The Securities and Exchange Commission Charged RBS Securities Inc.

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540300002#.Un2WNvmsigI

Washington D.C., Nov. 7, 2013 —

The Securities and Exchange Commission today charged RBS Securities Inc., a subsidiary of the Royal Bank of Scotland plc, with misleading investors in a 2007 subprime residential mortgage-backed security (RMBS) offering. RBS agreed to settle the matter and pay more than $150 million, which the SEC will use to compensate investors for harm suffered as a result of RBS’s conduct.

The SEC alleges that RBS said the loans backing the offering “generally” met the lender’s underwriting guidelines even though nearly 30 percent fell so short of the guidelines that RBS should have excluded them from the offering entirely. Stamford, Connecticut-based RBS, then known as Greenwich Capital Markets, quickly reviewed a very small portion of the loans and was paid approximately $4.4 million for its work as the lead underwriter on the transaction, the SEC said in a complaint filed in federal court in Connecticut.

“In its rush to meet a deadline set by the seller of these loans, RBS cut corners and failed to complete adequate due diligence, with predictable results,” said George S. Canellos, co-director of the SEC’s Division of Enforcement. “Today’s action punishes that misconduct and secures more than $150 million in relief for those harmed by this shoddy securitization.”

RBS told investors the loans backing the offering were “generally in accordance with” the lender’s underwriting guidelines, which consider the value of the home relative to the mortgage and the borrower’s ability to repay the loan. RBS knew or should have known that was false because due diligence before the offering showed that almost 30% of the loans underlying the offering did not meet the underwriting guidelines. In its complaint, the SEC said RBS gave investors a misleading impression of the quality of the loans backing the offering and the likelihood of their repayment.

The SEC’s complaint charges Stamford-based RBS with violations of Sections 17(a)(2) and (3) of the Securities Act of 1933. RBS, without admitting or denying the SEC’s allegations, has agreed to a final judgment that orders it to disgorge $80.3 million, plus prejudgment interest of $25.2 million, and pay a civil penalty of $48.2 million.

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Sherb & Co. LLP and Four Accountants Charged for Failures in Audits of China-Based Companies

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540289271#.Un2WOPmsigI

Washington D.C., Nov. 7, 2013 —
The Securities and Exchange Commission today announced sanctions against a New York-based audit firm, its founder, two other partners, and an audit manager for their roles in the failed audits of three China-based companies publicly traded in the U.S.

An SEC investigation found that Sherb & Co. LLP and its auditors falsely represented in audit reports that they had conducted the audits in accordance with U.S. auditing standards when it fact they were riddled with failures and improper professional conduct. One of the companies they audited – China Sky One Medical Inc. – has since been charged by the SEC with financial fraud.

To settle the SEC’s charges, the firm and the four auditors agreed to be barred from practicing as accountants on behalf of any publicly traded company or other entity regulated by the SEC. The firm agreed to pay a $75,000 penalty.

“Auditors are critical gatekeepers in the financial reporting process, but Sherb & Co. and its auditors failed to live up to their professional obligations in multiple audits during a five-year period,” said Andrew Ceresney, co-director of the SEC’s Division of Enforcement.

According to the SEC’s order instituting settled administrative proceedings, the flawed audits involved China Sky One Medical, China Education Alliance Inc., and Wowjoint Holdings Ltd. The individuals responsible for the audits were the firm’s founder Steven J. Sherb, fellow partners Christopher A. Valleau and Mark Mycio, and audit manager Steven N. Epstein. They failed to properly plan and execute the audits, and they did not obtain sufficient competent evidential matters concerning sales, revenue, or bank balances. They ignored clear red flags and failed to exercise professional skepticism and due care. They also failed to maintain complete audit work papers.

According to the SEC’s order, Sherb engaged in improper professional conduct as the concurring partner for the China Sky audit and as concurring partner and engagement quality review (EQR) partner for the Wowjoint audits. Valleau engaged in improper professional conduct as the engagement partner for the China Sky audit and four of five Wowjoint audits, and as the EQR for the China Education audit. Mycio engaged in improper professional conduct as the engagement partner for the China Education audit and one of the Wowjoint audits. Epstein engaged in improper professional conduct as the senior audit manager on the China Sky audit, China Education audit, and four of five Wowjoint audits.

The SEC order finds that Sherb & Co., Sherb, Valleau, Mycio, and Epstein violated Rule 102(e)(1)(ii) of the SEC’s Rules of Practice and Section 4(C) of the Securities Exchange Act of 1934. The SEC’s order also finds that Sherb & Co. and Mycio violated Exchange Act Section 10A(b)(1). Sherb & Co. and Mycio are ordered to cease and desist from committing or causing any violations of Section 10A(b)(1) of the Exchange Act. Sherb, Valleau, and Mycio are prohibited from practicing before the SEC as an accountant for at least five years, and Epstein is barred for at least three years.

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SEC Charges Municipal Issuer in Washington’s Wenatchee Valley Region for Misleading Investors

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540262235#.Un2WPPmsigI

Washington D.C., Nov. 5, 2013 —
The Securities and Exchange Commission today charged a municipal issuer in the state of Washington’s Wenatchee Valley region with misleading investors in a bond offering that financed the construction of a regional events center and ice hockey arena. The SEC also charged the underwriter and outside developer of the project and three individuals involved in the offering.

The Greater Wenatchee Regional Events Center Public Facilities District agreed to settle the SEC’s charges by paying a $20,000 penalty and undertaking remedial actions. It is the first time that the SEC has assessed a financial penalty against a municipal issuer.

