SEC CHARGES BERNIE MADOFF EMPLOYEE WITH FALSIFYING RECORDS

The following is an excerpt from the SEC website: 

"Washington, D.C., Dec. 19, 2011 — The Securities and Exchange Commission today charged a longtime Bernie Madoff employee with falsifying books and records in order to hide Madoff’s fraudulent investment advisory operations from regulators.

The SEC alleges that Enrica Cotellessa-Pitz, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for more than 30 years, assisted in falsifying BMIS’s internal accounting records in order to misclassify hundreds of millions of dollars of income purportedly generated by BMIS’s investment advisory operations. Cotellessa-Pitz also falsified financial statements filed with the SEC and other regulators as well as materials that were prepared to deceive SEC staff examiners, federal and state tax auditors, and other external reviewers.

“To keep his massive fraud alive, Madoff had to hide as many facts about his advisory operations as possible,” said George S. Canellos, Director of the SEC’s New York Regional Office. “Cotellessa-Pitz along with other senior BMIS personnel played a critical role in this effort by creating false documents to deceive federal and state regulators.”

The SEC previously charged BMIS’s Director of Operations David Bonventrewith falsifying books and records to hide and obfuscate Madoff’s advisory operations. According to the SEC’s complaint against Cotellessa-Pitz filed in U.S. District Court for the Southern District of New York, she played a central role in falsifying these records as directed by Madoff and Bonventre. Madoff used the false records to artificially improve the firm’s reported revenue and income as well as to deceive regulators who sought to review the firm’s operations and financial results.

The SEC alleges that Madoff instructed employees to transfer hundreds of millions of dollars from bank accounts holding investor funds to the firm’s operating bank accounts. Madoff’s goal was as simple as it was misleading – to use stolen investor funds to hide the significant losses incurred by BMIS’s market-making and proprietary trading operations. Cotellessa-Pitz joined this effort after she was promoted to controller at the firm in 1998, when Madoff and Bonventre instructed her to falsely account for these transfers of investor funds as adjustments to certain securities positions on BMIS’s stock record.

According to the SEC’s complaint, Cotellessa-Pitz then used these figures to calculate and overstate the trading income purportedly generated by Madoff’s market-making and proprietary trading operations. Cotellessa-Pitz included these bogus figures on BMIS financial statements, which she then filed with the SEC and other regulators. Cotellessa-Pitz and other BMIS personnel then falsified documents provided to regulators to obscure the firm’s advisory operations and the transfer of investor funds to the operating bank accounts.

The U.S. Attorney’s Office for the Southern District of New York today announced parallel criminal charges against Cotellessa-Pitz, who has pled guilty and also consented to the entry of a partial judgment in the SEC’s civil case against her. Subject to court approval, the proposed partial judgment will impose a permanent injunction against Cotellessa-Pitz and require her to disgorge ill-gotten gains and pay a fine in amounts to be determined by the court at a later date.

The SEC’s complaint against Cotellessa-Pitz alleges that by engaging in this conduct, she aided and abetted violations of Section 17(a) of the Securities Exchange Act of 1934 and Rules 17a-3, 17a-4, and 17a-5 thereunder, and Section 204 of the Investment Advisers Act of 1940 and Rule 204-2 thereunder.

The SEC’s investigation was conducted by Aaron P. Arnzen and Kristine M. Zaleskas of the New York Regional Office. The SEC thanks the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation for its coordination and assistance. The SEC’s investigation is continuing."

SEC ALLEGES STOCK BUY-BACK FRAUD

The following excerpt is from the SEC website: December 12, 2011 Securities and Exchange Commission v. Stiefel Laboratories Inc. and Charles W. Stiefel , (UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA, CASE NO. 1:11-cv-24438, FILED DECEMBER 12, 2011) On December 12, 2011, the Securities and Exchange Commission filed securities fraud charges against Stiefel Laboratories Inc. (at the time of its misconduct the world’s largest private manufacturer of dermatology products, and now a fully-owned subsidiary of GlaxoSmithKline PLC) and Charles Stiefel, its former chairman and CEO, alleging they defrauded shareholders by buying back their stock at severely undervalued stock prices from November 2006 to April 2009. The SEC alleges that in each of those years Stiefel Labs and Charles Stiefel used low valuations for stock buybacks and omitted to disclose to the Company’s own employees important information that would have alerted them that their stock was worth much more (information that only certain members of the Stiefel family and senior management knew about). The SEC’s complaint, filed in the Southern District of Florida, alleges that first, between November 2006 and April 2007, Stiefel Labs purchased more than 750 shares of Stiefel Labs stock from shareholders at $13,012 a share even though Charles Stiefel knew that five private equity firms had submitted offers to buy preferred stock in November 2006 based on equity valuations of Stiefel Labs that were more than 50% to 200% higher than the valuation later used for stock buybacks . Second, the complaint alleges that between late July 2007 and June 2008, Stiefel Labs purchased more than 350 additional shares of Stiefel Labs stock from shareholders under the Company’s employee stock plan at $14,517 a share. It also bought more than 1,050 shares from shareholders outside the Plan at an even lower stock price. At the time of these buybacks, Charles Stiefel knew, not only about the November 2006 private equity valuations, but that a prominent private equity firm had bought preferred stock based on an equity valuation for Stiefel Labs that was more than 300% higher than that used for stock buybacks . Third, the complaint alleges that between December 3, 2008 and April 1, 2009, Stiefel Labs purchased more than 800 shares of its stock from shareholders at $16,469 a share even though Charles Stiefel knew that equity valuation was low and misleading, in part because he was negotiating the sale of the Company. Indeed, b eginning in late November 2008, Stiefel Labs decided to seek acquisition bids from several pharmaceutical companies. On January 26, 2009, Glaxo expressed interest in a Stiefel Labs acquisition and signed a confidentiality agreement on January 28, 2009. As late as March 16, 2009, Charles Stiefel ordered that the ongoing negotiations not be disclosed to employees and Stiefel Labs misled shareholders to believe the Company would remain family-owned. On April 20, 2009, Stiefel Labs announced that Glaxo would acquire the Company for a value that amounted to more than $68,000 per share (more than 300% higher than the $16,469 Stiefel Labs paid to buy back shares from its shareholders). As a result of their violations of the federal securities laws Stiefel Labs and Charles Stiefel benefitted greatly and shareholders lost more than $110 million by selling their stock to Stiefel Labs based on the misleading valuations Stiefel Labs and Charles Stiefel had provided them. The SEC’s complaint charges Stiefel Labs with violating and Charles Stiefel with violating and aiding and abetting Stiefel Labs’ violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks a final judgment permanently enjoining the defendants from future violations of these provisions of the federal securities laws and ordering them to disgorge their ill-gotten gains plus prejudgment interest and pay financial penalties, and also seeks an officer and director bar against Charles Stiefel."

U.S., CANADA AND MEXICO MEET TO DISCUSS ANTITRUST POLICIES

The following excerpt is from the Department of Justice website: DECEMBER 19, 2011 "WASHINGTON — The heads of the antitrust agencies of the United States, Canada and Mexico – Acting Assistant Attorney General Sharis A. Pozen of the Department of Justice’s Antitrust Division, Chairman Jon Leibowitz of the Federal Trade Commission, Canadian Commissioner of Competition Melanie Aitken and President Eduardo Perez Motta of the Mexican Federal Competition Commission – met today to reaffirm their commitment to effective enforcement cooperation.  The discussions covered a wide range of enforcement and policy issues, including updates on merger policy and enforcement in the three jurisdictions and the sharing of recent experience in areas of mutual enforcement interest. “Working with our antitrust colleagues across both United States borders to ensure that antitrust enforcement is effective is good for businesses and consumers,” said Acting Assistant Attorney General Pozen.  “The department values its close law enforcement relationships with Canada and Mexico, and I look forward to our continued efforts to work together to combat anticompetitive activity that affects North America.” The United States, Canada and Mexico are parties to a series of bilateral antitrust cooperation agreements that commit their antitrust agencies to cooperate and coordinate with each other in order to make their antitrust policies and enforcement as consistent and effective as possible.  The three nations also are parties to the North American Free Trade Agreement, which includes a competition chapter that provides for cooperation among them in antitrust investigations."

SEC ALLEGES PENNY STOCK PUBLICATION MADE MATERIAL MISREPRESENTATIONS AND OMISSIONS

The following excerpt is from the SEC website: December 12, 2011 Securities and Exchange Commission v. Geoffrey J. Eiten and National Financial Communications Corp., 1:11-CV-12185 (District of Massachusetts, Complaint filed December 12, 2011) SEC CHARGES MASSACHUSETTS-BASED PENNY STOCK PROMOTER WITH MAKING FRAUDULENT STATEMENTS The Securities and Exchange Commission, in an action filed today in federal court in Boston, charged Massachusetts resident Geoffrey J. Eiten and his company National Financial Communications Corp. (“NFC”) for making material misrepresentations and omissions in a penny stock publication they issued. The Commission’s complaint alleges that Eiten and NFC publish a penny stock promotion piece called the “OTC Special Situations Reports.” According to the complaint, Eiten, self-proclaimed “America’s Leading Micro-Cap Stock Picker,” promotes penny stocks in this publication on behalf of clients in order to increase the price per share and/or volume of trading in the market for the securities of penny stock companies. The complaint alleges that Eiten and NFC have made misrepresentations in these reports about the penny stock companies they are promoting. For example, the Commission’s complaint alleges that during 2010, Eiten and NFC issued reports promoting four penny stock companies: (1) Clean Power Concepts, Inc., based in Regina, Saskatchewan, Canada, a purported manufacturer and distributor of various fuel additives and lubrication products made from crushed seed oil; (2) Endeavor Power Corp., based in Robesonia, Pennsylvania, a purported recycler of value metals from electronic waste; (3) Gold Standard Mining, based in Agoura Hills, California, a purported owner of Russia gold mining operations; and (4) Nexaira Wireless Corp., based in Vancouver, British Columbia, Canada, a purported developer and seller of wireless routers. The Commission’s complaint alleges that in these four reports, Eiten and NFC made material misrepresentations and omissions, concerning, among other things, the companies’ financial condition, future revenue projections, intellectual property rights, and Eiten’s interaction with company management as a basis for his statements. According to the complaint, Eiten and NFC were hired to issue the above reports. Eiten and NFC used false information provided by their clients, without checking the accuracy of the information with the companies in question or otherwise ensuring that the statements they were making in the OTC Special Situations Report were true. The Commission’s complaint charges Eiten and NFC with violating the antifraud provisions of the federal securities laws (Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder). In its complaint, the Commission seeks permanent injunctions, disgorgement plus prejudgment interest, civil penalties, and penny stock bars pursuant to Section 21(d)(6) of the Exchange Act against the defendants."

