Saturday, February 16, 2013

Freeze Assets in Swiss-Based Account Used in Suspected Insider Trading Ahead of Heinz Acquisition


Source- http://www.sec.gov/news/press/2013/2013-24.htm

Washington, D.C., Feb. 15, 2013 — The Securities and Exchange Commission today obtained an emergency court order to freeze assets in a Zurich, Switzerland-based trading account that was used to reap more than $1.7 million from trading in advance of yesterday’s public announcement about the acquisition of H.J. Heinz Company.

The SEC’s immediate action ensures that potentially illegal profits cannot be siphoned out of this account while the agency’s investigation of the suspicious trading continues.

In a complaint filed in federal court in Manhattan, the SEC alleges that prior to any public awareness that Berkshire Hathaway and 3G Capital had agreed to acquire H.J. Heinz Company in a deal valued at $28 billion, unknown traders took risky bets that Heinz’s stock price would increase. The traders purchased call options the very day before the public announcement. After the announcement, Heinz’s stock rose nearly 20 percent and trading volume increased more than 1,700 percent from the prior day, placing these traders in a position to profit substantially.

“Irregular and highly suspicious options trading immediately in front of a merger or acquisition announcement is a serious red flag that traders may be improperly acting on confidential nonpublic information,” said Daniel M. Hawke, Chief of the Division of Enforcement’s Market Abuse Unit.

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, added, “Despite the obvious logistical challenges of investigating trades involving offshore accounts, we moved swiftly to locate and freeze the assets of these suspicious traders, who now have to make an appearance in court to explain their trading if they want their assets unfrozen.”

The SEC alleges that the unknown traders were in possession of material nonpublic information about the impending acquisition when they purchased out-of-the-money Heinz call options the day before the announcement. The timing and size of the trades were highly suspicious because the account through which the traders purchased the options had no history of trading Heinz securities in the last six months. Overall trading activity in Heinz call options several days before the announcement had been minimal.

The emergency court order obtained by the SEC freezes the traders’ assets and prohibits them from destroying any evidence. The SEC’s complaint charges the unknown traders with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In addition to the emergency relief, the SEC is seeking a final judgment ordering the traders to disgorge their ill-gotten gains with interest, pay financial penalties, and be permanently barred from future violations.



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Friday, February 15, 2013

N.Y.-Based Brokerage Firm Charged with Defrauding Investors in a Clean Energy Company to Earn Lucrative Commissions


Source- http://www.sec.gov/news/press/2013/2013-23.htm

Washington, D.C., Feb. 15, 2013 — The Securities and Exchange Commission today announced fraud charges against a New York-based brokerage firm and two brokers who allegedly used misleading sales tactics to steer investors toward risky investments in a purported clean energy company so the firm could earn lucrative commissions.

The SEC’s Division of Enforcement alleges that Gregg Lorenzo, the founder of Charles Vista LLC, teamed with an investment banker named Frank Lorenzo and made a litany of false, misleading, and unfounded statements to create the impression that speculative debt securities issued by Waste2Energy Holdings Inc., which were convertible into stock, were risk-free and likely to result in enormous investment returns. The Lorenzos are not related. While Gregg Lorenzo was touting the profitability of investing in Waste2Energy, which purported to possess technology for converting waste into clean energy, the company was struggling in reality. Waste2Energy eventually filed for bankruptcy.

“Charles Vista customers were told a false tale of a safe and conservative investment with an explosive upside, but the risky downside was downplayed in the story,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “Brokerage customers deserve unbiased and fair recommendations about the risks of potential investments, not misleading boiler room sales tactics.”

According to the SEC’s order instituting administrative proceedings against Charles Vista and the Lorenzos, investors were solicited to purchase the Waste2Energy convertible debentures in 2009 and 2010. An e-mail that Charles Vista sent customers made various false claims, such as Waste2Energy possessing “over $10 million in confirmed assets” to provide investors with protection against losses. In reality, the company had written its assets down to less than $1 million.

The SEC’s Division of Enforcement alleges that Gregg Lorenzo, who lives in Staten Island, made verbal sales pitches to investors that misrepresented Waste2Energy’s financial condition and business prospects. He made the debentures’ stock conversion feature appear valuable by making baseless predictions about the future of the company’s stock. Lorenzo told at least one investor that he believed Waste2Energy “will be a NASDAQ trading stock within 12 months. I believe they will meet the listing requirements.” Frank Lorenzo was the head of investment banking at Charles Vista until he left the firm in 2010. He sent e-mails to Charles Vista customers that contained false or misleading claims about Waste2Energy’s assets and alleged contracts.

According to the SEC’s order, Charles Vista was the exclusive placement agent for the issuance of these Waste2Energy securities, and the firm’s financial interest in the offering was considerable. Documents attached to some of Waste2Energy’s SEC filings indicate that Charles Vista had arranged to receive a 10 percent “commission” on the gross proceeds of all debentures sales, a consulting fee of $10,000 per month for 12 months, and various other commissions and fees.



