CITIGROUP TO PAY $185 MILLION TO SETTLE CHARGES

The following excerpt is from the SEC website: “Washington, D.C., Oct. 19, 2011 – The Securities and Exchange Commission today charged Citigroup’s principal U.S. broker-dealer subsidiary with misleading investors about a $1 billion collateralized debt obligation (CDO) tied to the U.S. housing market in which Citigroup bet against investors as the housing market showed signs of distress. The CDO defaulted within months, leaving investors with losses while Citigroup made $160 million in fees and trading profits. The SEC alleges that Citigroup Global Markets structured and marketed a CDO called Class V Funding III and exercised significant influence over the selection of $500 million of the assets included in the CDO portfolio. Citigroup then took a proprietary short position against those mortgage-related assets from which it would profit if the assets declined in value. Citigroup did not disclose to investors its role in the asset selection process or that it took a short position against the assets it helped select. Citigroup has agreed to settle the SEC’s charges by paying a total of $285 million, which will be returned to investors. The SEC also charged Brian Stoker, the Citigroup employee primarily responsible for structuring the CDO transaction. The agency brought separate settled charges against Credit Suisse’s asset management unit, which served as the collateral manager for the CDO transaction, as well as the Credit Suisse portfolio manager primarily responsible for the transaction, Samir H. Bhatt. “The securities laws demand that investors receive more care and candor than Citigroup provided to these CDO investors,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Investors were not informed that Citgroup had decided to bet against them and had helped choose the assets that would determine who won or lost.” Kenneth R. Lench, Chief of the Structured and New Products Unit in the SEC Division of Enforcement, added, “As the collateral manager, Credit Suisse also was responsible for the disclosure failures and breached its fiduciary duty to investors when it allowed Citigroup to significantly influence the portfolio selection process.” According to the SEC’s complaints filed in U.S. District Court for the Southern District of New York, personnel from Citigroup’s CDO trading and structuring desks had discussions around October 2006 about the possibility of establishing a short position in a specific group of assets by using credit default swaps (CDS) to buy protection on those assets from a CDO that Citigroup would structure and market. After discussions began with Credit Suisse Alternative Capital (CSAC) about acting as the collateral manager for a proposed CDO transaction, Stoker sent an e-mail to his supervisor. He wrote that he hoped the transaction would go forward and described it as the Citigroup trading desk head’s “prop trade (don’t tell CSAC). CSAC agreed to terms even though they don’t get to pick the assets.” The SEC alleges that during the time when the transaction was being structured, CSAC allowed Citigroup to exercise significant influence over the selection of assets included in the Class V III portfolio. The transaction was marketed primarily through a pitch book and an offering circular for which Stoker was chiefly responsible. The pitch book and the offering circular were materially misleading because they failed to disclose that Citigroup had played a substantial role in selecting the assets and had taken a $500 million short position that was comprised of names it had been allowed to select. Citigroup did not short names that it had no role in selecting. Nothing in the disclosures put investors on notice that Citigroup had interests that were adverse to the interests of CDO investors. According to the SEC’s complaints, the Class V III transaction closed on Feb. 28, 2007. One experienced CDO trader characterized the Class V III portfolio in an e-mail as “dogsh!t” and “possibly the best short EVER!” An experienced collateral manager commented that “the portfolio is horrible.” On Nov. 7, 2007, a credit rating agency downgraded every tranche of Class V III, and on Nov. 19, 2007, Class V III was declared to be in an Event of Default. The approximately 15 investors in the Class V III transaction lost virtually their entire investments while Citigroup received fees of approximately $34 million for structuring and marketing the transaction and additionally realized net profits of at least $126 million from its short position. The SEC alleges that Citigroup and Stoker each violated Sections 17(a)(2) and (3) of the Securities Act of 1933. While the SEC’s litigation continues against Stoker, Citigroup has consented to settle the SEC’s charges without admitting or denying the SEC’s allegations. The settlement is subject to court approval. Citigroup consented to the entry of a final judgment that enjoins it from violating these provisions. The settlement requires Citigroup to pay $160 million in disgorgement plus $30 million in prejudgment interest and a $95 million penalty for a total of $285 million that will be returned to investors through a Fair Fund distribution. The settlement also requires remedial action by Citigroup in its review and approval of offerings of certain mortgage-related securities. The SEC instituted related administrative proceedings against CSAC, its successor in interest Credit Suisse Asset Management (CSAM), and Bhatt. The SEC found that as a result of the roles that they played in the asset selection process and the preparation of the pitch book and the offering circular for the Class V III transaction, CSAM and CSAC violated Section 206(2) of the Investment Advisers Act of 1940 (Advisers Act) and Section 17(a)(2) of the Securities Act and that Bhatt violated Section 17(a)(2) of the Securities Act and caused the violations of Section 206(2) of the Advisers Act by CSAC. Without admitting or denying the SEC’s findings, CSAM and CSAC consented to the issuance of an order directing each of them to cease and desist from committing or causing any violations, or future violations, of Section 206(2) of the Advisers Act and Section 17(a)(2) of the Securities Act and requiring them to pay disgorgement of $1 million in fees that it received from the Class V III transaction plus $250,000 in prejudgment interest, and requiring them to pay a penalty of $1.25 million. Without admitting or denying the SEC’s findings, Bhatt consented to the issuance of an order directing him to cease and desist from committing or causing any violations or future violations of Section 206(2) of the Advisers Act and Section 17(a)(2) of the Securities Act and suspending him from association with any investment adviser for a period of six months.”