The issuer is a municipal corporation formed by nine Washington cities and counties in 2006 to fund the Town Toyota Center, located in the city of Wenatchee. An SEC investigation found inaccuracies in the primary disclosure document accompanying the issuer’s offering of bond anticipation notes in 2008. The document, called the “official statement,” stated there had been no independent reviews of the financial projections for the events center. However, an independent consultant twice examined the projections and raised questions about the center’s economic viability. The official statement failed to disclose that financial projections had been revised upward based in part upon optimistic assurances by civic leaders that the community would support the project. The document also omitted key information about the possibility that the City of Wenatchee’s remaining debt capacity of $19.3 million would limit its ability to support any future long-term bonds.

“Financial penalties against municipal issuers are appropriate for sanctioning and deterring misconduct when, as here, they can be paid from operating funds without directly impacting taxpayers,” said Andrew Ceresney, co-director of the SEC’s Division of Enforcement. “This municipal issuer is paying an appropriate price for withholding negative information from its primary offering document and giving investors a false picture of the future performance of the project.”

The Greater Wenatchee Regional Events Center Public Facilities District issued $41.77 million in bond anticipation notes in 2008, and defaulted on its principal payments in December 2011.

The SEC’s settled administrative proceedings also name the developer Global Entertainment and its then-president and CEO Richard Kozuback, the underwriter Piper Jaffray & Co. and its lead investment banker Jane Towery, and Allison Williams, a senior staff member for the Greater Wenatchee Regional Events Center Public Facilities District who certified the accuracy of the official statement.

“An underwriter’s due diligence obligation is critical, particularly when financing a startup revenue project. Piper Jaffray & Co. failed to develop a reasonable basis for believing the accuracy of key representations made in the official statement,” said Mark Zehner, deputy chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit.

In settling the SEC’s charges, Piper Jaffray & Co. and Towery agreed to be censured and pay penalties of $300,000 and $25,000 respectively. Global Entertainment and Kozuback each agreed to pay penalties of $10,000. Williams consented to a cease-and-desist order and the issuer agreed to remedial actions, including training for personnel involved in the offering and disclosure process. The issuer also agreed to adopt written policies for disclosures in municipal offerings and continuing disclosure obligations, and to designate an individual responsible for ensuring compliance with those obligations. The respondents neither admit nor deny the SEC’s findings.

The SEC’s order requires Piper Jaffray & Co. to retain an independent consultant to conduct a review of the firm’s municipal underwriting due diligence policies and procedures as well as its supervisory policies and procedures relating to municipal underwriting due diligence. Towery agreed to limit her activities as an associated person of a broker-dealer or municipal advisor for one year by refraining from any contact with any existing or prospective municipal issuer client for the purpose of conducting, maintaining, or developing business or for the purpose of making decisions on behalf of a broker-dealer in connection with any due diligence activities.

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SEC Halts Ponzi Scheme Involving New Zealand Companies

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540247852#.Un2WTPmsigI

Washington D.C., Nov. 4, 2013 —
The Securities and Exchange Commission today announced an emergency asset freeze to halt a Ponzi scheme involving U.S. and New Zealand-based companies peddling sham investment opportunities ranging from a bank trading program to kidney dialysis clinics.

The SEC alleges that Christopher A.T. Pedras, who has residences in Turlock, Calif., and New Zealand, misled his initial investors into believing they were investing in a profitable trading platform in which his company served as an intermediary between global banks. When Pedras and his companies encountered difficulty paying the promised 4 to 8 percent monthly returns, they began steering investors to a different investment program to purportedly increase the value of their investment by 80 percent by funding kidney dialysis clinics in New Zealand. Pedras’s business partner Sylvester M. Gray II and lead sales representative Alicia Bryan helped him solicit investors for both programs, and the money was never invested as promised. Earlier investors were paid supposed returns with funds received from newer investors, and Pedras stole more than $2 million and spent another $1.2 million on sales agents.

“Rather than conducting any legitimate business activity, Pedras and his partners were simply operating a Ponzi scheme that was ultimately doomed to collapse,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office. “This emergency action stops them from fraudulently raising any more money from U.S. investors.”

According to the SEC’s complaint unsealed late Friday in U.S. District Court for the Central District of California, Pedras raised more than $5.6 million from at least 50 investors in the U.S. since July 2010 by selling securities in two phases. Pedras, Gray, and Bryan first solicited investors for their Maxum Gold Small Cap Trade Program in which Pedras’s company Maxum Gold purportedly serves as the intermediary between banks that can’t legally trade with each other directly, so they use Maxum Gold’s trade platform to do so indirectly. Maxum Gold purports to share portions of the trading profits with investors.

The SEC alleges that the Ponzi scheme shifted gears earlier this year when Pedras and others began promoting the FMP Renal Program to Maxum Gold investors. They characterized it as an investment in a New Zealand company called FMP Medical Services Limited that would be publicly traded and operate kidney dialysis clinics in New Zealand. Investors were told if they converted their Maxum Gold investments into the FMP Renal Program, they would instantly realize an 80 percent increase in the value of their investment.

According to the SEC’s complaint, Pedras and Bryan routinely communicate with investors via email and also conduct investor conference calls. Pedras has falsely claimed that Maxum Gold has been doing business for 15 to 20 years with more than 6,000 clients and has been making regular payments to investors. Pedras conducted at least one in-person seminar at Paramount Studios in Los Angeles. Investments were falsely touted as risk-free and investor funds were not maintained safely in escrow accounts as described to investors.

The SEC alleges that the Ponzi scheme paid investors more than $2.4 million in “returns” using new investor money. Pedras stole more than $2 million from investors in the form of cash withdrawals, car and retail purchases, and transfers of investor funds to his various companies. Approximately $1.2 million in sales commissions were paid to a small network of sales agents who sold the investments to U.S. investors.

According to the SEC’s complaint, during at least one conference call, Pedras advised investors not to respond if contacted by the SEC. He characterized SEC investor questionnaires as “fake” and stated that the SEC’s investigation was motivated by a “personal vendetta” against him.

