FROM: COMMODITY FUTURES TRADING COMMISSION
Federal Court Orders Oregon-based System Capital, LLC and its President Joshua Wallace to Pay $840,000 for Solicitation Fraud and Making False Statements to the National Futures Association
In a related criminal action, Wallace pled guilty to criminal commodities fraud
Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Katherine B. Forrest of the U.S. District Court for the Southern District of New York entered a default judgment and permanent injunction Order against Defendants System Capital, LLC (System Capital) and its founder and president, Joshua Wallace, both of Lake Oswego, Oregon. The Order requires System Capital and Wallace to each pay a $420,000 civil monetary penalty, imposes permanent trading and registration bans against them, and prohibits them from violating the Commodity Exchange Act, as charged.
The court’s Order stems from a CFTC Complaint filed on November 23, 2010, charging the defendants with solicitation fraud regarding the trading of E-Mini S&P 500 futures contracts and making false statements to the National Futures Association (NFA). The case is U.S. Commodity Futures Trading Commission v. System Capital, LLC, et al., Case No.10 Civ. 8850 (KBF).
The Order finds that the Defendants, among other things, falsely represented to prospective and actual clients that the Defendants had a successful history of trading futures contracts and that System Capital had assets of at least $29 million under management. As a result of these fraudulent solicitations, System Capital and Wallace retained at least 17 clients, managed approximately $3.5 million of client funds, and directed the trading of clients’ commodity futures accounts, the Order finds.
The Order also finds that Wallace, on behalf of System Capital and himself, knowingly provided false information and documents to the NFA. In April or May 2010, Wallace sent a Disclosure Document to the NFA containing false information. During an NFA audit in May 2010, Wallace repeatedly made false statements to NFA’s auditors regarding the Disclosure Document, System Capital’s promotional materials, a forged report purportedly authored by a major accounting firm regarding defendants’ trading history, and other documents used to solicit clients, according to the Order.
On November 27, 2012, Wallace pled guilty to criminal commodities fraud in connection with the fraudulent scheme described above and to other, unrelated charges (United States v. Joshua Wallace, No. S1 11 Cr. 124 (LTS) (S.D.N.Y.)). Sentencing in the criminal case is scheduled for April 18, 2013.
The CFTC thanks the NFA, the Federal Bureau of Investigation, and the U. S. Attorney’s Office for the Southern District of New York for their assistance.
CFTC Division of Enforcement staff members responsible for this case are Mark A. Picard, Elizabeth C. Brennan, Philip Rix, Steven Ringer, Lenel Hickson, and Stephen J. Obie.
FROM: SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today announced that it has obtained Final Judgments against defendants Matthew Dale Proudfoot ("Matthew") and Laurie Anne Vrvilo ("Laurie") in district court litigation in which the SEC alleged they participated in a gold mine investment scheme. According to the SEC's Complaint, Matthew and Laurie falsely promised investors whopping returns from a gold mining operation while investors' money was actually spent on family cars, jewelry, vacations, and vitamin supplements.
On July 17, 2012, the SEC filed a Complaint alleging that Harry Dean Proudfoot III of Mt. Vernon, Ohio, and his children Matthew of Colbert, Wash., and Laurie of Tigard, Ore., raised $2.7 million from approximately 140 investors in 23 states through their Portland, Oregon-based company 3 Eagles Research & Development LLC (3 Eagles).
The SEC's complaint charged 3 Eagles, Harry Proudfoot, Matthew Proudfoot and Laurie Vrvilo with violations of Sections 5(a), 5(c) and 17 (a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5(a), (b) or (c) thereunder. The complaint also charges Bukantis with violating Section 15(a)(1) of the Exchange Act by selling securities as a unregistered broker. The complaint seeks permanent injunctions, disgorgement with prejudgment interest and civil monetary penalties.
In their Consents to the Final Judgments, Matthew and Laurie agreed, without admitting or denying the Complaint's allegations to the entry of permanent injunctions prohibiting their future violations of Sections 5(a), 5(c) and 17 (a) of the Securities Act and of Section 10(b) of the Exchange Act and Rule 10b-5(a), (b) or (c) thereunder. Matthew and Laurie also agreed to be jointly and severally liable for the disgorgement of the approximately $2.72 million raised from 3 Eagles investors between September 2009 and October 2011, plus prejudgment interest on that amount. Based upon the financial information submitted by Matthew and Laurie to the Commission, the Final Judgment does not impose any civil monetary penalties against them.
