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That was a joke right? EM
Bush Administration Tampering with 911 Commission?
Statement of the Family Steering Committee
Regarding the Need for an Independent, Nonpartisan 9/11 Commission
April 1, 2004
Recent press reports and activities raise the concern that the independent and nonpartisan nature of the 9/11 Commission is being compromised. The Family Steering Committee (FSC) is very concerned about these recent developments.
First, according to an article in today's Washington Post, entitled, "Bush Counsel Called 9/11 Panelist Before Clarke Testified," White House Counsel Alberto Gonzales had ex parte communication with at least one of the Commissioners, Fred Fielding, prior to Richard Clarke testifying before the Commission last week. The Washington Post also reports that Commissioner James R. Thompson might have also had contact with White House staff. Commissioners Thompson and Fielding refuse to answer as to whether they had these ex parte communications. These ex-parte communications raise serious concerns regarding the impartiality of these commissioners and questions about whether the Commission has been sidetracked from its mandate to focus on the facts and circumstances of 9/11.
The Family Steering Committee (FSC) calls upon both the White House and the 9/11 Independent Commission to answer the crippling allegations raised by the Washington Post. Critical to the success of the work of the 9/11 Commission is its ability to remain nonpartisan and independent. Ultimately at risk are the integrity, transparency and comprehensiveness of the Commission's Final Report and its Recommendations.
Second, we request the genesis of Commissioner Fielding and Thompson's line of questioning to Mr. Clarke. In addition, both Commissioner Fielding and Thompson should sign an affidavit that they alone researched, prepared, and gathered their own information in preparation for Mr. Clarke's testimony.
Third, the Family Steering Committee requests an explanation as to how a "background briefing" from FOX NEWS was obtained by Commissioner James R. Thompson. We would like to know who ordered the release of that background briefing and whether Commission staff was used in the retrieval of that information.
Fourth, we call for the sweeping de-classification of the entire transcript of Richard Clarke's testimony before the Joint Inquiry of Congress and the 9/11 Independent Commission. Further, we request the declassification of Dr. Rice’s testimony, as well as all supporting documents (such as emails, memos and correspondence) between Mr. Clark, Dr. Rice, Stephen Hadley and others involved in making decisions related to national security. We abhor the over-classification of information, and support the public release of all information so long as it does not legitimately harm national security.
Fifth, we request that going forward the Commission record and transcribe all private and public testimony, from whatever source – even the President and Vice President, in order to accurately preserve these historical testimonies. It has been reported that the Commission failed to record National Security Advisor Condoleezza Rice's private testimony on February 7, 2004. The failure of the 9/11 Commission to record Dr. Rice's testimony further calls into question this Commission's methods in conducting its investigation.
Sixth, we respectfully request that President Bush and Vice President Cheney reconsider their decision to testify together. Their testimony should be separate, in public and under oath so that the Commission can properly comprehend the individual responsibilities and decisions of the President and Vice President. Individual testimonies would provide the American public a much clearer understanding of the Administration’s leadership during a time of transition and crisis.
Finally, the Family Steering Committee continues to oppose the condition agreed to between the White House and the Commission in exchange for Dr. Rice’s public testimony. Information gathered by the ongoing investigation of the 9/11 Commission may warrant future public testimony of other White House officials.
http://www.911independentcommission.org/
Kerry/McCain ticket? Now thats an interesting proposition. em
As Commander-in-Chief on the morning of 9/11, why didn’t you return immediately to Washington, D.C. or the National Military Command Center once you became aware that America was under attack? At specifically what time did you become aware that America was under attack? Who informed you of this fact?
On the morning of 9/11, who was in charge of our country while you were away from the National Military Command Center? Were you informed or consulted about all decisions made in your absence?
http://www.911independentcommission.org/questions.html
Will Bush testify under oath to the 911 Commission?
Back Pedalling Powell: Iraq Evidence May Have Been Wrong
BY BARRY SCHWEID, AP Diplomatic Writer
WASHINGTON - Secretary of State Colin Powell (news - web sites) has conceded that evidence he presented to the United Nations (news - web sites) that two trailers in Iraq (news - web sites) were used for weapons of mass destruction may have been wrong.
Latest headlines:
· Four Killed in Attacks on Iraqi Police
· A Daily Look at U.S. Iraq Military Deaths
· Powell: Iraq Evidence May Have Been Wrong
In an airborne news conference on the way home from NATO (news - web sites) talks in Brussels, Belgium, Powell said Friday he had been given solid information about the trailers that he told the Security Council in February 2003 were designed for making biological weapons. But now, Powell said, "it appears not to be the case that it was that solid."
He said he hoped the intelligence commission appointed by President Bush (news - web sites) to investigate prewar intelligence on Iraq "will look into these matters to see whether or not the intelligence agency had a basis for the confidence that they placed in the intelligence at that time."
Powell's dramatic case to the Security Council that Iraq had secret arsenals of weapons of mass destruction failed to persuade the council to directly back the U.S.-led war that deposed the Iraqi leader Saddam Hussein (news - web sites). But it helped mobilize sentiment among the American people for going to war.
As it turned out, U.N. inspectors were unable to uncover the weapons, but administration officials have insisted they still might be uncovered.
David Kay, who led the hunt for the weapons, showed off a pair of trailers for news cameras last summer and argued that the two metal flatbeds were designed for making biological weapons.
But faced with mounting challenges to that theory, Kay conceded in October he could have been wrong. He said he did not know whether Iraq ever had a mobile weapons program.
Powell told reporters that as he worked on the Bush administration's case against Iraq U.S. intelligence "indicated to me" that the intelligence was solid.
"I'm not the intelligence community, but I probed and I made sure, as I said in my presentation, these are multi-sourced" allegations, Powell said.
The trailers were the most dramatic claims, "and I made sure that it was multi-sourced," he said.
"Now, if the sources fell apart we need to find out how we've gotten ourselves in that position," he said.
"I have discussions with the CIA (news - web sites) about it," Powell said, without providing further details.
The trailers were the only discovery the administration had cited as evidence of an illicit Iraqi weapons program.
In six months of searches, no biological, chemical or nuclear weapons were found to bolster the administration's central case for going to war: to disarm Saddam of suspected weapons of mass destruction.
Prediction: Powell will need to be put under oath and testify to the 911 Commission.
http://www.911independentcommission.org/questions.html
Court Enters Default Judgment Against Man Who, the SEC Says, Conducted an Internet Investment Scam from Canada
The U.S. Securities and Exchange Commission has announced that on February 18, the United States District Court for the Western District of Oklahoma entered a default judgment against Garry W. Stroud ordering him to pay disgorgement and prejudgment interest in the amount of $1,044,879, a $956, 379 civil penalty and enjoining him from further securities law violations. The SEC alleged in its complaint in the action that Stroud "fleeced over 2,200 investors worldwide of approximately $1 million" by using multiple Web sites and spam e-mail to solicit investors in "pure shams" like Morgenthau Gold Bond Certificates, foreign gold-mining projects and prime bank trading programs. He purportedly targeted investors who recently had been defrauded in another investment scam known as E-Biz Ventures which was the subject of a separate SEC enforcement action in January 2001.
http://www.sec.gov/litigation/litreleases/lr17988.htm
Gotcha! Internet scam detector developed
February 3 2003
Internet scams will be easier to detect thanks to a new automatic web classification system being developed by the Australian Securities and Investments Commission (ASIC).
ASIC today launched a $1 million joint research project with the Capital Markets Cooperative Research Centre (CMCRC), the University of Sydney and Macquarie University to develop the system.
ASIC said it was the largest language technology research project ever initiated in Australia.
"The internet represents enormous opportunities for scams and rip-off artists," ASIC director of electronic enforcement Keith Inman said.
"The system we are developing through this joint project will be an eye that never sleeps, constantly seeking out sites that we can take action against.
ScamSeek will be able to determine potential risk by scanning entities against public and private databases.
It will also be able to assess the risk associated with information on a website, identify people and companies mentioned and mark sites that are above the acceptable risk threshold for further analysis.
http://www.theage.com.au/articles/2003/02/03/1044122307805.html
ASIC Reportedly Has Launched Research Project To Automate Detection of Online Securities Scams
On February 3, the Australian Securities and Investments Commission launched what is said to be the "largest language technology research project ever initiated in Australia" to develop an automated system to detect online securities scams. The initiative, called ScamSeek, reportedly will constantly search for Web sites that involve securities scams and will match information gleaned from such sites against public and private databases and alert authorities to sites that require further analysis.
Germany: Dealing in Securities Only a Business if done on a Business Basis - Supreme Tax Court
Article by Andrew Miles
The Supreme Tax Court has rejected a claim for tax recognition of losses incurred in dealing in securities on the grounds that the operations were not part of a recognisable business.
The case was brought by a private individual with regular dealings on the money markets. He had installed a limited amount of equipment for this (television, computer with access to online market information etc.) and was now claiming that his losses had been incurred by way of trade, rather than through his private asset management. The tax office took the opposing view, with which the Court agreed.
Clearly, the Court arrived at its findings, at least in part, as a result of the taxpayer's inconclusive statements, ambiguities and unsupported assertions. However, it took the opportunity to set forth a few rules of thumb to distinguish dealing by way of trade from transactions in the course of private asset management:
If the taxpayer claims to be a trader in securities, his main activity will be in transacting in his own name but for the account of others. For this, he will need a permit under the Banking Act from the Financial Services Supervision Authority. Since such permits are only issued after exhaustive enquiries designed not least to establish that a proper control environment based on a division of duties exists, it will usually be clear that a permit holder operates by way of trade.
If the taxpayer deals only on his own account, he will not need a permit. He will be a trader ("finance business") if his manner of operating is typical for the trade, but will be seen to be acting privately where this is not the case.
Typical for the trade implies
1. dealing with market players direct as opposed to through one or more (in this case six) custodial banks
2. the activity must be his main business activity as opposed to being from facilities installed in his lawyer's chambers or accountant's offices
3. there must be at least a modicum of commercial organisation supporting the business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Reverse Mergers On the Rise?
By Avital Louria Hahn
So-called "reverse mergers," one of the more controversial ways for a private company to go public, are on the rise in the U.S., especially by Chinese and other international companies that often find even a depressed price for their shares in the U.S. to be far higher than anything they could fetch in their home markets.
"In the past six months or so we have seen an increase in companies looking to do a reverse merger," said Tim Halter, president of Halter Financial, a consulting firm that specializes in helping private companies go public. "We are seeing a lot of international deals, with many coming from Asia."
The evidence so far is anecdotal, as neither the American Stock Exchange nor Nasdaq keep track of reverse mergers. But Halter and others believe the controversial capital-raising practice is on the increase-and that is both good news and bad. Often termed the "back door" way to go public, it can be defined in various ways. Basically, however, it is a process in which a private company locates the shell of a public company, and enters into an agreement for the shell, which retains its ticker symbol, to purchase the private company with newly issued shares. The resulting company often changes its name-even its symbol-and sometimes uses its new stock to make acquisitions.
