CFTC ANNOUNCES COURT PERMANENT BAN FROM TRADING AND REGISTRATION ON N.C. MAN

FROM:  COMMODITY FUTURES TRADING COMMISSION 

Federal Court Permanently Bans North Carolina Resident Neal Hall from Trading and Registration and Imposes a $210,000 Penalty for Violating the CFTC’s Registration and Consumer Notice Provisions

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that the Honorable James A. Beaty, Jr. of the U.S. District Court for the Middle District of North Carolina entered an Order imposing permanent trading and registration bans and a $210,000 civil monetary penalty against Defendant Neal E. Hall of Reidsville, North Carolina for registration violations and failure to include certain required disclosures on his website.

The Order entered on October 6, 2014, follows a Memorandum Opinion entered by the court on November 21, 2013, both of which stem from a civil enforcement action filed by the CFTC against Hall on May 31, 2011 (see CFTC Press Release 6049-11).  The CFTC Complaint charged that, starting no later than June 2010 and continuing to June 2011, Hall used the mails and other avenues of interstate commerce while offering his services as a Commodity Trading Advisor (CTA) in exchange for payment in the form of either flat charges or a percentage of profits from customers.

The court found that Hall used his website to solicit clients both to subscribe to his e-mini S&P 500 futures trading program and to have him manage their trading accounts, and, as a result, Hall violated the Commodity Exchange Act, by failing to register with the CFTC as a CTA.

Additionally, the court found that Hall violated CFTC Regulations 4.41(a)(3) and (b).  Those Regulations require cautionary statements to accompany the use of client testimonials and the presentation of the performance of a simulated or hypothetical commodities account.  Regulation 4.41(b) further dictates that the cautionary statement accompanying the presentation of the performance of simulated or hypothetical trading results contain specific language and be prominently displayed in immediate proximity to the hypothetical results.

The court found that Hall violated Regulation 4.41(a)(3) because his website lacked a cautionary statement despite featuring testimonials from unnamed clients.  Similarly, the court found that Hall violated Regulation 4.41(b) because his website did not contain a disclaimer with the specific language required by the Regulation that is prominently displayed in immediate proximity to the hypothetical trading results.

The CFTC appreciates the assistance of the North Carolina Securities Division and the Office of the U.S. Attorney for the Middle District of North Carolina.

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SEC SANCTIONS 13 FIRMS FOR VIOLATING RULE THAT PROTECTS SMALL INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today sanctioned 13 firms for violating a rule primarily designed to protect retail investors in the municipal securities market.

All municipal bond offerings include a “minimum denomination” that establishes the smallest amount of the bonds that a dealer firm is allowed to sell an investor in a single transaction.  Municipal issuers often set high minimum denomination amounts for so-called “junk bonds” that have a higher default risk that may make the investments inappropriate for retail investors.  Because retail investors tend to purchase securities in smaller amounts, this minimum denomination standard helps ensure that dealer firms sell high-risk securities only to investors who are capable of making sizeable investments and more prepared to bear the higher risk.

In its surveillance of trading in the municipal bond market, the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit detected improper sales below a $100,000 minimum denomination set in a $3.5 billion offering of junk bonds by the Commonwealth of Puerto Rico earlier this year.  The SEC’s subsequent investigation identified a total of 66 occasions when dealer firms sold the Puerto Rico bonds to investors in amounts below $100,000.  The agency instituted administrative proceedings against the firms behind those improper sales: Charles Schwab & Co., Hapoalim Securities USA, Interactive Brokers LLC, Investment Professionals Inc., J.P. Morgan Securities, Lebenthal & Co., National Securities Corporation, Oppenheimer & Co., Riedl First Securities Co. of Kansas, Stifel Nicolaus & Co., TD Ameritrade, UBS Financial Services, and Wedbush Securities.

The enforcement actions are the SEC’s first under Municipal Securities Rulemaking Board (MSRB) Rule G-15(f), which establishes the minimum denomination requirement.  Each firm agreed to settle the SEC’s charges and pay penalties ranging from $54,000 to $130,000.

“These actions demonstrate our commitment to rigorous enforcement of all types of violations in the municipal bond market,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “We will act quickly and use all available tools to protect investors in municipal securities.”

LeeAnn G. Gaunt, Chief of the SEC’s Municipal Securities and Public Pensions Unit added, “These firms violated a straightforward investor protection rule that prohibits the sale of muni bonds in increments below a specified minimum.  We conduct frequent surveillance of trading in the municipal bond market and will penalize abuses that threaten retail investors.”  

