FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., April 8, 2013 — The Securities and Exchange Commission today charged a former employee at a California-based medical device manufacturer with illegally tipping confidential financial data to her brother, who illegally traded in the company's stock and enabled his hedge fund clients to do the same.
The SEC alleges that ThanhHa Bao, who worked in the finance department at Abaxis Inc., regularly provided material nonpublic information to Tai Nguyen, whose insider trading in advance of the company's quarterly earnings announcements generated $144,910 in illicit profits. Nguyen, who was charged by the SEC last year, also passed confidential information to clients of his equity research firm Insight Research, including hedge fund managers.
To settle the SEC's charges, Bao has agreed to pay $144,910 and be barred from serving as an officer or director of a public company for five years.
"When corporate insiders leak confidential information to a select few, the integrity of our markets is undermined," said Sanjay Wadhwa, Senior Associate Director of the SEC's New York Regional Office. "Abaxis entrusted ThanhHa Bao with market-moving information, and she violated that trust to financially benefit her family."
The SEC's charges stem from its ongoing investigations into expert networks that have uncovered widespread insider trading at several hedge funds and other investment advisory firms. The investigations have so far resulted in enforcement actions against 40 entities or individuals who have reaped more than $430 million in alleged insider trading gains.
According to the SEC's amended complaint filed in federal court in Manhattan, Bao regularly passed Abaxis quarterly earnings data to Nguyen from 2006 to 2009. Besides illegally trading in his own account, Nguyen passed the inside information to hedge fund managers Barai Capital Management and Sonar Capital Management, which were paying Insight Research tens of thousands of dollars per month as clients. These hedge fund managers traded Abaxis securities based on the inside information provided by Nguyen for more than $7.2 million in illicit gains for the hedge funds. Those who caused the trading at these hedge funds were later charged by the SEC with insider trading.
In a parallel criminal proceeding, Nguyen pleaded guilty and has been sentenced to a year and a day in prison. He also agreed to a criminal forfeiture of $400,000.
The SEC's amended complaint charges Bao with 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. The settlement, which is subject to court approval, requires Bao to pay $144,910 in penalties and be barred from serving as an officer or director of a public company for a period of five years. She also would be permanently enjoined from future violations of the federal securities laws.
The SEC's investigation, which is continuing, has been conducted by Daniel Marcus and Joseph Sansone - members of the SEC's Market Abuse Unit in New York - and Matthew Watkins, Neil Hendelman, Diego Brucculeri, and James D'Avino in the New York Regional Office. The investigation has been supervised by Sanjay Wadhwa. The SEC acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation.
FROM: COMMODITY FUTURES TRADING COMMISSION
CFTC Charges New York Firm 4X Solutions, Inc. and its Principal, Whileon Chay, with Forex Fraud Ponzi Scheme
Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of an enforcement action in the U.S. District Court for the Southern District of New York, charging Defendants 4X Solutions, Inc. (4X) and its principal, Whileon Chay, both of New York City, with fraud and misappropriation in a $4.8 million foreign currency (forex) trading Ponzi scheme.
The CFTC Complaint alleges that Chay and 4X fraudulently solicited approximately $4.8 million from at least 19 pool participants by falsely enticing prospective participants with the prospect of earning returns of 24 percent to 36 percent per year and claiming the ability to profit even in adverse market conditions, "when most have lost and lost dearly." At the same time, Defendants minimized the risks of forex trading, claiming, for example, that Defendants had not suffered a single losing month in 14 years and that 4X provides "a safe haven in our current financial environment," according to the Complaint.
The CFTC Complaint also alleges that Chay, who controlled 4X, lost approximately $2 million trading forex in corporate proprietary accounts and misappropriated approximately $2.8 million, using that money to fund 4X’s operations, make purported profit and investment return payments to their customers, and pay for Chay’s personal expenses, including paying for luxury resorts, expensive restaurants, limousine service, and exotic car rentals. The Complaint further alleges that Chay concealed the trading losses and misappropriation by, among other things, issuing or causing to be issued false monthly account statements and checks that purported to represent trading profits and investment returns. All or nearly all of the purported trading profits or returns made by Defendants came from the principal of other participants, the Complaint alleges.
In its continuing litigation, the CFTC seeks restitution to defrauded customers, disgorgement of ill-gotten gains, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of the Commodity Exchange Act, as charged.
