CFTC ANNOUNCES JUDGEMENT AGAINST COMMODITY POOL OPERATORS

FROM:  U.S. COMMODITY FUTURES 
January 14, 2015

CFTC Obtains Judgment against Commodity Pool Operators TOTE Fund LLC and MJS Capital Management LLC, and their Principal, Michael J. Siegel, for Commodity Pool Fraud and Other Violations

Federal Court Orders Defendants to Pay More than $871,000 in Restitution, Disgorgement, and Civil Monetary Penalties

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Noel L. Hillman of the U.S. District Court for the District of New Jersey entered an Order of default judgment and permanent injunction against Defendants TOTE Fund LLC (TOTE) and MJS Capital Management LLC (MJS), two Commodity Pool Operators, and their sole principal Michael J. Siegel of Northfield, New Jersey.

The court’s Order requires Siegel and MJS, jointly and severally, to pay restitution of $104,684.47, disgorgement of $86,503.36, and a civil monetary of $259,510.08. Siegel and TOTE are also jointly and severally required to pay disgorgement of $105,185.89 and a civil monetary penalty of $315,557.67. The Order further imposes permanent trading and registration bans against all Defendants. The Order, entered on December 30, 2014, stems from a CFTC Complaint filed on September 27, 2013 (see CFTC Press Release 6723-13).

The Order finds that Defendants violated the Commodity Exchange Act by misappropriating funds totaling approximately $191,689 from Monarch Futures Fund LLC (Monarch) and QEP Futures Fund LLC (QEP), two commodity pools operated by TOTE and MJS, respectively, by withdrawing money from the pools for non-pool expenses and taking fees to which they were not entitled. According to the Order, despite earning incentive, management, and administrative fees of $319,909 based on his trading, Siegel transferred approximately $511,598 from bank accounts in the names of Monarch, QEP, and TOTE to his personal bank accounts, to a credit card account, and to at least one individual and used some of these funds to pay personal expenses.

The Order further finds that MJS and Siegel misappropriated funds by failing to return funds to at least two pool participants who sought to withdraw their funds from QEP. Also, TOTE, acting through Siegel, failed to provide Monarch pool participants with copies of monthly statements received by TOTE from Futures Commission Merchants, as required by a CFTC Regulation, the Order finds.

The CFTC cautions victims that restitution orders may not result in the recovery of money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

The CFTC Division of Enforcement staff members responsible for this case are Kara L. Mucha, James A. Garcia, Michael W. Solinsky, Charles D. Marvine, and Gretchen L. Lowe.

SEC ANNOUNCES CHARGES AGAINST ATTORNEYS AND AUDITORS IN SHAM STOCK OFFERINGS CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced charges against attorneys, auditors, and others allegedly involved in a microcap scheme the agency stifled last year when it suspended the registration statements of 20 purported mining companies being used for sham offerings of stock to investors.

The SEC Enforcement Division alleges that a Canada-based attorney and stock promoter named John Briner orchestrated the scheme, which entailed creating shell companies supposedly exploring mining activities.  Briner had been suspended from practicing on behalf of entities regulated by the SEC, so he recruited clients and associates to become figurehead executive officers while he secretly controlled the companies from behind the scenes.  The registration statements falsely stated that each CEO was solely running the company when in fact Briner was making all material decisions.

The SEC Enforcement Division further alleges that none of the companies had any intention of pursuing mining, and mineral claims purportedly owned by each company were never actually transferred to them.  The registration statements falsely claimed that each company was capitalized by the CEO’s $30,000 purchase of issuer stock when in fact it was Briner who was funding the companies. 

The SEC’s stop order proceedings last year enabled the subsequent suspension of the registration statements for the 20 microcap companies before any investors purchased the stocks, which were ripe for pump-and-dump schemes.

“Briner allegedly orchestrated a massive scheme to create public shell companies through false registration statements,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Our action in this case proactively prevented Briner and his cohorts from carrying out the fraud to an extent that directly harmed investors.”