The SEC’s complaint charges Pedras, Gray, Bryan and the Maxum Gold and FMP entities with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Pedras and Bryan also are charged with violations of Section 15(a) of the Exchange Act, and they and Pedras’s companies are charged with violations of Sections 5(a) and 5(c) of the Securities Act. The Honorable Gary Feess granted the SEC’s request for a temporary asset freeze against Maxum Gold, FMP, and Pedras. Judge Feess’s order prohibits the destruction of documents and requires the defendants to provide accountings. A court hearing has been scheduled for November 8.

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SEC Obtains Asset Freeze in California-Based Real Estate Investment Scheme

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540220789#.Un2WTvmsigI

Washington D.C., Nov. 1, 2013 —
The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze against a group of Pasadena, Calif.-based companies at the center of an ongoing real estate investment scheme.

The SEC alleges that Yin Nan (Michael) Wang and Wendy Ko have raised more than $150 million from approximately 2,000 investors by selling promissory notes issued through Velocity Investment Group, which manages a series of investment funds entitled the Bio Profit Series. Each of the Bio Profit Series funds purports to be primarily in the business of making real estate-related loans in California, but in reality Wang and Ko have used money received from newer investors to make the promised quarterly interest payments to earlier investors in Ponzi-like fashion.

“The SEC sought emergency action to prevent the further dissipation of investor assets through an expected set of upcoming Ponzi-like payments,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office. “Wang falsified financial records and used another company to create the illusion of legitimate economic activity.”

According to the SEC’s complaint unsealed today in U.S. District Court for the Central District of California, Wang and Velocity Investment Group have been raising money since at least 2005. Wang is the sole owner of Velocity Investment Group, and the Bio Profits Series fund accounts are controlled by Wang and Ko, who transferred some investor funds to make quarterly interest payments to other investors. The SEC’s complaint says Wang has admitted that Velocity was using new investor money to pay earlier investors.

The SEC alleges that Wang directed one of the Bio Profit Series funds to provide its outside accountant with inaccurate financial information that materially overstated its mortgage loans receivable and mortgage income figures. The more than $9.8 million of mortgage loan income shown in those financial statements included accrued interest that Wang knew that the fund would never actually receive. Wang told Velocity’s accounting manager that investors would flee if they were told the true numbers, and it would be difficult for him to raise money.

The SEC further alleges that Wang and Ko used transactions between the Bio Profit Series funds and another company charged in the complaint – Rockwell Realty Management – with the apparent purpose of concealing the fraud. These transactions appear to have had no purpose other than to obfuscate the amount of transfers among the various funds.

The SEC’s complaint charges Wang and his companies as well as Ko with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The Honorable John A. Kronstadt of the U.S. District Court for the Central District of California granted the SEC’s request for a temporary asset freeze against Velocity, Bio Profit Series I, Bio Profit Series II, Bio Profit Series III, Bio Profit Series V, and Rockwell Realty Management. Judge Kronstadt’s order prohibits the destruction of documents, requires the defendants to provide accountings, and allows expedited discovery. A court hearing has been scheduled for December 9 on the SEC’s motion for a preliminary injunction.

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Lawrence D. Polizzotto Vice President of Investor Relations With Violating Fair Disclosure Rules

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539799034#.Uiu4-8a1ESE

Washington D.C., Sept. 6, 2013 —

The Securities and Exchange Commission today charged the former head of investor relations for a Tempe, Ariz.-based solar energy company with violating rules requiring fair disclosure of information when he alerted certain analysts and investors about an upcoming major development.

Regulation FD requires material nonpublic information to be disclosed publicly in a broad manner and not selectively. An SEC investigation determined that Lawrence D. Polizzotto, a former vice president at First Solar Inc., violated Regulation FD when he indicated in phone conversations with some analysts and investors that the company was unlikely to receive a much-anticipated loan guarantee from the U.S. Department of Energy. When First Solar broadly disclosed this material information in a press release the next morning, its stock price dropped 6 percent.

Polizzotto agreed to pay $50,000 to settle the SEC’s charges.

“Polizzotto offered previously undisclosed information to select analysts and institutional investors and left the rest of First Solar’s investors in the dark,” said Michele Wein Layne, Director of the SEC’s Los Angeles Office. “All investors, regardless of their size or relationship with the company, are entitled to the same information at the same time.”

According to the SEC’s order instituting a settled administrative proceeding, Polizzotto attended an investor conference on Sept. 13, 2011, with First Solar’s then-CEO, who publicly expressed confidence that the company would receive three loan guarantees totaling approximately $4.5 billion for which the company had received conditional commitments from the Energy Department. However, two days later, Polizzotto and several other executives learned that the company would not be receiving at least one of the loan guarantees. A group of employees including Polizzotto and one of First Solar’s in-house lawyers began discussing how and when the company should publicly disclose the loss of the loan guarantee. The company lawyer specifically noted that when the company received official notice from the Energy Department, “we would not have to issue a press release or post something to our website the same day. We would, though, be restricted by Regulation FD in any [sic] answering questions asked by analysts, investors, etc. until such time that we do issue a press release or post to our website…”

According to the SEC’s order, Polizzotto violated Regulation FD during one-on-one phone conversations with approximately 20 sell-side analysts and institutional investors on Sept. 21, 2011 – the day after a Congressional committee sent a letter to the Energy Department inquiring about its loan guarantee program and the status of conditional commitments, including three involving First Solar. This Congressional line of inquiry caused concern within the solar industry about whether the Energy Department would be able to move forward with its conditional commitments. Analysts began issuing research reports about the Congressional inquiry, and analysts and investors began calling Polizzotto. Despite knowing that the company had not yet publicly disclosed anything, Polizzotto drafted several talking points that effectively signaled that First Solar would not receive one of the three loan guarantees. His talking points emphasized the high probability of receiving two of the loan guarantees and the low probability of receiving the third. Polizzotto delivered his talking points in the one-on-one calls with analysts and institutional investors, and he directed a subordinate to do the same. Polizzotto went even further than his talking points when he told at least one analyst and one institutional investor that if they wanted to be conservative, they should assume that First Solar would not receive one of the loan guarantees.

