NEW SEC RULES TARGET POLITICAL PAYOFFS

Mary Shapirro and the SEC has made perhaps the boldest move yet in trying to impliment reforms to get some of the corruption out of our government. The following is an excerpt from the SEC meeting held on June 30, 2010:

Good Morning. This is an open meeting of the U.S. Securities and Exchange Commission on June 30, 2010.

Today we consider adopting rules that would significantly curtail the corrupting influence of "pay to play." Pay to play is the practice of making campaign contributions and related payments to elected officials in order to influence the awarding of lucrative contracts for the management of public pension plan assets and similar government investment accounts.

Pay to play distorts municipal investment priorities as well as the process by which investment managers are selected. It can mean that public plans and their beneficiaries receive sub-par advisory performance at a premium price.

The cost of this practice is borne by retired teachers, firefighters and other government employees relying on expected pension benefits, or by parents and students counting on a state-sponsored college savings account. And, ultimately, this cost can be borne by taxpayers, who may have to make up shortfalls when vested obligations cannot be met.

An unspoken, but entrenched and well-understood practice, pay to play can also favor large advisers over smaller competitors, reward political connections rather than management skill, and — as a number of recent enforcement cases have shown — pave the way to outright fraud and corruption.

There should be no place for such practices in an investment advisory industry subject to high fiduciary standards. The selection of investment advisers to manage public plans should be based on the best interests of the plans and their beneficiaries, not kickbacks and favors.

The rules we consider today will help level the playing field, allowing advisers of all sizes to compete for government contracts based on investment skill and quality of service.

Background
When the Commission first considered a proposal to curb adviser pay to play practices in 1999, it was, in part, motivated by widespread media accounts of dubious arrangements between fund managers and municipal officials.

In the years since, the amount of money at stake — and the incentive for inappropriate conduct — has ballooned. Public pension plans now represent one-third of all U.S. pension assets, with more than $2.6 trillion in assets under management.

Additionally, state-sponsored higher education savings plans — commonly known as "529s" — now hold approximately $100 billion in assets. These plans were in their infancy when the Commission first took up this issue in 1999.

The SEC has brought a series of enforcement actions charging investment advisers with participating in pay to play schemes. Most recently, we brought a civil action involving allegations of unlawful kickbacks paid in connection with investments by the New York State Common Retirement Fund.

In recent years, civil and criminal authorities also have brought cases in California, New York, New Mexico, Illinois, Ohio, Connecticut, and Florida, charging the same or similar conduct.

Our recent cases may represent just the tip of the iceberg. I fear that many other efforts to influence the selection of advisers to manage government plans pass unnoticed or — though highly suspect — cannot be proven to have crossed the line into actionable behavior.

Not surprisingly, parties to these suspect transactions take care to blur their motives, to hide their actions and to conceal their connections, making it difficult to prove a direct quid-pro-quo or an intent to curry favor in a specific case. The prophylactic rules we consider today are designed to eliminate this legal and ethical gray area.

Elements of the Rule
The rule we consider today has three key elements:

First, it would prohibit an adviser from providing advisory services for compensation — either directly or through a pooled investment vehicle — for two years, if the adviser or certain of its executives or employees make a political contribution to an elected official who is in a position to influence the selection of the adviser.
Second, the rule would prohibit an adviser and certain of its executives and employees from soliciting or coordinating campaign contributions from others — a practice referred to as "bundling" — for an elected official who is in a position to influence the selection of the adviser. It also would prohibit solicitation and coordination of payments to political parties, when the adviser is pursuing business from public entities.
Finally, and very importantly, the rule would prohibit an adviser from paying third-party solicitors who are not "regulated persons" subject to prohibitions against making contributions. Such "regulated persons" would be limited to registered investment advisers and to broker-dealers subject to pay to play restrictions.
Third party placement agents have been involved in some of the most egregious pay to play activities in recent years, and their activities should not continue unabated. The approach we are taking is a strong step toward eliminating the corruptive influence that can result from the use of third party placement agents.

It will greatly improve the status quo by banning payments to third parties who solicit government clients, unless they are "regulated persons" subject to pay to play restrictions comparable to the rule we are considering for adoption today.

