CFTC SEEKING TO REVOKE REGISTRATIONS FOR COMPANIES AND OWNER

FROM: COMMODITY FUTURES TRADING COMMISSION

CFTC Seeks to Revoke Registrations of Linda Faye Harris and her companies, CDH Forex Investments, LLC and CDH Global Holdings, LLC

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today filed a notice of intent to revoke the registrations of Linda Faye Harris, CDH Forex Investments, LLC (CDH Forex) and CDH Global Holdings, LLC (CDH Global), all of Flower Mound, Texas. CDH Forex is a registered Commodity Pool Operator and Commodity Trading Advisor; CDH Global is a registered Commodity Trading Advisor; and Harris is registered as an Associated Person and is the sole principal of CDH Forex. Harris was an Associated Person and principal of CDH Global.

The notice alleges that Harris, CDH Forex, and CDH Global are subject to statutory disqualification from CFTC registration based on an order of default judgment and permanent injunction entered by the U.S. District Court for the Northern District of Texas on June 12, 2012 (see CFTC News Release 6286-12 June 21, 2012). The order prohibits defendants from committing further fraud, among other violations. At the hearing held on June 12, 2012, Harris appeared and conceded all allegations in the complaint of violations of the Commodity Exchange Act, but contested only the amount of restitution and civil monetary penalty. The court found none of Harris’ arguments credible and entered the order as submitted by the CFTC. The order contains findings of fact and conclusions of law, which find, in relevant part, 1) that Harris fraudulently solicited at least $2.2 million from customers, out of which total trading losses and misappropriated funds equaled at least $1,361,897, and 2) made material false statements to pool participants. The order also finds that Harris provided false, fictitious, or fraudulent statements to the National Futures Association (NFA), including falsified trading account statements and falsified bank statements, to hide the ongoing fraud from NFA.

CFTC Division of Enforcement staff members responsible for this action are Nathan B. Ploener, Manal M. Sultan, Lenel Hickson, Jr., Stephen J. Obie, and Vincent A. McGonagle.

Casey D. Jackson

Casey D. Jackson

SEC CHARGES RADIO PERSONALITY WITH STAGING MISLEADING INVESTMENT SEMINARS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Radio Personality for Conducting Misleading Investment Seminars
Washington, D.C., Sept. 5, 2012
– The Securities and Exchange Commission today charged a nationally syndicated radio personality and financial advice author for spreading misleading information about his "Buckets of Money" strategy at a series of investment seminars that he and his company hosted for potential clients.

The SEC’s Division of Enforcement alleges that investment adviser Ray Lucia, Sr. claimed that the wealth management strategy he promoted at the seminars had been empirically "backtested" over actual bear market periods. Backtesting is the process of evaluating a strategy, theory, or model by applying it to historical data and calculating how it would have performed had it actually been used in a prior time period.

Lucia, who lives in the San Diego area, and his company formerly named Raymond J. Lucia Companies Inc. (RJL) allegedly presented a lengthy slideshow at the seminars indicating that extensive backtesting proved that the Buckets of Money strategy would provide inflation-adjusted income to retirees while protecting and even increasing their retirement savings. However despite the claims they made publicly, Lucia and RJL performed scant, if any, actual backtesting of the Buckets of Money strategy.

"Lucia and RJL left their seminar attendees with a false sense of comfort about the Buckets of Money strategy," said Michele Wein Layne, Regional Director of the SEC’s Los Angeles Regional Office. "The so-called backtests weren’t really backtests, and the strategy wasn’t proven as they claimed."

According to the SEC’s order instituting administrative proceedings against Lucia and RJL, they held the seminars highlighting their Buckets of Money strategy in an effort to obtain advisory clients who would be charged fees in return for their advisory services. They promoted the seminars on Lucia’s radio show and on Lucia’s personal and company websites.

According to the SEC’s order, a backtest must utilize actual data from the time period in order to get an accurate result. Lucia and RJL have admitted during the SEC’s investigation that the only testing they actually performed were some calculations that Lucia made in the late 1990s – copies of which no longer exist – and two two-page spreadsheets.

According to the SEC’s order, the two cursory spreadsheets that Lucia claims were backtests used a hypothetical 3 percent inflation rate even though this was lower than actual historical rates. Lucia admittedly knew that using the lower hypothetical inflation rate would make the results look more favorable for the Buckets of Money strategy. These alleged backtests also failed to account for the negative effect that the deduction of advisory fees would have had on the backtesting of their investment strategy, and their "backtesting" did not even allocate in the manner called for by Lucia’s Buckets of Money strategy. The slideshow presentation that Lucia and RJL used during the seminars failed to disclose the flaws in their alleged backtests and was materially misleading.