The SEC’s orders against the 13 dealers find that in addition to violating MSRB Rule G-15(f) by executing sales below the minimum denomination, they violated Section 15B(c)(1) of the Securities Exchange Act of 1934, which prohibits violations of any MSRB rule.  Without admitting or denying the findings, each of the firms agreed to be censured.  They also agreed to review their policies and procedures and make any changes that are necessary to ensure proper compliance with MSRB Rule G-15(f).

The SEC’s investigation, which is continuing, is being conducted by Joseph Chimienti, Sue Curtin, Heidi M. Mitza, and Jonathon Wilcox with assistance from Kathleen B. Shields.  The case is supervised by Kevin B. Currid and Mark R. Zehner.  The SEC appreciates the assistance of the MSRB.

5 INVESTORS INDICTED FOR BID RIGGING AT FORECLOSURE AUCTIONS

FROM:  U.S. JUSTICE DEPARTMENT 

Tuesday, October 21, 2014

Five Northern California Real Estate Investors Indicted for Bid Rigging and Fraud at Public Foreclosure Auctions

A federal grand jury in San Francisco returned an eight-count indictment against five real estate investors for their role in bid rigging and fraud schemes at foreclosure auctions in Northern California, the Department of Justice announced.

The indictment, filed today in U.S. District Court for the Northern District of California in San Francisco, California, charges Northern California real estate investors Joseph Giraudo, Raymond Grinsell, Kevin Cullinane, James Appenrodt and Abraham Farag with participating in conspiracies to rig bids and schemes to defraud mortgage holders and others.  The indictment alleges that the defendants agreed to stop bidding or to refrain from bidding for properties at public foreclosure auctions in San Mateo County, California, in return for payoffs and concealing the fact that monies were diverted from mortgage holders, homeowners and others to co-schemers.  Additionally, Giraudo, Grinsell and Appenrodt were charged with bid rigging and fraud in San Francisco County, California.  To date, 47 individuals have agreed to plead or have pleaded guilty, as a result of the department’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.

“These defendants corrupted the public foreclosure auctions in San Mateo and San Francisco counties, and they did so to line their pockets with money that rightfully belonged to mortgage holders and others,” said Brent Snyder, Deputy Assistant Attorney for the Antitrust Division’s criminal enforcement program.  “As these charges demonstrate, the Antitrust Division will continue to pursue bidders at foreclosure auctions who violated the Sherman Act and defrauded mortgage holders and others.”

The indictment alleges, among other things, that beginning no later than August 2008 and continuing until January 2011, the defendants conspired to rig bids to obtain numerous properties sold at foreclosure auctions in San Mateo and San Francisco counties, paid others not to bid, accepted payoffs not to bid and, in the process, defrauded mortgage holders, other holders of debt secured by the auctioned properties and, in some cases, the defaulting homeowners.

“These charges demonstrate our continued commitment to investigate and prosecute individuals and organizations responsible for the corruption of the public foreclosure auction process,” said David J. Johnson, FBI Special Agent in Charge of the San Francisco Field Office.  “The FBI is committed to work these important cases and remains unwavering in our dedication to bring the members of these illegal conspiracies to justice.”

Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals.  Each count of mail fraud carries a maximum sentence of 20 years in prison and a $1 million fine.  The government can also seek to forfeit the proceeds earned from participating in the mail fraud schemes.  The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than $1 million.

Today’s charges are the latest filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa, and Alameda counties, California.  These investigations are being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Office.  Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-934-5300, or call the FBI tip line at 415-553-7400.  

Today’s charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 93 U.S. Attorneys’ offices and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.  Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,900 mortgage fraud defendants.

COURT ORDER MAN AND COMPANY TO PAY $2.2 MILLION FOR COMMODITY POOL FRAUD

FROM:   COMMODITY FUTURES TRADING COMMISSION 

Federal Court Orders Boston Resident John B. Wilson and His Company, JBW Capital LLC, to Pay a Civil Penalty of More than $2.8 Million for Commodity Pool Fraud

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that the Honorable Richard G. Stearns of the U.S. District Court for the District of Massachusetts entered a Final Judgment against Defendants John B. Wilson and his company, JBW Capital LLC (JBW) (collectively, the Defendants), both of Boston, Massachusetts, for fraud and registration violations of the Commodity Exchange Act (CEA). The court’s Final Judgment orders the Defendants, jointly and severally, to pay a $2.86 million civil penalty; it permanently enjoins the Defendants from further violations of the CEA, as charged; and it imposes permanent trading and registration bans on the Defendants.

