CFTC ALLEGES INDIVIDUALS AND COMPANY RAN $53 MILLION WORLDWIDE OFF-EXCHANGE FOREX SCHEME

FROM: COMMODITY FUTURES TRADING COMMISSION

CFTC Charges Australian Resident Senen Pousa, U.S. Resident Joel Friant, and Their Company, Investment Intelligence Corp., with Operating a Fraudulent $53 Million Worldwide Off-Exchange Forex Scheme, and Texas-based Michael Dillard and Elevation Group, Inc. with Registration Violations

Investment Intelligence does business as ProphetMax Managed FX

Federal court issues order freezing assets of defendants Pousa, Friant, and Investment Intelligence, and prohibiting destruction of books and records

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) filed a civil enforcement action charging Senen Pousa of Australia, Joel Friant of Bellingham, Wash., and their company, Investment Intelligence Corporation (IIC), an Australian corporation, with operating a fraudulent off-exchange foreign currency (forex) scheme. The complaint also charges Michael Dillard and Elevation Group, Inc., both of Austin, Texas, with registration violations. The scheme allegedly accepted at least $53 million from at least 960 clients worldwide, including at least 697 clients in the United States, and clients in Australia, the United Kingdom, Canada, Germany, the Netherlands, and Singapore, among other countries. None of the defendants has ever been registered with the CFTC.

On the same day the CFTC complaint was filed, September 18, 2012, Judge Lee Yeakel of the U.S. District Court for the Western District of Texas issued an emergency order freezing the assets of defendants Pousa, Friant, and IIC and prohibiting the destruction of books and records.

The CFTC complaint alleges that from at least January 1, 2012 through the present IIC, through Pousa, Friant and its other agents, and defendants Dillard and Elevation Group, utilized "wealth creation" webcasts, webinars, podcasts, emails, and other online seminars via the Internet to directly and indirectly solicit actual and prospective clients worldwide to open forex trading accounts at IIC. The complaint further alleges that clients were promised by IIC, through Pousa, Friant, and other agents 1) a monthly return of 9 percent, 2) that IIC’s managed forex trading would risk less than 3 percent of a client’s capital per transaction, 3) that IIC was able to limit the risk inherent to forex trading by limiting its managed forex trading to 2 to 5 trades per month, and 4) that IIC has six "proprietary traders" working 24 hours a day trading clients’ funds. The CFTC complaint alleges that all of these representations to clients were false.

On or about May 16-17, 2012, the complaint alleges that clients suffered a loss of over 60 percent of their investment, when IIC, by and through its agents, entered over 200 forex trades in each client’s account in violation of the representations made by IIC, by and through its agents.

The CFTC complaint seeks restitution, rescission, disgorgement of ill-gotten gains, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of the anti-fraud provisions of federal commodities laws, as charged.

Further, on September 18, 2012, the court entered a consent order of permanent injunction and ancillary equitable relief against defendants Michael Dillard and Elevation Group, Inc. According to the consent order, the court found that Elevation Group acted as an Introducing Broker and solicited orders from non-ECPs in connection with leveraged forex transactions without registering with the CFTC. The court further found that Dillard acted as an unregistered Associated Person of the Elevation Group, according to the order.

The CFTC greatly appreciates the assistance of the Australian Securities & Investments Commission, U.K. Financial Services Authority, Hungarian Financial Supervisory Authority, Netherlands Authority for the Financial Markets, Financial Markets Authority of New Zealand, and New Zealand Serious Fraud Office.

Further, the CFTC greatly appreciates the assistance of the Texas State Securities Board, Washington State Department of Financial Institutions, the U.S. Attorney for the Western District of Texas, the Federal Bureau of Investigation, and the U.S. Securities and Exchange Commission.

CFTC Division of Enforcement staff members responsible for this matter are Kyong Koh, Michael Amakor, JonMarc Buffa, Mary Lutz, Timothy Mulreany, Paul Hayeck, and Joan Manley.

SEC CHARGES FORMER CEO AND CHAIRMAN OF MAMTEK U.S. WITH FRAUD IN THE OFFER AND SALE OF MUNICIPAL BONDS

FROM: SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today filed suit in U.S. District Court for the Central District of California, charging former CEO and chairman of Mamtek U.S., Bruce Cole, with fraud related to the offer and sale of municipal bonds.