SEC CHIEF ACCOUNTANT BESWICK SPEAKS TO AICPA

The following excerpt is from the SEC website:

" Paul A. Beswick Deputy Chief Accountant U.S. Securities and Exchange Commission Washington, D.C. December 5, 2011 The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the author and do not necessarily reflect those of the Commission or of the author’s colleagues upon the staff of the Commission.. Introduction I would like to thank the AICPA for providing me with the opportunity to speak at the AICPA National Conference on Current SEC and PCAOB Developments.

 Today I would like to spend time talking about two topics, one of which you are probably all expecting and the other that might be a bit of a surprise. IFRS Work Plan Let me first start with IFRS. When thinking about what to say in regards to IFRS, I stuck to one overall guiding principle, no new models or new words. The staff has nearly completed our efforts on the Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers (“2010 Work Plan”). As Jim mentioned earlier this morning, the staff published two reports on November 16, 2011 on the comparison of U.S. GAAP to IFRS and an analysis of IFRS in practice. In terms of existing open items, one of the items the Commission discussed in its Statement in Support of Convergence and Global Accounting (“2010 Statement”) regarding readiness for a determination regarding incorporating IFRS into the financial reporting system for U.S. issuers, and which was mentioned earlier, was the satisfactory completion of the convergence projects between the FASB and the IASB. In addition, the staff is continuing to evaluate with respect to the second area of the 2010 Work Plan the governance of the IASB. As noted in the staff’s 2010 Progress Report on the Work Plan, the Monitoring Board and the Trustees are in the final stages of separate but complementary reviews of governance and strategy for the Foundation.

Enhancements under the two reviews should provide for a clarified and enhanced governance structure supporting the IASB as an independent yet accountable standard-setting body. The Monitoring Board and the Trustees intend to publish their package of governance enhancements during December. These are two very important initiatives yet to be completed that the staff expects to inform our thinking around this area of the Work Plan. We are in the process of drafting a final report that summarizes all of our efforts to complete the 2010 Work Plan. The staff is drafting the report to provide our insights on what we have learned during the last almost two years of work. I would hope that the staff could get the final report out as soon as practicable in 2012. 2011 May Staff Paper Earlier, Jim Kroeker noted the feedback received on the May staff paper, Exploring a Possible Method of Incorporation (May Staff Paper). The goal of publishing the May Staff Paper was to foster greater discussion about what may be practicable from the staff’s perspective in terms of incorporating IFRS into the U.S. However, the staff thinking continues to evolve based on the very helpful feedback we were provided, and I thought I would spend some time discussing what we learned from the May Staff Paper and from some of our other outreach. Today I intend to focus on some of the more significant points, but note that the staff intends to include a more comprehensive discussion in the final staff report. The staff received a lot of well thought out and helpful feedback to the May Staff Paper from a wide range of interested parties. While it is impossible to say we received unanimous thinking in the comment letters, there were three themes that I think are important to highlight. However, what I say here could not begin to capture the rich discussion in the letters. They are all on our website. I encourage you to review them yourself. First, and most basic, was strong support for the objective of a single set of high-quality globally accepted accounting standards. The second was support for the general premise of an endorsement mechanism that was described in the May Staff Paper. Third, further progress should be made on the Boards’ joint standard setting projects before IFRS is incorporated into the U.S. In elaborating on an endorsement mechanism, a major theme I took away from the comments is the notion that the FASB has an important role to play and should act as the “endorser” of newly issued IFRS standards on a standard-by-standard basis. An often-provided rationale was that the FASB is best positioned to act in the interest of U.S. investors and the U.S. capital markets. Commenters felt that the FASB’s expertise and long track record of producing high-quality accounting standards would be a positive influence on the quality of IFRS. Some of the additional comments for maintaining a strong FASB included: Help preserve regulatory authority of the Commission and address issues with U.S. GAAP being embedded in thousands of pages of U.S. laws and regulatory text; Ability of the FASB to provide technical assistance to the IASB; Help ensure a robust due process by the IASB; and Assist the U.S. capital markets in the implementation and interpretations of IASB standards. An area where there was a spectrum of views was what threshold the FASB might use when considering whether to endorse an IASB standard. At the risk of using a general characterization, the feedback in this area to me had a little bit of a “Goldilocks” feel to it. Some felt there should be a “higher” threshold than that posited in the paper (that is, that the FASB should have less discretion in considering whether to endorse a standard). Some felt there should be a “lower” threshold, and some felt it was just right. Many of those who supported a “lower” threshold argued that the FASB should be given the tools to modify an IASB standard to the U.S. regulatory environment. Those in the “just right” or “higher” threshold camp noted that the greatest benefit to incorporating IFRS would be muted if the FASB frequently didn’t endorse an IASB standard. There was also a fair amount of comment that it would be important for the Commission to articulate its expectations in this area. So far I have discussed the themes related to those that supported taking a next step towards the objective of a single set of globally accepted accounting standards. This is not to say that the commenters were unanimous on this issue. There certainly were strong voices of those who were not in favor, stating among other things: that the case has not been made for mandatory incorporation, that the cost of incorporation is expected to be significant with no commensurate benefit, either to an individual company and or the U.S. markets, and concerns about the quality of existing IFRS standards. I think these will be important issues the staff will need to consider. Final Thoughts Before turning to my next subject I thought I would leave you with two final thoughts regarding the Work Plan. First, one of the questions we frequently are asked relates to our ability to apply IFRS standards. Having worked in OCA for the last four years, I can tell you that we are frequently asked our views on the application of IFRS in individual fact patterns. I believe we have been able to manage these application questions, including determining what should be the appropriate accounting under IFRS. I also believe that the U.S. involvement in the application of IFRS, as noted by the Chairman of the IASB in a recent speech, would provide a positive impact on the consistent implementation of IFRS globally. One final point I would like to make relates to the objective of a single set of globally accepted accounting standards. Commenters and others have posed the question: If the FASB and the Commission, or for that matter any jurisdiction, retains the ability to deviate from an IASB standard, can we ever truly achieve a single set of high-quality global accounting standards? I first must note as we have in many of our reports under the Work Plan, jurisdictional approaches to IFRS already are diverse, and rarely are direct to IFRS without an incorporation mechanism. As to the U.S., we know there are going to be challenging issues to resolve under any incorporation decision. The issues of LIFO and contingencies immediately come to mind. But even with all of this, I would offer up one final thought for your consideration: Would it better to be 90% converged and understand the differences, or should the objective be abandoned? Stay tuned. We will have a lot more to say on this subject in coming months. Valuation Profession Now after that light topic, let me spend a couple minutes discussing my views on the current state of the valuation profession in the U.S. Last year, you heard Jim Kroeker speak to the importance of and the tenets to building and maintaining public trust in the accounting profession. Today, I am here to advocate for the building of public trust in a profession that is increasingly intertwined with our own; that is the valuation profession. Recent events and developments, chief among them, the broadening application of fair value and fair value-based measures in US GAAP in recent years and the 2008 financial crisis, have cast the spotlight on valuation professionals. The financial reporting process is a collaborative process that relies on many participants with important roles and responsibilities. For valuation professionals, this means the analyses should be based on methodologies that have strong conceptual merit, supported by consistent and supportable assumptions, and are in conformity with the requirements of the relevant accounting standards. These objectives should be central to any analysis, regardless of the role of the valuator. Valuation professionals wear two primary hats within the financial reporting process. They can be management’s specialist where they assist the company in the estimation of values. Or they could be the auditor’s specialist in the evaluation of management’s models, assumptions, and/or value conclusions. As a regulator, we have reviewed analyses under both roles. In many instances, we’ve seen analyses meet the objectives I’ve described, but we’ve also seen our share of those that do not measure up. Valuation professionals stand apart from other significant contributors in the financial reporting process for another reason, their lack of a unified identity. We accountants, for example, have a clearly defined professional identity. At last count, valuation professionals in the US can choose among five business valuation credentials available from four different organizations,i each with its own set of criteria for attainment, yet none of which is actually required to count oneself amongst the ranks of the profession. There are also non-credentialing organizations that seek to advance the interests of the valuation profession.ii While the multiplicity of credentials in the profession is not a problem in and of itself, risks may exist. Risks created by the differences in valuation credentials that exist today range from the seemingly innocuous concerns of market confusion and an identity void for the profession to the more overt concerns of objectivity of the valuator and analytical inconsistency. The fragmented nature of the profession creates an environment where expectation gaps can exist between valuators, management, and auditors, as well as standard setters and regulators. While much of this may be addressed during a particular engagement, this case-by-case approach has the potential to be an inefficient and costly solution to establish a baseline level of understanding of the analyses. Sometimes, expectation gaps can have broader consequences than just within an engagement, as we have seen in the use of third party pricing sources to measure the fair value of certain financial instruments. You will hear more about this from others at this conference. I think one potential solution to consider is whether there should be, similar to other professions, a single set of qualifications with respect to education level and work experience, a continuing education curriculum, standards of practice and ethics, and a code of conduct. One could also contemplate whether a comprehensive inspection program and a fair disciplinary mechanism should be established to encourage proper behavior and enforce the rules of the profession in the public interest. Closing Once again thank you for the opportunity to speak this morning. We will have time for questions later in the day and I hope you enjoy the rest of the conference. i AICPA grants the Accredited in Business Valuation (ABV) credential; American Society of Appraisers confers the Accredited Senior Appraiser (ASA); Institute of Business Appraisers issues the Certified Business Appraiser (CBA); and National Association of Certified Valuation Analysts awards the Certified Valuation Analyst (CVA) and Accredited Valuation Analyst (AVA). ii For example, The Appraisal Foundation, a non-profit organization established by a number of US valuation organizations in 1987, issues the Uniform Standards of Professional Appraisal Practice (USPAP), set qualification criteria for state licensing, certification, and recertification of real property appraisers, and issues guidance on selected technical topics. The enforcement of the requirements promulgated by The Appraisal Foundation is relegated to the various state boards.”