This approach provides far greater protection of public pension plans and their beneficiaries than is currently the case, as third party placement agents come under the regulatory umbrella and, for the first time, become subject to meaningful federal pay to play restrictions.

This approach should effectively eliminate the opportunity for abuse that currently exists from third party placement agents. However, if the Commission determines that third party placement agents continue to inappropriately influence the selection of investment advisers for government clients — even under our enhanced rules — I expect that we would consider the imposition of a full ban on the use of these third parties.

Let me end by underscoring once again why we are here today. Pay to play practices are corrupt and corrupting. They run counter to the fiduciary principles by which funds held in trust should be managed. They harm beneficiaries, municipalities and honest advisers. And they breed criminal behavior. I hope my colleagues will join me today in striking a blow against a practice that has no legitimate place in our markets.

Before we hear more details about the rules we are considering for adoption, let me first offer my thanks to the individuals — representing a cross-section of four divisions and numerous offices — for their help in bringing to the table today a truly thoughtful, impressive and potent example of rulewriting."









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FORMER COUNTRYWIDE FINANCIAL CEO TO PAY 22.5 MIL. TO SETTLE CHARGES

The SEC released its settlement details with the former CEO of Countrywide Financial. Although this is just a punishment which amounts to a fine at least the SEC has done something whereas, the rest of the government is worried about cutting social programs for the elderly and even our veterans. The people who served our country directly though military service and those who worked hard all their lives and supported the government by paying social security and medicare taxes are again those who will have to pay the price for rampant fraud and abuse by con-men and paid off government officials.

The following is an excerpt from the SEC web pages regarding it's settlement with Countrywide Financial:

"Washington, D.C., Oct. 15, 2010 — The Securities and Exchange Commission today announced that former Countrywide Financial CEO Angelo Mozilo will pay a record $22.5 million penalty to settle SEC charges that he and two other former Countrywide executives misled investors as the subprime mortgage crisis emerged. The settlement also permanently bars Mozilo from ever again serving as an officer or director of a publicly traded company.

Mozilo’s financial penalty is the largest ever paid by a public company's senior executive in an SEC settlement. Mozilo also agreed to $45 million in disgorgement of ill-gotten gains to settle the SEC’s disclosure violation and insider trading charges against him, for a total financial settlement of $67.5 million that will be returned to harmed investors.

Former Countrywide chief operating officer David Sambol agreed to a settlement in which he is liable for $5 million in disgorgement and a $520,000 penalty, and a three-year officer and director bar. Former chief financial officer Eric Sieracki agreed to pay a $130,000 penalty and a one-year bar from practicing before the Commission. In settling the SEC’s charges, the former executives neither admit nor deny the allegations against them.

The penalties and disgorgement paid by Sambol and Sieracki will also be returned to harmed investors.

“Mozilo’s record penalty is the fitting outcome for a corporate executive who deliberately disregarded his duties to investors by concealing what he saw from inside the executive suite — a looming disaster in which Countrywide was buckling under the weight of increasing risky mortgage underwriting, mounting defaults and delinquencies, and a deteriorating business model,” said Robert Khuzami, Director of the SEC's Division of Enforcement.

John McCoy, Associate Regional Director of the SEC’s Division of Enforcement, added, “This settlement will provide affected shareholders significant financial relief, and reinforces the message that corporate officers have a personal responsibility to provide investors with an accurate and complete picture of known risks and uncertainties facing a company.”

The settlement was approved by the Honorable John F. Walter, United States District Judge for the Central District of California in a court hearing held today.

The SEC filed charges against Mozilo, Sambol, and Sieracki on June 4, 2009, alleging that they failed to disclose to investors the significant credit risk that Countrywide was taking on as a result of its efforts to build and maintain market share. Investors were misled by representations assuring them that Countrywide was primarily a prime quality mortgage lender that had avoided the excesses of its competitors. In reality, Countrywide was writing increasingly risky loans and its senior executives knew that defaults and delinquencies in its servicing portfolio as well as the loans it packaged and sold as mortgage-backed securities would rise as a result.