The SEC’s complaint alleges that Cole executed a scheme to defraud investors and made material misrepresentations and omissions in connection with the July 2010 offer and sale of $39 million of appropriations credit bonds backed by the City of Moberly, Missouri ("Moberly"). The bond offering was intended to finance a sucralose processing plant in Moberly that Mamtek would construct and operate. The SEC alleges that Cole executed his fraud by directing unsuspecting Mamtek employees to take actions that diverted over $900,000 in bond proceeds for his and his wife’s personal use and by misleading city officials and bondholders about the use of those proceeds.

According to the complaint, prior to the close of the bond offering, Cole directed Mamtek employees and consultants to create false documentation for a nonexistent company to falsely justify fictitious expenses for the sucralose project. The complaint alleges he then instructed Mamtek employees to wire his wife, Nanette H. Cole, $900,000 in bond proceeds, which were used to pay among other things, their mortgage, credit card debt, homeowners and auto insurance, and household employees, in part, under the false pretense that she was an agent of the sham company.

The complaint further alleges that as a precondition to the issuance of the bonds, Cole signed a certificate representing certain portions of the Official Statement delivered to bondholders for the $39 million offering were not false or misleading. However, at the time that Cole signed the document, he had already directed the creation of the false documentation and had made preliminary plans to divert and misuse the bond proceeds, rendering his representation in the closing certificate false. In doing so, he misrepresented the use of bond proceeds and the accuracy of the Official Statement.

By engaging in this conduct, Cole has violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, for making material misrepresentations and omissions and engaging in a scheme to defraud the city and bondholders. Through this Complaint, the Commission seeks a permanent injunction, disgorgement with prejudgment interest, and a civil penalty. The Commission further names Nanette Cole as a relief defendant because she obtained the bond proceeds from her husband, and seeks return of those funds.

CEO CHARGED BY SEC WITH FRAUD RELATED TO BOND MARKET

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today filed suit in U.S. District Court for the Central District of California, charging former CEO and chairman of Mamtek U.S., Bruce Cole, with fraud related to the offer and sale of municipal bonds.

The SEC’s complaint alleges that Cole executed a scheme to defraud investors and made material misrepresentations and omissions in connection with the July 2010 offer and sale of $39 million of appropriations credit bonds backed by the City of Moberly, Missouri ("Moberly"). The bond offering was intended to finance a sucralose processing plant in Moberly that Mamtek would construct and operate. The SEC alleges that Cole executed his fraud by directing unsuspecting Mamtek employees to take actions that diverted over $900,000 in bond proceeds for his and his wife’s personal use and by misleading city officials and bondholders about the use of those proceeds.

According to the complaint, prior to the close of the bond offering, Cole directed Mamtek employees and consultants to create false documentation for a nonexistent company to falsely justify fictitious expenses for the sucralose project. The complaint alleges he then instructed Mamtek employees to wire his wife, Nanette H. Cole, $900,000 in bond proceeds, which were used to pay among other things, their mortgage, credit card debt, homeowners and auto insurance, and household employees, in part, under the false pretense that she was an agent of the sham company.

The complaint further alleges that as a precondition to the issuance of the bonds, Cole signed a certificate representing certain portions of the Official Statement delivered to bondholders for the $39 million offering were not false or misleading. However, at the time that Cole signed the document, he had already directed the creation of the false documentation and had made preliminary plans to divert and misuse the bond proceeds, rendering his representation in the closing certificate false. In doing so, he misrepresented the use of bond proceeds and the accuracy of the Official Statement.

By engaging in this conduct, Cole has violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, for making material misrepresentations and omissions and engaging in a scheme to defraud the city and bondholders. Through this Complaint, the Commission seeks a permanent injunction, disgorgement with prejudgment interest, and a civil penalty. The Commission further names Nanette Cole as a relief defendant because she obtained the bond proceeds from her husband, and seeks return of those funds.

SEC EDUCATES PUBLIC ON "AFFINITY FRAUD"

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to help educate investors about affinity fraud, a type of investment scam that preys upon members of identifiable groups, such as religious or ethnic communities or the elderly.

What is Affinity Fraud?

