STOP ORDER PROCEEDINGS FILED AGAINST 20 MINING COMPANIES BY SEC

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced the filing of stop order proceedings against 20 purported mining companies believed to have included false information in their registration statements.

The SEC’s Enforcement Division alleges that all of the companies are controlled by John Briner, a promoter who was the subject of a prior SEC enforcement action and was suspended from practicing as an attorney on behalf of any entity regulated by the SEC.  However, each registration statement falsely stated that management consisted of a different individual who controlled and solely governed the company.  The named individuals varied by company.

The SEC’s Enforcement Division and the agency’s Division of Corporation Finance collaborate to essentially weed out false or materially misleading registration statements before they become effective.  The purpose of a stop order is to prevent the sale of privately held shares to the public under a registration statement that is materially misleading or deficient.  If a stop order is issued, no new shares can enter the market pursuant to that registration statement until the company has corrected the deficiencies or misleading information in the prospectus.

“By seeking stop orders, we can proactively protect investors from the harmful consequences of investing in companies with materially misleading and deficient offering documents,” said Andrew M. Calamari, director of the SEC’s New York Regional Office.  “These particular registration statements failed to give investors an accurate depiction of who is running the companies.”

The 20 companies that are the subjects of the stop order proceedings are:

Braxton Resources Inc.
Bonanza Resources Corp.
Canyon Minerals Inc.
CBL Resources Inc.
Chum Mining Group Inc.
Clearpoint Resources Inc.
Coronation Mining Corp.
Eclipse Resources Inc.
Gaspard Mining Inc.
Gold Camp Explorations Inc.
Goldstream Mining Inc.
Jewel Explorations Inc.
Kingman River Resources Inc.
La Paz Mining Corp.
Lost Hills Mining Inc.
PRWC Energy Inc.
Seaview Resources Inc.
Stone Boat Mining Corp.
Tuba City Gold Corp.
Yuma Resources Inc.

The SEC’s Enforcement Division alleges that the companies also falsely stated that they had no material agreements with an undisclosed control person or promoter when in fact they did with Briner.  The SEC’s Enforcement Division also alleges that some of these issuers obstructed the SEC staff and refused to permit examinations of their registration statements.

The SEC instituted the proceedings against the issuers pursuant to Section 8(d) of the Securities Act of 1933 to determine whether the Enforcement Division’s allegations are true and afford each issuer an opportunity to establish any defenses to the allegations.  The proceedings will determine whether a stop order should be issued suspending the effectiveness of the registration statement or statements.

The SEC’s investigation was conducted by Lara Shalov Mehraban, Jason W. Sunshine, and James Addison of the New York office.  Mr. Sunshine will lead the litigation.

SEC.gov | Statement on Life Partners Verdict

SEC.gov | Statement on Life Partners Verdict

SEC OBTAINS ASSET FREEZE AGAINST ALLEGED FRAUDSTER

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Obtains Asset Freeze and Other Relief Against Michael P. Zenger

On January 31, 2014, the Securities and Exchange Commission obtained a temporary restraining order and an emergency asset freeze in an offering fraud orchestrated by Lehi, Utah resident Michael P. Zenger (Zenger).

The complaint alleges that since June 2013, Zenger solicited at least $200,000 from two friends for the purported purpose of trading futures contracts, commodities, and government securities. While Zenger used some investor money as represented, the complaint alleges that Zenger misappropriated approximately $100,000 of the $200,000 he raised to pay personal expenses, including airplane rentals, monthly credit card bills, payments to BMW and Mercedes Benz, purchases at Saks Fifth Avenue, Nordstrom and Costco, and other personal expenses.

The Commission's complaint charges Zenger with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks a preliminary and permanent injunction as well as disgorgement, prejudgment interest and civil penalties from Zenger.

The SEC's investigation was conducted by Jennifer Moore and Scott Frost; the litigation will be led by Thomas Melton.

BROKER SETTLES ALLEGED MISREPRESENTATION/FUNDS MISAPPROPRIATIONS CASE

FROM:  SECURITIES AND EXCHANGE COMMISSION 

Court Enters Final Judgment Against Broker in Settlement of Claims Arising from Fraudulent Misrepresentations and the Misappropriation of Funds

The Securities and Exchange Commission announced today that, pursuant to a settlement agreement, the Honorable Berle M. Schiller of the United States District Court for the Eastern District of Pennsylvania entered a final judgment on January 29, 2014 against defendant David L. Rothman in the Commission action, SEC v. David L. Rothman, Civil Action No. 2:12-cv-05412 (E.D. Pa.). The final judgment permanently enjoins Rothman from violations of 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. Rothman was ordered to pay disgorgement in the amount of $505,431. Rothman consented to the entry of the final judgment against him.