FORMER PRUDENTIAL SECURITIES REPRESENTATIVE FOUND LIABLE FOR DECEPTIVE PRACTICES

The following excerpt is from the SEC website:

December 16, 2011
“The Securities and Exchange Commission announced today that on December 14, 2011, a federal jury returned a verdict in the SEC's favor on securities fraud charges against Frederick J. O'Meally of Bay Shore, New York, a former registered representative of broker-dealer Prudential Securities Inc. alleged to have used deceptive practices to evade blocks on his trading by mutual fund companies. The jury found O'Meally liable for violations of Sections 17(a)(2) and (3) of the Securities Act of 1933 (the "Securities Act"). The verdict against O'Meally followed a five-week trial in New York City, NY before the Honorable Laura Taylor Swain, United States District Court Judge for the Southern District of New York.

The Commission filed its Complaint on August 28, 2006 against four registered representatives formerly employed by Prudential Securities, Inc. The Complaint alleged that, between 2001 and 2003, certain mutual fund companies detected market timing activity by the Defendants and attempted to block the Defendants and their hedge fund customers from further trading in their funds. The Complaint further alleged that the Defendants used fraudulent and deceptive trading practices to conceal their and their customers' identities to evade these blocks. Cases against the three other defendants had been resolved previously by settlement.
The district court will hear further post-trial arguments in January 2012, and may determine the appropriate sanctions and remedies against O'Meally at a later date. In addition, the jury found that O'Meally had not violated Section 10(b) of the Exchange Act and Section 17(a)(1) of the Securities Act.
For further information about the Commission's action in SEC v. O'Meally, et al., see Litigation Release No. 21882 (March 10, 2011) [settlement with Jason N. Ginder]; Litigation Release No. 20910 (February 25, 2009) [settlement with Michael L. Silver and Brian P. Corbett]; In the Matter of Michael L. Silver, Release No. 34-59639 (March 27, 2009); In the Matter of Brian P. Corbett, Release No. 34-59640 (March 27, 2009); Exchange Act Release No. 54371 (August 28, 2006) [settlement with Prudential Equity Group, LLC, formerly known as Prudential Securities, Inc.]; Litigation Release No. 19813 (August 26, 2006) [complaint against O'Meally, et al. filed].”

SEC FREEZES ASSETS OF FOUR CHINESE CITIZENS CHARGED WITH INSIDER TRADING

The following excerpt is from the SEC website: “On December 5, 2011, the Securities and Exchange Commission charged four Chinese citizens and a Chinese-based entity with insider trading and obtained an emergency court order to freeze their assets after they reaped more than $2.7 million in profits by trading in advance of a recent public announcement of a merger agreement between London-based Pearson plc and Beijing-based Global Education and Technology Group, Ltd. The SEC’s complaint names Sha Chen, Song Li, Lili Wang, Zhi Yao, All Know Holdings Ltd., and one or more unknown purchasers of Global Education stock as defendants. The SEC alleges that they purchased American Depository Shares (ADS) of Global Education in the two weeks leading up to a November 21 public announcement of a planned merger between the two education companies. Some of the defendants’ brokerage accounts were dormant until they bet heavily on Global Education shares, and some of the purchases made either equaled or exceeded the stated annual income of that trader. After the agreement was announced, they immediately began selling some of their Global Education shares. Their illicit gains totaled more than $2.7 million. According to the SEC’s complaint, filed in the U.S. District Court in Chicago, Pearson and Global Education each announced before trading began on November 21 that Pearson agreed to acquire all of Global Education’s outstanding stock for $294 million ($11.006 per share traded in the U.S.). Global Education’s stock price increased 97 percent that day, from $5.37 to $10.60. The SEC alleges that the defendants made their purchases of Global Education’s shares while in possession of material, non-public information about the merger. A Global Education co-founder apparently tipped Wang and possibly others about the potential acquisition. Wang then transferred new funds into her previously dormant brokerage account and bought 28,000 Global Education shares. The others also engaged in similarly suspicious trading in Global Education stock, which was typically thin. On November 18, the last trading day before the acquisition announcement, their purchases accounted for more than 35 percent of the entire day’s trading volume for the company’s shares, which trade on the NASDAQ. The SEC alleges that the defendants each violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to the emergency relief, the SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties. The emergency court order that the SEC obtained on December 5 on an ex parte basis freezes approximately $2.7 million of defendants’ assets held in U.S. brokerage accounts and, among other things, grants expedited discovery and prohibits the defendants from destroying evidence. The investigation is continuing.

SEC MAKES COMMENT ON CITIGROUP CASE

The following excerpt is from the SEC website:

“Washington, D.C., Dec. 15, 2011 — The Securities and Exchange Commission’s Director of the Division of Enforcement, Robert Khuzami, today made the following statement on the Citigroup case:
Last month, a federal district court declined to approve a consent judgment because, in its view, the underlying allegations were ‘unsupported by any proven or acknowledged facts.’ As a result, the court rejected a $285 million settlement between the SEC and Citigroup that reasonably reflected the relief the SEC would likely have obtained if it prevailed at trial.
We believe the district court committed legal error by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits. For this reason, today we filed papers seeking review of the decision in the U.S. Court of Appeals for the Second Circuit.
We believe the court was incorrect in requiring an admission of facts — or a trial — as a condition of approving a proposed consent judgment, particularly where the agency provided the court with information laying out the reasoned basis for its conclusions. Indeed, in the case against Citigroup, the SEC filed suit after a thorough investigation, the findings of which were described in extensive detail in a 21-page complaint.
The court’s new standard is at odds with decades of court decisions that have upheld similar settlements by federal and state agencies across the country. In fact, courts have routinely approved settlements in which a defendant does not admit or even expressly denies liability, exactly because of the benefits that settlements provide.
In cases such as this, a settlement puts money back in the pockets of harmed investors without years of courtroom delay and without the twin risks of losing at trial or winning but recovering less than the settlement amount - risks that always exist no matter how strong the evidence is in a particular case. Based on a careful balancing of these risks and benefits, settling on favorable terms even without an admission serves investors, including investors victimized by other frauds. That is due to the fact that other frauds might never be investigated or be investigated more slowly because limited agency resources are tied up in litigating a case that could have been resolved.
In contrast, the new standard adopted by the court could in practical terms press the SEC to trial in many more instances, likely resulting in fewer cases overall and less money being returned to investors.
To be clear, we are fully prepared to refuse to settle and proceed to trial when proposed settlements fail to achieve the right outcome for investors. For example, in the cases that the SEC identifies as core financial crisis cases, we filed unsettled actions against 40 of the 55 (70 percent) of the individuals charged — including the action filed against Brian Stoker in this matter. Similarly, we filed unsettled actions against 11 of the 26 (42 percent) of the entities we charged — eight of which we did not litigate against because they were bankrupt, defunct or no longer operating.
In deciding whether to settle, the SEC considers, among other things, limitations under the securities laws. In a case like Citigroup, the applicable statute does not entitle the SEC to recover the amount lost by investors. Instead, in addition to recovering a defendant’s ill-gotten gains, the statute allows a monetary penalty only up to the amount of a defendant’s gain.
The $285 million obtained from Citigroup under the proposed settlement, while less than investor losses, represents most of the total monetary recovery that the SEC itself could have sought at trial. An SEC settlement does not limit the ability of injured investors to pursue claims for additional relief.
Moreover, while the court alluded to Citigroup’s size, the law does not permit the Commission to seek penalties based upon a defendant’s wealth.”

SEC CHARGES FORMER EXECUTIVES AT FANNIE MAE AND FREDDIE MAC WITH SECUITIES FRAUD

The following excerpt is from the Securities and Exchange Commission website:

“Washington, D.C., Dec. 16, 2011 — The Securities and Exchange Commission today charged six former top executives of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) with securities fraud, alleging they knew and approved of misleading statements claiming the companies had minimal holdings of higher-risk mortgage loans, including subprime loans.

Fannie Mae and Freddie Mac each entered into a Non-Prosecution Agreement with the Commission in which each company agreed to accept responsibility for its conduct and not dispute, contest, or contradict the contents of an agreed-upon Statement of Facts without admitting nor denying liability. Each also agreed to cooperate with the Commission's litigation against the former executives. In entering into these Agreements, the Commission considered the unique circumstances presented by the companies' current status, including the financial support provided to the companies by the U.S. Treasury, the role of the Federal Housing Finance Agency as conservator of each company, and the costs that may be imposed on U.S. taxpayers.