Affinity fraud almost always involves either a fake investment or an investment where the fraudster lies about important details (such as the risk of loss, the track record of the investment, or the background of the promoter of the scheme). Many affinity frauds are Ponzi or pyramid schemes, where money given to the promoter by new investors is paid to earlier investors to create the illusion that the so-called investment is successful. This tricks new investors into investing in the scheme, and lulls existing investors into believing their investments are safe. In reality, even if there really is an actual investment, the investment typically makes little or no profit. The fraudster simply takes new investors’ money for the fraudster’s own personal use, often using some of it to pay off existing investors who may be growing suspicious. Eventually, when the supply of investor money dries up and current investors demand to be paid, the scheme collapses and investors discover that most or all of their money is gone.

How Does Affinity Fraud Work?

Fraudsters who carry out affinity scams frequently are (or pretend to be) members of the group they are trying to defraud. The group could be a religious group, such as a particular denomination or church. It could be an ethnic group or an immigrant community. It could be a racial minority. It could be members of a particular workforce – even members of the military have been targets of these frauds. Fraudsters target any group they think they can convince to trust them with the group members’ hard-earned savings.

At its core, affinity fraud exploits the trust and friendship that exist in groups of people who have something in common. Fraudsters use a number of methods to get access to the group. A common way is by enlisting respected leaders from within the group to spread the word about the scheme. Those leaders may not realize the "investment" is actually a scam, and they may become unwitting victims of the fraud themselves.

Because of the tight-knit structure of many groups, it can be difficult for regulators or law enforcement officials to detect an affinity scam. Victims often fail to notify authorities or pursue legal remedies. Instead, they try to work things out within the group. This is particularly true where the fraudsters have used respected community or religious leaders to convince others to join the investment.

How to Avoid Affinity Fraud

Here are a few tips to help you avoid affinity fraud.

Even if you know the person making the investment offer, be sure to research the person’s background, as well as the investment itself – no matter how trustworthy the person who brings the investment opportunity to your attention seems to be. Be aware that the person telling you about the investment may have been fooled into believing that the investment is legitimate when it is not.
Never make an investment based solely on the recommendation of a member of an organization or group to which you belong. This is especially true if the recommendation is made online. An investment pitch made through an online group of which you are a member, or on a chat room or bulletin board catered to an interest you have, may be a fraud.
Do not fall for investments that promise spectacular profits or "guaranteed" returns. Similarly, be extremely leery of any investment that is said to have no risks. Very few investments are risk-free. Promises of quick and high profits, with little or no risk, are classic warning signs of fraud.
Be skeptical of any investment opportunity that you can’t get put in writing. Fraudsters often avoid putting things in writing. Avoid an investment if you are told they do "not have the time to put in writing" the particulars about the investment. You should also be suspicious if you are told to keep the investment opportunity confidential or a secret.
Don’t be pressured or rushed into buying an investment before you have a chance to research the "opportunity." Just because someone you know made money, or claims to have made money, doesn’t mean you will, too. Be especially skeptical of investments that are pitched as "once-in-a-lifetime" opportunities, particularly when the salesperson bases the recommendation on "inside" or confidential information.
Recent Affinity Fraud Schemes

The SEC’s Division of Enforcement regularly investigates and prosecutes affinity frauds targeting a wide spectrum of groups. Here are examples of some recent cases.

SEC Charges Ponzi Scheme Promoter Targeting Primarily African-American Churchgoers

Ponzi scheme promoter sold promissory notes bearing purported annual interest rates of 12% to 20%, telling primarily African-American investors that the funds would be used to purchase and support small businesses such as a laundry, juice bar, or gas station. Promoter also sold "sweepstakes machines" that he claimed would generate investor returns of as much as 300% or more in the first year.

SEC Charges Company and its Owners with Conducting an Offering Fraud Targeting Christian Investors

Ponzi scheme promoters raised almost $6 million from nearly 80 evangelical Christian investors through fraudulent, unregistered offerings of stock and short-term, high-yield promissory notes issued by their company, which was marketed as a voice-over-internet-protocol video services provider around the world.