The SEC Enforcement Division alleges that several gatekeepers helped Briner perpetrate his scheme.  They along with Briner are named in the order instituting a litigated administrative proceeding:

• Colorado-based attorney Diane Dalmy allegedly provided opinion letters for 18 of the mining companies in which she falsely stated that she conducted an investigation of the companies’ stock issuance.
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• Nevada-based audit firm De Joya Griffith LLC and partners Arthur De Joya, Jason Griffith, Philip Zhang, and Chris Whetman were engaged by Briner for the purpose of auditing the financial statements of some of the mining companies.  The audits they conducted were allegedly so deficient that they amounted to no audits at all, and they ignored red flags that Briner was engaging in fraud.
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• Texas-based audit firm M&K CPAS PLLC and partners Matt Manis, Jon Ridenour, and Ben Ortego were similarly engaged by Briner for the purpose of auditing the financial statements of some of the mining companies.  The audits they conducted also were allegedly so deficient that they amounted to no audits at all, and they ignored red flags that Briner was engaging in fraud.

“Attorneys and auditors have a serious obligation as gatekeepers to protect the integrity of our markets, and the individuals we’ve charged in this case failed the investing public in their roles,” said Sanjay Wadhwa, Senior Associate Director for Enforcement in the SEC’s New York Regional Office. 

The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.  The Enforcement Division alleges that Briner, Dalmy, and the auditors violated the antifraud provisions of the Securities Act of 1933 and that the auditors violated Rule 2-02(b)(1) of Regulation S-X and engaged in improper professional conduct under Rule 102(e) of the Commission’s Rules of Practice.

In separate orders instituting settled administrative proceedings, three of the figurehead CEOs installed by Briner agreed to settlements for their involvement in the scheme.  Without admitting or denying the SEC’s findings, they each agreed to be barred from serving as an officer or director of a public company or from participating in penny stock offerings.  They also agreed to give up money paid to them by Briner as “consulting” fees and pay additional penalties:

• Stuart Carnie of Ocala, Fla., was installed as the purported sole CEO of three of the companies.  He participated in the offerings of their securities and signed false and misleading registration statements.  Carnie must pay disgorgement of $6,000 plus prejudgment interest of $337.85 and a penalty of $12,000 for a total of $18,337.85.
• Charles Irizarry of Peoria, Ariz., was installed as the purported sole CEO of three of the companies.  He participated in the offerings of their securities and signed false and misleading registration statements.  Irizarry must pay disgorgement of $6,000 plus prejudgment interest of $337.85 and a penalty of $12,000 for a total of $18,337.85.
• Wayne Middleton of Salt Lake City, Utah, was installed as the purported sole CEO of two of the companies.  He participated in the offerings of their securities and signed false and misleading registration statements.  Middleton must pay disgorgement of $4,000 plus prejudgment interest of $225.24 and a penalty of $8,000 for a total of $12,225.24.

The SEC’s investigation was conducted by Jason W. Sunshine, James Addison, and Lara Shalov Mehraban in the New York Regional Office, and the case was supervised by Sanjay Wadhwa.  The litigation will be led by David Stoelting, Mr. Sunshine, and Jorge Tenreiro.

SEC ADOPTS NEW RULES REGARDING SWAP DATA REPOSITORIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today adopted two new sets of rules that will require security-based swap data repositories (SDRs) to register with the SEC and prescribe reporting and public dissemination requirements for security-based swap transaction data.  The SEC also proposed certain additional rules, rule amendments and guidance related to the reporting and public dissemination of security-based swap transaction data.  The new rules are designed to increase transparency in the security-based swap market and to ensure that SDRs maintain complete records of security-based swap transactions that can be accessed by regulators.

The rules implement mandates under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“These rules go to the core of derivatives reform by establishing a strong foundation for transparency and efficiency in the market,” said SEC Chair Mary Jo White.  “They provide a powerful framework for trade reporting and the public dissemination of information that addresses blind spots exposed by the financial crisis.”

The rules require an SDR to register with the SEC and set forth other requirements with which SDRs must comply.  The rules also provide an exemption from registration for certain non-U.S. SDRs when specific conditions are met.

The rules addressing security-based swap data reporting and public dissemination, known as Regulation SBSR, outline the information that must be reported and publicly disseminated for each security-based swap transaction.  In addition, the rules assign reporting duties for many security-based swap transactions and require SDRs registered with the SEC to establish and maintain policies and procedures for carrying out their duties under Regulation SBSR.  Under the rules, the Commission is recognizing the Global Legal Entity Identifier System as the system from which security-based swap counterparties must obtain codes to identify themselves when reporting security-based swap data.  The rules also address the application of Regulation SBSR to cross-border security-based swap activity and include provisions to permit market participants to satisfy their obligations under Regulation SBSR through compliance with the comparable regulation of a foreign jurisdiction.