To be sure, quite legitimate firms have gone public this way. In 1970, Ted Turner used it to go public with Rice Broadcasting, which later became Turner Broadcasting Systems. In 1996, brokerage Muriel Siebert & Co. entered into such a back-door arrangement with J. Michaels Inc., a publicly traded Brooklyn-based retail furniture concern.
But the practice also has its share of critics, who maintain that the process is so porous it allows companies that never would have passed muster with an underwriter, let alone with investors on a roadshow, to wind up public.
Companies that do take this back-door route are often disappointed, according to Hartley Bernstein, president of Stockpatrol.com, a Web site that reports on penny stocks and small companies not covered by research analysts. With no analysts covering them and no banking relationships, they often find the public markets for additional financing closed, and the only capital they can raise is via private deals with onerous terms.
"[Buying a shell] sounds like a wonderful idea, except you don't get very much for it," Bernstein said. "It usually has no assets, and the stock is often controlled by investors who want to pump up the stock." Another negative, Bernstein added, is that the business that buys the shell can be tainted by the problems the former company had-or worse, inherit its liabilities.
What is more, reverse-merger companies frequently find the expense of being public too great. Expectations dashed, they then come to investment banks to undo the deal, said Rick Chance, managing director and head of restructuring at Calif.-based Trenwith Securities, which specializes in restructuring advice for middle-market companies. Chance said he has come across that very situation. On the other hand, Chance said, one of his clients is a Chinese company that became public via a reverse merger with a shell and is solid enough to make acquisitions.
A recent success
Despite the negatives, some companies this year are finding apparent success through the process. Consider China Automotive, which earlier this year decided to go public in the U.S., but found the initial public offering market closed tight.
China Automotive then found a law firm adviser that specialized in the process, and got hold of a public shell called Visions in Glass Inc. In May, it changed its name to China Automotive Systems Inc. and began trading on the OTC bulletin board under a new symbol. It closed last Thursday at $3.82 a share, with a market cap of about $80 million-small by U.S. standards, but larger than most other international entrants.
China Automative is only one of several Asian companies recently involved in reverse mergers, according to consultant Halter. He added that they want the U.S. listing to enable them to make acquisitions. They're hoping to benefit from a share price in the U.S. that, while depressed, often reflects double or triple the valuation they would get in their home market.
Often, foreign companies seeking the back-door route may well be larger and in better financial shape than their U.S. counterparts. Indeed, small U.S. companies that do reverse mergers often have compromised financing capability and end up paying dearly for additional financing from private investors, bankers said.
Valde Connections Inc., for example, which is in the business of "identifying profitable clinical day spa and salons for potential acquisitions," recently went public via a reverse merger with Jdlphotos.com. Afterwards, with its stock trading at about $0.20 and additional public capital unavailable, it sold 4.6 million of its shares in May to an offshore investor for $500,000-barely $0.11 per share.
A stricter filter
to determine which firms should be allowed to go public is exactly what is needed, said Halter. "You have to have realistic expectations and strong fundamentals, a projected market cap of $30 million or more, and you have to look at your traded peer group and see how is it valued," Halter said. "You have to compare your company's performance to peers and arrive at projected market value."
Companies that do qualify can reverse merge in one of two ways, Halter said. One is to merge with a shell that is currently reporting and listed in the pink sheets or the OTC bulletin board, a listing that costs about $300,000 to $400,000 and takes 30 to 60 days. The other is merging with a nonreporting shell, a longer, more complicated process-it can take four to five months and costs about $150,000. By comparison, the cost of an IPO can run into the seven digits.
After going public via a reverse merger, a company has to win the support of research analysts and develop relations with investors. Without an underwriter, it has to do so on its own. China Automotive will have research starting in September as well as an investor relations firm, Halter said.
http://www.halterfinancial.com/article10.html
Note: China Automotive
http://www.otcbb.com/asp/mp_quotes.asp?Sort=4&Quotes=CAAS&Board.x=23&Board.y=9
http://www.chinaautomotivesystems.com/index.asp
Rosenberg is gone...nothing in this filing about technology.
Some people are inherently predisposed to being chaos merchants...as for the white paper I am still searching for it.
Very interesting...
http://www.nasdr.com/pdf-text/nac0800_01.pdf
Where it's every investor for himself
On the free-wheeling OTC Bulletin Board, companies without much beyond a name and ticker symbol can make themselves seem like blue chips.
By Carrie Coolidge, Forbes
The investment sounded so good. New York-based 800America.com touted its Web sites, offering everything from online payment services to closed-out merchandise sales. Its site for teenagers, Youtopia.com, supposedly had up to 2 million members in North America. And 800America.com claimed to be pushing into fast-growing China with 150 independent sales reps.
This gem, however, traded in a nether region of the investing world called the OTC Bulletin Board, a newly popular electronic service that links market makers in the shares of small companies. Unlike the unregulated Pink Sheets, the Bulletin Board is policed by the Securities & Exchange Commission and surveilled by the National Association of Securities Dealers. And Bulletin Board companies must file audited financial statements with the SEC and comply with federal securities laws.
But don't be fooled: The filings can very well be garbage. The NASD has no real power over the 3,452 stocks listed on the system. The scams here are not of the magnitude seen at the New York Stock Exchange or Nasdaq (Enron (ENRNQ, news, msgs) or WorldCom (WCOEQ, news, msgs), for example), yet they are far more numerous.
"There are problems everywhere, but the Bulletin Board is the place they really fester," says Hartley Bernstein, a lawyer who pleaded guilty to conspiracy to commit securities fraud in 1999 (sentenced to probation). Bernstein now works the other side, running the Web site StockPatrol.com which alerts investors to fraud in the penny stock market.
A Web of deceit
Investors found to their dismay that 800America.com's biggest Web venture was the web of deceit it had spun. The company's chief executive, David Elie Rabi, portraying himself as a seasoned business leader, turned out to be an ex-con who had served a four-year term for previous securities fraud.Fast and easy.
Rabi was the subject of fresh fraud charges brought by the SEC, which declared that the balance sheet and income statements Rabi's company put out were fiction. The U.S. Attorney's Office for the Southern District of New York brought criminal charges against Rabi, and he was convicted on one count of securities fraud and one count of conspiracy to commit fraud. Rabi awaits sentencing. 800America.com is defunct. Its shares, which traded at $5 in 2000, are now worthless.
The horror stories are legion. Environmental Solutions Worldwide (ESWW, news, msgs) seems to have a good line of business making catalytic converters. But the SEC alleges this denizen of the Bulletin Board pumped the market with a fraudulent promotional campaign between 1999 and 2000. As a result, the stock bounced between $2 and $7. Meanwhile, company insiders dumped their stock on an unsuspecting market, profiting more than $15 million, according to the SEC. At the SEC's behest, the ex-chairman ended up paying a $25,000 civil penalty. The company insists this problem is in the past and there is new management. Environmental Solutions stock today bumps along at 72 cents.
In a similar case the SEC charges that Concentrax (CTRX, news, msgs), a manufacturer of vehicle-tracking systems, released inflated earnings projections, then raised $560,000 in a private stock offering. The chief executive paid a $35,000 fine. The company didn't return calls for comment. Its stock, which traded at a high of $3.15 in 2002, now goes for 20 cents.
Bullish on Bulletin Board
Despite all this unpleasantness, Bulletin Board stocks are in vogue lately, riding on the coattails of legitimate Nasdaq companies like Intel (INTC, news, msgs). In September, 41 billion shares traded on the Bulletin Board, up from 15.5 billion in September 2002. In share count, that put the Bulletin Board ahead of Nasdaq, at 40 billion, and the NYSE, at 29 billion. Of course, a lot less money changes hands on the Bulletin Board, where penny stocks litter the trading floor. On Oct. 29, diamond mining outfit Casavant (CMKM, news, msgs) traded 1.1 billion shares. At 1/100 of a penny each, that volume worked out to just $116,453.
Although you certainly can find good Bulletin Board stocks, such as upscale retailer Barneys New York (BNNY, news, msgs) and watchmaker Bulova (BULV), be warned that venturing onto the Bulletin Board requires immense due diligence. Many companies on the Bulletin Board are there after having been bounced from the major exchanges for failing to meet listing requirements: for falling below minimum market capitalization or for neglecting to mail out proxies. And even the best Bulletin Board stocks require patience. Barneys, once a private company, emerged from bankruptcy in 1999 and has slipped back into the red this year amid trying times for department stores. Bulova is solidly profitable but, while enjoying the security of being 97% owned by Loews Corp. (LTR, news, msgs), has a small public float.
Do your research before wading in
How do you separate the good from the bad? Read their filings, or even quiz companies directly. If you're interested in a bank or insurer, federal and state regulators can help. "Don't just buy a stock because a broker recommended it," says Walter Carucci, chief executive of Port Washington, N.Y.-based Carr Securities, an OTC market maker.
Walker's Manual, a 578-page book ($99 plus shipping at walkersmanual.com), contains research on Bulletin Board stocks as well as Pink Sheet names. The book's staff culls through thousands of companies to come up with high-quality selections. While chat rooms and message boards contain a lot of hype, you can gain good insights at such well-regarded sites as Motley Fool, Siliconinvestor.com and Ragingbull.com. And if you really want some dirt, go to Bernstein's StockPatrol.com.
The Bulletin Board was launched in June 1990 after Congress passed a law designed to clean up penny stocks. The hope was that the Bulletin Board would improve transparency and prevent rampant fraud among the OTC equities market, then trading only in the Pink Sheets.
And while the transparency helped raise the quality of trade execution, crooks used the false comfort of oversight as a way to market companies that had no value. "The Bulletin Board sounds like it's more of an institution than it really is," says veteran microcap investor James Mitchell of Mitchell Partners in Costa Mesa, Calif.
The system's weaknesses
Flabby rules. While Bulletin Board companies are required to file quarterly and annual reports, proxies and insider trading information to the SEC, neither the NASD nor the SEC checks to make sure filings are factual, and there are no minimums. "A company can qualify for the Bulletin Board if it has no assets, no revenues and no business -- provided it files regular reports," says Bernstein.
Unlike their brethren on the NYSE and Nasdaq, Bulletin Board companies aren't required to have corporate governance standards, independent audit committees or independent directors. Exchange-traded companies certainly have defrauded investors despite these safeguards, yet Bernstein argues that the absence of such strictures makes foul deeds easier to commit. Bernstein even has seen Bulletin Board company filings where the numbers are brazenly copied from quarter to quarter.