The SEC’s complaint further alleged that Mozilo engaged in insider trading in the securities of Countrywide by establishing four 10b5-1 sales plans in October, November, and December 2006 while he was aware of material, non-public information concerning Countrywide’s increasing credit risk and the risk regarding the poor expected performance of Countrywide-originated loans.

In addition to the financial penalties, Mozilo and Sambol consented to the entry of a final judgment that provides for a permanent injunction against violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. Mozilo also consented to the entry of a permanent officer and director bar, and Sambol consented to the entry of a three-year bar.

Sieracki agreed to a permanent injunction from further violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act, and consented to a one-year bar under the Commission’s Rule of Practice 102(e)(3).

The SEC investigation that led to the filing and settlement of this enforcement action was conducted by Michele Wein Layne, Spencer E. Bendell, Lynn M. Dean, Paris Wynn, and Sam Puathasnanon. Together with Associate Regional Director John M. McCoy, that same team has been handling the SEC’s litigation.

The SEC has filed many other enforcement actions involving mortgage-related securities and mortgage-related products linked to the financial crisis, including:

American Home Mortgage (4/28/2009)
Reserve Fund (5/05/2009)
Evergreen (6/08/2009)
New Century (12/07/2009)
Brookstreet (12/08/2009)
Goldman Sachs (4/16/2010)
Farkas/Taylor, Bean & Whitaker (6/16/2010)
ICP (6/21/2010)
Citigroup (7/29/2010)"

Angelo Mazilo was for many people in the press the very face of the slick, fast talking salesman and con-man who helped to fuel the housing bubble by making loans to everyone. Mr. Mazilo was in fact just one of many thousands of people who made millions by tweaking the truth. In fact, there have been so many big businessmen who committed fraud in this country that capitalism is becoming as big a failure here as communism was in the old Soviet Union. Our free enterprise system has been replaced by some toxic form of economics which rewards liars and frauds and punishes honest men of good character because they will not pay government officials for the right to conduct an honest business in the United States of America.

SEC ALLEGES FRAUD IN THE FOREX MARKET

Misrepresentation of facts has always been a real problem in the securities field. I've misrepresentations made by real estate companies, insurance companies and securities firms. I certainly have been duped by misrepresentations of various companies both as a client and as an agent of such businesses. As an agent of one such business I sold hundreds of thousands of dollars of fraudulent single premium life insurance policies along with IRAs. When the company in question was shut down I was devastated because I had been acting I thought in the best interests of my clients however, the corporate managers did not have such a lofty ambition in regards to being a good fiduciary of other peoples money.

It is good to see some criminal charges being filed in this case by the U.S. Attorney's office. However, it is unfortunate to see that like most Wall Street fraud schemes, the crimes only come to light when a company fails and litigants get access to the real financial statements.

Although these traders, if guilty, are clearly at fault for the fraud investors also must share some blame for their own losses. Various schemes to make lots of money with little risk are out there and can be perpetuated by anyone but, the old motto "Too Good to Be True" should be the first thing that comes into the mind of an investor when a Wall Street person comes to call on you.





The following is a case brought by the SEC against two Forex currency trader who allegedly mislead investors as to the safety of their principal. In addition, the SEC alleged that investor funds were diverted for personal use by the two traders. The following is an excerpt from the SEC governmental posting:

"Washington, D.C., Oct. 28, 2010 — The Securities and Exchange Commission today charged two foreign currency traders and their Boston-based company with operating a fraudulent scheme in which they sent investors misleading account statements while stealing their funds and incurring major trading losses.

Litigation Release No. 21712
SEC Complaint

The SEC alleges that Craig Karlis of Hopkinton, Mass., and Ahmet Devrim Akyil formerly of Hingham, Mass., fraudulently raised approximately $40 million from approximately 750 investors in a purported foreign currency (Forex) trading venture through their firm Boston Trading and Research LLC (BTR). Investors were falsely promised that BTR had a system in place to limit trading losses. BTR also falsely claimed to investors that "we do not profit unless you do" while in reality Karlis and Akyil were illegally diverting investor money for their own personal use as well as to fund BTR's operations and pay expenses for other companies with which they were associated.

"The bait was the promise by Akyil and Karlis to limit investor risk, and the switch was the theft and unauthorized trading that cost investors 90 percent of the invested funds," said Robert Khuzami, Director of the SEC's Division of Enforcement. "If you don't deliver what you promise and violate the securities laws, we will hold you accountable."

