CFTC ORDERS POOL OPERATOR TO PAY $100,000 PENALTY

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

CFTC Orders Tennessee-based Commodity Pool Operator Hope Advisors LLC to Pay a $100,000 Civil Monetary Penalty for Registration and Reporting Violations

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today entered an Order requiring Hope Advisors LLC (HAL), a Brentwood, Tennessee, Commodity Pool Operator (CPO), to pay a $100,000 civil monetary penalty for acting as a CPO without registering with the CFTC, as required, and for providing monthly statements to pool participants that failed to show all the information required by Commission Regulation.

Registration Violations

The Order finds that HAL operates Hope Investments LLC (HIL) as a commodity pool. However, it commenced operating HIL in March 2011 and continued to operate HIL through January 23, 2013, without the benefit of registration with the CFTC as a CPO, in violation of the registration provisions of the Commodity Exchange Act. These provisions ensure that persons dealing in commodities meet certain minimum financial and fitness requirements, and enable the CFTC to monitor the trading activities of market members, the Order states.

Regulation 4.22(d) Reporting Deficiencies

In addition, the CFTC Order states that the principal purpose of financial reporting required by CFTC Regulation 4.22(d) is to ensure that pool participants receive accurate, fair, and timely information on the overall trading performance and financial condition of the pool.  According to the Order, as relevant here, Regulation 4.22(d) requires that commodity pool statements report both realized and unrealized gains and losses; however, the Order states that HAL was providing monthly reporting statements to HIL participants that showed only realized gains and losses.

According to the Order, HAL learned it was required to register as a CPO in August 2012, and thereafter undertook the registration process; it has been registered in that capacity since January 24, 2013. HAL also took remedial action to correct the monthly pool statements it sent to pool participants, by retaining a consultant, who designed a compliant performance report that HAL sends to participants each month. The Order also states that as of August 2013, HAL began issuing two monthly reports to HIL participants, one showing realized gains/losses, and a second based on net asset value showing realized and unrealized gains and losses that complies with the specific Commission reporting regulations. According to the Order, no customers were injured by any of the previous omissions.

The following CFTC Division of Enforcement staff members are responsible for this case: Diane M. Romaniuk, Ava M. Gould, Judith McCorkle, Scott R. Williamson, and Rosemary Hollinger.

The CFTC appreciates the assistance of the National Futures Association.

SEC CHARGES OIL COMPANY, FOUNDER WITH SECURITIES FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23239 / April 10, 2015

Securities and Exchange Commission v. Mieka Energy Corporation, et al., Civil Action No. 3:15-cv-01097-K (N.D. Tex. Dallas Division)

SEC Charges Texas Oil Company and Its Founder with Securities Fraud

On April 10, 2015, the Securities and Exchange Commission charged Mieka Energy Corporation of Flower Mound, Texas, and its founder and president Daro Ray Blankenship, with fraudulently offering oil and gas-related investments. The SEC also charged Mieka's publicly traded parent company, Vadda Energy Corporation, with fraud and reporting violations for deceptively touting the success of Mieka's investments. Two of Mieka's salesmen, Robert William Myers, Jr. and Stephen Romo, were charged with acting as unregistered brokers.

The SEC alleges that, between September 2010 and October 2011, Blankenship and Mieka raised $4.4 million from approximately 60 investors by selling interests in joint ventures that were to drill and complete two gas wells. The SEC further alleges that, in truth, Blankenship immediately spent all of the offering proceeds on unrelated expenses and projects, leaving no money to drill one of the promised wells, or complete the other well. Blankenship then misled investors about these facts through deceptive "investor update" newsletters and misleading public filings by Vadda, which he signed and certified.

Romo and Myers participated in the scheme by marketing and selling the joint venture interests to the public - for which they together received approximately $190,000 in commissions - without being registered as broker-dealers, or associated with any SEC-registered broker-dealer.

The complaint charges Blankenship and Mieka with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. Vadda is charged with violating Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder. Blankenship also faces charges under Exchange Act Rule 13a-14, and for aiding and abetting and being a control person of Mieka and Vadda's violations. The SEC accuses Romo and Myers of violating Section 15(a) of the Exchange Act. The SEC seeks permanent injunctions against all defendants, as well as civil penalties, disgorgement of ill-gotten gains with prejudgment interest, and a bar against Blankenship ever serving as an officer and director of a public company.

The SEC's investigation was conducted by Jeffrey Cohen, Keith Hunter and Jessica Magee of the SEC's Fort Worth Regional Office. David Reece will lead the litigation.