Polizzotto agreed to settle the SEC’s charges without admitting or denying the findings. In addition to the $50,000 penalty, he agreed to cease and desist from causing any violations and any future violations of Regulation FD and Section 13(a) of the Securities and Exchange Act of 1934.

The SEC has determined not to bring an enforcement action against First Solar due to the company’s extraordinary cooperation with the investigation among several other factors. Prior to Polizzotto’s selective disclosure on September 21, First Solar cultivated an environment of compliance through the use of a disclosure committee that focused on compliance with Regulation FD. The company immediately discovered Polizzotto’s selective disclosure and promptly issued a press release the next morning before the market opened. First Solar then quickly self-reported the misconduct to the SEC. Concurrent with the SEC’s investigation, First Solar undertook remedial measures to address the improper conduct. For example, the company conducted additional Regulation FD training for employees responsible for public disclosure.

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Thailand-Based Trader Agrees to Pay $5.2 Million to Settle Insider Trading Case

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539798614#.Uiu4_Ma1ESE

Washington D.C., Sept. 5, 2013 —

The Securities and Exchange Commission today announced that a Bangkok-based trader whose U.S. brokerage account was frozen in an SEC emergency action in June has agreed to pay $5.2 million to settle charges that he traded on inside information in advance of a public announcement about a proposed acquisition of Smithfield Foods by a firm in China.

The SEC obtained the asset freeze on June 5 after filing a complaint alleging that Badin Rungruangnavarat made more than $3 million in illicit profits just days earlier by insider trading in Smithfield securities. Badin loaded up on out-of-the-money Smithfield call options and single-stock futures contracts in the week leading up to a May 29 public announcement about the proposed sale of Smithfield Foods to Shuanghui International Holdings. Among his possible sources of material, non-public information about the impending deal was a Facebook friend who was an associate director at the investment bank for a different company that was considering a Smithfield acquisition.

The settlement was approved today by Judge Matthew Kennelly of the U.S. District Court for the Northern District of Illinois.

“Our quick action in June to stop Badin’s insider trading profits from leaving the U.S. made this multi-million dollar settlement possible,” said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit. “Once he was denied access to his trading account, Badin elected to forfeit all of his ill-gotten proceeds plus pay a $2 million penalty to settle the case against him.”

Badin agreed to the entry of a final judgment ordering him to pay $3.2 million in disgorgement and the $2 million penalty. Without admitting or denying the SEC’s allegations, he agreed to be permanently enjoined from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

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SEC Charges Ronald Feldstein Purported Money Manager With Defrauding Investors and Brokerage Firms

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539797873#.Uiu5A8a1ESE

Washington D.C., Sept. 3, 2013 —

The Securities and Exchange Commission today charged a purported money manager in New York with conducting a free-riding scheme to defraud three brokerage firms, and then bilking several investors out of nearly a half-million dollars that he stole to fund his luxurious lifestyle that included a Bentley automobile, summers in the Hamptons, and casino junkets.

The SEC alleges that Ronald Feldstein caused more than $2 million in losses for the brokerage firms that he victimized in the free-riding scheme, which occurs when customers buy or sell securities in their brokerage accounts without having the money or shares to actually pay for them. Feldstein opened three separate brokerage accounts in the names of two purported investment funds that he created. He had no intention to pay for the stocks that he purchased if they resulted in big losses. Feldstein planned to walk away from any transactions where the price declined substantially after the trade date, and planned to use sales proceeds to pay for the purchases if the price of a stock increased.

The SEC further alleges that Feldstein later began soliciting investments by targeting owners of businesses that he had frequented for decades, including a dry cleaner and a car leasing and servicing company. Feldstein convinced them to provide funds for him to invest on their behalf, promising such profitable opportunities as a successful hedge fund, a promising penny stock, and an initial public offering (IPO) of a fashion company. However, Feldstein never invested this money, instead converting it for his personal use without their knowledge.

“Without sufficient assets to pay for his stock purchases, Feldstein illegally arranged trades in which he got the profits if he won and left brokerage firms holding the bag if he lost,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “Then Feldstein used blatantly false promises to lure longtime acquaintances to pour their life savings into his investment schemes that were footing the bill for his luxurious lifestyle.”

According to the SEC’s complaint filed in U.S. District Court in the Southern District of New York, Feldstein and the two purported investment funds – Mara Capital Management LLC and Vita Health of America LLC – traded through a type of account that brokerage firms offer to customers with the understanding that the customer has sufficient assets held with a third-party custodial bank to cover the cost of the trades. Feldstein and the funds never disclosed to three broker-dealers that they were simply gambling with the brokerage firms’ money. Their plan was to refuse to issue instructions to settle the trades, and stick the broker-dealers with the unprofitable positions. The free-riding scheme began in September 2008 and continued until February 2009.

According to the SEC’s complaint, Feldstein shifted his fraudulent conduct to individual investors later in 2009. He induced investors to give him money they typically had saved for their retirement or their children’s education. Feldstein raised approximately $450,000 based on such false investment promises as a hedge fund that he described as substantial and successful, a penny stock issuer that Feldstein described as the next AT&T/Verizon of the rural Midwest, and the IPO of a purported fashion company. The investor funds were typically deposited into Feldstein’s personal bank account or the bank account of an entity that he owned so he could spend their money on his personal expenses.

