TWO FORMER OFFICERS OF DEFUNCT COMPANY CHARGED FOR PARTICIPATING IN FRAUDULENT PENNY STOCK SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Charges Former Officers and Investor in Houston Company in Fraudulent Penny Stock Scheme

The Securities and Exchange Commission today charged two former officers of now-defunct PGI Energy, Inc., as well as an investor in the company, for their roles in a fraudulent penny stock scheme to issue purportedly unrestricted PGI Energy shares in the public markets.

The SEC's complaint, filed in U.S. District Court for the Southern District of Texas, alleges that starting in 2011, PGI Energy's former Chief Investment Officer Robert Gandy and former CEO and Chairman Marcellous McZeal engaged in a scheme that included creating false promissory notes, signing misleading certifications, and altering the company's balance sheet to cause its transfer agent to issue millions of PGI Energy common stock shares without restrictive legends. The SEC also charged investor Alvin Ausbon for his role in the scheme, which included signing false promissory notes and diverting proceeds from the sale of PGI Energy stock back to the company and Gandy.

Gandy is also the CEO of Houston-based Pythagoras Group, which purports to be an "investment banking firm." McZeal is an attorney licensed in Texas. The complaint alleges that Gandy and McZeal made material misstatements and provided false documents to attorneys and a transfer agent who relied on them to conclude that PGI Energy shares could be issued without restrictive legends. The SEC alleges that Gandy and McZeal backdated promissory notes that purported to memorialize debt supposedly owed by PGI Energy and a prior business venture. They also are alleged to have added false debt to PGI Energy's balance sheet, and signed bogus "gift" letters and certifications of non-shell status, all in an effort to get unrestricted, free-trading PGI Energy shares unlawfully released into the market. Ausbon is charged with furthering the scheme by signing bogus promissory notes and remitting proceeds from the sale of PGI Energy shares back to the company and Gandy.

According to the complaint, the scheme collapsed in February 2012 when the SEC ordered a temporary suspension of trading in PGI Energy's securities, due to questions regarding the accuracy and adequacy of the company's representations in press releases and other public statements.

The SEC's complaint charges all defendants with violating Sections 5 and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint seeks permanent injunctions, disgorgement plus prejudgment interest, a financial penalty, and penny stock bars against all three defendants and officer and director bars against Gandy and McZeal.

Without admitting or denying the allegations in the SEC's complaint, McZeal has consented to the entry of a final judgment enjoining him from future violations of Sections 5 and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. He has also agreed to pay disgorgement plus prejudgment interest thereon of $19,919.37 and a civil penalty of $70,000. In addition, McZeal has agreed to permanent officer and director and penny stock bars. This settlement is subject to court approval. Subject to final settlement of the district court proceeding, McZeal has also agreed to the institution of a settled administrative proceeding pursuant to Rule 102(e) of the SEC's Rules of Practice, pursuant to which he would be barred from appearing before the SEC as an attorney.

LABOR, SEC RENEW MEMORANDUM OF UNDERSTANDING REGARDING SHARED INFORMATION ON RETIREMENT AND INVESTMENTS

FROM:   U.S. DEPARTMENT OF LABOR

US Labor Department renews its memorandum of understanding with Securities and Exchange Commission

WASHINGTON — The U.S. Department of Labor announced that it has renewed a memorandum of understanding with the U.S. Securities and Exchange Commission on sharing information on retirement and investment matters. The memorandum was signed by Secretary of Labor Tom Perez and SEC Chair Mary Jo White.

"The department views our work with the SEC on shared interests in recent years as a tremendous success. By renewing this memorandum of understanding, we will continue to better serve all of America's workers who depend on private-sector retirement plans," said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. "Our experience with the SEC helps to boost the department's enforcement program and ensure that our regulatory and other programs work in tandem with the SEC's initiatives to provide meaningful protections for workers' retirement savings."

The memorandum sets forth a process for the department's Employee Benefits Security Administration and SEC staffs to share information and meet regularly to discuss topics of mutual interest. The memorandum also will facilitate the sharing of non-public information regarding subjects of mutual interest between the two agencies. Additionally, both agencies will cross-train staff with the goal of enhancing each agency's understanding of the other's mission and investigative jurisdiction.

