SEC CHARGES 8 INDIVIDUALS FOR ROLES IN PUMP-AND-DUMP SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged a ring of eight individuals for their roles in an alleged pump-and-dump scheme involving a penny stock company based in California that has repeatedly changed its name and purported line of business over the past several years.

The SEC alleges that the scheme was orchestrated by Izak Zirk de Maison, who was named Izak Zirk Engelbrecht before taking the surname of his wife Angelique de Maison.  Both de Maisons are charged by the SEC in the case along with others enlisted to buy, sell, or promote stock in the company now called Gepco Ltd.  Zirk de Maison installed some of these associates as officers and directors of Gepco while he secretly ran the company behind the scenes.  Collectively, they amassed large blocks of shares of Gepco common stock while the de Maisons manipulated the market to create the appearance of genuine investor demand, allowing an associate to sell his stock at inflated prices to make hundreds of thousands of dollars in illicit profits.

In a parallel action, the U.S. Attorney’s Office for the Northern District of Ohio and the Cleveland Division of the Federal Bureau of Investigation today announced criminal charges against Zirk de Maison.

The SEC has obtained an emergency court order to freeze the assets of the de Maisons and others who profited illegally through the alleged scheme.

“Microcap fraud is a scourge on our markets, and we are aggressively pursuing scurrilous penny stock schemers who make their living by preying upon innocent investors,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Zirk de Maison has secretly controlled the shell company now known as Gepco since its incorporation in 2008 under a different name.  During the next five years, he caused the company to enter into a number of reverse mergers and its reported business evolved from equipment leasing to prepaid stored value cards related to electronic devices until the company eventually became known as WikiFamilies and claimed to own and operate a social media website.  The company name changed to Gepco in 2013, and after a failed attempt to merge it into a private mixed martial arts company, de Maison created his own private company purportedly in the high-end diamond business and merged Gepco into it.

“Zirk de Maison concocted an array of reverse mergers and company name changes on his way to gaining control of the vast majority of Gepco stock in order to conduct a multi-faceted manipulation scheme,” said Amelia A. Cottrell, an Associate Director in the SEC’s New York Regional Office.  “To help avoid the pitfalls of microcap fraud, it’s important to check the histories of companies and determine their legitimacy before deciding whether to invest in them.”

The SEC alleges that the de Maisons, who reside in Redlands, Calif., brought at least six others into the fold to coordinate various components of the scheme.  They each are charged in the SEC’s complaint:

Jason Cope of Gates Mills, Ohio, is a longtime associate of Zirk de Maison and has a past record of securities fraud with a court judgment against him in a previous SEC enforcement action.  On Cope’s behalf, Louis Mastromatteo of Bay Village, Ohio, allegedly dumped more than 2.5 million shares of Gepco stock through a nominee into the public market for hundreds of thousands of dollars in illicit profits that were kicked back to Cope.

Trish Malone, who lives in Santee, Calif., serves as Gepco’s president, CFO, and secretary.  She allegedly used Gepco to issue stock to Zirk de Maison and others so that they could conduct two unregistered and illegal distributions of the securities.

Peter Voutsas, who lives in Santa Monica, Calif., and owns a jewelry store in Beverly Hills, serves as Gepco’s CEO and chief investment officer even though Zirk de Maison runs the company behind the scenes.  Along with Angelique de Maison, Voutsas allegedly made a materially misleading statement about Gepco to the public while the de Maisons manipulated the market for Gepco’s stock.
Ronald Loshin of San Anselmo, Calif., served as Gepco’s chief creative officer and allegedly failed to make required regulatory filings to report his transactions in Gepco stock as an insider.  Furthermore, Loshin enabled de Maison to deceptively hide his own trading by allowing him to use a brokerage account held in Loshin’s name.

Kieran Kuhn of Port Washington, N.Y., allegedly promoted Gepco stock through his firm Small Cap Resource Corp. and inflated the stock value to help the scheme succeed.  He then conducted one of the unregistered and illegal distributions of Gepco-related securities for Zirk de Maison’s benefit.
According to the SEC’s complaint, Zirk de Maison exchanged e-mails and text messages with many of his co-conspirators as they openly discussed coordinating their promotional activities and manipulative trading in Gepco’s stock in order to create a false impression of market activity.  They stood to earn exponentially more illicit profits given that they continue to beneficially own tens of millions of shares of Gepco stock, so the SEC today suspended trading in Gepco securities in order to prevent any further manipulation or dumping of the stock.