The SEC’s complaint charges Feldstein, Mara Capital, and Vita Health of America with committing violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Feldstein also is charged with violations of Section 17(a) of the Securities Act of 1933. Trademore Capital Management LLC is charged as a relief defendant.

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SEC Charges San Diego-Based Investment Adviser in Cherry-Picking and Soft Dollar Schemes

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539795856#.Uiu5DMa1ESE

Washington D.C., Aug. 30, 2013 —

The Securities and Exchange Commission today announced charges against a San Diego-based investment advisory firm and its president for allegedly steering winning trades to favored clients and lying about how certain money was being spent.

The SEC’s Enforcement Division alleges that J.S. Oliver Capital Management and Ian O. Mausner engaged in a cherry-picking scheme that awarded more profitable trades to hedge funds in which Mausner and his family had invested. Meanwhile they doled out less profitable trades to other clients, including a widow and a charitable foundation. The disfavored clients suffered approximately $10.7 million in harm.

The SEC’s Enforcement Division further alleges that Mausner and J.S. Oliver misused soft dollars, which are credits or rebates from a brokerage firm on commissions paid by clients for trades executed in the investment adviser’s client accounts. If appropriately disclosed, an investment adviser may retain the soft dollar credits to pay for expenses, including a limited category of brokerage and research services that benefit clients. However, Mausner and J.S. Oliver misappropriated more than $1.1 million in soft dollars for undisclosed purposes that in no way benefited clients, such as a payment to Mausner’s ex-wife related to their divorce.

“Mausner’s fraudulent schemes were a one-two punch that betrayed his clients and cost them millions of dollars,” said Marshall S. Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “Investment advisers must allocate trades and use soft dollars consistent with their fiduciary duty to put client interests first.”

The SEC also charged Douglas F. Drennan, a portfolio manager at J.S. Oliver, for his role in the soft dollar scheme.

According to the SEC’s order instituting administrative proceedings, Mausner engaged in the cherry-picking scheme from June 2008 to November 2009 by generally waiting to allocate trades until after the close of trading or the next day. This allowed Mausner to see which securities had appreciated or declined in value, and he gave the more favorably priced securities to the accounts of four J.S. Oliver hedge funds that contained investments from Mausner and his family. Mausner profited by more than $200,000 in fees earned from one of the hedge funds based on the boost in its performance from the winning trades he allocated. Mausner also marketed that same hedge fund to investors by touting the fund’s positive returns when in reality those returns merely resulted from the cherry-picking scheme.

According to the SEC’s order, the soft dollar scheme occurred from January 2009 to November 2011. Mausner and J.S. Oliver failed to disclose the following uses of soft dollars:
More than $300,000 that Mausner owed his ex-wife under their divorce agreement.
More than $300,000 in “rent” for J.S. Oliver to conduct business at Mausner’s home. Most of this amount was funneled to Mausner’s personal bank account.
Approximately $480,000 to Drennan’s company for outside research and analysis when in reality Drennan was an employee at J.S. Oliver.
Nearly $40,000 in maintenance and other fees on Mausner’s personal timeshare in New York City.

According to the SEC’s order, Drennan participated in the soft dollar scheme by submitting false information to support the misuse of soft dollar credits and approving some of the soft dollar payments to his own company.

The SEC’s order alleges that J.S. Oliver and Mausner willfully violated the antifraud provisions of the federal securities laws and asserts disclosure, compliance, and recordkeeping violations against them. The SEC’s order alleges that Drennan willfully aided, abetted, and caused J.S. Oliver’s fraud violations in the soft dollar scheme.

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SEC Sanctions Colorado-Based Portfolio Manager for Forging Documents and Misleading Chief Compliance Officer

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539791420#.UivJS8a1ESE

Washington D.C., Aug. 27, 2013 —

The Securities and Exchange Commission today sanctioned a former portfolio manager at a Boulder, Colo.-based investment adviser for forging documents and misleading the firm’s chief compliance officer to conceal his failure to report personal trades.

An SEC investigation found that Carl Johns of Louisville, Colo., failed to pre-clear or report several hundred securities trades in his personal accounts as required under the federal securities laws and the code of ethics at Boulder Investment Advisers (BIA). Johns concealed the trades in quarterly and annual trading reports that he submitted to BIA by altering brokerage statements and other documents that he attached to those reports. Johns later tried to conceal his misconduct by creating false documents that purported to be pre-trade approvals, and misled the firm’s chief compliance officer in her investigation into his improper trading.

To settle the SEC’s charges – which are the agency’s first under Rule 38a-1(c) of the Investment Company Act for misleading and obstructing a chief compliance officer (CCO) – Johns agreed to pay more than $350,000 and be barred from the securities industry for at least five years.

“Securities industry professionals have an obligation to adhere to compliance policies, and they certainly must not interfere with the chief compliance officers who enforce those policies,” said Julie Lutz, Acting Co-Director of the SEC’s Denver Regional Office. “Johns set out to cover up his compliance failures by creating false documents and misleading his firm’s CCO.”

According to the SEC’s order instituting settled administrative proceedings against Johns, the Investment Company Act required him to submit quarterly reports of his personal securities transactions and annual reports of his securities holdings. His firm’s code of ethics contained further restrictions on when and how Johns could trade in securities, and required his transactions to be pre-cleared by the firm’s chief compliance officer. From 2006 to 2010, Johns failed to comply with these obligations and did not pre-clear or report approximately 640 trades. These included at least 91 trades involving securities held or acquired by the funds managed by the firm. The code of ethics restricted trading in securities that the funds were buying or selling.

According to the SEC’s order, Johns submitted inaccurate quarterly and annual reports and falsely certified his annual compliance with the code of ethics. Johns physically altered brokerage statements, trade confirmations, and pre-clearance approvals before submitting them to the firm along with these reports. For example, he manually deleted securities holdings listed on his brokerage statements before submitting them in order to avoid disclosing securities purchases that were not pre-cleared.