CFTC Division of Enforcement staff members responsible for this case are Kara Mucha, August A. Imholtz III, James Garcia, Michael Solinsky, Gretchen L. Lowe, and Vincent A. McGonagle.
FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
April 9, 2013
CFTC Orders Florida-based Forex Global Solutions Inc., Forex Global Solutions Ltd., Barry Sendach, and Joshua Kershner to Pay $750,000 for Foreign Currency (Forex) Fraud and Violating CFTC Registration Requirements
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against Barry Sendach of Boca Raton, Fla., Joshua Kershner of Boynton Beach, Fla., and their Boca Raton-based companies, Forex Global Solutions Inc. and Forex Global Solutions Ltd. (together, Forex Global), for fraudulently soliciting customers to trade foreign currency (forex) and violating CFTC registration requirements. The Order requires Forex Global, Sendach, and Kershner, jointly and severally, to pay a $750,000 civil monetary penalty and imposes permanent trading and registration bans against them.
The CFTC Order finds that since October 18, 2010, Forex Global fraudulently solicited customers to open off-exchange forex trading accounts and grant discretionary trading authority over those accounts to Forex Global. In its solicitations, Forex Global published false historical performance returns on its website and in its solicitation emails and failed to disclose that it calculated the performance returns inaccurately, including by reflecting only one of the three fees that customers are charged, the Order finds.
The Order also finds that since October 18, 2010, Forex Global, Sendach, and Kershner failed to register with the CFTC as required under comprehensive new CFTC forex rules that became effective on that date.
Under those rules — which are designed to protect individual investors that buy forex contracts from or sell forex contracts to forex firms — entities that obtain or exercise discretionary trading authority over forex trading accounts must be registered with the CFTC as Commodity Trading Advisors (CTAs), and entities that solicit or accept forex trades must be registered with the CFTC as Introducing Brokers (IBs). The CFTC forex rules also require certain persons associated with a CTA or IB to be registered as Associated Persons (APs) of the CTA or IB. The Order finds that Forex Global violated those rules by acting as a CTA and IB without registering in those capacities, and further finds that Sendach and Kershner violated those rules by acting as APs of Forex Global without registering as APs.
The CFTC Division of Enforcement staff responsible for this action are Stephanie Reinhart, Joseph Patrick, Susan Gradman, Scott Williamson, Rosemary Hollinger, and Richard Wagner.
CFTC Customer Protection Information
The CFTC strongly urges members of the public to check with the National Futures Association (NFA) whether a company is registered before investing funds. If a company is not registered, an investor should be wary of providing funds to that company.
FROM: U.S. SECURITIES AND EXHANGE COMMISSION
Opening Statement at the SEC Open Meeting
by
Chairman Mary Jo White
Washington, D.C.
April 10, 2013
Good morning. This is an open meeting of the United States Securities and Exchange Commission being held on April 10, 2013.
Commissioner Walter is participating by telephone conference, and Commissioner Aguilar is participating by video conference.
Today, the Commission is considering whether to issue final rules to help protect investors from the risks of identity theft. The rules, required by the Dodd-Frank Act, would be issued jointly with the Commodity Futures Trading Commission (CFTC).
Under the rules, certain businesses regulated by the SEC and CFTC would be required to adopt and implement programs to detect and respond to indicators of possible identity theft.
Identity theft is a type of fraud that robs millions of Americans of their hard-earned money. Current estimates are that about five percent of American adults fall victim to identity theft fraud each year. It is a risk for everyone, and as technology continues to advance, the risks increase.
These rules are a common-sense response to the growing threat of identity theft to all Americans who invest, save, or borrow money. Any person who entrusts money to a financial institution or who receives money on credit can be vulnerable to those who may falsely pose as the individual and divert the money to a third party. The costs to victims can be great, including loss of individuals’ money and significant damage to their credit history.
In 2007, six federal agencies jointly adopted identity theft rules under the Fair Credit Reporting Act. Those agencies were the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the National Credit Union Administration, and the Federal Trade Commission. Their rules applied to business entities that qualify as "financial institutions" or "creditors" under the Fair Credit Reporting Act and offer or maintain certain types of accounts.
However, neither the SEC nor the CFTC adopted those identity theft rules in 2007, because the laws at that time did not authorize either of the Commissions to do so. Instead, entities that the SEC and CFTC regulate such as broker-dealers and futures commission merchants were covered by the rules of the six agencies.
