FROM: SECURITIES AND EXCHANGE COMMISSION
SEC Sues Texas Oil and Gas Promoters for Securities Fraud
On June 28, 2013, the Securities and Exchange Commission charged Matthew Madison and Dwight McGhee, and their Irving, Texas based company Infinity Exploration, LLC, with conducting a fraudulent offering of oil and gas related investments.
Filed in the United States District Court for the Northern District of Texas, the Commission's complaint alleges that, between March and October 2008, Madison and McGhee raised over $2 million from at least 40 investors from the fraudulent offer and sale of interests in Infinity's two oil and gas joint ventures. Infinity's offering materials misled investors into believing that Infinity's ventures would own the leases and control drilling operations. Indeed, Infinity's communications with investors were peppered with references to as "our wells" and "our crew." The Commission alleges that these claims were false, because Infinity's ventures did not actually have direct interests in any oil and gas leases and no direct involvement in operation of any leases. To the contrary, Infinity's ventures merely owned interests in an unaffiliated joint venture, over which Infinity's ventures could exercise no significant control. The complaint alleges that Madison and McGhee intentionally hid this fact from investors. The complaint further alleges that the defendants' offering materials falsely described Madison as experienced and successful in the oil and gas industry and failed to disclose McGhee's 2007 federal felony conviction.
The complaint alleges that Infinity, Madison, McGhee violated Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest and civil penalties against each of the defendants.
The SEC's investigation was conducted by Ronda Blair, Ty Martinez, and Barbara Gunn of SEC's Fort Worth Regional Office. The SEC acknowledges the assistance of the Federal Bureau of Investigation.
FROM: SECURITIES AND EXCHANGE COMMISSION
SEC Obtains Freeze On Proceeds from Unlawful Distribution of Biozoom Securities
The Securities and Exchange Commission today announced charges against eight Argentine citizens who unlawfully sold millions of shares of Biozoom, Inc. in unregistered transactions. The SEC also obtained an emergency order to freeze assets in the U.S. brokerage accounts of the eight defendants and two other Argentine citizens who had Biozoom shares but had not yet sold them. The action follows last week's suspension of trading in Biozoom due to concerns that some shareholders may be unlawfully distributing its securities.
Biozoom, formerly Entertainment Art, Inc., announced in April that it was changing its name and moving from producing leather bags to developing biomedical technology. The SEC's complaint alleges that from March to June 2013, the ten defendants received more than 20 million shares of Entertainment Art, which was one-third of the company's total outstanding shares. In a one-month period beginning in mid-May, eight of them sold more than 14 million shares. The sales yielded almost $34 million, of which almost $17 million was wired to overseas bank accounts. Their U.S. brokerage accounts, which include approximately $16 million in cash, are subject to the asset freeze.
The SEC's complaint, filed in U.S. District Court in Manhattan, charges the eight defendants -- Magdalena Tavella, Andres Horacio Ficicchia, Gonzalo Garcia Blaya, Lucia Mariana Hernando, Cecilia De Lorenzo, Adriana Rosa Bagattin, Daniela Patricia Goldman, Mariano Pablo Ferrari -- along with two others, Fernando Loureyro, and Mariano Graciarena, who received shares but have yet to sell them.
According to the SEC's complaint, when the defendants deposited the Biozoom stock into their U.S. brokerage accounts, they claimed to have acquired the bulk of the shares in March 2013 from Entertainment Art shareholders who purchased them in private placements that began in 2007. Each of the defendants provided stock purchase agreements between them and the former shareholders purportedly signed by the defendants and those shareholders. The SEC alleges that the documents were false because the Entertainment Art investors had sold all of their stock in the company in 2009, almost four years earlier. The defendants' shares of Biozoom were deposited into their accounts as shares that purportedly could be freely traded and the defendants sold them even though no registration
In addition to the temporary restraining order and asset freeze granted by the court, the SEC is seeking preliminary and permanent injunctions, return of the selling defendants' allegedly ill-gotten sale proceeds, and civil penalties. The SEC also seeks preliminary and permanent injunctions against the non-selling defendants, Graciarena and Loureyro, because of the likelihood that both defendants will offer or sell their Biozoom shares to the public in violation of the registration requirements of U.S. securities law.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22740 / July 2, 2013
SEC Charges Armand R. Franquelin and Martin A. Pool with Violations of the Federal Securities Laws
On, July 2, 2013, the Securities and Exchange Commission filed a civil injunctive action against Armand R. Franquelin (Franquelin) and Martin A. Pool (Pool), alleging that Franquelin and Pool violated the federal securities laws in connection with the sale of securities by The Elva Group, LLC (Elva Group). Judith E. Franquelin, wife of Armand R. Franquelin, was named as a relief defendant.
