OVER $1 MILLION DOLLARS PAID TO SETTLE UNREGISTERED SECURITIES CASE

The following excerpt is from the SEC website: November 17, 2011 “The Securities and Exchange Commission announced today that the United States District Court for the Southern District of Florida entered final judgments, dated November 10, 2011, against Frank C. Calmes, Lynn D. Rowntree, and James E. Pratt. Calmes and Rowntree had been principals at First Equity Corporation, a Boca Raton company that took small companies public via reverse mergers. Pratt, a lawyer, provided legal opinions regarding the ability to sell stock in the newly public companies. According to the SEC’s Complaint, Calmes, Rowntree, and Pratt, along with co-defendant Manny J. Shulman, illegally sold millions of shares of unregistered securities in violation of the registration provisions of the Securities Act of 1933 (“Securities Act”). In addition, Calmes, Rowntree, and Shulman were alleged to have committed fraud in selling securities, in violation of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder. Calmes, Rowntree, and Pratt entered into bifurcated settlements with the SEC in May of 2011, just before a jury trial was to begin. Under the bifurcated settlements, Calmes and Rowntree agreed to be permanently enjoined from violating Sections 5(a) and 5(c) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, while Pratt agreed to be permanently enjoined from violating Sections 5(a) and 5(c) of the Securities Act. All three agreed to be barred from participating in any penny stock offering, and to cancel any shares of the corporations at issue in their possession or control. In addition, Defendant Calmes consented to be permanently barred from acting as an officer or director of any public issuer. The bifurcated settlements left open, and the final judgments entered last week addressed, defendants’ liability for disgorgement of ill-gotten gains, prejudgment interest thereon, and the imposition of penalties. The final judgments imposed the following relief: against Calmes, $1,886,918 in disgorgement, $468,441 in prejudgment interest, and a $5,000 penalty; against Rowntree, $693,948 in disgorgement, $157,411 in prejudgment interest, and a $5,000 penalty; and against Pratt, $258,796 in disgorgement, $64,247 in prejudgment interest, and a $5,000 penalty. Shulman proceeded to trial and on May 9, 2011 the jury returned a verdict finding him liable for violating Sections 5(a) and 5(c) of the Securities Act by selling uregistered securities and for violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by issuing materially false and misleading press releases regarding a company whose shares he was selling. On July 12, 2011, the Court enjoined Shulman from further violations of the federal securities laws, permanently barred Shulman from participating in any penny stock offering or acting as an officer or director of any public issuer, ordered disgorgement of $273,152, ordered payment of prejudgment interest of $95,633.44, and imposed a $5,000 penalty. The Court further ordered Shulman’s wife, Krystal Becnel, who was named as a relief defendant in the SEC’s Complaint, to disgorge $131,914.”

FORMER TRADER FORFEITS OVER $10,300,000 FOR SECURITIES FRAUDS

The following excerpt is from the SEC website: December 9, 2011 "Former Schottenfeld Trader Zvi Goffer Settles SEC Insider Trading Charges The Securities and Exchange Commission announced today that on December 5, 2011, the Honorable Jed S. Rakoff of the United States District Court for the Southern District of New York entered a consent judgment against Zvi Goffer in SEC v. Galleon Management, LP, et al., 09-CV-8811, an insider trading case the SEC filed on October 16, 2009. The SEC charged Goffer, who was a registered representative and a proprietary trader at the broker-dealer Schottenfeld Group, LLC during the relevant time period, with using inside information to trade ahead of impending acquisitions. In its action, the SEC alleged that, on July 2, 2007, Goffer was tipped with material non-public information that Hilton Hotels Corp. would be acquired the next day at a significant premium. Additionally, in March 2007, Goffer was tipped material non-public information that Kronos Inc. would be acquired in about a week for a substantial premium. On the basis of the material non-public information he received, Goffer traded in the Schottenfeld accounts he managed. To settle the SEC’s charges, Goffer consented to the entry of a judgment that: (i) permanently enjoins him from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and (ii) orders him to pay disgorgement of $265,709.33, plus prejudgment interest of $59,564.56, for a total of $325,273.89. In a related SEC administrative proceeding, Goffer consented to the entry of an SEC order permanently barring him from association with any broker or dealer, investment adviser, municipal securities dealer or transfer agent, and barring him from participating in any offering of a penny stock. Goffer previously was found guilty of securities fraud and conspiracy to commit securities fraud in a related criminal case, United States v. Zvi Goffer, 10-CR-0056 (S.D.N.Y.), and was sentenced to a ten-year prison term and ordered to pay criminal forfeiture of $10,022,931. The SEC also announced today the entry of a consent judgment against Goffer in a separate case alleging insider trading in other securities."

