Statement on Proposed SEC Budget for Fiscal 2015

Statement on Proposed SEC Budget for Fiscal 2015

COURT ORDERS ARIZONA MAN TO PAY OVER $1.2 MILLION STEMMING FROM SOLICITATION FRAUD CASE

FROM:  COMMODITY FUTURES TRADING COMMISSION 
Federal Court Orders Arizona Resident Ray Thomas Brown to Pay over $1.2 Million for Solicitation Fraud and Misappropriation in Operating Two Commodity Scams

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Frederick J. Martone of the U.S. District Court for the District of Arizona granted the CFTC’s motion for summary judgment and entered an Order of permanent injunction against Defendant Ray Thomas Brown, of Phoenix, Arizona. The Order imposes permanent trading and registration bans against Brown and requires him to pay restitution and disgorgement totaling $1,131,941.98 and a civil monetary penalty of $140,000.

The Order stems from a CFTC Complaint filed on November 26, 2012 (see CFTC Press Release 6448-12, December 6, 2012), charging Brown with fraud, misappropriation, and registration violations in operating two scams, one involving fraud while acting as a Commodity Pool Operator (CPO) and the other involving fraud while acting as a Commodity Trading Advisor (CTA). Brown duped customers into sending at least $1.2 million to bank and trading accounts under his control, according to the Complaint. The CFTC Complaint also charged Brown with illegally operating as an unregistered CPO and CTA.

The Order finds that Brown fraudulently solicited approximately $1,163,519 from more than 200 individuals. Of that amount, Brown deposited only approximately $86,000 into commodity pool trading accounts, which was promptly lost in trading. The Order also finds that Brown used the bulk of the funds he solicited on personal expenses and to further his fraudulent scheme. In making his solicitations, Brown lied about his background, fabricated his past and present investment performance, disseminated false account statements, and failed to disclose that he was not registered with the CFTC in any capacity, according to the Order.

A Related Criminal Action

In a related criminal action, Brown pleaded guilty on May 7, 2013, to wire fraud. Brown is currently awaiting sentencing (United States v. Ray Thomas Brown, Case No. 8:13-cr-00035-UA (United States District Court for the Central District of California)).

The CFTC thanks the United States Attorney’s Office for the Central District of California, the Federal Bureau of Investigation, the Black Mountain Precinct of the Phoenix Police Department, and the Arizona Corporation Commission for their assistance and cooperation on this matter.

CFTC Division of Enforcement staff members responsible for this case are Dmitriy Vilenskiy, Jonathan Robell, Richard Foelber, Paul Hayeck, and Joan Manley.

SEC ALLEGES FORMER REGISTERED REPRESENTATIVE STOLE FROM INVESTOR'S ACCOUNT

FROM:  SECURITIES AND EXCHANGE COMMISSION
SEC Charges Former Registered Representative with Fraud

The Securities and Exchange Commission has charged Kevin P. O'Brien (O'Brien), a former registered representative, with fraud in connection with the misappropriation of over $298,000 from the account of a customer between 1998 and 2008. O'Brien has agreed to settle the charges, without admitting or denying the allegations in the Commission's complaint.

The Commission's complaint, filed February 21, 2014, in the U.S. District Court for the Southern District of Ohio, alleges that, from at least 1998 through August 2008, while working as a registered representative, O'Brien engaged in a fraudulent scheme to misappropriate money from a customer. The complaint alleges that O'Brien caused checks to be issued in the customer's name from the customer's account, picked up the checks from a post office box that he controlled, and deposited them into a bank account in the customer's name. The complaint further alleges that O'Brien withdrew the money from his customer's bank account, which O'Brien had the ability to control, and used the money for personal expenses unrelated to the customer.

O'Brien has consented to the entry of a final judgment that permanently enjoins him from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The final judgment also orders disgorgement of $298,917, plus prejudgment interest of $54,020, but waives the payment of all disgorgement and all prejudgment interest based upon O'Brien's inability to pay. The Commission also did not seek a civil money penalty based upon O'Brien's inability to pay.

ALLEGED FUNDS MISAPPROPRIATION GENERATES A GRAND JURY INDICTMENT

FROM:  SECURITIES AND EXCHANGE COMMISSION 
Jeremy Fisher Indicted for Fraud

The Securities and Exchange Commission announced that on February 5, 2014, a Grand Jury in the United States District Court for the Middle District of Florida returned an Indictment charging Jeremy S. Fisher with four counts of wire fraud. The Indictment also seeks forfeiture of property obtained as a result of the alleged criminal violations.

The Indictment alleges that from at least August 2009 through December 2012, Fisher raised approximately $1.04 million from approximately 18 investors who invested in unregistered securities offerings conducted by Fisher through his companies. Fisher offered investors the opportunity to invest their money through a “special trading platform” that supposedly generated significant returns. Fisher told investors that their money would be deposited in an overseas bank account and used as collateral for the purchase and sale of collateralized debt obligations and medium term notes on the trading platform. However, Fisher instead fraudulently misappropriated and converted investors' funds for his personal use to pay previous investors, to purchase a house and car and to pay his daughter's tuition and other personal and business expenses. Fisher also provided quarterly statements to investors which falsely represented that investors were earning money on their investments.