The proposed rule amendments would assign reporting duties for certain security-based swaps not addressed by the adopted rules, prohibit registered SDRs from charging fees to or imposing usage restrictions on the users of publicly disseminated security-based swap transaction data, and provide a compliance schedule for certain provisions of Regulation SBSR.

“We carefully considered comments received and the workability of the rules and rule proposal in the context of the existing CFTC regimes for swap data repositories, swap data reporting and public dissemination,” said Steve Luparello, Director of the SEC’s Division of Trading and Markets.  “Today’s measures are robust and appropriately tailored to the security-based swap market.”

The new rules will become effective 60 days after they are published in the Federal Register.  Persons subject to the new rules governing the registration of SDRs must comply with them by 365 days after they are published in the Federal Register.  The compliance date for certain provisions of Regulation SBSR is the effective date, and the Commission is proposing compliance dates for the remaining provisions of Regulation SBSR in the proposed amendments release.

SEC CHARGES CANADIAN RESIDENT FOR ROLE IN MARKET MANIPULATION SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
01/13/2015 01:15 PM EST

The Securities and Exchange Commission today charged a man living in Ontario, Canada, with orchestrating a lucrative market manipulation scheme that relied on “layering” in which a trader places orders solely to trick others into buying or selling U.S. publicly traded stocks at artificially inflated or depressed prices.

In a complaint filed in federal court in Newark, N.J., the SEC alleges that since at least January 2013, Aleksandr Milrud recruited online traders chiefly based in China and Korea and shared in the profits the traders made from manipulative trading in U.S. securities markets.  Milrud provided the traders with access to trading accounts and technology and instructed them on how to avoid regulatory scrutiny while engaging in layering strategies.  The SEC’s complaint also alleges that to distance himself from certain transactions, Milrud wired funds to an offshore bank account and had the money delivered to him in a suitcase filled with cash.

In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against Milrud.

“Layering is a deceptive practice to trick others into buying or selling a stock at artificially inflated or depressed prices,” said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit. “No matter where they are located, we continue to identify and investigate those whose trading practices threaten to undermine the fair operation of the U.S. securities markets.”

According to the SEC’s complaint, Milrud inserted numerous middlemen into his scheme in an effort to evade detection.  He had his traders use multiple computers, Internet protocol (IP) addresses, and user names.  Traders were provided at least two accounts, one to do what Milrud called “the dirty work” of layering and one to execute what he termed “clean” trades at prices affected by the dirty work of the first account.  Milrud instructed the traders to conduct layering on a wide variety of stocks while limiting the number of trades and the price changes, hoping to minimize attention to the manipulative trading.

“Milrud’s elaborate efforts to disguise this manipulative trading scheme were ultimately unsuccessful,” said Joseph G. Sansone, Co-Deputy Chief of the SEC’s Market Abuse Unit.  “His scheme was uncovered and he must now face the consequences of his actions.”

The SEC’s complaint charges Milrud with violating and aiding and abetting violations of anti-fraud provisions of federal securities laws and the SEC’s antifraud rule, and with liability for the conduct of the traders under his management.  The SEC is seeking a final judgment ordering Milrud to return his allegedly ill-gotten gains with interest plus penalties and permanently barring him from future violations.

The SEC’s investigation, which is continuing, is being conducted by Simona Suh, Barry P. O’Connell, A. Kristina Littman, and Lynn H. O’Connor of the Market Abuse Unit and by Elzbieta Wraga of the New York Regional Office.  The case is being supervised by Mr. Hawke, Mr. Sansone, and Steven D. Buchholz of the Market Abuse Unit.  The SEC’s litigation will be led by Nancy A. Brown, Ms. Suh, and Mr. O’Connell.  The SEC appreciates the assistance of the Newark Field Office of the Federal Bureau of Investigation, U.S. Attorney’s Office for the District of New Jersey, and Financial Industry Regulatory Authority.

