3 CORPORATE OFFICERS, STOCK PROMOTER GET SENTENCES FOR ROLES IN KICKBACK MARKET MANIPULATION SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Three Corporate Officers and Stock Promoter Sentenced for Fraudulent Kickback and Market Manipulation Scheme

The Securities and Exchange Commission announced that three corporate officers and a stock promoter were sentenced recently by the United States District Court for the District of Massachusetts in cases filed on December 1, 2011 alleging they used kickbacks and other schemes to trigger investments in various thinly-traded stocks. Those sentenced were: stock promoter Edward Henderson of Lincoln, Rhode Island; and corporate officers Paul Desjourdy of Medfield, Massachusetts (President of Symbollon Pharmaceuticals, Inc.); James Wheeler of Camas, Washington (Chief Executive Officer of MicroHoldings US, Inc.); and Michael Lee of Hingham, Massachusetts (President and Chief Executive Officer of ZipGlobal Holdings, Inc.). The Commission filed related civil charges against these and other parties on December 1, 2011, and those charges remain pending.

Henderson, Desjourdy, Wheeler, and Lee were among 13 defendants who were alleged to have engaged in criminal activity in the midst of an undercover FBI operation. According to the charges filed in U.S. District Court, the schemes involved secret kickbacks to an investment fund representative in exchange for having the investment fund buy stock in certain companies; the kickbacks were to be concealed through the use of sham consulting agreements. What the insiders and promoters did not know was that the purported investment fund representative was actually an undercover agent.

On November 25, 2013, Henderson was sentenced to one year of probation and was ordered to forfeit $12,650 after pleading guilty on January 20, 2012 to one count of wire fraud. On January 16, 2014, Desjourdy was sentenced to 18 months of probation and was ordered to forfeit $54,000 after pleading guilty on January 11, 2012 to one count of mail fraud and one count of conspiracy. On January 16, 2014, Wheeler was sentenced to 18 months of probation and was ordered to forfeit $24,000 after pleading guilty on January 18, 2012 to one count of mail fraud and one count of conspiracy. On March 6, 2014, Lee was sentenced to three years of probation (the first nine months to be served in home confinement with electronic monitoring) and ordered to forfeit $105,603 after pleading guilty on January 11, 2012 to one count of mail fraud and one count of conspiracy.

On December 1, 2011, the Commission filed civil charges of securities fraud against Henderson, Desjourdy, Wheeler, Lee, ZipGlobal Holdings, Inc., and MicroHoldings US, Inc., alleging that they used kickbacks to engage in fraudulent financing transactions involving microcap stocks. Those cases are pending.

Presentation to the PCAOB Forum on Auditing Smaller Broker-Dealers

Presentation to the PCAOB Forum on Auditing Smaller Broker-Dealers

COMPANY DIRECTOR CHARGED BY SEC WITH INSIDER TRADING AHEAD OF SALE TO PRIVATE EQUITY FIRM

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

On May 22, 2014, the Securities and Exchange Commission charged a former director of a Long Island-based vitamin company and others in his family circle with insider trading ahead of the company’s sale to a private equity firm.

The SEC alleges that board member Glenn Cohen learned that NBTY Inc. was negotiating a sale to The Carlyle Group and tipped his three brothers and a brother’s girlfriend with the confidential information. Craig Cohen, Marc Cohen, Steven Cohen, and Laurie Topal all traded on the inside information that Glenn Cohen provided and reaped illicit profits totaling $175,000.

The four Cohens and Topal agreed to settle the SEC’s charges by paying a total of more than $500,000.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Glenn Cohen first learned in May 2010 that NBTY management was negotiating to sell the company. He shared the nonpublic information with his three brothers and Topal, who is the girlfriend of Marc Cohen. All four purchased NBTY shares as a result. The next month, Glenn Cohen attended additional board meetings as negotiations between NBTY and Carlyle progressed. As more information became available to the board, Steven and Craig Cohen purchased additional NBTY shares. On July 15, Carlyle announced its acquisition of NBTY at a per-share price that was 47 percent above the prior day’s closing price, enabling the Cohens and Topal to profit significantly when they all sold their NBTY shares that same day.

The SEC’s complaint charges the Cohens and Topal with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In a settlement that would permanently enjoin them from violations of Section 10(b) and Rule 10b-5, they agreed to the following sanctions:

Glenn Cohen: penalty of $153,613.25 and barred from serving as an officer or director of a public company.
Craig Cohen: disgorgement of $71,932, prejudgment interest of $9,606, and a penalty of $71,932.
Marc Cohen: disgorgement of $21,454, prejudgment interest of $2,865, and a penalty of $21,454
Steven Cohen: disgorgement of $60,226, prejudgment interest of $8,042, and a penalty of $60,226.
Laurie Topal: disgorgement of $21,780, prejudgment interest of $2,908, and a penalty of $21,780.


