DISGORGEMENT AND FINES ORDERED FOR COMMODITY TRADING SYSTEM PROMOTERS

FROM:  COMMODITY FUTURES TRADING COMMISSION 

Federal Court Orders California Defendants CTI Group, LLC, Cooper Trading, Stephen Craig Symons, and James David Kline to Pay Over $29 Million in Disgorgement and Fines for Fraudulent Sale of Automated Trading Systems

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Katherine Polk Failla of the U.S. District Court for the Southern District of New York entered a Consent Order for Permanent Injunction (Order) against Defendants CTI Group, LLC, a California limited liability company, Cooper Trading, a California corporation (collectively, CTI), Stephen Craig Symons of Corona del Mar, California, and James David Kline, who was a resident of Van Nuys, California, for fraudulent sales practices in connection with the sale of two automated trading systems (Trading Systems), known as Boomer and Victory.

The court’s Order stems from a CFTC Complaint filed on May 11, 2012, that charged the Defendants with the fraudulent solicitation of clients to subscribe to the Boomer and Victory Trading Systems, which were used by clients to trade E-mini Standard and Poor’s 500 Stock Index futures contracts in managed accounts (see CFTC Press Release 6266-12 and Complaint).

The Order, entered on January 22, 2014, requires Defendants CTI Group and Cooper Trading to pay $10.175 million in disgorgement and a $10 million civil monetary penalty, Symons to pay over $3.150 million in disgorgement and a $4.5 million civil monetary penalty, and Kline to pay over $275,000 in disgorgement and a $1 million civil monetary penalty. The Order further imposes permanent trading and registration bans on the Defendants and prohibits them from violating the anti-fraud and disclosure provisions of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.

The CFTC’s Complaint also named as Relief Defendants California companies Snonys, Inc. and Dragonfyre Magick Incorporated, which, according to the Complaint, were owned or operated by Symons and Kline, respectively. The Order provides for the disgorgement of Relief Defendants’ funds frozen pursuant to a court order that was previously entered on May 14, 2012.

The Order further finds that, since at least in or around August 2009, CTI and its agents and employees made false and misleading statements and omitted material information when soliciting clients to purchase subscriptions to CTI’s Trading Systems, including (1) how long CTI had been in business, (2) CTI’s experience developing and marketing Trading Systems, (3) the identities and professional experience of CTI’s personnel (who used fictitious names when communicating with clients), (4) the track record of CTI’s Trading Systems, (5) the past profitability of CTI’s Trading Systems, (6) the transaction costs associated with trading via CTI’s Trading Systems, and (7) the risks associated with trading futures contracts via CTI’s Trading Systems.

CTI’s salespeople, including Kline, made false statements to clients and prospective clients about CTI’s purported money-back guarantee, and Symons and Kline are liable for all of CTI’s violations because they controlled CTI and actively participated in CTI’s unlawful conduct, according to the Order.

According to the Order, funds were transferred to the Relief Defendants from CTI as a result of the Defendants’ violations of the CEA and CFTC regulations, and the Relief Defendants do not have a legitimate claim to or interest in those funds.

The CFTC thanks the National Futures Association for its assistance.

CFTC Division of Enforcement staff members responsible for this case are R. Stephen Painter, Jr., Michael C. McLaughlin, David W. MacGregor, Lenel Hickson, Jr., and Manal M. Sultan.

CFTC Fraud Awareness Advisories & Customer Protection Information

The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including an Advisory covering Commodity Trading Systems Sold on the Internet. This Advisory states that the CFTC has seen an increase in websites that fraudulently promote commodity trading systems and advisory services and provides information designed to help customers identify this potential swindle before they invest.

Customers can file a tip or complaint to report suspicious activities or other information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a Toll-Free Hotline 866-FON-CFTC (866-366-2382) or an online form.

MAN SENTENCED TO PRISON FOR ROLE IN PONZI SCHEME

FROM:  SECURITIES AND EXCHANGE COMMISSION 

Massachusetts Resident Steven Palladino Sentenced to 10-12 Years in Prison for Role in Multi-Million Dollar Ponzi Scheme

The Securities and Exchange Commission announced today that, on January 21, 2014, a Massachusetts state court judge sentenced Massachusetts resident Steven Palladino to a prison term in a criminal action filed by the Suffolk County (Massachusetts) District Attorney.  The criminal action against Palladino and his company, Massachusetts-based Viking Financial Group, Inc., was initially filed in March 2013 and involves the same conduct alleged in a civil securities fraud action brought by the Commission in April 2013.  Suffolk Superior Court Judge Janet Sanders sentenced Palladino, of West Roxbury, Massachusetts, to serve a prison term of 10-12 years, followed by a probationary period of five years, and to pay restitution to victims, for crimes that he committed in connection with a Ponzi scheme perpetrated through Viking.  At the same hearing, Palladino pled guilty to criminal charges that included conspiracy, being an open and notorious thief, larceny, and larceny from elderly person(s).  Viking also pled guilty to related charges and was sentenced to a probationary period of five years and ordered to pay restitution to victims.  The Court set a further hearing for March 7, 2014 to determine, among other things, the amount of restitution to be paid to victims.

