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SEC Institutes Proceedings Against California Attorney for Falsifying Documents for Production to SEC Staff
FOR IMMEDIATE RELEASE
2011-29
Washington, D.C., Jan. 28, 2011 — The Securities and Exchange Commission today instituted administrative proceedings against a California-based attorney for engaging in improper professional conduct during an SEC examination.
Additional Materials
* Order Instiuting Proceedings
The SEC’s Office of the General Counsel alleges that David M. Tamman — in the course of an SEC examination of his client NewPoint Securities LLC in April and May 2009 — altered private placement memoranda (PPMs) purportedly used in the offer and sale of securities issued by NewPoint Financial Services. The original PPMs purportedly provided to investors stated that the funds raised in the offerings would be used primarily for real estate related investments. In fact, the vast majority of money raised in the offerings was misappropriated by NewPoint’s principal John Farahi.
The SEC’s Office of the General Counsel alleges that Tamman — a member of the California Bar and a partner at a large international law firm — added language to the PPMs to make it appear that it was disclosed to investors that much of the money raised by NewPoint would be loaned to Farahi. The PPMs were then produced to the SEC’s examination and enforcement staff. According to the Office of the General Counsel, Tamman knew that the language he added to the documents was not included in the PPMs actually provided to investors.
Through his conduct, the SEC’s Office of the General Counsel alleges that Tamman engaged in unethical and improper professional conduct in violation of Rule 102(e) of the SEC’s Rules of Practice. An administrative hearing will be scheduled to determine whether the Office of the General Counsel’s allegations are true, to provide Tamman an opportunity to establish any defenses to the allegations, and to determine what sanctions, if any, are appropriate and in the public interest, including the denial, temporarily or permanently, of the privilege of appearing or practicing before the Commission pursuant to Rule 102(e).
The SEC’s investigation was conducted by Brent Smyth and Finola H. Manvelian of the SEC’s Los Angeles Regional Office. The SEC’s litigation will be led by Donna McCaffrey and Christopher Bruckmann of the SEC’s Office of the General Counsel.
# # #
For more information about this administrative proceeding, contact:
Richard M. Humes
Associate General Counsel, SEC’s Office of the General Counsel
(202) 551-5140
John M. McCoy
Associate Regional Director, SEC’s Los Angeles Regional Office
(323) 965-4561
Finola H. Manvelian
Assistant Regional Director, SEC’s Los Angeles Regional Office
(323) 965-3980
http://www.sec.gov/news/press/2011/2011-29.htm
SEC Charges Connecticut-Based Hedge Fund Manager for Fraudulent Misuse of Investor Assets
FOR IMMEDIATE RELEASE
2011-30
Washington, D.C., Jan. 28, 2011 — The Securities and Exchange Commission today obtained a court order freezing the assets of a Stamford, Conn.-based investment adviser and its principal, Francisco Illarramendi, charging that they misappropriated at least $53 million in investor funds and used the money for self-dealing transactions.
Additional Materials
* Litigation Release No. 21828
* SEC Complaint
The SEC alleges that Illarramendi defrauded investors in the several hedge funds he managed by improperly transferring their money into bank accounts that he personally controlled. He then invested the money for his own benefit or for the benefit of the entities that he controlled, rather than for the benefit of the hedge fund investors.
“Illarramendi treated his clients’ money like it was his own, diverting millions of dollars that did not belong to him,” said David P. Bergers, Director of the SEC’s Boston Regional Office. “He abused his position of trust with his clients and breached his responsibilities as an investment adviser.”
According to the SEC's complaint filed in U.S. District Court for the District of Connecticut on January 14, Illarramendi is the majority owner of the Michael Kenwood Group LLC — a holding company for, among other entities, investment adviser Michael Kenwood Capital Management LLC. Through this adviser entity, Illarramendi manages several hedge funds, including one that contains up to $540 million in assets. The SEC’s complaint alleges that Illarramendi took at least $53 million in investor money out of this hedge fund without the knowledge or consent of the hedge fund’s investors
The SEC sought an asset freeze and other emergency relief because it alleged that Illarramendi was imminently planning to make additional investments using investor funds without the knowledge or consent of the investors. Since the filing of the complaint, the Honorable Janet Bond Arterton, U.S. District Judge for the District of Connecticut, has held a series of hearings pertaining to the SEC’s request for an emergency relief against Illarramendi and Michael Kenwood Capital Management. Judge Arterton then entered an order freezing the assets of the defendants.
The SEC's complaint charges Illarramendi and Michael Kenwood Capital Management, LLC, with violating Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The complaint also names the following Illarramendi-controlled entities as relief defendants, alleging that they received investor funds to which they have no right: Michael Kenwood Asset Management LLC, Michael Kenwood Energy and Infrastructure LLC, and MKEI Solar LP. In addition to preliminary emergency relief, the SEC’s complaint seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties from the defendants, and disgorgement plus prejudgment interest from the relief defendants.
Carlos J. Costa-Rodrigues, Sofia T. Hussain, Michelle Perillo, and LeeAnn Ghazil Gaunt of the SEC’s Boston Regional Office conducted the investigation following an examination conducted by Zerubbabel Johnson, Stephen M. Latin, Michael D. O’Connell, and Elizabeth Salini. The SEC’s litigation effort is being led by Rua M. Kelly. The SEC’s investigation is ongoing.
# # #
For more information about this enforcement action, contact:
David P. Bergers
Regional Director, SEC's Boston Regional Office
(617) 573-8927
http://www.sec.gov/news/press/2011/2011-30.htm
SEC Charges Merrill Lynch for Misusing Customer Order Information and Charging Undisclosed Trading Fees
FOR IMMEDIATE RELEASE
2011-22
Washington, D.C., Jan. 25, 2011 — The Securities and Exchange Commission today charged Merrill Lynch, Pierce, Fenner & Smith Incorporated with securities fraud for misusing customer order information to place proprietary trades for the firm and for charging customers undisclosed trading fees.
To settle the SEC's charges, Merrill has agreed to pay a $10 million penalty and consent to a cease-and-desist order.
Additional Materials
* SEC Order Against Merrill Lynch, Pierce, Fenner & Smith Incorporated
"Investors have the right to expect that their brokers won't misuse their order information," said Scott W. Friestad, Associate Director in the SEC's Division of Enforcement. "The conduct here was clearly inappropriate. Merrill's proprietary traders had improper access to information about the firm's customer orders, and misused it to place trades on the firm's behalf."
The SEC's order found that Merrill operated a proprietary trading desk between 2003 and 2005 that was known as the Equity Strategy Desk (ESD), which traded securities solely for the firm's own benefit and had no role in executing customer orders. The ESD was located on Merrill's main equity trading floor in New York City, where traders on Merrill's market making desk received and executed customer orders. While Merrill represented to customers that their order information would be maintained on a strict need-to-know basis, the firm's ESD traders obtained information about institutional customer orders from traders on the market making desk. They then used it to place trades on Merrill's behalf after executing the customers' trades. In doing so, Merrill misused this information and acted contrary to its representations to customers.
The SEC's order also found that, between 2002 and 2007, Merrill had agreements with certain institutional and high net worth customers that Merrill would only charge a commission equivalent for executing riskless principal trades. However, in some instances, Merrill also charged customers undisclosed mark-ups and mark-downs by filling customer orders at prices less favorable to the customer than the prices at which Merrill purchased or sold the securities in the market.
"Charging these undisclosed mark-ups and mark-downs was improper and contrary to Merrill's agreements with its customers," said Robert B. Kaplan, Co-Chief of the SEC's Asset Management Unit. "Brokers must act honestly and transparently when charging fees to their customers. There is no place in our markets for charging investors undisclosed trading fees."
Without admitting or denying the SEC's findings, Merrill consented to the entry of a Commission order that censures Merrill, requires it to cease-and-desist from committing or causing any violations and any future violations of Sections 15(c)(1)(A), 15(g), and 17(a) of the Securities Exchange Act of 1934 and Rule 17a-3(a)(6) thereunder, and orders it to pay a penalty of $10 million.
In determining to accept Merrill's offer, the Commission considered certain remedial actions undertaken by Merrill after it was acquired by Bank of America.
Brian O. Quinn and Antony Richard Petrilla in the SEC's Division of Enforcement conducted the investigation in this matter with the assistance of John W. Guidroz and Rina R. Hussain of the SEC's Office of Compliance Inspections and Examinations.
# # #
For more information about this enforcement action, contact:
Scott W. Friestad
Associate Director, SEC Division of Enforcement
(202) 551-4962
Robert B. Kaplan
Co-Chief, Asset Management Unit, SEC Division of Enforcement
(202) 551-4969
Brian O. Quinn
Assistant Director, SEC Division of Enforcement
(202) 551-4982
http://www.sec.gov/news/press/2011/2011-22.htm
SEC Charges Former CEO of Innospec for Role in Bribery Scheme
FOR IMMEDIATE RELEASE
2011-21
Washington, D.C., Jan. 24, 2011 — The Securities and Exchange Commission today charged a former chief executive officer at Innospec, Inc., with violating the Foreign Corrupt Practices Act (FCPA) by approving bribes to government officials to obtain and retain business.
The SEC alleges that Paul W. Jennings learned of the company's longstanding practice of paying bribes to win orders for sales of tetraethyl lead (TEL) in mid- to late 2004 while serving as the CFO. After becoming CEO in 2005, Jennings and others in Innospec's management approved bribery payments to officials at the Iraqi Ministry of Oil (MoO) in order to sell the fuel additive to Iraq refineries. Innospec used its third-party agent in Iraq to funnel payments to Iraqi officials.
Additional Materials
* SEC Complaint
Jennings agreed to settle the SEC's charges against him. The SEC previously charged Innospec as well as its former TEL business director and its agent in Iraq with FCPA violations.
"This is the third enforcement action against an individual responsible for the widespread bribery that occurred at Innospec," said Cheryl J. Scarboro, Chief of the SEC's Foreign Corrupt Practices Act Unit. "We will vigorously hold accountable those individuals who approve such bribery and who sign false SOX certifications and other documents to cover up the wrongdoing."
According to the SEC's complaint filed in U.S. District Court for the District of Columbia, Jennings played a key role in Innospec's bribery activities in Iraq and Indonesia. Innospec, a manufacturer and distributor of fuel additives and other specialty chemicals, was charged last year for making illicit payments of approximately $6.3 million and promised an additional $2.8 million in illicit payments to Iraqi ministries and government officials as well as Indonesian government officials in exchange for contracts worth approximately $176 million.
The SEC alleges that Innospec made payments totaling more than $1.6 million and promised an additional $884,480 to MoO officials. For example, in an October 2005 e-mail copying Jennings, the agent said that Iraqi officials were demanding a 2 percent kickback and that "[w]e are sharing most of our profits with Iraqi officials. Otherwise, our business will stop and we will lose the market. We have to change our strategy and do more compensation to get the rewards." The kickback and later payments were paid by increasing the agent's commission, which Jennings approved. The SEC's complaint also alleges that Jennings was aware of the scheme to pay an official at the Trade Bank of Iraq in exchange for a favorable exchange rate on letters of credit. Another scheme involved a bribe to ensure the failure of a field test of a competitor product. A confidential MoO report for the field trial test was shared with Jennings. Bribes were offered to secure a 2008 Long Term Purchase Agreement that would have caused approximately $850,000 to be shared with Iraqi officials. The agreement, however, did not go forward due to the investigation and ultimate discovery by U.S. regulators of widespread bribery by Innospec.
According to the SEC's complaint, Innospec also paid bribes to Indonesian government officials from at least 2000 to 2005 in order to win contracts worth more than $48 million from state-owned oil and gas companies in Indonesia. Jennings became aware of and approved payments beginning in mid to late 2004. Various euphemisms to refer to the bribery were commonly used in e-mails and in discussions with Jennings and others at Innospec, including "the Indonesian Way," "the Lead Defense Fund," and "TEL optimization." Bribery discussions were held on a flight in the U.S. and even discussed at Jennings' performance review in 2005. In one bribery scheme with Pertamina, an Indonesian state owned oil and gas company, Innospec agreed, with approval by Jennings, to a "one off payment" of $300,000 to their Indonesian Agent with the understanding that it would be passed on to an Indonesian official.
The SEC's complaint also alleges that from 2004 to February 2009, Jennings signed annual certifications that were provided to auditors where he falsely stated that he had complied with Innospec's Code of Ethics incorporating the Company's FCPA policy. Jennings also signed annual and quarterly personal certifications pursuant to the Sarbanes-Oxley Act of 2002 in which he made false certifications concerning the company's books and records and internal controls.
Jennings has consented, without admitting or denying the SEC's allegations, to the entry of a final judgment that permanently enjoins him from violating Sections 30A and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 13a-14, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting Innospec's violations of Exchange Act Sections 30A, 13(b)(2)(A) and13(b)(2)(B). Jennings will disgorge $116,092 plus prejudgment interest of $12,945, and pay a penalty of $100,000 that takes into consideration Jennings's cooperation in this matter.
Tracy L. Price and Denise Hansberry of the SEC Enforcement Division's FCPA Unit conducted the investigation. The SEC appreciates the assistance of the U.S. Department of Justice's Fraud Section, the Federal Bureau of Investigation, and the U.K.'s SFO in this matter. The SEC's investigation is continuing.
# # #
For more information about this enforcement action, contact:
Cheryl J. Scarboro
Chief, Foreign Corrupt Practices Unit, SEC's Division of Enforcement
202-551-4403
http://www.sec.gov/news/press/2011/2011-21.htm
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Modified: 01/24/2011
SEC Freezes Assets in Biotech Insider Trading Case
FOR IMMEDIATE RELEASE
2011-19
Washington, D.C., Jan. 21, 2011 — The Securities and Exchange Commission today announced that it has obtained a court order freezing the bank and brokerage accounts controlled by an individual who made more than $800,000 in illegal profits by trading on inside information tipped to him by an employee of a Seattle-area biopharmaceutical firm.
In a complaint unsealed late Thursday by the U.S. District Court for the Western District of Washington, the SEC alleges that Zizhong (James) Fan, a manager at Seattle Genetics, told family member Zishen (Brandon) Fan about confidential positive trial results for the company's flagship cancer treatment. Zishen spent hundreds of thousands of dollars purchasing speculative stock options in the company as well as common stock, which skyrocketed in value when the news became public in late September 2010.
Additional Materials
* SEC Complaint
* Litigation Release No. 21820
According to the SEC's complaint, the SEC staff contacted both Zizhong and Zishen last Thursday, January 13. Almost immediately after being contacted, Zishen attempted to wire several hundred thousand dollars to a bank in China while Zizhong informed his employer that he was leaving unexpectedly for China. The SEC thereafter filed an emergency enforcement action. On Wednesday, January 19, Judge Marsha J. Pechman of the Western District of Washington issued an order freezing brokerage and bank accounts containing the Seattle Genetics trading proceeds.
Marc Fagel, Director of the SEC's San Francisco Regional Office, explained, "While our investigation is at an early stage, when we have evidence of insider trading and the individuals involved respond to our investigation by trying to funnel their illicit profits offshore, we are prepared to take quick action to preserve those assets for recovery by the authorities."
The SEC's complaint alleges that Zizhong Fan, who lives in Bothell, Wash., was employed during 2010 as the manager of clinical programming at Seattle Genetics. He was involved in clinical trials for a development-stage product to be used in the treatment of Hodgkin's lymphoma. As Zizhong Fan began learning information about the success of those trials, Zishen Fan, who lives in Chino Hills, Calif., began amassing large quantities of risky stock options that would allow him to profit from a rise in the company's stock price.
The SEC's complaint alleges that on Sept. 24, 2010 — the day that Zizhong attended a series of meetings to finalize the results for presentation to the company's senior executives — Zishen made his largest options purchase to date (over 50 percent of the options trades in the entire market), while also buying $150,000 in stock. The next business day — September 27 — Seattle Genetics reported the positive results to the public, and its stock price rose nearly 18 percent. According to the SEC, Zishen ultimately realized net trading profits of more than $803,000.
The SEC's complaint charges Zizhong Fan and Zishen Fan with violating the antifraud provisions of the federal securities laws. The complaint seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and monetary penalties. The SEC also named another family member Junhua Fan, who resides in the People's Republic of China, as a relief defendant in the case. His brokerage account was used by Zishen to make many of the illegal trades, according to the SEC's complaint.
The SEC's investigation was conducted by Jennifer J. Lee and Jina L. Choi of the San Francisco Regional Office. The case will be litigated by Robert L. Mitchell. The SEC would like to thank the Chicago Board Options Exchange for its assistance in this matter. The SEC also acknowledges the cooperation of Seattle Genetics.
# # #
For more information about this enforcement action, contact:
Marc Fagel
Director, SEC San Francisco Regional Office
415-705-2449
Michael Dicke
Associate Director, SEC San Francisco Regional Office
415-705-2458
http://www.sec.gov/news/press/2011/2011-19.htm
SEC Charges Offshore Company in Massive Life Settlement Bonding Fraud
FOR IMMEDIATE RELEASE
2011-15
U.S. Attorney and DOJ Announce Arrests in Simultaneous Criminal Action
Washington, D.C., Jan. 19, 2011 — The Securities and Exchange Commission today charged Provident Capital Indemnity Ltd. (PCI), its president, and its purported outside auditor with conducting a massive life settlement bonding fraud.
Additional Materials
* SEC Complaint
According to the SEC’s complaint filed in U.S. District Court for the Eastern District of Virginia, PCI is an offshore company located in Costa Rica that provides financial guarantee bonds on life settlements and claims to protect investors’ interests in life insurance policies by promising to pay the death benefit if the insured lives beyond his or her estimated life expectancy. From at least 2004 to March 2010, PCI issued approximately 197 bonds backstopping numerous bonded offerings of investments in life insurance policies with a face value of more than $670 million. The PCI bonds were a material component of numerous third-party life settlement offerings in the U.S. and abroad.
The SEC alleges that PCI, its president Minor Vargas Calvo (Vargas), and purported outside auditor Jorge L. Castillo misrepresented PCI’s ability to satisfy its obligations under its bonds. They made material misrepresentations about the assets that backed PCI’s bonds, PCI’s credit rating, the availability of reinsurance to cover claims on PCI’s bonds, and whether PCI’s financial statements had been audited.
The U.S. Attorney’s Office for the Eastern District of Virginia and the Fraud Section of the Department of Justice’s Criminal Division also announced simultaneously a parallel criminal action against the defendants and the arrests of Vargas and Castillo.
“PCI’s bonds helped market investments in insurance policies, but neither PCI’s word nor its bond could be trusted,” said Stephen L. Cohen, an Associate Director in the SEC’s Division of Enforcement. “Accountants who let companies use their audit reports as a rubber stamp can expect to be held accountable.”
According to the SEC’s complaint, a life settlement investment is illiquid and open-ended without a bond because the investment’s payout date and return are dependent upon the date of the insured’s death. PCI’s bonds offered a fixed maturity date for the investments because PCI’s bond obligated PCI to pay investors (directly or indirectly through the life settlement issuer) the face value of the underlying insurance policy by a date certain if the insured lived past his life expectancy date.
The SEC alleges that PCI, Vargas and Castillo represented to life settlement issuers, and in turn, the investing public, that Castillo had audited PCI’s financial statements in accordance with generally accepted accounting standards. The complaint alleges that Castillo never conducted an audit of PCI and instead issued clean audit reports at Vargas’s bidding, thereby supporting the illusion that PCI had materially larger assets and greater financial wherewithal to support its obligations under the life settlement bonds. PCI’s “audited” financial statements reflect what appears to be a fictitious “Long Term Asset” that has comprised some 70 percent to 80 percent of PCI’s total reported assets from at least 2003 to present.
The SEC’s complaint alleges that PCI’s “audited” financial statements were provided to Dun & Bradstreet (D&B), which issued PCI a favorable rating of “5 A/S” based exclusively on PCI’s reported net worth. PCI then misleadingly represented in its marketing materials that D&B’s rating is a reflection of “successful customer satisfaction” and “the ability to maintain one of the insurance industry’s lowest loss ratios.” According to the SEC’s complaint, PCI and Vargas also have represented that PCI was backed by a “bouquet” of reputable reinsurers that would backstop PCI’s obligations under its life settlement bonds. PCI did not have that bouquet of reinsurance.
Last summer, an SEC Life Settlement Task Force established by Chairman Mary Schapiro released a report noting that the market for life settlements has grown over the past decade and calling for greater regulatory coordination and investor protection. The SEC’s Office of Investor Education and Advocacy today issued an update to its Investor Bulletin on life settlement investments that was originally published following the release of that report.
The SEC charged the defendants with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5, and alternatively charged Castillo with aiding and abetting PCI’s and Vargas’s violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Exchange Act Rule 10b-5. The Commission also named Desarrollos Comerciales Ronim S.A., PCI’s managing general agent, as a relief defendant.
Mika Donlon, Michael Fuchs and Josh Felker together with accountants Regina Barrett and Deborah Russell conducted the Commission’s investigation, which is continuing. The SEC’s litigation effort will be led by Suzanne J. Romajas.
The SEC thanks the U.S. Attorney for the Eastern District of Virginia, the Fraud Section of the U.S. Department of Justice’s Criminal Division, the Virginia Financial and Securities Fraud Task Force, the United States Postal Inspection Service, the Federal Bureau of Investigation, the Internal Revenue Service Criminal Investigation Division, the Costa Rican Unidad de Analisis Financiero, the Ontario Securities Commission, the Gibraltar Financial Services Commission, the Texas State Securities Board, The Texas Department of Insurance, the Netherlands Ministry of Justice Public Prosecutions Service, the Netherlands Ministry of Finance Fiscal Information and Investigation Agency, and the New Jersey Bureau of Securities for their assistance.
# # #
For more information about this enforcement action, contact:
Stephen L. Cohen
Associate Director, SEC Division of Enforcement
202-551-4472
C. Joshua Felker
Assistant Director, SEC Division of Enforcement
202-551-4960
Suzanne J. Romajas
Assistant Chief Litigation Counsel, SEC Division of Enforcement
202-551-4473
http://www.sec.gov/news/press/2011/2011-15.htm
SEC Charges New York Investment Firms and Senior Officers with Fraud
FOR IMMEDIATE RELEASE
2011-17
Washington, D.C., Jan. 20, 2011 — The Securities and Exchange Commission today charged three affiliated New York-based investment firms and four former senior officers with fraud, misuse of client assets, and other securities laws violations involving their $66 million advisory business.
Additional Materials
* SEC Complaint
The SEC alleges that the operation’s investment adviser William Landberg and president Kevin Kramer — through the firms West End Financial Advisors LLC (WEFA), West End Capital Management LLC (WECM), and Sentinel Investment Management Corporation — misled investors into believing that their money was in stable, safe investments designed to provide steady streams of income. However, in reality West End faced deepening financial problems stemming from Landberg’s failed investment strategies. When starved for cash to meet obligations of the West End funds or for his personal needs, Landberg misused investor assets, fraudulently obtained more than $8.5 million from a bank, and used millions of dollars from an interest reserve account for unauthorized purposes.
