FICTITIOUS TRADING RESULTS IN REAL PENALTY OF $600,000

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
December 19, 2013

Federal Court in New York Orders Defendant David M. Nunn to Pay a $600,000 Civil Monetary Penalty for Engaging in an Illegal Coffee Futures Trading Scheme and Making False Statements to ICE Futures U.S. Court Permanently Bans Nunn from Trading or Registration with the CFTC

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Lewis A. Kaplan of the U.S. District Court for the Southern District of New York entered a consent Order against David M. Nunn for entering into fictitious sales, engaging in illegal noncompetitive and fictitious trades in coffee futures contracts over a two-year period, and making false statements to representatives of ICE Futures U.S., Inc. (ICE). Nunn is a Vermont resident and a former ICE floor broker.

The consent Order of permanent injunction, entered on December 18, 2013, requires Nunn to pay a $600,000 civil monetary penalty and, among other sanctions, permanently bans Nunn from trading on a registered entity, soliciting or receiving funds for trading on a registered entity, applying for registration or claiming exemption from registration with the CFTC, or acting as a principal or agent of any CFTC registrant or person exempted from registration.

The Order stems from a CFTC Complaint filed on October 18, 2012 (see CFTC Press Release 6393-12). The Complaint alleged that, from at least July 2008 through September 2010, Nunn engaged in over 1,300 non-competitive, fictitious coffee futures trades on ICE. The Complaint further alleged that, through this illegal scheme, Nunn transferred over $1.68 million to another account that he controlled.

The Order states that Nunn engaged in a series of unlawful, non-competitive commodity futures transactions involving coffee futures on ICE. The Order also states that Nunn intentionally made non-competitive, fictitious sales by placing virtually simultaneous orders to buy or sell in accounts either held in his name or held under another person’s name that he controlled. Nunn made false statements to ICE officials during an interview when he denied that monies were transferred to him from the account held under the other person’s name, according to the Order.

In a related ICE proceeding, Nunn was expelled from ICE membership and is prohibited from directly or indirectly accessing the exchange’s markets. The CFTC appreciates the assistance of ICE in this matter.

CFTC Division of Enforcement staff members responsible for this case are Trevor Kokal, Michael Geiser, David Oakland, David Acevedo, Lenel Hickson, and Manal Sultan.

FAQ DOCUMENT ISSUED BY GOVERNMENT REGARDING FINAL RULES THAT IMPLEMENT "VOLCKER RULE"

Agencies Issue FAQ Document Regarding Collateralized Debt Obligations Backed by Trust Preferred Securities under Final Rules Implementing the “Volcker Rule”

Three federal financial institution regulatory agencies today issued a FAQ (Frequently Asked Questions) document to provide clarification and guidance to banking entities regarding investments in “Covered Funds” and whether collateralized debt obligations backed by trust preferred securities (TruPS CDOs) could be determined to be Covered Funds under the final rules to implement section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The FAQs are intended to clarify that banking entities that have holdings in TruPS CDOs are not required to sell these holdings immediately under the final rules, but instead may use the conformance period to determine if they can be brought into conformance by the end of the conformance period, which is July 21, 2015.

The document released by the agencies provides an overview of some of the key legal issues banking entities should consider in determining whether holdings of TruPS CDOs are subject to the provision of the final rules implementing section 619, commonly known as the Volcker Rule. The issues identified and discussed in the document are whether a TruPS CDO qualifies in its current form as a Covered Fund under the final rules; whether it can be restructured or otherwise conformed to the final rules by the end of the conformance period of July 21, 2015; and whether a bank’s investment in the CDO constitutes an ownership interest.

The final rules were approved by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Securities and Exchange Commission, and the Commodity Futures Trading Commission on December 10, 2013.

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Attachment:
FAQ Regarding Collateralized Debt Obligations Backed by Trust Preferred Securities under the Final Volcker Rule - PDF (PDF Help)

SEC CHARGES WOMAN & STEPSON IN NORTH CAROLINA-BASED PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced charges against a woman and her stepson for their involvement in a North Carolina-based Ponzi and pyramid scheme that the agency shut down last year.

The SEC alleges that Dawn Wright-Olivares and Daniel Olivares, who each now live in Arkansas, provided operational support, marketing, and computer expertise to sustain ZeekRewards.com, which offered and sold securities in the form of “premium subscriptions” and “VIP bids” for penny auctions.  While the website conveyed the impression that the significant payouts to investors meant the company was extremely profitable, the payouts actually bore no relation to the company’s net profits.  Approximately 98 percent of total revenues for ZeekRewards – and correspondingly the share of purported net profits paid to investors – were comprised of funds received from new investors rather than legitimate retail sales.