David Bergers, Director of the SEC's Boston Regional Office, added, "Akyil and Karlis secretly enriched themselves while many of the defrauded investors lost their retirement savings and financial security."

According to the SEC's complaint filed in federal court in Boston, for a minimum investment of $10,000, investors could deposit money with the BTR program. BTR used a website, sales representatives and live presentations by Karlis and Akyil to solicit funds from investors around the world. Investors provided Akyil with a limited power of attorney that granted him the right to direct the trading of their funds in the Forex market.

The SEC alleges that BTR's misrepresentations to investors included the following:

Investors would have 100 percent transparency about what was going on in their accounts through daily and monthly account statements and 24-hour access to real-time information about the trading Akyil was doing on their behalf.

Investors, through draw-down agreements, could lose no more than an agreed-upon percentage (typically 30 percent) of their investment.
The BTR trading system included an automatic stop-loss program that would curtail losses once they reached a certain percentage.

BTR and its principals would be paid from profits only.
The SEC alleges that BTR, through Akyil and with Karlis's knowledge, traded funds differently from what was disclosed in daily account statements to investors. The balance and equity positions that BTR provided investors on their account statements did not show that their funds had been diminished through BTR's use of investor money for undisclosed purposes. Meanwhile, Akyil and Karlis depleted the investment pool through misappropriation and trading losses far past the stop loss limits promised to investors. BTR collapsed in September 2008 and ultimately distributed the remaining funds to investors, which amounted to approximately 10 percent of their account balances.

The SEC's complaint charges Akyil, Karlis, and BTR with violating the antifraud and registration provisions of the federal securities laws, and seeks civil injunctions, the return of ill-gotten gains, and financial penalties.

Separately, the U.S. Attorney's Office for the District of Massachusetts today unsealed an indictment charging Akyil and Karlis with criminal violations based on the same misconduct. The SEC also acknowledges the assistance of the Commodity Futures Trading Commission."

It is good to see some criminal charges being filed in this case by the U.S. Attorney's office. However, it is unfortunate to see that like most Wall Street fraud schemes, the crimes only come to light when a company fails and litigants get access to the real financial statements.

Although these traders, if guilty, are clearly at fault for the fraud investors also must share some blame for their own losses. Various schemes to make lots of money with little risk are out there and can be perpetuated by anyone but, the old motto "Too Good To Be True" should be the first thing that comes to mind of an investor when a Wall Street person comes to call on you.

SOMETIMES GOVERNMENT OFFICIALS ARE FRAUDSTERS

All to often business is blamed for crimes which government officials routinely commit. The following excerpt from a recent case brought by the SEC is a good example of a case of government bureaucrats run amok:

Washington, D.C., Oct. 27, 2010 — The Securities and Exchange Commission today announced that four former San Diego officials have agreed to pay financial penalties for their roles in misleading investors in municipal bonds about the city's fiscal problems related to its pension and retiree health care obligations.

It's the first time that the SEC has secured financial penalties against city officials in a municipal bond fraud case.

The SEC settlement with the four former city officials requires the approval of U.S. District Judge Dana M. Sabraw in the Southern District of California.

The SEC filed charges in April 2008 against former San Diego City Manager Michael Uberuaga, former Auditor & Comptroller Edward Ryan, former Deputy City Manager for Finance Patricia Frazier, and former City Treasurer Mary Vattimo. The SEC alleged that the officials knew the city had been intentionally under-funding its pension obligations so that it could increase pension benefits but defer the costs. They also were aware that the city would face severe difficulty funding its future pension and retiree health care obligations unless new revenues were obtained, benefits were reduced, or city services were cut. However, despite this extensive knowledge, they failed to inform municipal investors about the severe funding problems in 2002 and 2003 bond disclosure documents.

"Municipal officials have a personal obligation to ensure that investors are provided with complete and accurate information about the issuer's financial condition," said Rosalind Tyson, Director of the SEC's Los Angeles Regional Office. "These former San Diego officials are paying a price for their actions that jeopardized the interests of investors and put the city's current and future retirees at risk."

