INVESTMENT ADVISER AND OWNER RECEIVE PERMANENT INJUNCTIONS FOR ROLES IN ALLEGED FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Obtains Order of Permanent Injunctions Against Chicago-Area Investment Adviser and Its Owners for Fraud

The Securities and Exchange Commission (Commission) announced that on December 19, 2013, Judge Charles P. Kocoras of the U.S. District Court for the Northern District of Illinois entered an order of permanent injunctions against Oakbrook, Illinois resident Patrick G. Rooney (Rooney) and his company Solaris Management, LLC (Solaris).

According to the SEC's complaint filed on November 16, 2011, Rooney and Solaris radically changed the investment strategy of the Solaris Opportunity Fund LP (the Fund), contrary to the Fund's offering documents and marketing materials, by becoming wholly invested in Positron Corp. (Positron), a financially troubled microcap company. The SEC alleges that Rooney, who has been Chairman of Positron since 2004 and received salary and stock options from Positron since September 2005, misused the Fund's money by investing more than $3.6 million in Positron through both private transactions and market purchases. Many of the private transactions were undocumented while other investments were interest-free loans to Positron. Rooney and Solaris hid the Positron investments and Rooney's relationship with the company from the Fund's investors for over four years. Although Rooney finally told investors about the Positron investments in a March 2009 newsletter, the SEC's complaint alleges he falsely told them he became Chairman to safeguard the Fund's investments. These investments benefited Positron and Rooney while providing the Fund with a concentrated, undiversified, and illiquid position in a cash-poor company with a lengthy track record of losses.

Without admitting or denying the Commission's allegations, Rooney and Solaris consented to the entry of permanent injunctions which enjoin them from violating Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-8(a)(1) and (a)(2) thereunder; Section 17(a) of the Securities Act of 1933; and Sections 10(b) and 13(d)(1) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13d-1 thereunder. Rooney and Solaris Management further agreed that the court would determine whether to impose penalties and disgorgement against them and whether Rooney should be prohibited from acting as an officer or director of a public company.

MICROSOFT SENIOR MANAGER CHARGED BY SEC WITH INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Microsoft Senior Manager and Friend with Insider Trading in Advance of Company News

The Securities and Exchange Commission announced that, on December 19, 2013, it charged a senior portfolio manager at Microsoft Corporation and his friend and business partner with insider trading ahead of company announcements.

The SEC alleges that Brian D. Jorgenson, who lives in Lynwood, Wash., obtained confidential information about upcoming company news through his work in Microsoft's corporate finance and investments division. Jorgenson tipped Sean T. Stokke of Seattle in advance of the Microsoft announcements, the most recent occurring in October. After Stokke traded on the inside information that Jorgenson provided, the two equally split the illicit profits in their shared brokerage accounts. They made joint trading decisions with the goal of generating enough profits to create their own hedge fund.

In a parallel action, the U.S. Attorney's Office for the Western District of Washington announced criminal charges against Jorgenson and Stokke.

According to the SEC's complaint filed in U.S. District Court for the Western District of Washington, Jorgenson and Stokke made a combined $393,125 in illicit profits in their scheme, which began in April 2012.

The SEC alleges that Stokke first traded in advance of a public announcement that Microsoft intended to invest $300 million in Barnes & Noble's e-reader business. Jorgenson learned of the impending transaction after his department became involved in the financing aspects of the deal. Jorgenson tipped Stokke so he could purchase approximately $14,000 worth of call options on Barnes & Noble common stock. Following a joint public announcement on April 30, 2012, Barnes & Noble's stock price closed at $20.75 per share, a 51.68 percent increase from the previous day. Jorgenson and Stokke made nearly $185,000 in ill-gotten trading profits.

The SEC alleges that Stokke later traded in advance of Microsoft's fourth-quarter earnings announcement in July 2013. As part of his duties at Microsoft, Jorgenson prepared a written analysis of how the market would react to the negative news that Microsoft's fourth quarter earnings were more than 11 percent below consensus estimates. He estimated that Microsoft's stock price would decline by at least six percent. Jorgenson tipped this confidential information to Stokke, who purchased almost $50,000 worth of Microsoft options. After Microsoft's announcement on July 18, its stock price declined more than 11 percent the next day from $35.44 to $31.40 per share. Jorgenson and Stokke realized more than $195,000 in illicit profits.