Lax oversight. The Nasdaq, charged by the SEC with operating the Bulletin Board, gets no listing fees from the companies there, as it does from its own listers. Hence there is little incentive for parent and regulator NASD to crack down, and it lacks the teeth to do so, anyway. NASD's jurisdiction extends only to the market makers and brokers who trade the stocks on the Bulletin Board. This isn't to say that the NASD isn't on the lookout for Bulletin Board fraud. It's simply that the NASD, lacking subpoena power, can only refer suspicions to the SEC. About the best NASD can do is attach the letter "e" to the ticker symbol of a delinquent Bulletin Board filer.
"Don't assume that because it has a four-letter ticker symbol, Cisco Systems (CSCO, news, msgs) and Joe's Auto have the same level of quality of regulation," says Stephen Luparello, executive vice president for market regulation at the NASD. He can compel the Nasdaq company executive to cough up even nonpublic information but has no similar clout with a Bulletin Board company. "He may say yes," Luparello notes, "but he might also tell me to get lost."
If the NASD's hands are bound, then why isn't the SEC calling for tighter controls on the Bulletin Board?The SEC says it has worked with the NASD in the past to improve standards, and they still continue to think of ways to improve regulatory structure. The agency may very well feel itself overburdened, as is. When SEC filings were first required for the Bulletin Board in 1999, commission staffers took at least a year simply to process all the new data. The SEC says that it has since adjusted its processes to accommodate filings from the Bulletin Board.
The BBX's failure. In fairness, Nasdaq did try to bring order to the freewheeling Bulletin Board -- and has taken a pratfall, recently scrapping the plan for the so-called Bulletin Board exchange. The BBX would impose corporate governance standards and -- ahem! -- charge listing fees. The top-tier OTCBB companies were supposed to sign up for the BBX. Trouble is, the Nasdaq had trouble enlisting enough support.
Vanishing market makers. Over the past few years many of the small-cap trading desks that made markets in Bulletin Board issues have been shut down or drastically reduced in size, including those run by Goldman Sachs (which bought Spear Leeds, the NYSE market specialist firm, in late 2000), Sherwood Securities and Fleet Securities. Herzog Heine Geduld's Bulletin Board trading desk was shut down shortly after the company was bought out by Merrill Lynch. In 1997 there were 430 marketmakers trading Bulletin Board stocks. Today there are 243.
The lack of dominant market makers has created less liquidity, more volatility and wider spreads for many Bulletin Board stocks. Some stocks have price swings of as much as 30% on a given day. For now, most Bulletin Board investors don't care. But if too many 800America.coms implode, they will.
© Copyright 2003 Forbes.com. All rights reserved.
http://moneycentral.msn.com/content/invest/forbes/P65632.asp
Where Are They Now?
What some people accused of white-collar crimes have done with their lives since then:
WHO: Leona Helmsley / Real-estate magnate
SCANDAL: Convicted of income-tax evasion in 1989
ACTIVITIES: Involved in philanthropy; facing libel suit for defaming associate
WHO: Nick Leeson / Derivatives trader
SCANDAL: Convicted of fraud in 1995
ACTIVITIES: Wrote "Rogue Trader," a dishy tell-all that became a movie
WHO: Joseph Jett / Bond trader
SCANDAL: Accused in 1994 of generating phony profits, but never charged criminally
ACTIVITIES: Wrote a book defending his innocence and probing racism on Wall Street; runs a hedge fund
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2002/09/17/financial1106EDT0073.DTL
The Latest in Investment Frauds
By Jacquelyn Lumb, Guest Columnist
The Federal Trade Commission and the North American Securities Administrators Association have undertaken a campaign to combat telemarketing investment fraud and pyramid schemes, in a project named "Field of Schemes." The campaign announced that it has so far taken 61 legal actions against alleged scam artists.
An estimated $40 billion is lost each year to telemarketing fraud, including telemarketing investment frauds. The Field of Schemes project, which is aimed at both stopping the fraud and educating consumers, is comprised of securities regulators from 21 states and two Canadian provinces.
Among the securities-related scams uncovered was a film production company claiming to have generated 500 percent returns for investors on earlier films. The named producer was an actual movie producer, but none of his films had won the awards claimed by the defendants, nor had they generated the substantial profits that were claimed. The defendants also oversold the partnership units, thereby diluting the investors' stakes.
In another case, a company promoted a basketball training machine used by athletes to improve their game. One woman who had seen the product being demonstrated invested $6,000 after being promised an 8 percent return and 600 shares. She has yet to receive any payment or securities three years after her investment.
Another firm projected earnings of up to 600 percent per year on investments in a partnership that featured a virtual shopping mall on the Internet. Shoppers could select products live and online in a format similar to television shopping channels. The defendants, however, left only 15 percent of the investment funds in a shell corporation, having kept the rest for themselves. The shell corporation still has no operational Internet shopping mall.
Additional scams have included the sale of promissory notes to finance international projects, investments in gold mines, new technology for ATM machines, and a jewelry pyramid scheme. Teresa Schwartz, deputy director of the FTC's Bureau of Consumer Protection, noted that fraudulent investment promoters often follow the headlines to find ventures that will appeal to consumers. New technologies, especially the Internet, are fertile ground for fraud, she said.
Other frequent tactics include the projection of enormous profits with little risk, false claims about track records, slick promotional packaging and high-pressure sales pitches. Schwartz urged consumers to always get a second opinion before investing and to refuse to be pressured. Research the company and the offering, she advised, and always be skeptical of unsolicited calls about investments.
http://www.toolkit.cch.com/columns/wealth/fraud.asp
Stock Patrol, its principals, employees, and contributors do not receive any compensation of any kind (including, without limitation, stock, cash or other benefits) from any source, for writing, or refraining from writing any article that appears in this publication.
http://www.stockpatrol.com/about.html
A Penny for Your Stock
Hartley Bernstein sunk his first career in the fraud-infested world of the penny-stock market. He's starting a new one unmasking and revealing the techniques of the fraudsters.
INTERVIEW Hartley Bernstein hasn't always been one of the good guys. As a securities lawyer in the 1990s, he represented a number of now-notorious penny-stock manipulators. When Bernstein became aware of some insider trading at a client company, he kept that knowledge to himself. In 1998, he discovered that the government intended to charge him with failing to disclose that incident. He agreed to enter a guilty plea and cooperate with their investigation. He was sentenced to two years probation. Through that process, Bernstein discovered that he had a knack for unearthing stock market fraud. It led him to found StockPatrol.com, an online investigative finance journal that he runs out of his Manhattan apartment. We spoke to Bernstein about fraud, his rehabilitation and the future of his stock-snooping company.
CSO: Why is the penny-stock market so ripe for fraud?
Hartley Bernstein: A lot [of fraud] can be seen in the penny-stock industry, but it's not limited to it. The same practices take place no matter what the size of the company. For years, a lot of penny-stock fraud was perpetrated by so-called boiler rooms—huge telephone banks where [brokers] intimidated customers into buying stock. In the 1990s, they were replaced by the Internet. One way it's used is by sending out spam by the hundreds of thousands. Those e-mails promote companies, and the promoters hire investment advisory firms to say that they're wonderful companies. They never tell you any of the problems, but those are easy to find if you know where to look. That's what I do.
How did you get the idea for StockPatrol.com?
The impetus came from my experience representing firms that didn't do right by investors. I wanted to be on the other side, to use my insight to expose stock frauds. What I discovered is that there are so many frauds out there that a day doesn't go by that I couldn't write about a new one. It sounds scary, but when you realize that there are 3,700 companies trading on the over-the-counter market alone and another 3,900 on pink sheets, in addition to the companies traded on the organized exchanges, there are well over 12,000 public companies. Only a few hundred may be doing wrong at a given time, but that's still significant to the people losing money.
What are some indicators of potential penny-stock fraud?
When companies file reports, that information is easily accessible. From looking at that, I can at least get a picture of whether a company is struggling and can't pay its bills, or if it's likely to be able to develop a business plan. A lot of it is looking at who's been getting stock. I look at stock volume and check the daily volume for unusual spikes—especially for spikes that come in advance of news. That smacks of insider trading.
Has it been hard for you to convince potential clients and regulators that you've turned over a new leaf?
When I said what I was going to do, many took a wait-and-see attitude. However, a lot of regulators and prosecutors have become very supportive. The regulators at the SEC are very active readers of StockPatrol.com. I've done my best to establish credibility, and many incidents of fraud have been prosecuted by the SEC or NASD after I brought them to their attention.
PHOTO OF HARTLEY BERNSTEIN BY MICHELE ASSELIN
http://www.csoonline.com/read/050103/briefing_stock.html
Disgraced White-Collar Crooks Say It's Not Too Late
To Start Doing Good
By JEFFREY ZASLOW
Staff Reporter of The Wall Street Journal
Hartley Bernstein used to be a prominent New York attorney, a self-described “rainmaker.” But he represented stock-manipulation schemers who were cheating investors out of $150 million.
He became aware of certain aspects of their crimes, didn’t tell regulators, and in 1999 pleaded guilty to perjury and conspiracy to commit securities fraud. He has since paid court-ordered restitution of $850,000, returning his profits from several deals. Because he helped prosecutors nab bigger fish, he avoided jail and received two years probation.
Hartley Bernstein
So what is Mr. Bernstein, a 51-year-old disbarred lawyer, doing with his life? At his sentencing hearing in June 2001, Assistant U.S. Attorney Richard Owens said Mr. Bernstein is doing “a great public service” that is “unique in all of my experience as a federal prosecutor.”
For three years, Mr. Bernstein has run a free Web site, StockPatrol.com, that warns investors away from the kinds of crooks he once served. “I’m now trying to make a different type of restitution, by helping people,” he says. He has no illusions. “I know that reclaiming my reputation will be a lifelong process.”
‘Look People in the Eye’
As a growing parade of reviled white-collar bad guys marches into court this year, those who’ve already done wrong and done time caution that a sentence never really ends. How do you look in the mirror each day and face up to what you did? How do you make amends to shamed and disheartened loved ones?
“To redeem yourself, the first step is to accept full responsibility for your offense,” says David Novak, a former flight-school operator who served nine months in prison for staging a plane crash to collect insurance. “Look people in the eye and say, ‘As a result of poor choices I made, I was imprisoned. Thank goodness I’ve re-evaluated my value system and I’m putting my life back together.’”
“It’s never too late to start doing what’s right,” says Barry Minkow, 36, who in the 1980s defrauded investors of more than $26 million through a sham carpet-cleaning company. “My mother says the best day to plant a tree is 20 years ago. The next best day is today.”
Mr. Minkow served seven years in prison and is now a pastor at a San Diego church. He encourages the guilty to stop fighting the charges and fess up. “When you’re digging yourself deeper and deeper, the first thing to do is put down the shovel.” Be prepared for loved ones to doubt you for years, he says. “Truth plus time equals trust.”