The SEC charged Rothman, a registered representative, who was the Vice President and minority owner of Rothman Securities, Inc., located in Southampton, Pennsylvania, which is a mutual fund retailer and municipal securities broker, with creating and issuing false account statements to certain elderly and unsophisticated investor/clients that materially overstated the value of their investment accounts. The Commission's Complaint further charged that when the investors discovered that Rothman had misrepresented the value of their investments, he engaged in a scheme to conceal his fraudulent conduct by agreeing to pay those investors the investment returns he reported on the false account statements. When Rothman could no longer afford to make those payments, he misappropriated funds from another elderly and unsophisticated investor/client and from two trust accounts for which he served as trustee. Rothman used a substantial portion of the misappropriated funds for his personal benefit.

The SEC's litigation was conducted by Nuriye C. Uygur and G. Jeffrey Boujoukos of the Philadelphia Regional Office. The SEC's investigation was conducted by enforcement staff Kingdon Kase and Jennifer F. Miller. The matter was referred to the enforcement staff by the Philadelphia Regional Office's Office of Compliance, Inspections and Examinations.

SEC CHARGES MONEY MANAGER IN ALLEGED SCHEME INVOLVING DATA CHERRY-PICKING

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged a New York-based money manager and his firm with making false claims through Twitter, newsletters, and other communications about the success of their investment advice and a mutual fund they manage.

An SEC order against Mark A. Grimaldi and Navigator Money Management (NMM) finds that they selectively touted the past performance of the Sector Rotation Fund (NAVFX) and specific securities recommendations they made to clients.  They cherry-picked highlights but ignored less favorable recommendations and other data that would have made the facts complete.

Grimaldi and NMM agreed to settle the SEC’s charges.

“The securities laws require investment advisers to be honest and fully forthcoming in their advertising to give investors the full picture,” said Sanjay Wadhwa, senior associate director for enforcement in the SEC’s New York Regional Office.  “Grimaldi and his firm are being held accountable for using social media and widely disseminated newsletters to cherry-pick information and make misleading claims about their success in an effort to attract more business.”

According to the SEC’s order, Grimaldi is majority owner, president, and chief compliance officer at NMM, which is based in Wappingers Falls, N.Y.  Grimaldi particularly used a newsletter called The Money Navigator to solicit clients for NMM and investors for the Sector Rotation Fund.  The Money Navigator had more than 60,000 subscribers.  In 2008, the SEC conducted an examination of NMM and a fund it managed.  SEC exam staff notified NMM that the newsletters could be considered advertisements under Rule 206(4)-1, which generally prohibits false or misleading advertisements by investment advisers.  SEC staff also noted that the newsletters could be considered advertisements under Rule 482, which governs advertisements for mutual funds and other investment companies and has specific requirements for ads containing performance data.

The SEC’s order details several misleading advertisements made by NMM and Grimaldi in newsletters following that SEC examination.  For example, they misleadingly claimed in a December 2011 newsletter that Sector Rotation Fund was “ranked number 1 out of 375 World Allocation funds tracked by Morningstar.”  However, a time period of Oct. 13, 2010 to Oct. 12, 2011 was cherry-picked to broadly acclaim that ranking, and Sector Rotation Fund had a poorer relative performance during other time periods.  From Jan. 1 to Nov. 30, 2011, the day before Grimaldi published the ad, at least 100 other mutual funds in that same Morningstar category outperformed Sector Rotation Fund.

According to the SEC’s order, NMM was advertised as a “five-star (Morningstar) money manager” in the newsletters as well as on websites and in e-mail correspondence with potential investors.  This claim was materially misleading because Morningstar rates mutual funds not investment advisers.  And since February 2009, NMM has not been the investment manager of any mutual fund rated five stars by Morningstar.

The SEC’s order finds that Grimaldi also made misleading statements on Twitter.  He claimed responsibility for model portfolios in his newsletters that “doubled the S&P 500 the last 10 years.”  However, Grimaldi made the claim even though he had no involvement in the model portfolio performance for the first three years.

The SEC’s order finds that NMM violated Sections 17(a) of the Securities Act of 1933, Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-1(a)(2), 206(4)-1(a)(5), 206(4)-7, and 206(4)-8 as well as Section 34(b) of the Investment Company Act of 1940.  Grimaldi violated many of the same provisions and aided and abetted and caused NMM’s violations.  

Grimaldi agreed to pay a penalty of $100,000, and he and the firm agreed to be censured and comply with certain undertakings including the retention of an independent compliance consultant for three years.  Without admitting or denying the SEC’s findings, NMM and Grimaldi are required to cease and desist from future violations of these sections of the securities laws.

The SEC’s investigation was conducted by Wendy Tepperman, Mark Germann, and Alexander Janghorbani of the New York office with assistance from Nell Spekman, an examiner in the New York office.

HEDGE FUND MANAGER, COMPANY RECEIVE FINAL JUDGEMENT IN MISAPPROPRIATION CASE

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.

Hochfeld and HCM consented to entry of the final judgments, which 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.