As more and more investors turn to the markets to help secure their futures, pay for homes and send children to college, the shared investor protection mission of the SEC and the Department of Labor is more vital for America's workers than ever before. The renewed memorandum reinforces the agencies' historical commitment to share information and work together on a variety of regulatory, enforcement, public outreach, research and information technology matters.
EBSA's mission is to assure the retirement, health and other workplace-related benefits of America's workers, retirees and their families. In the retirement area, EBSA has authority over private-sector retirement plans including 401(k) plans and IRAs, plan fiduciaries, and service providers.

SETTLED FRAUD AND SECURITIES CHARGES FILED AGAINST OWNER OF CONESTOGA LOG CABIN LEASING, INC.

FROM:  SECURITIES AND EXCHANGE COMMISSION 
SEC Files Settled Charges Against John M. Sensenig, Founder and Owner of Conestoga Log Cabin Leasing, Inc. for Fraud and Unregistered Sales of Securities Violations

On July 29, 2013, the Securities and Exchange Commission ("Commission") filed a complaint against John M. Sensenig ("Sensenig"), in the United States District Court for the Eastern District of Pennsylvania alleging that Sensenig, a member of the Mennonite community and the founder and owner of Conestoga Log Cabin Leasing, Inc. and other affiliated companies, violated the antifraud and securities registration provisions of the federal securities laws.

The Commission's complaint alleges that from at least 1997 until 2009, Sensenig raised millions of dollars from more than 1,500 fellow members of the Amish and Mennonite communities through the offer and sale of Promissory Notes. Sensenig used the proceeds to finance a collection of start-up companies he founded and controlled, the largest of which was Conestoga Log Cabin Leasing, Inc. More than half of the funds raised by Sensenig were returned to investors. The complaint further alleges that Sensenig made material misrepresentations and omissions to investors including failing to disclose the use of proceeds, the risks associated with the investment, and remedial sanctions placed on him by a state securities regulator. The Commission further alleges that Sensenig failed to register the offering of the Promissory Notes although no exemption from registration applies. The complaint alleges that this conduct violated Sections 5(a), 5(c), 17(a)(2) and 17(a)(3) of the Securities Act of 1933 ("Securities Act").

Without admitting or denying the allegations in the complaint, Sensenig consented to the entry of a final judgment, subject to the court's approval, in which he is: (i) permanently enjoined from further violations of Sections 5 and 17(a) of the Securities Act, (ii) permanently enjoined from direct or indirect participation in any unregistered offerings of securities; (iii) ordered to pay a civil penalty in the amount of $131,500; and (iv) ordered to surrender for cancellation all shares of stock he owns in two privately held companies formerly affiliated with Conestoga Log Cabin Leasing, Inc. The Commission is not seeking the imposition of a higher penalty in light of Sensenig's financial condition.

ALLEGED TIPPER CHARGED IN S.A.C. CAPITAL PORTFOLIO MANAGER INSIDER TRADING CASE

FROM:  SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Tipper of Confidential Information to S.A.C. Capital Portfolio Manager

On July 30, 2013, the Securities and Exchange Commission charged the tipper of confidential information to a S.A.C. Capital portfolio manager who has been charged with insider trading.

The SEC amended its complaint against Richard Lee, who was charged last week, to additionally charge Sandeep Aggarwal, a sell-side analyst who tipped Lee in advance of a July 2009 public announcement about an Internet search engine partnership between Microsoft and Yahoo. Lee purchased large amounts of Yahoo stock in the S.A.C. Capital hedge fund that he managed as well as in his personal trading account on the basis of the inside information.

In a parallel action, the U.S. Attorney's Office for the Southern District of New York today announced criminal charges against Aggarwal, who lives in India but recently returned to the U.S.

