COMPANY TO PAY PENALTY FOR VIOLATING MINIMUM FINANCIAL REQUIREMENT RULES

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
Capital Market Services, LLC Ordered to Pay $275,000 Penalty to Settle CFTC Charges of Violating Minimum Financial Requirement Rules

Washington, DC–The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges that, between March 2009 and October 2012, Capital Market Services, LLC (CMS), a CFTC-registered Futures Commission Merchant (FCM) and former Retail Foreign Exchange Dealer (RFED) headquartered in New York, New York, failed to comply with minimum financial requirements for FCMs and RFEDs. The CFTC Order requires CMS to pay a $275,000 civil monetary penalty and to cease and desist from violating the Commodity Exchange Act and CFTC Regulations, as charged.

The Order recognizes CMS’s cooperation and corrective action it undertook after its deficiencies were discovered.

According to the Order, under CFTC regulations, an FCM must maintain adjusted net capital (ANC) equal to or in excess of the greatest of $1,000,000 or various other measures, including the “amount of [ANC] required by a registered futures association of which it is a member.” Between January 2009 and mid-December 2010, while a Forex Dealer Member (FDM) with the National Futures Association (NFA), CMS was subject to the NFA’s FDM Financial Requirements, which imposed ANC requirements that ranged between $15,000,000 and approximately $21,000,000. CFTC Regulations also require that an RFED maintains ANC of $20,000,000 plus five percent of its total retail forex obligation in excess of $10,000,000 at all times. CMS’s ANC requirement as an RFED was approximately $21,000,000.

CMS did not maintain its required ANC during at least 17 separate months between March 2009 and October 2012, with month-end ANC computations showing that CMS was undercapitalized by more than $19 million at one point, the Order finds.

CMS has been registered with the CFTC as an FCM since January 2002 and was registered as an RFED from September 2009 to mid-December 2010. CMS also operated as an FDM from approximately January 2009 until mid-December 2010.

The CFTC thanks the NFA for its assistance.

CFTC Division of Enforcement staff members responsible for this case are Kevin S. Webb, Brandon Tasco, Michael Solinsky, Charles D. Marvine, Paul G. Hayeck, and Richard Wagner. Annette Vitale of the CFTC’s Division of Swap Dealer and Intermediary Oversight also assisted in this matter.

SEC TAKES ACTION IN FAILURE TO DISCLOSE CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced enforcement actions against two leaders at a Las Vegas-based transfer agent firm who were responsible for disclosure failures in registration forms filed with the SEC.

Empire Stock Transfer Inc. and the two individuals agreed to settle the SEC’s charges.

Publicly traded companies typically use transfer agents to keep track of individuals and entities that own their stocks and bonds.  Transfer agents generally act as an intermediary for the company, issue and cancel certificates upon changes in ownership, and handle certificates that are lost, destroyed, or stolen.  Transfer agents must file registration forms with the SEC and include information about the individuals who control or finance the firm.  The forms must be amended whenever any information becomes inaccurate or incomplete.

An SEC examination and subsequent investigation found that Empire’s sole owner according to its registration forms – Patrick R. Mokros – failed to disclose that he relied on another individual to finance the purchase of the firm.  Also not disclosed in Empire’s forms is the fact that Mokros allowed his financier to play a significant role in the firm’s operations and receive a substantial portion of the profits.

The SEC also found that Empire’s registration forms failed to disclose the role of another leader at the firm – Matthew J. Blevins – who was hired in January 2007 to run Empire’s day-to-day operations and oversee the firm’s finances.  Empire didn’t update its registration forms to disclose the additional control person until last month as the SEC’s investigation was winding down.

“Transfer agents ensure the orderly transfer of securities, and it’s critical for such gatekeepers to accurately disclose who is financing and controlling their operations,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office.  “Empire’s filings told a different story than what was actually happening behind the scenes.”

The SEC’s order instituting settled administrative proceedings finds that Empire, Mokros, and Blevins committed or caused violations of Sections 17(a)(3) and 17A(c)(2) of the Securities Exchange Act of 1934, and Rules 17Ac2-1(a) and (c).  Empire and Mokros agreed to pay a $50,000 penalty and Blevins agreed to pay a $25,000 penalty to settle the SEC’s charges.  Without admitting or denying the SEC’s findings, Empire, Mokros and Blevins agreed to a censure and must cease and desist from committing or causing further violations.  Empire must retain an independent compliance consultant.

The SEC’s investigation was conducted by Ronnie Lasky, Kelly Bowers, and Diana Tani of the Los Angeles Regional Office.  The examination that led to the investigation was conducted by Cindy Wong, Erik Barker, and Ed Brady of the Los Angeles office.