SEC FILES INJUNCTIVE ACTION AGAINST PENNY STOCK DEALER

The following is an excerpt from the SEC website: “On October 14, 2011, the Securities and Exchange Commission (“Commission”) filed a Complaint for Injunctive and Other Relief (“Complaint”) in the United States District Court for the Middle District of Florida in Tampa against Joseph P. Cillo (“Cillo”). This matter involves repeated violations of a penny stock bar by Cillo over a three year period from December 2007 through December 2010. The Complaint alleges that in November 2007, through a reverse merger with a penny-stock shell company, Cillo became the CEO and controlling shareholder of eFUEL EFN Corp. (“eFUEL”), a purported web development company then based in Tampa, Florida and listed on the OTC Market Group’s “OTC Pink” market tier (formerly the “Pink Sheets”) under the symbol “EFUL.” It further alleges that in connection with an ongoing market manipulation investigation involving eFUEL and other related entities and individuals, the SEC determined that Cillo engaged in various activities related to, and for the purpose of, issuing, trading, and inducing the purchase of eFUEL’s stock. Specifically, Cillo (1) offered and/or issued hundreds of millions of shares of eFUEL stock to third-parties as purported payment for debts and services, (2) drafted and approved multiple press releases touting the company’s business plan and development prospects, and (3) prepared, signed, and submitted periodic reports to the OTC Markets Group in order to comply with the Pink Sheets’ minimal requirements for “adequate current information.” These activities constituted violations of a 1995 Commission order barring Cillo from participating in the offering of any penny stock. The Complaint alleges that the defendant has violated Sections 21(d)(1) and (e) of the Securities Exchange Act of 1934 (“Exchange Act”) based on his violations of the previous Commission order and Section 15(b)(6)(B)(i) of the Exchange Act. The Commission seeks permanent injunctive relief, an order commanding future compliance with the Commission’s bar, disgorgement plus prejudgment interest, and civil penalties.”

SEC VOTES TO PROPOSE RULES FOR SECURITY- BASED SWAP DEALERS AND SWAP PARTICIPANTS REQUIRING REGISTRATION WITH THE COMMISSION