The Dodd-Frank Act changed this approach by transferring rulemaking and enforcement authority for identity theft rules to the SEC and CFTC for the entities we regulate.
The SEC rules, if adopted, would apply to entities such as broker-dealers, investment companies, and investment advisers. The CFTC’s rules would apply to entities such as futures commodity merchants, commodity trading advisors, and commodity pool operators.
If these rules are approved, both Commissions will issue them in one joint adopting release.
The rules the SEC is considering today are substantially similar to the rules that the other six federal agencies adopted in 2007, but they also include examples and guidance to help the relevant businesses determine how to comply with the new rules. I look forward to the issuance of these rules and to the protections that these rules will afford investors against the growing threat of identity theft.
Before I turn to the Commission staff, I would like to say one personal word about today’s meeting. This is my first public meeting as Chair of the SEC. It is my privilege and honor to join today in these important efforts to protect investors and to ensure the strength, efficiency, and transparency of the securities markets. I look forward to working hard with my fellow Commissioners and with the dedicated staff of the Commission. I would also like to specifically thank my predecessor in this office, Elisse Walter, who has been so helpful in welcoming me to the agency and in providing strong leadership to the agency.
I would like to thank the Division of Investment Management and the Division of Trading and Markets for bringing this rule recommendation before us today. From Investment Management, I would like to thank the Director, Norm Champ, and Diane Blizzard, Hunter Jones, Thoreau Bartmann, Andrea Ottomanelli Magovern, and Amanda Wagner. From the Division of Trading and Markets, I would like to thank Acting Director John Ramsay, Jim Burns, David Blass, Joe Furey, and Brice Prince. I am also grateful for the important participation of the Commission’s economists in the Division of Risk, Strategy and Financial Innovation, in particular Director and Chief Economist Craig Lewis, Jennifer Marietta-Westberg, Matthew Kozora, and Stephen Lenkey. From the Office of General Counsel, I would like to thank the General Counsel Geoffrey Aronow, Meridith Mitchell, Lori Price, Cathy Ahn, Jill Felker, and Mykaila DeLesDernier.
And now let me turn the proceedings over to Norm Champ, the Director of the Division of Investment Management, and John Ramsay, the Acting Director of the Division of Trading and Markets, who will tell us more about the rules we are considering today.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission ("Commission") announced that on April 3, 2013, Chief Judge Norman A. Mordue entered a final judgment, against Prime Rate and Return, LLC ("Prime Rate"), individually and doing business as American Integrity Financial Company, in SEC v. Matthew John Ryan, et al. The Commission’s complaint alleges that Prime Rate defrauded investors through a multi-million dollar Ponzi scheme operated in the Albany-Troy area by Prime Rate’s sole owner and manager, Matthew Ryan.
Without admitting or denying the allegations of the complaint, Prime Rate, through its court-appointed receiver, Paul A. Levine, Esq., consented to the entry of a final judgment permanently enjoining it from 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 and Rule 10b-5 thereunder. The final judgment orders Prime Rate to pay disgorgement of $6.5 million and prejudgment interest of $616,662, but deems disgorgement satisfied by the $71,927 recovered by the receiver plus any additional amount the receiver recovers, after certain court-approved payments and fees, from the sale of a property in which Prime Rate owns an interest.
The Commission filed a complaint on May 3, 2010, alleging that from at least 2002, Ryan and Prime Rate, using a fictional entity called "American Integrity Financial Company" ("American Integrity") had raised more than $6.5 million from investors — many of them elderly — by promising them "guaranteed" fixed rates of return ranging from 3.85% to 9% annually. Ryan obtained these investments by fostering the false impression that American Integrity was a legitimate, substantial financial services firm, with numerous employees and for which he was merely an employee, and by offering safe, even guaranteed, investments, including qualified individual retirement accounts ("IRAs"). To perpetrate this fraud, Ryan used devices such as a phony Manhattan address and fictitious names and titles of purported American Integrity employees. Ryan also misrepresented to investors that their investments were safe and insured by the Federal Deposit Insurance Corporation ("FDIC") or the Securities Investor Protection Corporation ("SIPC") and that American Integrity was qualified to offer IRAs and other tax-deferred investments.
The Commission’s case is still pending against Matthew Ryan. Ryan has been convicted of securities fraud in a criminal case arising out of the same conduct underlying the Commission’s case and has been barred by the Commission from the securities industry.
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