SEC ANNOUNCES CHARGES AGAINST MANY FOR INSIDER TRADING OBTAINED FROM A FRIEND OF A COMPANY EXECUTIVE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced charges against an Atlanta resident accused of insider trading in the stock of a technology company by exploiting nonpublic information he learned from the friend of a company executive.

The SEC’s Enforcement Division alleges that Charles L. Hill Jr. made approximately $740,000 in illicit profits by trading in Radiant Systems stock on the basis of confidential inside information about an impending tender offer by NCR Corporation to buy the company.  Hill was aware that his friend who shared this nonpublic information also was a friend of a Radiant Systems executive.  Hill purchased approximately 100,000 Radiant Systems shares that were valued at nearly $2.2 million on the last trading day before the acquisition was publicly announced in July 2011.  Hill had not purchased equity securities in the previous four years, and had never before bought Radiant Systems stock.

“The SEC has rules designed to protect against misuse of nonpublic tender offer information.  We will take action against individuals who acquire such information from insiders and exploit it for their own trading benefit,” said William P. Hicks, Associate Regional Director of the SEC’s Atlanta office.

The SEC’s Enforcement Division alleges that Hill violated Section 14(e) of the Securities Exchange Act of 1934 and Rule 14e-3.  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 appreciates the assistance of the Financial Industry Regulatory Authority.

SEC CHARGES 5 OFFSHORE BUSINESSES WITH THE OFFER AND SALE OF UNREGISTERED PENNY STOCKS INTO PUBLIC MARKETS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23195 / February 11, 2015

Securities and Exchange Commission v. Caledonian Bank Ltd., et al., Civil Action No. 15-CV-00894

The Securities and Exchange Commission has charged five offshore entities with offering and selling unregistered penny stocks into the public markets.

According to the SEC's complaint filed on February 6, 2015, Cayman Islands-based, Caledonian Bank Ltd. and Caledonian Securities Ltd., Belize-based, Clear Water Securities, Inc. and Legacy Global Markets S.A., and Panama-based, Verdmont Capital S.A. (collectively, the "Defendants") conducted unregistered sales of securities, reaping over $75 million in illegal sales proceeds. Simultaneous with filing its complaint, the SEC obtained an emergency court order freezing assets of the Defendants located in the United States.

The SEC alleges that the Defendants sold penny stocks in unregistered distributions from their U.S. brokerage accounts of four shell company issuers, namely, Swingplane Ventures, Inc., Goff Corp., Norstra Energy Inc. and Xumanii, Inc. Each of the unregistered distributions took place through virtually the same scheme. The issuers first filed with the Commission bogus Forms S-1 that purported to register sales of securities to public investors when, in fact, no bona fide sales occurred because the securities purportedly sold remained in the control of the issuers and their affiliates. In the sham offerings, the issuers pretended to sell securities to investors residing in such places as Serbia, Mexico, Ireland, Norway, Panama, and Jamaica, while the issuers or their affiliates maintained control and possession of the stock certificates in a scheme where: (1) restricted stock was passed off as "free trading" unrestricted stock; (2) the share certificates issued were subsequently transferred, without restrictive legends, to the Defendants; and (3) the Defendants deposited the shares into their U.S. brokerage accounts and sold the shares to the public.

The complaint further alleges that the issuers or their affiliates directed the transfers of restricted securities to the Defendants, often through various offshore nominee entities intended to conceal beneficial ownership of the securities. Once the shares, which were controlled throughout by the issuers or its affiliates, were held in names of the Defendants, the shell company issuers announced a reverse-merger or business combination with a purportedly operating enterprise. The Defendants then offered and sold into the public markets hundreds of millions of shares of the four issuers in unregistered distributions simultaneously with aggressive and extensive promotion campaigns. Each of the four stocks lost virtually all of their market value within months of the unregistered sales. In doing so, the complaint alleges that the Defendants operated as affiliates, dealers, sales outlets and underwriters by offering and selling the penny stocks from brokerage accounts in the United States.

The SEC's complaint, which was filed in the U.S. District Court for the Southern District of New York, seeks, among other things, to permanently enjoin the Defendants from violating Section 5(a) and 5(c) of the Securities Act of 1933, prohibiting the Defendants from participating in an offering of penny stock, the disgorgement of all proceeds obtained in the unregistered distributions, and civil penalties.

Following the SEC's complaint, the Cayman Islands Monetary Authority issued a public notice on February 10, 2015 advising that it appointed two Controllers to assume control of the affairs of Caledonian Securities Limited and Caledonian Bank Limited. That same day, Caledonian Bank's shareholders voted to place the bank into voluntary liquidation.

The SEC's investigation, which is continuing, is being conducted by Ernesto Amparo and supervised by Anita B. Bandy. The SEC's litigation will be led by Richard E. Simpson and A. David Williams. The SEC appreciates the assistance of Financial Industry Regulatory Authority, the Cayman Islands Monetary Authority, the Quebec Autorité de Marchés Financiers, and the Republic of Serbia Securities Commission.