The four former officials agreed to settle the SEC's charges without admitting or denying the allegations and consented to the entry of final judgments that permanently enjoin them from future violations of Securities Act of 1933 Section 17(a)(2). Under the settlement terms, Uberuaga, Ryan, and Frazier each pay a penalty of $25,000 and Vattimo pays a penalty of $5,000.

The SEC's charges against a fifth former city official — Assistant Auditor & Comptroller Teresa Webster — are still pending."

Honesty is something our society depends upon for it to function. When people lie about investments then soon potential investors will stop contemplating investing their money and will keep it in safe places which, causes an economic and societal downturn for all of us. The problem we have in America today is that many politicians and businessmen think that being dishonest is just a type of acceptable business practice which has no long term consequences for society and a very positive outcome for building personal riches.

HOME DEPOT & EXECUTIVES CHARGED WITH VIOLATION FAIR DISCLOSURE REGULATIONS

Below is an excerpt from the SEC website which exposes a case of insider trading brought against Home Depot. In this case two executives gave out information to only certain persons before the information was released to the general public. Insider information is a great way to make money and it is not as dangerous in terms of being caught as is a Ponzi scheme. Ponzi schemes are always found out because the money eventually runs out. Insider trading may be much harder to prove unless it is done in such an obvious way that an agency like the SEC has to notice. Take a look at the details in the following case and see how such details are common among many companies traded as public entities:

“The Securities and Exchange Commission today announced enforcement actions against Office Depot, Inc. and two executives for violating or causing violations of fair disclosure regulations when selectively conveying to analysts and institutional investors that the company would not meet analysts' earnings estimates. The SEC also charged Office Depot with unrelated accounting violations.


Regulation FD requires that when issuers disclose material nonpublic information, they must make broad public disclosure of that information. The SEC's orders find that as they neared the end of Office Depot's second quarter for 2007, CEO Stephen A. Odland and then-CFO Patricia A. McKay discussed how to encourage analysts to revisit their analysis of the company. Office Depot then made a series of one-on-one calls to analysts. The company did not directly state that it would not meet analysts' expectations, but rather this message was signaled with references to recent public statements of comparable companies about the impact of the slowing economy on their earnings. The analysts also were reminded of Office Depot's prior cautionary public statements. Analysts promptly lowered their estimates for the period in response to the calls. Office Depot did not regularly initiate these types of calls to all analysts covering the company.
Office Depot agreed to settle the SEC's charges without admitting or denying the findings and allegations, and will pay a $1 million penalty. Odland and McKay also agreed to settle the Regulation FD charges against them without admitting or denying the findings, and will pay $50,000 each.

"Office Depot executives selectively shared information with analysts and the company's largest shareholders in order to manage earnings expectations," said Robert Khuzami, Director of the SEC's Division of Enforcement. "This gave an unfair advantage to favored investors at the expense of other investors and, as today's action shows, is illegal."
"Talking Wall Street down from its earnings projections whether done expressly or through signals is prohibited," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "Regulation FD is designed to level the playing field so that all investors receive the information at the same time."

The SEC's administrative orders find that Odland, in an attempt to get analysts to lower their estimates, proposed to McKay that the company talk to the analysts and refer them to recent public announcements by two comparable companies about their financial results being impacted by the slowing economy. Odland further suggested that Office Depot point out on its calls what the company had said in prior public conference calls in April and May 2007. McKay then assisted Office Depot's investor relations personnel in preparing talking points for the calls.

According to the SEC's orders, Odland and McKay were not present during the calls but were aware of the analysts' declining estimates while the company made the calls. They encouraged the calls to be completed. Office Depot continued to make the calls despite McKay being notified of some analysts' concerns about the lack of public disclosure among other things. Six days after the calls began, Office Depot filed a Form 8-K announcing that its sales and earnings would be negatively impacted due to a continued soft economy. Before that Form 8-K was filed, Office Depot's share price had significantly dropped on increased trading volume.