Three former Fannie Mae executives - former Chief Executive Officer Daniel H. Mudd, former Chief Risk Officer Enrico Dallavecchia, and former Executive Vice President of Fannie Mae's Single Family Mortgage business, Thomas A. Lund - were named in the SEC's complaint filed in U.S. District Court for the Southern District of New York.
The SEC also charged three former Freddie Mac executives — former Chairman of the Board and CEO Richard F. Syron, former Executive Vice President and Chief Business Officer Patricia L. Cook, and former Executive Vice President for the Single Family Guarantee business Donald J. Bisenius — in a separate complaint filed in the same court.
"Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was," said Robert Khuzami, Director of the SEC's Enforcement Division. "These material misstatements occurred during a time of acute investor interest in financial institutions' exposure to subprime loans, and misled the market about the amount of risk on the company's books. All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country's investors."

The SEC is seeking financial penalties, disgorgement of ill-gotten gains with interest, permanent injunctive relief and officer and director bars against Mudd, Dallavecchia, Lund, Syron, Cook, and Bisenius. Both lawsuits allege that the former executives caused the federal mortgage firms to materially misstate their holdings of subprime mortgage loans in periodic and other filings with the Commission, public statements, investor calls, and media interviews. The suit involving the Fannie Mae executives also includes similar allegations regarding Alt-A mortgage loans. The suit against the former Fannie Mae executives alleges they made misleading statements — or aided and abetted others — between December 2006 and August 2008. The former Freddie Mac executives are alleged to have made misleading statements — or aided and abetted others - between March 2007 and August 2008.

The SEC's complaint against the former Fannie Mae executives alleges that, when Fannie Mae began reporting its exposure to subprime loans in 2007, it broadly described the loans as those "made to borrowers with weaker credit histories," and then reported — with the knowledge, support, and approval of Mudd, Dallavecchia, and Lund — less than one-tenth of its loans that met that description. Fannie Mae reported that its 2006 year-end Single Family exposure to subprime loans was just 0.2 percent, or approximately $4.8 billion, of its Single Family loan portfolio. Investors were not told that in calculating the Company's reported exposure to subprime loans, Fannie Mae did not include loan products specifically targeted by Fannie Mae towards borrowers with weaker credit histories, including more than $43 billion of Expanded Approval, or "EA" loans.
Fannie Mae's executives also knew and approved of the decision to underreport Fannie Mae's Alt-A loan exposure, the SEC alleged. Fannie Mae disclosed that its March 31, 2007 exposure to Alt-A loans was 11 percent of its portfolio of Single Family loans. In reality, Fannie Mae's Alt-A exposure at that time was approximately 18 percent of its Single Family loan holdings.

The misleading disclosures were made as Fannie Mae's executives were seeking to increase the Company's market share through increased purchases of subprime and Alt-A loans, and gave false comfort to investors about the extent of Fannie Mae's exposure to high-risk loans, the SEC alleged.

In the complaint against the former Freddie Mac executives, the SEC alleged that they and Freddie Mac led investors to believe that the firm used a broad definition of subprime loans and was disclosing all of its Single-Family subprime loan exposure. Syron and Cook reinforced the misleading perception when they each publicly proclaimed that the Single Family business had "basically no subprime exposure." Unbeknown to investors, as of December 31, 2006, Freddie Mac's Single Family business was exposed to approximately $141 billion of loans internally referred to as "subprime" or "subprime like," accounting for 10 percent of the portfolio, and grew to approximately $244 billion, or 14 percent of the portfolio, as of June 30, 2008.

The SEC's complaint alleges that Mudd violated Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rules 10b-5(b) and 13(a)14(a) thereunder, and Section 17(a)(2) of the Securities Act of 1933 (the "Securities Act"); and that Mudd aided and abetted Fannie Mae's violations of Sections 10(b) and 13(a) of the Exchange Act and Exchange Act Rules 10b-5(b), 12b-20, 13a-1, and 13a-13 thereunder. The SEC complaint also alleges that Dallavecchia violated Section 17(a)(2) of the Securities Act and aided and abetted Fannie Mae's violations of Sections 10(b) and 13(a) of the Exchange Act and Exchange Act Rules 10b-5(b), 12b-20, 13a-1, and 13a-13 thereunder. Finally, the SEC complaint alleges that Lund aided and abetted Fannie Mae's violations of Sections 10(b) and 13(a) of the Exchange Act and Exchange Act Rules 10b-5(b), 12b-20, 13a-1, and 13a-13 thereunder.
The SEC's complaint alleges that Syron and Cook violated Exchange Act Section 10(b) and Rule 10b-5(b) thereunder and Securities Act Section 17(a)(2); that Syron violated Exchange Act Rule 13a-14; and that Syron, Cook and Bisenius aided and abetted violations of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5(b), 12b-20 and 13a-13 thereunder.
The SEC's investigation of Fannie Mae was conducted by Senior Attorneys Natasha S. Guinan, Christina M. Marshall, Liban Jama, Mona L. Benach, and Associate Chief Accountant, Peter Rosario, under the supervision of Assistant Director Charles E. Cain, and Associate Director Stephen L. Cohen. Sarah Levine and James Kidney will lead the SEC's litigation efforts.”

COMCAST CEO TO PAY $500,000 FOR VIOLATING PREMERGER NOTIFICATION REQUIREMENTS

The following excerpt is from the Department of Justice website:

December 16, 2011
“WASHINGTON – Comcast Corporation’s CEO Brian L. Roberts will pay a $500,000 civil penalty to settle charges that he violated premerger reporting and waiting requirements when he acquired Comcast voting securities, the Department of Justice announced today.

The Justice Department’s Antitrust Division, at the request of the Federal Trade Commission, filed a civil antitrust lawsuit today in U.S. District Court in Washington, D.C., against Roberts for violating the notification requirements of the Hart-Scott-Rodino (HSR) Act of 1976.  At the same time, the department filed a proposed settlement that, if approved by the court, will settle the charges.

Roberts is also chairman of the board of Comcast, a leading provider of cable television services headquartered in Philadelphia.

According to the complaint, Roberts failed to comply with the antitrust premerger notification requirements of the HSR Act before acquiring voting securities of Comcast as part of his compensation as chairman and chief executive officer of Comcast beginning on Oct. 22, 2007, which resulted in his holding more than $119.6 million of Comcast stock.  On Aug. 25, 2009, Roberts made a corrective filing for Comcast voting securities he had acquired.  Although this is the first time Roberts has been charged with an HSR Act violation, previously he had twice made corrective filings regarding transactions that he acknowledged were reportable under the HSR Act, asserting that the failures to file and observe the waiting period were inadvertent.

The Hart-Scott-Rodino Act of 1976, an amendment to the Clayton Act, imposes notification and waiting period requirements on individuals and companies over a certain size before they consummate acquisitions resulting in holding stock or assets above a certain value, which was $59.8 million in 2007 and is currently $66 million.

Federal courts can assess civil penalties for premerger notification violations under the HSR Act in lawsuits brought by the Department of Justice.  For a party in violation of the HSR Act before Feb. 10, 2009, the maximum civil penalty is $11,000 a day for each day it is in violation of the Act.  For a party in violation of the HSR Act on or after Feb. 10, 2009, the maximum penalty is $16,000 a day.”

SEC ALLEGES SPORT DRINK COMPANY STOCK USED IN PUMP AND DUMP SCAM

The following excerpt is from the SEC website:

“Washington, D.C., Dec. 16, 2011 — The Securities and Exchange Commission today charged Daniel Ruettiger and 12 other participants in a scheme to deceive investors into buying stock in his sports drink company. Ruettiger is widely known for having inspired the 1993 motion picture "Rudy."

According to the SEC’s complaint filed in federal court in Las Vegas, Ruettiger founded Rudy Nutrition to compete with Gatorade in the sports drink market. Rudy Nutrition produced and sold modest amounts of a sports drink called “Rudy” with the tagline “Dream Big! Never Quit!” However, the company primarily served as a vehicle for a pump-and-dump scheme that occurred in 2008 and generated more than $11 million in illicit profits.

The SEC alleges that investors were provided false and misleading statements about the company in press releases, SEC filings, and promotional materials. For example, a promotional mailer to potential investors falsely claimed that in “a major southwest test, Rudy outsold Gatorade 2 to 1!” A promotional e-mail falsely boasted that in “several blind taste tests, Rudy outperformed Gatorade and Powerade by 2:1.” Meanwhile, the scheme’s promoters engaged in manipulative trading to artificially inflate the price of Rudy Nutrition stock while selling unregistered shares to investors. The SEC suspended trading and later revoked registration of the stock in late 2008. Rudy Nutrition is no longer in business.

“Investors were lured into the scheme by Mr. Ruettiger's well-known, feel-good story but found themselves in a situation that did not have a happy ending,” said Scott W. Friestad, Associate Director of the SEC’s Division of Enforcement. “The tall tales in this elaborate scheme included phony taste tests and other false information that was used to convince investors they were investing in something special.”
According to the SEC’s complaint, Ruettiger was the principal founder and namesake of a company called Rudy Beverage Inc. that he and a college friend ran out of South Bend, Ind. until October 2007, when Rocky Brandonisio became the company’s president and day-to-day business manager. He moved the company’s operations to Las Vegas, where he and Ruettiger live. Ruettiger remained CEO. During this time, the company struggled financially with few customers, few assets, and no profits.