The SEC’s complaint, which additionally charges several companies connected to the scheme, alleges violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Sections 9 and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The complaint seeks a permanent injunction and disgorgement of ill-gotten gains along with prejudgment interest, financial penalties, and penny stock bars.  The SEC also seeks officer-and-director bars against the de Maisons and Malone.

The SEC’s investigation, which is continuing, has been conducted by John O. Enright, James E. Burt IV, Thomas Feretic, and Leslie Kazon.  The case was supervised by Amelia A. Cottrell, and the litigation will be led by Howard Fischer and Mr. Enright.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Northern District of Ohio, the Cleveland Division of the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.

SEC FILES CIVIL ACTIONS AGAINST PERSONS INVOLVED IN BOILER ROOM SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Charges Ddbo Consulting, Inc., Calpacific Equity Group, LLC, and Principals with Fraud and Registration Violations

The Securities and Exchange Commission (Commission) announced that on July 24, 2014, it filed civil actions in U.S. District Court against individuals and companies behind a boiler room scheme that hyped a company whose new technology was purportedly to be used in the Super Bowl. The SEC previously charged the operators of the scheme based in the South Florida and Los Angeles areas. Seniors and other investors were pressured into purchasing stock in Thought Development Inc. (TDI), an unaffiliated Miami Beach-based company that stated its signature invention is a laser-line system that generates a green line on a football field for a first-down marker visible not only on television but also to players, officials, and fans in the stadium.

The SEC charged four executives who helped make the scheme possible and three companies they operate - DDBO Consulting, Inc., DBBG Consulting, Inc., and CalPacific Equity Group, LLC. Approximately $1.7 million was raised through these companies from more than 110 investors who were told that an initial public offering (IPO) in TDI was imminent and that their money would be used to develop the ground-breaking technology. Instead, the SEC alleges that the IPO was not forthcoming as promised, and at least 50 percent of the offering proceeds were merely retained by these companies or paid to sales agents through undisclosed commissions and fees. Certain executives, their sales agents and their companies lured investors by misrepresenting that TDI's technology was about to be used by the National Football League (NFL). One investor even made an additional $75,000 investment on top of an initial $2,500 investment after being told that NFL Commissioner Roger Goodell purchased TDI's technology for use in the 2013 Super Bowl. In fact, there was no such arrangement.

In addition to the their companies, the SEC's complaints charge brothers Dean R. Baker of Coral Springs, Fla., and Daniel R. Baker of Valley Village, Calif., along with Bret A. Grove of Delray Beach, Fla., and Demosthenes Dritsas of Newhall, Calif. The SEC's complaints allege violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 as well as Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The defendants all agreed to settle the SEC's charges. In parallel actions, the U.S. Attorney's Office for the Central District of California announced criminal charges against Daniel Baker and Dritsas, and the U.S. Attorney's Office for the Southern District of Florida announced criminal charges against Dean Baker and Grove.

Statement at Open Meeting Regarding Money Market Fund Reform

Statement at Open Meeting Regarding Money Market Fund Reform

Remarks to the Practicing Law Institute, Hedge Fund Management Seminar 2014

Remarks to the Practising Law Institute, Hedge Fund Management Seminar 2014

SEC CHARGES OF ACCOUNTING AND DISCLOSURE FRAUD AGAINST DELAWARE BANK HOLDING COMPANY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

September 11, 2014

The Securities and Exchange Commission announced accounting and disclosure fraud charges against a Delaware-based bank holding company for failing to report the true volume of its loans at least 90 days past due as they substantially increased in number during the financial crisis.

An SEC investigation found that as the real estate market declined in 2009 and 2010 and its construction loans began to mature without repayment or completion of the underlying project, Wilmington Trust Company did not renew, extend, or take other appropriate action for 90 days or more on a material amount of its matured loans.  Instead of fully and accurately disclosing the amount of these accruing loans as required by accounting guidance, Wilmington Trust improperly excluded the matured loans from its public financial reporting.

Wilmington Trust, which was acquired by M&T Bank in May 2011, has agreed to pay $18.5 million in disgorgement and prejudgment interest to settle the SEC’s charges.