The SEC also charged West End’s chief financial officer Steven Gould and controller Janis Barsuk for their roles in the scheme.
“The investment advisers here grossly abused the trust of their clients,” said George S. Canellos, Director of the SEC’s New York Regional Office. “They misappropriated and commingled their clients’ assets and sustained the illusion of a viable and successful business through a range of false representations.”
David Rosenfeld, Associate Director of the SEC’s New York Regional Office, added, “West End raised millions from investors by touting false positive returns while concealing fraudulent bank loans, cash flow problems, and the misappropriation of investor assets.”
According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, the misconduct occurred from at least January 2008 to May 2009. The SEC alleges that Landberg used substantial amounts of fraudulently-obtained bank loans to make distributions to certain West End fund investors, thereby sustaining the illusion that West End’s investments were performing well. During the same period, Landberg also misappropriated at least $1.5 million for himself and his family. Landberg’s wife Louise Crandall and their family partnership are named as relief defendants in the SEC’s complaint.
The SEC further alleges that Gould and Barsuk knew, or were reckless in not knowing, that Landberg was defrauding a bank that provided loans to a West End fund by misusing funds in a related interest reserve account. Both officers nevertheless participated in the fraud by facilitating Landberg’s misappropriations from that account. The SEC alleges that Gould conceived and used improper accounting methods to conceal aspects of the fraud, and he issued account statements to investors showing false investment returns. Barsuk facilitated Landberg’s uses of investor money to cover his personal obligations. Similarly, Kramer knew, or was reckless in not knowing, that West End faced severe financial problems and had difficulty obtaining sufficient financing to sustain its investment strategy. Nevertheless, Kramer failed to disclose those material facts to investors as he continued to market the funds to new and existing investors through April 2009.
The SEC charged Landberg, Kramer, Gould, WEFA, WECM, and Sentinel with violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. In addition, Landberg, WEFA, WECM, and Sentinel are charged with violating the antifraud provisions of the Investment Advisers Act of 1940. Kramer, Gould, and Barsuk are charged with aiding and abetting violations of the Advisers Act. Barsuk is also charged with aiding and abetting violations of the antifraud provisions of the Exchange Act. The SEC seeks to enjoin each defendant from future violations of the securities laws as well as monetary relief, the imposition of an independent monitor, and certain other sanctions.
The SEC’s case was investigated by Ken C. Joseph, Matthew J. Watkins, and Cynthia A. Matthews of the SEC’s New York Regional Office, with assistance from Alistaire Bambach. The SEC’s litigation effort will be led by Howard Fischer.
The SEC acknowledges the assistance of the U.S. Attorney for the Southern District of New York, the Federal Bureau of Investigation, and the U.S. Commodity Futures Trading Commission.
# # #
For more information about this enforcement action contact:
David Rosenfeld
Associate Director, SEC’s New York Regional Office
212-336-0153
Ken C. Joseph
Assistant Director, Asset Management Unit, SEC’s New York Regional Office
212-336-0097
http://www.sec.gov/news/press/2011/2011-17.htm
Finra to step up surveillance of stock exchanges in 2011
Responding to increased fragmentation of markets, Finra is revamping the way it scans for abuses such as insider trading, chief executive Richard Ketchum said.
After adding NYSE Euronext Inc.'s markets to its oversight responsibilities in June, the Financial Industry Regulatory Authority Inc. now conducts market surveillance for the stock exchanges on which 80% of U.S. trading occurs. While the regulator now operates separate databases for trading-related information for securities listed on the New York Stock Exchange and The Nasdaq Stock Market Inc., the goal is to “pull that together” in 2011 in a coordinated effort to spot manipulative and illegal activity across venues, Mr. Ketchum told reporters last month.
With stock activity dispersed across as many as 50 venues, including exchanges, electronic communication networks, dark pools and the trading desks of broker-dealers, there are many opportunities for market manipulators to elude regulators, he said. Dark pools are private venues that match orders without displaying quotes. Surveillance must aggregate data across markets to identify patterns and related trading, Mr. Ketchum said.
“Putting all that information together so people can see relationships” across markets is critical, he said. “That will come as our major task in 2011.”
"FULLER PICTURE'
Data for Nasdaq-listed securities and over-the-counter or off-exchange trading reside in one database, while NYSE and NYSE Arca information is in another, said Finra vice chairman Stephen Luparello. Combining two systems will give regulators a “much fuller picture” of markets, he said.
Finra conducts market surveillance, investigations, enforcement activities and regulation of member firms for NYSE, Nasdaq and other exchanges. It does “less than the complete sweep” for BATS Global Markets and Direct Edge Holdings LLC, with those exchange owners managing some of that business, Mr. Luparello said.
“We think that's less than optimal,” he said. Finra would like to consolidate the data so its surveillance can operate across all 13 U.S. exchanges.
UNIFORM DATA
Finra received approval from the Securities and Exchange Commission in November to expand the information it collects for orders and transactions in Nasdaq-listed securities to those listed on other exchanges, including NYSE. The broader Order Audit Trail System will provide uniform data for all securities, enabling Finra to compile aggregated information that may be similar to the so-called consolidated audit trail the SEC proposed in May.
A consolidated-audit-trail system that comprises all trading-related data for orders would allow regulators to reconstruct market events such as the May 6 plunge that erased $862 billion in equity value in 20 minutes, and would strengthen surveillance, the SEC said when it presented its plan.
Expanding OATS would improve the data available to regulators in the coming months, Mr. Ketchum said. A separate proposal by the SEC to track the buying and selling by individuals and firms executing more than 2 million shares a day would help regulators understand what active traders do, he said. That system would also apply to traders processing $20 million in equities a day or $200 million in a month.
Finra identifies many of the insider trading cases it investigates based on alerts from an electronic surveillance system it uses called Sonar, according to Cameron Funkhouser, executive vice president and head of Finra's office of fraud detection and market intelligence. The system tracks news about publicly listed companies and identifies potential instances of abusive trading. Older investigations may also be incorporated into an analysis as the regulator looks for patterns over time.
Finra is conducting between 200 and 400 active insider-trading investigations, Mr. Funkhouser said. It has referred up to six “serial insider trading rings” to the SEC or other law enforcement agencies in the past two years, including one that led to the SEC's Dec. 7 action against an information technology manager at a Delaware law firm and his brother-in-law, he said.
Finra in 2011 will also focus on manipulative activity that relies on algorithms or speed-focused automated trading strategies that submit buy and sell orders to marketplaces based on price data, Mr. Ketchum said.
TRILLIUM BROKERAGE
“Most high-frequency-trading activity is legitimate,” he said. “It doesn't involve manipulative activity and operates entirely within the law.” Still, “we do see instances where it's not,” he said. His organization sees activity that ranges “from things that might be troubling to things that are fraud,” he said.
An example of the type of activity Finra will pursue more aggressively is the case it announced in September against Trillium Brokerage Services LLC, a proprietary-trading firm that engaged in activity aimed at inducing other firms to respond to its bids and offers, Mr. Ketchum said. Trillium employed manipulative practices that high-frequency traders' computers were likely to identify as market-moving activity, prompting them to react to the firm's quotes, he said. Finra's sanctions against the firm and 11 employees totaled $2.3 million, according to a notice.
That's a “good example of what you're going to see in 2011 with respect to market surveillance,” Mr. Ketchum said. “We redesigned our surveillance to be much more focused on this type of activity.”
http://www.investmentnews.com/article/20110102/REG/301029995
SEC Charges Former Board Chairman and Two Business Associates in Insider Trading Scheme
FOR IMMEDIATE RELEASE
2011-9
Washington, D.C., Jan. 13, 2011 — The Securities and Exchange Commission today charged the former Chairman of the Board at Home Diagnostics Inc. with illegally tipping friends and business associates with inside information about an impending acquisition of the company.
Additional Materials
* SEC Complaint
The SEC alleges that George H. Holley, who co-founded Home Diagnostics, provided his personal accountant Steven Dudas and his friend and business associate Phairot Iamnaita with confidential information about the company's upcoming acquisition by Nipro Corporation. Holley then gave Dudas $121,500, which Dudas and Iamnaita used to purchase Home Diagnostics stock in a joint brokerage account. After the acquisition was publicly announced, Dudas and Iamnaita tendered their shares for an illicit profit of approximately $90,120. Dudas and Iamnaita are charged along with Holley in the SEC's complaint filed today in federal district court in Trenton, N.J.
"Holley breached the fiduciary duty he owes to the company he co-founded and its shareholders by exploiting confidential board room information to enrich his friends and business associates," said Antonia Chion, Associate Director of the SEC's Division of Enforcement.
The SEC alleges that in addition to tipping Dudas and Iamnaita between December 2009 and Jan. 13, 2010, Holley illegally provided two other friends, a relative, and a business associate with inside information about Home Diagnostics's imminent acquisition. Holley provided at least two of these individuals with a cover story, giving them copies of analyst reports and telling them that they should use the reports to justify their illicit trading. All four of these individuals purchased Home Diagnostics stock on the basis of Holley's tips for combined profits of more than $170,000.
The SEC's complaint charges Holley, Dudas, and Iamnaita with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, the general antifraud provisions of the federal securities laws, and Section 14(e) of the Exchange Act and Rule 14e-3 thereunder, the tender offer fraud provisions. The Commission seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of monetary penalties against all defendants. The SEC also seeks to permanently prohibit Holley from acting as an officer or director of a public company pursuant to Section 21(d)(2) of the Exchange Act.
The SEC thanks the U.S. Attorney's Office for the District of New Jersey, the Federal Bureau of Investigation, FINRA, and the Securities and Exchange Commission of Thailand for their cooperation and assistance in this matter.
The SEC's investigation is continuing.
# # #
For more information about this enforcement action, contact:
Antonia Chion
Associate Director, SEC Division of Enforcement
(202) 551-4842
Yuri B. Zelinsky
Assistant Director, SEC Division of Enforcement
(202) 551-4769
http://www.sec.gov/news/press/2011/2011-9.htm
SEC Charges Arizona-Based Health Food Company and Former Executives With Accounting Fraud
FOR IMMEDIATE RELEASE
2011-10
Washington, D.C., Jan. 13, 2011 — The Securities and Exchange Commission today charged NutraCea, three former executives, and two former accounting personnel for engaging in a fraudulent accounting scheme to inflate sales revenues at the Arizona-based company, which manufactures and sells health food products.
Additional Materials
* SEC Complaint
The SEC alleges that NutraCea booked false sales and engaged in improper revenue recognition practices to disguise its true operating results in its 2007 annual report and financial statements for the second and third quarters of 2007. The SEC charged NutraCea's former chief executive officer Bradley D. Edson, former chief financial officer Todd C. Crow, and former senior vice president and secretary Margie Adelman for their roles in the scheme. The SEC also charged NutraCea's former controller Joanne D. Kline and former director of financial services Scott Wilkinson.
NutraCea and four of the five individuals agreed to settle the SEC's charges against them, and the SEC's litigation continues against Crow.
"NutraCea, its former executives, and accounting personnel violated the public's trust by falsifying NutraCea's revenues to meet earnings and gross sales expectations throughout 2007," said Rosalind R. Tyson, Director of the SEC's Los Angeles Regional Office.
The SEC's complaint filed in federal district court in Arizona alleges that NutraCea, Edson, Crow, and Adelman falsified NutraCea's sales revenues in 2007, and Kline and Wilkinson engaged in improper accounting by recording these false revenues. NutraCea booked $2.6 million in false sales to Bi-Coastal Pharmaceutical Corp. in the second quarter, resulting in overstated product sales revenue of as much as 35 percent.
According to the SEC's complaint, Edson instructed Bi-Coastal's president to falsify his family's financial statements to reflect a higher net worth in order to support the false sales to Bi-Coastal. In reality, Bi-Coastal's "down payment" for the $2.6 million sale came from NutraCea's former COO. When Kline tried to discuss with Crow in 2007 her discovery that the $1 million deposit for the Bi-Coastal sale came from a loan from the former COO to Bi-Coastal in order to justify NutraCea's recognition of revenue from this sale, she says that Crow "covered his ears and said, 'No, no, no, no, no, no, no, no, no. I don't want to hear it.'"
The SEC also alleges that NutraCea improperly recorded revenue on a bill and hold transaction related to a $1.9 million sale of product to ITV Global, Inc. in the fourth quarter of 2007. As a result the BiCoastal and ITV Global transactions alone, NutraCea overstated its product sales revenue by 36.8 percent for fiscal year end 2007. These false revenues caused NutraCea to misstate its operating loss by more than 89 percent in the second quarter of 2007, more than 17.6 percent in the third quarter, and nearly 7 percent for the fiscal year.
Without admitting or denying the SEC's allegations, NutraCea, Edson, Adelman, Kline, and Wilkinson agreed to settlements with the following terms:
* NutraCea consented to the entry of an order that permanently enjoins it from future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder.
* Edson agreed to pay a $100,000 penalty, reimburse NutraCea $350,000 in bonuses he received in 2008, and agreed to a permanent officer and director bar. He consented to a final judgment permanently enjoining him from future violations of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 thereunder, and for aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder.
* Adelman consented to a five-year officer and director bar and to a final judgment permanently enjoining her from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and for aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder.
* Kline and Wilkinson agreed to each pay a penalty of $25,000 and consented to final judgments permanently enjoining them from future violations of Section 13(b)(5) of the Exchange Act, and Rules 13b2-1 and 13b2-2 thereunder, and for aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder. Kline and Wilkinson further consented to the issuance of administrative orders pursuant to Rule 102(e) of the SEC's Rules of Practice, suspending each of them from appearing or practicing before the Commission as an accountant with the right to apply for reinstatement after one year.
The settlements are subject to the approval of the U.S. District Court of Arizona.
The SEC's complaint against Crow alleges that he violated and aided and abetted violations of the antifraud, books and records, financial reporting, internal controls, and lying to auditors provisions of the federal securities laws. The complaint also alleges that Crow violated Exchange Act Rule 13a-14 by signing certifications required by Section 302 of the Sarbanes Oxley Act that were false and misleading. The SEC's complaint against Crow seeks a permanent injunction, a financial penalty, and an officer and director bar. The case against Crow is ongoing.
The SEC's investigation was conducted by Ann C. Kim, Roger D. Boudreau, Jessica R. Puathasnanon, and Finola H. Manvelian of the SEC's Los Angeles Regional Office. The SEC's litigation will be led by Spencer E. Bendell.
# # #
For more information about these enforcement actions, contact:
John M. McCoy III
Associate Regional Director, SEC's Los Angeles Regional Office
(323) 965-4561
Finola H. Manvelian
Assistant Regional Director, SEC's Los Angeles Regional Office
(323) 965-3980
Spencer E. Bendell
Senior Trial Counsel, SEC's Los Angeles Regional Office
(323) 965-3833
http://www.sec.gov/news/press/2011/2011-10.htm
SEC Charges Long Island-Based Money Manager for Fraudulent Investment Scheme
FOR IMMEDIATE RELEASE
2011-11
Washington, D.C., Jan. 13, 2011 — The Securities and Exchange Commission today charged a Long Island-based money manager and his two firms with engaging in a fraudulent investment program that generated more than $8 million in illicit commissions and fees.
The SEC alleges that Warren D. Nadel, through his investment advisory firm Registered Investment Advisers (RIA) and his broker-dealer Warren D. Nadel & Co., induced clients to invest in a purportedly liquid, cash management strategy that engaged in market transactions. However, in numerous communications with clients and prospective clients, they deliberately overstated the value and liquidity of client holdings by concealing critical information about the way they were supposedly executing the strategy. Nadel inflated the value of clients' transactions and holdings on monthly statements he provided to them.
Additional Materials
* SEC Complaint
* Litigation Release No. 21812
"Nadel and his firms abused their clients' trust by investing their assets in a strategy that they misrepresented in nearly every way," said George S. Canellos, Director of the SEC's New York Regional Office. "Nadel created the illusion of a liquid market for their holdings at inflated values, depriving his clients the opportunity to make meaningful investment decisions with their money."
According to the SEC's complaint filed in U.S. District Court for the Eastern District of New York, Nadel claimed he was investing client assets in preferred utility securities that they held for short periods of time in order to generate capital appreciation or dividends depending on their goals. However, Nadel and his firms knew by 2007 or earlier that the market was not sufficiently liquid to permit frequent, substantial purchases of these securities at attractive prices. Nadel fraudulently concealed these market conditions from clients.
The SEC alleges that Nadel simply exchanged these securities between clients, often at inflated prices he set. For example, Nadel and his firms informed clients repeatedly (orally and in writing) that they were executing open-market transactions on the clients' behalf. The vast majority of transactions, however, were not executed on the open market. In order to make it appear that he was engaging in market transactions, Nadel ensured that clients received confirmations that reflected market transactions, and also failed to disclose to clients that the counterparties to these transactions were other RIA clients or to obtain client consent for the trades he executed between clients before the completion of each transaction.
According to the SEC's complaint, Nadel also misrepresented RIA's assets under management, claiming that the firm managed more than twice its actual assets.
The SEC's complaint seeks a final judgment permanently enjoining the defendants from future violations of the federal securities laws and ordering them to pay financial penalties and disgorgement of ill-gotten gains plus prejudgment interest.
The SEC's case was investigated by Alison T. Conn and Maureen P. King of the SEC's New York Regional Office with the assistance of Michael Fioribello and Debbie Chan after a joint examination conducted by Linda Lettieri, Jeffrey Berfond and Margaret Lett of the SEC's broker-dealer examination staff and Joseph P. DiMaria, James E. Anastasia, Steven P. Gilchrist and Julianne M. Lieberman of the investment adviser examination staff. The SEC's litigation effort will be led by Richard G. Primoff and Maureen P. King.
# # #
For more information about this enforcement action, contact:
Andrew M. Calamari
Associate Director, SEC's New York Regional Office
(212) 336-0042
Richard Primoff
Senior Trial Counsel, SEC's New York Regional Office
(212) 336-0148
http://www.sec.gov/news/press/2011/2011-11.htm
SEC Charges N.Y.-Based Penny Stock Promoter With Fraud
FOR IMMEDIATE RELEASE
2011-12
Washington, D.C., Jan. 14, 2011 — The Securities and Exchange Commission today charged an upstate New York-based penny stock promoter and his affiliated website with fraud for failing to disclose that he was paid by certain issuers to promote their stock while simultaneously liquidating millions of his own shares for profits of at least $2.95 million.
The SEC alleges that Christopher Wheeler of Victor, N.Y., received compensation at various times in 2007 and 2008 to promote several thinly-traded penny stocks on his website, OTCStockExchange.com. Wheeler's website claimed to "have compiled a long list of successful stock picks" and to afford investors the opportunity to "make a fortune."
Additional Materials
* SEC Complaint
The SEC alleges that after receiving millions of shares in undisclosed compensation from the issuers, Wheeler featured the issuers' stock on OTCStockExchange.com, recommended that investors purchase the securities, and posted lofty price predictions for the stock without any reasonable basis for those projections. Wheeler's and OTCStockExchange.com's promotional efforts often resulted in dramatic, but temporary, increases in the volume of shares traded and the price of the issuers' securities. Once the prices were pumped in this manner, Wheeler simultaneously dumped shares from his personal brokerage account onto the market.
"Wheeler and OTCStockExchange.com concealed from investors that Wheeler was paid to hype the very stocks that he was unloading from his own account," said George S. Canellos, Director of the SEC's New York Regional Office. "The securities laws require stock promoters to disclose their compensation so that investors can make informed decisions about the credibility of the information they are being provided."
According to the SEC's complaint filed in the U.S. District Court for the Southern District of New York, Wheeler profited from his undisclosed sales of the securities of Infinity Medical Group, Inc., Solei Systems, Inc., Cannon Exploration Inc., and China Jiangsu Golden Horse Steel Ball Inc. (which now operates as Santana Mining, Inc.). Wheeler caused at least $450,000 of the fraudulent proceeds that he received to be transferred to North Coast Advisors, LLC, an entity that Wheeler controls. North Coast Advisors LLC has been named as a relief defendant in the SEC's complaint.
The SEC's complaint seeks a final judgment permanently enjoining Wheeler and OTCStockExchange.com from future violations of the federal securities laws, and an order permanently barring Wheeler from participating in any offering of penny stock, requiring the defendants to pay financial penalties, and requiring the defendants and North Coast to disgorge all ill-gotten gains plus prejudgment interest.
The SEC's case was investigated by Ken C. Joseph and Christopher M. Castano. The SEC's litigation effort will be led by Preethi Krishnamurthy.
The SEC acknowledges the assistance of the U.S. Attorney's Office for the Western District of New York, the Ontario Securities Commission, and the Royal Canadian Mounted Police.
# # #
For more information about this enforcement action, contact:
David Rosenfeld
Associate Director, SEC's New York Regional Office
212-336-0153
Ken C. Joseph
Assistant Director, SEC's New York Regional Office
212-336-0097
http://www.sec.gov/news/press/2011/2011-12.htm
Shares of H&H Imports, in which 50 Cent has a stake, gained on Monday after the rapper promoted the company via Twitter. But the stock fell Tuesday and Wednesday after 48 hours without tweets from the music star, the New York Post reported.
Over the course of two days, shares of H&H, already a penny stock, fell 36 percent to 25 cents.

That was a reversal of momentum from a big jump on Monday that had pushed the stock up from 10 cents to 39 cents, making 50 Cent about $8.7 million in paper money.
50 Cent's final tweet to-date on the stock came late Monday, according to the Post. Citing its ticker symbol, he wrote: "HNHI is the right investment for me it may or may not be right for u! Do ur homework."
The singer owns warrants and shares of H&H and is a director of Sleek Audio, a headset maker that has a marketing deal with H&H unit TV Goods. The company was founded by reality TV star Kevin Harrington of ABC's "Shark Tank" fame.
SEC Charges Government Website Provider and Four Executives With Failure to Disclose CEO Perks
FOR IMMEDIATE RELEASE
2011-8
Washington, D.C., Jan. 12, 2011 — The Securities and Exchange Commission today charged a Kansas-based company that manages government websites and four current or former company executives with failing to disclose to investors more than $1.18 million in perks paid to the former CEO over a six-year period.
The SEC alleges that NIC Inc.'s public filings failed to disclose that the company footed the bill for wide-ranging perks enjoyed by former CEO Jeffrey Fraser, his girlfriend, and his family — including vacations, computers, and day-to-day personal living expenses. NIC failed to disclose that it paid thousands of dollars per month for Fraser to live in a Wyoming ski lodge and commute by private aircraft to his office at NIC's Kansas headquarters. Meanwhile, NIC and its executives falsely represented to investors that Fraser worked virtually for free from 2002 to 2005, and then continued to materially understate the perks that Fraser received in 2006 and 2007. NIC's related party disclosures for 2002 through 2005 also were misleading.