Wright-Olivares and Olivares have agreed to settle the SEC’s charges.  In a parallel action, the U.S. Attorney’s Office for the Western District of North Carolina today announced criminal charges against the pair.

“Wright-Olivares was a marketing and operational mastermind behind the scheme and Olivares was the chief architect of the computer databases they used,” said Stephen Cohen, an associate director in the SEC’s Division of Enforcement.  “After they learned ZeekRewards was under investigation by law enforcement, they accepted substantial sums of money from the scheme while keeping investors in the dark about its imminent collapse.”

Pyramid schemes are a type of investment scam often pitched as a legitimate business opportunity in the form of multi-level marketing programs. According to the SEC’s complaint filed in federal court in Charlotte, N.C., the ZeekRewards scheme raised more than $850 million from approximately one million investors worldwide.

The SEC alleges that Wright-Olivares served as the chief operating officer for much of the existence of ZeekRewards.  She helped develop the program and its key features, marketed it to investors, and managed some of its operations.  She also helped design and implement features that concealed the fraud.  Olivares managed the electronic operations that tracked all investments and managed payouts to investors.  Together, Wright-Olivares and Olivares helped perpetuate the illusion of a successful retail business.

The SEC’s complaint charges Wright-Olivares with violating the registration and antifraud provisions of Sections 5 and 17 of the Securities Act, and Section 10 of the Exchange Act and Rule 10b-5.  The complaint charges Olivares with violating Section 17 of the Securities Act and Section 10 of the Exchange Act and Rule 10b-5.  To settle the SEC’s charges, Wright-Olivares agreed to pay at least $8,184,064.94 and Olivares agreed to pay at least $3,272,934.58 – amounts that represent the entirety of their ill-gotten gains plus prejudgment interest.  Payments will be made as part of the parallel criminal proceeding in which additional financial penalties could be imposed in a restitution order.

The SEC’s investigation, which is continuing, has been conducted by Brian Privor, Alfred Tierney, and John Bowers.  The SEC appreciates the assistance of the U.S. Attorney’s Office of the Western District of North Carolina and the U.S. Secret Service.

6 JURISDICTIONS APPROVED BY CFTC FOR COMPARABILITY DETERMINATIONSREGARDING SWAP PROVISIONS OF DODD-FRANK

FROM:  U.S. COMMODITIES FUTURES TRADING COMMISSION 
December 20, 2013
CFTC Approves Comparability Determinations for Six Jurisdictions for Substituted Compliance Purposes

Australia, Canada, the European Union, Hong Kong, Japan, and Switzerland are deemed comparable with respect to certain swaps provisions of the Dodd-Frank Act

Washington, DC — The Commodity Futures Trading Commission (Commission) today approved a series of broad comparability determinations that would permit substituted compliance with non-U.S. regulatory regimes as compared to certain swaps provisions of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and the Commission’s regulations. Substituted compliance describes the circumstances where the Commission’s general policy would be to permit non-U.S. swap dealers or non-U.S. MSPs whose swaps activities might bring them within the scope of certain Commission regulations, to use compliance with regulations in their home jurisdiction as a substitute for compliance with the relevant Commission regulations. This approach builds on the Commission’s long-standing policy of recognizing comparable regulatory regimes based on international coordination and comity principles with respect to cross-border activities involving futures and options.

The vote was conducted via seriatim, which was approved by three commissioners. The comparability determinations will be published in the Federal Register.

In accordance with the Commission’s general policy and procedural framework described in its Interpretative Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations published on July 26, 2013 (the Cross-Border Guidance), the comparability determinations are part of substituted compliance with respect to Commission regulations applicable to swaps activities outside the U.S.

This approval by the Commission also reflects a collaborative effort with authorities and market participants from each of the six jurisdictions that has registered swap dealers. Working with authorities in Australia, Canada, the European Union (EU), Hong Kong, Japan, and Switzerland, the Commission was able to issue comparability determinations for a broad range of entity-level requirements (see related attached summary chart). In two jurisdictions, the EU and Japan, the Commission also approved substituted compliance for a number of key transaction-level requirements. For the EU, the Commission is issuing comparability determinations for transaction-level requirements under Commission regulations 23.501, 23.502, 23.503, and certain provisions of 23.202 and 23.504. For Japan, the Commission is issuing comparability determinations for transaction-level requirements under certain provisions of Commission regulations 23.202 and 23.504.

As jurisdictions outside the U.S. continue to strengthen their regulatory regimes, the Commission may determine that additional foreign regulatory requirements are comparable to and as comprehensive as certain requirements under the CEA and the Commission’s regulations.