In its Complaint, filed in the U.S. District Court for the District of Utah, the Commission alleges that from at least January 2006 through August 2010, Franquelin and Pool engaged in a Ponzi scheme and acted as unregistered broker-dealers by offering and selling more than $12 million in Elva Group securities to approximately 130 investors. The Complaint alleges Franquelin and Pool encouraged investors to convert funds held in Individual Retirement Accounts (IRAs) into self-directed IRAs through Destiny Funding, LLC, another company owned by Franquelin and Pool, before investing those funds with Elva Group. Franquelin and Pool claimed to use investor funds to develop real estate and guaranteed returns ranging from 10% to 240% per year. Instead of using investor funds as represented, it is alleged that Franquelin and Pool misappropriated investor money for their personal use, to make "interest" payments to earlier investors, and to pay for continuing Elva Group expenses.
The Commission alleges that by engaging in this conduct Franquelin and Pool violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 (Securities Act) and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint seeks a permanent injunction as well as disgorgement, prejudgment interest and a civil penalty from Franquelin and Pool. The complaint also seeks disgorgement and prejudgment interest from Judith Franquelin.
Without admitting or denying the allegations in the Commission’s complaint, Pool has consented to the entry of a final judgment permanently enjoining him from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. Pool has also consented to pay disgorgement of $970,510.00, plus prejudgment interest of $418,935.05, but payment of disgorgement and prejudgment interest will be waived and no civil penalty will be imposed based on Pool’s current financial condition.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., July 1, 2013 - The Securities and Exchange Commission today announced that Timothy B. Henseler has been named as Director of the agency's Office of Legislative and Intergovernmental Affairs, effective immediately.
Mr. Henseler was formerly the Deputy Director of the office and has served as its Acting Director since July 2012. He advises the Chair, Commissioners, and SEC staff on legislative matters, provides technical assistance on securities-related legislation to congressional committees and staff, and assists in preparing SEC testimony for congressional hearings.
"Tim has a firm grasp of the legislative process and a deep appreciation for the role that Congress plays," said Mary Jo White. "In the short time I have served as Chair of the Commission, I have benefited from his wise counsel and his broad knowledge of the securities laws."
Mr. Henseler added, "I am honored to have the opportunity to continue to work with Chair White, the Commissioners, and the expert staff at the SEC. I look forward to continuing to help the agency in fulfilling its critical mission."
Mr. Henseler began his career at the SEC in its Boston office, where he was an enforcement counsel from 2003 to 2009. He also has experience on Capitol Hill, having served as a legislative assistant to Sen. Carl Levin from 2001 to 2003, working on tax, budget, accounting, securities, and banking policy. In addition, he conducted witness interviews and analyzed complex structured finance transactions as part of the Senate Permanent Subcommittee on Investigations examination of Enron Corp.
Before working as a Senate staffer, Mr. Henseler was an associate with the law firm of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C., in Boston. From 1998 to 1999, he was a law clerk for the Honorable George O'Toole, Jr., in the U.S. District Court for the District of Massachusetts.
Mr. Henseler received his J.D. from the Catholic University of America's Columbus School of law in 1998, graduating summa cum laude and first in his class. While attending law school he worked as an intern for Rep. Patrick J. Kennedy and as an extern for the Honorable Royce C. Lamberth in the U.S. District Court for the District of Columbia. He received his B.A. from Brandeis University in 1995, with majors in history and American studies.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission announced today that a Massachusetts federal court entered final judgments by consent on June 26, 2013 and March 20, 2013, respectively, against John W. Bordynuik ("Bordynuik") and JBI, Inc. ("JBI"), two defendants in a fraud action filed by the Commission in 2012. The Commission alleged in its complaint that JBI, its then CEO, John Bordynuik, and its former CFO, Ronald Baldwin, Jr. ("Baldwin"), engaged in a scheme to commit securities and accounting fraud in 2009. In the consent judgments, the Court ordered JBI to pay $150,000 and Bordynuik to pay $110,000 in civil monetary penalties.