The following is an excerpt from the SEC website: “Washington, D.C., Oct. 12, 2011 - The Securities and Exchange Commission today voted to propose rules that lay out the process by which security-based swap dealers and security-based swap participants must register with the Commission. The rules stem from Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. "Registering the major market participants in the largely unregulated security-based swap markets is a critical step toward better protecting investors," SEC Chairman Mary L. Schapiro said in her remarks during today's SEC open meeting. "Today's proposal draws from our experience with registration rules regarding broker-dealers - rules that are familiar to many market participants." Public comments on the SEC's proposal should be submitted within 60 days after it is published in the Federal Register. # # # FACT SHEET Background In 2010, Congress passed the Dodd-Frank Act that established a comprehensive framework for regulating the over-the-counter swaps markets. Title VII of that Act divides regulatory authority over swaps between the SEC and the Commodity Futures Trading Commission (CFTC). Under the law, the SEC has authority over “security-based swaps,” which are broadly defined as swaps based on (1) a single security or (2) a loan or (3) a narrow-based group or index of securities or (4) events relating to a single issuer or issuers of securities in a narrow-based security index. The CFTC, on the other hand, has primary regulatory authority over all other swaps. In creating the new regulatory regime, Title VII envisions that some individuals or entities will act as dealers of security-based swaps, while others will be major participants in a transaction. As such, the Dodd-Frank Act mandates that anyone acting as either a “security-based swaps dealer” or “major security-based swaps participant” must first be registered with the SEC. Consequently, the Dodd-Frank Act authorizes the SEC to issue rules setting out the registration process for these security-based swap entities. Separately, the SEC has previously proposed rules together with the CFTC and in consultation with the Board of Governors of the Federal Reserve System further defining the terms “security-based swap dealer” and “major security-based swap participant.” The SEC and the CFTC are considering comments to that proposal. The Proposal Electronic Filing Under the proposed rules, security-based swap dealers and major security-based swap participants (collectively, security-based swap entities) would register with the Commission by electronically filing a new form, Form SBSE. The new form is based on the broker-dealer registration form, Form BD. Security-based swap entities that are registered or registering with the CFTC would be able to register with the SEC by filing a shorter form with the SEC (Form SBSE-A) together with a copy of the form they file with the CFTC. Similarly, those security-based swaps entities that are registered with the Commission as broker-dealers also would be able to file a shorter form (Form SBSE-BD). Other Requirements In addition, the proposed rule would require the security-based swap entities to: Promptly update their forms if the forms become inaccurate. Have a knowledgeable, senior officer provide a certification as to the firm’s financial, operational and compliance capabilities to the Commission within a specified timeframe. Obtain and retain certain information from each of its associated persons that are involved in effecting security-based swaps, and have its Chief Compliance Officer certify that no such associated person is “statutorily disqualified.” The proposed rule also would also require each security-based swap entity that resides outside the U.S. to: Identify a U.S. agent who can accept legal documents on behalf of the company. Certify and submit an opinion of counsel that the non-U.S. entity is able to provide the SEC with access to its books and records and submit to on-site inspections and examination by the SEC. Conditional Registration The proposed rule seeks to avoid potential business disruptions by establishing a conditional registration process that allows security-based swap entities to register on a conditional basis. The proposed conditional registration process, for example, recognizes that the registration rules may require some security-based swap entities to register before the Commission has finalized the full panoply of rules relating to security-based swaps. In addition, the proposed rules recognize that depending on the outcome of the proposal relating to the further definition of the term “major security-based swap participant,” major security-based swap participants may need to quickly register after performing a look-back calculation if they meet the definition of major security-based swap participant. After registering conditionally, a security-based swap dealer or major security-based swap participant could later seek to be permanently registered by filing a certification within a specified time period. What’s Next The proposed rule will be published in the Federal Register with a 60-day public comment period. The Commission will then review the comments it receives and consider those comments in determining whether to adopt the proposed rules.”