SEC ANNOUNCES ENFORCEMENT ACTIONS IN 2013 RESULTED IN RECORD $3.4 BILLION IN SANCTIONS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
The Securities and Exchange Commission today announced that the agency’s enforcement actions in fiscal year 2013 resulted in a record $3.4 billion in monetary sanctions ordered against wrongdoers.

The SEC filed 686 enforcement actions in the fiscal year that ended in September.  The $3.4 billion in disgorgement and penalties resulting from those actions is 10 percent higher than FY 2012 and 22 percent higher than FY 2011, when the SEC filed the most actions in agency history.

“A strong enforcement program helps produce financial markets that operate with integrity and transparency, and reassures investors that they can invest with confidence,” said Mary Jo White, Chair of the SEC.  “I am incredibly proud of the dedicated and talented women and men of the Enforcement Division.  Our results show that we are prepared to tackle the breadth and complexity of today’s securities markets.”

George S. Canellos, co-director of the SEC’s Division of Enforcement, said, “We are focused on addressing wrongdoing in all corners of the financial industry.  Going forward, we will continue to be aggressive but fair in our pursuit of those who violate the securities laws.”

Andrew J. Ceresney, co-director of the SEC’s Division of Enforcement, added, “Numbers tell only a part of the story as we look to bring high-quality enforcement actions that make an impact across the market.  We are proud of the terrific results achieved by our hardworking and committed staff and pleased with the strong and robust pipeline of investigations they’ve developed for the year ahead.”

SEC Enforcement in Fiscal Year 2013

Market Structure and Exchanges – The SEC brought several significant actions against stock exchanges and other market participants on issues relating to market structure and fair market access.  The SEC obtained its largest-ever penalty against an exchange when NASDAQ agreed to pay a $10 million penalty for its poor systems and decision-making during the Facebook IPO. FY 2013 also included the SEC’s first penalty against an exchange for violations relating to regulatory oversight when the agency charged the Chicago Board Options Exchange (CBOE) and an affiliate for various systemic breakdowns.

Gatekeepers – The SEC is focused on holding accountable accountants, attorneys, and others who have special duties to ensure that the interests of investors are safeguarded.  Among actions against auditors, the SEC charged the Chinese affiliates of major accounting firms for refusing to produce documents related to China-based companies being investigated.  And the SEC charged trustees and directors for failing to uphold their responsibilities under the securities laws.

Insider Trading – Continuing its pursuit of those who unlawfully trade on material, nonpublic information, the SEC filed multiple actions alleging wrongdoing at S.A.C. Capital Advisors and its affiliates, including an action against Steven Cohen for failing to supervise two senior employees and prevent them from insider trading under his watch.

Municipal Securities – The SEC increased its attention to securities violations by municipalities and other participants in the market for securities of cities and other governmental issuers.

Financial Crisis Enforcement Actions – With several more enforcement cases in FY 2013 against individuals and entities whose actions contributed to the financial crisis, the SEC has now filed enforcement actions against 169 individuals and entities arising from the financial crisis resulting in more than $3 billion in disgorgement, penalties, and other monetary relief for the benefit of harmed investors.  The individuals charged include 70 CEOs, CFOs, or other senior executives.


New Admissions Policy – The SEC changed its longstanding settlement policy and now requires admissions of misconduct in a discrete category of cases where heightened accountability and acceptance of responsibility by a defendant are appropriate and in the public interest.  The first settlements under the new policy came in actions against Philip A. Falcone and his firm Harbinger Capital Partners, and JPMorgan Chase & Co.

Going to Trial – The SEC continued to aggressively deploy litigation resources to maximize the deterrent impact of enforcement actions.  One successful example in FY 2013 is the favorable verdict obtained at trial against former Goldman Sachs Vice President Fabrice Tourre, who was found liable for his role in marketing a CDO.  The SEC also obtained a favorable decision after a lengthy trial against optionsXpress and two individuals for engaging in sham transactions to give the illusion of compliance with Reg SHO.

Whistleblower Tips – The SEC’s Office of the Whistleblower received 3,238 tips in the past year and paid more than $14 million to whistleblowers whose information substantially advanced enforcement actions.

New Forward-Looking Initiatives

New Task Forces – The Financial Reporting and Audit (FRAud) Task Force was created to improve the Enforcement Division’s ability to detect and prevent financial statement and other accounting frauds.  The new Microcap Task Force brings additional resources and analytical expertise to address fraud in the microcap markets and target gatekeepers.

Consolidated Short Selling Charges – The SEC will continue to conduct streamlined investigations to crack down on violators of Rule 105 of Regulation M.  The SEC recently announced actions against 23 firms that resulted in $14.4 million in monetary sanctions.

A Strong Pipeline – The Enforcement Division headed into the next fiscal year well positioned for significant achievements across its program, having opened 908 investigations last year (up 13 percent) and obtained 574 formal orders of investigation (up 20 percent).