The Commission previously filed an emergency action against Viking and Palladino (collectively, “Defendants”) in federal district court in Massachusetts.  In its complaint, the Commission alleged that, since April 2011, Defendants misrepresented to at least 33 investors that their funds would be used to conduct the business of Viking – which was purportedly to make short-term, high interest loans to those unable to obtain traditional financing.  The Commission also alleged that Palladino misrepresented to investors that the loans made by Viking would be secured by first interest liens on non-primary residence properties and that investors would be repaid their principal, plus monthly interest at rates generally ranging from 7-15%, from payments that borrowers made on loans.  The complaint alleged that, in truth, Defendants made very few real loans to borrowers, and instead used investors’ funds largely to pay earlier investors and to pay for the Palladino family’s substantial personal expenses, including cash withdrawals, gambling debts, vacations, luxury vehicles and tuition.

The Commission first filed this action on April 30, 2013, seeking a temporary restraining order, asset freeze, and other emergency relief – which the Court granted.  On May 15, 2013, the Court also issued an escrow order, which ordered Defendants to deposit all funds and assets in their possession into an escrow account.  The asset freeze and escrow order have remained in effect at all times since April 30, 2013 and May 15, 2013, respectively.  On July 15, 2013, the Court held that Defendants’ conduct violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933.  On November 18, 2013, the Court entered orders that enjoined Defendants from further violations of the antifraud provisions of the securities laws and ordered them to pay disgorgement of $9,701,738, plus prejudgment interest of $122,370.

On September 4, 2013, the Commission filed a motion for contempt against Palladino for violations of the asset freeze and the escrow order.  The motion alleged that Palladino violated the asset freeze by transferring three vehicles that he owned (solely or jointly with his wife) into his wife’s name and using the vehicles as collateral for new loans – effectively cashing out the equity in these vehicles.  The motion also alleged that Palladino violated the escrow order by failing to deposit all cash in his possession into the escrow account.  On November 15, 2013, the Court held Palladino in contempt and ordered that he restore ownership of the vehicles that he had transferred into his wife’s name.  Subsequently, Palladino restored ownership of two of the vehicles but has failed to restore ownership of one vehicle.  As a result, the Court refused to dismiss the contempt finding against him at hearings on December 3, 2013 and January 17, 2014.  The Court has set a further hearing date of February 20, 2014 to address, among other things, whether Palladino remains in contempt.

The Commission acknowledges the continued assistance of Suffolk County (Massachusetts) District Attorney Daniel F. Conley’s Office, whose office referred Palladino’s and Viking’s conduct to the Commission.

FINAL JUDGEMENT ENTERED AGAINST HEDGE FUND MANAGER

FROM:  SECURITIES AND EXCHANGE COMMISSION 
Final Judgments Entered Against Former Hedge Fund Manager and His Company

The Securities and Exchange Commission announced today that on January 22, 2014, the Honorable Paul G. Gardephe of the United States District Court for the Southern District of New York, entered final judgments against Berton M. Hochfeld ("Hochfeld") and his wholly-owned entity Hochfeld Capital Management, L.L.C. ("HCM"), in SEC v. Hochfeld et al., 12-CV-8202. The SEC filed an emergency action in November 2012, charging Hochfeld and HCM with securities fraud for misappropriating assets and making material misstatements to investors in the Heppelwhite Fund L.P., a now defunct hedge fund. The Court previously entered judgments against Hochfeld and HCM that ordered, among other relief, injunctions and an asset freeze, and granted the Commission's motion to create a Fair Fund to compensate defrauded investors. In October 2013, the Fair Fund made initial distributions, totaling more than $6 million, to 35 former Heppelwhite investors, which represented approximately 70% of each investor's prior capital balance in the hedge fund. Pursuant to a Distribution Plan, the Fair Fund will make a second round of distributions to investors from additional funds collected, including proceeds from the sale of Hochfeld's personal assets.

The final judgments against Hochfeld and HCM enjoin them from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, and Sections 203 and 206 of the Investment Advisers Act of 1940, and order disgorgement of $1,785,332, which will be deemed satisfied by the criminal forfeiture order entered against Hochfeld in a parallel criminal case filed by the U.S. Attorney's Office for the Southern District of New York. In the criminal case, United States v. Hochfeld, 13-CR-021, Hochfeld pled guilty to securities fraud and wire fraud. The Court sentenced Hochfeld to a two-year prison term, which he is now serving, and ordered him to pay forfeiture and restitution totaling approximately $2.9 million.


The SEC thanks the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation for their assistance in this matter.