SEC Shuts Down Ponzi Scheme Targeting Persian-Jewish Community in Los Angeles

SEC obtained an emergency court order to halt an ongoing $7.5 million Ponzi scheme that targeted members of the Persian-Jewish community in Los Angeles. The SEC’s complaint alleged that the promoter, himself a member of the Persian-Jewish Los Angeles community, raised funds from 11 investors and used nearly $1.6 million investor funds to buy jewelry, high-end cars, and VIP tickets to sporting events. He lured investors with promises of exorbitant returns in purported pre-IPO shares of well-known companies.

SEC Charges South Florida Man in Investment Fraud Scheme

Fraudster raised nearly $11 million claiming returns as high as 26%. He typically met and pitched prospective investors over meals at expensive restaurants in and around Fort Lauderdale. His clients typically came to him through word-of-mouth referrals among friends and relatives. A significant number of the victims of his scheme were members of the gay community in Wilton Manors, Florida.

SEC Halts Affinity Fraud Aimed at the Hispanic community

Defendants raised $817,500 from investors representing to them that their funds would be used to develop a financial services firm serving the Hispanic community. The promoter used a large part of the investors’ money to engage unsuccessfully in high risk "day-trading" of stocks, pay personal living, travel and entertainment expenses or make other, unexplained expenditures with no connection to the purported start-up business activities.

SEC Charges Real Estate Developer in Miami Affinity Fraud

Miami-based developer conducted an affinity fraud and ponzi scheme involving real estate investments that raised $135 million from more than 400 investors, primarily from the South Florida Cuban exile community. Among other things, the developer paid existing investors with new investors’ funds and assigned the same real estate collateral to multiple investors.

SEC Halts Online Affinity Fraud

Fraudster raised at least $2.4 million from at least five individuals in 2008 and 2009. He offered and sold promissory notes and convinced investors to grant him trading authority over money contained in online brokerage accounts. While doing so, he misrepresented his intended use of the money, the risks of his trading, the source of the money used to pay the guaranteed fixed returns, and falsely guaranteed repayment of investors’ principal.

What Should You Do If You Suspect Affinity Fraud?

If you think you may be aware of a possible affinity fraud – or may have lost money in an affinity fraud – please contact the SEC through the SEC Complaint Center, http://www.sec.gov/complaint/select.shtml. You can also contact your state’s securities administrator. You can find links and addresses for your state regulator by visiting the North American Securities Administrators Association’s website.

COLLATERALIZED DEBT OBLIGATIONS CASE SETTLED FOR $23 MILLION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Sept. 7, 2012 – The Securities and Exchange Commission today announced that New York-based investment advisory firm ICP Asset Management and its founder and president Thomas C. Priore have agreed to settle the agency’s charges that they defrauded several collateralized debt obligations (CDOs) they managed.

ICP, Priore, and related entities have agreed to pay more than $23 million to settle the case the SEC filed against them in June 2010 in federal court in Manhattan. The SEC alleged they engaged in fraudulent practices and misrepresentations that caused the CDOs to overpay for securities and lose millions of

dollars. Priore and the ICP companies also improperly obtained fees and undisclosed profits at the expense of the CDOs and their investors.

"The settlement with Priore and ICP sends a clear message that investment advisers must always act in the best interests of their advisory clients, even if those clients are sophisticated investors," said George S. Canellos, Deputy Director of the SEC’s Division of Enforcement. "When advisers put their own interests ahead of their clients’ interests, the SEC will seek to hold them accountable."

The court approved the settlement terms on September 6. The final judgment orders Priore to pay disgorgement of $797,337, prejudgment interest of $215,045, and a penalty of $487,618. ICP and its holding company Institutional Credit Partners LLC are required, on a joint and several basis, to pay disgorgement of $13,916,005 and prejudgment interest of $3,709,028. ICP also must pay a penalty of $650,000. An affiliated broker-dealer ICP Securities LLC is ordered to pay disgorgement of $1,637,581, prejudgment interest of $301,893, and a penalty of $1,939,474. Priore also agreed to settle an administrative proceeding against him and be barred from association with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent, and from participating in any offering of a penny stock. He has a right to reapply for association or participation after a period of five years.