Such talk doesn’t impress attorney Philp Aidikoff, president of the Public Investors Arbitration Bar Association, which represents individual investors. “When someone lies, cheats and robs innocent people,” he says, “just one thing can redeem them—if they give all the money back.”
In prison, Mr. Minkow vowed to pay back everyone he cheated. But he has so far delivered less than $200,000 of the $26 million. He says he is still working at it.
Mr. Novak, who now runs a business helping white-collar felons prepare for prison, says he made full court-ordered restitution of $78,000. That included $28,000 to cover a search by the Coast Guard, which assumed he had died after he ditched his small plane in Seattle’s Elliott Bay in 1996. Like many of his clients, he says, he suffered from greediness and an egocentric sense of entitlement.
Such observations remind me of my 1984 visit to a federal prison to interview Gary Lewellyn for The Wall Street Journal. A former broker from Iowa, he embezzled money from a bank run by his father, and used it to engineer a stock-manipulation scheme. When the scheme ultimately collapsed, he ended up losing $18 million. He then spent three desperate weeks in a Nevada casino, trying to win the money back.
From prison, he vowed to pay back at least a nickel or dime on each dollar stolen. “More than anything,” he said at the time, “I feel a responsibility for restitution.”
Joe Dodgen, then chairman of First National Bank of Humboldt (Iowa), lost $3 million and the bank as a result of Mr. Lewellyn’s embezzlement. But he died in 1995 without receiving a penny or even an apology, says his widow, Dorothy. “Joe spent what was supposed to be our golden years trying to make us right after the devastation Gary caused. It was a deep, deep hurt.”
Paroled in 1988, Mr. Lewellyn has since been a Texas businessman who had a serious regulatory run-in with the SEC, as well as the Food and Drug Administration. He declined to comment for this article.
Judged Every Day
In New York, Mr. Bernstein knows people will be judging him every day for the rest of his life. He once led a firm with a dozen attorneys. Now, 13 of his former clients are in jail, and he spends 45 hours a week alone at his computer, tending to StockPatrol.com. His wife, an attorney, pays the bills.
In 2001, their three-year-old daughter, Raine, had a severe asthma attack, and died in Mr. Bernstein’s arms. Because he had been disbarred and wasn’t working, he spent a great deal of time with his only child in her short life. The collapse of his career, he now realizes, gave him the gift of those years with Raine.
He vows to be the sort of law-abiding citizen she would have been proud of had she lived. “I plan to never screw up again in any way,” he says. “I make sure I wait until the light changes before I cross the street.”
http://www.classroomedition.com/archive/03jan/POLI.htm
Money Patrol with Hartley Bernstein
Saturdays 10:00am-11:00 am
Hartley Bernstein is widely recognized as one of Wall Street’s leading watchdogs, who used to be a prominent New York attorney—a self-described “rainmaker”.
He represented stock-manipulation schemers who were cheating investors out of $150 million. He became aware of certain aspects of their crimes, but didn’t tell regulators—and was subsequently disbarred.
Featured in The New York Times, The Wall Street Journal, Details Magazine & Investment Dealers Digest, Hartley is a frequent guest on CNBC, CNN and Bloomberg television.
Whether his is questioning Wall Street “insiders” and members of the financial community about issues facing the securities markets, addressing concerns by consumer advocates, or gathering information and developing strategies for business or personal investing by members of the listening audience...Hartley Bernstein is a voice for the pulse of financial matters.
http://www.kbnp.com/moneypatrol.htm
LOL...I didn't need to know that....really! em
ItsFun.com to Become Content Provider
Thursday March 25, 6:02 am ET
PHOENIX, AZ--(MARKET WIRE)--Mar 25, 2004 -- Advanced Solutions and Technologies, Inc. (Other OTC:ADVK.PK - News) subsidiary ItsFun.com recently was approached by a Seattle Fundraising Corporation interested in purchasing music content from www.ItsFun.com. "They are a fast, fun, safe, educational, 100% web-based fundraiser that enables non-profit organizations to quickly raise thousands of dollars without the risks and labor typically associated with fundraising. The fundraising market is a $5 Billion market. The possible benefits here are tremendous for The Fundraiser, ItsFun.com's artists and ItsFun.com. This will become part of our 'shared revenue' program. We are confident a deal can be reached within the next three to four weeks," said Leslieann Norem, spokesperson for ItsFun.com.
ADVERTISEMENT
Aggressive Print Ad Campaign -- ItsFun.com kicks off its aggressive print ad campaign on April 17, 2004 with a full page advertisement in Billboard Magazine. Billboard is the ultimate source for music and entertainment information and a hot publication for fans, and artists worldwide. The April 17th issue becomes the perfect issue for ItsFun.com, the "Digital Music Special Issue"
Taking It To The Streets -- ItsFun.com's Street Teams are a part of its free labor resources that provides a most valuable service. At ItsFun.com's direction the teams make sure our promotional material, such as posters, advertising, new releases and/or tours, are supplied to/displayed in various sorts of shops within their area. This includes independent record stores, coffee shops, skate shops, etc. They email friends, post on the web (Friendster/My Space/Live Journal/etc.), and call local radio stations with ItsFun.com's information. Teams have already been created in the Phoenix, Los Angles, San Francisco Bay Area, Detroit, Chicago, Miami, and New York. New teams are developing daily. This promotional strategy will save the company hundreds of thousands of dollars a year in advertising costs.
ItsFun.com is a revolutionary, groundbreaking online digital music distribution service that offers the artists, bands, songwriters, producers, publishers and independent labels the necessary tools and pricing to control their own destiny. They (the Artists) get to keep 95% of the gross proceeds from each sale, less hard costs involved. Hard costs could include MP3, SightSound licensing fees and credit card fees.
Advanced Solutions and Technologies, Inc. (ADVK) is an incubator of innovative technological and service companies that are in various stages of development. ADVK subsidiaries are selected for their unique position in their given field and their ability to become successful entities. Each individual company has its own highly qualified management team responsible for the growth and development of that particular corporation.
Forward-looking Statements in this release are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, including, without limitation, continued acceptance of the company's products, increased levels of competition for the company, new products and technological changes, the company's dependence upon third-party suppliers, intellectual property rights, and other risks.
Contact:
Advanced Solutions and Technologies, Inc.
Contact:
Dick Winkel
919-753-7605
ItsFun.com Contact:
J.R. Williams
602-579-3003
Email: Info@ItsFun.com
Website: http://www.ItsFun.com
--------------------------------------------------------------------------------
Source: Advanced Solutions and Technologies, Inc.
Who Will Be ItsFun.com's Next Spokesmodel? NineModels.com and ItsFun.com Holds Contest
Monday March 29, 6:03 am ET
Music Distribution Company and Model Site Holds Contest to Find Spokemodel
NEW YORK, NY--(MARKET WIRE)--Mar 29, 2004 -- NineModels.com recently penned an agreement with ItsFun.com, a subsidiary of Advanced Solutions and Technologies, Inc. (Other OTC:ADVK.PK - News), to conduct a Spokesmodel Search.
NineModels.com announces the 2004 ItsFun.com Spokesmodel Search. The search is a juried event with initial contestant sign-up at NineModels.com through May 18th, 2004. Ten finalists will be selected by a committee from both ItsFun.com and NineModels.com with a winner being announced on June 18, 2004.
ItsFun.com has launched an internet venue where musicians can showcase their music, photos, and individual or band profiles while selling downloads to fans worldwide and retain 95% of the profits.
The winning contestant will sign on with the ItsFun.com Promotions and Marketing Division to attend sponsored or sanctioned musical and sports events and photo shoots for the latest online innovation for musicians and music aficionados. This allows the model to enhance her resume and portfolio while receiving standard industry modeling rates. In addition, the winning contestant receives a $250.00 cash award. All ten finalists will receive ItsFun.com promotional gear and additional long-term exposure on nineModels.com over the coming year.
"The combination of beautiful girls and music are without doubt a natural. The interplay between the music and modeling industries from music videos to promotional and marketing materials is obviously a winning connection..."
If you're interested in entering the spokesmodel contest simply go to www.NineModels.com or www.ItsFun.com and follow the links to the contest. "It's more than just a modeling gig... It's Fun!!"
Contact:
Contacts:
The Nine Models
K. Curtis
Editor
505-639-3439
Website: http://www.NineModels.com
ItsFun.com
J.R. Williams
602-579-3003
Email: Info@ItsFun.com
Website: http://www.ItsFun.com
ItsFun.com to Launch Major Media Campaign
Wednesday March 31, 6:03 am ET
Full Page Billboard Ad to Kick Off Awareness Effort
PHOENIX, AZ--(MARKET WIRE)--Mar 31, 2004 -- Officials of ItsFun.com, a subsidiary of Advanced Solutions and Technologies, Inc. (Other OTC:ADVK.PK - News) have announced a commitment to a media campaign designed to increase the awareness of its artists and the web site with the industry and with the public. The initial artist ad will be placed in Billboard Magazine, the bible of the music industry. The ad will follow another ad introducing the web site itself scheduled for April 17, 2004.
The ads will feature artists who have music available for downloading on ItsFun.com. The artists will be selected from those who have registered and actually have music available for sale on the web site no later than May 1, 2004.
ItsFun.com is a revolutionary new web site offering artists and labels 95% of the proceeds from every sale, less the hard costs involved in that sale.
Aaron McLain, the lead guitarist for Marc Anthony, is the featured artist this week. Composer, lyricist, singer, guitarist, all accurately describe this very gifted and galvanizing performer: Aaron McLain. Undoubtedly, music has been his birthright, picking up a guitar at the very early age of 10. In the studios, he has played for the likes of Grammy winners Dr. Dre, Terence Trent D'Arby and Patti LaBelle and he has hit the road, to accompany among others, jazz master Ronnie Laws, R&B diva Oleta Adams, and more recently the inimitable Marc Anthony. It is with the latter that Aaron gained a very loyal following of fans.
Part of Aaron's uniqueness, is his ability to be a self-contained musician. A first-rate singer/songwriter, Aaron primarily plays all of the instruments on his recorded performances, from guitar and bass, to keyboard, drum programming and engineering chores. His list of influences range from Stevie Wonder and David Bowie, to Jimi Hendrix and Sting.
"I think the music helps me be a little free," says Aaron. "I can just unleash my spirit to be more open minded so I can take in a lot of goodness and I try to project that goodness. My goal is to go around the world, play and sing and let the world hear my stuff. Just basically do the Aaron McLain thing."
Music by Aaron McLain can be found prominently displayed and ready for listening on ItsFun.com.
Forward-looking Statements in this release are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, including, without limitation, continued acceptance of the company's products, increased levels of competition for the company, new products and technological changes, the company's dependence upon third-party suppliers, intellectual property rights, and other risks.