NIC, Fraser, current CEO Harry Herington and former CFO Eric Bur agreed to pay a combined $2.8 million to settle the SEC's charges against them without admitting or denying the allegations. The SEC's litigation continues against NIC's current CFO Stephen Kovzan.
Additional Materials
* SEC Complaint vs. NIC, Fraser, Herington, and Bur
* SEC Complaint vs. Kovzan
"Public disclosure of executive perks helps investors evaluate whether corporate assets are being used wisely or squandered," said Antonia Chion, Associate Director of the SEC's Division of Enforcement. "NIC and its executives did not comply with their disclosure obligations and the company's internal controls by paying Fraser's personal expenses while telling shareholders that Fraser was working for little or no compensation."
Among the alleged undisclosed perks for Fraser outlined in the SEC's complaints filed in federal court in the District of Kansas:
* More than $4,000 per month to live in a ski lodge in Wyoming.
* Costs for Fraser to commute by private aircraft from his home in Wyoming to his office at NIC's Kansas headquarters.
* Monthly cash payments for purported rent for a Kansas house owned by an entity Fraser set up and controlled.
* Vacations for Fraser, his girlfriend and his family.
* Fraser's flight training, hunting, skiing, spa and health club expenses.
* Computers and electronics for Fraser and his family.
* A leased Lexus SUV.
* Other day-to-day living expenses for Fraser such as groceries, liquor, tobacco, nutritional supplements, and clothing.
The SEC's complaints allege that Fraser, who did not have a personal credit card, routinely charged living expenses on NIC credit cards and submitted expense vouchers falsely claiming personal items were business-related in order to have NIC pay for these personal expenses. Fraser also sought reimbursement for certain expenses he had not incurred.
The SEC alleges that Kovzan, who was then the company's Chief Accounting Officer, authorized NIC's payment of Fraser's personal expenses, circumventing NIC's internal controls and policies that required the CEO to document the business purpose for his expenses. Kovzan knew, or was reckless in not knowing, that Fraser's expenses were falsely characterized as business expenses in NIC's books and records. Kovzan prepared, reviewed or signed NIC's proxy statements, annual reports and registration statements that materially underreported Fraser's compensation, and Kovzan made false representations to NIC's independent auditors.
The SEC alleges that Bur permitted NIC to pay the expenses that Fraser submitted on his expense vouchers even though he was informed that Fraser was not submitting the required documentation. A finance department employee raised concerns to Bur that some of Fraser's expenses were not business-related. Bur was aware of the SEC's rules requiring the disclosure of executive perks, yet he reviewed, signed or certified NIC's public filings that failed to disclose Fraser's perks.
The SEC alleges that Herington, who was then NIC's Chief Operating Officer, was informed of problems with Fraser's expense reporting and failed to adequately address them. Herington received information showing that NIC was paying for some of Fraser's personal expenses, yet he reviewed or signed NIC's public filings that failed to disclose Fraser's perks.
According to the SEC's complaints, NIC failed to correct Fraser's expense reporting problems even after the finance department employee warned in 2006 of the risk of possible income tax fraud charges, a whistleblower complained to NIC and the company learned of the SEC's investigation of this matter in mid-2007. The majority of Fraser's perks were not repaid or disclosed, and NIC continued to make misleading public filings. NIC failed to disclose to investors in public filings that an internal review concluded Fraser had intentionally misclassified his expenses.
NIC agreed to settle the SEC's charges by paying a $500,000 penalty and hiring an independent consultant to recommend, if appropriate, improvements to policies, procedures, controls, and training relating to payment of expenses, handling of whistleblower complaints, and related party transactions. NIC consented to a final judgment enjoining it from violating Sections 17(a)(2) and (3) of the Securities Act of 1933; Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Securities Exchange Act of 1934, and Exchange Act Rules 12b-20, 13a-1, 13a-11, 14a-3, and 14a-9.
Fraser agreed to pay $1,184,246 in disgorgement, $358,844 in prejudgment interest, and a $500,000 penalty, and consented to an order barring him from serving as an officer or director of a public company. Fraser consented to a final judgment enjoining him from violating Section 17(a) of the Securities Act, Sections 10(b), 13(b)(5), and 14(a) of the Exchange Act, and Exchange Act Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-3, and 14a-9, and from aiding and abetting NIC's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Exchange Act Rules 12b-20 and 13a-1.
Herington agreed to pay a $200,000 penalty and consented to a final judgment enjoining him from violating Sections 17(a)(2) and (3) of the Securities Act and Section 13(b)(5) of the Exchange Act, and aiding and abetting NIC's violations of Sections 13(a) and 14(a) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1, 14a-3, and 14a-9.
Bur agreed to pay a $75,000 penalty and consented to a final judgment enjoining him from violating Exchange Act Rules 13a-14 and 13b2-1, and aiding and abetting NIC's violations of Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a), and Exchange Act Rules 12b-20, 13a-1, 14a-3, and 14a-9. In addition, Bur agreed to resolve an anticipated administrative proceeding by consenting to an SEC order prohibiting him from appearing or practicing before the SEC as an accountant with a right to reapply after one year.
Kovzan is charged with violating Section 17(a) of the Securities Act, Section 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2; and aiding and abetting NIC's violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 14a-3, and 14a-9. The SEC's complaint seeks a permanent injunction, disgorgement, penalties, prejudgment interest, and an officer-and-director bar against Kovzan, against whom the SEC's charges are still pending.
This case was investigated by Lisa Deitch, Helaine Schwartz, Holly Pal and Gary Peters in the SEC's Division of Enforcement. The SEC's litigation against Kovzan will be led by Erica Williams.
# # #
For more information about these enforcement actions, contact:
Antonia Chion
Associate Director, SEC Division of Enforcement
(202) 551-4842
Lisa Deitch
Assistant Director, SEC Division of Enforcement
(202) 551-4999
http://www.sec.gov/news/press/2011/2011-8.htm
SEC Charges Schwab Entities and Two Executives With Making Misleading Statements
Schwab Entities to Pay More Than $118 Million to Settle SEC Charges
FOR IMMEDIATE RELEASE
2011-7
Washington, D.C., Jan. 11, 2011 — The Securities and Exchange Commission today charged Charles Schwab Investment Management (CSIM) and Charles Schwab & Co., Inc. (CS&Co.) with making misleading statements regarding the Schwab YieldPlus Fund and failing to establish, maintain and enforce policies and procedures to prevent the misuse of material, nonpublic information. The SEC also charged CSIM and Schwab Investments with deviating from the YieldPlus fund's concentration policy without obtaining the required shareholder approval.
The SEC also filed a complaint in federal court against CSIM's former chief investment officer for fixed income Kimon Daifotis as well as Schwab official Randall Merk, who is an executive vice president at CS&Co. and was president of CSIM and a trustee of the YieldPlus and other Schwab funds. The SEC alleges that Daifotis and Merk committed fraud and other securities law violations in connection with the offer, sale and management of the YieldPlus Fund.
Additional Materials
* SEC Order vs. CSIM, CS & Co., and Schwab Investments
* SEC Complaint vs. CSIM, CS & Co., and Schwab Investments
* Litigation Release: CSIM, CS & Co., and Schwab Investments
* SEC Complaint vs. Daifotis and Merk
* Litigation Release: Daifotis and Merk
CSIM and CS&Co. agreed to pay more than $118 million to settle the SEC's charges. The SEC's case continues against the executives.
Robert Khuzami, Director of the SEC's Division of Enforcement said, "All financial firms and professionals — including large mutual fund providers — must be vigilant in accurately describing the risks of the products they sell to the public, especially the widely-held mutual funds that are the bread-and-butter investments of retail investors."
Antonia Chion, Associate Director of the SEC's Division of Enforcement, said, "Schwab marketed the fund as a cash alternative with only slightly more risk than a money market fund even though, at one point, half of the fund's assets were invested in private-issuer, mortgage-backed and other securities with maturities and credit quality that were significantly different than investments made by money market funds."
The YieldPlus Fund is an ultra-short bond fund that, at its peak in 2007, had $13.5 billion in assets and more than 200,000 accounts, making it the largest ultra-short bond fund in the category. The fund suffered a significant decline during the credit crisis of 2007 and 2008. Its assets fell from $13.5 billion to $1.8 billion during an eight-month period due to redemptions and declining asset values.
According to an administrative order issued by the SEC against the Schwab entities and the SEC's related complaints against the entities and the two executives filed in federal court in San Francisco, they failed to inform investors adequately about the risks of investing in the YieldPlus Fund. For example, they described the fund as a cash alternative that had only slightly higher risk than a money market fund. The statements were misleading because the fund was more than slightly riskier than money market funds, and the Schwab entities and Merk and Daifotis did not adequately inform investors about the differences between YieldPlus and money market funds.
The SEC found that the YieldPlus Fund deviated from its concentration policy when it invested more than 25 percent of fund assets in private-issuer mortgage-backed securities (MBS). Mutual funds and other registered investment companies are required to state certain investment policies in their SEC filings, including a policy regarding concentration of investments. Once established, a fund may not deviate from its concentration policy without shareholder approval. Schwab's bond funds, including the YieldPlus Fund and the Total Bond Market Fund, had a policy of not concentrating more than 25 percent of assets in any one industry, including private-issuer MBS. The funds violated this policy, and the Investment Company Act, by investing approximately 50 percent of the assets of the YieldPlus Fund and more than 25 percent of the Total Bond Fund's assets in private-issuer MBS without obtaining shareholder approval.
According to the SEC's order and complaints, the YieldPlus Fund's NAV began to decline and many investors redeemed their holdings as the credit crisis unfolded in mid-2007. Unlike a money market fund, few of the fund's assets were scheduled to mature within the next several months. As a result, the fund had to sell assets in a depressed market to raise cash. While the YieldPlus Fund's NAV declined, CSIM, CS&Co., Merk, and Daifotis held conference calls, issued written materials, and had other communications with investors that contained a number of material misstatements and omissions concerning the fund. For example, in two conference calls, Daifotis made false and misleading statements that the fund was experiencing "very, very, very slight" and "minimal" investor redemptions. In fact, Daifotis knew that YieldPlus had experienced more than $1.2 billion in redemptions during the two weeks prior to the calls, which caused YieldPlus to sell more than $2.1 billion of its securities. Similarly, Merk authored, reviewed and approved misleading statements about the fund, such as a false claim that the fund had a "short maturity structure" that "mitigated much of the price erosion" experienced by its peers.
The SEC also found that CSIM and CS&Co. did not have policies and procedures reasonably designed — given the nature of their businesses — to prevent the misuse of material, nonpublic information about the fund. For example, they did not have specific policies and procedures governing redemptions by portfolio managers who advised Schwab funds of funds, and did not have appropriate information barriers concerning nonpublic and potentially material information about the fund. As a result, several Schwab-related funds and individuals were free to redeem their own investments in YieldPlus during the fund's decline.
Without admitting or denying the findings in the SEC's order or the allegations in the SEC's complaint, CSIM and CS&Co. agreed to pay a total of $118,944,996, including $52,327,149 in disgorgement of fees by CSIM, a $52,327,149 penalty against CSIM, a $5 million penalty against CS&Co., and pre-judgment interest of $9,290,698. Some of CSIM's disgorgement may be deemed satisfied up to a maximum of $26,944,996 for payments made within the next 60 days to settle related investigations by FINRA or state securities regulators.
The SEC seeks to have payments placed in a Fair Fund for distribution to harmed investors, and the related recoveries by other regulators, such as FINRA, may be contributed to the Fair Fund. The payments and any Fair Fund are subject to approval by the U.S. District Court for the Northern District of California.
CSIM, CS&Co. and Schwab Investments also consented to an SEC order requiring them to cease and desist from committing or causing future violations of the federal securities laws. The SEC order also requires them to comply with certain undertakings, including correction of all disclosures regarding the funds' concentration policy. In addition, the Commission censured CSIM and CS&Co., and required them to retain an independent consultant to review and make recommendations about their policies and procedures to prevent the misuse of material, nonpublic information.
In its order, the Commission found that:
* CSIM and CS&Co. willfully violated anti-fraud provisions of the Securities Act of 1933, Sections 17(a)(2) and (3).
* CSIM willfully violated anti-fraud provisions of the Investment Advisers Act of 1940, Section 206(4) and Rule 206(4)-8.
* Schwab Investments willfully violated Section 13(a) of the Investment Company Act of 1940 by deviating from its concentration policy, and CSIM willfully aided and abetted and caused the violation.
* CSIM and CS&Co. willfully aided and abetted and caused violations of the false filings provision of the Investment Company Act, Section 34(b).
* CS&Co. violated Section 15(g) (formerly Section 15(f)) of the Securities Exchange Act of 1934, and CSIM violated Section 204A of the Advisers Act, both of which require policies and procedures that are reasonably designed, taking into consideration the nature of the entities' businesses, to prevent the misuse of material, nonpublic information.
The SEC's complaint against Daifotis and Merk alleges violations and aiding and abetting violations of the anti-fraud provisions of the Securities Act, Exchange Act, and Investment Advisers Act, including Section 10(b) and Rule 10b-5 of the Exchange Act, and other violations, including Sections 13(a) and 34(b) of the Investment Company Act.
Melissa Hodgman, David Mendel and Robert Cohen in the SEC's Division of Enforcement conducted the investigation. The SEC's litigation against the executives will be led by David Gottesman and Frederick Block. The SEC acknowledges the assistance of FINRA in this matter.
# # #
For more information about this enforcement action, contact:
Antonia Chion
Associate Director, SEC Division of Enforcement
(202) 551-4842
Robert A. Cohen
Assistant Director, SEC Division of Enforcement
(202) 551-4869
http://www.sec.gov/news/press/2011/2011-7.htm
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Modified: 01/11/2011
SEC Charges New York Hedge Fund and Wall Street Professionals in Galleon-Related Enforcement Action
FOR IMMEDIATE RELEASE
2011-6
Washington, D.C., Jan. 10, 2011 — The Securities and Exchange Commission today charged additional individuals and entities in its SEC v. Galleon insider trading case, including a New York hedge fund advisory firm, its hedge fund manager, an analyst at the hedge fund, a senior corporate executive in the technology sector, and an investor relations firm employee.
Additional Materials
* SEC Complaint
* Litigation Release No. LR-21802
Previous Actions
* SEC Charges Raj Rajaratnam With Insider Trading (Oct. 16, 2009)
* SEC Charges 13 More in Galleon Insider Trading Case (Nov. 5, 2009)
* SEC Announces New Developments in Galleon Case (Jan. 29, 2010)
* SEC Brings Additional Charges in Galleon Case (Nov. 12, 2010)
The SEC alleges that Robert Feinblatt — a co-founder and principal of New York-based hedge fund investment adviser Trivium Capital Management LLC — and Trivium analyst Jeffrey Yokuty engaged in insider trading in the securities of Polycom, Hilton, Google and Kronos. The SEC further alleges that Polycom senior executive Sunil Bhalla and Shammara Hussain, an employee at investor relations consulting firm Market Street Partners that did work for Google, tipped the inside information that enabled the insider trading by Feinblatt and Yokuty on behalf of Trivium's hedge funds for illicit profits of more than $15 million.
"Today's action reveals disturbingly corrupt arrangements — faithless company executives who secretly pass corporate information to hedge fund managers willing to violate the law for profit," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Market participants need to understand that by engaging in such behavior they invite SEC scrutiny, and we will uncover their conduct and take aggressive action."
The SEC has now charged 27 defendants in its SEC v. Galleon enforcement action that has alleged widespread and repeated insider trading at numerous hedge funds including Galleon — a multi-billion dollar New York hedge fund complex founded and controlled by Raj Rajaratnam — and by other professional traders in the securities of 14 companies generating illicit profits totaling approximately $69 million.
In the SEC's complaint filed earlier today in federal court in Manhattan, the SEC alleges that Feinblatt and Yokuty traded on behalf of Trivium in connection with two corporate takeovers and two quarterly earnings announcements based on material nonpublic information that Feinblatt and Yokuty allegedly received from Roomy Khan, an individual investor who herself received such information from various sources.
The SEC's complaint alleges that Bhalla tipped Khan to inside information about Polycom's 2005 fourth quarter earnings, and Khan traded on that information and tipped others. The tippees included Feinblatt and Yokuty, who traded on behalf of Trivium based on the information. Bhalla also tipped Khan with inside information about Polycom's 2006 first quarter earnings. Khan traded on the information and tipped Rajaratnam, who traded on behalf of Galleon based on the inside information. The SEC also alleges that Khan traded on and tipped Feinblatt and Yokuty among others with inside information that she received from a Moody's rating agency analyst about an impending takeover of Hilton by The Blackstone Group. Feinblatt and Yokuty then traded on behalf of Trivium based on the inside information.
The SEC further alleges that Hussain tipped Khan among others with inside information about Google's 2007 second quarter earnings. Khan traded on the information and also tipped Feinblatt and Yokuty, who traded on behalf of Trivium based on the inside information. The SEC also alleges that Khan traded on and tipped Feinblatt and Yokuty among others with inside information that she received about the impending acquisition of Kronos by Hellman & Friedman. Feinblatt and Yokuty then traded on behalf of Trivium based on the inside information.
The SEC's complaint charges the defendants with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and, except for Bhalla, with violations of Section 17(a) of the Securities Act of 1933. The complaint seeks a final judgment permanently enjoining the defendants from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay financial penalties. The complaint also seeks to permanently prohibit Bhalla from acting as an officer or director of any registered public company.
Sanjay Wadhwa, Jason Friedman and John Henderson — members of the SEC's Market Abuse Unit in New York — together with Diego Brucculeri and James D'Avino of the New York Regional Office conducted the agency's investigation, which is continuing. The SEC's litigation effort will be led by Valerie Szczepanik and Kevin McGrath. The SEC thanks the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation for their ongoing assistance in the matter.
# # #
For more information about this enforcement action or SEC v. Galleon, contact:
George Canellos
Director, SEC's New York Regional Office
(212) 336-1020
Sanjay Wadhwa
Deputy Chief, Market Abuse Unit, SEC Division of Enforcement
(212) 336-0181
http://www.sec.gov/news/press/2011/2011-6.htm
SEC Obtains Emergency Asset Freeze Against Hedge Fund Manager for Fraudulent Misuse of Fund Assets
FOR IMMEDIATE RELEASE
2011-3
Washington, D.C., Jan. 7, 2011 — The Securities and Exchange Commission has charged a Greensboro, N.C.-based investment adviser firm and its owner with defrauding investors in two hedge funds by secretly diverting millions of dollars to themselves through various self-dealing transactions.
The SEC obtained an emergency court order late yesterday freezing the assets of SJK Investment Management LLC and its CEO Stanley Kowalewski, alleging that they raised more than $65 million since summer 2009 through marketing two hedge funds to various investors including pension funds, school endowments, hospitals and non-profit foundations. However, unbeknownst to these investors, Kowalewski placed $16.5 million of their money in an undisclosed, wholly-controlled, new fund that he created, and then misused it in a number of ways. For example, he purchased a vacation home for approximately $3.9 million. He also sold his personal home to the fund for nearly $1 million more than the price he paid for it, and then continued to live in the house essentially rent-free.
Additional Materials
* SEC Complaint
* Litigation Release No. 21800
"Kowalewski treated these funds like his own personal bank account and siphoned off millions of dollars that his clients entrusted to him," said William P. Hicks, Associate Regional Director of Enforcement in the SEC's Atlanta Regional Office. "He breached his responsibilities as an investment adviser in the worst manner possible."
According to the SEC's complaint filed yesterday in federal court in Atlanta, SJK and Kowalewski began diverting investor money in August 2009 — almost immediately after receiving the first investor proceeds — to pay their personal and business overhead expenses under the pretense that they were "start-up" expenses for the funds.
The SEC alleges that SJK and Kowalewski never advised investors of the existence of the third fund, much less their complete control over it, the large amounts "invested" into it, or the existence and nature of their self-dealing transactions and misuses of investor money. To further perpetuate the scheme, Kowalewski and SJK sent fraudulent monthly account statements to investors showing substantial and positive — but illusory — investment returns.
According to the SEC's complaint, among other transactions, Kowalewski sold his personal home to the fund in February 2010 for $2.8 million, almost $1 million more than its 2006 purchase price. Kowalewski used approximately $3.9 million of investor money in May 2010 to buy his vacation house on Pawley's Island, S.C. In October 2010, SJK took $4 million of investor money in the form of a purported "administration fee" and "salary draw." Throughout last year, Kowalewski used investor money to pay personal expenses and SJK's rent and other overhead, in stark contrast to how he represented those monies would be used.
The Honorable Timothy C. Batten, Sr., U.S. District Judge for the Northern District of Georgia granted the SEC's request for an emergency asset freeze, temporary restraining order, and other remedies against Kowalewski and SJK Investment Management. In addition to the emergency relief for investors, the SEC seeks permanent injunctions, disgorgement of ill-gotten gains with pre-judgment interest, financial penalties, and a financial industry bar against Kowalewski.
The SEC's complaint alleges that Kowalewski violated Section 17(a) of the Securities Act of 1933, Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, Section 206(1), (2) and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder.
Matthew F. McNamara and Michael J. Cates of the SEC's Atlanta Regional Office conducted the investigation following an examination of SJK conducted by H. Dandridge Campbell, Michael L. Foster, Jamey A. Jones, John Sherrick, Satyan Singh, and Gina Bailey. The SEC's litigation effort will be led by M. Graham Loomis and Paul Kim. The SEC's investigation is ongoing.
# # #
For more information about this enforcement action, contact:
Rhea Kemble Dignam
Regional Director, SEC's Atlanta Regional Office
(404) 842-7610
William P. Hicks
Associate Regional Director, SEC's Atlanta Regional Office
(404) 842-7675
http://www.sec.gov/news/press/2011/2011-3.htm
SEC Charges Former Portfolio Managers With Defrauding Utah Municipal Bond Fund
FOR IMMEDIATE RELEASE
2011-5
Washington, D.C., Jan. 7, 2011 — The Securities and Exchange Commission today charged two former portfolio managers with defrauding a mutual fund that invests primarily in municipal bonds issued by the State of Utah and its county and local authorities.
The SEC found that Kimball L. Young of Salt Lake City and Thomas S. Albright of Louisville — former co-portfolio managers of the Tax Free Fund for Utah (TFFU) while working at Aquila Investment Management LLC — improperly charged municipal bond issuers more than a half-million dollars in undisclosed "credit monitoring fees" that they pocketed for themselves.
