs investors about the risks involved when selling their rights to an income stream or investing in someone else’s income stream. The alert urges investors considering an investment in pension or settlement income streams to proceed with caution.
Anyone receiving a monthly pension or regular distributions from a settlement following a personal injury lawsuit may be targeted by salespeople offering an immediate lump sum in exchange for the rights to some or all of the payments the person would otherwise receive in future. Typically, recipients of a pension or structured settlement will sign over the rights to some or all of their monthly payments to a factoring company in return for a lump-sum amount, which will almost always be significantly lower than the present value of that future income stream.
"Investors should always learn as much as possible before making an investment decision, and this is certainly true with respect to investing in pension or structured settlement income stream products," said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy. "This alert will help investors understand the costs as well as the potentially significant risks of these transactions."
Gerri Walsh, FINRA’s Senior Vice President for Investor Education, said, "Consumers should know that a series of potential pitfalls may greet anyone who is considering selling their rights to an income stream. And any investor who is tempted by the high yield offered by buying the rights to another person’s income stream should know that yield comes with high fees and considerable risks."
The investor alert contains a checklist of questions before selling away an income stream:
Is the transaction legal? Federal law may restrict or prohibit retirees from "assigning" their pension to someone else.
Is the transaction worth the cost? Find the discount rate that the factoring company has applied to your income stream and compare this rate to alternatives such as a bank loan.
What is the reputation of the company offering the lump sum? Check the factoring company’s record with the Better Business Bureau, and research the firm on the Internet and with a financial professional.
Will the factoring company require life insurance? The factoring company may require you to purchase a life insurance policy, which will add to your transaction expenses and reduce your payout.
What are the tax consequences? The lump-sum payment you collect may be taxable.
The investor alert also warns investors who might be attracted to the yield offered by buying the rights to someone else’s pension or structured settlement to be aware that:
Investors may encounter commissions of seven percent or higher.
Pension and structured settlement income-stream products may or may not be securities and likely are not registered with the SEC.
These products could be difficult to sell if you need money and want to sell the product.
Your "rights" to the income stream you purchased could face legal challenges.
FROM: COMMODITY FUTURES TRADING COMMISSION
CFTC Charges Ron Eibschutz with Aiding and Abetting Disclosures of Material Nonpublic Information about Customer Trades in its Case against the CME Group’s New York Mercantile Exchange and Two Former Employees
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today filed an amended Complaint in its pending enforcement action, U.S. Commodity Futures Trading Commission v. William Byrnes, et al. (U.S. District Court, Southern District of New York, 13 CIV 1174), naming Ron Eibschutz as a Defendant in its ongoing case against the New York Mercantile Exchange, Inc. (CME NYMEX), and two former CME NYMEX employees, William Byrnes and Christopher Curtin.
The amended Complaint charges CME NYMEX, Byrnes, and Curtin with violating the Commodity Exchange Act (CEA) and CFTC Regulations through the repeated disclosures during a two and one-half year period of material nonpublic customer information to Eibschutz, an outside commodity broker who was not authorized to receive the information, and charges Eibschutz with aiding and abetting the violations.
The CFTC’s amended Complaint alleges, as did the initial complaint, that at least from in or about February 2008 to September 2010, Byrnes knowingly and willfully disclosed material nonpublic information about CME NYMEX trading and customers, including about trades cleared through CME ClearPort, to Eibschutz on at least 60 occasions, and that between May 2008 and March 2009, Curtin knowingly and willfully disclosed the same type of information to Eibschutz on at least 16 additional occasions. The nonpublic customer information unlawfully disclosed by Byrnes and Curtin, in conversations often captured on tape, included details of recently executed trades, the identities of the parties to specific trades, the brokers involved in trades, the number of contracts traded, the prices paid, the structure of particular transactions, and the trading strategies of market participants, according to the amended Complaint.
The amended Complaint alleges that Eibschutz aided and abetted the violations of the CEA and CFTC Regulations, including by, among other things, repeatedly soliciting Byrnes and Curtin for the specific material nonpublic information they disclosed to him and providing them with information they needed to identify and locate information about the specific trades in which Eibschutz was interested.
In its continuing litigation, the CFTC seeks civil monetary penalties, trading and registration bans, and a permanent injunction prohibiting further violations of the federal commodities laws, as charged.
CFTC Division of Enforcement staff responsible for this case include Patrick Daly, James Wheaton, David W. MacGregor, Lenel Hickson, Stephen J. Obie, and Vincent A. McGonagle
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
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