The SEC alleges that Ruettiger and Brandonisio brought in an experienced penny stock promoter named Stephen DeCesare to orchestrate a public distribution of company stock in late 2007. Ruettiger knew DeCesare from previous business dealings, and they were neighbors in Las Vegas. Ruettiger and Brandonisio gave DeCesare sufficient control to turn Rudy Beverage into a publicly traded company. DeCesare became the primary organizer of the resulting pump-and-dump scheme
According to the SEC’s complaint, DeCesare identified a shell corporation quoted on the Pink Sheets for use in what’s known as a reverse merger, which occurs when a private company acquires a public company (typically a shell company) in order to become publicly-traded. DeCesare tasked a business consultant named Kevin Quinn with executing the merger and working with the company’s transfer agent to issue purportedly unrestricted stock. On Feb. 11, 2008, they acquired the shell company in a reverse merger and changed its name to “Rudy Nutrition.” Ruettiger authorized his signature to be placed electronically on an SEC filing four days later, and Rudy Nutrition began to be quoted on the Pink Sheets on Feb. 21, 2008, under the ticker symbol RUNU. DeCesare and Quinn, who is a disbarred California lawyer, arranged for three billion RUNU shares to be issued to nominee entities, which sold almost one billion shares to unsuspecting investors in the public market during the scheme.

The SEC alleges that DeCesare then organized the efforts to pump RUNU stock by partnering with other penny stock promoters to inflate the price and volume artificially through fraudulent touting and manipulative trading. The scheme’s participants made a series of false or misleading statements about RUNU to the public in mailers sent to millions of U.S. investors, messages posted in Internet chat rooms dedicated to penny stocks, and videos placed on the Internet for public viewing. False and misleading statements about the company also were made in press releases and filings with the SEC. These disingenuous promotional efforts had the predictable effect of attracting buyers to RUNU stock. In less than a month, RUNU went from trading 720 shares to more than 3 million shares, and within two weeks the price of RUNU stock climbed from 25 cents to $1.05 per share. After March 12, 2008, RUNU stock began a roller coaster ride as the scheme’s participants sold millions of RUNU shares to the market amid their simultaneous efforts to pump the stock.

According to the SEC’s complaint, the scheme eventually ended when theSEC issued a trading suspension against RUNU on Sept. 12, 2008 for delinquent periodic filings. Only days before the trading suspension, arrangements were being made to issue another two billion shares that scheme participants planned to dump on the market at the end of September 2008. But they were unable to do so because of the SEC’s trading suspension. The SEC revoked the registration of Rudy Nutrition securities on Nov. 14, 2008.
Ruettiger and 10 of the scheme’s other participants have agreed to settle the SEC’s charges without admitting or denying the allegations. The settlements, which are subject to court approval, impose penny stock bars and officer-and-director bars as appropriate. Ruettiger agreed to pay $382,866 in settling the charges, and other participants consented to final judgments also ordering disgorgement, prejudgment interest, and financial penalties.”

SEC ALLEGES PRIME BANK SCHEME WAS OPERATED BY WASHINGTON D.C. LAW FIRM

The following is an excerpt from the SEC website: “On November 30, 2011, the Securities and Exchange Commission filed an enforcement action under seal in federal court in Washington D.C. and obtained an emergency court order to halt a prime bank scheme that defrauded at least 13 investors out of more than $2 million since August 2010. The Court unsealed the action on December 5, 2011, at the SEC’s request. The SEC’s complaint alleges that Pennsylvania resident Frank L. Pavlico III and Washington D.C. attorney Brynee K. Baylor operated a prime bank scheme, offering investors risk-free returns of up to 20 times the original investment within as few as 45 days through the purported “lease” and “trading” of foreign bank instruments, including “standby letters of credit” and “bank guarantees,” in highly complex transactions with unidentified parties and secretive “trading platforms.” However, the bank instruments and trading programs were entirely fictitious. Pavlico and Baylor provided investors with phony contracts and legal documents, digitally-created computer screen shots, and copies of fictitious foreign bank instruments as purported proof of the ongoing success of the transactions. Baylor and her law firm Baylor & Jackson P.L.L.C. acted as “counsel” for Pavlico’s company The Milan Group, vouching for Pavlico and acting as an escrow agent that in reality was merely receiving and diverting the majority of investor funds. According to the SEC complaint, Pavlico and Baylor lured investors into believing they were being given an exclusive chance to participate in an international investing program involving complex financial instruments that generated astronomical profits. They used vague and complex terms in their communications to confuse investors, and claimed that confidentiality concerns prevented them from providing more complete details regarding the status of the investment. Pavlico and Baylor also provided investors with bogus excuses attempting to explain the delay in providing the promised returns, such as feigned illnesses and false representations that the European bankers supposedly involved in the transaction were on extended vacation. In furtherance of the scheme, the complaint alleges that Baylor provided investors with “attorney attestation” letters that assured them the investments were legitimate, and investor contracts that promised investment profits would be shared among investors, Milan, and Baylor & Jackson. Meanwhile, Pavlico was using a fake name of “Frank Lorenzo” to conceal his 2008 money laundering conviction from investors. He failed to disclose that he served 10 months in prison and was on supervised release at the time he was soliciting their investments. According to the SEC’s complaint, Pavlico and Baylor used investor funds to pay Baylor & Jackson business expenses as well as personal expenditures. Pavlico purchased a Range Rover and a Jaguar, and Baylor made purchases at expensive restaurants and retailers including Jimmy Choo, and financed a trip to the Bahamas in September 2010. Investor funds also were used to make payments to nine individuals and entities – including Baylor’s law partner Dawn R. Jackson – named as relief defendants in the SEC’s complaint for the purpose of recovering funds unrightfully in their possession. None of the defendants charged in the SEC’s enforcement action has ever registered with the SEC to sell securities. On November 30, 2011, the Honorable Rosemary M. Collyer granted the SEC’s request for a temporary restraining order to prevent Pavlico, Milan, Baylor, and Baylor & Jackson from further engaging in the alleged investment program. The Court also granted the SEC’s request for an order freezing the assets of all the defendants and relief defendants, requiring accountings, prohibiting the destruction or alteration of documents, and allowing for expedited discovery. The SEC’s complaint alleges that Pavlico, Baylor, Milan, and Baylor & Jackson violated various antifraud, broker-dealer, and securities registration provisions of the federal securities laws. Specifically, the complaint alleges that they each violated 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; that Pavlico, Baylor, and Baylor & Jackson aided and abetted violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5; that Baylor and Baylor & Jackson aided and abetted violations of Securities Act Sections 5(a) and 5(c); and that Pavlico and Baylor also violated Exchange Act Section 15(a). The SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest thereon, and civil penalties against each defendant, and bars prohibiting Pavlico and Baylor from serving as an officer or director of a public company. Separately, the Federal Bureau of Investigation arrested Pavlico on November 29, 2011, charging him with wire fraud. The SEC’s complaint alleges that the defendants in this matter offered fictitious investments involving so-called "bank guarantees," “stand-by letters of credit,” or foreign “trading platforms,” among other purported investment vehicles.”

SEC TOP LEVEL GUY COMMENTS ON THE CITIGROUP CASE

The following excerpt is from the SEC website:

“Washington, D.C., Dec. 15, 2011 — The Securities and Exchange Commission’s Director of the Division of Enforcement, Robert Khuzami, today made the following statement on the Citigroup case:
Last month, a federal district court declined to approve a consent judgment because, in its view, the underlying allegations were ‘unsupported by any proven or acknowledged facts.’ As a result, the court rejected a $285 million settlement between the SEC and Citigroup that reasonably reflected the relief the SEC would likely have obtained if it prevailed at trial.
We believe the district court committed legal error by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits. For this reason, today we filed papers seeking review of the decision in the U.S. Court of Appeals for the Second Circuit.
We believe the court was incorrect in requiring an admission of facts — or a trial — as a condition of approving a proposed consent judgment, particularly where the agency provided the court with information laying out the reasoned basis for its conclusions. Indeed, in the case against Citigroup, the SEC filed suit after a thorough investigation, the findings of which were described in extensive detail in a 21-page complaint.
The court’s new standard is at odds with decades of court decisions that have upheld similar settlements by federal and state agencies across the country. In fact, courts have routinely approved settlements in which a defendant does not admit or even expressly denies liability, exactly because of the benefits that settlements provide.
In cases such as this, a settlement puts money back in the pockets of harmed investors without years of courtroom delay and without the twin risks of losing at trial or winning but recovering less than the settlement amount - risks that always exist no matter how strong the evidence is in a particular case. Based on a careful balancing of these risks and benefits, settling on favorable terms even without an admission serves investors, including investors victimized by other frauds. That is due to the fact that other frauds might never be investigated or be investigated more slowly because limited agency resources are tied up in litigating a case that could have been resolved.
In contrast, the new standard adopted by the court could in practical terms press the SEC to trial in many more instances, likely resulting in fewer cases overall and less money being returned to investors.
To be clear, we are fully prepared to refuse to settle and proceed to trial when proposed settlements fail to achieve the right outcome for investors. For example, in the cases that the SEC identifies as core financial crisis cases, we filed unsettled actions against 40 of the 55 (70 percent) of the individuals charged — including the action filed against Brian Stoker in this matter. Similarly, we filed unsettled actions against 11 of the 26 (42 percent) of the entities we charged — eight of which we did not litigate against because they were bankrupt, defunct or no longer operating.
In deciding whether to settle, the SEC considers, among other things, limitations under the securities laws. In a case like Citigroup, the applicable statute does not entitle the SEC to recover the amount lost by investors. Instead, in addition to recovering a defendant’s ill-gotten gains, the statute allows a monetary penalty only up to the amount of a defendant’s gain.
The $285 million obtained from Citigroup under the proposed settlement, while less than investor losses, represents most of the total monetary recovery that the SEC itself could have sought at trial. An SEC settlement does not limit the ability of injured investors to pursue claims for additional relief.
Moreover, while the court alluded to Citigroup’s size, the law does not permit the Commission to seek penalties based upon a defendant’s wealth“.