Contact:
Contacts:
ItsFun.com
J.R. Williams
480-776-0307
Email: Info@ItsFun.com
Website: http://www.ItsFun.com
Advanced Solutions and Technologies, Inc.
Dick Winkel
919-753-7605
NOTE: Offers of Settlement (OS) and Letters of Acceptance, Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions and to the entry of findings.
2004
NASD CASES OF NOTE
The Buckingham Research Group Incorporated
(AWC/C05040005/February 2004)
Permitted a research analyst to act as a general securities representative of the firm by allowing him to generate research reports that identified him by name while failing to be registered in such capacity.
Allowed individuals to act in the capacity of registered representatives while their registrations were deemed inactive due to their failure to satisfy the Regulatory Element of NASD's Continuing Education Requirement.
Reported proprietary short sale transactions through ACT without a short sale modifier and one long sale transaction was reported as short.
Failed to report to ACT the correct symbol indicating that the firm executed transactions in eligible securities in an agency capacity.
Failed to preserve e-mail communications sent to institutional investors for three years, the first two years in an easily accessible place.
The Buckingham Research Group Incorporated
Censured; Fined $29,000 (includes $10,000 jointly and severally with undisclosed party)
Bill Singer's Comment
Another instructive enforcement case. First, in this new day and age of research scrutiny be careful to ensure that your analysts are appropriately registered. New rules require at least a refresher course in who's supposed to be registered. Also, make sure that you're preserving e-mails --- even if they're going to an institutional investor rather than a mere individual customer.
Paramount Capital, Inc.
(AWC/C9B040003/February 2004)
Without admitting or denying the allegations, the firm consented to the described allegations and to the entry of findings that, acting under the direction and control of an individual, it was a participating broker in a contingency offering of securities, and investor
funds raised in the offering were not transmitted to a separate bank escrow account meeting the requirements of Rule 15c2-4. The firm's supervisory system did not provide for supervision reasonably designed to achieve compliance with SEC Rule 15c2-4.
Paramount Capital, Inc.
Censured; Fined $10,000 (includes $5,000 joint and several with undisclosed party)
Bill Singer's Comments
With the market showing some signs of recovering from a long bearish sleep, we will likely see an increase in deal making. Remember to abide by the terms of the escrow agreement.
Cary Edwin Grant
(OS/C8A030013/February 2004)
Grant performed duties as a general securities principal and was the president of his member firm while his registration status with NASD was inactive due to his failure to timely complete the Regulatory Element of NASD's Continuing Education Rule. In contravention of his member firm's NASD membership agreement:
Grant failed to file timely a written application for change in ownership of his member firm, and
Acting through Grant, his member firm opened a branch office and failed to properly notify NASD of its intent.
Grant failed to establish and maintain a supervisory system over the activities of a branch office of his member firm reasonably designed to achieve compliance with applicable securities laws, regulations, and NASD rules in that Grant permitted his NASD Electronic Signature and password to be used by an individual at the firm who was not a registered principal and permitted new accounts to be opened and orders executed without the approval of a firm principal. Finally,Grant failed to respond promptly to NASD requests for information and documentation.
Cary Edwin Grant
In light of the financial status of Grant, no monetary sanction has been imposed. Suspended 3 months all capacities and for 6 months thereafter suspended in principal/supervisory capacities.
Bill Singer's Comment
So many violations and so little time. Wow . . . where to begin? This is almost a classic case-study for Compliance professionals. First, make sure that your CE program is up to date. Second, ownership changes likely require a formal modification of your NASD Membership Agreement. Third, under the Safe Harbor provisions of the NASD's membership rules you may be able to open a branch office without approval but you should also double-check your membership agreement before embarking upon such a prospect. Fourth, generally, when NASD gives you a password, the regulator expects you to guard it with your life. And finally, the ever-popular make sure you respond (or at least timely respond) to all regulatory requests.
Berry-Shino Securities, Inc. and
Ralph Matthew Shino
(C3A030001/February 2004)
Acting through Shino, the firm
charged public customers excessive and unfair commissions on listed option transactions. The commissions were greater than the amount of commission warranted by market conditions, the cost of executing the transactions, the value of services rendered to the customer by the firm, and other pertinent factors; and
accepted and executed, or caused the execution of, orders to purchase listed options in customer accounts without having obtained required information and documentation from the customers as required by NASD Conduct Rule 2860(B)(16)(A).
Berry-Shino Securities, Inc.
Fined $52,500, jointly and severally
Ralph Matthew Shino
Fined $52,500, jointly and severally; Suspended 10 business days in principal capacity.
Bill Singer's Comment
An interesting issue --- what constitutes an "excessive" commission, and keep in mind that we're not talking about a mark-up/mark-down (which, at least, is subject to the 5% Guideline).
Timothy Daniel Skelly
(AWC/C11040004/February 2004)
Skelly purchased various municipal bonds for public customers and prepared "fact sheets" that provided specific details about the bonds being purchased, including their creditworthiness, as requested by the customers; however, certain municipal bonds purchased by the customers were inaccurately represented as "county guaranteed" or "moral obligation bonds" when in fact the bonds contained neither guarantees nor pledges.
Timothy Daniel Skelly
Fined $5,000; Suspended 10 business days in all capacities.
James Robert Snyder
(AWC/C8B040002/February 2004)
Snyder settled a customer complaint that had been filed against him and entered into written agreements with the plaintiffs that included improper confidentiality provisions in each settlement agreement that effectively prohibited the customers from disclosing the underlying facts of their complaints and the settlement terms to anyone, including NASD. Snyder failed to respond to NASD requests for information.
James Robert Snyder
Barred
Bill Singer's Comments
SEC held that it is a violation for a settlement agreement to prevent BD customers from cooperating with an NASD investigation. Read In the Matter of the Application of Stratton Oakmont, Inc. For Review of Disciplinary Action Taken by NASD (Securities and Exchange Act of 1934 Rel. No. 38390 / March 12, 1997 at http://www.sec.gov/litigation/opinions/3438390.txt
NASD Notice to Members 86-36, dated May 14, 1986, states that settlement agreements that preclude customers from testifying in NASD proceedings may violate applicable Rules.
John Philip Warner
(AWC/C05040001/February 2004)
Warner borrowed $31,219.17 from a public customer and recommended and executed the liquidation of mutual funds in the account of the customer for the purpose of funding the loan to himself. Warner had persuaded the customer to loan him the funds by offering a nine percent return, thereby replacing the customer's original investment with an unsecured loan. NASD charged that the recommendation/transactions were not suitable.
John Philip Warner
Fined $10,000; Suspended 90 days in all capacities.
Bill Singer's Comments
Yet another in a long line of cases involving RRs lending/borrowing money from customers. Compliance officers would be well advised to discuss recently revised NASD Rule 2370, which prohibits registered persons from borrowing money from or lending money to a customer unless
the member has written procedures allowing such lending arrangements consistent with the rule;
the loan falls within one of five prescribed permissible types of lending arrangements set forth in the rule; and
the member pre-approves the loan in writing
Exempt from the rule's notice and approval requirements are lending arrangements involving a registered person where the customer (Rule 2370 limits the scope of the rule to lending arrangements between registered persons and their customers, rather than any customer of the firm) is:
a member of the RR's immediate family (as defined in the rule); or
a financial institution regularly engaged in the business of providing credit, financing, or loans (or other entity or person that regularly arranges or extends credit in the ordinary course of business), provided the loan has been made on commercial terms that the customer generally makes available to members of the general public similarly situated as to need, purpose, and creditworthiness.
Scott Alan Webster
(C07030050/February 2004)
Webster
opened securities accounts at other member firms while he was associated with a member firm,
failed to provide written notice to his member firm, and
failed to advise the other member firms that he was a representative prior to opening the accounts or placing initial orders in the accounts.
Scott Alan Webster
Fined $5,000; Suspended 10 business days in all capacities
Victor O. Zevallos
(AWC/C11030040/January 2004)
Without his firm's knowledge, using firm letterhead, Zevallos created fictitious undated documents that he sent to a public customer that misrepresented that he had made a partial repayment of a personal loan from the customer by depositing funds in the customer's brokerage account at his member firm when, in fact, he had made no such payments.
Victor O. Zevallos
Barred
Pietro Joseph Passalacqua
(AWC/C9B030082/January 2004)
Without authorization from his member firm, Passalacqua paid a total of $215,000 in commissions to a registered representative based on referred variable annuity transactions.
Pietro Joseph Passalacqua
Fined $7,500; Suspended 10 business days all capacities
Bill Singer's Comment
See the Berardi case immediately below. Seems you can't pay referral fees to unregistered entities or registered persons. I think it's time the industry called for the scrapping of this policy and permitted the payment of referral fees provided that they are 1) fully disclosed to the effected customers, and 2) undertaken pursuant to a written fee agreement approved by the member firm prior to any payment.
Michael Stewart Berardi
(AWC/C9B030079/January 2004)
Berardi paid $526,250 to unregistered entities in connection with securities business referrals that he received.
Michael Stewart Berardi
Fined $5,000; Suspended 15 business days all capacities
Bill Singer's Comment
Prospecting is the lifeblood of RRs, but you can't pay some fees to certain types of entities. Generally, if you've been asked to pay a percentage of any commissions/transactions, it's going to be a no-no. Before you enter into any referral fee deals, speak with a lawyer and make certain your BD approves the proposal in writing. However, for the record, I don't approve of this prohibition. I believe that as long as any type of referral is fully disclosed to customers and the underlying arrangement is in writing that the practice is acceptable. I know of few businesses that prohibit referral fees for forwarded prospects. See the Passalacqua case above for a variation on this theme.
Michael Nelson Barnett
(OS/C9A030029/January 2004)
Registered Supervisor Barnett failed to reasonably and properly supervise an individual so as to detect and prevent violations of NASD rules regarding discretionary power.
Michael Nelson Barnett
Fined $5,000; Suspended 10 business days all capacities
Bill Singer's Comment
That's a hefty suspension --- 10 business days --- merely for failing to detect/prevent discretionary power tradings. Nonetheless, improper discretion, whether resulting from the failure to get prior written authorization or to abide by the terms of the power, exposes a firm to significant liability. Frankly, it's not often a simple thing to detect. After all, if an RR is engaged in unauthorized discretion and there are no customer complaints, how are you supposed to spot the signs? Things to look out for: sudden increases in trading and increased short-term trading (particularly when the account's history is more stable). Also, one of the reasons you should make a point of becoming aware of RRs' personal financial condition is to keep an eye out for brokers trying to fix their cash woes by unauthorized trading designed to generate commissions.