The Indictment's allegations are based on the same conduct underlying the Commission's September 30, 2013 Complaint against Fisher filed in the United States District Court for the Western District of Wisconsin. The Commission charged Fisher and his two companies with violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Complaint also charged Fisher with violations of Section 15(a) of the Exchange Act. The defendants entered into consents with the Commission agreeing to the entry by the Court of the relief requested in the complaint, including orders of permanent injunction and disgorgement, plus prejudgment, totaling $936,226 to be paid jointly and severally among the defendants. Fisher has also agreed to pay a civil penalty of $150,000. On October 16, 2013, the Court entered the Final Judgments against Fisher and his companies.

ATTORNEY SETTLES CLAIMS HE MADE FALSE AND MISLEADING STATEMENTS TO INVESTORS

FROM:  SECURITIES AND EXCHANGE COMMISSION 
SEC Settles Claims Against Attorney Retained by Funds Involved in Fraudulent Investment Scheme

The United States District Court for the District of Oregon has entered final judgment against Oregon attorney Robert Custis pursuant to a settlement resolving claims brought by the Securities and Exchange Commission.  The Commission’s complaint alleged that Mr. Custis was retained to perform work for investment funds run by Yusaf Jawed and that he made false and misleading statements to the funds’ investors.

The Commission’s previously-filed complaint alleged that Mr. Jawed and two entities he controlled, Grifphon Asset Management, LLC and Grifphon Holdings, LLC, defrauded more than 100 investors in the Pacific Northwest and across the country as part of a long-running Ponzi scheme that raised more than $37 million.  The complaint alleged that Mr. Custis was retained in 2009 and began sending updates to Mr. Jawed’s investors regarding the status of a purported purchase of the funds’ assets that would allow investors to redeem their shares of the funds for a profit.  The complaint alleges that the statements regarding the asset purchase were false and that the investors were never paid.

Mr. Custis agreed to settle the Commission’s charges without admitting or denying the allegations.  The District Court entered final judgment on February 13, 2014, permanently enjoining Mr. Custis from violating Sections 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, and Section 206(4) and Rule 206(4)-8 of the Investment Advisers Act of 1940.    

On February 27, 2014, pursuant to an offer of settlement submitted by Mr. Custis, the Commission issued an order prohibiting Mr. Custis from appearing or practicing before the Commission as an attorney under Rule 102(e) of the Commission’s Rules of Practice.

SEC BRINGS CHARGES IN MISALLOCATION OF EXPENSES SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced charges against an Arizona-based private equity fund manager and his investment advisory firm for orchestrating a scheme to misallocate their expenses to the funds they manage.

The SEC Enforcement Division alleges that Scott A. Brittenham and Clean Energy Capital LLC (CEC) improperly paid more than $3 million of the firm’s expenses by using assets from 19 private equity funds that invest in private ethanol production plants.  CEC and Brittenham did not disclose any such payment arrangement in fund offering documents.  When the funds ran out of cash to pay the firm’s expenses, CEC and Brittenham loaned money to the funds at unfavorable interest rates and unilaterally changed how they calculated investor returns to benefit themselves.

“Brittenham betrayed investors in the funds he managed by burdening them with more than $3 million in expenses that his firm should have paid and the funds could not afford,” said Marshall S. Sprung, co-chief of the SEC Enforcement Division’s Asset Management Unit.  “Private equity advisers can only charge expenses to their funds when they clearly spell that out for investors.”

According to the SEC’s order instituting administrative proceedings, among the expenses that CEC and Brittenham have been misallocating to the funds are CEC’s rent, salaries, and other employee benefits such as tuition costs, retirement, and bonuses.  Brittenham even used fund assets to pay 70 percent of a $100,000 bonus that he awarded himself.  The money taken from the funds for firm expenses was in addition to millions of dollars in management fees already being paid to CEC out of the funds.

According to the SEC’s order, the expense misallocation scheme shrank the funds’ cash reserves.  So CEC and Brittenham made unauthorized “loans” to the funds at exorbitant rates as high as 17 percent in order to continue paying the improper expenses with fund assets.  The loans jeopardized the funds because Brittenham had pledged fund assets as collateral.  CEC and Brittenham further profited at the expense of fund investors by making several changes to how CEC calculated distributions to investors in order to pay out less money.  Brittenham also lied to a fund investor about his “skin in the game.”  Brittenham claimed that he and CEC’s co-founder had each invested $100,000 of their own money in one of the funds, but the actual amounts invested were only $25,000 each.

The SEC’s order alleges that CEC and Brittenham willfully violated the antifraud provisions of the federal securities laws and also asserts disclosure, compliance, custody, and reporting violations.

The SEC’s investigation was conducted by Payam Danialypour and C. Dabney O’Riordan of the Asset Management Unit in the Los Angeles Regional Office and accountant Deborah Russell in Washington D.C.  The SEC’s litigation will be led by Amy Longo, Lynn Dean, and Mr. Danialypour.  The SEC examination that led to the investigation was conducted by Ryan Hinson, Ernest Tang, Daniel Jung, and Thomas Mackin of the Los Angeles office’s investment adviser/investment company examination program.