The Cohens and Topal neither admitted nor denied the charges in the settlement, which is subject to court approval.

CFTC CHARGES COUPLE AND COMPANY WITH MAKING ILLEGAL OFF-EXCHANGE COMMODITY TRANSACTIONS

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

CFTC Charges Florida Residents Cindy and Paul Vandivier and Their Company, Mintline, Inc., with Fraud in Connection with Illegal, Off-Exchange Commodity Transactions

Federal Court Issues Order Freezing Defendants’ Assets and Prohibiting Destruction of Books and Records

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained an emergency court Order on May 13, 2014, freezing and preserving the assets under the control of Cindy Vandivier, Paul Vandivier, and their company, Mintline, Inc. (collectively, the Defendants), all of Coconut Creek, Florida. The court’s Order, entered by Judge William J. Zloch of the U.S. District Court for the Southern District of Florida, also prohibits the Vandiviers and Mintline from destroying books and records and grants the CFTC immediate access to such documents. Neither Mintline nor Cindy Vandivier has ever been registered with the CFTC, and Paul Vandivier has no current registration status with the CFTC.

The Order stems from a CFTC enforcement action filed on May 12, 2014, charging the Vandiviers and Mintline with fraudulently soliciting customers and misappropriating customer funds in connection with illegal, off-exchange transactions in precious metals from July 2011 to at least April 2013.

Defendants Allegedly Misappropriated Virtually All of the Customers’ Funds

According to the CFTC Complaint, the Defendants purported to sell physical metals, on a leveraged, margined, or financed basis to retail customers located throughout the United States. The Complaint alleges that the Defendants, in fact, did not purchase, sell, transfer ownership of, deliver, or arrange for storage of any physical metals in connection with the financed metals transactions, but instead misappropriated virtually all of the customers’ funds, using a portion of those funds to pay for office and personal expenses.

The CFTC Complaint further alleges that the Defendants falsely represented to customers that their metals were being held in secured depositories, and fraudulently charged customers interest on purported loans to finance the purchase of the metals. In reality, the Complaint alleges that no physical metal was stored for Defendants’ customers and no loans were made to customers to purchase physical metal.

Sometime between January and April 2013, the Defendants ceased operations, leaving customers without their metals or a return of their funds, according to the Complaint.

In its continuing litigation against the Defendants, the CFTC seeks full restitution to defrauded customers, a return of ill-gotten gains, permanent trading and registration bans, civil monetary penalties, and a permanent injunction from future violations of federal commodities laws, as charged.

CFTC Division of Enforcement staff members responsible for this case are Alan Edelman, Michelle Bougas, James H. Holl, III, and Rick Glaser.

SEC CHARGES FLORIDA FUND MANAGER WITH DEFRAUDING INVESTORS IN A PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged a Sarasota, Fla.-based private fund manager with defrauding investors in a Ponzi scheme that ensued after he squandered their money on bad investments and personal expenses.

The SEC alleges that Gaeton “Guy” S. Della Penna raised $3.8 million from investors in three private investment funds that he operated.  Investors were told their funds would be used to trade securities or invest in small companies.  Despite depicting himself as a distinguished trader and profit-maker, Della Penna lost nearly all of their money by making unsuccessful investments and diverting more than a million dollars to himself for mortgage payments and money for his girlfriend.  In an effort to cover up his fraud as it unraveled, Della Penna began operating a Ponzi scheme by using money from newer investors to pay fake returns to prior investors.  He provided some investors with false account statements to mislead them into believing they were profiting by investing their money with him.

In a parallel action, the U.S. Attorney’s Office for the Middle District of Florida today announced criminal charges against Della Penna.

“Della Penna lied to investors about his trading track record in order to gain their trust and pocket their investments,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.  “He fostered a false sense of security by creating bogus account statements showing positive returns when, in reality, he was operating a Ponzi scheme and stealing investor money.”

According to the SEC’s complaint filed in the U.S. District Court for the Middle District of Florida, many of the investors in Della Penna’s scheme were acquaintances who he met through his church.  He solicited investors to purchase notes in his private investment funds from 2008 to 2013, often promising 5 percent annual returns along with 80 percent of the trading profits generated with their investments.  He later promised some investors 10 percent returns on their money to be used for investing in small companies. All the while, Della Penna was siphoning away investor funds to the tune of about $1.1 million to make mortgage payments on his 10,000-square-foot home and make payments to his girlfriend who lived with him there.  Della Penna also transferred some investor funds into accounts at Gaeton Capital Advisors LLC, an entity that is named as a relief defendant in the SEC’s complaint for the purpose of recovering any investor funds in its possession.