The SEC alleges that Aggarwal learned confidential details about the significant progress of the Microsoft-Yahoo negotiations from his close friend at Microsoft on July 9, 2009, and he tipped Lee with the information during a telephone call the following day. When the information was reported in the media almost a week later, Yahoo's stock price rose approximately 4 percent. S.A.C. Capital and Lee reaped substantial profits from the Yahoo shares that he purchased after speaking to Aggarwal.

According to the SEC's amended complaint filed in federal court in Manhattan, Aggarwal covered both Microsoft and Yahoo for his research firm and regularly received periodic updates from his inside source at Microsoft. Upon learning that Microsoft and Yahoo were potentially within two weeks of finalizing a deal, Aggarwal shared very specific details with Lee. Aggarwal assured him that the information came from a close friend at Microsoft who was reliable and accurate.

The SEC's amended complaint charges Aggarwal and Lee with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The amended complaint seeks a final judgment ordering Aggarwal and Lee to pay disgorgement of ill-gotten gains plus prejudgment interest and financial penalties, and permanently enjoining them from future violations of these provisions of the federal securities laws.

CFTC CHARGES FIRM AND OWNERS WITH MARKETING ILLEGAL, OFF-EXCHANGE FINANCED COMMODITY TRANSACTIONS

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

CFTC Charges Florida-Based AmeriFirst Management LLC and Its Owners, John P. D’Onofrio, George E. Sarafianos, and Scott D. Piccininni, in Multi-Million Dollar Fraudulent Precious Metals Scheme

CFTC alleges that the Defendants engaged in illegal, off-exchange commodity transactions and deceived retail customers regarding financed precious metals transactions

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it filed a civil injunctive enforcement action in the U.S. District Court for the Southern District of Florida against AmeriFirst Management LLC (AML) of Fort Lauderdale, Florida, and its owners, John P. D’Onofrio of Fort Lauderdale, George E. Sarafianos of Lighthouse Point, Florida, and Scott D. Piccininni of Fort Lauderdale.  The CFTC Complaint charges the Defendants with operating a precious metals scheme where the Defendants marketed illegal, off-exchange financed commodity transactions and fraudulently misrepresented the nature of those transactions.

According to the Complaint, filed on July 29, 2013, AML held itself out as a precious metals wholesaler and clearing firm, operating through a network of more than 30 precious metals dealers. As alleged, these dealers solicited retail customers to invest in financed precious metals transactions, where a customer gave a percentage deposit of the total value of the metal, typically 20%, and the dealer supposedly made a loan to the customer for the remaining 80%, supposedly sold the customer the total metal amount, and supposedly allocated the total metal amount at a depository to be held for the customer.

The Complaint alleges that AML created customer documents that represented that the dealer had in fact made such a loan and sold and allocated the total metal amount to the customer. However, these documents were false because the dealer never made a loan to the customer, nor did the dealer sell or allocate any metal to the customer, according to the Complaint. Further, the Complaint alleges that although there was no loan and no metal was allocated to the customer, AML charged the customer finance and storage fees.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 expanded the CFTC’s jurisdiction over transactions like these and requires that such transactions be executed on or subject to the rules of a board of trade, exchange, or commodity market, according to the Complaint. This new requirement took effect on July 16, 2011. The Complaint alleges that all of the Defendants’ financed commodity transactions took place after this date and were illegal. The Complaint also alleges that the Defendants defrauded customers in these financed commodity transactions.

In its continuing litigation, the CFTC seeks a permanent injunction from future violations of federal commodities laws, permanent registration and trading bans, restitution to defrauded customers, disgorgement of ill-gotten gains, and civil monetary penalties.

The CFTC Division of Enforcement staff responsible for this action are David Chu, Mary Beth Spear, Eugene Smith, Patricia Gomersall, Ava Gould, Scott Williamson, Rosemary Hollinger, and Richard Wagner.