SEC COMMISSIONER AGUILAR SPEAKS ABOUT BANKS AND FINANCIAL CRISIS

The following excerpt is from the SEC website: The following excerpt is from the SEC website: SEC Open Meeting Washington, D.C. October 12, 2011 “In the years leading up to the financial crisis, the largest banks in America came to rely on proprietary trading to generate an ever greater percentage of their revenues.1 The financial crisis subsequently demonstrated how this trading contributed to the banks’ vulnerability, and put the American financial system at risk. As market conditions deteriorated, trading losses increased exponentially and undermined the banks’ capital.2 No one can forget that the banks were rescued from the brink of failure by the commitment of hundreds of billions of taxpayer dollars. Also, as a recent Commission case demonstrated, propriety trading creates the opportunity for banking entities to increase their profits by misusing client trade information.3 To mitigate systemic risk, rein in the speculative activities of banks, and realign the interests of banks with those of their customers, Paul Volcker and many others advocated for new prohibitions. As Paul Volcker explained, “Hedge funds, private equity funds, and trading activities unrelated to customer needs and continuing banking relationships should stand on their own, without the subsidies implied by public support for depository institutions.”4 In response, Congress added Section 619 to the Dodd-Frank Act – popularly known as the “Volcker Rule.”5 This section requires the Commission, the federal banking regulators, and the CFTC to adopt consistent rules to prohibit banking entities6 from engaging in proprietary trading and from owning or sponsoring certain private funds, while permitting specified activities, including market-making, underwriting, and risk-mitigating hedging.7 Crafting a rule to achieve the objectives set by Congress presents a considerable challenge. The statute does not contain an outright ban on all propriety trading – rather it permits certain principal trades while banning others. Giving life to this provision is not easily done and, as reflected in numerous press reports, there are different, and strongly held, views about the approach that should be taken. I look forward to receiving comments that will enable us to craft a final rule that will meet the objectives of the Dodd-Frank Act. In closing, I would like to thank the staff for their hard work over many months on this proposal. 1 Sen. Jeff Merkley & Sen. Carl Levin, The Dodd-Frank Act Restrictions on Proprietary Trading and Conflicts of Interest: New Tools to Address Evolving Threats, 48 Harv. J. on Legis. 515, 522 (“Trading revenues at the largest banks had increased from under fifteen percent of net operating revenues in 2004 to nearly thirty percent at the start of the crisis.”). 2 Id. (“[I]n the fourth quarter of 2007 losses from trading almost entirely offset positive net operating revenues from all other sources combined, with trading losses equaling nearly 250 percent of net operating revenue, devastating the capital bases of many firms.”) 3 See, e.g., In the Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Exchange Act Release No. 63760 (Jan. 25, 2011) (The Commission fined Merrill Lynch $10 million for misusing customer order information and for charging improper mark-ups and mark-downs on riskless principal trades), available at http://sec.gov/litigation/admin/2011/34-63760.pdf. 4 Statement of Paul A. Volcker Before the Committee on Banking, Housing, and Urban Affairs of the United States Senate, at 1-2 (Feb. 2, 2010), available at http://banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=ec787c56-dbd2-4498-bbbd-ddd23b58c1c4. 5 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203 § 619 (2010). 6 For purposes of the Volcker Rule, a “banking entity” is any insured depository institution, any company that controls a depository institution, any bank holding company, and any affiliate or subsidiary of any of these entities. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203 § 619(h)(1) (2010). 7 With respect to trading as a principal, banking entities may, among other things, engage in underwriting or market-making activities to the extent that these activities do not exceed the reasonably expected near term demands of clients, customers, or counterparties. Banking entities may also engage in risk-mitigating hedging. With respect to sponsoring or investing in private funds, a banking entity may do so only with respect to the provision of bona fide trust, fiduciary, or investment advisory services and only if it holds no more than a de minimus investment in the fund. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203 § 619(d)(1) (2010).”