The SEC’s order further finds that Johns created several documents that purported to be pre-clearance requests approved by the firm’s CCO, who had never actually reviewed or approved such trades. Johns created these false pre-clearance approvals to cover up instances in his annual report when securities transactions were not pre-cleared. Johns also altered the trade confirmations that he submitted to BIA by backdating the dates of the transactions, and he backdated trade confirmations to make it falsely appear as though pre-clearances were granted in advance of the transactions.

According to the SEC’s order, the firm’s CCO in late 2010 identified irregularities in the documents that Johns submitted to BIA detailing his personal securities transactions. The irregularities prompted the CCO to make inquiries about his compliance with the firm’s code of ethics, and Johns misled the CCO in response. Johns falsely told the CCO that he had closed certain brokerage accounts when in fact they remained open and were involved in trading that was not pre-cleared as required. Johns also accessed the hard copy file of his previously submitted brokerage statements and physically altered them to create the false impression that his trading was in compliance.

In settling the SEC’s charges, Johns has agreed to pay disgorgement of $231,169, prejudgment interest of $23,889, and a penalty of $100,000. Without admitting or denying the SEC’s findings, Johns consented to a five-year bar and a cease-and-desist order.

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SEC Charges John K. Marcum With Conducting Ponzi Scheme Targeting Retirement Savings of Investors

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539791027#.UivJTca1ESE

Washington D.C., Aug. 26, 2013 —

The Securities and Exchange Commission today charged a Noblesville, Ind., resident and his company with defrauding investors in a Ponzi scheme that targeted retirement savings.

The SEC alleges that John K. Marcum touted himself as a successful trader and asset manager to raise more than $6 million through promissory notes issued by his company Guaranty Reserves Trust. Marcum helped investors set up self-directed IRA accounts and gained control over their retirement assets, saying he would earn them strong returns on the promissory notes by day-trading in stocks while guaranteeing the safety of their principal investment. Yet Marcum did little actual trading and almost always lost money when he did. Throughout his scheme, Marcum provided investors with false account statements showing annual returns of more than 20 percent. Meanwhile, he used investor funds to pay for his luxurious personal lifestyle and finance several start-up companies.

The SEC obtained an emergency court order to freeze the assets of Marcum and his company.

“Marcum tricked investors into putting their retirement nest eggs in his hands by portraying himself as a talented trader who could earn high returns while eliminating the risk of loss,” said Timothy L. Warren, Acting Director of the Chicago Regional Office. “Marcum tried to carry on his charade of success even after he squandered nearly all of the funds from investors.”

According to the SEC’s complaint filed in federal court in Indianapolis, Marcum began his scheme in 2010. Investors gave Marcum control of their assets by either rolling their existing IRA accounts into the newly-established self-directed IRA accounts or by transferring their taxable assets directly to brokerage accounts that Marcum controlled. Marcum and certain investors co-signed the promissory notes, and Marcum then placed them in the IRA accounts.

The SEC alleges that Marcum assured investors he could safely grow their money through investments in widely-held publicly-traded stocks, and he promised annual returns between 10 percent and 20 percent. Marcum also told a number of investors that their principal was “guaranteed” and would never be at risk. He falsely told at least one investor that her principal would be federally insured. In the little trading he has done, Marcum has suffered losses amounting to more than $900,000. He has misappropriated the remaining investor funds for various unauthorized uses.

According to the SEC’s complaint, Marcum used investor money as collateral for a $3 million line of credit at the brokerage firm where he used to work. He took frequent and regular advances from the line of credit to fund such start-up ventures as a bridal store, a bounty hunter reality television show, and a soul food restaurant owned and operated by the bounty hunters. None of these businesses appear to be profitable, and Marcum’s investors were not aware that their money was being used for these purposes. Marcum used nearly $1.4 million of investor money to make payments directly to the start-up ventures and other companies. He also used more than a half-million dollars to pay personal expenses accrued on credit card bills, including airline tickets, luxury car payments, hotel stays, sports and event tickets, and tabs at a Hollywood nightclub.

According to the SEC’s complaint, Marcum did not have the funds needed to honor investor redemption requests. So he provided certain investors with a “recovery plan” that revealed his intention to solicit funds from new investors so that he could pay back his existing investors. Marcum had a phone conversation with three investors in June 2013 and admitted that he had misappropriated investor funds and was unable to pay investors back. During this call, Marcum begged the investors for more time to recover their money. He offered to name them as beneficiaries on his life insurance policies, which he claimed include a “suicide clause” imposing a two-year waiting period for benefits. He suggested that if he is unsuccessful in returning their money, he would commit suicide to guarantee that they would eventually be repaid.

The SEC’s complaint alleges that Marcum and Guaranty Reserves Trust violated the antifraud provisions of the federal securities laws. The SEC sought and obtained emergency relief including a temporary restraining order and asset freeze. The SEC additionally seeks permanent injunctions, disgorgement of ill-gotten gains and financial penalties from Marcum and Guaranty Reserves Trust, and disgorgement of ill-gotten gains from Marcum Companies LLC, which is named as a relief defendant.

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SEC Stops California Company With Misleading Registration Statement From Issuing Public Stock

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539788096#.UivJTsa1ESE

Washington D.C., Aug. 22, 2013 —

The Securities and Exchange Commission today issued an order to stop an initial public offering (IPO) of a Los Angeles area company before its shares were sold to the public. In issuing its stop order against Counseling International, the Commission determined that the company’s registration statement contains false and misleading information.

According to the SEC’s stop order, Counseling International’s registration statement fails to disclose the identity of the company’s control persons and promoters as required under the securities laws. Among other deficiencies, the registration statement falsely describes the circumstances surrounding the departure of the former CEO.