According to the SEC’s order, Lucia and RJL also failed to maintain adequate records of the backtesting as they were required to do under an SEC rule. The pair of two-page spreadsheets was the only documentation of their backtesting calculations, and those spreadsheets failed to duplicate their advertised investment strategy.

The SEC’s order finds that RJL violated Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-1(a)(5) thereunder. The order finds that Lucia willfully aided and abetted and caused RJL’s violations of Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-1(a)(5) thereunder. The SEC’s Division of Enforcement is seeking financial penalties and other remedial action in the proceedings.

The SEC’s investigation was conducted by Peter Del Greco of the Los Angeles Regional Office. John Bulgozdy will lead the litigation. Bryan Bennett and John Kreimeyer conducted the SEC examination that prompted the investigation.

ACCOUNTANT CHARGED WITH BEING A TIPSTER OF NON-PUBLIC INFORMATION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

On August 28, 2012, the Securities and Exchange Commission filed a civil injunctive action in the Northern District of Georgia against R. Jeffrey Rooks ("Rooks"), a Griffin, Georgia based CPA. The Commission alleges that Thomas D. Melvin ("Melvin"), a Griffin, Georgia based CPA and partner of Rooks, disclosed material non-public information about the pending tender offer for Chattem, Inc. ("Chattem") securities to Rooks. The Commission also alleges that Rooks tipped one other individual. The Commission further alleges that Rooks traded in the securities of Chattem based on that material non-public information and caused the other individual to also trade.

According to the Commission’s complaint, on December 21, 2009, Sanofi-Aventis ("Sanofi"), a French pharmaceutical company, announced its intent to make a tender offer for Chattem, a Tennessee-based distributor of over-the-counter pharmaceutical products, at the price of $93.50 per share ("Announcement"). Shares of Chattem closed 32.60% higher on the day of the Announcement than the prior trading day’s close of $69.98 and volume increased more than 3,000% to 10.3 million shares.

The Commission alleges that in early December 2009, several weeks before the Announcement, an independent board member of Chattem who owned Chattem options that would automatically exercise in the event of an ownership change at Chattem, initiated a series of confidential conversations and meetings with his longtime accountant, Melvin, to discuss potential methods of ameliorating the effect of an acquisition of Chattem on his tax liability. The Chattem board member told Melvin sufficient facts such that, given Melvin’s knowledge of the board member’s affairs, Melvin would have clearly known that the board member was discussing Chattem. Melvin and the Chattem board member also discussed the price impact of the tender offer on the board member’s options.

The Commission further alleges that Melvin misappropriated material non-public information regarding the impending tender offer for Chattem securities. Within days of his first meeting with the board member, Melvin disclosed material non-public information about the impending tender offer to Rooks. Rooks traded in Chattem securities based on the material non-public information disclosed by Melvin, and Rooks caused another individual to trade based on that information.

Rooks has agreed to settle the Commission claims against him by consenting to the entry of a final judgment providing permanent injunctive relief under Sections 10(b) and 14(e) of the Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder and by agreeing to pay disgorgement of $18,482.14, prejudgment interest of $1,432.68, and a penalty of $4,620.54. The terms of Rooks’ settlement reflect credit given to him for his cooperation and substantial assistance to the investigation. Rooks neither admits nor denies the Commission’s allegations, and his settlement is subject to court approval.

SEC CHARGES CHINA BASED COMPANY WITH "COOKING THE BOOKS" TO INCREASE REVENUES

FROM: U.S. SECURITIES AND EXCHANGE DEPARTMENT

The Securities and Exchange Commission today charged a China-based company and its chief executive with fraud for recording fake sales of a weight loss product to inflate revenues in the company’s financial statements by millions of dollars.

The SEC alleges that China Sky One Medical Inc. (CSKI) falsely stated in 2007 annual and quarterly reports that it had entered into a strategic distribution agreement with a Malaysian company that would become the "exclusive" distributor of CSKI’s "slim patch" in Malaysia and generate $1 million per month in sales. However, the company never actually entered into any such agreement. CSKI instead created approximately $19.8 million in phony export sales to Malaysia that were recorded as revenue in its financial results for 2007 and 2008. CEO Yan-qing Liu certified the overstated financial results, which appear in CSKI’s financial statements through 2010 and continue to impact the company’s retained earnings on its balance sheet.

"Accurate and reliable financial reporting is the bedrock of our capital markets, and CSKI blatantly defrauded investors by fabricating sales and overstating its financial results," said John M. McCoy III, Associate Director of the SEC’s Los Angeles Regional Office

According to the SEC’s complaint filed in U.S. District Court for the Central District of California, CSKI is based Harbin, China. In addition to weight loss patches, the company produces and sells sprays, ointments, and other Chinese traditional pain relief and health and beauty products. CSKI became a public company trading on the U.S. markets through a reverse merger in May 2006.