World Financial Capital Markets, Inc. and Frank Richard Bell
(AWC/CAF030057/January 2004)
World sold shares of a security to foreign customers through unregistered persons; there was no prior customer contact by the firm's RRs and no prior authorization to accept orders from unregistered third parties. BD acting through Bell, knowingly accepted and recorded such orders, improperly exercised discretion, and created/ maintained inaccurate books and records. Further, at the direction of Bell, BD posted research reports on issuers that contained exaggerated, unwarranted, or misleading statements and failed to disclose material facts. BD's systems/procedures were inadequate regarding publishing/distributing research, the handling of customer orders by third persons, and discretionary trading. Furthermore, the respondents failed to establish and implement adequate policies/procedures (and training) pertaining to suspicious transactions and the Bank Secrecy Act.
World Financial Capital Markets, Inc.
Censured; Fined $100,000 ($40,000 jt/sev with Bell); Required
not to post any research reports on its Web site for 2 years;
to revise Anti-Money Laundering Compliance Procedures within 30 days of AWC effectiveness;
to hire an outside consultant within 60 days of AWC effectiveness to independently test AML procedures (and implement consultant's recommendations within 30 days of his/her findings/recommendations.
Frank Richard Bell
Fined $40,000 (jt/sev); Barred in principal capacity; and Suspended for 8 months in all capacities.
Bill Singer's Comment
As U.S. BDs seek new customers, more efforts are being made to find foreign customers. As this case demonstrates, many domestic securities laws/regulations apply regardless of where the customer is located --- here, the BD wrongly sold through unregistered persons. The decision suggests that one possibl cure would have been for the foreign customer to grant a discretionary power to the unregistered third party, and for the BD to file that power and deal with the intermediary. Similarly, there is a worthwhile better-practices pointer that all new accounts (including foreign) should likely preliminarily pass through at least one RR before initiating any activity. Additionally, in this post-9/11 world, U.S. regulators will show no flexibility with Anti-Money Laundering noncompliance. Separately, the sanction prohibiting the posting of any research reports on the firm's website for 2 years is a likely harbinger of things to come. If you're starting to attract increasing numbers of offshore accounts and/or your marketing efforts include a website, you'd be well advised to hire an outside consultant to audit your applicable policies and procedures. Otherwise, you might have an 8-month vacation to think about your shortcomings.
Balfour Investors, Inc. and Carl Goldfarb (AWC/ C10030103/January 2004)
Paul Samuel Ehrenstein (AWC/ C10030104/January 2004)
During an NASD examination, the Staff asked for new account forms. For reasons not explained, Balfour couldn't locate originals of everything requested and acting through Goldfarb prepared substitute replacements for those forms missing. Those substitutes were provided to NASD without affirmatively indicating that the forms were not original, that the names on the "preparer" signature lines had been added to some of the forms without authorization or consent of those whose names were added, and the firm and its personnel lacked documentary confirmation that the substitute forms contained the same customer information, investment objectives, and risk exposure information as contained on the missing forms. Ehrenstein advised his BD to prepare substitute new account forms for missing account forms requested by NASD during an examination. The new forms were "furnished to NASD without Ehrenstein's participation" and without affirmatively indicating that the forms were not original, the names on the "preparer" signature lines had been added without authorization or consent of those whose names were added, the forms were backdated, and that the firm and its personnel lacked documentary confirmation that the substitute forms contained the same information. Ehrenstein failed to ensure that the firm would advise NASD that the forms were not originals and of the manner in which the forms had been prepared prior to the production of the substitute forms.
Additionally, the BD allowed unregistered individuals to act as limited representative-equity traders and to execute transactions. Also, the BD failed to preserve for not less than three years, the first two in an accessible place, brokerage order memoranda and their confirmations. Finally, the BD failed to report to NASD's Fixed Income Pricing SystemSM (FIPSSM) the firm's sell transactions in high-yield securities to public customers.
Balfour Investors, Inc.
Censured; Fined $37,000 ($15,000 jt/sev with Goldfarb)
Carl Goldfarb
Fined $15,000 (jt/sev); Suspended 9 months all capacities
Paul Samuel Ehrenstein
Fined $7,500; Suspended 10 business days in all capacities.
Bill Singer's Comment
Although the index numbers in Balfour/Goldfarb and Ehrenstein are sequentially 103 and 104 and the allegations are remarkably similar, there's nothing in the respective NASD official reports cross-referencing the cases. I'm going to go out on a limb here and guess that the matters are related. Consequently, readers (whether public customers, industry professionals, or regulators) may miss the connections between and among various cases and parties. The mechanics of pleadings aside, I see little reason for NASD not to provide a minimal indication of commonality when reporting a settlement or decision. For another example see the MSDW and Rogers cases below. Further, in many reported cases the explanations are so terse as to raise troubling questions as to the meaning of a case --- what is it that happened here and what "lesson" does NASD seek to teach?
It's an oft-quoted lament that on any given day there's at least one mismarked order ticket (and that's the one the regulators always seem to ask for). Nonetheless, there's a right way and a wrong way to deal with such deficiencies. If you have the ability to "recreate" a document (that is, legitimately fill-in a form based upon existing information at your disposal), it's sounder practice to inform the NASD of the missing original, provide the recreation by prominently disclosing such status, and to submit the supporting documentation upon which you relied --- otherwise, you look like you're trying to pull a fast one.
Finally, as charged, Ehrenstein seems to have merely "advised" his firm to substitute the recreated forms, but apparently Goldfarb "furnished [the forms] to NASD without Ehrenstein's participation." What was the overt, violative act Ehrenstein committed? The NASD's report is unsatisfactory in that it fails to note Ehrenstein's capacity (Director of Compliance?) and doesn't really indicate what act he committed. Was he aware that Goldfarb prepared all the forms without adequate supports? Did he know that Goldfarb had submitted the recreations without prior explanation to the NASD of that status? Did Ehrenstein believe that it was acceptable to prepare the recreations because they incorporated data that he felt was either available on other documents or easily inferred? Or, is Wall Street now hiring Thought Police to prosecute registered persons for giving advice and opinions?
Morgan Stanley DW, Inc. (AWC/ CAF030066/January 2004)
Brian James Rogers (AWC/CAF030065/January 2004)
RRs in a Morgan Stanley DW branch solicited public customers to purchase shares in a start-up technology company for which the BD did not provide research, and falsely recorded the solicited trades as "unsolicited" in the books and records (also causing inaccurate books and records).
Rogers was unaware of the solicitation by RRs at a branch for a start-up technology company not covered by his firm, and failed to take reasonable action to assure they had a reasonable basis for the recommendation. Accordingly, he failed to enforce the firm's solicitation policies and failed to take reasonable steps to prevent and detect the falsification of firm records. Moreover, Rogers orally delegated supervisory responsibilities over inexperienced RRs to an RR engaged in the solicitation of the stock, but failed to act reasonably to ensure that those delegated responsibilities were carried out.
Morgan Stanley DW, Inc.
Fined $25,000: (jt/sev); Required to prepare/implement procedures and computer exception reports reasonably designed to detect and prevent the mis-marking of order tickets regarding the solicitation of securities transactions with public customers where the firm did not provide research for the securities (and provide NASD with a copy of its written supervisory procedures within 30 days after they are implemented, together with a certification of same). In the interim, the BD shall reiterate to its RRs the importance of its policies regarding solicited and unsolicited trades.
Brian James Rogers
Fined $20,000; Suspended 30 days in principal capacity.
Bill Singer's Comment
Once again (as in Balfour/Godlfarb and Ehrenstein) we have sequential docket numbers 065 and 066, remarkably similar allegations, but nothing in the respective NASD official reports cross-referencing the cases. Again, I’m going to go out on a limb here and guess that the matters are related. Nonetheless, why isn’t Rogers named as a respondent in the MSDW case --- when Bell is named in the World case and Goldfarb in the Balfour matter . . . worse, how come Ehrenstein wasn’t named with Goldfarb and Balfour? Still, NASD makes a very valid point in the MSDW/Rogers cases. If you have a number of RRs at one branch entering purchases for the same start-up tech company, then someone should notice the warning flares --- and certainly should be troubled by the non-research-coverage aspect and the “unsolicited” tickets. You just can’t go through the motions and expect that to constitute a defense.
Thomas Jayson Feight (AWC/CMS030261/January 2004)
Feight used high-pressure sales practices; made repeated telephone calls; knowingly and recklessly employed fraudulent misrepresentations, including baseless price predictions and guarantees; and omitted to state material facts about the precarious financial condition of a company with questionable business operations, virtually no assets, and little or no revenue. He failed to research the company's financial condition and knew virtually nothing about the company (including the fact that its most recent SEC filing showed its total cash-on-hand was only $356 and contained a "going concern" clause.) Nonetheless, he claimed that respected institutions were investing in the company, that he had attended meetings with bankers who would obtain financing for the company and, that its per-share value would rise to $5.00 in six months and double in a year.
Thomas Jayson Feight
Barred in all capacities
Bill Singer's Comment
RRs must be careful about getting carried away with the puffery of selling. The old expression is still quite apt: Never write a check your body can't cash. Before you start pumping a stock it's always a good idea to check the most recent SEC filings.
Mark Warren Lamb and David Scott Cacchione (OS/CAF020053/January 2004)
Respondents sold unregistered (non-exempt) securities to public customers while the firm acted as an underwriter (an unauthorized third party was involved in the sale and pricing). Lamb failed to promptly inform his firm's trading department of his receipt of order tickets so that the trades could be reported within 90 seconds of execution. In addition, he failed to disclose that the prices given to certain purchasers were materially different from prices given to others who purchased at virtually the same time, and that his firm delayed for several hours the inputting and trade reporting of the sales.
Mark Warren Lamb
Fined $50,000; Suspended 30 days in all capacities.
David Scott Cacchione
Fined $35,000; Suspended 30 days in all capacities.
RRBDLAW.COM AND SECURITIES INDUSTRY COMMENTATOR™ © 2004 BILL SINGER
THE ARTICLES PUBLISHED HERE REPRESENT THE PERSONAL VIEWS OF THE AUTHOR, AND NOT NECESSARILY THE VIEWS OF ANY LAW FIRM OR ORGANIZATION WITH WHICH HE MAY BE AFFILIATED. ALL STATEMENTS MADE IN THESE ARTICLES ARE FOR GENERAL INFORMATION ONLY AND ARE NOT INTENDED TO PROVIDE, NOR SHOULD THEY BE RELIED ON AS, LEGAL ADVICE. READERS MUST CONSULT WITH QUALIFIED LEGAL COUNSEL BEFORE RELYING UPON ANY CONTENT CONTAINED HEREIN. STATEMENTS MADE IN THESE ARTICLES MAY BE INCORRECT FOR YOUR JURISDICTION OR AT THE TIME WHEN YOU READ SUCH STATEMENTS THE UNDERLYING RULES, REGULATIONS AND/OR DECISIONS MAY NO LONGER BE CONTROLLING OR PERSUASIVE AS A MATTER OF LAW OR INTERPRETATION.