HONOLULU RESIDENT CHARGED WITH USING SOCIAL MEDIA TO DEFRAUD INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced fraud charges against a Honolulu woman posing as an investment banker and soliciting investors through Twitter, Facebook, and other social media.

An SEC investigation found that Keiko Kawamura engaged in two separate fraudulent schemes to raise money from investors while casting herself as an investment and hedge fund expert when in fact she had virtually no prior trading experience.  In one scheme, she sought investors for her self-described hedge fund and posted on Twitter some screenshots of brokerage account statements suggesting she was personally obtaining incredible investment returns.  However, the account statements were not hers.  And instead of investing the money she raised from investors, she spent it on her own living expenses and luxury trips to Miami and London.  In a later scheme, Kawamura continued to boast phony experience to attract investors to her subscription service for investment advice.  She falsely told subscribers that she had been in the investment banking industry for nearly a decade and had achieved 800 percent returns in her personal brokerage account.

“As alleged in our case, Kawamura used social media to ensnare investors and raise money to support her lifestyle,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office.  “Investors should beware of fraudsters who use social media to hide behind anonymity and reach many investors with little to no cost or effort.”

The SEC’s order instituting administrative proceedings alleges that Kawamura 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 Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 20(4)-8.  The administrative proceedings will determine any remedial action or financial penalties that are appropriate in the public interest against Kawamura.

The SEC’s investigation was conducted by Brent Smyth and Finola H. Manvelian of the Los Angeles Regional Office.  The SEC’s litigation will be led by Donald Searles.

Closing Remarks at the SEC's 24th Annual International Institute for Market Development

Closing Remarks at the SEC's 24th Annual International Institute for Market Development

FLORIDA MAN AND HIS COMPANIES ORDERED TO CEASE FICTITIOUS PRECIOUS METALS SALES

FROM:  COMMODITY FUTURES TRADING COMMISSION 

CFTC Orders Florida Resident Derek J. Bridges and His Companies, Empire Sterling Metals Corp. and I.P.M. Investments, Inc., to Cease Illegal Fictitious Precious Metals Sales

Order includes restitution award and prohibitions against future activity

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Derek J. Bridges, a resident of Coral Springs, Florida, and his companies, Empire Sterling Metals Corp. (Empire) and I.P.M. Investments, Inc. (I.P.M.), for engaging in illegal, off-exchange precious metals transactions.

The CFTC Order requires Bridges and Empire jointly to pay restitution totaling $243,456.61 and Bridges and I.P.M. jointly to pay restitution totaling $14,854.41 to their customers. In addition, the Order imposes permanent registration and trading bans on Bridges, Empire, and I.P.M.

As explained in the Order, financed transactions in commodities with retail customers, like those engaged in by Empire and I.P.M., must be executed on or subject to the rules of an exchange approved by the CFTC. The CFTC Order finds that for two years beginning in July 2011, Empire, and subsequently I.P.M., solicited retail customers to engage in financed precious metals transactions, which were executed through Hunter Wise Commodities, LLC (Hunter Wise). Bridges directly solicited customers and supervised other telemarketers involved in solicitation. Bridges and the other telemarketers represented that a customer could purchase precious metals with just a deposit, such as 20 percent, and that the customer would receive a loan for the remaining 80 percent, according to the Order. In addition to interest on the “loan,” the customer also had to pay a commission and a mark-up on the total value of the metal. If the customer agreed to the transaction, the customer sent the deposit, commission, and mark-up to Empire or I.P.M., and the funds were ultimately transferred to Hunter Wise. In return, Hunter Wise paid Empire and I.P.M. a portion of the customer commissions and fees. Neither Empire, I.P.M., nor Hunter Wise bought, sold, loaned, stored, or transferred any physical metals for these transactions. Neither Empire, I.P.M., nor Hunter Wise actually delivered any precious metals to any customer. Notwithstanding the fact that no physical metal was involved, Empire’s and I.P.M.’s transactions were illegal because they were not executed on a registered exchange.

On December 5, 2012, the CFTC sued Hunter Wise in federal court in Florida charging it with engaging in the same type of illegal, off-exchange precious metals transactions engaged in by Empire and I.P.M. through Hunter Wise. In addition, the CFTC charged Hunter Wise with fraud and other violations (see CFTC Press Release 6447-12). On February 25, 2013, the Florida court granted a preliminary injunction against Hunter Wise, froze the firm’s assets, and appointed a corporate monitor to assume control over those assets (see CFTC Press Release 6522-13). On February 19, 2014, the court entered judgment against Hunter Wise for engaging in illegal precious metals transactions.

CFTC Division of Enforcement staff members responsible for this case are Daniel Jordan, Michael Loconte, and Rick Glaser.

The Future of Capital Formation

The Future of Capital Formation