Stop orders proactively prevent fraud by halting the securities registration process before a company’s stock is sold to the public based on a deficient or misleading registration statement. Counseling International first filed a registration statement in August 2012 for an initial public offering of 764,000 shares of common stock. The registration statement has been amended four times since that filing.

“A company’s registration statement is the bedrock on which its stock is offered to the general public, and Counseling International did not provide the accurate and complete information that investors would be entitled to when deciding whether it’s appropriate to invest in the company,” said Michele Layne, Director of the SEC’s Los Angeles Regional Office. “Rarely do we have the opportunity to prevent investor harm before shares are even sold, but this stop order ensures that Counseling International’s stock cannot be sold in the public markets under this misleading registration statement.”

Counseling International agreed to the issuance of the order instituting the stop order proceeding, and also agreed not to engage or participate in any unregistered offering of securities conducted in reliance on Rule 506 of Regulation D for a period of five years from the issuance of the order.

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SEC Charges North Carolina-Based Investment Adviser for Misleading Fund Board About Algorithmic Trading Ability

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539785773#.UivJUMa1ESE

Washington D.C., Aug. 21, 2013 —

The Securities and Exchange Commission today announced charges against a North Carolina-based investment adviser and its former owner for misleading an investment fund’s board of directors about the firm’s ability to conduct algorithmic currency trading so they would approve the firm’s contract to manage the fund.

The SEC’s Enforcement Division alleges that Chariot Advisors LLC and Elliott L. Shifman misled the fund’s board about the nature, extent, and quality of services that the firm could provide as he touted the competitive benefits of algorithmic trading in two presentations before the board. Contrary to what Shifman told the directors, Chariot Advisors did not devise or otherwise possess any algorithms capable of engaging in the currency trading that Shifman was describing. After the fund was launched, Chariot Advisors did not use an algorithm model to perform the fund’s currency trading as represented to the board, but instead hired an individual trader who was allowed to use discretion on trade selection and execution. The misconduct by Shifman and Chariot Advisors caused misrepresentations and omissions in the Chariot fund’s registration statement and prospectus filed with the SEC and viewed by investors.

The case arises out of an initiative by the SEC Enforcement Division’s Asset Management Unit to focus on the “15(c) process” – a reference to Section 15(c) of the Investment Company Act of 1940 that requires a registered fund’s board to annually evaluate the fund’s advisory agreements. Advisers must provide the board with the truthful information necessary to make that evaluation. Other enforcement actions taken against misconduct in the investment contract renewal process and fee arrangements include cases against Morgan Stanley Investment Management, a sub-adviser to the Malaysia Fund, and two mutual fund trusts affiliated with the Northern Lights Variable Trust fund complex.

“It is critical that investment advisers provide truthful information to the directors of the registered funds they advise,” said Julie M. Riewe, Co-Chief of SEC Enforcement Division’s Asset Management Unit. “Both boards and advisers have fiduciary duties that must be fulfilled to ensure that a fund’s investors are not harmed.”

According to the SEC’s order instituting administrative proceedings, the false claims by Chariot and Shifman defrauded the Chariot Absolute Return Currency Portfolio, a fund that was formerly within the Northern Lights Variable Trust fund complex. In December 2008 and again in May 2009, Shifman misrepresented to the Chariot fund’s board that his firm would implement the fund’s investment strategy by using a portion of the fund’s assets to engage in algorithmic currency trading. Chariot fund’s initial investment objective was to achieve absolute positive returns in all market cycles by investing approximately 80 percent of the fund’s assets under management in short-term fixed income securities, and using the remaining 20 percent of the assets under management to engage in algorithmic currency trading.

According to the SEC’s order, Chariot Advisors did not have an algorithm capable of conducting such currency trading. The ability to conduct currency trading was particularly significant for the Chariot fund’s performance, because in the absence of an operating history the directors focused instead on Chariot Advisors’ reliance on models when the board evaluated the advisory contract. Even though Shifman believed that the fund’s currency trading needed to achieve a 25 to 30 percent return to succeed, Shifman never disclosed to the board that Chariot Advisors had no algorithm or model capable of achieving such a return.

According to the SEC’s order, because Chariot Advisors possessed no algorithm, currency trading for the fund was under the control of an individual trader who was not using an algorithm for at least the first two months after the fund’s launch. Shifman had interviewed the trader prior to her hiring and knew that she used a technical analysis, rules-based approach for trading that combined market indicators with her own intuition. The trader traded currencies for the fund until Sept. 30, 2009 when she was terminated due to poor trading performance. Subsequently, Chariot employed a third party who utilized an algorithm to conduct currency trading on behalf of the Chariot fund.

The SEC’s order alleges that the misconduct by Chariot and Shifman, who lives in the Raleigh area, resulted in violations of Sections 15(c) and 34(b) of the Investment Company Act of 1940 and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8. A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the order are true and whether any remedial sanctions are appropriate.

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SEC Charges Houston-Based Investor Relations Executive With Insider Trading in Stocks of Clients

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539732190#.UfRwaY21FG0

Washington D.C., July 26, 2013 —
The Securities and Exchange Commission today charged the former CEO of a Houston-based investor relations firm with insider trading in the securities of multiple firm clients.

The SEC alleges that Stephen B. Gray obtained confidential information about the companies while the firm assisted them with drafting and publishing press releases to announce quarterly and annual earnings, mergers and acquisitions, and other major events. Gray then traded on the basis of that material, non-public information for profits and avoided losses of more than $313,000 during a 13-month period. Gray disregarded the firm’s standard agreements with clients to protect confidential information and use it solely for business purposes, and he also flouted the firm’s “statement of policy regarding securities trades” that prohibited trading by firm personnel when in possession of non-public information about clients. Gray was fired last October after the firm learned about the SEC’s investigation.