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http://www.rrbdlaw.com/RegulatoryLinks/CASESOFNOTE/NASD/2004.htm
A true statement. em
Not sure who you are refering to, Bernstein? I am aware of his background, but it looks like his data is very old and not very current. As usual, information changes so fast in this day and age that what is true one day may not be true the next and what is not true one day may become true the next, the key is to sort out the facts from opinions which is what I am working to do. I respect people for their first amendment rights but their data may not always be accurate, or even taken out of context.
Where is the white paper being discussed? em
What does Goodyear have to do with anything?
Interesting subject. EM
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Nothing implied, not sure what the connection is...they seem to be only in similar industry -alternative energy models...I don't even know what a metal hydride is, I will research it more later...thanks.
SECURITIES AND EXCHANGE COMMMISSION v. RICKY A. LANG AND ZION CAPITAL MANAGEMENT LLC Civ. No. 04-M-0620 (D. Colo.)
On March 30, 2004, the Securities and Exchange Commission commenced proceedings to collect a civil penalty previously ordered in a Commission administrative proceeding against Ricky A. Lang ("Lang"), a resident of Lakewood, Colorado and Zion Capital Management LLC ("Zion"). The complaint, filed pursuant to Section 21(e) of the Securities Exchange Act of 1934 and Section 209(d) of the Investment Advisers Act, asks a federal court to order Lang and Zion to comply with the Commission's Order and pay $211,821 of disgorgement, $87,343 of prejudgment interest, and a $220,000 civil money penalty. The complaint charges that Lang and Zion failed to comply with the terms of a prior Commission order imposing remedial sanctions issued In the Matter of Ricky A. Lang, et. al, Administrative Proceeding File No. 3-10659 issued on December 11, 2003.
SEC Complaint in this matter
http://www.sec.gov/litigation/litreleases/lr18647.htm
FORMER CHRISTIAN SCIENCE PRACTITIONER INDICTED ON CHARGES INVOLVING FICTITIOUS INVESTMENT SCHEME
United States of America v. Eric Edward Resteiner, Criminal Action No. 04-CR-10082 (MLW) U.S. District Court for the District of Massachusetts - Filed March 24, 2004.
SEC v. Eric E. Resteiner, et al., Civil Action No. 01-10637(PBS) U. S. District Court for the District of Massachusetts - Filed April 16, 2001.
The Securities and Exchange Commission announced today that on March 24, 2004, the United States Attorney for the District of Massachusetts obtained an indictment against Eric E. Resteiner on 60 felony counts including wire fraud, mail fraud, and money laundering charges involving a fictitious investment scheme. Resteiner is a defendant in a previously filed SEC fraud action based on the same conduct.
The indictment alleges that Resteiner created and executed a scheme by which he defrauded approximately 50 investors, many of whom were members of the Church of Christ Scientist (Christian Science Church), out of more than $30 million through a purported high-yield, international bank trading program. As part of this scheme, Resteiner, assisted by others, made false representations to prospective investors, including that he was one of only a few people in the world permitted to conduct "off-balance sheet" trading, that his trading program would pay annual returns of no less than 50 percent, and that investors' principal would never be at risk. The indictment further alleges that Resteiner knew that he was not a trader and had no way to generate the promised investment returns, that investors' principal was not safe, and was in fact being used to pay purported "interest" payments to investors to lure more investors into the scheme, and to support his lavish lifestyle. The indictment alleges Resteiner maintained homes in the Bahamas and in Switzerland, a yacht, an airplane, a helicopter, two Rolls Royce motor cars, two Hummer vehicles, a Porsche Carerra sports car, and other assorted vehicles.
On April 16, 2001, the Commission filed a complaint in the Massachusetts federal district court against Resteiner and others charging them each with participating in the same investment scheme alleged in the indictment. On August 19, 2002, the Massachusetts federal district court entered default judgments against Resteiner and another defendant, Voldemar A. VonStrasdas, in the Commission's action. The Court ordered Resteiner and VonStrasdas jointly and severally to pay disgorgement plus prejudgment interest of $25,930,895.26. In addition, the Court ordered Resteiner and VonStrasdas each to pay civil penalties of $4.4 million, and permanently enjoined each of them from violating the antifraud and other provisions of the federal securities laws. The court had previously entered judgments by consent against two other individuals involved in Resteiner's fraudulent investment scheme, Charles G. Dyer and Miles M. Harbur, and against two entities controlled by Dyer, Resource F, LLC and Bunker Hill Aviation, LLC.
Unscrupulous promoters continue to victimize the public with Prime Bank schemes. Accordingly, investors are advised to access the Commission's "Prime Bank" Investor Alert that provides tips on how to avoid being a victim of these scams. The investor alert can be found on the Commission's web site, at http://www.sec.gov/divisions/enforce/primebank.shtml.
For further information, please see Litigation Release No. 18414 (October 16, 2003); Litigation Release No. 18394 (October 4, 2003); Litigation Release No. 17858 (November 22, 2002); Litigation Release No. 17713; (September 5, 2002); Litigation Release No. 16969 (April 18, 2001); and Litigation Release No. 16963 (April 16, 2001).
http://www.sec.gov/litigation/litreleases/lr18648.htm
SEC Charges Former Chief Financial Officer of McKesson HBOC For His Role in the Massive Accounting Fraud
The Securities and Exchange Commission today announced civil fraud charges against the Chief Financial Officer of McKesson HBOC for his role in a massive accounting fraud. McKesson HBOC (now renamed McKesson Corporation) is a Fortune 100 company with its corporate headquarters in San Francisco.
The SEC's complaint, filed in the Northern District of California, alleges that Richard Hawkins, age 53, of Atherton, California, violated the antifraud, lying-to-accountants, and books and records provisions of the federal securities law. Mr. Hawkins also was indicted today on criminal charges stemming from his role in the fraud.
As alleged in the complaint, Mr. Hawkins participated in a fraudulent scheme with other former McKesson officers to artificially inflate the company's financial results for the fiscal quarter ended March 31, 1999, by fraudulently recognizing revenue on a $20 million transaction between McKesson and Data General Corporation. Mr. Hawkins and others caused revenue from the Data General transaction to be reported to the public as part of the company's earnings release on April 22, 1999, despite the fact that McKesson's independent auditors told Mr. Hawkins that revenue from the transaction could not be recognized. Soon after the fraud was discovered in April 1999, McKesson's stock tumbled from approximately $65 to $34 a share, a drop that slashed the company's market value by more than $9 billion.
Mr. Hawkins was also formerly the Chief Financial Officer of San Francisco-based McKesson Corporation before the company's January 1999 merger with Atlanta-based HBOC & Company ("HBOC") to form McKesson HBOC. The charges relate to Mr. Hawkins conduct in the first fiscal quarter after the merger.
Mr. Hawkins is the only former McKesson officer who was not employed by HBOC, to date, to be charged in the investigations into the accounting fraud at McKesson HBOC. Mr. Hawkins becomes the twelfth person charged civilly by the SEC in connection with this investigation. Six former HBOC executives have previously been charged criminally.
According to the civil complaint, the charges against Hawkins stem from his involvement in a single fraudulent $20 million transaction between McKesson and Data General. The transaction allowed McKesson to report to the public that the company met Wall Street analysts's expectations for the quarter ended March 31, 1999, which was the first quarter of combined operations after McKesson's acquisition of HBOC.
According to the complaint, the Data General transaction was fraudulent for three reasons: the deal was backdated, gave Data General an unconditional right to return the McKesson product, and was a swap that was not accounted for as a swap.
According to the complaint, the Data General transaction was conceived, negotiated, and executed, in its entirety, after the close of the quarter. The transaction consisted of two separate contracts. The first contract was improperly backdated to March 31, 1999. The second contract was dated April 5, 1999. Both contracts were contingent upon each other and negotiated contemporaneously as part of the same transaction. The second contract also contained a provision requiring McKesson to buy back any software that Data General was unable to resell.
According to the complaint, although McKesson HBOC's outside auditors informed Mr. Hawkins that revenue from the transaction could not be recognized under Generally Accepted Accounting Principles, Mr. Hawkins and others included the $20 million transaction in the company's earnings release on April 22, 1999. Hawkins also made false statements to the company's auditors regarding the Data General transaction.
The SEC charges Mr. Hawkins with violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1, and 13b2-2 thereunder. The Commission is seeking to enjoin Mr. Hawkins from committing future violations of these provisions, compel him to pay disgorgement, prejudgment interest, and civil monetary penalties, and to bar Mr. Hawkins from serving as an officer or director of a public company.
SEC Complaint in this matter
http://www.sec.gov/litigation/litreleases/lr18649.htm
SEC OBTAINS $30 MILLION JUDGMENT AGAINST BRANSON CITY LIMITS, INC. AND RESORT HOTELS, INC. IN NATIONWIDE PONZI SCHEME CASE
The Securities and Exchange Commission (Commission) announced that on March 30, 2004 the Honorable Larry J. McKinney, Chief Judge, U.S. District Court for the Southern District of Indiana, entered a final judgment against Branson City Limits, Inc. (Branson City Limits) and Resort Hotels, Inc. (Resort Hotels), which: (1) orders Branson City Limits and Resort Hotels to pay, jointly and severally, disgorgement in the amount of $28,976,552.74 and prejudgment interest in the amount of $1,376,858.02, and (2) permanently enjoins Branson City Limits and Resort Hotels from future violations of Sections 5 and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. Both Branson City Limits and Resort Hotels consented to the entry of the final judgment without admitting or denying the allegations contained in the Commission's November 10, 2003 complaint.
The Commission also announced that on March 30, 2004, the Honorable William T. Lawrence, Magistrate Judge, U.S. District Court for the Southern District of Indiana entered an order, which: (1) empowers the Receiver previously appointed in this action to enforce any of the final judgments obtained by the Commission; (2) orders the Receiver to provide injured investors with information concerning this lawsuit; and (3) orders the Receiver to establish a claims process for injured investors and other creditors of the defendants in this action.
In its complaint, the Commission alleged that Branson City Limits, and Resort Hotels, through ten individuals and entities (the Defendants), offered and sold securities, which were nominally structured as hotel timeshare rental interests, in unregistered transactions as part of a Ponzi scheme that defrauded at least 600 investors of over $28 million in 30 states. On November 10, 2003, Chief Judge McKinney issued a temporary restraining order, which froze the Defendants' assets and temporarily restrained the Defendants from violating the antifraud and registration provisions of the federal securities laws. On November 20, 2003, the Honorable John D. Tinder, U.S. District Court for the Southern District of Indiana, issued preliminary injunctions against each of the Defendants, which continued the asset freeze ordered by Chief Judge McKinney and preliminarily enjoined the Defendants from violating the antifraud and registration provisions of the federal securities laws for the pendency of this action. On March 23, 2004, Chief Judge McKinney entered a final judgment against two other defendants in this action, Lee E. Larscheid (Larscheid) and Ozark Ticket and Travel, Inc. (Ozark Ticket), which: (1) ordered Larscheid and Ozark Ticket to pay, jointly and severally, disgorgement in the amount of $1,792,369.50 and prejudgment interest in the amount of $22,550; (2) ordered Larscheid and Ozark Ticket to each pay civil penalties in the amount of $120,000; and (3) permanently enjoined Larscheid and Ozark Ticket from future violations of Sections 5 and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder.