The Commission filed its action on January 4, 2012, alleging that during two reporting periods in 2009 and in contravention of Generally Accepted Accounting Principles ("GAAP"), JBI stated materially false and inaccurate financial information on its financial statements. The Complaint alleged that the defendants misrepresented and overstated the actual value of certain assets, known as media credits, by almost 1,000%, in an effort to bolster its balance sheet. JBI then used the overvalued financial statements in two private capital raising efforts (Private Investment in Public Equity or PIPES) that raised over $8.4 million from unwitting investors in these PIPES just before the company issued a public statement indicating its financial statements could no longer be relied upon, in part, due to the erroneous valuation of the media credits and other assets on the balance sheet. According to the complaint, Bordynuik was aware of, or was reckless in not being aware of, GAAP concerns surrounding the reported value of the media credits in advance of the company’s periodic reports that included the financial statements filed with the Commission, yet falsely certified that the company’s financial statements for those reporting periods were filed in conformity with GAAP.
Without admitting or denying the allegations in the Commission’s complaint, JBI and Bordynuik consented to final judgments entered by the Court. The final judgment against JBI permanently enjoined the company from violating Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, and ordered JBI to pay a civil monetary penalty of $150,000. The final judgment against Bordynuik permanently enjoined him from violating Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-11, and ordered him to pay a civil penalty of $110,000. Bordynuik also was barred for five years (from March 18, 2013) from acting as an officer or director of a public company. The case against the remaining defendant (Baldwin) remains pending.
FROM: COMMODITY FUTURES TRADING COMMISSION
Federal Court Orders Alpha Trade Group S.A. and its Employees and Agents to Pay Combined Restitution and Penalties of $5.779 Million for Defrauding Pool Participants
Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that on June 3, 2013, Judge Gregory A. Presnell of the U.S. District Court for the Middle District of Florida entered an Amended Order entering final judgment (Order) against Defendants Alpha Trade Group, S.A. (ATG), Jose Cecilio Martinez Beltran (Martinez), Welinton Bautista Castillo (Bautista), Yehodiz Padua Valentin (Padua), Maria Alvarez Gutierrez (Gutierrez), and Maria Asela Rodriguez (Rodriguez), all of Orlando, Florida, for their involvement in a fraudulent off-exchange foreign currency (forex) and commodity futures scheme involving two pools, Orsa Investment Group, L.L.C. and Online Marketing Solutions. The Order finds that certain Defendants solicited customers, accepted their funds into the two pools and then failed to return more than $1,461,000, primarily from residents in Florida, California, and Puerto Rico. Moreover, the Order finds that all of the Defendants misappropriated customer funds.
The Order requires ATG, Martinez, and Bautista to pay, jointly and severally, $1,461,500 in restitution, and each to pay a $980,000 civil monetary penalty. The Order requires Padua, Gutierrez and Rodriguez to pay restitution in the amounts of $10,383, $82,750, and $49,079.37, respectively, as well as civil monetary penalties in the amounts of $840,000, $248,250, and $147,238.11, respectively. The Order also imposes permanent trading and registration bans against all of these defendants, and prohibits them from violating the Commodity Exchange Act, as charged.
The Order stems from a CFTC Complaint filed on September 27, 2011, charging ATG, Martinez, Bautista and Padua with solicitation fraud, issuing false account statements, and misappropriating pool participant funds, in connection with both futures and forex, and failing to register with the Commission in connection with futures activities, and also charging Gutierrez and Rodriguez with misappropriating pool participant funds. (See CFTC Press Release 6115-11; CFTC v. Alpha Trade Group S.A., et al., Case No. 6:11-cv-01584-GAP-DAB.)
The CFTC acknowledges the assistance of U.S. Immigration and Customs Enforcement, Department of Homeland Security, as well as the U.S. Attorney’s Office for the Middle District of Florida during the investigation of this matter. The CFTC also acknowledges the assistance provided by Germany’s Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), the Ontario Securities Commission (OSC), and Spain’s Comisión Nacional del Mercado de Valores (CNMV) during the investigation.
CFTC Division of Enforcement staff members responsible for this case are Kim Bruno, Amanda Harding, Michael Loconte, Erica Bodin, Kathleen Banar, Rick Glaser, and Richard Wagner.
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