Additional Materials
* SEC Order Against Kimball L. Young
* SEC Order Against Thomas S. Albright
Young and Albright settled the SEC's charges by agreeing to sanctions including bars from the industry and payback of all credit monitoring fees they received along with additional financial penalties.
"Young and Albright violated the most basic duties that investment advisers owe the mutual funds they serve — to act in the best interests of the fund and disclose any conflicts of interest they face," said Bruce Karpati, Co-Chief of the Asset Management Unit in the SEC's Division of Enforcement. "Instead of acting in the fund's best interests, they defrauded the fund by secretly taking fees that neither the fund nor its board knew about."
According to the SEC's orders instituting administrating proceedings, Young and Albright began charging municipal bond issuers "credit monitoring fees" in 2003 on certain private placement and non-rated bond offerings without informing Aquila management or the TFFU's board of trustees. The fees, which ranged between 0.5 and 1 percent of each bond's par value, were a one-time fee purportedly to compensate Young and Albright for performing additional ongoing credit monitoring that they contend was required because the bonds were not rated.
The SEC found that, in fact, any credit monitoring work that Young and Albright performed was already part of their regular job responsibilities. Although deal documents indicated that the fees were required by and would be paid to the TFFU, the fees were instead wired to a company controlled by Young, who shared them equally with Albright. The fees totaled $520,626 from 2003 to April 2009, including $256,071 for the year 2008 alone.
According to the SEC's orders, Aquila management learned in April 2009 that Young and Albright had been charging credit monitoring fees, at which point Aquila promptly suspended Young and Albright and reported their conduct to the SEC.
The SEC's orders found that Young violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and that Albright violated Section 206(2) of the Advisers Act. The SEC's orders further found that Young and Albright violated Section 17(e)(1) of the Investment Company Act of 1940, which prohibits any affiliated person of a registered investment company, or any affiliated person of such affiliated person, from receiving compensation from any source other than the investment company in connection with the sale of such company's property.
Young and Albright settled the charges without admitting or denying the SEC's findings. Young agreed to pay $294,789 in disgorgement and prejudgment interest and a $75,000 penalty, and to be barred for five years from association with any investment adviser, broker, dealer, or certain other entities and industry organizations. Albright agreed to pay $294,789 in disgorgement and prejudgment interest and a $50,000 penalty, and to be barred for one year from association with any investment adviser, broker, dealer, or certain other entities and industry organizations.
This case was investigated by Gerald Gross, James McGovern and Ibrahim Bah of the SEC's New York Regional Office. McGovern is a member of the SEC's Asset Management Unit. The SEC acknowledges the cooperation of Aquila Investment Management in this investigation.
# # #
For more information about this enforcement action, contact:
George S. Canellos
Director, SEC New York Regional Office
212-336-1020
Bruce Karpati (212-336-0104) and Robert Kaplan (202-551-4969)
Co-Chiefs, Asset Management Unit, SEC Division of Enforcement
http://www.sec.gov/news/press/2011/2011-5.htm
everyone will have a day if they are doing wrong
I agree and, yes, it does appear that way. Think that there's ever a chance they'll clamp down on the paid undisclosed message board promoters like the Oceanic crew, etc.?
well i look at it this way lessons cost money and bad people shouldn't get away with it. SEC is alil slow but they are cracking down now on allot of people and companies from what i have seen lately
Nice board you have here, people should pay attention to when the SEC acts, penny stock companies and investors aren't immune to the rules.
I'm glad they're going after those aholes btw, too bad poor suckers like I was in '08 won't get any money back from it.
thats what i was thinking about also, lol
Now that is interesting, I wonder if it was any that I got hammered with in '08 lol
SEC Charges Investment Firm With Illegally Dumping Billions of Penny Stock Shares
FOR IMMEDIATE RELEASE
2011-1
Washington, D.C., Jan. 6, 2011 — The Securities and Exchange Commission today charged Gendarme Capital Corporation and its two executives with engaging in an illegal stock distribution scheme.
Additional Materials
* Litigation Release No. 21798
* SEC Complaint
The SEC alleges that Gendarme repeatedly acquired deeply discounted shares from penny stock issuers under the pretense of a long-term investment and then dumped the shares into the market, essentially effecting public stock distributions without complying with the disclosure requirements of the federal securities laws. Through its two principals — CEO Ezat Rahimi of Elk Grove, Calif., and vice president Ian Lamphere of Lawrenceville, Vt. — Gendarme sold more than 15 billion shares of at least a dozen companies, netting illicit profits of more than $1.6 million.
"The federal securities laws are designed to ensure that buyers of stock in the open market have access to information about the companies in which they are investing," said Marc Fagel, Director of the SEC's San Francisco Regional Office. "Gendarme and its executives created a novel, but illegal, business plan to make an end-run around these investor protection laws, supposedly buying billions of shares of penny stock for investment purposes but instead turning around and dumping those shares into the market."
According to the SEC's complaint, filed today in federal district court in Sacramento, Gendarme began entering into agreements with penny stock issuers in early 2008. The agreements gave Gendarme the right to purchase stock at 30 to 50 percent discounts to the market price. The SEC alleges that, in an effort to avoid the registration and disclosure obligations of the federal securities laws, Gendarme falsely represented to issuers that it was purchasing shares for "investment purposes only." Contrary to those representations, Gendarme quickly dumped most of these shares on the public markets, profiting by more than $1.6 million from its unregistered stock distributions.
The SEC also alleges that Gendarme's outside attorney — Cassandra Armento of Greenwich, N.Y. — violated the securities laws by issuing more than 50 false legal opinion letters in support of Gendarme's activities. Armento repeatedly informed stock transfer agents that Gendarme was not an "underwriter" and thus had no intent to sell the stock. Thus, shares could be obtained by Gendarme without trading restrictions. However, the SEC alleges Armento made no inquiry into whether Gendarme intended to resell the stock, and was aware of information showing that it was likely that Gendarme was dumping the stock into the market.
The SEC's complaint charges Gendarme, Rahimi, Lamphere and Armento with violating the registration provisions of the federal securities laws. Against Gendarme, Rahimi, and Lamphere, the SEC seeks injunctive relief, disgorgement of ill-gotten gains, monetary penalties, and an order barring them from participating in an offering of penny stock. The SEC seeks injunctive relief and monetary penalties against Armento.
This case was investigated by Jeremy E. Pendrey and Robert S. Leach of the SEC's San Francisco Regional Office.
# # #
http://www.sec.gov/news/press/2011/2011-1.htm
Broker Accused of Defrauding Elderly Nuns Settles Case With SEC
FOR IMMEDIATE RELEASE
2011-2
Washington, D.C., Jan. 6, 2011 — The Securities and Exchange Commission today announced that a Long Island, N.Y.-based broker has agreed to settle charges against him for defrauding a congregation of mostly elderly nuns in the Bronx.
The SEC, which instituted administrative proceedings against Paul George Chironis in April 2010, found that he churned two accounts owned by the Sisters of Charity — one account with money for care of nuns in assisted-living facilities and a second account to support the nuns' charitable endeavors. Churning is a fraudulent practice that occurs when a broker engages in excessive trading in order to generate commissions and other revenue without regard to the customer's investment objectives. Chironis was formerly affiliated with Capital Growth Financial, Inc., a broker-dealer firm that was based in Boca Raton, Fla., and is no longer in business.
Additional Materials
* SEC Order Against Paul George Chironis
Chironis agreed to pay $350,000 to the Sisters of Charity in the SEC settlement.
"Chironis took advantage of the trust placed in him by the Sisters of Charity and convinced the nuns to engage in a high turnover trading strategy unfit for their investment needs," said George S. Canellos, Director of the SEC's New York Regional Office. "Chironis's irresponsible actions virtually guaranteed the convent's accounts would lose money due to the undisclosed and excessive costs being incurred while Chironis focused on generating substantial commissions for himself."
According to the SEC's order, Chironis defrauded the nuns from January 2007 to January 2008 by churning the two accounts with low-risk tolerance that held primarily mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, as well as certain closed-end bond funds. The order further found that Chironis charged the nuns' accounts excessive and undisclosed markups and markdowns in riskless principal transactions.
The SEC's order specifically found that during a 13-month period, the Sisters of Charity's accounts paid approximately 10.8 percent of their value to Chironis in transaction fees. The nuns' accounts were charged an average markup of 3.68 percent on 46 bond purchases including mortgage-backed securities, and 3.03 percent on 33 closed-end bond fund purchases. The congregation's accounts also were being charged an average markdown of 1.92 percent on 67 bond sales and 1.86 percent on 15 closed-end bond fund sales.
The SEC's order found that Chironis violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
Without admitting or denying any of the allegations in the civil injunctive action against him, Chironis agreed to an order barring him from association with any broker, dealer, investment adviser, municipal securities dealer, transfer agent, municipal advisor, or nationally recognized statistical ratings organization. The order also prohibits him from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter.
Additionally, Chironis agreed to pay a $100,000 penalty and $250,000 in disgorgement that will be placed in a Fair Fund and distributed to the Sisters of Charity.
The SEC's case was investigated by Gerald Gross, James McGovern, Howard Fischer, and Christopher Dunnigan of the New York Regional Office. The matter was referred to the Division of Enforcement by Steven Vitulano, Terrance Bohan, and Hermann Vargas of the Broker-Dealer Inspection Program within the SEC's Office of Compliance, Inspections, and Examination.
# # #
For more information about this enforcement action, contact:
Gerald Gross
Assistant Regional Director, SEC's New York Regional Office
(212) 336-0085
http://www.sec.gov/news/press/2011/2011-2.htm
SEC Charges Alcatel-Lucent with FCPA Violations
FOR IMMEDIATE RELEASE
2010-258
Company to Pay More Than $137 Million to Settle SEC and DOJ Charges
Washington, D.C., Dec. 27, 2010 — The Securities and Exchange Commission today charged Paris-based telecommunications company Alcatel-Lucent, S.A. with violating the Foreign Corrupt Practices Act (FCPA) by paying bribes to foreign government officials to illicitly win business in Latin America and Asia.
Additional Materials
* Litigation Release No. 21795
* SEC Complaint
* French Translation
* Spanish Translation
The SEC alleges that Alcatel’s subsidiaries used consultants who performed little or no legitimate work to funnel more than $8 million in bribes to government officials in order to obtain or retain lucrative telecommunications contracts and other contracts. Alcatel agreed to pay more than $45 million to settle the SEC’s charges, and pay an additional $92 million to settle criminal charges announced today by the U.S. Department of Justice.
“Alcatel and its subsidiaries failed to detect or investigate numerous red flags suggesting their employees were directing sham consultants to provide gifts and payments to foreign government officials to illegally win business,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Alcatel’s bribery scheme was the product of a lax corporate control environment at the company.”
Glenn S. Gordon, Associate Director for Enforcement in the SEC’s Miami Regional Office, added, “The serious sanctions Alcatel has agreed to, including paying back all net profits made on the contracts Alcatel illegally obtained, should serve as a reminder that we are committed to enforcing the FCPA and a level playing field for companies seeking to obtain or retain business in other countries.”
According to the SEC’s complaint filed in the Southern District of Florida, Alcatel’s bribes went to government officials in Costa Rica, Honduras, Malaysia, and Taiwan between December 2001 and June 2006. An Alcatel subsidiary provided at least $14.5 million to consulting firms through sham consulting agreements for use in the bribery scheme in Costa Rica. Various high-level government officials in Costa Rica received at least $7 million of the $14.5 million to ensure Alcatel obtained or retained three contracts to provide telephone services in Costa Rica.
The SEC alleges that the same Alcatel subsidiary bribed officials in the government of Honduras to obtain or retain five telecommunications contracts. Another Alcatel subsidiary made bribery payments to Malaysian government officials in order to procure a telecommunications contract. An Alcatel subsidiary also made illegal payments to various officials in the government of Taiwan to win a contract to supply railway axle counters to the Taiwan Railway Administration.
According to the SEC’s complaint, all of the bribery payments were undocumented or improperly recorded as consulting fees in the books of Alcatel’s subsidiaries and then consolidated into Alcatel’s financial statements. The leaders of several Alcatel subsidiaries and geographical regions, including some who reported directly to Alcatel’s executive committee, either knew or were severely reckless in not knowing about the misconduct.
The SEC’s complaint charges that Alcatel violated Section 30A of the Securities Exchange Act of 1934 by making illicit payments to foreign government officials, through its subsidiaries and agents, in order to obtain or retain business. Alcatel violated Section 13(b)(2)(B) of the Exchange Act by failing to have adequate internal controls to detect and prevent the payments. Alcatel violated Section 13(b)(2)(A) of the Exchange Act by improperly recording the payments in its books and records. Alcatel violated Section 13(b)(5) of the Exchange Act when its subsidiaries knowingly failed to implement a system of internal controls and knowingly falsified their books and records to camouflage bribes as consulting payments. Without admitting or denying the SEC’s allegations, Alcatel has consented to a court order permanently enjoining it from future violations of these statutory provisions; ordering the company to pay $45.372 million in disgorgement of wrongfully obtained profits, and ordering it to comply with certain undertakings including an independent monitor for a three-year term. The settlement is subject to court approval.
The SEC’s case was investigated by Ernesto Palacios and Thierry Olivier Desmet of the Division of Enforcement’s FCPA Unit and by Teresa J. Verges and Fernando Torres – all of the Miami Regional Office.
The SEC acknowledges and appreciates assistance from the U.S. Department of Justice, Fraud Section; the Federal Bureau of Investigation; the Office of the Attorney General in Costa Rica, the Fiscalía de Delitos Económicos, Corrupción y Tributarios in Costa Rica; and the Service Central de Prévention de la Corruption in France.
# # #
For more information about this enforcement action, contact:
Glenn S. Gordon, Associate Director
Teresa J. Verges, Assistant Director
Thierry Olivier Desmet, Assistant Director, FCPA Unit
SEC Miami Regional Office
305-982-6300
http://www.sec.gov/news/press/2010/2010-258.htm
SEC Charges Former Carter's Executive With Fraud and Insider Trading
FOR IMMEDIATE RELEASE
2010-252
Washington, D.C., Dec. 20, 2010 — The Securities and Exchange Commission today charged a former Executive Vice President of children's clothing marketer Carter's Inc. for engaging in financial fraud and insider trading. The SEC alleges that Joseph M. Elles's misconduct caused an understatement of Carter's expenses and a material overstatement of its net income in several financial reporting periods.
The SEC also announced that it has entered a non-prosecution agreement with Carter's under which the Atlanta-based company will not be charged with any violations of the federal securities laws relating to Elles's unlawful conduct. The non-prosecution agreement reflects the relatively isolated nature of the unlawful conduct, Carter's prompt and complete self-reporting of the misconduct to the SEC, its exemplary and extensive cooperation in the investigation, including undertaking a thorough and comprehensive internal investigation, and Carter's extensive and substantial remedial actions. This marks the first non-prosecution agreement entered by the SEC since the announcement of the SEC's new cooperation initiative earlier this year.
Additional Materials
* SEC Complaint
* Non-Prosecution Agreement
"Elles's trickery in secretly awarding excessive discounts deceived and damaged Carter's investors," said Robert Khuzami, Director of the SEC's Division of Enforcement. "While that was the wrong thing to do, Carter's did the right thing by promptly self-reporting the misconduct, taking thorough remedial action, and extensively cooperating with our investigation, for which it received the benefits of a non-prosecution agreement. In such circumstances, incentivizing appropriate corporate response to misconduct through the use of non-prosecution agreements is in the best interest of companies, shareholders and the SEC alike."
William P. Hicks, Associate Director of Enforcement in the SEC's Atlanta Regional Office, added, "Elles deceived accounting personnel at Carter's and caused financial misstatements to investors. After his misconduct inflated the company's earnings, Elles exercised options for the purchase of Carter's common stock and sold the resulting shares for his personal gain."
According to the SEC's complaint filed in U.S. District Court for the Northern District of Georgia, Elles conducted his scheme from 2004 to 2009 while serving as Carter's Executive Vice President of Sales. The SEC alleges that Elles fraudulently manipulated the dollar amount of discounts that Carter's granted to its largest wholesale customer — a large national department store — in order to induce that customer to purchase greater quantities of Carter's clothing for resale. Elles then concealed his misconduct by persuading the customer to defer subtracting the discounts from payments until later financial reporting periods. He created and signed false documents that misrepresented to Carter's accounting personnel the timing and amount of those discounts.
The SEC further alleges that Elles realized sizeable gains from insider trading in shares of Carter's common stock during the fraud. Between May 2005 and March 2009, Elles realized a profit before tax of approximately $4,739,862 from the exercises of options granted to him by Carter's and sales of the resulting shares. Each of these stock sales occurred prior to the company's initial disclosure relating to the fraud on Oct. 27, 2009, immediately after which the company's common stock share price dropped 23.8 percent.
After discovering Elles's actions and conducting its own internal investigation, Carter's was required to issue restated financial results for the affected periods.
Under the terms of the non-prosecution agreement, Carter's agreed to cooperate fully and truthfully in any further investigation conducted by the SEC staff as well as in the enforcement action filed against Elles.
The SEC's complaint alleges that Elles violated Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1, and aided and abetted violations of Sections 13(a) and 13(b)(2)(A) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-11 and 13a-13. The SEC is seeking permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, financial penalties, and an officer and director bar against Elles.
The SEC appreciates the assistance of the U.S. Attorney's Office for the Northern District of Georgia and the Federal Bureau of Investigation in this matter. The SEC's investigation is continuing.
# # #
For more information about this enforcement action, contact:
William P. Hicks
Associate Director of Enforcement, SEC Atlanta Regional Office
404-842-7675
Lorin L. Reisner
Deputy Director, SEC Division of Enforcement
202-551-4787
http://www.sec.gov/news/press/2010/2010-252.htm
SEC Charges Former Law Firm Partner in Multi-Million Dollar Scheme
FOR IMMEDIATE RELEASE
2010-248
Washington, D.C., Dec. 16, 2010 — The Securities and Exchange Commission today charged Jonathan Star Bristol, attorney for former financial advisor Kenneth Ira Starr, with aiding and abetting Starr's multi-million dollar fraud by allowing Starr to use his attorney trust accounts as conduits when Starr stole money from advisory clients.
Additional Materials
* SEC Complaint
* Litigation Release No. 21782
The SEC alleges that more than $25 million belonging to Starr's clients flowed through Bristol's attorney trust accounts. Without his clients' authorization, Starr would transfer their funds into the attorney trust accounts, and then Bristol would transfer the stolen funds to Starr and his two companies for personal use.
The SEC alleges that Bristol never disclosed the existence of the attorney trust accounts to the prominent international law firm where he worked at the time. Monthly account statements clearly listing the names of Starr's clients as the source of the incoming transfers were sent directly to Bristol's home address instead of the law firm. Meanwhile, Bristol touted his relationship with Starr to his colleagues and others, claiming that Starr managed $70 billion in assets. In fact, Starr managed only a fraction of that amount.
"Bristol had a legal and professional responsibility not to assist Ken Starr in conduct that he knew was unlawful," said George S. Canellos, Director of the SEC's New York Regional Office. "Bristol crossed the line from lawyer to conspirator when he failed to safeguard funds entrusted to him, helped Starr steal client money, and lied to the victims to perpetuate the scheme."
The SEC previously charged Starr, Starr Investment Advisors LLC, and Starr & Company LLC with violating securities laws pertaining to custody of clients' assets and misusing client funds to buy a multi-million dollar luxury condominium on Manhattan's Upper East Side among other things.
The SEC's amended complaint, filed today in federal court in Manhattan, adds Bristol as a defendant, alleging that beginning around November 2008 and continuing until Starr's arrest in May 2010, Bristol repeatedly allowed Starr to use his attorney trust accounts to funnel money stolen from Starr clients. Notwithstanding his personal role in the scheme, Bristol represented Starr and his companies throughout the SEC's investigation and in an investment advisory examination by SEC staff.
According to the SEC's amended complaint, Bristol was confronted by one of Starr's victims about an unauthorized $1 million transfer from the victim's account. Bristol lied to the victim that the funds were being bundled with other clients' funds for an investment with UBS Financial Services. In fact, Bristol had already used the misappropriated funds to pay a multi-million dollar legal settlement with one of Starr's former clients. Bristol subsequently sought to represent that same victim after the victim was contacted by SEC staff in its investigation. In addition to the fact that such representations violated the ethical obligations of lawyers, Bristol's clear intent was to obstruct and undermine the SEC's investigation in order to conceal the wrongdoing.
The SEC's amended complaint charges Bristol with aiding and abetting the Starr Parties' violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with pre-judgment interest and financial penalties. The SEC also will seek an order barring Bristol from practicing before the Commission pursuant to Rule 102(e) of the Commission's Rules of Practice.
Sanjay Wadhwa, Maureen F. Lewis, Timothy Casey and Sandeep Satwalekar, all members of the SEC's Market Abuse Unit in New York, and George O'Kane of the New York Regional Office conducted the agency's investigation, which is continuing. The SEC's litigation effort will be led by Todd Brody. The SEC thanks the U.S. Attorney's Office for the Southern District of New York, the New York County District Attorney's Office, and the New York Office of the Internal Revenue Service's Criminal Investigation Division for their assistance in this matter.
# # #
For more information about this enforcement action, contact:
George S. Canellos
Director, SEC's New York Regional Office
(212) 336-1020
Sanjay Wadhwa
Deputy Chief, Market Abuse Unit, SEC's Division of Enforcement
(212) 336-0181
Maureen F. Lewis
Assistant Director, Market Abuse Unit, SEC's Division of Enforcement
(212) 336-0125
http://www.sec.gov/news/press/2010/2010-248.htm
SEC Brings Fraud Charges Against Self-Described Idaho Nuclear Power Company
FOR IMMEDIATE RELEASE
2010-249
Washington D.C., Dec. 16, 2010 — The Securities and Exchange Commission today charged a self-described power company in Idaho with fraudulently raising funds for a $10 billion nuclear power project. The SEC is seeking an emergency court order to freeze the assets of the company and two executives.
Additional Materials
* SEC Complaint
The SEC alleges that Alternate Energy Holdings Inc. (AEHI) has raised millions of dollars from investors in Idaho and throughout the U.S. and Asia while fraudulently manipulating its stock price through misleading public statements that conceal the secret profits reaped by its CEO Donald L. Gillispie and Senior Vice President Jennifer Ransom. Gillispie has touted the company as a tremendous investment opportunity that could rival Exxon Mobil in profitability, despite the fact that AEHI has essentially no revenue and minimal operations.
The SEC suspended trading in AEHI stock earlier this week.
“In light of AEHI’s ongoing efforts to raise funding while promoting itself through a daily deluge of press releases, we needed to take immediate action to get to the bottom of the company’s misleading statements,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office. “Documents we have obtained to date indicate a scheme to personally enrich the CEO at the expense of investors.”