COURT ORDERS PAYMENT OF NEARLY $16 MILLION IN MISINFORMATION CASE

The following excerpt is from the SEC website: “The Securities and Exchange Commission announced today that on December 1, 2011, the United States District Court for the District of Colorado entered judgments against Richard Dalton and Universal Consulting Resources LLC (UCR) and ordered them to pay $15,842,948, which includes a civil penalty of $7,549,458. The Court found that Dalton routinely provided investors with false and materially misleading information about investments contracts known as the Trading Program and the Diamond Program. The Court stated that Dalton told investors they would receive annual profits ranging from 48% to 120% when, in fact, he was operating a Ponzi scheme, with new investors providing the funds for UCR’s profit payments to existing investors. The Court held that Dalton misappropriated investors’ funds and used at least $2.5 million for his personal benefit or for the benefit of family members. According to the Commission’s complaint, Dalton raised approximately $17 million from 130 investors in 13 states. Dalton told investors in the Trading Program that their money would be held in an escrow account in a U.S. bank, and that a European trader would use the value of that account to obtain leveraged funds to purchase and sell bank notes. The Diamond Program supposedly generated profits from the trading of cut and uncut diamonds. The Court permanently enjoined Dalton and UCR from violating Sections 5 and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and Dalton from violating Exchange Act Section 15(a). The Court also entered a judgment on December 1, 2011 against Marie Dalton, who was named as a relief defendant in the Commission’s complaint. According to the Commission’s complaint, Marie Dalton purchased a residence in Golden, Colorado with over $900,000 in investors’ funds. The Court stated that a receiver would be appointed to sell the residence. The Court also ordered Marie Dalton to disgorge $115,000 in investors’ funds that were deposited in her bank account. On October 19, 2011, a federal grand jury in the District of Colorado handed up an indictment charging Dalton and Marie Dalton with violations of federal criminal laws in connection with a scheme involving investments in UCR’s Trading Program and the Diamond Program.”

SEC COMMISSIONER AGUILAR SPEAKS ON SMALL BUSINESS CAPITAL FORMATION

The following excerpt is from the SEC website: Facilitating Small Business Capital Formation Does Not Need to Be at the Expense of Protecting Investors by Commissioner Luis A. Aguilar U.S. Securities and Exchange Commission SEC Government-Business Forum on Small Business Capital Formation Washington, D.C. November 17, 2011 Good morning. First, I would like to welcome all of the distinguished panelists, participants, and attendees to the SEC for today’s Government-Business Forum on Small Business Capital Formation. Thank you for inviting me to speak and add my voice to today’s dialogue. Second, I also add my thanks to the staff from the Division of Corporation Finance and the Office of Small Business Policy for their work to facilitate today’s program. Third, before I start, I must remind you that my remarks represent my own views, and not necessarily those of the Commission, my fellow Commissioners, or members of the staff. Small business is vital to any nation’s economic well-being. I know everyone in this room has been closely following the economic crisis in Europe. I was struck by a recent news article discussing the tragic impact of the crisis on the people of Greece. Specifically, it was reported that “[s]mall shops, in many ways the lifeblood of the Greek economy, which relies on domestic demand, are closing by the day.”1 The European debt crisis reminds us that investors, consumers, entrepreneurs, lenders, underwriters, etc., make up the same economic system, the same market. In this interdependent system, it is essential for all market participants that the fundamentals of this system are strong, fair and transparent. The principles of a strong, fair and transparent regulatory framework are the defining characteristics of the Federal securities laws. There is no doubt that the system of laws and regulations administered by the SEC has contributed to the United States having the most robust capital market in the world. A key component of the SEC’s mission is to facilitate capital formation while at the same time protecting investors. Many studies have demonstrated how regulations fostering investor protections can promote capital formation.2 For example, a 2003study showed that the MD&A disclosure required in public company filings under the Exchange Act resulted in more accurate and informed share prices, which contributes to a better functioning real economy.3 A 2006 study found that the Exchange Act amendments of 1964, which extended disclosure requirements to over-the-counter companies, created substantial value for the shareholders of such companies.4 Such value creation is central to strong capital formation. We must not forget that investors are the capital providers that drive our capital markets – after all they are writing the checks that make capital formation possible. And, we need to remember that capital formation is much more than just capital raising. True capital formation requires that funds raised be invested in productive assets. The more productive those assets are, the greater the capital formation facilitated by such investment.5 Fair disclosure rules level the playing field and help provide investors with the information they need to make reasoned investment decisions. Accordingly, market safeguards that promote reliable disclosure engender the confidence investors need to invest their savings in debt, equity and other securities. The need for full and fair disclosure, so that investors can make investment decisions with the benefit of material information, is a founding principle of the Federal securities laws.6 I look forward to today’s dialogue, and to your thoughts as to how we can improve the economic environment for entrepreneurs and investors alike, because smart and workable regulation is a necessary component of a robust capital market and strong capital formation. Thank you for your participation in today’s forum. You have my best wishes for a productive day.”