CFTC ANNOUNCES DEFAULT ORDER ENTERED IN CASE INVOLVING THE VASQUEZ POOL

FROM:  COMMODITY FUTURES TRADING COMMISSION 

Federal Court Orders North Carolina Resident Edwin A. Vasquez and His Company, Vasquez Global Investments, LLC, to Pay over $1.3 Million for Commodity Pool Fraud

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced that Judge Martin Reidinger of the U.S. District Court for the Western District of North Carolina entered an Order of Default Judgment against Defendants Edwin A. Vasquez of Arden, North Carolina, and his company, Vasquez Global Investments, LLC (VGI), for defrauding participants in a commodity pool commonly known as the Vasquez pool.

The Order, entered on December 30, 2014, requires Vasquez and VGI, joint and severally, to pay $331,556 in restitution; requires Vasquez and VGI, joint and severally, to pay a civil monetary penalty of $994,668, and imposes permanent trading, solicitation, and registration bans against all Defendants.

The Court’s Order stems from a CFTC Complaint filed on July 30, 2014, that charged Vasquez and VGI with misappropriation, solicitation fraud, and issuing false statements in connection with the operation of an unregistered commodity trading pool (see CFTC Press Release 6974-14). The Complaint also charged Vasquez and VGI with commingling pool participant funds and registration violations.

The Order finds that, beginning in August 2011, Vasquez, acting individually and through VGI, defrauded and deceived at least 19 participants who invested at least $583,491 in the Vasquez pool. The Order further finds that Vasquez told prospective pool participants that he was a successful trader and that the VGI pool was a “no risk” investment. In fact, the Order finds that of the $583,491 solicited and accepted from pool participants, Vasquez and VGI lost $65,374 trading commodity futures and misappropriated $331,556 by using those funds to pay for VGI’s operating costs and for Vasquez’s personal expenses, including travel, restaurants, and retail purchases. During that time, according to the Order, Vasquez did not disclose his trading losses and misappropriation and, instead, issued false statements to the pool participants regarding the profitability and value of their shares of the pool.

The CFTC appreciates the efforts of the North Carolina Department of the Secretary of State, Securities Division.

The CFTC cautions victims that restitution orders may not result in the recovery of money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

The CFTC Division of Enforcement staff members responsible for this case are Elizabeth N. Pendleton, Joseph Patrick, Susan Gradman, Nancy Hooper, Scott Williamson, and Rosemary Hollinger.

SEC CHARGES STOCK PROMOTER WITH FRAUD IN PURPORTED PURCHASE OF FACEBOOK, TWITTER SHARES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged a stock promoter based in Santa Barbara, Calif., with fraudulently raising nearly $3.5 million from investors purportedly to purchase Facebook and Twitter shares prior to their initial public offerings (IPOs).

The SEC alleges that instead of purchasing the shares in the secondary market as promised, Efstratios “Elias” Argyropoulos and his firm Prima Capital Group misappropriated investor funds.  They used the money primarily for day trading of stocks and options as well as to pay off certain investors who complained when they didn’t receive the promised Facebook or Twitter shares.

Argyropoulos agreed to settle the SEC’s charges and be barred from working for an investment adviser or broker-dealer, and financial penalties will be determined at a later date.

“Argyropoulos capitalized on the high demand for pre-IPO Facebook and Twitter shares to steal investor money and secretly fund his own day trading,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.

The SEC’s complaint charges Argyropoulos and Prima Capital with violating the antifraud provisions and broker-dealer registration provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.  Argyropoulos and Prima Capital agreed to settle the charges without admitting or denying the allegations, and the settlement is subject to court approval.

The SEC separately announced an administrative proceeding against Khaled A. Eldaher, a registered representative living in Austin, Texas.  The SEC Enforcement Division alleges that while working for a registered broker-dealer, Eldaher reached a side agreement with Argyropoulos to solicit investors and receive 50 percent of the mark-up on Facebook shares he sold.  Eldaher sold $362,887.50 worth of Facebook shares and was paid $15,478 by Prima Capital.  He was later terminated by the broker-dealer for selling securities other than through the firm.  The Enforcement Division alleges that Eldaher’s sales of unregistered securities violated Section 15(a)(1) of the Exchange Act.  The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.

The SEC’s investigation was conducted by Tony Regenstreif and supervised by Victoria A. Levin of the Los Angeles Regional Office.  The Enforcement Division’s litigation against Eldaher will be led by Karen Matteson.