The court’s action stems from a CFTC Complaint filed on September 28, 2012, that charged Defendants with violating the anti-fraud provisions of the CEA in connection with a commodity pool by falsely representing to investors on multiple occasions the pool’s Net Asset Value (NAV). The Complaint also charged Defendants with failing to register with the CFTC as Commodity Pool Operators (CPOs) (see CFTC Complaint and Press Release 6372-12).

On May 16, 2014, the court granted Summary Judgment to the CFTC and found that Defendants had defrauded and deceived their pool participants by misrepresenting on multiple occasions the NAV of the pool. For example, in September 2008, the Defendants falsely represented the pool’s NAV to be $2,475,941, when the actual NAV was $1,149,628, according to the court’s findings. The court also found that Defendants had illegally acted as unregistered CPOs.

The CFTC acknowledges the assistance of the Massachusetts Securities Division in this matter.

CFTC staff members responsible for this matter include W. Derek Shakabpa, Judith M. Slowly, David W. Oakland, Patryk Chudy, David Acevedo, Lenel Hickson, Jr., and Manal M. Sultan.

SEC ANNOUNCES INSIDER TRADING CHARGES AGAINST NEW JERSEY MAN IN MONEY IN A SHOE-BOX CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

10/24/2014 01:35 PM EDT

The Securities and Exchange Commission today announced insider trading charges against a New Jersey man who generated nearly $700,000 in illicit profits trading in the securities of two pharmaceutical companies that were about to be acquired.  The SEC charged his source of nonpublic information earlier this month.

The SEC alleges that David Post of Livingston, N.J., was tipped with confidential details about the impending deals by his former business school classmate who was tasked with evaluating potential acquisitions in his financial analyst job at a major pharmaceutical company.  Post and his friend, Zachary Zwerko, used prepaid “burner” cell phones to exchange coded text messages in advance of Post’s trading.  They also used a dummy e-mail account they could both access to draft an e-mail message in code and leave it in the draft folder for the other to read and then delete.  In exchange for the illegal tips, Post paid Zwerko $7,000 at a Halloween party following his profitable trading in 2012, and gave him $50,000 in a shoebox when Zwerko visited his home after additional insider trading occurred earlier this year.

The U.S. Attorney’s Office for the Southern District of New York announced parallel insider trading cases against Post today and against Zwerko earlier this month.

“Post and Zwerko tried to keep law enforcement authorities in the dark by using prepaid cell phones and a dummy e-mail account to communicate inside information, and Post doled out the kickbacks inside his own home,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.  “But in the end, the SEC staff’s investigative expertise helped in bringing yet another audacious insider trading scheme to light.”

According to the SEC’s amended complaint filed in U.S. District Court for the Southern District of New York, Post traded on the basis of confidential details about two acquisition targets of the pharmaceutical company where Zwerko then worked.  The insider trading first occurred in 2012 when Zwerko learned his employer was among several other pharmaceutical companies in a competitive bidding process for Ardea Biosciences Inc.  In the several weeks leading up to Ardea’s public announcement, Post received regular updates from Zwerko about the status of confidential negotiations and purchased $227,000 worth of Ardea securities – the most he had ever invested in a single company.  Post had never before purchased Ardea securities.  After Ardea publicly announced that it had accepted an acquisition bid and its stock price rose by 51 percent, Post sold all of his shares and reaped profits of approximately $105,000.

The SEC further alleges that Zwerko tipped Post with confidential details about his employer’s nonpublic negotiations to acquire Idenix Pharmaceuticals Inc. earlier this year.  Although not directly involved in the deal, Zwerko accessed confidential files in the company’s database during the negotiations and gleaned additional nonpublic information in his communications with others at the company.  Post, who had never before purchased Idenix securities, made purchases totaling $219,000 from May 21 to June 6.  After a public announcement was made on June 9, Post sold his Idenix securities for a profit of approximately $579,000.

The SEC’s amended complaint charges Zwerko and Post with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The complaint seeks permanent injunctive relief, disgorgement with prejudgment interest on a joint and several liability basis, and financial penalties.

The SEC’s investigation, which is continuing, has been conducted by Dominick D. Barbieri, Neil Hendelman, and Charles D. Riely.  The SEC’s litigation will be led by Mr. Barbieri.  The case has been supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, Federal Bureau of Investigation, and Financial Industry Regulatory Authority.