According to the SEC's complaint, Stokke traded in advance of another Microsoft announcement on Oct. 24, 2013. Jorgenson was aware that the company would be announcing first quarter 2014 earnings that were more than 14 percent higher than consensus estimates. Rather than purchase Microsoft securities directly, Jorgenson and Stokke purchased more than $45,000 worth of call options on an exchange-traded fund in which Microsoft comprised more than eight percent of the fund's holdings. Following the announcement, Microsoft's share price increased nearly six percent and the price of the ETF increased 0.51 percent. Jorgenson and Stokke made approximately $13,000 in illegal trading profits.

Jorgenson and Stokke are charged with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, both directly and pursuant to Section 20(d) of the Exchange Act. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and financial penalties against Jorgenson and Stokke as well as an officer-and-director bar against Jorgenson.

The SEC's investigation was conducted by Brendan P. McGlynn, Patricia A. Paw, John S. Rymas, and Daniel L. Koster of the Philadelphia Regional Office. The SEC's litigation will be led by John V. Donnelly and G. Jeffery Boujoukos.

The SEC appreciates the assistance of the U.S. Attorney's Office for the Western District of Washington, Federal Bureau of Investigation, Options Regulatory Surveillance Authority, and Financial Industry Regulatory Authority.

SEC ISSUES ANNUAL REPORT ON CREDIT RATING AGENCIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission issued its annual staff report on the findings of examinations of credit rating agencies registered as nationally recognized statistical rating organizations (NRSROs).  The agency also submitted an annual staff report on NRSROs to Congress.

“The two reports reflect an evolving industry,” said Thomas J. Butler, director of the SEC’s Office of Credit Ratings.  “The examination report shows that the SEC’s vigilant oversight is improving compliance at NRSROs, while the annual report to Congress depicts an industry that is growing more competitive and transparent.”

The 2010 Dodd-Frank Act requires the SEC to examine each NRSRO at least annually and issue a report summarizing key findings of the examinations.  The report discusses the staff’s findings and recommendations for each of the 10 NRSROs.  Among the areas examined are whether each NRSRO conducts business in accordance with its policies, procedures, and methodologies as well as how an NRSRO manages conflicts of interest and whether it maintains effective internal controls.

The report noted, for instance, that the staff found one or more NRSROs lacked comprehensive procedures governing ratings placed under review.  The staff also found that oversight of the process for developing new rating methodologies and criteria was not sufficient at one or more NRSROs to ensure independence from business and market share considerations.

The 2013 examination report highlights certain improvements among NRSROs, such as increased investment in compliance systems and infrastructure along with enhancements in compliance training for both analytical and non-analytical employees.  These improvements address recommendations that the staff made to NRSROs on prior examinations.

The annual report to Congress, which is required by the 2006 Credit Rating Agency Reform Act, identifies the applicants for NRSRO registration, actions taken on the applications, and the SEC’s views on the state of competition, transparency, and conflicts of interest among NRSROs.

Observations from the 2013 annual report include the following:

The number of NRSROs rose to 10 with HR Ratings de México, S.A. de C.V., registering in November 2012.
Some smaller NRSROs have gained significant market share in ratings for certain types of asset-backed securities.
Transparency is increasing due to the NRSROs issuing unsolicited commentary on ratings issued by other NRSROs.

The following SEC staff made significant contributions to the examinations and reports: Abe Losice, Michele Wilham, Kenneth Godwin, Natalia Kaden, Harriet Orol, Jacob Prudhomme, Diane Audino, Kristin Costello, Scott Davey, Shawn Davis, Michael Gerity, Julia Kiel, Joanne Legomsky, Russell Long, Carlos Maymi, David Nicolardi, Sam Nikoomanesh, Joseph Opron, Abraham Putney, Mary Ryan, Warren Tong, Evelyn Tuntono, and Kevin Vasel.