SEC ANNOUNCES CHARGES, ASSET FREEZE AGAINST UTAH RESIDENT AND INVESTMENT ADVISORY FIRM

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23188 / February 5, 2015

Securities and Exchange Commission v. Total Wealth Management, Inc., et al., Civil Action No. 15-CV-0226-BAS-DHB

SEC Obtains Emergency Relief Against San Diego Investement Advisor Charged with Wrongfully Taking Client Funds

The Securities and Exchange Commission today announced charges and an emergency temporary restraining order and asset freeze against a Utah resident and his San Diego, Calif. investment advisory firm.

The SEC alleges that Jacob Keith Cooper and Total Wealth Management Inc. wrongfully took at least $150,000 from clients in order to partially fund the potential settlement of an administrative proceeding previously instituted against them in 2014 by the SEC's Division of According to the SEC's complaint, filed yesterday in the U.S. District Court for the Southern District of California, the Division of Enforcement had reached a tentative settlement with Cooper and Total Wealth in the previously-instituted administrative proceeding that required Cooper to escrow $150,000. However, after learning that Cooper intended to pay this amount using funds misappropriated from clients, the Division terminated this settlement and the agency brought this emergency action in federal district court. Cooper's use of investor funds for his settlement with the SEC was never disclosed to or authorized by clients, and was a breach of Total Wealth's and Cooper's fiduciary duty to their clients. According to the complaint, Cooper admitted to taking $150,000 in investor monies to fund his escrow settlement, although he claims that it was a "loan."

According to the complaint, Cooper has also admitted that he and Total Wealth have used investor monies to pay unspecified legal expenses related to the Division of Enforcement's previously-instituted administrative proceeding as well as a private class action lawsuit filed in California state court. The complaint alleges that Total Wealth has been charging investors unexplained, inflated "administrative fees" to pay those expenses and that Total Wealth and Cooper have failed to provide any accounting or meaningful explanation for the fees to investors, despite investors' repeated requests.

The Honorable Cynthia Bashant for the U.S. District Court for the Southern District of California issued an order temporarily enjoining Cooper and Total Wealth from future violations of Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940, and rule 206(4)-8 thereunder, as well as orders (1) freezing Cooper's and Total Wealth's assets; (2) appointing a temporary receiver; (3) prohibiting the destruction of documents, (4) expediting discovery; and (5) requiring accountings. Cooper and Total Wealth stipulated to the entry of the court orders without admitting or denying the SEC's allegations. The SEC also seeks preliminary and permanent injunctions, return of ill-gotten gains with prejudgment interest, and financial penalties against Cooper and Total Wealth.

A hearing on whether a preliminary injunction should be issued against the defendants and whether a permanent receiver should be appointed is scheduled for February 13, 2015.

SEC ALLEGES INVESTMENT ADVISER KEPT CUSTODIAL FUNDS WITH BROKER-DEALER COUNTERPARTIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission  charged an investment adviser to several alternative mutual funds for maintaining millions of dollars of the funds’ cash collateral at broker-dealer counterparties instead of the funds’ custodial bank.  The violations were uncovered during an SEC examination of the firm and the funds it manages.

Water Island Capital LLC agreed to pay a $50,000 penalty to settle the SEC’s charges.

According to the SEC’s order instituting a settled administrative proceeding, an investment company that maintains its securities and similar investments in the custody of a qualified bank must likewise keep in the bank’s custody other cash assets of the investment company.  The SEC’s order finds that Water Island Capital did not ensure that roughly $247 million in cash collateral held by broker-dealer counterparties was maintained with the funds’ custodial bank.  The cash collateral related to the funds’ investments in certain total return and portfolio return swaps.  

“Mutual funds must ensure that all fund assets are properly protected,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Water Island Capital failed to implement the required policies and procedures to ensure all cash collateral was held in the custody of the funds’ bank.”

The SEC’s order finds that in addition to causing violations of the custody requirements of Section 17(f)(5) of the Investment Company Act, Water Island Capital caused violations of Section 12 and Rule 12b-1(h) due to its failure to implement the funds’ directed brokerage policies and procedures, which required the firm to create and maintain an approved list of executing brokers for the funds as well as to monitor with documentation the funds’ compliance with the directed brokerage requirements.  Water Island Capital failed to create the list and failed to maintain documentation reflecting monitoring of the funds’ compliance pursuant to the funds’ policies and procedures.  The SEC’s order further finds that Water Island Capital caused the funds’ violations of Rule 38a-1 under the Investment Company Act.        

Water Island Capital consented to the SEC’s cease-and-desist order without admitting or denying the findings.

The SEC’s investigation was conducted by Celeste Chase and Osman Nawaz of the New York office, and the case was supervised by Amelia A. Cottrell.  The examination that led to the investigation was conducted by Joy Best, Melissa Dahle, William Maldonado, Edward Moy, and Dawn Blankenship of the New York office’s investment adviser/investment company examination program.

SEC.gov | Aligning the Interests of Company Executives and Directors with Shareholders

SEC.gov | Aligning the Interests of Company Executives and Directors with Shareholders

Joint Dissenting Statement Concerning Modifications to Previously-Adopted Regulation SBSR

Joint Dissenting Statement Concerning Modifications to Previously-Adopted Regulation SBSR