According to the SEC’s complaint filed today in federal district court in Boise, AEHI’s fundraising was facilitated by a scheme to drive up the company’s stock price, both through frequent press releases (at least 87 in 2010 alone) and efforts of paid stock promoters to manipulate the stock price. The SEC alleges that the company has made multiple misrepresentations, including claims that its executives had such confidence in AEHI that they had not sold a single share of company stock. Records obtained by the SEC show that Gillispie and Ransom have instead secretly unloaded extensive stock holdings and funneled the money back to Gillispie.
The SEC’s complaint also alleges that AEHI reported to the SEC and investors that Gillispie’s compensation was $133,000. However, Gillispie has actually reaped approximately six times that amount in 2010.
The SEC’s complaint charges AEHI, Gillispie, and Ransom with violations of the anti-fraud provisions of the federal securities laws, and names as relief defendants two companies controlled by Gillispie and Ransom (Executive Energy Consulting LLC and Bosco Financial LLC). In a motion filed simultaneously with the enforcement action, the SEC seeks emergency relief for investors including an asset freeze and a temporary restraining order enjoining the defendants from further violations of the securities laws.
The SEC’s case was investigated by Kristin Waldron, David Berman, Heather Marlow, and Tracy Davis of the San Francisco Regional Office. The SEC acknowledges the assistance of the Idaho Department of Finance and FINRA in this matter. The SEC’s investigation is continuing.
# # #
For more information about this enforcement action, contact:
Marc J. Fagel
Regional Director, SEC’s San Francisco Regional Office
(415) 705-2449
Michael S. Dicke
Associate Regional Director, SEC’s San Francisco Regional Office
(415) 705-2458
http://www.sec.gov/news/press/2010/2010-249.htm
SEC Charges Uncle and Nephew in Insider Trading Scheme
FOR IMMEDIATE RELEASE
2010-241
Washington, D.C., Dec. 8, 2010 — The Securities and Exchange Commission today charged a Baltimore-based business consultant and his uncle with insider trading in the stock of two biotechnology companies based on material, nonpublic information that he obtained from his fraternity brother.
Additional Materials
* Litigation Release No. 21767
* SEC Complaint
The SEC alleges that Brett A. Cohen received coded e-mails referencing the movie Wall Street from his fraternity brother, who was being tipped with inside information by his own brother, a patent agent for San Diego-based Sequenom, Inc. Cohen subsequently made phone calls from an outdoor pay phone to tip his uncle David V. Myers of Cleveland, who then traded on the illegally obtained inside information and garnered more than $600,000 in illicit profits.
In a parallel criminal proceeding, the U.S. Attorney's Office for the Southern District of California today filed criminal charges against both Cohen and Myers.
"Cohen and Myers misused Sequenom's confidential information to enrich themselves at the expense of the company's shareholders," said Rosalind R. Tyson, Director of the SEC's Los Angeles Regional Office. "They used coded e-mails and other covert methods of communication in a deliberate effort to hide their illegal insider trading scheme."
According to the SEC's complaint, filed in the U.S. District Court for the Southern District of California, the patent agent learned about two corporate events involving Sequenom prior to the public release of the information:
* Sequenom's January 2009 offer to acquire Exact Sciences Corporation (EXAS).
* Sequenom's April 29, 2009 announcement that previously announced test data from its Down syndrome screening test could no longer be relied upon.
According to the SEC's complaint, the patent agent conducted intellectual property due diligence with respect to the EXAS transaction, and he was the patent agent assigned to the company's Down syndrome test.
The SEC alleges that the patent agent tipped material, non-public information about the EXAS transaction to his brother, who relayed it to his fraternity brother Cohen. For example, the patent agent's brother sent Cohen an e-mail asking, "[a]ny word related to Blu H@rsesh0e? La Jolla says the times are ripe." The movie Wall Street uses the phrase, "Blue Horseshoe loves Anacot Steel," as a code for insider trading. "La Jolla" references the fact that the patent agent lived and worked near La Jolla, Calif.
After at least a dozen phone calls among the scheme's four participants in the succeeding days, Myers made his first-ever purchase of EXAS securities, buying 15,000 shares. It was the first stock purchase in Myers's brokerage account since at least January 2007. Myers later purchased an additional 20,000 shares of EXAS stock before Sequenom publicly announced after the markets closed on Jan. 9, 2009, that it planned to acquire EXAS. EXAS stock rose 50 percent by the close of the markets on January 10 on increased trading volume of 466 percent. During the next few weeks, Myers sold nearly all of his EXAS stock for illegal profits of more than $34,000.
The SEC alleges that the patent agent also tipped his brother ahead of Sequenom's announcement that investors could no longer rely on previously disclosed data related to its Down syndrome test. The announcement caused Sequenom's stock price to drop by more than 75 percent in one day. Cohen illegally obtained and tipped inside information just prior to the company's announcement through a series of communications, including a call he placed from a pay phone near his workplace to convey information to Myers, who immediately purchased risky Sequenom put options just minutes before the markets closed on April 29, 2009. The next morning, Myers sold his entire Sequenom position for illegal profits of more than $570,000.
The SEC's complaint charges Cohen and Myers with violating the antifraud provisions of the federal securities laws. The Commission seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and financial penalties against them.
Sara Kalin, Diana Tani, and Marc Blau conducted the SEC's investigation, and John Bulgozdy will lead the SEC's litigation efforts. The Commission thanks the U.S. Attorney's Office for the Southern District of California and the Federal Bureau of Investigation for their cooperation and assistance in this matter. The SEC also acknowledges the assistance of FINRA and the Options Regulatory Surveillance Authority in this investigation.
The SEC's investigation is ongoing.
# # #
For more information about this enforcement action, contact:
Michele Wein Layne
Associate Regional Director, SEC Los Angeles Regional Office
(323) 965-3850
Marc J. Blau
Assistant Regional Director, SEC Los Angeles Regional Office
(323) 965-3975
John B. Bulgozdy
Senior Trial Counsel, SEC Los Angeles Regional Office
(323) 965-3322
http://www.sec.gov/news/press/2010/2010-241.htm
SEC Charges Banc of America Securities With Fraud in Connection With Improper Bidding Practices Involving Investment of Proceeds of Municipal Securities
FOR IMMEDIATE RELEASE
2010-239
Washington, D.C., Dec. 7, 2010 — The Securities and Exchange Commission today charged Banc of America Securities, LLC (BAS) with securities fraud for its part in an effort to rig bids in connection with the investment of proceeds of municipal securities.
Additional Materials
* SEC Order Against Banc of America Securities LLC
To settle the SEC's charges, BAS has agreed to pay more than $36 million in disgorgement and interest. In addition, BAS and its affiliates have agreed to pay another $101 million to other federal and state authorities for its conduct.
"This ongoing investigation has helped to expose wide-spread corruption in the municipal reinvestment industry," said Robert Khuzami, Director of the SEC's Division of Enforcement. "The conduct was egregious — in return for business, the company repeatedly paid undisclosed gratuitous payments and kickbacks and affirmatively misrepresented that the bidding process was proper."
When investors purchase municipal securities, the municipalities generally invest the proceeds temporarily in reinvestment products before the money is used for the intended purposes. Under relevant IRS regulations, the proceeds of tax-exempt municipal securities must generally be invested at fair market value. The most common way of establishing fair market value is through a competitive bidding process, whereby bidding agents search for the appropriate investment vehicle for a municipality.
In its Order, the SEC found that the bidding process was not competitive because it was tainted by undisclosed consultations, agreements, or payments and, therefore, could not be used to establish the fair market value of the reinvestment instruments. As a result, these improper bidding practices affected the prices of the reinvestment products and jeopardized the tax-exempt status of the underlying municipal securities, the principal amounts of which totaled billions of dollars.
According to the Commission's Order, certain bidding agents steered business from municipalities to BAS through a variety of mechanisms. In some cases, the agents gave BAS information on competing bids (last looks), and deliberately obtained off-market "courtesy" bids or purposefully non-winning bids so that BAS could win the transaction (set-ups). As a result, BAS won the bids for 88 affected reinvestment instruments, such as guaranteed investment contracts (GICs), repurchase agreements (Repos) and forward purchase agreements (FPAs).
In return, BAS steered business to those bidding agents and submitted courtesy and purposefully non-winning bids upon request. In addition, those bidding agents were at times rewarded with, among other things, undisclosed gratuitous payments and kickbacks. The Commission also found that former officers of BAS participated in, and condoned, these improper bidding practices.
BAS is now known as Merrill Lynch, Pierce, Fenner & Smith Incorporated following a merger.
Elaine C. Greenberg, Chief of the SEC's Municipal Securities and Public Pensions Unit, added "This conduct threatened the integrity of the municipal marketplace, affecting not only the municipal issuers who were directly defrauded, but also the thousands of investors nationwide who purchased their tax-exempt municipal securities."
Without admitting or denying the SEC's findings, BAS consented to the entry of a Commission Order which censures BAS, requires it to cease-and-desist from committing or causing any violations and any future violations of Section 15(c)(1)(A) of the Exchange Act of 1934, and to pay disgorgement plus prejudgment interest totaling $36,096,442 directly to the affected entities.
In determining to accept BAS' offer, which does not include the imposition of a civil penalty, the Commission considered the cooperation of and remedial actions undertaken by BAS in connection with the Commission's investigation as well as investigations conducted by other law enforcement agencies. Among other things, BAS self-reported the bidding practices to the Antitrust Division of the Department of Justice.
In a related action, the Commission barred Douglas Lee Campbell, a former officer of BAS, from association with any broker, dealer or investment adviser, based upon his guilty plea to a criminal information on Sept. 9, 2010, in United States v. Douglas Lee Campbell (Criminal Action No. 10-cr-803) charging him with two counts of conspiracy and one count of wire fraud. The criminal information charged, among other things, that Campbell engaged in fraudulent misconduct in connection with the competitive bidding process involving the investment of proceeds of tax-exempt municipal bonds. The Commission is not imposing a civil penalty against Campbell based on his cooperation in the Commission's investigation.
Additional Materials
* SEC Order Against Douglas Lee Campbell
Deputy Chief Mark R. Zehner and Assistant Municipal Securities Counsel Denise D. Colliers of the SEC's Municipal Securities and Public Pensions Unit conducted the investigation out of the agency's Philadelphia Regional Office under the leadership of Unit Chief Elaine C. Greenberg, Regional Director Daniel M. Hawke and Assistant Regional Director Mary P. Hansen.
The SEC thanks the Antitrust Division of the Department of Justice and the Federal Bureau of Investigation for their cooperation and assistance in this matter. The SEC is bringing this action in coordination with the Internal Revenue Service, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and 20 State Attorney Generals.
The SEC's investigation is continuing.
# # #
For more information, contact:
Elaine C. Greenberg, Chief, Municipal Securities and Public Pensions Unit and Associate Regional Director
Daniel M. Hawke, Regional Director
Mark R. Zehner, Deputy Chief, Municipal Securities and Public Pensions Unit
Mary P. Hansen, Assistant Regional Director
SEC's Philadelphia Regional Office
(215) 597-3100
http://www.sec.gov/news/press/2010/2010-239.htm
SEC Charges Former Law Firm Technology Manager and Brother-in-Law in Serial Insider Trading Scheme
FOR IMMEDIATE RELEASE
2010-240
Washington, D.C., Dec. 7, 2010 — The Securities and Exchange Commission today charged a former information technology manager at a Delaware law firm and his brother-in-law with insider trading on confidential information about impending mergers and acquisitions by the law firm’s clients.
Additional Materials
* Litigation Release No. 21765
* SEC Complaint
The SEC alleges that Jeffery J. Temple, a former Information Systems and Security Manager at a Wilmington, Del.-based law firm, accessed material nonpublic information in the course of his employment and then traded in advance of at least 22 merger and acquisition public announcements involving 20 companies that retained his former employer as counsel in some capacity. Temple also tipped his brother-in-law, Benedict M. Pastro, who traded in concert with Temple in advance of twelve public announcements. The pair reaped over $182,000 in illegal profits during their insider trading scheme. Temple was terminated from his position on Oct. 11, 2010, once law enforcement authorities revealed that they had uncovered his illegal scheme.
“By virtue of his position as a law firm information systems and security manager, Temple exploited his access to confidential merger and acquisition information for his and his brother-in-law’s benefit,” said Daniel M. Hawke, Chief of the Division of Enforcement’s Market Abuse Unit. “Temple abused his position of trust and violated serious duties owed to his law firm and its clients. Law firm employees, especially those with information technology responsibilities, must safeguard confidential information entrusted to them. This is critical to maintaining investor confidence in the fairness of the markets,” Hawke added.
According to the SEC’s complaint filed in the U.S. District Court for the District of Delaware, the scheme began in 2009 as Temple used his IT position to access nonpublic information about impending deals involving law firm clients. Temple, who lives in Newark, Del., corresponded with his online brokerage firm using his law firm e-mail address. Electronic login records for Temple’s brokerage account reflect that he often placed trades from work. Frequent telephone calls around the time of the trades indicate that Temple closely coordinated his trading with Pastro, who also lives in Newark.
Among the many deals mentioned in the complaint, the SEC alleges, for example, that Temple and Pastro conducted insider trading based on confidential information Temple accessed about an impending merger and acquisition involving DynCorp International, Inc. Temple’s law firm was hired on Oct. 6, 2009, to act as special Delaware outside counsel to Dyncorp’s Board of Directors in connection with its possible acquisition by Cerberus Capital Management L.P. Temple and Pastro purchased stock and call options in DynCorp shortly before an April 12, 2010, public merger and acquisition announcement. Immediately following the announcement, Temple and Pastro sold their positions for illicit trading profits of more than $34,000.
The SEC further alleges that Temple and Pastro also traded on nonpublic information that Temple obtained about an impending deal between Facet Biotech Corporation and Abbott Laboratories, Inc. Temple’s law firm was retained as counsel to Facet on or before Aug. 25, 2009, in connection with Abbott Labs’s proposed tender offer to Facet. Temple and Pastro bought stock and call options only days before the March 9, 2010, public announcement that Facet agreed to be acquired by Abbott Labs. Pastro and Temple sold all of their positions immediately after the announcement for combined trading profits of more than $23,000.
The SEC also alleges that Temple was trading on material nonpublic information obtained during the course of his employment and profiting from his scheme as recently as September.
Finally, the SEC alleges that Temple and Pastro violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.
The SEC’s Market Abuse Unit headed by Chief Daniel M. Hawke and Deputy Chief Sanjay Wadhwa conducted the investigation out of the agency’s Philadelphia Regional Office. Philadelphia-based Market Abuse Unit staff who worked on the investigation included Colleen K. Lynch, Lynn H. O’Connor and John S. Rymas under the leadership of Associate Regional Director Elaine C. Greenberg. G. Jeffrey Boujoukos and Catherine A. Pappas are handling the litigation.
The SEC is bringing this action in coordination with the United States Attorney’s Office for the District of Delaware. The SEC also appreciates the assistance of the Options Regulatory Surveillance Authority, the Financial Industry Regulatory Authority and The Federal Bureau of Investigation.
The SEC’s investigation is continuing.
# # #
For more information about this enforcement action, contact:
Daniel M. Hawke
Elaine C. Greenberg
Colleen K. Lynch
SEC’s Philadelphia Regional Office
(215) 597-3100
Sanjay Wadhwa
Deputy Chief, Market Abuse Unit
(212) 336-0181
http://www.sec.gov/news/press/2010/2010-240.htm
SEC Charges Deloitte Partner and Wife in International Insider Trading Scheme
FOR IMMEDIATE RELEASE
2010-234
Washington, D.C., Nov. 30, 2010 — The Securities and Exchange Commission today charged a former Deloitte Tax LLP partner and his wife with repeatedly leaking confidential merger and acquisition information to family members overseas in a multi-million dollar insider trading scheme.
Additional Materials
* SEC Complaint
* Litigation Release No. 21758
The SEC alleges that Arnold McClellan and his wife Annabel, who live in San Francisco, provided advance notice of at least seven confidential acquisitions planned by Deloitte's clients to Annabel's sister and brother-in-law in London. After receiving the illegal tips, the brother-in-law took financial positions in U.S. companies that were targets of acquisitions by Arnold McClellan's clients. His subsequent trades were closely timed with telephone calls between Annabel McClellan and her sister, and with in-person visits with the McClellans. Their insider trading reaped illegal profits of approximately $3 million in U.S. dollars, half of which was to be funneled back to Annabel McClellan.
The UK Financial Services Authority (FSA) has announced charges against the two relatives — James and Miranda Sanders of London. The FSA also charged colleagues of James Sanders whom he tipped with the nonpublic information in the course of his work at his London-based derivatives firm. Sanders's tippees and clients made approximately $20 million in U.S. dollars by trading on the inside information.
"The McClellans might have thought that they could conceal their illegal scheme by having close relatives make illegal trades offshore. They were wrong," said Robert Khuzami, Director of the SEC's Division of Enforcement. "In this day and age, whether it's across oceans or across markets, the SEC and its domestic and foreign law enforcement partners are committed to identifying and prosecuting illegal insider trading."
Marc J. Fagel, Director of the SEC's San Francisco Regional Office, added, "Deloitte and its clients entrusted Arnold McClellan with highly confidential information. Along with his wife, he abused that trust and used high-placed access to corporate secrets for the couple's own benefit and their family's enrichment."
According to the SEC's complaint, Arnold McClellan had access to highly confidential information while serving as the head of one of Deloitte's regional mergers and acquisitions teams. He provided tax and other advice to Deloitte's clients that were considering corporate acquisitions.
The SEC alleges that between 2006 and 2008, James Sanders used the non-public information obtained from the McClellans to purchase derivative financial instruments known as "spread bets" that are pegged to the price of the underlying U.S. stock. The trading started modestly, with James Sanders buying the equivalent of 1,000 shares of stock in a company that Arnold McClellan's client was attempting to acquire. Subsequent deals netted significant trading profits, and eventually James Sanders was taking large positions and passing along information about Arnold McClellan's deals to colleagues and clients at his trading firm as well as to his father.
Among the confidential impending transactions allegedly revealed by McClellan:
* Kronos Inc., a Massachusetts-based data collection and payroll software company acquired by a private equity firm in 2007.
* aQuantive Inc., a Seattle-based digital advertising and marketing company acquired by Microsoft in 2007.
* Getty Images Inc., a Seattle-based licenser of photographs and other visual content acquired by a private equity firm in 2008.
The SEC's complaint alleges the following chronology involving insider trading around the Kronos transaction:
* November 2006: Arnold McClellan begins advising Deloitte client on planned Kronos acquisition.
* Jan. 29, 2007: McClellan signs confidentiality agreement.
* Jan. 31, 2007: Following call from Annabel's cell phone, James Sanders begins buying Kronos spread bets in his wife's account.
* March 11, 2007: Arnold McClellan has two-hour cell phone call with client to discuss acquisition. Less than an hour later, call from same cell phone to Annabel's family.
* March 12-14, 2007: James Sanders increases size of Kronos bets.
* March 16, 2007: James Sanders informs another family member that Annabel is the source of his tips; describes his agreement to split profits with her 50/50.
* March 23, 2007: Deloitte client publicly announces Kronos acquisition. Kronos stock price increases 14 percent; James Sanders and other tippees reap approximately $4.9 million in U.S. dollars.
The SEC's complaint charges Arnold and Annabel McClellan with violating the antifraud provisions of the federal securities laws. The complaint seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and financial penalties.
The SEC's case was investigated by Victor W. Hong, Monique C. Winkler, Alice L. Jensen, and Jina L. Choi of the San Francisco Regional Office. The Commission would like to thank the UK Financial Services Authority, the U.S. Attorney's Office for the Northern District of California, and the Federal Bureau of Investigation for their assistance in this matter.
# # #
For more information about this enforcement action, contact:
Marc Fagel
Director, SEC San Francisco Regional Office
415-705-2449
Michael Dicke
Associate Director, SEC San Francisco Regional Office
415-705-2458
http://www.sec.gov/news/press/2010/2010-234.htm
SEC Obtains Emergency Asset Freeze in Diamond-Themed Ponzi Scheme
FOR IMMEDIATE RELEASE
2010-231
Washington, D.C., Nov. 23, 2010 — The Securities and Exchange Commission has obtained an emergency court order freezing the assets of a Colorado man and his company charged with running a Ponzi scheme with money invested for diamond trading.
Additional Materials
* Litigation Release No. 21754
* SEC Complaint
The SEC alleges that Richard Dalton and Universal Consulting Resources LLC (UCR) raised approximately $17 million from investors in 13 states for two fraudulent offerings that were generally referred to as the “Trading Program” and the “Diamond Program.” Investors in both programs received monthly payments which Dalton told them were profits from successful trading. However, there is no evidence to substantiate the $10 million in claimed profits from the two programs, and the vast majority of funds that came into UCR bank accounts were from new investors instead of actual profit-generating activity. Dalton used money from new investors to fund the monthly payments to existing investors while continuing to recruit new investors in order to keep his scheme going. Meanwhile, Dalton stole investor funds to purchase a home and a vehicle and pay for his daughter’s wedding reception.
Investors often learned of Dalton through a friend or family member who had previously invested with him. These new investors placed great weight on the fact that someone they knew and trusted received regular monthly payments from Dalton. Some investors even invested funds from their self-directed IRA retirement accounts.
“Dalton made his Ponzi scheme falsely appear profitable by continuing to bring in new investor money,” said Donald Hoerl, Director of the SEC’s Denver Regional Office. “Investors should be skeptical when someone promises low risk and high guaranteed returns, and focus on the details of the investment being offered rather than the lure of profits paid to friends and family.”
According to the SEC’s complaint filed in U.S. District Court in Denver, Dalton told investors in UCR’s Trading Program that their money would be held safely in an escrow account at a bank in the United States, and that a European trader would use the value of that account — but not the actual funds — to obtain leveraged funds to purchase and sell bank notes. According to Dalton, the trading was profitable enough that he was able to guarantee returns of 4 to 5 percent per month — or 48 to 60 percent per year — to investors. Dalton claimed that he had successfully run the Trading Program for nine years.
According to the SEC’s complaint, UCR began offering the Diamond Program in early 2009. Dalton claimed the program would profit by using investor funds for diamond trading. Similar to the Trading Program, Dalton claimed that investor funds would be safely held in an escrow account. Under the Diamond program, Dalton enticed investors with a guaranteed 10 percent monthly return — or 120 percent annual return.
The SEC further alleges that Dalton, who had no other employment or legitimate source of income, funded his personal life at the expense of investors. Dalton spent or withdrew in excess of $250,000 from UCR accounts that held investor money and used those funds for personal expenses, including paying $5,000 for his daughter’s wedding reception and $38,000 to purchase a vehicle. Dalton also transferred more than $900,000 from another UCR account in order to purchase a home. The home was purchased solely in the name of his wife, Marie Dalton, in an attempt to protect it from creditors. The asset freeze obtained by the SEC extends to the assets of Dalton’s wife, who is named as a relief defendant.