ALLEGED PERPETRATOR OF COLLAPSED PONZI SCHEME CHARGED BY SEC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23240 / April 13, 2015

Securities and Exchange Commission v. James A. Evans, Jr., d/b/a Cashflowbot.com, d/b/a DollarMonster, Civil Action No. 1:15-cv-01118-RWS (Northern District of Georgia)

SEC Charges Georgia Resident with Engaging in a Ponzi Scheme

The Securities and Exchange Commission filed charges against the perpetrator of a Ponzi scheme that raised money from more than 3,000 investors between January 2012 and April 2014.

According to the SEC's complaint filed in federal court in the Northern District of Georgia, James A. Evans, Jr., who lives in Villa Rica, Georgia, operating a website at the domain name "Cashflowbot.com," and using the business name "DollarMonster", falsely promoted DollarMonster as a "private fund" where investors could make "big profits." Among other things, Evans misrepresented to investors that DollarMonster: (a) paid out investment returns that exceeded the amount of money investors had contributed to the fund; (b) was a "financial advisor" with more than 120 management teams and $38 million in assets under management; (c) managed a hedge fund that purchased stocks on behalf of investors in the fund; (d) was a "private Holding Company" that invested in assets such as gold, silver, real estate, stocks and bonds, and (e) had used investor funds to profitably invest in stocks with a market value of $3.2 million.

The complaint alleges that Evans raised approximately $1.15 million from investors. He redistributed approximately $1.06 million to investors as purported investment returns, and withdrew approximately $30,405 for his own personal use. Ultimately, Evans' scheme collapsed.

The SEC's complaint alleges that Evans violated the registration and antifraud provisions of the federal securities laws: Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 206(4) of the Investment Advisers Act of 1934. The complaint seeks a permanent injunction, disgorgement with prejudgment interest and civil monetary penalties pursuant to Sections 21(d)(3) of the Exchange Act and Section 209(e) of the Advisers Act.

MAN ORDERED TO PAY OVER $3 MILLION FOR ALLEGED ROLE IN STOCK MANIPULATION SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23234 / April 8, 2015

Securities and Exchange Commission v. 8000, Inc., Jonathan E. Bryant, Thomas J. Kelly, and Carl N. Duncan, Esq., Civil Action No. 12-civ-7261

Court Orders U.K. Man to Pay More Than $3 Million in U.S. Stock Manipulation Scheme

The Securities and Exchange Commission announced today that on April 7, 2015, the U.S. District Court for the Southern District of New York entered a final judgment against Jonathan E. Bryant of Crewe, Cheshire, United Kingdom which ordered Bryant to pay a total of $3,168,184.70 in a stock manipulation case filed by the Commission in 2012. Bryant is the Chief Executive Officer of 8000, Inc., a now defunct Virginia-based company. The Commission alleges that, in 2009 and 2010, Bryant directed a scheme to inflate 8000, Inc.'s stock price while secretly controlling a majority of the company's shares and directing its operations.

In addition to Bryant, the Commission's complaint, filed on September 27, 2012, also charged 8000, Inc., the company's former Chief Executive Officer, Thomas Kelly of Levittown, Pennsylvania, and the company's attorney, Carl N. Duncan of Bethesda, Maryland. The complaint alleged that the defendants participated in a scheme to manipulate the trading volume and price of 8000 Inc.'s common stock by disseminating false information about the company and simultaneously selling or facilitating the sale of its securities which were not supposed to be for sale to the general public. According to the complaint, from November 2009 through October 2010, Bryant and Kelly disseminated financial reports and press releases falsely representing that 8000, Inc. had millions of dollars in capital financing and revenues when, in fact, the company had neither. As 8000, Inc.'s stock price rose based on the false information they were disseminating, Bryant profited by selling 56.8 million "restricted" shares of 8000, Inc. into the market. Because the shares were restricted, they should not have been sold into the market at that time. The complaint alleged that Duncan provided false legal opinions removing the trading restrictions on the stock, and that Kelly profited from the scheme by buying and selling the company's securities in the secondary market. The complaint alleged that the defendants' scheme increased the volume of trading in 8000, Inc. by 93% and the company's stock price from less than $0.01 per share to $0.42 per share between November 2009 and October 2010.

Bryant consented to the entry of this final judgment. The final judgment permanently enjoins Bryant from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The final judgment also orders Bryant to disgorge the $2,969,525 in profits that he realized from selling 8000, Inc.'s restricted securities and to pay $198,659.70 in pre-judgment interest. Additionally, the final judgment bars Bryant from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, and permanently bars him from participating in an offering of a penny stock.

The final judgment against Bryant follows a judgment by consent that the court entered against Kelly on June 6, 2013, which permanently enjoins Kelly from violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. It also permanently bars Kelly from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, and permanently bars him from participating in an offering of a penny stock. On September 2, 2014, after a hearing, the court ordered Kelly to pay $415,569 in profits that he realized from trading in 8000 Inc.'s securities in the secondary market and to pay $46,697 in pre-judgment interest.

