TWO PRINCIPALS AND COMPANY CHARGED WITH COMMODITY POOL FRAUD BY CFTC

FROM:  COMMODITY FUTURES TRADING COMMISSION 
CFTC Charges New York-Based SK Madison Commodities, LLC and its principals, Michael James Seward and Yan Kaziyev, with Commodity Pool Fraud and Other Violations

Federal Court Issues Emergency Order Freezing Assets and Protecting Books and Records

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that on March 24, 2014, Judge Sidney Stein of the U.S. District Court for the Southern District of New York (Manhattan) issued an emergency Order freezing and preserving the remaining pool participant assets under the control of Michael James Seward, Yan Kaziyev, and their company SK Madison Commodities, LLC (SKMC), a Commodity Pool Operator based in New York City. The Order also freezes assets controlled by a successor company, SK Madison, LLC, prohibits Seward, Kaziyev, and SKMC from destroying books and records, and allows the CFTC immediate access to those records.

This emergency Order is part of a CFTC enforcement action filed on March 24, 2014. The CFTC Complaint alleges that, from as early as October 2010, Seward and Kaziyev, by and through SKMC (collectively, Defendants), fraudulently solicited more than $1.3 million from members of the public to trade futures in a commodity pool by, among other things, misrepresenting their trading practices and historical trading returns. The Complaint further alleges that the Defendants prepared and distributed to pool participants false account statements and performance reports showing huge profits, while at the same time Defendants were losing money trading futures and diverting large amounts of pool participants’ funds for Defendants’ own use. In addition to fraud, the Complaint alleges that the Defendants committed certain registration violations.

In its continuing litigation, the CFTC seeks full restitution to defrauded pool participants, disgorgement of any ill-gotten gains, the payment of appropriate civil monetary penalties, permanent registration and trading bans, and a permanent injunction from future violations of federal commodities laws, as charged.

MAN ACCUSED OF TRADING AHEAD OF BAD NEWS

FROM:  SECURITIES AND EXCHANGE COMMISSION 
Charges Massachusetts Resident with Insider Trading

The Securities and Exchange Commission today charged David J. Cancian of Lexington, Massachusetts, with insider trading ahead of an April 5, 2011 announcement by Massachusetts-based American Superconductor Corporation that caused the company’s stock price to tumble 42%. Cancian made profits and avoided losses of over $46,000.  Cancian has agreed to pay a total of $97,843 in disgorgement of ill-gotten gains, prejudgment interest, and a civil penalty to settle the insider trading charges.

According to the SEC’s complaint, filed in federal district court in Boston, Cancian, while having drinks on April 1, 2011 with a friend who was a senior executive at the company, learned that American Superconductor’s stock price was likely to drop.  The next trading day, April 4, 2011, Cancian sold the majority of American Superconductor stock he owned and sold “covered call options” to offset losses on the stock he continued to hold.  On April 5, 2011, after the close of trading, American Superconductor announced that its financial results for its fourth quarter and fiscal year ended March 31, 2011 would be lower than expected due to a deteriorating relationship with its primary customer, Sinovel Wind Group Co., Ltd., of China.  American Superconductor’s stock price plummeted 42% the next day.  As a result of Cancian’s trading ahead of the company’s announcement of negative news, he made profits and avoided losses of $46,930.

Cancian has agreed to settle this case, without admitting or denying the allegations in the SEC’s complaint, by consenting to a judgment enjoining him from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and ordering him to pay disgorgement of $46,930 (representing his ill-gotten gains) plus prejudgment interest of $3,983 and a civil penalty of $46,930.

The SEC’s investigation was conducted by Asita Obeyesekere, Michael Foster, and Kevin Kelcourse in the SEC’s Boston Regional Office.  The Commission acknowledges the assistance of the Options Regulatory Surveillance Authority and the Financial Industry Regulatory Authority in this matter.  The SEC’s investigation is ongoing.

MORGAN STANLEY SMITH BARNEY LLC SETTLES CFTC CHARGES RELATED TO SEGREGATED AND SECURED FUNDS ALLEGED RULE VIOLATIONS

FROM:  COMMODITY FUTURES TRADING COMMISSION 
CFTC Orders Morgan Stanley Smith Barney LLC to Pay $490,000 to Settle Charges Relating to Rules and Regulations Pertaining to Segregated and Secured Amount Funds

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing and simultaneous settlement of charges against Morgan Stanley Smith Barney LLC (MSSB), a registered Futures Commission Merchant (FCM), for violating CFTC rules governing secured funds of foreign futures and option customers, commingling customer and firm funds, failing to prepare accurate daily computations of its segregated and secured funds, failing to properly title account statements for four customer segregated accounts, and failing to diligently supervise its employees handling of matters related to its business as a CFTC registrant. None of the violations resulted in any customer losses, according to the CFTC’s Order. The Order requires MSSB to pay a $490,000 civil monetary penalty and to cease and desist from violating the Commodity Exchange Act and CFTC Regulations, as charged.

Specifically, the CFTC’s Order finds that on April 8, 2013, MSSB erroneously transferred approximately $16 million from a customer secured funds bank account resulting in a deficiency in MSSB’s secured funds of approximately $9.27 million. MSSB discovered the error the next day and cured the deficiency, the Order finds. After its secured deficiency in April 2013, MSSB independently engaged KPMG LLP to review its policies and procedures with respect to segregated and secured accounts. KPMG subsequently issued a report recommending changes to MSSB’s policies and procedures, which MSSB has substantially implemented, according to the Order.

The CFTC’s Order also finds that for approximately a six-month period in 2012, MSSB commingled customer segregated and firm funds in a customer segregated bank account.