The SEC’s complaint alleges that Dalton and UCR violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint names Marie Dalton as a relief defendant in the case in order to recover investor assets now in her possession.
Kerry Matticks, John Mulhern and Jay Scoggins of the SEC’s Denver Regional Office conducted the investigation.
The Honorable Robert E. Blackburn in the U.S. District Court in Denver granted the SEC's request late yesterday for an asset freeze against Richard Dalton, Marie Dalton and UCR and a temporary restraining order and other remedies against Richard Dalton and UCR. In addition to the emergency relief for investors, the SEC seeks permanent injunctions, disgorgement plus pre-judgment interest, and financial penalties against all of the defendants.
The SEC’s investigation is ongoing.
# # #
For more information about this enforcement action, contact:
Donald M. Hoerl
Regional Director, SEC’s Denver Regional Office
303-844-1060
Julie K. Lutz
Associate Regional Director, SEC’s Denver Regional Office
303-844-1056
http://www.sec.gov/news/press/2010/2010-231.htm
Former Comverse CEO Agrees to $53 Million Settlement of Options Backdating Charges
FOR IMMEDIATE RELEASE
2010-232
Washington, D.C., Nov. 23, 2010 — The Securities and Exchange Commission today announced that Comverse Technology, Inc. co-founder Jacob "Kobi" Alexander has agreed to a $53.6 million settlement of SEC charges against him in Comverse’s long-running options backdating scheme. He also will be barred permanently from serving as an officer or director of a public company.
Additional Materials
* Litigation Release No. 21753
Alexander, who was Comverse’s former Chairman and CEO, agreed to a settlement of more than $47.6 million in disgorgement and prejudgment interest — which the SEC alleges constituted Alexander’s ill-gotten gains. He also will pay a $6 million penalty. The proposed settlement marks one of the largest disgorgement and penalty amounts imposed against an individual in a stock options backdating case.
“This successfully concludes one of our earliest stock option backdating cases and one of the most egregious attempts to cover up and avoid responsibility for options backdating fraud,” said Antonia Chion, Associate Director of the SEC’s Division of Enforcement. “Executives who mislead investors about their personal compensation and the company’s compensation expenses will be held accountable for their misconduct.”
The SEC charged Alexander and two other former Comverse executives in 2006 with engaging in a fraudulent scheme to grant undisclosed in-the-money options to themselves and to others by backdating stock option grants to coincide with historically-low closing prices of Comverse common stock. The SEC alleged that Alexander also created a slush fund of backdated options by causing options to be granted to fictitious employees, and later used these options, some of which were made immediately exercisable, to recruit and retain key personnel. The SEC’s complaint alleged that Alexander made material misrepresentations to Comverse investors regarding Comverse’s stock option grants and concealed from investors that Comverse had not recorded compensation expenses for the grants. The SEC also alleged that Comverse materially overstated its net income and earnings per share for more than a decade as a result of the options backdating scheme. According to the SEC’s complaint, the scheme commenced in 1991 and affected Comverse’s reported financials through 2005.
The other two Comverse executives charged by the SEC settled their cases in late 2006 and early 2007. Shortly before the SEC filed its complaint in court, Alexander reportedly fled to Namibia, where he currently resides and is fighting extradition to the United States to face criminal charges.
Without admitting or denying the SEC’s allegations, Alexander has consented to the entry of a final judgment permanently enjoining him from violating and/or aiding and abetting violations of the antifraud, reporting, record-keeping, internal controls, false statements to auditors, and securities ownership-reporting provisions of the federal securities laws, permanently barring him from serving as an officer or director of a public company, and ordering him to pay disgorgement, prejudgment interest, and a civil penalty. The proposed final judgment is subject to the approval of the Honorable Nicholas G. Garaufis, U.S. District Judge for the Eastern District of New York. Separately, the U.S. Attorney’s Office for the Eastern District of New York today filed a stipulation of settlement of their civil forfeiture action against certain of Alexander’s assets. Alexander’s disgorgement and prejudgment interest obligations in the SEC’s action will be deemed satisfied by the entry of a forfeiture order in the U.S. Attorney’s action. The SEC acknowledges the assistance of the U.S. Attorney’s Office throughout the SEC’s investigation and litigation.
The SEC’s investigation was conducted by Noel Gittens, Pamela Kesner, Kevin Guerrero, Dwayne Brown, and trial counsel Suzanne Romajas, who also led the litigation.
# # #
For more information about this enforcement action, contact:
Antonia Chion
Associate Director, SEC Division of Enforcement
(202) 551-4842
http://www.sec.gov/news/press/2010/2010-232.htm
FBI raids 3 hedge funds in insider trading case
By Matthew Goldstein and Jonathan Stempel Matthew Goldstein And Jonathan Stempel 1 hr 47 mins ago
NEW YORK (Reuters) – The FBI raided three hedge funds as part of a widening probe into suspected insider trading in the $1.7 trillion hedge fund industry.
Monday's raids come as federal prosecutors prepare to unveil a series of new insider trading cases as soon as this year against hedge fund traders, consultants and Wall Street bankers.
Two of the raided funds are Diamondback Capital Management LLC and Level Global Investors LP, each based in Connecticut and run by former managers of Steven Cohen's SAC Capital Advisors, one of the best-known U.S. hedge funds.
A Boston-based firm, Loch Capital Management, was also raided, a person familiar with the matter said. Loch has close ties with a witness who pleaded guilty in an insider trading probe centered on hedge fund Galleon Group.
"The Justice Department promised a more muscular approach to white-collar crime, and is delivering," said Eugene O'Donnell, a professor at the City University of New York's John Jay College of Criminal Justice.
Spokesmen for the Federal Bureau of Investigation in New York and Boston said on Monday that the agency had executed search warrants in connection with an ongoing investigation.
At about 10 a.m., FBI agents, including one in a sweatshirt, entered Diamondback offices and shouted into the trading room. They ordered about 60 employees to halt work immediately and herded them into a conference room for about one hour, according to one employee at the firm.
Meanwhile, a witness saw agents carry five cardboard boxes from the building housing Loch offices and deposit them in an unmarked silver Dodge minivan. The driver referred questions to the FBI office in Boston, which declined to comment.
HOLLYWOOD DRAMA
Prosecutors have called the Galleon case, centered on fund founder Raj Rajaratnam, the largest U.S. hedge fund insider trading case ever. Twenty-three people have faced criminal or civil charges in that case, which was revealed 13 months ago.
Among the 14 people to plead guilty is Steven Fortuna, a former managing director at Boston hedge fund S2 Capital LLC and a friend of Loch's co-founders, brothers Timothy and Todd McSweeney.
Officials such as U.S. Attorney Preet Bharara in Manhattan are examining the use of "expert network" firms that command big fees from hedge funds to match them with industry specialists.
They are also examining whether investment bankers and others tipped off traders to news about buyouts of pharmaceutical companies.
Started in 2005, Diamondback oversees roughly $5 billion of assets and is based in Stamford, Connecticut.
Level Global, based in Greenwich, Connecticut, has about $4 billion of assets and was created by SAC alumnus David Ganek.
Loch once invested more than $2 billion, but this year shed many of its U.S.-listed holdings, regulatory filings show.
Andrew Merrill, a Level Global spokesman, said FBI agents "visited our offices this morning as part of what we believe to be a broader investigation of the financial services industry." He said the firm is cooperating and "fully operational."
Diamondback also confirmed an FBI inquiry and said it is cooperating and "fully operational."
Loch did not immediately return requests for comment.
At the Diamondback offices, the FBI agents were interested in information stored on computer servers, the employee at the firm who described the raid said. The person asked not to be named because of a lack of authority to speak for the firm.
"They could have just as easily come in before hours and gotten what they wanted," the employee said. "Why did this have to be in a dramatic, Hollywood manner?"
Some lawyers familiar with the broader trading probe said one focus appears to be on SAC traders and managers at hedge funds that traded in similar stocks. SAC declined to comment.
"The end game is deterrence," O'Donnell said. "The number of prosecutions will always be small, but deterrence can have a multiplier effect that stops untold numbers of other people."
EXPLOSION OF TWEETS
Goldman Sachs Group Inc shares fell 3.4 percent after the Wall Street Journal said the Justice Department is examining possible leaks by bank employees about mergers.
A Goldman spokesman declined to comment. The newspaper had reported the raids on the hedge funds earlier Monday.
Speaking last month to the New York City Bar Association, Bharara called insider trading a "rampant" problem that prosecutors need more tools to fight.
He said the increased speed and volume of trading makes it harder to pinpoint specific illegal trades and that a "veritable explosion of newsletters, websites, blogs, tweets, and feeds" can make it easier for the accused to argue that they traded based on information obtained legally.
"Many people have been harmed in the financial crisis, but every harm isn't a crime," said Samuel Buell, a Duke University law professor. "Insider trading often involves surreptitious behavior, the type of evidence that makes it easy to point to someone and say: 'He knew he was committing a crime.'"
In Galleon, U.S. District Judge Richard Holwell is expected to rule soon whether thousands of wiretapped conversations involving Rajaratnam and alleged cohorts can be admitted at trial, now slated to begin in January.
Co-defendant Danielle Chiesi, a former trader at the New Castle Funds LLC hedge fund, asked the judge on Monday to suppress statements made to FBI agents when she was arrested. The judge did not immediately rule on that request.
(Reporting by Daniel Bases, Emily Chasan, Elinor Comlay, Matthew Goldstein, Grant McCool and Jonathan Stempel in New York; Svea Herbst-Bayliss, Ross Kerber, Scott Malone and Aaron Pressman in Boston; Rachelle Younglai in Washington, D.C.; and Joe Rauch in Charlotte, North Carolina; editing by Dave Zimmerman and Andre Grenon)
SEC Charges New York Firms and Chief Compliance Officer for Inadequate Procedures to Protect Nonpublic Information
One of the Firms Also Charged With Altering Compliance Records During SEC Examination
FOR IMMEDIATE RELEASE
2010-223
Washington, D.C., Nov. 17, 2010 — The Securities and Exchange Commission today charged two affiliated New York-based firms and their former chief compliance officer with failing to have adequate policies and procedures to prevent misuse of nonpublic information.
Additional Materials
* SEC Order Against BCM, BRG, and Karp
One of the firms - investment adviser Buckingham Capital Management Inc. (BCM) - also is charged with supplementing and altering its records prior to turning them over to SEC examination staff, which prevented the exam staff from discovering BCM's failure to follow its compliance procedures.
In administrative proceedings against BCM and its broker-dealer parent company, The Buckingham Research Group Inc. (BRG), the SEC found that the firms failed to establish, maintain, and enforce written policies and procedures reasonably designed to prevent misuse of material, nonpublic information, including forthcoming BRG research reports. The former chief compliance officer for both firms, Lloyd Karp, was charged with aiding and abetting and causing the failures.
The firms and Karp agreed to settle the SEC's cases against them.
"BRG and BCM's policies did not adequately address the risk that research reports and other nonpublic information could be misused," said Antonia Chion, Associate Director of the SEC's Division of Enforcement. "This case also makes clear that when a firm is notified of an SEC exam, it must produce all the records the SEC staff requests as they exist, without changes or additions."
BRG provides equity research to hedge funds, broker-dealers, and other institutional customers and is known for its research in the retail, apparel, and footwear industry, which is the primary focus of BCM's investments. The firms share common office space and management, and BCM's trading accounts for approximately 25 percent of BRG's commission revenue.
In its order instituting administrative proceedings, the SEC found that when BCM began preparing for an SEC examination in 2006, the firm discovered that it was missing pre-approval forms for more than 100 employee trades. Instead of producing the incomplete employee trading records to the SEC exam staff, BCM created new forms to replace the missing ones. BCM then produced the existing records along with the newly-created forms to the SEC examination staff without telling the staff what it had done. BCM also replaced incomplete compliance logs with newly-created completed logs and turned the completed logs over to SEC staff without disclosing what had been done. These compliance documents were particularly important because they were intended to address deficiencies identified in an earlier SEC exam of the firm.
The Commission found that whenever there was a material research event, BRG's written policy required research analysts to complete a certification form attesting that they had maintained confidentiality of the material research information. However, in practice, BRG required an analyst to complete a certification form only where a BCM portfolio had traded in the same direction as the research. Moreover, in some instances, analyst certifications were lacking, incomplete, or dated long after the research event had occurred.
The Commission also found that, until May 2009, BCM's written policy required that people with access to material, nonpublic information report "all business, financial or personal relationships that may result in access to material, non-public information." However, BCM required employees to report only relationships that actually did result in access to material, nonpublic information. BCM also failed to conduct the required annual review of its policies and procedures for 2005.
Without admitting or denying the SEC's findings, BRG agreed to pay a $50,000 penalty, BCM agreed to pay a $75,000 penalty, and Karp agreed to pay a $35,000 penalty. They also consented to an order that censures all of the respondents; requires BRG to cease and desist from committing or causing any violations or future violations of Section 15(f) of the Securities Exchange Act of 1934; requires BCM to cease and desist from committing or causing any violations and any future violations of Sections 204(a), 204A and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder; and requires Karp to cease and desist from causing any violations and any future violations of Section 15(f) of the Exchange Act and Sections 204A and 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. The order also requires that both firms engage an independent consultant to review and make recommendations regarding their compliance policies and procedures.
Kara Brockmeyer, Shelley Grant, William Max Hathaway and Thomas Swiers in the SEC's Enforcement Division in Washington conducted the investigation.
# # #
For more information about this enforcement action, contact:
Antonia Chion
Associate Director, SEC Division of Enforcement
(202) 551-4842
Kara N. Brockmeyer
Assistant Director, SEC Division of Enforcement
(202) 551-4767
http://www.sec.gov/news/press/2010/2010-223.htm
SEC Charges Steven Rattner in Pay-to-Play Scheme Involving New York State Pension Fund
FOR IMMEDIATE RELEASE
2010-224
Washington, D.C., Nov. 18, 2010 — The Securities and Exchange Commission today charged former Quadrangle Group principal Steven Rattner with participating in a widespread kickback scheme to obtain investments from New York’s largest pension fund.
Additional Materials
* Litigation Release No. 21748
* SEC Complaint
The SEC alleges that Rattner secured investments for Quadrangle from the New York State Common Retirement Fund after he arranged for a firm affiliate to distribute the DVD of a low-budget film produced by the Retirement Fund’s chief investment officer and his brothers. Rattner then caused Quadrangle to retain Henry Morris – the top political advisor and chief fundraiser for former New York State Comptroller Alan Hevesi – as a “placement agent” and pay him more than $1 million in sham fees even though Rattner was already dealing directly with then-New York State Deputy Comptroller David Loglisci and did not need an introduction to the Retirement Fund.
The SEC alleges that after receiving pressure from Morris, Rattner also arranged a $50,000 contribution to Hevesi’s re-election campaign. Just a month later, Loglisci increased the Retirement Fund’s investment with Quadrangle from $100 million to $150 million. As a result of the $150 million investment with Quadrangle, the Retirement Fund paid management fees to a Quadrangle subsidiary. By virtue of his partnership interest in Quadrangle and its affiliates, Rattner’s personal share of these fees totals approximately $3 million.
Rattner agreed to settle the SEC’s charges by paying $6.2 million and consenting to a bar from associating with any investment adviser or broker-dealer for at least two years.
“New York State retirees deserve investment advisers that are selected through a transparent, conflict-free process, not through payoffs, undisclosed financial arrangements and movie distribution deals,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.
David Rosenfeld, Associate Director of the SEC’s New York Regional Office, added, “Rattner delivered special favors and conducted sham transactions that corrupted the Retirement Fund’s investment process. The assets of New York State workers were invested for the hidden purpose of enriching Morris and Loglisci’s brother.”
The SEC previously charged Morris and Loglisci for orchestrating the fraudulent scheme that extracted kickbacks from investment management firms seeking to manage the assets of the Retirement Fund. The SEC charged Quadrangle earlier this year.
According to the SEC’s complaint against Rattner filed in U.S. District Court for the Southern District of New York, Morris informed Rattner in the fall of 2003 that Loglisci’s brother was involved in producing a film called “Chooch.” Morris suggested that Rattner help Loglisci’s brother with the theatrical distribution of the film. Rattner met with Loglisci’s brother and agreed to assist him, but Rattner’s efforts did not lead to a distribution deal. Approximately one year later, Loglisci’s brother contacted Rattner about DVD distribution of “Chooch.” Within days of speaking to Loglisci’s brother, Rattner contacted Loglisci about investing in a new Quadrangle private equity fund being marketed by the firm. Rattner told Loglisci that he had arranged a meeting between Loglisci’s brother and a Quadrangle affiliate — GT Brands — to discuss a possible DVD distribution deal.
The SEC alleges that after Loglisci’s brother met with GT Brands and telephoned Rattner to complain about the treatment he had received from GT Brands, Rattner warned a GT Brands executive to treat Loglisci’s brother “carefully” because Quadrangle was trying to obtain an investment through Loglisci. After GT Brands made clear to Rattner that it was not interested in distributing the film, Rattner instructed the GT Brands executive to “dance along” with Loglisci’s brother. According to an e-mail, Rattner telephoned Morris to inquire whether “GT needs to distribute [the Chooch] video” in order to secure an investment from the Retirement Fund. Morris offered to “nose around” to determine how important the DVD distribution deal was to Loglisci. GT Brands ultimately reversed course and offered to manufacture and distribute the DVD at a discount from its standard fee. Rattner approved the proposed terms of the distribution deal.
The SEC’s complaint alleges that in late October 2004, after Rattner and others from Quadrangle had already met with Loglisci and the Retirement Fund’s private equity consultant and received encouraging feedback from both of them, Morris met with Rattner and offered his placement agent services to Quadrangle. Morris warned Rattner that Quadrangle’s negotiations with the Retirement Fund could always fall apart. Although Quadrangle was already working with a placement agent, Quadrangle agreed to pay Morris as well.
According to the SEC’s complaint, soon after Quadrangle retained Morris as a placement agent and Rattner had advised Morris that GT Brands was moving forward with the deal to distribute the Chooch DVD, Loglisci personally informed Rattner that the Retirement Fund would be making a $100 million investment in the Quadrangle fund.
The SEC alleges that Morris later contacted Rattner and pressed him for a financial contribution to Hevesi’s re-election campaign. Although Rattner purportedly had a personal policy that he would not make political contributions to politicians who have influence over public pension funds, Rattner agreed to find someone else to make the contribution. After speaking with Morris, Rattner asked a friend and the friend’s wife to each contribute $25,000 to Hevesi’s campaign. The day after these contributions were communicated to Hevesi’s campaign staff, Hevesi telephoned Rattner and left him a message thanking him for the contribution. In late May 2006, Rattner’s friend transmitted the promised campaign contributions to Rattner, who forwarded the two checks to Hevesi’s campaign. Approximately one month later, Loglisci committed the Retirement Fund to an additional $50 million investment in the Quadrangle fund.
In settling the SEC’s charges without admitting or denying the allegations, Rattner consented to the entry of a judgment that permanently enjoins him from violating Section 17(a)(2) of the Securities Act of 1933 and orders him to pay approximately $3.2 million in disgorgement and a $3 million penalty. The settlement is subject to court approval. Rattner also consented to the entry of a Commission order that will bar him from associating with any investment adviser or broker-dealer with the right to reapply after two years.
The SEC’s investigation was conducted by Joseph Sansone and Maureen Lewis of the New York Regional Office. The investigation is continuing.
# # #
For more information about this enforcement action, contact:
David Rosenfeld
Associate Director, SEC’s New York Regional Office
(212) 336-0153
George N. Stepaniuk
Assistant Director, SEC’s New York Regional Office
(212) 336-0173
Maureen F. Lewis
Assistant Director, SEC’s New York Regional Office
(212) 336-0125
http://www.sec.gov/news/press/2010/2010-224.htm
SEC Charges Two Longtime Madoff Employees with Fraud
FOR IMMEDIATE RELEASE
2010-225
Washington, D.C., Nov. 18, 2010 — The Securities and Exchange Commission today charged a pair of longtime employees at Bernard L. Madoff Investment Securities LLC (BMIS) with playing key roles in the Madoff Ponzi scheme. One employee produced phony account statements for investors and feathered her own accounts for personal gain, while the other conspired to cash out Madoff's friends and family as the fraud collapsed in addition to creating phony account statements and tracking the Ponzi scheme bank account.
Additional Materials
* Litigation Release No. 21750
* SEC Complaint (Joann Crupi)
* SEC Complaint (Annette Bongiorno)
The SEC alleges that Annette Bongiorno, who began working for BMIS in an administrative capacity in 1968, regularly created false books and records and helped mislead investors in telephone conversations and through account statements and trade confirmations that reported securities transactions that never happened and positions that never existed. Bongiorno also created false trades in her own BMIS accounts that enabled her to cash out millions of dollars more than she deposited.
The SEC further alleges that JoAnn Crupi, who was responsible for supervising the primary bank account used in BMIS's investment advisory operations, helped facilitate the fraud and mislead investors, auditors, and regulators into believing that BMIS was a legitimate enterprise. When the fraud was on the verge of collapse, Crupi helped decide which accounts should be cashed out and prepared checks for those selected investors, many of them who were friends or family of Madoff.
"Bongiorno and Crupi helped create an elaborate edifice of fake accounts, fake trades, and fake profits," said George S. Canellos, Director of the SEC's New York Regional Office. "Without their active and ongoing assistance, Madoff's world of lies would have been unsustainable."
According to the SEC's complaint against Bongiorno filed in U.S. District Court for the Southern District of New York, Bongiorno created trades that were chosen with the benefit of hindsight to generate large "gains" in BMIS accounts. The trades and positions reported in investor accounts, however, were fictional. Bongiorno also fabricated trades in her own BMIS accounts, depositing approximately $920,000 into these accounts but withdrawing approximately $14.5 million. The high balances and withdrawals were made possible only through the sham, backdated, highly profitable "trades" that Bongiorno fabricated.
According to the SEC's complaint against Crupi, also filed in U.S. District Court for the Southern District of New York, she was hired in 1983 as a keypunch operator in BMIS's investment advisory operations and reported to Bongiorno. She eventually supervised some lower-level BMIS employees and worked closely with Frank DiPascali, another high-level BMIS lieutenant charged by the SEC last year. Crupi had exclusive control over two important aspects of the BMIS fraud: she handled the primary bank account used in the Ponzi scheme, and she created false trading portfolios and account statements related to a purported hedging strategy using baskets of stock for a group of limited partnership funds managed by a longtime BMIS investor.