CFTC ANNOUNCES TRADE EXECUTION MANDATE FOR ADDITIONAL INTEREST RATE SWAPS

FROM:  COMMODITY FUTURES TRADING COMMISSION

The Commodity Futures Trading Commission’s Division of Market Oversight Announces Trade Execution Mandate for Additional Interest Rate Swaps

trueEX, LLC’s Available-to-Trade Determinations Are Deemed Certified

Washington, DC — The Commodity Futures Trading Commission’s (CFTC or Commission) Division of Market Oversight (Division) today announced that trueEX, LLC’s (trueEX) self-certification of available-to-trade determinations (MAT Determinations) for certain interest rate swap contracts is deemed certified.

This self-certification includes certain interest rate swap contracts made available to trade via an earlier determination that was deemed certified on January 16, 2014, as well as additional swap contracts. Under Commission regulations, the additional swaps in this MAT Determination, whether listed or offered by trueEX or any other designated contract market (DCM) or swap execution facility (SEF), will become subject to the trade execution requirement under section 2(h)(8) of the Commodity Exchange Act 30 days after certification, on February 21, 2014.

All transactions involving swaps that are subject to the trade execution requirement must be executed through a DCM or a SEF. To the extent swaps subject to the trade execution requirement are executed on a SEF, they must be executed in accordance with the execution methods prescribed by Commission regulations.

INVESTMENT BUSINESS FOUNDER ARRESTED FOR NOT COMPLYING TO SUBPOENAS

FROM:  SECURITIES AND EXCHANGE COMMISSION 
Subject of SEC Investigation Held in Contempt of Court and Arrested for Failing to Comply with Subpoenas

The Securities and Exchange Commission today announced that a Staten Island man who is the subject of an agency investigation has been held in contempt of court and arrested for failing to comply with subpoenas requiring him to produce documents and give testimony.

The SEC filed a subpoena enforcement action in federal court in Manhattan on Nov. 4, 2013, against Anthony Coronati, the founder of a business known as Bidtoask.com, which has an office in Staten Island.  According to court documents, entities controlled by Coronati solicited investments relating to the securities of sought-after private companies such as Facebook that investors hoped would later hold initial public offerings.  The SEC is investigating, among other things, whether Coronati commingled investor funds with other money in an account he controlled and used it to pay personal expenses.  Despite two SEC investigative subpoenas in 2013, Coronati has neither produced documents nor appeared for testimony.

A court order issued on Nov. 7, 2013, required Coronati to comply with the SEC subpoenas.  A court order issued on Jan. 17, 2014, found Coronati in civil contempt for ignoring the prior court order.  The contempt order requires Coronati, who repeatedly attempted to evade service, to pay $4,812 to the SEC to reimburse the agency for its costs of serving him with court papers in this proceeding.

The U.S. Marshals Service arrested Coronati today.  At a hearing held before the Honorable William H. Pauley III, the court ordered Coronati released on $50,000 bond and restricted his travel to the Southern and Eastern Districts of New York.  The court ordered a further hearing on Feb. 6, 2014.

SEC ANNOUNCES FORMER PORTFOLIO MANAGER BARRED FROM INDUSTRY OVER MISREPRESENTATIONS

FROM:  SECURITIES AND EXCHANGE COMMISSION 
01/22/2014 09:56 AM EST

The Securities and Exchange Commission today announced that a former Oppenheimer & Co. portfolio manager has agreed to be barred from the securities industry and pay a $100,000 penalty for making misrepresentations about the valuation of a fund consisting of other private equity funds.

The SEC announced administrative proceedings against Brian Williamson last August based on allegations that he disseminated information falsely claiming that the reported value of the fund’s largest investment came from the portfolio manager of the underlying fund.  Williamson, who managed the fund of funds, actually had valued the investment himself at a significant markup to the value estimated by the underlying fund’s portfolio manager.  Williamson sent marketing materials to potential fund investors reporting a misleading internal rate of return that failed to deduct the fund’s fees and expenses.  Williamson also made false and misleading statements to investor consultants and others in an effort to cover up his fraud.

“Investors rely on truthful and complete disclosures about valuation methodologies and fund fees and expenses, especially when committing to a long-term private equity investment,” said Julie M. Riewe, co-chief of the SEC Enforcement Division’s Asset Management Unit.  “Williamson misled prospective investors by marking up the fund’s interim valuations and concealing his role in enhancing its reported performance.”

Last year, Oppenheimer agreed to pay $2.8 million in a settlement of related charges.

The SEC’s order against Williamson finds that he willfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8.  Without admitting or denying the findings, Williamson consented to the order requiring him to pay a $100,000 penalty and barring him from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization for at least two years.

The SEC’s investigation was conducted by Panayiota K. Bougiamas, Joshua M. Newville, and Igor Rozenblit of the Asset Management Unit along with Jack Kaufman and Lisa Knoop of the New York Regional Office.  The case was supervised by Valerie A. Szczepanik.  The SEC’s litigation was handled by Mr. Kaufman, Mr. Newville, and Charu Chandrasekhar.