Technology Improvements – The Enforcement Division significantly improved its analytical capabilities, including those for forensics analysis and for reviewing and analyzing high volumes of electronic documents.  A Center for Risk and Quantitative Analytics was created to coordinate and enhance risk identification, risk assessment, and data analytic activities

SEC ANNOUNCES FRAUD CHARGES AGAINST COMPANY CALLED "MAKE A LOT OF MONEY"

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced fraud charges against a company named with an acronym for “Make A Lot Of Money” that is behind a pair of advance fee schemes guaranteeing astronomical returns to investors in purported prime bank transactions and overseas debt instruments.

The SEC alleges that Swiss-based Malom Group AG and several individuals conducted the schemes from Las Vegas and Zurich.  They raised $11 million from U.S. investors by using a series of lies and forged documents to steer them into seemingly successful foreign trading programs that were nothing more than vehicles to steal money.  Advance fee frauds solicit investors to make upfront payments before purported deals can go through, and perpetrators fool investors with official-sounding terminology to add an air of legitimacy to the investment programs.  Many transactions offered by Malom Group bore hallmarks of prime bank frauds, which tout the supposed use of well-known overseas banks to attract investors.

The SEC alleges that Malom Group charged fees to investors for bogus services, and the individuals pulling the strings distributed investor funds among themselves for personal use.  They further lied to investors who later inquired about the progress of the transactions, lulling them with excuses about why they have yet to receive investment returns or refunds.

“Under the guise of a name insinuating they would make a lot of money for investors, the individuals behind this scheme sought nothing more than to make a lot of money for themselves,” said Stephen L. Cohen, an associate director in the SEC’s Division of Enforcement.  “They peddled agreements and transactions filled with technical-sounding jargon that was as meaningless as their promises to investors.”

In a parallel action, the U.S. Department of Justice today announced criminal charges against the same six individuals charged in the SEC’s complaint:

Anthony B. Brandel of Las Vegas, who served as Malom Group’s main point of contact with U.S. investors – explaining the investments, collecting investor funds, and lulling investors about the status of the transactions.  His Las Vegas company M.Y. Consultants also is charged in the SEC’s complaint.
Sean P. Finn of Whitefish, Mont., who recruited U.S. investors through his Wyoming-based company M. Dwyer LLC, which also is charged in the SEC’s complaint.
Hans-Jürg Lips of Switzerland, who has been described as the Malom Group’s president or chairman of the board of directors.
Joseph N. Micelli of Las Vegas, who has been described as Malom Group’s compliance officer.
Martin U. Schläpfer of Switzerland, who has been described as Malom Group’s chief executive officer, managing director, and legal counsel.
James C. Warras of Waterford, Wisc., who has been described as Malom Group’s executive vice president.
According to the SEC’ s complaint filed in U.S. District Court for the District of Nevada, the schemes occurred from 2009 to 2011 and the lulling of investors continued into 2013.  None of the transactions in securities offered or sold were registered with the SEC or eligible for an exemption.  In the first scheme, they offered “joint venture” agreements that purportedly allowed investors to “use” Malom Group’s financial resources in exchange for an upfront fee.  The agreements required the investors to propose investment transactions for Malom Group to enter into with third parties in order to generate returns for the company and the investor.  Malom Group supplied investors with forged bank statements and “proof of funds” letters to give the false impression that the company had the millions of dollars needed for the transactions.  Before investors paid their upfront fees, the Malom Group executives and promoters typically knew at least the basic details of the proposed trading programs, in some cases actually providing the trading program for investors to propose.  But after receiving the upfront fees from investors, Malom Group proceeded to reject every proposed transaction and misappropriate investor funds to further the scheme and line the perpetrators’ pockets.

According to the SEC’s complaint, the second scheme falsely promised investors that Malom Group would generate funding by creating structured notes that would be listed on “Western European” exchanges.  After inducing investors to pay an “underwriting fee” and making personal and corporate guarantees of repayment, Malom Group reneged on the guarantees of repayment and failed to issue any structured notes.  Again the perpetrators behind the scheme quickly distributed investor funds among themselves.

The SEC’s complaint alleges that Malom Group, Schläpfer, Lips, Warras, and Micelli violated the antifraud and securities registration provisions of the federal securities laws, and Brandel, Finn, M.Y. Consultants, and M. Dwyer LLC violated the antifraud and securities and broker-dealer registration provisions.  The SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

The SEC’s investigation was conducted by Stephen Simpson and Angela Sierra, and the SEC’s litigation will be led by Mr. Simpson.  The SEC appreciates the assistance of the Department of Justice, Federal Bureau of Investigation, and State Attorney’s Office for the Canton of Zurich, Switzerland.