In addition, for approximately an eight-month period in 2012, MSSB failed to prepare accurate daily computations of its segregated and secured funds, according to the Order. None of the errors caused MSSB to fall below its required segregated or secured funds; however, MSSB was required to refile 120 daily statements as a result of the errors, the Order finds.

Finally, the CFTC’s Order finds that during several months in 2012, account statements for four MSSB segregated accounts were improperly titled as customer secured accounts.

CFTC Division of Enforcement staff responsible for this matter are Allison Passman, David Terrell, Joseph J. Patrick, Ava Gould, Scott R. Williamson, and Rosemary Hollinger. The Division thanks the Commission’s Division of Swaps and Intermediary Oversight and the National Futures Association for their assistance in this matter.

DEFENDANTS ORDERED TO PAY $2.2 MILLION FOR INVOLVEMENT IN FOREIGN CURRENCY PONZI SCHEME

FROM:  COMMODITY FUTURES TRADING COMMISSION 
An Ohio Federal Court Rules against Defendants in CFTC Fraud Action and Orders Patrick Cole and Global Strategic Marketing, Inc. to Pay over $2.2 Million in Sanctions in Connection with Foreign Currency Ponzi Scheme

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) announced today that Judge David D. Dowd Jr. of the U.S. District Court for the Northern District of Ohio granted summary judgment and issued a Memorandum Opinion, a Judgment Entry, and a permanent injunction Order (collectively Order) against Defendants Patrick Cole of Ontario, Canada, and his company, Global Strategic Marketing, Inc. (GSM) in a CFTC enforcement action and finds that the Defendants committed fraud in connection with a multi-million dollar off-exchange foreign currency (forex) Ponzi scheme (see CFTC Release 5921-10, October 7, 2010).

The court’s Order, issued February 26, 2014, imposes disgorgement of $1,146,399 and also requires Cole and GSM to pay civil monetary penalties of $1,146,399. The Order further imposes permanent trading and registration bans on Cole and GSM, and prohibits them from violating the anti-fraud provisions of the Commodity Exchange Act, as charged.

Specifically, the court’s Order finds that in marketing a fraudulent forex investment program offered by another Defendant, Complete Developments, LLC (CDL), GSM recklessly made repeated false statements including claims about low risk of loss; guaranteed return of principal; high rates of return on investment; and purported experience of CDL’s forex trading team. The Order further finds that GSM made the false statements based on information from CDL principal, Defendant Kevin Harris, and that GSM did not independently verify the accuracy of that information. The Order also finds that GSM made false statements about its own conduct, including telling potential investors that GSM had done its “homework” regarding CDL, when in fact GSM had not verified the accuracy of its representations to potential investors.

The Order finds that GSM’s misrepresentations to potential investors were false, misleading, and material and that GSM’s conduct, including not conducting adequate due diligence about GSM and ignoring investor complaints, establishes that GSM acted with reckless disregard as to whether its statements to potential investors were true. The Order also finds that Cole is liable for GSM’s violations because he controlled GSM and “had actual knowledge of all of GSM’s activities at all levels with respect to CDL, and was the decision-maker regarding GSM’s activities upon which the primary violation of the Act is based.”

In May 2013, the court entered a Judgment requiring Defendants CDL, its principals and controlling persons Kevin Harris, Keelan Harris, and Karen Starr, and Defendant Investment International Inc., to pay over $23 million in civil monetary penalties and restitution in connection with this fraudulent forex Ponzi scheme

SUMMARY JUDGEMENT OBTAINED IN MARKET MANIPULATION CASE

FROM:  SECURITIES AND EXCHANGE COMMISSION 
SEC Obtains Summary Judgment Against Defendant Jonathan Curshen in Market Manipulation Case

The Securities and Exchange Commission announced that on March 21, 2014, the Honorable Paul G. Gardephe, United States District Court Judge for the Southern District of New York, granted the Commission's motion for summary judgment against defendant Jonathan Curshen, permanently enjoining Curshen from future violations of Sections 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The Court also: (i) held Curshen jointly and severally liable with Defendant Bruce Grossman for $76,000 in disgorgement, plus $18,599.86 in prejudgment interest; (ii) ordered Curshen to pay a $65,000 civil penalty; and (iii) permanently barred Curshen from participating in an offering of penny stock.

On November 13, 2012, the Court entered a final judgment by consent against Defendant Bruce Grossman. The final judgment permanently enjoined Grossman from future violations of Sections 17(a) of the Securities Act, Section 10(b) of the Exchange Act. and Rule 10b-5 thereunder, and ordered Grossman jointly and severally liable with Curshen for disgorgement of $76,000, which liability was deemed fully satisfied by Grossman's criminal forfeiture order in United States v. Grossman, 09-cr-136 (PGG) (SDNY). The final judgment also barred Grossman from participating in an offering of penny stock.

On September 10, 2008, the SEC filed its complaint against Bruce Grossman and Jonathan Curshen (collectively, the "Defendants") alleging that from at least June 2008, the Defendants engaged in a fraudulent broker bribery scheme designed to manipulate the market for the common stock of Industrial Biotechnology Corp. The complaint alleges that the Defendants engaged in an undisclosed kickback arrangement with an individual who claimed to represent a group of registered representatives with trading discretion over the accounts of wealthy customers.

For further information, please see Litigation Release Number 20712 (September 11, 2008) [SEC Charges Two Stock Promoters with Market Manipulation] and Litigation Release Number 22532 (November 16, 2012) [Court Enters Final Judgment by Consent against SEC Defendant Bruce Grossman]

Keynote Address at the 2014 Angel Capital Association Summit

Keynote Address at the 2014 Angel Capital Association Summit