SEC ALLEGES INDIVIDUALS AT DEFUNCT ELECTRONICS COMPANY COOKED THE BOOKS

The following excerpt is from the SEC website: December 2, 2011 “The Securities and Exchange Commission (“Commission”) announced today that it filed charges against three individuals who participated in a securities fraud scheme at Soyo Group, Inc. (“Soyo”), a now defunct California-based consumer electronics and computer parts company. The Commission’s civil injunctive complaint, filed in the U.S. District Court for the Central District of California on November 29, 2011, alleges that between January 2007 and November 2008, Soyo, through the actions of its chief financial officer, Nancy Shao Wen Chu, and members of her accounting staff, Elizabeth Tsang and Eric Jon Strasser, misled Soyo’s investors, primary lending bank, and auditor by materially overstating Soyo’s net revenues and understating its liabilities. According to the complaint, Chu and Tsang caused Soyo to book over $47 million in fraudulent sales revenues arising from at least 120 fictitious transactions with 21 customers, resulting in Soyo materially overstating its net revenues in its periodic filings by amounts ranging from 14.4 to 76.8 percent. The complaint also alleges that in order to obtain additional bank financing for Soyo and keep its existing line of credit from defaulting, Chu misled Soyo’s investors, primary lending bank, and auditor regarding a $6 million debt-for-equity transaction with a Soyo vendor that was never completed. The complaint further alleges that Strasser, a consultant who prepared Soyo’s filings with the Commission, was alerted to the falsity of the debt-for-equity transaction disclosures, but he failed to correct the misstatements or inform Soyo’s auditor prior to the next quarter’s filing. The Commission’s complaint alleges that, as a result of their conduct, Chu and Tsang violated, and unless enjoined, will continue to violate, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and that Strasser aided and abetted an antifraud violation. The complaint also alleges that Chu violated, and unless enjoined, will continue to violate Section 17(a) of the Securities Act of 1933, and is liable as a control person for Soyo’s antifraud violations. As part of this action, the Commission seeks against each of the defendants an injunction against future violations of the provisions set forth above, disgorgement, pre-judgment interest, third tier civil money penalties and, as to Chu, an officer and director bar.”

SEC CHARGED RAYMOND JAMES & ASSOCIATES INC. WITH MAKING INACCURATE STATEMENTS

The following excerpt comes from the SEC website:
“Washington, D.C., June 29, 2011 — The Securities and Exchange Commission today charged Raymond James & Associates Inc. and Raymond James Financial Services Inc. for making inaccurate statements when selling auction rate securities (ARS) to customers.
Raymond James agreed to settle the SEC’s charges and provide its customers the opportunity to sell back to the firm any ARS that they bought prior to the collapse of the ARS market in February 2008.
According to the SEC’s administrative order, some registered representatives and financial advisers at Raymond James told customers that ARS were safe, liquid alternatives to money market funds and other cash-like investments. In fact, ARS were very different types of investments. Among other things, representatives at Raymond James did not provide customers with adequate and complete disclosures regarding the complexity and risks of ARS, including their dependence on successful auctions for liquidity. “Raymond James improperly marketed and sold ARS to customers as safe and highly liquid alternatives to money market accounts and other short-term investments,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “Harmed investors who are covered by this settlement will have the opportunity to get full payment for their illiquid ARS.”
The SEC previously announced ARS settlements with Citigroup and UBS, Wachovia, Bank of America, RBC Capital Markets, Deutsche Bank, and TD Ameritrade. As a result of these settlements, more than $67 billion has been returned to ARS customers following the SEC’s investigation into the ARS market collapse of February 2008 that left tens of thousands of investors holding ARS they could not sell. The SEC’s order against Raymond James finds that the firm willfully violated Section 17(a)(2) of the Securities Act of 1933. The Commission censured Raymond James, ordered it to cease and desist from future violations, and reserved the right to seek a financial penalty against the firm. Without admitting or denying the SEC’s allegations, Raymond James consented to the SEC’s order and agreed to:
Offer to purchase eligible ARS from its eligible current and former customers. Use its best efforts to provide liquidity solutions to customers who acted as institutional money managers who are not otherwise eligible customers. > Reimburse excess interest costs to eligible ARS customers who took out loans from Raymond James after Feb. 13, 2008. Compensate eligible customers who sold their ARS below par by paying the difference between par and the sale price of the ARS, plus reasonable interest. At the customer’s election, participate in a special arbitration process with those eligible customers who claim additional damages.
Establish a toll-free telephone assistance line and a public Internet page to respond to questions concerning the terms of the settlement.
Investors should be alerted that, in most instances, they will receive correspondence from Raymond James. Investors must then advise Raymond James that they elect to participate in the settlement. If they do not do so, they could lose their rights to sell their ARS to Raymond James. Investors should review the full text of the SEC’s order, which includes the terms of the settlement. The Commission acknowledges the assistance and cooperation of the State of Florida Office of Financial Regulation, the Texas State Securities Board, and the North American Securities Administrators Association.”
Although financial penalties are becoming more common in cases like the one above criminal penalties are not really increasing. The problem is that it is hard to link upper levels of management with a business decision to commit a crime. A word used like “puffery” when selling a product is often confused with the word “fraud” by over zealous salespeople who are trying to earn a commission or large bonus check and pay their bills. Commission sales by definition; means that Salespeople are paid by their employers to talk up their products and overcome objections. This is a slippery slope and top management is responsible for making sure those directly offering the products to the public do not slip off the “slippery slope” and say things that might earn a nice check now but in the long run will seriously harm the reputation of the firm they are working for."