FATHER AND SON CHARGED IN UTAH FOR ALLEGED PONZI REAL ESTATE SCHEME

The following excerpt is from the SEC website:

“Washington, D.C., Dec. 15, 2011 — The Securities and Exchange Commission today charged a father and son in Utah with securities fraud for selling purported investments in their real estate business that turned out to be nothing more than a wide-scale $220 million Ponzi scheme.

The SEC alleges that Wendell A. Jacobson and his son Allen R. Jacobson operate from a base in Fountain Green, Utah, and offer investors the opportunity to invest in limited liability companies (LLCs) in order to share ownership of large apartment communities in eight states. The Jacobsons solicit investors personally and through word of mouth, and appear to be using their memberships in the Church of Jesus Christ of Latter-Day Saints to make connections and win over the trust of prospective investors.
The SEC alleges that the Jacobsons represent that they buy apartment complexes with low occupancy rates at significantly discounted prices. They then renovate them and improve their management, and aim to resell them within five years. Investors are said to share in the profits derived from rental income at the apartment complexes as well as the eventual sales. But in reality, the LLCs are suffering significant losses and the Jacobsons are merely pooling the money raised from investors into large bank accounts from which they are siphoning money to pay family expenses and the operating expenses of their various companies. They also are paying earlier investors with funds received from new investors in classic Ponzi scheme fashion.
After filing its complaint today in federal court in Salt Lake City, the SEC obtained an emergency court order freezing the assets of the Jacobsons and their companies.
“Wendell and Allen Jacobson misled investors to believe they were financially supporting what was portrayed as a widespread and reputable operation to revamp apartment communities and turn a significant profit,” said Ken Israel, Director of the SEC’s Salt Lake Regional Office. “Their promises were anything but truthful.”
According to the SEC’s complaint, the Jacobsons raised more than $220 million from approximately 225 investors through a complex web of entities under the umbrella of Management Solutions, Inc. They have operated the fraudulent scheme since at least 2008. They sold the securities in the form of investment contracts without filing any registration statement with the SEC as required under the federal securities laws. Wendell and Allen Jacobson are acting as unregistered brokers in connection with their offers and sales of membership interests in LLCs.
The SEC alleges that the Jacobsons falsely assure investors that the principal amount of their investment will be safe, and their funds will be used to acquire, rehabilitate, and manage certain identified properties. Investors are promised annual returns ranging from 5 to 8 percent per year depending upon the particular apartment complexes pertaining to their LLC, with additional profits promised when the properties are sold. Wendell and Allen Jacobson tell investors that their funds are designated for a particular LLC. Wendell Jacobson has told investors that only one time has he ever lost money on a property, and on that occasion he covered the loss personally so that investor returns would not be reduced.
According to the SEC’s complaint, investor funds are never held and used exclusively to acquire, rehabilitate, and operate rental properties as represented by the Jacobsons. In fact, the LLCs are experiencing significant net losses. Nevertheless, the LLCs continue to pay returns to investors, falsely leading those investors to believe their LLCs are operating at a profit. When investor funds are received, they are almost always transferred or pooled immediately in accounts of various Jacobson-owned entities, most commonly in the account of Thunder Bay Mortgage Company. Investor funds are then used for a variety of purposes that have not been disclosed to investors.
The SEC further alleges that on numerous occasions since Jan. 1, 2010, investors have been told that the property owned in their LLC has been sold, and that they have realized a profit on the sale. In fact, those properties were not sold, and the Jacobsons used the alleged “sales” as a means of shifting investors into and out of certain properties. They have essentially been operating a shell game intended to raise additional funds from new or existing investors in order to meet the rapidly growing financial obligations of their operation.
The SEC’s complaint charges Wendell and Allen Jacobson with violating Sections 5(a), 5(c) and 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 as well as disgorgement of ill-gotten gains, prejudgment interest and financial penalties. The Honorable Bruce S. Jenkins granted the SEC’s request for a temporary restraining order, asset freezes, appointment of a receiver and other emergency relief to prevent the Jacobsons from continuing to solicit investments in the Management Solutions program. The SEC seeks permanent injunctive relief, disgorgement and financial penalties against Management Solutions and the Jacobsons.
The SEC’s investigation was conducted by Alison Okinaka, Scott Frost, Paul Feindt and Norm Korb in the Salt Lake Regional Office. The litigation will be headed by Dan Wadley and Tom Melton.
The SEC thanks the U.S. Attorney’s Office for the District of Utah, Federal Bureau of Investigation, and Internal Revenue Service for their assistance in this matter.”

SEC ALLEGES SIPC HAS FAILED TO START LIQUIDATION PROCEEDINGS WITH STANFORD GROUP

The following excerpt is from the SEC website:

December 15, 2011
“On December 12, 2011, the Securities and Exchange Commission filed an application with the federal district court in the District of Columbia to compel the Securities Investor Protection Corporation (SIPC) to file an application to begin a liquidation proceeding with regard to Stanford Group Company (SGC), a broker-dealer registered with the Commission and a SIPC-member brokerage firm.
In February 2009, the Commission brought a civil enforcement action against Robert Allen Stanford, SGC, and others, alleging that they operated a multi-billion dollar Ponzi scheme. As a result of that enforcement action, a federal district court in Texas ordered that SGC be placed into receivership.
On June 15, 2011, the Commission directed SIPC to take steps to initiate a liquidation proceeding with regard to SGC because there were customers in need of the protections of the Securities Investor Protection Act of 1970 (SIPA). Among other things, SIPA provides for coverage of up to $500,000 to customers of a defunct brokerage firm in the event that funds available at the firm are insufficient to satisfy claims covered by the statute. This coverage is provided from a fund maintained by SIPC.
Despite the Commission's directive, SIPC has failed to take steps to initiate a liquidation proceeding as to SGC.”

SEC FILES INJUCTION IN ALLEGED SCHEME TO OVERVLUE ILLIQUID ASSETS

The following excerpt is from the SEC website: December 2, 2011 “The Securities and Exchange Commission announced today that it filed a civil injunctive action in the United States District Court for the Southern District of New York charging two individuals with engaging in a fraudulent scheme to overvalue illiquid asset holdings of the now insolvent hedge fund, Millennium Global Emerging Credit Fund (the "Fund"), and thereby inflate the Fund's reported returns and net asset value. The defendants named in the Commission's complaint are Michael Balboa, the Fund's former portfolio manager, and Gilles De Charsonville, a broker with BCP Securities, LLC. The SEC's complaint alleges that from January through October 2008, Balboa surreptitiously provided De Charsonville and another broker with fictional prices for them to pass on to the Fund's outside valuation agent and its auditor. Specifically, Balboa had De Charsonville and the other broker portray the valuations for two of the Fund's illiquid securities holdings, Nigerian and Uruguayan warrants, as ostensibly independent month-end "marks" that were provided by third-party sources. In fact, Balboa completely fabricated the prices which De Charsonville and the other broker were complicit in passing onto the valuation agent and auditor for these two securities. This scheme caused the Fund to drastically overvalue these two securities holdings by as much as $163 million in August 2008, which, in turn, allowed the Fund to report inflated and false-positive monthly returns. By overstating the Fund's returns and overall net asset value, Balboa was able to attract at least $410 million in new investments, deter about $230 million in eligible redemptions and generate millions of dollars in inflated management and performance fees. The SEC's complaint charges the defendants with committing and/or aiding and abetting violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 206 of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder and, as to Balboa, Section 17(a) of the Securities Act of 1933. De Charsonville is also charged with violating Financial Industry Regulatory Authority Rule 5210. As to both defendants, the SEC's complaint seeks a permanent injunction against future violations, disgorgement of ill-gotten gains plus prejudgment interest, and monetary penalties. The United States Attorney's Office for the Southern District of New York ("USAO"), which conducted a parallel investigation of this matter, has also announced the arrest of Balboa and the simultaneous filing of a criminal complaint against him. The SEC acknowledges the assistance and cooperation of the USAO, United States Postal Inspection Service, U.K. Financial Services Authority, Bermuda Monetary Authority, the Comisión Nacional del Mercado de Valores, the Guernsey Financial Services Authority, and Nigeria Securities and Exchange Commission in this matter. The SEC's investigation is continuing.”