Duncan agreed to settle the Commission's action at the time it was filed. In December 2012, the court entered a final judgment against Duncan that permanently enjoins Duncan from violating Sections 5(a), 5(c), and 17(a)(2) of the Securities Act, permanently enjoins him from participating in the preparation and issuance of certain opinion letters, bars him from participating in an offering of a penny stock, and ordered him to disgorge $15,570 in unlawful proceeds and to pay $524.98 in prejudgment interest and a $25,000 civil money penalty. Duncan also consented to an administrative order issued pursuant to Rule 102(e)(3) of the Commission's Rules of Practice permanently suspending him from appearing or practicing before the Commission as an attorney.

The Commission's motion for a default judgment against 8000, Inc. is pending.

U.S. CFTC AND AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY SIGN MEMORANDUM OF UNDERSTANDING

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

April 13, 2015

U.S. Commodity Futures Trading Commission and Australian Prudential Regulation Authority Sign Memorandum of Understanding to Enhance Supervision of Cross-Border Regulated Firms

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) announced today that CFTC Chairman Tim Massad and Australian Prudential Regulation Authority (APRA) Chairman Wayne Byres have signed a Memorandum of Understanding (MOU) regarding cooperation and the exchange of information in the supervision and oversight of regulated firms that operate on a cross-border basis in the United States and in Australia.

Through the MOU, the CFTC and APRA express their willingness to cooperate in the interest of fulfilling their respective regulatory mandates. The scope of the MOU includes swap dealers and major swap participants.

SEC BRINGS FRAUD CHARGES AGAINST COMPANY CONTROLLER IN RECORDS MANIPULATION CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced fraud charges against the former controller of a suburban Chicago company’s Japanese subsidiary who cost his company millions of dollars in trading losses and manipulated accounting records to avoid detection.

The SEC alleges that Katsuichi Fusamae, who was a senior accounting officer at Molex Japan Co. Ltd., engaged in unauthorized equity trading in the company’s brokerage accounts that resulted in losses of more than $110 million.  He concealed the massive trading losses by taking out unauthorized and undisclosed company loans with Japanese banks and brokerage firms, and he used loan proceeds to replenish account balances and engage in additional trading.  When Fusamae’s long-running scheme came to light and the parent company Molex Incorporated restated its financial statements in 2010, it recognized $201.9 million in cumulative net losses, which included both trading losses and borrowing costs from the unauthorized loans.

Fusamae agreed to settle the SEC’s charges by admitting wrongdoing and accepting a permanent bar from serving as an officer or director of a publicly traded company.  Possible monetary sanctions will be determined by the court at a later date.

Molex Incorporated, which is based in Lisle, Ill., and designs, manufactures, and sells electronic components, agreed to a cease-and-desist order finding that the company filed inaccurate financial statements as a result of Fusamae’s fraud.  Molex also failed to maintain accurate books and records and sufficient internal accounting controls.

“Fusamae took advantage of internal control weaknesses at Molex to falsify records, monopolize the flow of information from banks and broker-dealers, and circumvent external and internal audit processes.  His actions left Molex shareholders in the dark about the company’s true financial condition,” said Timothy L. Warren, Associate Director of the SEC’s Chicago Regional Office.

According to the SEC’s complaint filed in U.S. District Court for the Northern District of Illinois, Fusamae’s scheme began in the late 1980s when he began investing Molex Japan’s excess cash in riskier securities, including substantial trading of equities on margin. No one at Molex or Molex Japan authorized Fusamae to engage in the riskier trading, nor were they aware of his trading activities.  Shortly after Fusamae started his unauthorized trading, Molex Japan began suffering substantial losses on Fusamae’s investments.  Fusamae falsified Molex accounting records and general ledger entries and intentionally utilized dormant general ledger accounts to conceal the unauthorized and undisclosed trading as well as the concealed borrowing.  At the peak of his scheme, Molex Japan had accumulated approximately $222 million in unauthorized loan obligations as a result of Fusamae’s misconduct.  Molex consequently filed financial statements that failed to account for the trading losses and unauthorized loans.

The SEC’s complaint charges Fusamae with violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1.  Fusamae also is charged with aiding and abetting Molex’s violations of Section 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13.  In addition to the officer-or-director bar, the settlement permanently enjoins Fusamae from future violations and provides the court with the authority to determine whether he obtained any ill-gotten gains and whether disgorgement is appropriate.  The settlement is subject to court approval.

The SEC’s order against Molex finds that the company violated Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13.  Molex neither admits nor denies the findings.

The SEC’s investigation was conducted by Jeffrey A. Shank and Kevin A. Wisniewski in the Chicago Regional Office.  The SEC’s litigation related to disgorgement will be led by Daniel J. Hayes.