This case is still pending against the remaining Defendants.
For additional information, see Litigation Release No. 18450 (November 10, 2003), Litigation Release No. 18476 (November 20, 2003), and Litigation Release No. 18637 (March 25, 2004).
http://www.sec.gov/litigation/litreleases/lr18650.htm
United States of America v. Larry Stockett, No. CR-S-03-365-LRH(LRL) (USDC D. Nevada); Securities and Exchange Commission v. Larry A. Stockett, No. CV-S-02-0607-PMP-LRL (USDC D. Nevada)
The Securities and Exchange Commission ("Commission") announced that on March 4, 2004, the United States District Court for the District of Nevada unsealed a 15 count indictment against Larry Stockett. The indictment charges Stockett with securities fraud, insterstate transportation in execution of a scheme to defraud, wire fraud, money laundering, obstruction of justice and aiding and abetting in connection with "pump and dump," loan and joint venture schemes involving Hightec, Inc. ("Hightec") a former publicly traded company of which Stockett was the sole officer and director. The alleged criminal violations were, in part, the subject of a successful enforcement action brought against Stockett by the Commission in 2002. The obstruction of justice count charges Stockett with providing false testimony during the Commission's investigation concerning Stockett's activities and with making false statements to the court during the Commission's litigation of its civil action against Stockett.
The Commission filed a civil complaint against Stockett in April 2002 alleging that he orchestrated a fraudulent scheme regarding Hightec and The S.I.N.C.L.A.R.E. Group, Inc., a second former publicly traded company he controlled, in which Stockett, among other things, issued numerous false press releases and other public statements concerning the companies and unlawfully sold his restricted shares of Hightec stock in unregistered transactions. A final judgment in the Commission's litigation was entered against Stockett on March 4, 2004, permanently enjoining him from violating numerous provisions of the Securities Act of 1933 and Securities Exchange Act of 1934, prohibiting him from acting as an officer or director of a public company, ordering disgorgement and prejudgment interest totaling $1,836,181.56, and ordering a civil penalty of $120,000.
The Commission wishes to thank the United States Attorney's Office for the District of Nevada and the Federal Bureau of Investigation for their cooperation and assistance in this matter.
http://www.sec.gov/litigation/litreleases/lr18651.htm
SECURITIES AND EXCHANGE COMMISSION v. MICHAEL B. JOHNSON, MICHAEL JOHNSON & CO., LLC, DAVID C. SKINNER, JR. AND AMERICAN TELEVISION AND FILM COMPANY f/k/a WINNERS INTERNET NETWORK, INC., No. 04-RB-0626 (USDC D. Colorado).
The Securities and Exchange Commission ("Commission") announced that it filed an injunctive action on March 31, 2004 against Colorado resident Michael B. Johnson, his Colorado-based accounting firm, Michael Johnson & Co., LLC ("Johnson & Co."), American Television and Film Company f/k/a Winners Internet Network, Inc. ("Winners"), a Nevada corporation, and Florida resident David C. Skinner, Jr., Winners' former president and chairman of the board of directors. The Commission's complaint alleges that between December 1999 and December 2000, Winners and Skinner carried out a scheme to defraud investors by filing reports and a registration statement with the Commission containing false financial statements that fraudulently overstated Winners' revenues, income, assets and cash inflows and understated expenses. According to the complaint, Johnson and Johnson & Co. assisted in the scheme by performing a range of accounting functions for Winners, including purporting to audit financial statements they had previously prepared for Winners. Further, between January and October 2000, Skinner and Winners reviewed or disseminated three promotional "analyst reports" containing baseless financial projections.
The Commission's complaint alleges that: (1) Johnson, Johnson & Co. and Skinner violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder, and aided and abetted violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13 thereunder; and (2) Winners violated Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The complaint seeks injunctions and third-tier civil penalties against all of the defendants; disgorgement and prejudgment interest from Johnson, Johnson & Co., and Skinner; and officer and director and penny stock bars against Skinner only. Without admitting or denying the Commission's allegations, Skinner has consented to the entry of an order that would enjoin him from future violations of the foregoing provisions and direct him to pay disgorgement and prejudgment interest in an amount to be determined after the completion of the Commission's discovery in this action; and in which he would agree to the Court's continuing jurisdiction over the action for the purpose of determining whether to assess civil penalties against him.
SEC Complaint in this matter
http://www.sec.gov/litigation/litreleases/lr18652.htm
SECURITY TRUST COMPANY, N.A. PAYS $1 MILLION IN MUTUAL FUND MARKET TIMING AND LATE TRADING FRAUD ACTION
The Securities and Exchange Commission announced that, on March 31, 2004, the United States District Court for the District of Arizona entered a final judgment in a mutual fund market timing and late trading case against defendant Security Trust Company, N.A. (STC), an uninsured national banking association based in Phoenix, Arizona. Among other services, STC effected mutual fund trades for participants in retirement plans and processed data regarding those trades for the plans' third party administrators (TPAs). In accordance with the final judgment, STC paid $1 million in disgorgement on March 31, 2004, when STC was shut down pursuant to orders from its primary regulator, the Office of the Comptroller of the Currency. STC consented to the entry of the judgment without admitting or denying the allegations in the Commission's complaint.
In addition to STC, the Commission's complaint, filed on November 25, 2003, charged STC's former chief executive, Grant D. Seeger, 40, of Phoenix; its former president, William A. Kenyon, 57, of Phoenix; and its former senior vice president, Nicole McDermott, 34, who resides near Phoenix. McDermott consented to the entry of a final judgment that was entered on February 23, 2004. The case is pending against Seeger and Kenyon.
The Commission's complaint alleged the following:
Late Trading: From May 2000 to July 2003, STC facilitated hundreds of mutual fund trades in nearly 400 different mutual funds by several hedge funds controlled by Edward J. Stern, known as the Canary Capital funds. Approximately 99% of these trades were transmitted to STC after the 4:00 p.m. EST market close; 82% of the trades were sent to STC between 6:00 p.m. and 9:00 p.m. EST. The hedge funds' late trading was effected by STC through its electronic trading platform, which was designed primarily for processing trades by TPAs for retirement plans. STC repeatedly misrepresented to mutual funds that the hedge funds were a retirement plan account, even though the defendants knew that the hedge funds were not a TPA or a retirement plan account.
Market Timing: During its three-year relationship with the Canary hedge funds, STC and the other defendants employed various methods to attempt to conceal the hedge funds' market timing activities from mutual funds, including a "piggybacking" strategy in which STC set up a sub-account within the account of one of STC's TPA clients and attached the Canary hedge funds' mutual fund trades to the trades of this client without its knowledge.
The complaint charged STC, Seeger, Kenyon, and McDermott with violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. STC is also charged with violating Rule 22c-1, under Section 22(c) of the Investment Company Act of 1940, which prohibits the purchase or sale of mutual fund shares except at a price based on the current NAV of such shares that is next calculated after receipt of a buy or sell order. Seeger is also charged with violating Section 37 of the Investment Company Act, which prohibits stealing the assets of a registered investment company. The Commission is seeking an accounting, disgorgement, and penalties from Seeger, Kenyon and McDermott and a judgment of permanent injunction against Seeger and Kenyon.
For additional information, see Litigation Release No. 18479 (Nov. 25, 2003).
http://www.sec.gov/litigation/litreleases/lr18653.htm
SEC SUES WILLIAM W. FREISE, FORMER PRESIDENT AND DIRECTOR OF POWERBALL INTERNATIONAL INC., FOR ALTERING COMPANY BANK STATEMENTS TO CONCEAL FRAUD
FORMER POWERBALL AUDITORS DENIED PRIVILEGE OF APPEARING OR PRACTICING BEFORE SEC FOR TWO YEARS FOR IMPROPER PROFESSIONAL CONDUCT
On March 31, 2004, the Commission filed an injunctive action against William W. Freise ("Freise"), alleging that during the period June 2002 through April 2003, Freise, the former president and director of Powerball International Inc. ("Powerball"), falsified company records to hide his theft of $7,200, and to hide his failure to pay $40,000 for stock he had received through the exercise of warrants. The Complaint alleges that in order to conceal his fraud, Freise altered monthly bank statements for Powerball's bank account, which made that account appear to contain a substantially higher cash balance than it actually contained. The Complaint alleges that Freise knew that Powerball's financial statements and its reports to the Commission would reflect such false cash balances. As a result of such conduct, Powerball materially misstated its financial statements for the quarters ended June 30, 2002 and September 30, 2002 and for the year ended December 31, 2002.
The Complaint alleges that Freise violated Section 17(a) of the Securities Act of 1933 (the "Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder. The Complaint also alleges that Freise aided and abetted Powerball's 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 promulgated thereunder. The Complaint seeks a permanent injunction prohibiting Freise from future violations of these provisions, disgorgement, prejudgment interest and civil penalties pursuant to Section 21(d)(3) of the Exchange Act and Section 20(d)(1) of the Securities Act. The Commission also seeks an order permanently barring Freise from serving as an officer or director of a public company.
On April 1, 2004, the Commission issued an Order instituting public administrative proceedings against Powerball's former auditors, David T. Thomson, CPA ("Thomson") and David T. Thomson PC ("Thomson PC"), pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice [17 C.F.R.§ 201.102(e)]. The Order denies Thomson and Thomson PC the privilege of appearing or practicing before the Commission as accountants, with the right to request that the Commission consider their reinstatement by submitting an application after two years. The Order finds that Thomson and Thomson PC failed to comply with generally accepted auditing standards ("GAAS") in their audit of Powerball's financial statements for the fiscal year ended December 31, 2002. The Order further finds that Thomson and Thomson PC failed to obtain confirmations of cash balances from Powerball's bank, or otherwise obtain sufficient competent evidential matter to verify Powerball's cash balances and instead relied on faxed copies of bank statements. Obtaining bank confirmations is a fundamental audit requirement that was heightened in this case by the fact that Powerball's cash balances represented over two-thirds of the company's assets. Based on such conduct, the Commission found that Thomson and Thomson PC engaged in improper professional conduct. Thomson and Thomson PC consented to the Order, but neither admitted nor denied the findings in the Order. See In the Matter of David T. Thomson, CPA and David T. Thomson PC., Admin. Proc. No. 3-11453 (April 1, 2004).
http://www.sec.gov/litigation/litreleases/lr18654.htm