In addition to their $50,000 payments, Odland and McKay consented to the entry of administrative orders requiring them to cease and desist from causing any violations and any future violations of Regulation FD and Section 13(a) of the Exchange Act.
Unrelated to these Regulation FD violations, the SEC also charged Office Depot with overstating its net earnings in its financial statements for the third quarter of 2006 through the second quarter of 2007 as a result of accounting violations. Office Depot prematurely recognized approximately $30 million in funds received from vendors in exchange for the company's merchandising and marketing efforts instead of recognizing the funds over the relevant reporting periods in a manner consistent with Generally Accepted Accounting Principles. In November 2007, the company restated those financials and announced a material weakness in its internal controls over financial reporting that resulted from the failure of its personnel responsible for negotiating agreements with vendors to communicate all of the relevant information to financial accounting personnel. The SEC did not charge Odland or McKay with any issues in connection with the restatement.

Office Depot has agreed to settle the SEC's charges by consenting to the entry of an administrative order requiring it to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 thereunder, and Regulation FD. Office Depot also consented to the entry of a judgment in a separate civil action that requires it to pay the $1 million penalty.”

It would be nice to be on the receiving end of financial information regarding a publicly traded company before that information was given over to the public. The fact that this goes on all the time is a reflection of the lack of severe penalties given to these fraudsters. As long as fraud is considered an honest business practice by the media, government and citizenry then it will continue.

RADIO HOST IN TROUBLE OVER INVESTMENT SCAM

Who would think that a talk radio host would lie let alone scam people? Well apparently they do. The following is a case brought by the SEC against a talk radio host and two of her accomplices:

“Washington, D.C., Oct. 7, 2010 — The Securities and Exchange Commission today charged a talk radio show host and two other executives at a Monterey, Calif.-based firm with misappropriating $2.5 million of approximately $7 million they raised through the fraudulent sale of interests in two real estate investment funds.

The SEC alleges that Barbra Alexander, the former president of APS Funding, used her status as host of an internationally-syndicated radio show for entrepreneurs called MoneyDots to lure investors who thought their money would be used to fund short-term loans secured by real estate. Alexander along with the firm's secretary/chief financial officer Beth Piña of Fairfield, Idaho, and vice president Michael E. Swanson of Seaside, Calif., instead stole investor money to pay themselves $1.2 million and finance MoneyDots and other unrelated businesses unbeknownst to investors. Alexander even used $200,000 of investor funds to remodel her kitchen.

"Alexander led investors to believe she would invest their money in secured real estate financing, but she and her cohorts merely used the money for their own benefit," said Marc J. Fagel, Director of the SEC's San Francisco Regional Office.

According to the SEC's complaint filed in federal district court in San Jose, Alexander, Piña and Swanson raised nearly $7 million from 50 investors for two investment funds managed by APS Funding. They claimed that the funds would make short-term secured loans to homeowners and yield 12 percent annual returns to investors. Contrary to what investors were told, $1.2 million of their money instead went directly to Alexander, Piña, and Swanson for personal use, and $1.3 million in investor funds was used to finance other businesses owned by Alexander and APS Funding, including MoneyDots.

The SEC further alleges that Alexander, Piña, and Swanson furthered the scheme by sending monthly account statements to investors reflecting fictitious profits and, in classic Ponzi scheme fashion, paying out purported returns that actually came from new investors.

The SEC's complaint charges Alexander, Piña, Swanson, and APS Funding with violating the antifraud provisions of the federal securities laws, and also charges Alexander, Swanson, and APS Funding with the unregistered sale of securities. The action seeks injunctive relief, disgorgement of ill-gotten gains, and monetary penalties.

In a related criminal proceeding announced today, the U.S. Attorney's Office for the Northern District of California filed criminal actions against Alexander, Piña, and Swanson based on the same alleged misconduct.
The SEC acknowledges the assistance of the U.S. Attorney's Office for the Northern District of California, the Federal Bureau of Investigation, and the Monterey County District Attorney's Office.”

What type of scheme will talk radio and TV hosts think of next? Maybe it will be investing in gold and silver. As an investor in gold and silver over the past 30 years I will tell you that most of the stuff sold on TV, Radio and through the want ads of publications is a scam. The best way to buy gold and silver is by buying proof coins directly from the government. That way you have some guarantee that the coins are not just gold or silver plated. I have purchased counterfeit coins from dealers and I was not very happy when I realized that they had stolen my money.