COURT ORDERS FOUNDERS OF INTEGRITY FINANCIAL TO PAY $4.2 MILLION FOR FRAUDULANT PROMISSORY NOTES

The following excerpt is from the SEC website: "The U.S. Securities and Exchange Commission (Commission) today announced that, on November 23, 2011, the U.S. District Court for the Northern District of Ohio entered final judgments against Steven R. Long and Stanley M. Paulic in a Commission injunctive action, United States Securities and Exchange Commission v. Integrity Financial AZ, LLC, Steven R. Long, Stanley M. Paulic, Walter W. Knitter, and Robert C. Koeller, Civil Action No. 10-CV-782 (SO) (N.D. Ohio filed Apr. 15, 2010). The Commission’s complaint alleges that Long and Paulic founded Integrity Financial AZ, LLC (IFAZ) and, with assistance from Walter W. Knitter and Robert C. Koeller, used the company to raise more than $8 million in a fraudulent unregistered offering of promissory notes purportedly secured by real estate in Arizona. The final judgments were entered after the district court granted the Commission’s motion for summary judgment against Long and Paulic. The order granting summary judgment found that Long “knowingly made misrepresentations or omissions of material fact regarding the offer and sale of securities, while utilizing investors’ money for his own gain” and that “Paulic misrepresented material facts in connection with the offer and sale of securities” and “acted recklessly in conjunction with his activities and responsibilities as CEO and co-owner of IFAZ.” The final judgments against Long and Paulic permanently enjoin each of them from further violations of Sections 5 and 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rule 10b‑5. The final judgment against Long also finds him liable for disgorgement in the amount of $1,481,736, plus prejudgment interest thereon in the amount of $97,723.32, and a civil penalty in the amount of $1,465,306. The final judgment against Paulic also finds him liable for disgorgement in the amount of $586,225, plus prejudgment interest thereon in the amount of $38,662.65, and a civil penalty in the amount of $586,225. The Commission also announced today, that on October 7, 2011, the district court entered a default judgment against IFAZ permanently enjoining it from violations of Sections 5 and 17(a) of the Securities Act, Sections 10(b) and 15(a) of the Exchange Act, and Exchange Act Rule 10b‑5, and finding it liable for disgorgement in the amount of $5,598,717, plus prejudgment interest thereon in the amount of $429,403.44, and a civil penalty in the amount of $650,000. Knitter settled with the Commission previously. The remaining defendant, Koeller, reached a partial settlement with the Commission on September 28, 2011."

OPTIONS TRADER GETS CHARGED BY SEC WITH FAILURE TO DELIVER SHORT SALES SHARES

The following excerpt is from the Securities and Exchange Commission’s website: “Washington, D.C., Dec. 13, 2011 — The Securities and Exchange Commission today charged an options trader in the Chicago area with violating short selling restrictions when he failed to locate and deliver the shares involved in short sales to broker-dealers and their institutional customers. The trader agreed to pay more than $2 million to settle the SEC’s charges. According to the SEC’s order instituting administrative proceedings, Gary S. Bell violated the “locate” and “close out” requirements of Regulation SHO, which require market participants to locate a source of borrowable shares prior to selling short and to deliver those securities by a specified date. Market makers who ensure liquidity in the market are excepted from these requirements if they are engaged in bona-fide market making activities in the security for which the exception is claimed. The SEC’s order finds that Bell improperly relied on the market maker exception in his line of business that essentially loaned large amounts of hard-to-borrow stock to broker-dealers, who then provided their customers with locates on those shares and lucrative stock loans of those shares. The customers then sold short certain securities that they may not have otherwise been able to without Bell’s participation. However, because the stock being provided by Bell was not truly available for delivery to the broker-dealers or their short selling customers, Bell actually was effecting illegal “naked” short sales. “Bell avoided the cost of borrowing shares while engaging in complex short selling transactions, thus earning significant profits with minimal risk and gaining an advantage over legitimate participants in the market,” said George S. Canellos, Director of the SEC’s New York Regional Office. “We’ll continue aggressively to pursue and punish abusive short sellers who attempt to circumvent regulatory requirements to make more money.” According to the SEC’s order, Bell effected naked short sales from December 2006 to June 2007 while working as a broker-dealer himself and then later as the principal trader at Chicago-based broker-dealer GAS I LLC, which is no longer in business. Bell and GAS engaged in two specific types of transactions that violated the locate and close-out requirements of Regulation SHO. The first type of transaction — a “reverse conversion” or “reversal” — involves selling stock short and simultaneously selling a put option and buying a call option on the stock. The second type of transaction is a combined stock-and-option transaction that is essentially a sham and creates the illusion that the party subject to a close-out obligation has satisfied that obligation by buying the same kind and quantity of securities it has sold short. The SEC’s order finds that Bell’s and GAS’s transactions created the false appearance of compliance with the requirements of Regulation SHO. The shares that were apparently purchased in the transactions were never actually delivered because they were purchased from a “naked” short seller, and left Bell and GAS with persistent “fail-to-deliver” positions, meaning that they did not deliver shares to make good on their sales of stock. The market maker exception to Regulation SHO was not available to either Bell or GAS because they were not engaging in bona-fide market making activities in these securities. As a result of his short selling violations, Bell received ill-gotten gains of at least $1.5 million. Bell settled the SEC’s administrative proceedings without admitting or denying the SEC’s findings. The Commission’s order requires Bell to cease and desist from committing or causing violations of Rules 203(b)(1) and 203(b)(3) of Regulation SHO, and suspends Bell from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization for a period of nine months. Bell is required to pay $1.5 million in disgorgement, $336,094 in prejudgment interest, and a $250,000 penalty. The SEC acknowledges the assistance of the Chicago Board Options Exchange in this matter. The SEC’s investigation into violations of Regulation SHO is continuing.”

FORMER CEO CHARGED WITH MARKET MANIPULATION

"The Securities and Exchange Commission charged Giuseppe Pino Baldassarre, the former CEO of Dolphin Digital Media, Inc. (“Dolphin”), Robert Mouallem, a registered representative, and Malcolm Stockdale, a Dolphin shareholder, with engaging in a fraudulent broker bribery scheme designed to manipulate the market for Dolphin’s common stock. Baldassarre, age 53 and a resident of Indialantic, Florida, was Dolphin’s President from May 15, 2007 until March 20, 2009, and Dolphin’s CEO from May 15, 2007 until June 25, 2008. Mouallem, age 56 and a resident of Boca Raton, Florida, is a registered representative at Garden State Securities, Inc., a registered broker-dealer. Stockdale, age 66 and a resident of Prince Edward Island, Canada, is the owner of Winterman Group Ltd., a Canadian limited liability company. The complaint, filed today in federal court in Brooklyn, New York, alleges that from at least October 2009 until April 2010, Baldassarre, Stockdale, and Mouallem engaged in a fraudulent scheme to manipulate the market for Dolphin stock through matched trades and by bribing registered representatives to purchase Dolphin stock. The complaint also alleged that Baldassarre and Stockdale entered into a kickback arrangement with an individual (“Individual A”) who claimed to represent a group of registered representatives with trading discretion over the accounts of wealthy customers. Baldassarre and Stockdale promised to pay a 30% kickback to Individual A and the registered representatives he represented in exchange for the purchase of up to seven million shares of Dolphin stock for at least $3 million. The complaint further alleges that between March 31 and April 6, 2010, and in accordance with the illicit arrangement, Mouallem, who was responsible for handling the sales, instructed Individual A to purchase approximately 105,000 shares of Baldassarre and Stockdale’s Dolphin stock for a total of approximately $38,100. Mouallem gave Individual A detailed instructions concerning the size, price and timing of the orders. In this way, Mouallem was able to insure that almost all of Individual A’s purchase orders were matched with Mouallem’s sell orders at prices Mouallem predetermined. Thereafter, Baldassarre paid Individual A bribes of approximately $11,440 for those purchases. The complaint charges Baldassarre, Mouallem, and Stockdale with violating 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 Commission seeks permanent injunctive relief from the Defendants, disgorgement of ill-gotten gains, if any, plus pre-judgment interest, civil penalties, penny stock bars, and a judgment prohibiting Baldassarre from serving as an officer or director of a public company. The Commission acknowledges assistance provided by the U.S. Attorney’s Office for the Eastern District of New York and the Federal Bureau of Investigation in this matter." "

"SHELL PACKAGING" FIRM CHARGED BY SEC WITH ISSUEING UNRESTRICTED SHARES OF STOCK TO THE PUBLIC

The following excerpt is from the SEC website: December 12, 2011 "Securities and Exchange Commission v. Alternative Green Technologies, Inc., et al., Civil Action No. 11-cv-9056 (S.D.N.Y. December 12, 2011) (DAB) SEC Charges “Shell Packaging” Firm and Its CEO in Fraudulent Scheme The Securities and Exchange Commission today charged a shell packaging firm and several others involved in a penny stock scheme to issue purportedly unrestricted shares in the public markets. The SEC alleges that Joseph Meuse and his firm Belmont Partners LLC – which is in the business of identifying and selling public shell companies for use in reverse mergers – fabricated and backdated documents used to convince a transfer agent and an attorney writing an opinion letter to issue free-trading shares of Alternative Green Technologies Inc. (AGTI). The SEC also charged AGTI and its CEO Mitchell Segal as well as Segal’s business partner Howard Borg and stock promoters David Ryan, Vikram Khanna and Panascope Capital Inc. for their roles in the scheme that resulted in unknowing investors purchasing fraudulently issued AGTI shares without the protections afforded by the securities laws. According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Long Island, N.Y.-based AGTI and Segal, an attorney licensed to practice in New York, knowingly submitted false documents to a transfer agent and an attorney, who relied on them to conclude that free-trading shares of AGTI could legitimately be issued. Virginia-based Belmont and Meuse aided and abetted AGTI’s fraud by knowingly creating and sometimes backdating the false documentation, including a sham assignment of debt and a fabricated and backdated corporate resolution and convertible note. Segal then used the stock certificates illegally issued to fund promotional campaigns promoting AGTI’s stock. The stock promoters – Ryan, Panascope Capital and its president Khanna – were charged with selling the unregistered securities. The SEC’s complaint charges all defendants with violating Section 5 of the Securities Act of 1933, and AGTI and Segal with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder. Segal, Meuse and Belmont are charged with aiding and abetting the fraud by AGTI. The SEC’s complaint seeks permanent injunctions and disgorgement against all defendants; a financial penalty against AGTI, Segal, Belmont, Meuse and Ryan; and officer and director and penny stock bars against Segal and Meuse. The SEC’s complaint also names several relief defendants for the purposes of recovering proceeds they received from the illicit stock sales. Borg, Khanna and Panascope Capital have consented to the entry of a final judgment enjoining them from further violations of Section 5 of the Securities Act without admitting or denying the allegations in the SEC’s complaint. Khanna and Panascope Capital agreed to pay $81,477.10 to settle the charges, and Borg agreed to pay $35,264.05 and surrender to the transfer agent for cancellation more than four million shares of AGTI stock that were illegally issued. The settlements are subject to court approval."