SEC VOTED TO PROPOSE RULE TO IMPLEMENT VOLKER RULE REQUIREMENTS

The following is an excerpt from the SEC website: Washington, D.C., Oct. 12, 2011 - The Securities and Exchange Commission today voted to propose a rule implementing the so-called "Volcker Rule" requirements. The requirements stem from Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The SEC is issuing the proposal jointly with the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of the Comptroller of the Currency. "This proposal is intended to curb the proprietary trading of commercial banks in order to reduce potential conflicts between the banks' own interests and the interests of their customers," said SEC Chairman Mary L. Schapiro. # # # FACT SHEET Background Section 619 of the Dodd-Frank Act, among other things, generally prohibits two activities of banking entities. It prohibits federally insured depository institutions and their affiliates (banking entities) from engaging in short-term proprietary trading of any security, derivative, and certain other financial instruments for a banking entity’s own account. It prohibits owning, sponsoring, or having certain relationships with a hedge fund or private equity fund. To implement Section 619, the SEC is considering – along with other financial regulators – a proposal that would clarify the scope of the section’s prohibitions and, consistent with statutory authority, provide certain exemptions. The Proposal Under the proposed rule, banking entities would be required to establish an internal compliance program subject to supervisory oversight and designed to ensure and monitor compliance with the prohibitions and restrictions of Section 619. The proposal also would require firms with significant trading operations to report to the appropriate federal supervisory agency certain quantitative measurements designed to assist the supervisory agency and banking entities in identifying prohibited proprietary trading from permitted activities. At the same time, the proposal would exempt transactions in certain instruments from the prohibition on proprietary trading, including obligations of: The U.S. government or a U.S. government agency The government-sponsored enterprises State and local governments Additionally, the proposal would exempt activities such as: Market making Underwriting Risk-mitigating hedging Notwithstanding the general prohibition on investments in and certain relationships with hedge funds and private equity funds, the statute contains several exemptions. The proposal, for example, would exempt: Organizing and offering a hedge fund or private equity funds under certain conditions, including limiting investments in such funds to a de minimus amount. Making risk-mitigating hedging investments. Making investments in certain non-U.S. funds. The jointly-proposed rule includes regulatory commentary intended to assist banking entities in distinguishing permitted market making-related activities from prohibited proprietary trading activities, and in identifying permitted activities in hedge funds and private equity funds. It also includes a number of elements intended to reduce the effect of the proposal on smaller, less-complex banking entities. For example, the proposal limits the extent to which smaller banking entities are required to report quantitative measurements.”

PROGRESSIVE ENERGY PARTNERS GUY GETS COMPLAINT FROM SEC

OCTOBER 12, 2011 “On October 11, 2011, the Securities and Exchange Commission ("Commission") filed a complaint alleging that Jerry L. Aubrey used his now-defunct company Progressive Energy Partners, LLC ("PEP") to contact investors through cold calls and high-pressure sales tactics. PEP salespeople falsely claimed that investors' money would be used to develop and support oil and gas wells in West Virginia. Investors were misled to believe they could expect annual returns of greater than 50 percent. The Commission also charged Jerry Aubrey's brother and two PEP salesmen in its complaint filed in U.S. District Court in Orange County, California. The Commission's complaint alleges that PEP never engaged in any profitable business operations. Instead, from approximately 2005 to April 2010, Jerry Aubrey paid existing investors with money raised from new investors. The Commission's complaint also alleges that Jerry Aubrey and his brother Timothy J. Aubrey diverted more than $3.2 million of investor funds for their personal use, including: Rent for the Aubrey family's lavish house equipped with giant fish aquariums with miniature sharks, a hot tub, pool, and tennis court. Box seats at Los Angeles Lakers basketball games and limousine rides to and from the games. Vacations to Hawaii, Las Vegas, and Palm Springs. According to the Commission's complaint, Jerry and Timothy Aubrey and PEP salesmen Brian S. Cherry and Aaron M. Glasser failed to inform investors that up to 35 percent of their money would be used to pay sales commissions. Jerry Aubrey paid more than $2.2 million in commissions to PEP salespeople. Glasser received nearly $750,000 and Cherry received more than $300,000. Jerry Aubrey is currently serving a five-year sentence in Florida state prison for a securities fraud he perpetrated in Florida. The Commission's complaint charges all defendants with violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and also charges Jerry Aubrey with aiding and abetting his company's Section 10(b) and Rule 10b-5 violations. The Commission also seeks permanent injunctions against all defendants and a conduct based injunction against Jerry Aubrey prohibiting him or any entity he owns or controls from offering unregistered securities in the future. In addition, the Commission seeks disgorgement plus prejudgment interest and civil penalties against Timothy Aubrey, Cherry, and Glasser“.