“As head of an investor relations firm that helped clients prepare announcements of material events, Gray had unique access to extremely sensitive and confidential information before the rest of the world received it,” said David Woodcock, Director of the SEC’s Fort Worth Regional Office. “Gray boldly abused his position for the sake of illegal insider trading profits.”

David L. Peavler, Associate Director of the Fort Worth Regional Office, added, “Gray not only knew the firm’s policies that prohibited employees from trading on confidential information gleaned from clients – he authored them. While Gray was personally requiring firm employees to sign copies of the policies he wrote, he was insider trading himself.”

According to the SEC’s complaint filed in federal court in Houston, Gray illegally traded in the securities of at least six firm clients. Employees often asked Gray for advice on press releases based on his status as the firm’s CEO as well as his experience as a former CEO of a public company. Gray asked employees about forthcoming material transactions or announcements before they became public, and he sometimes met directly with clients to discuss confidential information with them. Gray also helped maintain the firm’s shared computer network drive, which included drafts and final versions of all relevant press releases.

According to the SEC’s complaint, Gray opened his only trading account in September 2009 and borrowed funds from his life insurance policy to fund his trading activity. Despite the firm’s policies, the overwhelming majority of Gray’s trades involved securities of the firm clients, and he did not disclose his trades or his intention to trade to the firm or clients. At first, Gray primarily traded in the common stock of firm clients, sometimes holding the securities for months at a time but on other occasions compiling shares immediately before a major announcement. For example, on May 5, 2011, The Men’s Wearhouse issued a press release announcing higher than expected earnings per share for its quarter ending April 30. Its stock price increased 16 percent upon this news. While in possession of material non-public information about Men’s Warehouse about the impending announcement, Gray made an electronic calendar appointment for himself on April 29 with the subject: “Buy MW stock ahead of early June earnings release.” On April 30, Gray created another appointment with the subject: “Buy MW stock??” On May 3 and 4, he purchased 4,323 shares of Men’s Warehouse stock. Gray sold his shares on May 5 after the announcement for an illegal profit of $17,397.

According to the SEC’s complaint, later that same year Gray began engaging in more risky and lucrative short-term options trades in which profits were facilitated by his knowledge of inside information. In several instances, Gray purchased very short-term call and put options contracts. For instance, Gray’s firm worked with Powell Industries on drafting a press release in late 2011 to announce that its financial statements for the second and third quarters would be restated. Based on this material, non-public information, Gray purchased 15,000 Powell put options between October 18 and November 3. All of these options had the shortest term available. Powell issued the press release on November 8, and its stock price declined by 22 percent. Gray immediately sold his options for a profit of $82,570.

The SEC’s complaint charges Gray with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and seeks a final judgment ordering him to disgorge all of his ill-gotten gains with prejudgment interest and pay financial penalties. The complaint also seeks permanent injunctive relief.

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SEC Charges Former Portfolio Manager at S.A.C. Capital With Insider Trading

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539732673#.UfRwbY21FG0

Washington D.C., July 25, 2013 —
The Securities and Exchange Commission today charged a former portfolio manager at S.A.C. Capital Advisors with insider trading ahead of major announcements by technology companies.

The SEC alleges that Richard Lee’s illegal trading based on nonpublic information he received from sources with connections to insiders at the technology companies enabled the S.A.C. Capital hedge fund that he managed to generate more than $1.5 million in illegal profits. Lee also made trades in his personal account. The insider trading occurred ahead of public announcements about a Microsoft-Yahoo partnership and the acquisition of 3Com Corporation by Hewlett-Packard.

“Lee’s illegal trading is yet another byproduct of a pervasive, win-at-all-cost culture that will not be tolerated,” said George S. Canellos, Co-Director of the SEC’s Division of Enforcement. “Lee cultivated and used sources in the U.S. and China to gain an unfair trading edge that landed him in law enforcement’s crosshairs.”

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, added, “We continue to relentlessly pursue and expose insider trading by hedge fund managers who are under the misguided belief that they won’t be apprehended and held accountable for their unlawful conduct.”

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Lee received inside information in July 2009 from a sell-side analyst familiar with nonpublic negotiations between Microsoft and Yahoo to enter into an Internet search engine partnership. Lee learned that the negotiations, previously the subject of market rumors, were moving forward and a deal could be finalized in the next two weeks. The analyst told Lee that the confidential information came from a close personal friend who worked at Microsoft. Lee thanked the analyst for the “very specific information” and promptly purchased hundreds of thousands of shares of Yahoo stock in a portfolio that he managed on behalf of S.A.C. Capital. Lee also purchased shares of Yahoo stock in his personal trading account. When the imminent deal was reported in the press almost a week later, Yahoo’s stock price rose approximately four percent on the news and S.A.C. Capital and Lee reaped substantial profits.

The SEC further alleges that Lee received highly confidential information about 3Com from a Beijing-based consultant who he knew had close personal ties with executives at the company. When his source tipped him on Nov. 11, 2009, that 3Com was on the verge of being acquired by Hewlett-Packard, Lee quickly purchased several hundred thousand shares of 3Com stock for the S.A.C. Capital hedge fund. On the basis of the nonpublic information, Lee amassed the sizeable 3Com position just minutes before Hewlett-Packard announced it agreed to acquire 3Com for $2.7 billion. The price of 3Com stock jumped more than 30 percent the next day, and the S.A.C. Capital hedge fund reaped substantial illicit profits as a result of Lee’s illegal trades.

The SEC's complaint charges Lee, who lives in Chicago, with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks a final judgment ordering Lee to pay disgorgement of his ill-gotten gains plus prejudgment interest and financial penalties, and permanently enjoining him from future violations of these provisions of the federal securities laws.

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