GLAXOSMITHKLINE SUSIDIARY CHARGED WITH ALLEGED FRAUD BY SEC

The following excerpt comes from an SEC e-mail received on 12-12-2011" 2/12/2011 10:35 AM EST "FOR IMMEDIATE RELEASE 2011-261 Washington, D.C., Dec. 12, 2011 – The Securities and Exchange Commission today charged a subsidiary of pharmaceutical company GlaxoSmithKline and the subsidiary’s former chairman and CEO with defrauding employees and other shareholders in the company’s stock plan by buying back their stock at severely undervalued prices. The SEC alleges that Stiefel Laboratories Inc., which was a family-owned business located in Coral Gables, Fla., prior to being purchased by GlaxoSmithKline two years ago, used low valuations for stock buybacks from November 2006 to April 2009. Stiefel Labs omitted key information that would have alerted employees that their stock was actually worth much more. Instead, the information was confined to then-CEO Charles Stiefel and certain members of his family as well as some senior management. At the time, Stiefel Labs was the world’s largest private manufacturer of dermatology products. “Stiefel Labs and Charles Stiefel profited at the expense of their employee shareholders who lost more than $110 million by selling their stock based on the misleading valuations they were provided,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “Private companies and their officers must understand that they are not immune from the federal securities laws, which protect all shareholders regardless of whether they bought stock in the open market or earned shares through a company’s stock plan.” According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, Stiefel Labs purchased more than 750 shares of company stock from shareholders between November 2006 and April 2007 at a price of $13,012 per share. Charles Stiefel knew that five private equity firms had submitted offers to buy preferred stock in November 2006 based on equity valuations of Stiefel Labs that were approximately 50 to 200 percent higher than the valuation later used for stock buybacks. The SEC alleges that between late July 2007 and June 2008, Stiefel Labs purchased more than 350 additional shares of company stock from shareholders under the company’s employee stock plan at $14,517 per share. It also bought more than 1,050 shares from shareholders outside the plan at even lower stock prices. At the time of these buybacks, Charles Stiefel knew not only about the November 2006 private equity valuations, but that a prominent private equity firm had bought preferred stock based on an equity valuation for Stiefel Labs that was more than 300 percent higher than that used for stock buybacks. The SEC’s complaint further alleges that between Dec. 3, 2008 and April 1, 2009, Stiefel Labs purchased more than 800 shares of its stock from shareholders at $16,469 a share even though Charles Stiefel knew that equity valuation was low and misleading, in part because he was negotiating the sale of the company. Beginning in late November 2008, Stiefel Labs decided to seek acquisition bids from several pharmaceutical companies. On Jan. 26, 2009, GlaxoSmithKline expressed interest in a Stiefel Labs acquisition and signed a confidentiality agreement two days later. As late as March 16, 2009, Charles Stiefel ordered that the ongoing negotiations not be disclosed to employees, and he misled shareholders to believe the company would remain family-owned. On April 20, 2009, Stiefel Labs announced that GlaxoSmithKline would acquire the company for a value that amounted to more than $68,000 per share. This price was more than 300 percent higher than the per share price that Stiefel Labs had been paying to buy back shares from its shareholders. The SEC’s complaint alleges Stiefel Labs violated and Charles Stiefel violated and aided and abetted Stiefel Labs’ violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC’s complaint seeks permanent injunctive relief, financial penalties, and the disgorgement of ill-gotten gains with prejudgment interest against both defendants, and an officer and director bar against Charles Stiefel. The SEC’s investigation was conducted by attorney Drew D. Panahi and accountant Kathleen Strandell in the SEC’s Miami Regional Office under the supervision of Thierry Olivier Desmet. Christopher E. Martin of the Miami Regional Office will be litigating the SEC’s case."

U.S. HOLDS ANTITRUST MERGER ENFORCEMENT TALKS HELD WITH CHINA

DEPARTMENT OF JUSTICE AND FEDERAL TRADE COMMISSION MEET WITH CHINESE MINISTRY OF COMMERCE ON MERGER ENFORCEMENT MATTERS The following excerpt is from the Department of Justice, Antitrust Division website: November 29, 2011 “WASHINGTON — Acting Assistant Attorney General Sharis Pozen of the Department of Justice’s Antitrust Division and Federal Trade Commission (FTC) Chairman Jon Leibowitz today met with a delegation from China’s Ministry of Commerce (MOFCOM) to discuss antitrust merger enforcement. The delegation was led by China International Trade Representative and MOFCOM Vice Minister Gao Hucheng. MOFCOM is responsible for handling reviews of mergers and acquisitions under China’s Antimonopoly Law. This is the first high-level MOFCOM visit to the U.S. antitrust agencies since the department and the FTC signed an antitrust memorandum of understanding (MOU) with China’s three antimonopoly agencies in July 2011, to promote communication and cooperation among the antitrust enforcement agencies in both countries. The discussion topics in today’s meeting included recent antitrust enforcement and policy developments, the role of antitrust enforcement in times of economic downturn and cooperation among the three agencies on merger enforcement issues. The three agencies developed further guidance for cooperation on investigations when one of the U.S. antitrust agencies and MOFCOM are reviewing the same merger. Department and FTC officials said that the discussions with the delegation from MOFCOM were productive, and that they look forward to continuing their cooperative relationship.”

SEC, FBI GO AFTER ALLEGED KICKBACKS IN THINLY TRADED STOCKS

The following excerpt is from the SEC website: December 2, 2011 The Securities and Exchange Commission announced that, on December 1, 2011, the Commission, U.S. Attorney for the District of Massachusetts, and Federal Bureau of Investigation filed parallel cases in federal court against several corporate officers, lawyers and a stock promoter alleging they used kickbacks and other schemes to trigger investments in various thinly-traded stocks. The Commission filed civil charges of securities fraud against ZipGlobal Holdings, Inc.; Microholdings US, Inc.; Michael Lee of Hingham, MA; James Wheeler of Camas, WA; Paul Desjourdy of Medfield, MA; and Edward Henderson of Lincoln, Rhode Island and alleging they used kickbacks to engage in fraudulent activity involving microcap stocks. The criminal case charged 13 defendants who 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. The charges follow a year-long investigation focusing on preventing fraud in the micro-cap stock markets. Microcap companies are small publicly traded companies whose stock often trades at pennies per share. Fraud in the microcap stock markets is of increasing concern to regulators as such markets have proven to be fertile grounds for fraud and abuse. This is, in part, because accurate information about microcap stocks may be difficult for the average investor to find, since many microcap companies do not file financial reports with the Commission. The Commission's complaint charges the defendants with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaints seeks a permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, civil monetary penalties, penny stock and officer and director bars.”

OVER $1 MILLION DOLLARS PAID TO SETTLE UNREGISTERED SECURITIES CASE

The following excerpt is from the SEC website: November 17, 2011 “The Securities and Exchange Commission announced today that the United States District Court for the Southern District of Florida entered final judgments, dated November 10, 2011, against Frank C. Calmes, Lynn D. Rowntree, and James E. Pratt. Calmes and Rowntree had been principals at First Equity Corporation, a Boca Raton company that took small companies public via reverse mergers. Pratt, a lawyer, provided legal opinions regarding the ability to sell stock in the newly public companies. According to the SEC’s Complaint, Calmes, Rowntree, and Pratt, along with co-defendant Manny J. Shulman, illegally sold millions of shares of unregistered securities in violation of the registration provisions of the Securities Act of 1933 (“Securities Act”). In addition, Calmes, Rowntree, and Shulman were alleged to have committed fraud in selling securities, in violation of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder. Calmes, Rowntree, and Pratt entered into bifurcated settlements with the SEC in May of 2011, just before a jury trial was to begin. Under the bifurcated settlements, Calmes and Rowntree agreed to be permanently enjoined from violating Sections 5(a) and 5(c) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, while Pratt agreed to be permanently enjoined from violating Sections 5(a) and 5(c) of the Securities Act. All three agreed to be barred from participating in any penny stock offering, and to cancel any shares of the corporations at issue in their possession or control. In addition, Defendant Calmes consented to be permanently barred from acting as an officer or director of any public issuer. The bifurcated settlements left open, and the final judgments entered last week addressed, defendants’ liability for disgorgement of ill-gotten gains, prejudgment interest thereon, and the imposition of penalties. The final judgments imposed the following relief: against Calmes, $1,886,918 in disgorgement, $468,441 in prejudgment interest, and a $5,000 penalty; against Rowntree, $693,948 in disgorgement, $157,411 in prejudgment interest, and a $5,000 penalty; and against Pratt, $258,796 in disgorgement, $64,247 in prejudgment interest, and a $5,000 penalty. Shulman proceeded to trial and on May 9, 2011 the jury returned a verdict finding him liable for violating Sections 5(a) and 5(c) of the Securities Act by selling uregistered securities and for violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by issuing materially false and misleading press releases regarding a company whose shares he was selling. On July 12, 2011, the Court enjoined Shulman from further violations of the federal securities laws, permanently barred Shulman from participating in any penny stock offering or acting as an officer or director of any public issuer, ordered disgorgement of $273,152, ordered payment of prejudgment interest of $95,633.44, and imposed a $5,000 penalty. The Court further ordered Shulman’s wife, Krystal Becnel, who was named as a relief defendant in the SEC’s Complaint, to disgorge $131,914.”