 The SEC’s complaint alleges that Della Penna violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8(a). The SEC is seeking financial penalties, disgorgement of ill-gotten gains plus prejudgment interest, and a permanent injunction against Della Penna.

The SEC’s investigation was conducted by Raynette R. Nicoleau and supervised by Chedly C. Dumornay in the Miami Regional Office.  The SEC’s litigation will be led by Andrew Schiff.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Middle District of Florida and the Tampa division of the U.S. Secret Service.

CFTC ACTING CHAIRMAN WETJEN ANNOUNCES 3 ACTIONS TO IMPROVE MARKETS

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

May 22, 2014

Acting Chairman Mark Wetjen Announces Three Actions to Protect Liquidity for Certain End-Users, Further Consider Certain Hedging Practices, and Promote Trading on SEFs and DCMs

Washington, DC — The Commodity Futures Trading Commission (Commission) Acting Chairman Mark Wetjen and Commissioner Scott O’Malia announced three actions to benefit utility special entities, further consider certain hedging practices for commercial market participants, and promote end-user trading on swap execution facilities (SEFs) and designated contract markets (DCMs).

Acting Chairman Mark Wetjen said, “I am pleased the Commission is acting to address the impact the special entity de minimis threshold is having on utility special entities and the markets in which they operate and to further consider the appropriate treatment of hedging practices in the marketplace today.”

“I am equally pleased,” continued Acting Chairman Wetjen, “that the Divisions are acting to promote trading on SEFs and DCMs and give certain members of these important exchanges and platforms additional time to come into compliance with Regulation 1.35(a).”

“These proposals collectively reflect our continuing efforts to ensure that market regulations accomplish their intended function without creating negative, unintended consequences, in particular for commercial end-users,” said Acting Chairman Wetjen.

”Today marks a significant victory for the end-user community and for the Commission’s rulemaking process. End-users will win today, with the proposal fixing the Special Entity rule and further relief from rule 1.35, which applied unworkable and costly recording requirements. The relief will remain effective until the Commission revisits the rule to appropriately tailor the rule’s requirements to the relevant entities and more carefully consider the costs and technological feasibility of compliance with the rule. I am pleased that the Commission has chosen to confront the shortcomings in its rules by using the proper process that is consistent with the Administrative Procedure Act,” said Commissioner O’Malia.

CFTC Issues Proposal to Amend its Regulations for Entities Entering into Swaps with Utility Special Entities

The Commission issued today a proposed rule amendment to adjust the de minimis threshold for determining if an entity that enters into swaps with utility special entities must register as a swap dealer.

The proposal would amend the Commission’s swap dealer definition to permit a person dealing in “utility operations-related swaps” with “utility special entities” to exclude those swaps in determining whether that person has exceeded the de minimis threshold specific to dealing with special entities. Under the proposal, however, such swaps would be counted for determining whether the general dealing de minimis threshold applies.

The Commission is seeking comments from the public on the proposal. The comment period will close 30 days after the proposal is published in the Federal Register.

CFTC Publishes Notice to Open Comment Period to Further Consider Certain Issues Related to Hedging of Physical Commodities

Acting Chairman Wetjen, with the support of Commissioner O’Malia, previously directed the staff to hold a public roundtable on June 19, 2014 to consider certain hedging issues relating to market practices in physical commodity derivatives.

In order to provide interested parties with an opportunity to comment on the issues to be discussed at that roundtable, the Commission is opening comment periods for two previous proposals, the Position Limits Proposal and the Aggregation Proposal, for a three-week period starting June 12, 2014 (one week before the roundtable) and ending July 3, 2014 (two weeks following the roundtable).

The Commission specifically asked market participants to comment on the following issues: hedges of a physical commodity by a commercial enterprise, including gross hedging, cross-commodity hedging, anticipatory hedging, and the process for obtaining a non-enumerated exemption; the setting of spot month limits in physical-delivery and cash-settled contracts and a conditional spot-month limit exemption; the setting of non-spot limits for wheat contracts; the aggregation exemption for certain ownership interests of greater than 50 percent in an owned entity; and aggregation based on substantially identical trading strategies.

CFTC Staff Issues No-Action Relief from Compliance with Certain Requirements under Regulation 1.35(a) for Certain Members of Designated Contract Markets or Swap Execution Facilities

To incentivize trading on SEFs and DCMs, the Commission’s Division of Swap Dealer and Intermediary Oversight and Division of Market Oversight also today issued a no-action letter that provides relief with respect to compliance with certain recordkeeping provisions of Regulation 1.35(a) to members of designated contract markets or swap execution facilities that are not registered or required to be registered with the Commission (Covered Members).

The letter provides relief, pending further Commission action, to Covered Members with respect to complying with the requirements under Regulation 1.35(a) to keep electronic text messages and to keep records in a form and manner identifiable and searchable by transaction.