CFTC ORDERS MAN AND COMPANIES TO PAY RESTITUTION AND PENALTY IN FRAUDULENT TRANSACTIONS IN PRECIOUS METALS

FROM:  COMMODITY FUTURES TRADING COMMISSION

CFTC Orders William J. Hionas and his Florida Firms, Pan American Metals of Miami and Pan American Metals of Miami Beach, to Pay Approximately $4.7 Million in Restitution and a Monetary Penalty for Fraudulent Off-Exchange Transactions in Precious Metals

Washington DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against two Miami, Florida, companies, Pan American Metals of Miami, LLC and Pan American Metals of Miami Beach, Inc. (together, the Pan American Companies), and their owner and principal, William J. Hionas, for engaging in illegal, fraudulent off-exchange financed transactions in precious metals with retail customers.  The Pan American Companies are based in Miami Beach, Florida, and Hionas resides in Sunny Isles, Florida. Neither has ever been registered with the CFTC.

The CFTC Order, filed on July 29, 2013, requires Hionas and the Pan American Companies jointly to pay restitution of approximately $3.2 million to defrauded customers and a $1.5 million civil monetary penalty. The Order also imposes permanent trading and registration bans against Hionas and the Pan American Companies and permanently prohibits them from further violations of federal commodities law, as charged.

The Order finds that, from July 2011 to at least April 2012, the Pan American Companies fraudulently solicited and accepted more than $4.7 million from retail public customers throughout the United States and Canada to engage in illegal off-exchange financed transactions in gold, silver, platinum, and palladium, in which a retail customer purportedly purchases physical commodities and pays just a portion of the purchase price.

Specifically, the Order finds that the Pan American Companies falsely claimed to (1) sell and transfer ownership of physical metals to customers, (2) provide loans to customers to purchase the physical metals, and (3) arrange for storage and store customers’ physical metals in independent depositories. In fact, the Order finds that in their retail financed transactions, the Pan American Companies did not sell or transfer ownership of any physical metals, did not disburse any funds as loans, and did not store physical metals in any depositories for or on behalf of customers.

The Order also finds that the Pan American Companies defrauded customers and potential customers by misrepresenting and failing to disclose material facts relating to (1) their experience and expertise dealing in retail financed transactions, (2) actual trading results other customers had achieved, and (3) the profit potential and risks associated with engaging in off-exchange metals transactions on a financed basis, among other things.

The Order finds that 180 of the 189 Pan American Companies’ customers lost money, with much of the approximate $3.2 million they lost going to pay commissions and fees to the Pan American Companies, which totaled over $1.68 million – equivalent to approximately 35 percent of the more than $4.7 million accepted from customers.

The Order further finds that Pan American Metals of Miami (PAMOM) provided customers a risk disclosure document stating that “[f]inancing precious metal trading is not an appropriate investment for retirement funds”; however, PAMOM solicited at least 46 individuals over 65 years of age, four over 90 years old, and one was solicited while in hospice care.

The CFTC Order states that such financed off-exchange transactions with retail customers have been illegal since July 16, 2011, when certain amendments of the Dodd-Frank Wall Street and Consumer Protection Act of 2010 (Dodd-Frank Act) became effective.  As explained in the Order, financed transactions in commodities with retail customers like those engaged in by the Pan American Companies must be executed on, or subject to, the rules of an exchange approved by the CFTC.  Since the Pan American Companies’ transactions were done off-exchange with retail customers, they were illegal.

Furthermore, the CFTC Order states that when the Pan American Companies engaged in these illegal transactions they were acting for Hunter Wise Commodities, LLC, which the CFTC charged with fraud and other violations in federal court in Florida on December 5, 2012 (see CFTC Press Release 6447-12).

CFTC’s Precious Metals Fraud Advisory

In January 2012, the CFTC issued a Precious Metals Consumer Fraud Advisory to alert customers to precious metals fraud. The Advisory stated that the CFTC had seen an increase in the number of companies offering customers the opportunity to buy or invest in precious metals. The CFTC’s Advisory specifically warns that frequently companies do not purchase any physical metals for the customer, but instead simply keep the customer’s funds. The Advisory further cautions consumers that leveraged commodity transactions are unlawful unless executed on a regulated exchange.

CFTC Division of Enforcement staff members responsible for this case are Robert Howell, Joseph Patrick, Susan Gradman, Scott Williamson, Rosemary Hollinger, and Richard Wagner.