The SEC alleges that after CSKI devised the purported strategic distribution agreement with Takasima Industries – which is a Malaysian fitness equipment manufacturer and retailer – CSKI went on to falsely report export sales to Malaysia of more than $12.2 million for 2007, which constituted 25 percent of its total revenues. CSKI then falsely recorded $7.5 million (8.2 percent of total revenues) in such sales for 2008. Virtually all of CSKI’s reported sales to Malaysia via Takasima were bogus. Takasima only purchased $167,542 in slim patches from CSKI in 2007, and none in 2008. And it never entered into any distribution agreement with CSKI and never undertook – much less satisfied – any minimum purchase commitment.

According to the SEC’s complaint, CSKI also falsely claimed in its public filings that its top two customers for 2007 were sales agents for Takasima. CSKI identified those customers as Ningbo Yuehua International Trading Company and Guangzhou Xinghe International Trading Company, which collectively accounted for the phony 25 percent of CSKI’s total revenues for 2007. CSKI claimed that all of these purported sales to Ningbo Yuehua and Guangzhou Xinghe went through Takasima, while in fact Takasima never had any relationship with these two entities.

CSKI and Liu are charged with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and various Exchange Act provisions including corporate reporting, recordkeeping, internal controls, and false statements to auditors.

The SEC’s complaint seeks financial penalties against CSKI and Liu as well as disgorgement of ill-gotten gains by Liu, who personally benefited from the overstated financial statements through the company’s 2008 private placement of securities. The SEC also seeks to have Liu reimburse CSKI for certain incentive-based compensation he received during the period affected by the fraud pursuant to Section 304 of the Sarbanes-Oxley Act, and to have Liu barred from acting as an officer or director of a public company. The SEC also seeks to have CSKI and Liu permanently enjoined from future violations of these provisions of the federal securities laws

In addition to the court action, the SEC instituted administrative proceedings to determine whether to revoke or suspend registration of CSKI’s securities due to the company’s failure to file its annual report for 2011 or any quarterly reports for 2012.

The SEC’s investigation, which is continuing, has been conducted by Junling Ma, Rhoda Chang, and Marshall S. Sprung of the SEC’s Los Angeles Regional Office. The SEC’s Cross Border Working Group – which focuses on U.S. companies with substantial foreign operations – and the SEC’s Office of International Affairs assisted in the investigation. The SEC’s litigation will be led by David Van Havermaat.

ISIDER TRADING ON KNOWLEDGE OF INTENDED TENDOR OFFER

FROM: SECURITIES AND EXCHANGE COMMISSION

SEC Charges Georgia Resident with Insider Trading

On August 28, 2012, the Securities and Exchange Commission filed a civil injunctive action in the Northern District of Georgia against Casey D. Jackson ("Jackson"). The Commission alleges that Thomas D. Melvin ("Melvin"), a Griffin, Georgia based CPA and friend of C. Roan Berry ("Berry"), disclosed material non-public information about the pending tender offer for Chattem, Inc. ("Chattem") securities to Berry. The Commission also alleges that Berry tipped his next door neighbor, Ashley J. Coots. The Commission further alleges that Coots tipped Casey D. Jackson ("Jackson"), and that Jackson traded in the securities of Chattem based on that material non-public information.

According to the Commission’s complaint, on December 21, 2009, Sanofi-Aventis ("Sanofi"), a French pharmaceutical company, announced its intent to make a tender offer for Chattem, a Tennessee-based distributor of over-the-counter pharmaceutical products, at the price of $93.50 per share ("Announcement"). Shares of Chattem closed 32.60% higher on the day of the Announcement than the prior trading day’s close of $69.98 and volume increased more than 3,000% to 10.3 million shares.

The Commission alleges that in early December 2009, several weeks before the Announcement, an independent board member of Chattem who owned Chattem options that would automatically exercise in the event of an ownership change at Chattem, initiated a series of confidential conversations and meetings with his longtime accountant, Melvin, to discuss potential methods of ameliorating the effect of an acquisition of Chattem on his tax liability. The Chattem board member told Melvin sufficient facts such that, given Melvin’s knowledge of the board member’s affairs, Melvin would have clearly known that the board member was discussing Chattem. Melvin and the Chattem board member also discussed the price impact of the tender offer on the board member’s options.

The Commission further alleges that Melvin misappropriated material non-public information regarding the impending tender offer for Chattem securities. Within days of his first meeting with the board member, Melvin disclosed material non-public information about the impending tender offer to Berry. Berry tipped Coots, who tipped Jackson. Jackson traded in Chattem securities based on the material non-public information Coots disclosed to him.

Jackson has agreed to settle the Commission claims against him by consenting to the entry of a final judgment providing permanent injunctive relief under Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 and by paying disgorgement of $2,369.78, prejudgment interest of $221.93, and a penalty of $1,184.89. Jackson neither admits nor denies the Commission’s allegations, and his settlement is subject to court approval.