“Improper application of accounting principles by Wilmington Trust had the effect of misleading investors about a key credit quality metric during a time of significant upheaval and financial distress for the bank,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement.  “Investors must know when banking institutions are unable to recover on material amounts of outstanding loans, which means those institutions must carefully adhere to relevant accounting rules.”

Andrew M. Calamari, Director of the SEC’s New York Regional Office, added, “By failing to fully disclose the actual volume of accruing loans past due 90 days or more, Wilmington Trust prevented investors from learning the full scope of the troubles in its commercial real estate loan portfolio.”

According to the SEC’s order instituting a settled administrative proceeding, Wilmington Trust omitted from its disclosures in the third and fourth quarters of 2009 approximately $338.9 million and $330.2 million, respectively, in matured loans 90 days or more past due.  Instead, it disclosed just $38.7 million in such loans for the third quarter and only $30.6 million in its annual report following the fourth quarter.  Wilmington Trust also materially misreported this category of loans in the first and second quarters of 2010.  Furthermore, Wilmington Trust failed to accurately disclose during the second half of 2009 the amount of non-accruing loans in its portfolio, and materially understated its loan loss provision and allowance for loan losses during this same period.

Wilmington Trust consented to the entry of the order finding that it violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 as well as the reporting, books and records, and internal controls provisions of the federal securities laws.  In addition to the monetary sanctions, Wilmington Trust agreed to cease and desist from committing or causing any violations and any future violations of these provisions.

The SEC’s investigation, which is continuing, has been conducted by Margaret Spillane, James Addison, and Michael Osnato of the New York Regional Office.  The SEC appreciates the assistance of the U. S. Attorney’s Office for the District of Delaware, Federal Bureau of Investigation, Federal Reserve, and Office of the Special Inspector General for the Troubled Asset Relief Program.

WHAT WE HAVE HERE IS A FAILURE TO SUPERVISE*

FROM:  COMMODITY FUTURES TRADING COMMISSION 

CFTC Orders Zulutrade Inc. to Pay $150,000 Penalty and Disgorge Profits of $80,000 to Settle Charges of Failure to Supervise Activities Relating to Its Business as a CFTC Registrant

Zulutrade is a CFTC-registered Introducing Broker located in Piraeus, Greece

Washington DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing and simultaneous settlement of charges against Zulutrade, Inc., a CFTC-registered Introducing Broker located in Piraeus, Greece, for failure to diligently supervise activities relating to its business as a CFTC registrant. Specifically, the CFTC’s Order found that for at least a three-year period from October 2010 to October 2013, Zulutrade failed to follow its procedures for screening for accountholders from the U.S. Department of the Treasury’s Office of Foreign Assets Control’s (OFAC) targeted countries. The Order requires Zulutrade to pay a $150,000 civil monetary penalty and disgorge $80,000 in commissions and fees it earned from accounts that were related to the supervisory failure.

OFAC administers and enforces economic and trade sanctions against targeted foreign countries based on U.S. foreign policy and national security goals. U.S. persons and entities are generally prohibited from doing business with persons and entities from OFAC targeted countries. During the relevant period, Zulutrade had a procedure to screen for potential accountholders from OFAC targeted countries. That procedure provided that Zulutrade could delegate implementation of OFAC screening to third party service providers or agents provided Zulutrade had a written agreement with the service provider outlining the third party’s responsibilities, and that Zulutrade would actively monitor the delegation to assure that the procedures are being conducted in an effective manner.

However, Zulutrade failed to ensure that it had written agreements with all such entities. Consequently, Zulutrade opened approximately 400 accounts for accountholders from OFAC targeted countries (primarily Iran, Sudan, and Syria). All of the accounts opened for accountholders from targeted countries were from service providers with which Zulutrade did not have written agreements.

CFTC Division of Enforcement staff members responsible for this matter are Jennifer Diamond, David Terrell, Joy McCormack, Elizabeth M. Streit, Scott R. Williamson, and Rosemary Hollinger. The Division worked closely with staff from OFAC in this matter and wishes to thank OFAC for its assistance. OFAC has concluded a settlement with Zulutrade arising out of the same pattern of conduct.
*Aluding to the quote "What we have here is a failure to communicate," from the movie "Cool Hand Luke."