The SEC alleges that Crupi knew the true financial condition of Madoff's Ponzi scheme and its dwindling assets. On Dec. 3, 2008, DiPascali told Crupi that the scheme was on the verge of collapse, and they met shortly thereafter to discuss the implications of the collapse in more detail. Crupi continued to process client deposits during this time period, depositing approximately $59 million of client checks into the Ponzi scheme bank account from December 4 to December 12. In the final days of the fraud, when the money available to meet investor redemptions had dwindled to a few hundred million dollars, DiPascali convinced Madoff to use the remaining funds to liquidate the accounts of family and friends of the firm, including employees, and not to honor redemption requests by the larger institutional investors. Crupi helped DiPascali review BMIS investor lists and identify which accounts should be cashed out. Madoff approved these actions and Crupi prepared checks for the selected investors totaling more than $350 million. Madoff was arrested and the checks were seized before they could be distributed.
The SEC's complaints against Bongiorno and Crupi specifically allege that by their actions, they violated Section 17(a) of the Securities Act; violated and aided and abetted violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and aided and abetted violations of Sections 204, 206(1) and 206(2) of the Advisers Act and Rule 204-2 thereunder and Sections 15(c) and 17(a) of the Exchange Act and Rules 10b-3 and 17a-3 thereunder. Among other things, the SEC's complaints seek permanent injunctions, financial penalties and court orders requiring Bongiorno and Crupi to disgorge their ill-gotten gains.
The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation, with which the Commission has coordinated its investigation. The SEC's investigation is continuing.
# # #
For more information about this enforcement action, contact:
Andrew M. Calamari
Associate Director, SEC's New York Regional Office - 212-336-0042
Alexander M. Vasilescu
Regional Trial Counsel, SEC's New York Regional Office - 212-336-0178
http://www.sec.gov/news/press/2010/2010-225.htm
SEC Brings Additional Charges in Its Ongoing Investigations Into Two Previously Identified Insider Trading Rings
Hedge Fund Advisory Firm and Two Wall Street Professionals Are Latest Charged
FOR IMMEDIATE RELEASE
2010-220
Washington, D.C., Nov. 12, 2010 — The Securities and Exchange Commission today charged additional defendants in its ongoing investigations related to two enforcement actions, SEC v. Galleon Management, LP, et al., 09-CV-8811 (S.D.N.Y.) (JSR) and SEC v. Cutillo, et al., 09-CV-9208 (S.D.N.Y.) (RJS). The insider trading rings identified in these enforcement actions include several prominent hedge funds, high-profile hedge fund managers, Wall Street professionals such as attorneys, professional traders, and senior corporate executives.
In a complaint related to SEC v. Galleon, the SEC today charged Thomas Hardin, a former managing director at a New York-based hedge fund investment adviser, Lanexa Management LLC, for insider trading in connection with two corporate takeovers and a quarterly earnings announcement. The illicit profits at Lanexa resulting from Hardin's conduct alleged in this filing exceed $950,000.
In separate complaints related to SEC v. Cutillo, et al., the SEC charged Mr. Hardin as well as two other defendants, Lanexa Management LLC, and former Schottenfeld Group LLC trader Franz Tudor, for insider trading in connection with corporate acquisitions. The illicit profits alleged in these filings total approximately $715,000.
"Today's additional charges demonstrate the SEC's ongoing crackdown on insider trading on Wall Street," said Robert Khuzami, Director of the SEC's Division of Enforcement. "When greed leads hedge funds and other market professionals to illegally trade on inside information, the SEC will take aggressive action."
Today's Filing Related to SEC v. Galleon Management, LP, et al.
In SEC v. Galleon, the SEC has, as of today, charged twenty-two defendants and alleged widespread and repeated insider trading at numerous hedge funds, including Galleon, a multi-billion dollar New York hedge fund complex founded and controlled by defendant Raj Rajaratnam, and by other professional traders in the securities of fourteen issuers generating illicit profits totaling approximately $53 million. See Lit. Rel. Nos. 21255, 21284 and 21397.
The SEC's most recent complaint related to this action, filed earlier today in federal court in Manhattan, charges Hardin with trading in the securities of Hilton, Google and Kronos based on material nonpublic information that Hardin allegedly received from Roomy Khan, an individual investor who had, herself, received such information from various sources.
The SEC's complaint alleges that Khan tipped Hardin to inside information she received from a Moody's rating agency analyst, about an impending takeover of Hilton by The Blackstone Group. According to the allegations, Hardin traded on the information on behalf of Lanexa and also passed the information to others, who similarly traded on the information. Khan also shared with Hardin inside information she received from an employee at Market Street Partners, an investor relations consulting firm that did work for Google, about Google's Q2 2007 earnings. Hardin traded on the information on behalf of Lanexa and also tipped others. Finally, Khan tipped Hardin to inside information she received about the impending acquisition of Kronos by Hellman & Friedman. Hardin traded on the information on behalf of Lanexa and also tipped others, who traded on the information.
The SEC's complaint charges Hardin with violations of the antifraud provisions of the federal securities laws, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The complaint seeks a final judgment permanently enjoining Hardin from future violations of the antifraud provisions, ordering him to disgorge ill-gotten gains plus prejudgment interest, and ordering him to pay financial penalties.
Today's Filing Related to SEC v. Cutillo, et al.
In connection with SEC v. Cutillo, the SEC has, to date, charged thirteen defendants and alleged widespread insider trading based on material, nonpublic information misappropriated by two former lawyers at the international law firm of Ropes & Gray LLP. See Lit. Rel. Nos. 21283 and 21332.
In its latest enforcement action in this matter, the SEC alleges that a Lanexa-managed hedge fund and Hardin reaped approximately $640,000 in illegal profits by insider trading based on confidential information about an impending acquisition involving 3Com Corp. The SEC also alleges that Tudor made approximately $75,000 in illicit profits by trading on material, nonpublic information concerning the proposed acquisition of Axcan Pharma Inc.
According to the SEC's complaint against Lanexa Management and Hardin, filed in federal court in Manhattan, the inside information about the 3Com acquisition that was obtained by Hardin was derived from Santarlas and Cutillo, who were privy to the confidential details through their work at the international law firm of Ropes & Gray LLP. Cutillo and Santarlas allegedly tipped this inside information through another attorney to Zvi Goffer, a former proprietary trader at Schottenfeld, in exchange for kickbacks. Goffer then tipped the inside information to fellow Schottenfeld trader Gautham Shankar, who then tipped Hardin. Goffer, Shankar and Schottenfeld were among those previously charged for their roles in the insider trading rings.
According to the SEC's complaint against Tudor, also filed in federal court in Manhattan, Goffer also tipped material, nonpublic information about the proposed acquisition of Axcan to Tudor. Based on the inside information, Tudor purchased shares of Axcan in two separate personal trading accounts as well as in a proprietary account at Schottenfeld.
The SEC's complaints charge Lanexa Management, Hardin, and Tudor with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaints seek permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of financial penalties.
The SEC's investigations related to both enforcement actions are continuing.
# # #
For more information about SEC v. Galleon, contact:
George Canellos
Director, SEC's New York Regional Office
(212)336-1020
David Rosenfeld
Associate Director, SEC's New York Regional Office
(212) 336-0153
Sanjay Wadhwa
Deputy Chief, Market Abuse Unit, Division of Enforcement
(212) 336-0181
For more information about SEC v. Cutillo, contact:
Scott Friestad
Associate Director, Division of Enforcement
(202) 551-4962
Robert B. Kaplan
Co-Chief, Asset Management Unit, Division of Enforcement
(202) 551-4969
Brian O. Quinn
Assistant Director, Division of Enforcement
(202) 551-4982
# # #
http://www.sec.gov/news/press/2010/2010-220.htm
SEC Charges Massachusetts-Based Forex Traders and Their Firm With Fraud
FOR IMMEDIATE RELEASE
2010-205
Washington, D.C., Oct. 28, 2010 — The Securities and Exchange Commission today charged two foreign currency traders and their Boston-based company with operating a fraudulent scheme in which they sent investors misleading account statements while stealing their funds and incurring major trading losses.
Additional Materials
* Litigation Release No. 21712
* SEC Complaint
The SEC alleges that Craig Karlis of Hopkinton, Mass., and Ahmet Devrim Akyil formerly of Hingham, Mass., fraudulently raised approximately $40 million from approximately 750 investors in a purported foreign currency (Forex) trading venture through their firm Boston Trading and Research LLC (BTR). Investors were falsely promised that BTR had a system in place to limit trading losses. BTR also falsely claimed to investors that "we do not profit unless you do" while in reality Karlis and Akyil were illegally diverting investor money for their own personal use as well as to fund BTR's operations and pay expenses for other companies with which they were associated.
"The bait was the promise by Akyil and Karlis to limit investor risk, and the switch was the theft and unauthorized trading that cost investors 90 percent of the invested funds," said Robert Khuzami, Director of the SEC's Division of Enforcement. "If you don't deliver what you promise and violate the securities laws, we will hold you accountable."
David Bergers, Director of the SEC's Boston Regional Office, added, "Akyil and Karlis secretly enriched themselves while many of the defrauded investors lost their retirement savings and financial security."
According to the SEC's complaint filed in federal court in Boston, for a minimum investment of $10,000, investors could deposit money with the BTR program. BTR used a website, sales representatives and live presentations by Karlis and Akyil to solicit funds from investors around the world. Investors provided Akyil with a limited power of attorney that granted him the right to direct the trading of their funds in the Forex market.
The SEC alleges that BTR's misrepresentations to investors included the following:
* Investors would have 100 percent transparency about what was going on in their accounts through daily and monthly account statements and 24-hour access to real-time information about the trading Akyil was doing on their behalf.
* Investors, through draw-down agreements, could lose no more than an agreed-upon percentage (typically 30 percent) of their investment.
* The BTR trading system included an automatic stop-loss program that would curtail losses once they reached a certain percentage.
* BTR and its principals would be paid from profits only.
The SEC alleges that BTR, through Akyil and with Karlis's knowledge, traded funds differently from what was disclosed in daily account statements to investors. The balance and equity positions that BTR provided investors on their account statements did not show that their funds had been diminished through BTR's use of investor money for undisclosed purposes. Meanwhile, Akyil and Karlis depleted the investment pool through misappropriation and trading losses far past the stop loss limits promised to investors. BTR collapsed in September 2008 and ultimately distributed the remaining funds to investors, which amounted to approximately 10 percent of their account balances.
The SEC's complaint charges Akyil, Karlis, and BTR with violating the antifraud and registration provisions of the federal securities laws, and seeks civil injunctions, the return of ill-gotten gains, and financial penalties.
Separately, the U.S. Attorney's Office for the District of Massachusetts today unsealed an indictment charging Akyil and Karlis with criminal violations based on the same misconduct. The SEC also acknowledges the assistance of the Commodity Futures Trading Commission.
Eric A. Forni, Kevin B. Currid, and Patrick J. Noone of the SEC's Boston Regional Office conducted the SEC's investigation. The SEC's litigation will be led by Rachel Hershfang and Michael Foster. The SEC's investigation is continuing.
# # #
For more information about this enforcement action, contact:
David P. Bergers
Regional Director, SEC's Boston Regional Office
(617) 573-8927
John T. Dugan
Associate Regional Director, SEC's Boston Regional Office
(617) 573-8936
http://www.sec.gov/news/press/2010/2010-205.htm
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Modified: 10/28/2010
SEC Staff Publishes Progress Report on Work Plan for Global Accounting Standards
FOR IMMEDIATE RELEASE
2010-207
Washington, D.C., Oct. 29, 2010 — The Securities and Exchange Commission's Office of the Chief Accountant and Division of Corporation Finance today published their first progress report on the Work Plan related to global accounting standards.
The Commission directed agency staff earlier this year to execute the Work Plan to provide the information needed to evaluate the implications of incorporating International Financial Reporting Standards (IFRS) into the financial reporting system for U.S. issuers. The Commission indicated that following successful completion of the Work Plan and the convergence projects of the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), it will be in a position in 2011 to determine whether to incorporate IFRS into the U.S. financial reporting system.
"The staff has invested significant time and effort in executing the Work Plan, and we've made great progress to date," said SEC Chief Accountant Jim Kroeker. "This progress report emphasizes the importance of transparency in the staff's activities, and can help the public's understanding of the magnitude of this project and the staff's progress."
The Work Plan addresses six key areas:
* Sufficient development and application of IFRS for the U.S. domestic reporting system.
* The independence of standard setting for the benefit of investors.
* Investor understanding and education regarding IFRS.
* Examination of the U.S. regulatory environment that would be affected by a change in accounting standards.
* The impact on issuers both large and small, including changes to accounting systems, changes to contractual arrangements, corporate governance considerations, and litigation contingencies.
* Human capital readiness.
The SEC staff expects to continue to report periodically on the status of the Work Plan in 2011.
# # #
http://www.sec.gov/news/press/2010/2010-207.htm
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Modified: 10/29/2010
SEC Halts Offering Fraud by Chicago-Based Firms
FOR IMMEDIATE RELEASE
2010-208
Washington, D.C., Oct. 29, 2010 — The Securities and Exchange Commission today obtained an emergency court order freezing the assets of two Chicago-based financial firms that were conducting a fraudulent offering of promissory notes.
Additional Materials
* SEC Complaint
* Litigation Release No. 21715
The SEC alleges that the firms' owners Steven Brewer and Adam Erickson raised approximately $5.6 million from investors, providing offering materials that misstated or concealed how their funds would actually be used. Brewer and Erickson also misrepresented the risk level of the investment and the financial condition of their companies while, unbeknownst to investors, they funneled nearly all of the offering proceeds to subsidize their parent company Brewer Investment Group (BIG) and one of its subsidiaries during a time when they were under significant financial distress.
"Brewer and Erickson raised substantial funds to capitalize their own struggling business operations while leading unsuspecting investors to believe their investments would be secured by collateral," said Donald Hoerl, Director of the SEC's Denver Regional Office. "They went so far as to continue selling promissory notes to new investors even after they discontinued making interest payments to earlier investors."
According to the SEC's complaint filed in federal court in Chicago, Brewer and Erickson conducted the fraudulent offering through their broker-dealer Brewer Financial Services LLC (BFS) and investment adviser firm Brewer Investment Advisors LLC (BIA), and it consisted of promissory notes issued by a company based in Isle of Man. Brewer and Erickson drafted, reviewed or approved the offering documents for the notes, which implicitly and explicitly represented that the proceeds of the offering would be used to procure collateral in order to secure the promissory notes being issued to investors. Instead, more than 90 percent of the proceeds were disbursed to BIG and spent at Brewer's direction, and the promised collateral was never obtained. The offering materials failed to disclose the extent to which the Brewer companies were losing money, the fact that BIG had failed to make required interest payments on earlier investors' promissory notes, and the fact that BIG had failed to meet its own payroll obligations.
The SEC's complaint alleges that all of the defendants violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint also alleges that BFS violated, and Brewer and Erickson aided and abetted the violation of, Section 15(c) of the Exchange Act. The complaint further alleges that BIA violated, and Brewer and Erickson aided and abetted the violation of, Sections 206(1) and 206(2) of the Investment Advisers Act.
Upon the consent of all defendants, the Honorable Blanche M. Manning in the U.S. District Court in Chicago granted the SEC's request for an asset freeze against BFS and BIG and preliminary injunctions and other remedies against Brewer, Erickson, BFS, BIA, and BIG. In addition to the emergency relief for investors, the SEC seeks permanent injunctions, disgorgement plus pre-judgment interest, and financial penalties against all of the defendants.
This case was investigated by the enforcement staff in the SEC's Denver Regional Office with the assistance of examination staff in the SEC's Denver and Chicago offices. The Commission appreciates the assistance of FINRA in this matter.
# # #
For more information about this enforcement action, contact:
Donald M. Hoerl
Regional Director, SEC's Denver Regional Office
(303) 844-1060
Julie K. Lutz
Associate Regional Director, SEC's Denver Regional Office
(303) 844-1056
http://www.sec.gov/news/press/2010/2010-208.htm
SEC Charges Medical Researcher With Tipping Inside Information About Clinical Trial
FOR IMMEDIATE RELEASE
2010-209
Washington, D.C., Nov. 2, 2010 — The Securities and Exchange Commission today charged a French medical doctor and researcher with breaking securities laws by tipping a hedge fund manager with confidential information about a clinical trial that he was involved in.
Additional Materials
* SEC Complaint
* Litigation Release No. 21721
The SEC alleges that Yves M. Benhamou, M.D., breached his duty of confidentiality to Human Genome Science, Inc. (HGSI) when he illegally tipped non-public negative details about a clinical trial for the drug Albumin Interferon Alfa 2-a (Albuferon) ahead of a public announcement by the company.
"Whether it is news about upcoming mergers, operating results, or as in this case clinical drug trials, passing confidential information to others to give them an unfair trading advantage is illegal," said Robert Khuzami, Director of the SEC's Division of Enforcement. "People entrusted with confidential information, including doctors and researchers, cannot use their positions to help others game the system."
According to the SEC's complaint filed in U.S. District Court for the Southern District of New York, Benhamou was a member of the Steering Committee overseeing HGSI's clinical trial of Albuferon, a potential drug to treat Hepatitis C. Benhamou learned about two serious adverse events, including one death, occurring during the third phase of the trial. HGSI consequently decided to reduce the dosage for the patients in that arm of the trial and publicly announce the changes.
The SEC alleges that Benhamou tipped material, non-public information about the trial to the hedge fund portfolio manager upon learning of each new negative development. While serving on the Steering Committee, Benhamou provided consulting services to the portfolio manager with whom he had developed a friendship over the years. The portfolio manager, based on the confidential information provided by Benhamou, ordered the sale of the entire position of HGSI stock held by six health care-related hedge funds that he co-managed (approximately 6 million shares). These sales occurred during the six-week period prior to HGSI's public announcement on Jan. 23, 2008, that it was reducing the dosage in one arm of the trial. Two million shares were sold in a block trade just before the markets closed on January 22. HGSI's share price dropped 44 percent by the end of the day on January 23. As a result of the sales, the hedge funds avoided losses of at least $30 million.
Benhamou is charged with violating the antifraud provisions of the federal securities laws. The Commission is seeking a permanent injunction, disgorgement of any ill-gotten gains with prejudgment interest, and a financial penalty against Benhamou.
In a parallel criminal proceeding, the U.S. Attorney's Office for the Southern District of New York today announced a criminal action against Benhamou.
Matthew L. Skidmore and Deborah A. Tarasevich conducted the SEC's investigation, and Suzanne J. Romajas will lead the SEC's litigation. The Commission acknowledges the cooperation of the U.S. Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, and the French Autorité Des Marchés Financiers.
The SEC's investigation is ongoing.
# # #
For more information about this enforcement action, contact:
Cheryl J. Scarboro
Associate Director, SEC Division of Enforcement
(202) 551-4403
Deborah A. Tarasevich
Assistant Director, SEC Division of Enforcement
(202) 551-4726
http://www.sec.gov/news/press/2010/2010-209.htm
SEC Proposes New Rule to Prevent Fraud in Connection with Security-Based Swaps
Video: Open Meeting
Play video of SEC Chairman Schapiro discussing proposed rule to prohibit fraud
Chairman Schapiro Discusses Proposed Rule to Prohibit Fraud:
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FOR IMMEDIATE RELEASE
2010-212
Washington, D.C., Nov. 3, 2010 — The Securities and Exchange Commission today voted unanimously to propose a new rule to help prevent fraud, manipulation, and deception in connection with security-based swaps.
The rule is proposed under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which generally authorizes the SEC to regulate security-based swaps. The proposal would ensure that market conduct in connection with the offer, purchase or sale of any security-based swap is subject to the same general anti-fraud provisions that apply to all securities. And it also would explicitly reach misconduct in connection with ongoing payments and deliveries under a security-based swap.
Additional Materials
* SEC Rule Proposal
* Submit Comments
“The proposed rule would be an important means to ensure that the security-based swap market operates with integrity, and that the SEC has the ability to respond through enforcement to a range of potentially fraudulent conduct,” said SEC Chairman Mary L. Schapiro.
The SEC’s rule proposal recognizes that security-based swaps are unlike other securities because they are typically characterized by ongoing payments or deliveries between the parties throughout the life of the swap. Therefore, it’s possible that one party may engage in misconduct to trigger, avoid, or affect the value of such ongoing payments. Such fraud may occur separately from the sale, purchase, or offering.
The proposed antifraud rule would apply not only to offers, purchases and sales of security-based swaps, but also explicitly to the cash flows, payments, deliveries, and other ongoing obligations and rights that are specific to security-based swaps. The rule would make explicit the liability of persons that engage in misconduct to trigger, avoid, or affect the value of such ongoing payments or deliveries.
The SEC is seeking public comment on the proposed rule for a period of 45 days following its publication in the Federal Register.
# # #
FACT SHEET
Background
Jurisdiction Over Security-Based Swaps:
Title VII of the Dodd-Frank Act establishes a comprehensive framework for the regulation of the over the counter swaps markets. In particular, the Act divides regulatory authority over swaps between the CFTC and SEC.
The SEC has authority over “security-based swaps,” which are broadly defined as swaps based on a single security or loan or a narrow-based group or index of securities or events relating to a single issuer or issuers of securities in a narrow-based security index.
The CFTC has primary regulatory authority over all other swaps. The CFTC and SEC share authority over “mixed swaps,” which are security-based swaps that also have a commodity component.
Preventing Fraudulent Conduct Related to Swaps:
Under federal securities laws, the SEC has long had the authority to pursue fraud in connection with the sale, purchase and offering of securities, including security-based swaps.
But, security-based swaps, unlike many other securities, are characterized by ongoing payments and deliveries that often continue to occur after the purchase and before the subsequent sale — a time during which fraud could occur by one party or the other.
One party may seek to defraud another by avoiding the payment or by triggering a delivery that it would not otherwise be entitled to receive. Such fraud, therefore, may occur separately from the sale, purchase or offering
The Dodd-Frank Act directs the SEC to adopt rules reasonably designed to prevent fraud, manipulation, and deception in connection with transactions in and inducements and attempted inducements to purchase or sell security-based swaps.
The Rule
The proposed rule (Rule 9j-1) would prohibit fraud, manipulation, and deception in connection with the offer, purchase or sale of any security-based swap — in the same way that general anti-fraud provisions apply to all securities. The rule also would explicitly reach misconduct in connection with ongoing payments and deliveries under a security-based swap.
Specifically, the proposed rule would prohibit people from employing fraudulent or manipulative devices or schemes, making untrue statements or omitting material facts, or engaging in conduct that would operate as a fraud or deceit on another person in connection with security-based swaps.
What's Next?