Priore and the ICP companies also consented, without admitting or denying the SEC’s allegations, to permanent injunctions enjoining them from future violations of the securities laws that they were alleged to have violated, which include Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(c)(1)(A) of the Securities Exchange Act of 1934 and Rules 10b-3 and 10b-5, and Sections 206(1), (2), (3), and (4) of the Investment Advisers Act of 1940 and Rules 204-2, 206(4)-7 and 206(4)-8.

The SEC’s investigation was conducted by Celeste A. Chase, Joseph Boryshansky, Joshua Pater, Susannah Dunn, and Kenneth Gottlieb of the New York Regional Office. Joseph Boryshansky led the litigation with assistance from Jack Kaufman, Mark Germann, Joshua Pater, and Susannah Dunn.

SEC CHARGES INVESTMENT ADVISER OF RUNNING $37 MILLION PONZI SCHEME

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today filed fraud charges against a Portland, Oregon-based investment adviser who perpetrated a long-running Ponzi scheme that raised over $37 million from more than 100 investors in the Pacific Northwest and across the country.

The SEC alleges that Yusaf Jawed used false marketing materials that boasted double-digit returns to lure people to invest their money into several hedge funds he managed. He then improperly redirected their money into accounts he personally controlled. As part of the scheme, Jawed created phony assets, sent bogus account statements to investors, and manufactured a sham buyout of the funds to make investors think their hedge fund interests would soon be redeemed. Jawed misused investor money to pay off earlier investors, pay his own expenses and travel, and create the overall illusion of success and achievement to impress investors.

According to the SEC’s complaint filed in federal court in Portland, Jawed managed a number of hedge funds through at least two companies he controlled: Grifphon Asset Management LLC and Grifphon Holdings LLC. Jawed’s marketing materials claimed that the Grifphon funds earned double-digit returns year after year even as the S&P 500 Index declined. For certain funds, Jawed also falsely claimed they would invest in publicly-traded securities and that their assets were maintained at reputable financial institutions.

The SEC alleges that Jawed instead invested very little of the more than $37 million that he raised from investors. For one fund, 70 percent of the money raised was either paid in redemptions to investors in other funds, paid to finders, or merely transferred to accounts belonging to Grifphon Asset Management or other entities that Jawed controlled. Jawed concealed the fraud by telling Grifphon’s bookkeepers that the money transfers represented purchases of offshore bonds – though in reality the purported investment was a sham entity supposedly managed by Jawed’s unemployed aunt who lives in Bangladesh.

According to the SEC’s complaint, Jawed further deceived investors as the funds were collapsing by telling them that independent third parties were buying the Grifphon funds’ alleged assets at a premium. In truth, the so-called third-parties were sham entities originally formed by Grifphon and Jawed containing no assets, no income, and no ability to pay for the funds’ alleged assets.

The SEC’s complaint against Jawed additionally charges Robert P. Custis, an attorney who Jawed hired to assist him in the fraud. Custis sent false and misleading statements to investors about the status of the purported purchase of the Grifphon funds’ assets. Custis consistently misrepresented that this purchase was imminent and would result in investors’ investments being repaid at a profit.

By engaging in the above conduct, Jawed, GAM, and Grifphon Holdings violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. By engaging in the above conduct, Custis violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and aided and abetted violations of Section 206(4) and Rule 206(4)-8 thereunder. The Commission seeks a permanent injunction, disgorgement and prejudgment interest, civil penalty, and other relief as appropriate against them.

The SEC filed separate complaints against two others connected to Jawed’s scheme. Those complaints allege that Jacques Nichols – a Portland-based attorney – falsely claimed to investors that an independent third party would pay tens of millions of dollars to buy the hedge funds’ alleged assets at a premium, and that Jawed’s associate, Lyman Bruhn, of Vancouver, Wash., ran a separate Ponzi scheme and induced investments through false claims he was investing in "blue chip" stocks.

Without admitting or denying the allegations, Nichols, Bruhn, and two entities Bruhn controlled (Pearl Asset Management, LLC and Sasquatch Capital Management, LLC) agreed to settle the SEC’s charges. Along with other relief, Bruhn consented to the entry of permanent injunctions against violations of the Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2), 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. Along with other relief, Nichols consented to the entry of a permanent injunction against violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and aiding and abetting violations of Sections 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. The SEC’s litigation continues against Jawed, the two Grifphon entities, and Custis.