FORMER SAP EMPLOYEE CHARGE BY SEC WITH INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Former SAP Employee with Insider Trading

The Securities and Exchange Commission announced that, on December 23, 2013, it charged David F. Marchand, of Campbell, California, a former Board Assistant to the Co-Chief Executive Officer of SAP AG, with unlawful insider trading in the securities of three issuers: SuccessFactors, Inc. (“SuccessFactors”), Ariba, Inc. (“Ariba”) and SAP AG (“SAP”). According to the SEC’s complaint filed in the U.S. District Court for the District of New Jersey, Marchand made a total of $43,500 in illicit profits through his trading.

The SEC’s complaint alleges that, while in possession of material nonpublic information concerning SAP’s intention to acquire SuccessFactors, Marchand purchased SuccessFactors common stock between November 21, 2011 and November 28, 2011, in advance of the December 3, 2011 public announcement that SAP and SuccessFactors had entered into a merger agreement pursuant to which a subsidiary of SAP would acquire SuccessFactors for $40 per share in a tender offer. The price of SuccessFactors common stock increased 51.4 percent after the announcement, and Marchand sold his shares, realizing illicit profits of $28,061.

The complaint further alleges that, in early January 2012, Marchand became aware of material nonpublic information regarding SAP’s favorable financial performance for the fourth quarter and year ended 2011, including its “best ever” software revenue numbers. After learning this information, Marchand purchased SAP American Depositary Receipts (ADRs) prior to SAP’s January 13, 2012 public release of its preliminary fourth quarter 2011 results. Marchand sold his SAP ADRs after the announcement, realizing illicit profits of $2,157.

The SEC also alleges that, a few months later, after he learned material nonpublic information about SAP’s intentions to acquire Ariba, Marchand purchased Ariba common stock on April 16, 2012, May 2, 2012 and May 8, 2012, in advance of the May 22, 2012 public announcement that a subsidiary of SAP and Ariba had entered into a merger agreement pursuant to which a subsidiary of SAP would acquire Ariba for $45 per share of common stock. The price of Ariba common stock increased approximately 19 percent after the announcement, and Marchand sold his Ariba shares, realizing illegal profits of $13,282.

Marchand has consented, without admitting or denying the SEC’s allegations, to the entry of a final judgment permanently enjoining him from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder; requiring him to pay $43,500 in disgorgement, $2,155 in prejudgment interest, and a penalty of $43,500. The settlement is subject to court approval.

The SEC’s ongoing investigation is being conducted by Brendan P. McGlynn, Oreste P. McClung and Daniel L. Koster of the Philadelphia Regional Office. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

ADM CHARGED WITH FOREIGN CORRUPT PRACTICES VIOLATIONS

FROM:  SECURITIES AND EXCHANGE COMMISSION  
Charges Archer-Daniels-Midland Company with FCPA Violations

The Securities and Exchange Commission today charged global food processor Archer-Daniels-Midland Company (ADM) for failing to prevent illicit payments made by foreign subsidiaries to Ukrainian government officials in violation of the Foreign Corrupt Practices Act (FCPA).

An SEC investigation found that ADM's subsidiaries in Germany and Ukraine paid $21 million in bribes through intermediaries to secure the release of value-added tax (VAT) refunds. The payments were then concealed by improperly recording the transactions in accounting records as insurance premiums and other purported business expenses. ADM had insufficient anti-bribery compliance controls and made approximately $33 million in illegal profits as a result of the bribery by its subsidiaries.

ADM, which is based in Decatur, Ill., has agreed to pay more than $36 million to settle the SEC's charges. In a parallel action, the U.S. Department of Justice today announced a non-prosecution agreement with ADM and criminal charges against an ADM subsidiary that has agreed to pay $17.8 million in criminal fines.