The SEC's case is still pending against 3 Eagles, which has defaulted in the litigation, and against Harry Proudfoot and Dennis Bukantis, who have filed answers in the litigation.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
BRITISH TWIN BROTHERS AGREE TO PAY $175,000 TO SETTLE MICROCAP PUMP-AND-DUMP CHARGES
The Securities and Exchange Commission announced today that brothers Alexander John Hunter and Thomas Edward Hunter, both of Great Britain, have agreed to settle the Commission's pending civil action against them. The Commission's complaint, filed April 20, 2012 in the United States District Court for the Southern District of New York, alleges that the Hunters were just 16 years old when they began disseminating subscription-based e-mail newsletters through a pair of websites they created to tout stocks selected by a "stock picking robot," which they described as a highly sophisticated computer trading program that was the product of extensive research and development. Some investors paid an additional fee for the "home version" of the robot software.
The Commission’s complaint also alleges that the brothers separately created a third website where they marketed their newsletter subscriber list to penny stock promoters and boasted, "One email to this list of people rockets a stock price." The Hunters were in turn paid to send selected penny stock ticker symbols to their subscribers, who were misled to believe that the stock "picks" were the product of the robot. The Hunters sent out their newsletters near the beginning of the trading day, and the price and volume of the promoted stocks spiked dramatically as newsletter subscribers rushed to purchase shares. However, the stocks typically fell precipitously shortly thereafter, leaving investors in most cases with shares worth less than they had purchased them for earlier in the day.
According to the SEC’s complaint, the Hunters also offered subscribers a downloadable version of the stock picking robot for an additional fee of $97. Rather than performing the analysis advertised, the software was actually designed to deliver users a stock pick supplied by the brothers.
The Commission’s complaint alleges that by virtue of the conduct described above, the Defendants violated the antifraud provisions of the federal securities laws.
Under today's announced settlement, the Hunter brothers, without admitting or denying the allegations in the Commission’s complaint, consented to the entry of a judgment requiring Alex Hunter to pay a $100,000 penalty, requiring Tom Hunter to pay a $75,000 penalty, and enjoining both brothers individually from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today announced charges and an emergency asset freeze against a Redondo Beach, Calif., resident and his companies for defrauding seniors and other investors in a real estate investment scheme.
The SEC alleges that Alvin R. Brown has raised more than $3 million from investors who were falsely promised high profits for investing in his companies that were purportedly funding commercial and residential rental properties in California and other western states. Brown and his companies - First Choice Investment and Advanced Corporate Enterprises (ACorp) - instead used investor funds to make Ponzi-like payments to pre-existing investors, and Brown routinely withdrew cash for personal use. The ACorp website prominently displayed the seals of the SEC and the State of California as well as the NYSE, NASDAQ, and the Better Business Bureau to falsely imply to investors that these investments were endorsed by these organizations. In reality, the investment offerings were not registered with the SEC under the federal securities laws.
According to the SEC's complaint unsealed today in U.S. District Court for the Central District of California, Brown particularly targeted an elderly investor suffering from a stroke and dementia. After the investor made a $30,000 initial investment, his daughter advised ACorp to stop contacting her father because she had power of attorney, but Brown nonetheless e-mailed him forms to close his brokerage account and move the money to an IRA account that would then invest in ACorp. The investor's daughter replied to Brown again to remind him that she had power of attorney and he should cease-and-desist from contacting her father. But ACorp eventually succeeded in circumventing the daughter to get the investor's signature as well as an additional $45,000 investment. The investor's daughter requested the return of her father's money, but it was never returned.
The SEC alleges that Brown and First Choice lured investors beginning in January 2011 by falsely promising 10 percent annual returns and a planned initial public offering (IPO) at the end of 2012 that would net investors 150 percent of their original investment. They touted Brown's management experience but failed to disclose to investors that he had twice filed for personal bankruptcy. Brown also falsely stated that ACorp's assets guaranteed the investments and misled investors into believing their money was safe and secure.
According to the SEC's complaint, the promised IPO and accompanying investment returns never materialized. Besides making Ponzi-like payments to earlier investors, Brown routinely drains First Choice's bank accounts each month. Therefore, Brown and First Choice have relied on capital infusions from business cash advance providers as lenders of last resort to keep the scheme afloat.