The Commission will seek public comment for 45 days on the proposed rule, including the scope of the proposed rule and any associated costs and benefits. After careful review of comments, the Commission will consider whether to adopt the proposed rule or modify it.
http://www.sec.gov/news/press/2010/2010-212.htm
SEC Proposes New Whistleblower Program Under Dodd-Frank Act
Video: Open Meeting
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FOR IMMEDIATE RELEASE
2010-213
Washington, D.C., Nov. 3, 2010 — The Securities and Exchange Commission today voted unanimously to propose a whistleblower program to reward individuals who provide the agency with high-quality tips that lead to successful enforcement actions.
The SEC’s proposed rule under the Dodd-Frank Wall Street Reform and Consumer Protection Act maps out a simple, straightforward procedure for would-be whistleblowers to provide critical information to the agency. It conveys how would-be whistleblowers can qualify for an award through a transparent process that provides them a meaningful opportunity to assert their claim to an award.
Additional Materials
* SEC Rule Proposal
* Submit Comments
To be considered for an award, a whistleblower must voluntarily provide the SEC with original information about a violation of the federal securities laws that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million.
“We get thousands of tips every year, yet very few of these tips come from those closest to an ongoing fraud,” said SEC Chairman Mary L. Schapiro. “Whistleblowers can be a source of valuable firsthand information that may otherwise not come to light. These high-quality leads can be crucial to protecting investors and recovering ill-gotten gains from wrongdoers.”
The proposed rule reflects the consideration of a number of potentially competing interests, and balances the need to encourage whistleblowers to come forward without promoting unintended consequences.
The SEC is seeking public comment on the proposal through December 17.
# # #
FACT SHEET
Background
Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the SEC to pay rewards to individuals who provide the Commission with original information that leads to successful SEC enforcement actions and certain related actions. Dodd-Frank substantially expands the agency’s authority to compensate individuals who provide the SEC with information about violations of the federal securities laws. Prior to Dodd-Frank, the agency’s bounty program was limited to insider trading cases and the amount of an award was capped at 10 percent of the penalties collected in the action.
The new SEC whistleblower program is primarily intended to reward individuals who act early to expose violations and who provide significant evidence that helps the SEC bring successful cases.
Rules Requirements
Under the proposed rules, a whistleblower is a person who provides information to the SEC relating to a potential violation of the securities laws.
To be considered for an award, a whistleblower must …
Voluntarily provide the SEC …
* In general, a whistleblower is deemed to have provided information voluntarily if the whistleblower has provided information before the government, a self-regulatory organization or the Public Company Accounting Oversight Board asks for it.
… with original information …
* Original information must be based upon the whistleblower’s independent knowledge or independent analysis, not already known to the Commission and not derived exclusively from certain public sources.
… that leads to the successful enforcement by the SEC of a federal court or administrative action …
* A whistleblower’s information can be deemed to have led to successful enforcement in two circumstances: (1) if the information results in a new examination or investigation being opened and significantly contributes to the success of a resulting enforcement action, or (2) if the conduct was already under investigation when the information was submitted, but the information is essential to the success of the action and would not have otherwise been obtained.
… in which the SEC obtains monetary sanctions totaling more than $1 million.
* * *
The proposed rules further define and explain these requirements.
Key concepts would include …
Avoiding unintended consequences:
Certain people would generally not be considered for whistleblower awards under the proposed rules. These include:
* People who have a pre-existing legal or contractual duty to report their information.
* Attorneys who attempt to use information obtained from client engagements to make whistleblower claims for themselves (unless disclosure of the information is permitted under SEC rules or state bar rules).
* Independent public accountants who obtain information through an engagement required under the securities laws.
* Foreign government officials.
* People who learn about violations through a company’s internal compliance program or who are in positions of responsibility for an entity, and the information is reported to them in the expectation that they will take appropriate steps to respond to the violation.
This last exclusion — which is intended to prevent company personnel from “front running” legitimate internal investigations — ceases to be applicable if the company does not disclose the information to the Commission within a reasonable time or acts in bad faith. In these circumstances, such people can become whistleblowers.
Certain other people — such as employees of certain agencies and people who are criminally convicted in connection with the conduct — are excluded by Dodd-Frank.
The SEC also would not pay culpable whistleblowers awards that are based upon either the monetary sanctions that such people themselves pay in the resulting SEC action, or on sanctions paid by entities whose liability is based substantially on conduct that the whistleblower directed, planned, or initiated. The purpose of this provision is to prevent wrongdoers from benefitting by, in effect, blowing the whistle on themselves.
Providing Information to the SEC and Seeking a Reward:
The proposed rules also would describe procedures for submitting information to the SEC and for making an award claim after an action is brought. The claim procedures would provide opportunities for whistleblowers to fairly present their case before the Commission makes a final award determination.
The SEC also would pay an award based on amounts collected in related actions brought by certain agencies that are based upon the same original information that led to a successful SEC action.
Supporting Internal Compliance Programs:
The proposed rules include provisions to discourage employees from bypassing their own company’s internal compliance programs.
For instance, the proposed rules:
* Would treat an employee as a whistleblower under the SEC program as of the date that employee reports the information internally — as long as the employee provides the same information to the SEC within 90 days. Through this provision, employees will be able to report their information internally first while preserving their “place in line” for a possible award from the SEC.
* Permit the SEC to consider higher percentage awards for whistleblowers who first report their information through effective company compliance programs.
What’s Next?
The proposal seeks public comment and data on a broad range of issues relating to the whistleblower program. After careful review of the comments, the Commission will consider what further action to take on the proposal.
http://www.sec.gov/news/press/2010/2010-213.htm
SEC Charges Seven Oil Services and Freight Forwarding Companies for Widespread Bribery of Customs Officials
FOR IMMEDIATE RELEASE
2010-214
Washington, D.C., Nov. 4, 2010 — The Securities and Exchange Commission today announced sweeping settlements with global freight forwarding company Panalpina, Inc. and six other companies in the oil services industry that violated the Foreign Corrupt Practices Act (FCPA) by paying millions of dollars in bribes to foreign officials to receive preferential treatment and improper benefits during the customs process.
SEC Complaints:
* Panalpina, Inc.
* Pride International, Inc.
* Tidewater Inc.
* Transocean, Inc.
* GlobalSantaFe Corp.
* Noble Corporation
SEC Administrative Proceeding:
* Royal Dutch Shell plc
The SEC alleges that the companies bribed customs officials in more than 10 countries in exchange for such perks as avoiding applicable customs duties on imported goods, expediting the importation of goods and equipment, extending drilling contracts, and lowering tax assessments. The companies also paid bribes to obtain false documentation related to temporary import permits for oil drilling rigs, and enable the release of drilling rigs and other equipment from customs officials.
The SEC's cases were coordinated with the U.S. Department of Justice's Fraud Section, and the sanctions to be paid by the companies under the settlements total $236.5 million. This is the first sweep of a particular industrial sector in order to crack down on public companies and third parties who are paying bribes abroad.
"Bribing customs officials is not only illegal but also bad for business, as the coordinated efforts of law enforcement increase the risk of detection every day," said Robert Khuzami, Director of the SEC's Division of Enforcement. "These companies resorted to lucrative arrangements behind the scenes to obtain phony paperwork and special favors, and they landed themselves squarely in investigators' crosshairs."
Cheryl J. Scarboro, Chief of the SEC's Foreign Corrupt Practices Act Unit, added, "This investigation was the culmination of proactive work by the SEC and DOJ after detecting widespread corruption in the oil services industry. The FCPA Unit will continue to focus on industry-wide sweeps, and no industry is immune from investigation."
Without admitting or denying the allegations, the companies agreed to settle the SEC's charges against them by paying approximately $80 million in disgorgement, interest, and penalties. The companies agreed to pay fines of $156.5 million to settle the criminal proceedings with DOJ.
SEC charges against six companies were filed in federal court, and one company was charged in an SEC administrative proceeding. Among the SEC's allegations:
Panalpina, Inc. — A U.S. subsidiary of the Swiss freight forwarding giant Panalpina World Transport (Holding) Ltd. (PWT), Panalpina is charged with paying bribes to customs officials around the world from 2002 to 2007 on behalf of its customers, some of whom are included in these settlements. Panalpina bribed customs officials in Nigeria, Angola, Brazil, Russia and Kazakhstan to enable importation of goods into those countries and the provision of logistics services. The bribes were often authorized by Panalpina's customers and then inaccurately described in customer invoices as "local processing" or "special intervention" or "special handling" fees.
* Panalpina agreed to an injunction and will pay disgorgement of $11,329,369 in the SEC case.
* PWT and Panalpina agreed to pay a criminal fine of $70.56 million.
Pride International, Inc. — One of the world's largest offshore drilling companies, Pride and its subsidiaries paid approximately $2 million to foreign officials in eight countries from 2001 to 2006 in exchange for various benefits related to oil services. For example, Pride's former country manager in Venezuela authorized bribes of approximately $384,000 to a state-owned oil company official to secure extensions of drilling contracts, and a French subsidiary of Pride paid $500,000 in bribes intended for a judge to influence customs litigation relating to the importation of a drilling rig.
* Pride agreed to an injunction and will pay disgorgement and prejudgment interest of $23,529,718 in the SEC case.
* Pride and subsidiary Pride Forasol agreed to pay a criminal fine of $32.625 million.
Tidewater Inc. — The New Orleans-based shipping company through a subsidiary reimbursed approximately $1.6 million to its customs broker in Nigeria from 2002 to 2007 so the broker could make improper payments to Nigerian customs officials and induce them to disregard regulatory requirements related to the importation of Tidewater's vessels.
* Tidewater agreed to an injunction and will pay $8,104,362 in disgorgement and a $217,000 penalty.
* Tidewater Marine International agreed to pay a criminal fine of $7.35 million.
Transocean, Inc. — An international provider of offshore drilling services to oil companies throughout the world, Transocean made illicit payments from at least 2002 to 2007 through its customs agents to Nigerian government officials in order to extend the temporary importation status of its drilling rigs. Bribes also were paid to obtain false paperwork associated with its drilling rigs and obtain inward clearance authorizations for its rigs and a bond registration.
* Transocean agreed to an injunction and will pay disgorgement and prejudgment interest of $7,265,080.
* Transocean Ltd. and Transocean Inc. agreed to pay a criminal fine of $13.44 million.
GlobalSantaFe Corp. (GSF) A provider of offshore drilling services GSF made illegal payments through its customs brokers from approximately 2002 to 2007 to officials of the Nigerian Customs Service (NCS) to secure documentation showing that its rigs had left Nigerian waters. The rigs had in fact never moved. GSF also made other payments to government officials in Gabon, Angola, and Equatorial Guinea.
* GSF agreed to an injunction and will pay disgorgement of $3,758,165 and a penalty of $2.1 million.
Noble Corporation — An offshore drilling services provider, Noble authorized payments by its Nigerian subsidiary to its custom agent to obtain false documentation from NCS officials to show export and re-import of its drilling rigs into Nigerian waters. From 2003 to 2007, Noble obtained eight temporary import permits with false documentation.
* Noble agreed to an injunction and will pay disgorgement and prejudgment interest of $5,576,998.
* Noble agreed to pay a criminal fine of $2.59 million.
Royal Dutch Shell plc — An oil company headquartered in the Netherlands, Shell and its indirect subsidiary called Shell International Exploration and Production, Inc. (SIEP) violated the FCPA by using a customs broker to make payments from 2002 to 2005 to officials at NCS to obtain preferential customs treatment related to a project in Nigeria.
* SIEP and Shell agreed to a cease-and-desist order and will pay disgorgement and prejudgment interest of $18,149,459.
* Shell Nigerian Exploration and Production Co. Ltd. will pay a criminal fine of $30 million.
* * *
The SEC's investigations were conducted by Jason Rose, Michael King, Tracy L. Price, Denise Hansberry, Laura Josephs, Linda Moran, Amy Friedman, Mathew Hefferan, Moira T. Roberts, Sharan K.S. Custer, Ernesto Palacios and Chedly Dumornay. The Commission acknowledges the assistance of the Department of Justice's Criminal Division-Fraud Section and the Federal Bureau of Investigation.
# # #
For more information about this enforcement action, contact:
Cheryl J. Scarboro
Chief, Foreign Corrupt Practices Act Unit, Division of Enforcement
202-551-4403
http://www.sec.gov/news/press/2010/2010-214.htm
SEC Extends New Short Sale Rule Compliance Date
FOR IMMEDIATE RELEASE
2010-215
Washington, D.C., Nov. 4, 2010 — The Securities and Exchange Commission has extended the date for compliance with the Commission's new short sale rule to Feb. 28, 2011. The extension was granted to give certain exchanges additional time to modify their market opening, reopening, and closing procedures for individual securities covered by the rule, and in order to provide additional time to market participants for programming and testing of systems for implementation.
The Commission's new short sale rule will restrict the prices at which a stock can be sold short if the stock's price drops 10 percent or more in one day.
The Commission's extension of the compliance date from Nov. 10, 2010, to Feb. 28, 2011, is available on the SEC website (www.sec.gov).
# # #
http://www.sec.gov/news/press/2010/2010-215.htm
SEC Approves New Rules Prohibiting Market Maker Stub Quotes
FOR IMMEDIATE RELEASE
2010-216
Washington, D.C., Nov. 8, 2010 — The Securities and Exchange Commission approved new rules proposed by the exchanges and FINRA to strengthen the minimum quoting standards for market makers and effectively prohibit "stub quotes" in the U.S. equity markets.
Additional Materials
* SEC Order Approving New Exchange and FINRA Rules
A stub quote is an offer to buy or sell a stock at a price so far away from the prevailing market that it is not intended to be executed, such as an order to buy at a penny or an offer to sell at $100,000. A market maker may enter stub quotes to nominally comply with its obligation to maintain a two-sided quotation at those times when it does not wish to actively provide liquidity. Executions against stub quotes represented a significant proportion of the trades that were executed at extreme prices on May 6, and subsequently broken.
"By prohibiting stub quotes, we are reducing the risk that trades will be executed at irrational prices, and then need to be broken, if the markets become volatile," said SEC Chairman Mary L. Schapiro. "While we continue to look at other potential obligations for market participants, this is an important step in our effort to improve the functioning of the U.S. markets, and restore investor confidence following the events of May 6."
The new rules address the problem of stub quotes by requiring market makers in exchange-listed equities to maintain continuous two-sided quotations during regular market hours that are within a certain percentage band of the national best bid and offer (NBBO). The band would vary based on different criteria:
*
For securities subject to the circuit breaker pilot program approved this past summer, market makers must enter quotes that are not more than 8% away from the NBBO.
*
For the periods near the opening and closing where the circuit breakers are not applicable, that is before 9:45 a.m. and after 3:35 p.m., market makers in these securities must enter quotes no further than 20% away from the NBBO.
*
For exchange-listed equities that are not included in the circuit breaker pilot program, market makers must enter quotes that are no more than 30% away from the NBBO.
*
In each of these cases, a market maker's quote will be allowed to "drift" an additional 1.5% away from the NBBO before a new quote within the applicable band must be entered.
The new market maker quoting requirements will become effective on Dec. 6, 2010.
Since May 6, the Commission has taken several steps to reduce the chance that the events of that day would happen again. Among other things, the Commission:
*
approved the above-mentioned circuit breaker pilot program, in which trading would pause if a stock price moved more than 10% in five minutes. That program now applies to stocks in the S&P 500 or the Russell 1000, as well as certain exchange-traded products.
*
approved new rules requiring the exchanges to clarify up-front how and when trades would be broken.
*
proposed a new rule that would require the self regulatory organizations to establish a consolidated audit trail system the would enable regulators to track information related to trading orders received and executed across the securities markets.
*
adopted rules that would effectively prohibit broker-dealers from providing their customers with unfiltered access to exchanges and alternative trading systems by assuring that broker-dealers implement appropriate risk controls.
At Chairman Schapiro's request, Commission staff is continuing to evaluate further initiatives to address market structure issues revealed by the events of May 6 such as refining the single stock circuit breakers by incorporating a limit-up/limit-down type mechanism.
# # #
http://www.sec.gov/news/press/2010/2010-216.htm
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Here is a Board where you can Pass Information on MM Manipulation on your Stocks. The Goal will be to gather enough Factual information to Present to the SEC, Congress and whoever else may listen. We need to protect GOOD American Business.
This board is a Place to fight SHARE PRINTERS !!
EVERYTHING SAID IS OF PURE OPINION ON THIS BOARD>> FOLLOW AT YOUR OWN RISK!!!!!
We also want to warn others about "CEO's" or "IR Firms" who do nothing but DILUTE Stocks for there own Gain !
Members: Officers / CEO's / Presidents / CFO's / Directors / Consultants / Treasurer
Anthony Welch | Milton.Ault | Joe Overcash | W.Smart | Edward.Vasker |
Carlton Wingett | M.Zoyes | A.Parsinia | Christopher Davies | JC Barbeck |
Paul Crawford | Khoo.Hua | K Yeung | Don Paradiso | F.Neukomm |
Stanley Larson | Merlin Larson | Troy Lyndon | K.Eade | Daniel McCormick |
Dennis Atkins | Richard Knox |
Robert Thayer | Dale Geck | Chris Glover | Ricardo Caicedo | K.A. Anderson |
IR FIRMS (BEWARE when you see these IR Firms listed on a stock)
Mani Mor Poo | VUFinancial (Vinci's) | Yorkville Advisors |
Big Apple Consulting more on them HERE | Boost Marketing | |
TRANSFER AGENCIES (Carefull when you see these "Transfer Agents" listed on a stock)
Transfer Online ( L.Livingston) | ||
Information about TOXIC Financing is needed also !!
Definitions
PRE 14C All preliminary information statements, excluding, mergers, contested solicitations and special meetings.
DEF 14C All types of definitive statements, excluding: mergers or acquisitions, contested solicitations and special meetings.
Reg D Companies selling securities in reliance on a Regulation D exemption or a Section 4(6) exemption from the registration provisions of the '33 Act must file a Form D as notice of such a sale. The form must be filed no later than 15 days after the first sale. The exact form type is usually REGDEX, but may be a REG D-1 or similar.
SB-2 This form may be used by "small business issuers" to register securities to be sold for cash.
S-8 This form is used for the registration of securities to be offered to an issuer's employees pursuant to certain plans.
S-1 This is the basic registration form. It can be used to register securities for which no other form is authorized or prescribed, except securities of foreign governments or political sub-divisions thereof.
1-E / 2-E Business development companies (BDC) can avail themselves of a more esoteric provision of the Securities Act - Regulation E, which provides an exemption from registration for securities issued by BDCs. In short, under Regulation E, a BDC may issue up to $5 million worth of securities a year without registration. Also under Regulation E, an individual may offer to sell up to $100,000 of securities in a BDC each year.
424B1, 2, 3, and 4 filings are final registration statements to register stock under previously filed SB-2 S-1 and S-2 filings, and they serve other purposes.
EFFECT filings are notice's of effectiveness of POS AM's and some S filings ie: S-1, SB-2. The EFFECT filing comes prior to the 424B3 filing we see when the shares enter the market.
ALL the posts here are OPINIONS and in no way are given as Investment Advice
GOOD DD BOARDS
DD Support Board and Fraud Research Team
Reverse Split Repeat Offenders (RS/RO)
http://investorshub.advfn.com/boards/board.asp?board_id=3017
Breaking Stock-Related News
http://investorshub.advfn.com/boards/Board.asp?Board_ID=1508
Here's a link that alerts name changes/RS's: http://www.otcbb.com/dailylist/
Here's a link to search SOS(secretary of state) filings(this will help you locate how many shares a company is authorized to issue-find out where the company is incorporated and search under "business entity name": http://www.coordinatedlegal.com/SecretaryOfState.html
Here's a board that has most of the TRANSFER AGENTS contact info-some are cooperative, and some are "gagged"(they won't release share info): http://investorshub.advfn.com/boards/board.aspx?board_id=10067
Investing Scams: 10 Tell-All Questions
Wednesday December 31, 8:54 am ET
By Motley Fool Staff
With Bernie Madoff's Ponzi scheme foremost in many investors' minds, how can you tell whether an investment pitch is a scam? Here are 10 tell-all questions to consider:
1. Does it promise "low risk and high gain?"
Click your heels three times and repeat to yourself, "There is no such thing as a free lunch." It's a fundamental fact of investing that the higher the potential return, the greater the risk that you may never see that return.
2. Will it be "too late" if you don't act now?
Why will it be too late? Any legitimate investment will be there tomorrow, and next week, and next year. Never be pressured into investing in something because tomorrow might be too late. Even if it turns out that the stock doubles tomorrow, you should feel better knowing that you were cautious and responsible with your money. Besides, if someone's giving you a "hot inside tip," you've got a lot more to worry about than whether or not you should act quickly. (See question 10.)
3. Does it claim to predict the future?
"It will double in three months." Oh, yeah? And where did your broker buy his or her crystal ball? Not only is this a ridiculous promise for a broker to make, it's illegal. Report this infraction to his or her sales manager (the next caller might not be as smart as you). And if the matter doesn't get satisfactory attention from a supervisor, contact the Financial Industry Regulatory Agency (FINRA) at www.finra.org.
4. What is the background of the salesperson and his/her employer?
Any individual selling securities to the public must pass a background check, a series of examinations, and be registered with FINRA. Likewise, their employers must also be known to FINRA and the SEC. If you would like to check up on the background of your broker or brokerage firm, use FINRA's BrokerCheck page. But remember, even if they don't have any complaints against them, it doesn't necessarily mean they can be trusted. You could be "Scamee No. 1."
5. Does it "guarantee" anything?
It is not only impossible to guarantee any rate of performance, but doing so will also get your broker tossed out of the industry.
6. Has the salesperson offered to reimburse you for any losses you might incur?
One more no-no that your broker isn't supposed to promise you. This one can get him or her booted, too.
7. Are you one of the "lucky few who have been chosen" to invest in XYZ company?
While this may make you feel special, don't fall for it. You just happen to be one of the lucky few who answered the phone.
8. Does the salesperson claim to have personally invested in the company, too?
What difference does it make whether he or she made a bad investment too? Do you trust the salesperson to call you if and when the investment goes sour? And will he or she get out first?
9. Is the salesperson unwilling to supply a prospectus or financial statements?
If a new company is just going public (an IPO, which stands for initial public offering), you must be given a prospectus. It is long and written in legalese and printed on very thin paper that you can barely read. Read it anyway. Especially the part called "Risks to Investors." If the company in question has been around awhile, ask to see the financial statements for the past two years.
10. Is the salesperson's information "a hot inside tip?"
This is especially important to pay attention to -- not because it could make you rich, but because it could land you in jail. It is illegal to pass on or act on material that is inside information. Anyone telling you otherwise is a liar.
http://biz.yahoo.com/fool/081231/rx12041.html?.v=2&printer=1
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some links that will help in DD
http://investor.gov/ponzi-schemes/
http://investor.gov/avoid-fraud/
http://www.otcmarkets.com/index.jsp
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