According to the SEC's complaint filed in U.S. District Court for the Central District of Illinois, the bribery occurred from 2002 to 2008. Ukraine imposed a 20 percent VAT on goods purchased in its country. If the goods were exported, the exporter could apply for a refund of the VAT already paid to the government on those goods. However, at times the Ukrainian government delayed paying VAT refunds it owed or did not make any refund payments at all. On these occasions, the outstanding amount of VAT refunds owed to ADM's Ukraine affiliate reached as high as $46 million.

The SEC alleges that in order to obtain the VAT refunds that the Ukraine government was withholding, ADM's subsidiaries in Germany and Ukraine devised several schemes to bribe Ukraine government officials to release the money. The bribes paid were generally 18 to 20 percent of the corresponding VAT refunds. For example, the subsidiaries artificially inflated commodities contracts with a Ukrainian shipping company to provide bribe payments to government officials. In another scheme, the subsidiaries created phony insurance contracts with an insurance company that included false premiums passed on to Ukraine government officials. The misconduct went unchecked by ADM for several years because of its deficient and decentralized system of FCPA oversight over subsidiaries in Germany and Ukraine.

The SEC's complaint charges ADM with violating Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. ADM consented to the entry of a final judgment ordering the company to pay disgorgement of $33,342,012 plus prejudgment interest of $3,125,354. The final judgment also permanently enjoins ADM from violating those sections of the Exchange Act, and requires the company to report on its FCPA compliance efforts for a three-year period. The settlement is subject to court approval. The SEC took into account ADM's cooperation and significant remedial measures, including self-reporting the matter, implementing a comprehensive new compliance program throughout its operations, and terminating employees involved in the misconduct.

The SEC's investigation was conducted by Nicholas A. Brady and supervised by Moira T. Roberts and Anita B. Bandy. The SEC appreciates the assistance of the Justice Department's Fraud Section and the Federal Bureau of Investigation.

FICTITIOUS TRADING RESULTS IN REAL PENALTY OF $600,000

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
December 19, 2013

Federal Court in New York Orders Defendant David M. Nunn to Pay a $600,000 Civil Monetary Penalty for Engaging in an Illegal Coffee Futures Trading Scheme and Making False Statements to ICE Futures U.S. Court Permanently Bans Nunn from Trading or Registration with the CFTC

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Lewis A. Kaplan of the U.S. District Court for the Southern District of New York entered a consent Order against David M. Nunn for entering into fictitious sales, engaging in illegal noncompetitive and fictitious trades in coffee futures contracts over a two-year period, and making false statements to representatives of ICE Futures U.S., Inc. (ICE). Nunn is a Vermont resident and a former ICE floor broker.

The consent Order of permanent injunction, entered on December 18, 2013, requires Nunn to pay a $600,000 civil monetary penalty and, among other sanctions, permanently bans Nunn from trading on a registered entity, soliciting or receiving funds for trading on a registered entity, applying for registration or claiming exemption from registration with the CFTC, or acting as a principal or agent of any CFTC registrant or person exempted from registration.

The Order stems from a CFTC Complaint filed on October 18, 2012 (see CFTC Press Release 6393-12). The Complaint alleged that, from at least July 2008 through September 2010, Nunn engaged in over 1,300 non-competitive, fictitious coffee futures trades on ICE. The Complaint further alleged that, through this illegal scheme, Nunn transferred over $1.68 million to another account that he controlled.

The Order states that Nunn engaged in a series of unlawful, non-competitive commodity futures transactions involving coffee futures on ICE. The Order also states that Nunn intentionally made non-competitive, fictitious sales by placing virtually simultaneous orders to buy or sell in accounts either held in his name or held under another person’s name that he controlled. Nunn made false statements to ICE officials during an interview when he denied that monies were transferred to him from the account held under the other person’s name, according to the Order.

In a related ICE proceeding, Nunn was expelled from ICE membership and is prohibited from directly or indirectly accessing the exchange’s markets. The CFTC appreciates the assistance of ICE in this matter.

CFTC Division of Enforcement staff members responsible for this case are Trevor Kokal, Michael Geiser, David Oakland, David Acevedo, Lenel Hickson, and Manal Sultan.