The Honorable Audrey B. Collins for the U.S. District Court for the Central District of California granted the SEC's request for a temporary restraining order and asset freeze against Brown, ACorp, and First Choice, and appointed Krista Freitag as a temporary receiver over the companies. A court hearing has been scheduled for March 18, 2013, on the SEC's motion for a preliminary injunction.
The Commission's complaint alleges that Brown, ACorp, and First Choice violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and seeks preliminary and permanent injunctions, appointment of a permanent receiver, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties, against each of them.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., March 15, 2013 — The Securities and Exchange Commission today charged a group of Canadian stock promoters, two San Diego attorneys, a Bahamas-based broker-dealer, and other participants in an international "pump-and-dump" scheme involving two publicly traded U.S. companies, Pacific Blue Energy Corporation and Tradeshow Marketing Company Ltd.
According to the SEC’s complaint, Canadian stock promoters John Kirk, Benjamin Kirk, Dylan Boyle, James Hinton, and their associates, used false and misleading promotions to pump up trading in the stock of the two microcap companies and made millions when they secretly dumped their own shares. Microcap companies typically have limited assets and low-priced stock that trades in low volumes. The SEC alleges that the promoters sent investors false and misleading emails about the companies through two websites they controlled, Skymark Research and Emerging Stock Report, and used "boiler room" sales calls to tout the stocks, falsely claiming that the recommendations were based on independent research by Skymark and Emerging Stock Report.
The SEC alleges that San Diego-based attorneys Luis Carrillo and Wade Huettel were central participants in the scheme who helped the promoters conceal their ownership interests in the companies, drafted misleading public filings, and provided misleading legal opinions. As part of the scheme, their law firm, Carrillo Huettel LLP, secretly received proceeds of stock sales in the form of a sham "loan."
The SEC’s complaint, filed in federal court in Manhattan, alleges that Gibraltar Global Securities, a Bahamian broker-dealer, provided false affidavits and misleading statements that allowed Benjamin Kirk to secretly sell shares of the companies he was promoting. The SEC also charged Gibraltar’s president, Warren Davis, who signed misleading representations on behalf of Gibraltar.
"Microcap fraud is a scourge on our markets and we will continue to aggressively pursue individuals who engage in it, whether they are unscrupulous stock promoters who prey on investors or unethical attorneys who enable these pernicious schemes. Moreover, as this action demonstrates, the SEC is working closely with foreign authorities to root out this conduct in the international arena," said Andrew M. Calamari, Director of the SEC’s New York Regional Office.
According to the SEC, Tradeshow president Luniel de Beer, who served as chairman of Pacific Blue, received more than $330,000 in secret kickbacks for his part in the scheme. In addition, the SEC alleged that de Beer and Pacific Blue president Joel Franklin made misleading representations and facilitated the promoters’ stock sales. Without admitting or denying the SEC’s allegations, Franklin agreed to settle the SEC’s charges and consented to certain injunctive relief.
The SEC’s complaint charges Carrillo Huettel LLP, Carrillo, Huettel, Gibraltar Global Securities, John Kirk, Benjamin Kirk, Boyle, Hinton, de Beer, Franklin, Pacific Blue, and Tradeshow with violations of U.S. anti-fraud laws and rules, and charges these defendants, along with Warren Davis and Carrillo’s father, Dr. Luis Carrillo, with distributing unregistered shares, in violation of U.S. securities laws.
The SEC is seeking to have the defendants return their allegedly ill-gotten gains, with interest, and to bar Carrillo, Huettel, de Beer, John Kirk, Benjamin Kirk, Boyle, and Hinton from participating in penny stock offerings and from serving as public company officers or directors. The SEC is seeking civil monetary penalties from the attorneys, their law firm, and from de Beer.
Joshua Newville, Katherine Bromberg, Michael Paley, and Michael Osnato of the New York Regional Office conducted the SEC’s investigation. Mr. Newville, Ms. Bromberg and Todd Brody will lead the SEC’s litigation effort.
The SEC thanks the Financial Industry Regulatory Authority, the Alberta Securities Commission, the British Columbia Securities Commission, the Bahamas Securities Commission, the National Banking and Securities Commission of Mexico, and the Turks and Caicos Islands Financial Services Commission for their assistance in this matter
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