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Thursday, February 14, 2013

Hedge Fund Manager and CPA Administrator for $40 Million Ponzi Scheme Convicted by Jury


Source- http://www.fbi.gov/charlotte/press-releases/2013/hedge-fund-manager-and-cpa-administrator-for-%2440-million-ponzi-scheme-convicted-by-jury

CHARLOTTE, NC—On Friday, February 8, 2013, a federal jury in Charlotte convicted certified public accountant Jonathan D. Davey, 48, of Newark, Ohio, of four criminal charges relating to an investment fraud conspiracy, announced Anne M. Tompkins, U.S. Attorney for the Western District of North Carolina.

The federal indictment, returned in February 2012, charged Davey with serving as the “administrator” for numerous hedge funds for the Black Diamond Ponzi Scheme; with soliciting over $11 million from victims with his own hedge fund, “Divine Circulation Services”; and with tax evasion. The charges arise from the Black Diamond investigation, which has brought criminal charges against 11 individuals and CommunityONE Bank, relating to conduct between October 2007 and April 2007 that deprived over 400 victims of more than $40 million.

U.S. Attorney Tompkins is joined in making today’s announcement by Roger A. Coe, Acting Special Agent in Charge of the Federal Bureau of Investigation (FBI), Charlotte Division, and Jeannine A. Hammett, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation Division (IRS-CI).

According to evidence presented at trial, Davey lied to collect over $11 million from victims mainly in North Carolina, Virginia, and Ohio for his hedge fund by claiming, among other things, that he had done due diligence on Black Diamond and was operating a legitimate hedge fund with significant safeguards, when, in reality, neither claim was true. Then, as Black Diamond began to collapse, Davey and other hedge fund managers started a derivative Ponzi scheme using a so-called “cash account” that Davey controlled. Davey and his co-conspirators collected over $5 million from new victim investors for the cash account and used the new victim money to make Ponzi payments to old investors and themselves. The evidence at trial showed that, as administrator for the scheme, Davey controlled most funds and wires for the scheme and published a website for victims that reflected false returns. At trial, the government showed that by the end of the scheme, the website reflected over $120 million in supposed value for victim-accounts when Davey and the hedge fund managers in reality had less than $1 million total in their accounts.

According to evidence presented at trial, Davey used an elaborate network of shell companies to evade taxes and commit money laundering with the proceeds of the Ponzi scheme. In particular, Davey used an offshore shell company in Belize to funnel money to build a mansion in Ohio, creating a sham “loan” by pretending that investors had “loaned” investment money to the Belizean shell company that was then used to build Davey’s personal mansion.

Other defendants convicted in this case are set forth below.
Keith Franklin Simmons, 47, formerly of West Jefferson, North Carolina, was convicted following a jury trial of securities fraud, wire fraud, and money laundering. Simmons was sentenced to 50 years in prison on May 23, 2012.
Bryan Keith Coats, 52, of Clayton, North Carolina, pleaded guilty on October 24, 2011, to conspiracy to commit securities fraud and money laundering conspiracy. Coats was sentenced to 15 years in prison on November 16, 2012.
Deanna Ray Salazar, 55, of Yucca Valley, California, pleaded guilty on December 7, 2010, to conspiracy to commit securities fraud and tax evasion. Salazar was sentenced to 54 months in prison on May 23, 2012.



Jeffrey M. Muyres, 37, of Matthews, North Carolina, pleaded guilty on May 17, 2011, to conspiracy to commit securities fraud and money laundering conspiracy. Muyres was sentenced to 23 months in prison on January 18, 2012.
Roy E. Scarboro, 48, of Archdale, North Carolina, pleaded guilty on December 3, 2010, to securities fraud, money laundering, and making false statements to the FBI. Scarboro was sentenced to 26 months in prison on May 4, 2011.
James D. Jordan, 49, of El Paso, Texas, pleaded guilty on September 14, 2010, to conspiracy to commit securities fraud. Jordan was sentenced to 18 months in prison on June 29, 2011.
Stephen D. Lacy, 53, of Pawleys Island, South Carolina, pled guilty on December 9, 2010, to conspiracy to commit securities fraud. Lacy was sentenced to six months in prison on May 4, 2011.
Chad A. Sloat, 34, of Kansas City, Missouri, pleaded guilty on October 17, 2012, to conspiracy to commit securities fraud and failure to file a tax return. Sloat is currently waiting to be sentenced.
Jeffrey M. Toft, 50, of Oviedo, Florida, pleaded guilty on November 26, 2012, to conspiracy to commit securities fraud, conspiracy to commit wire fraud, and conspiracy to commit money laundering. Toft is currently waiting to be sentenced.
Michael J. Murphy, 52, of Deep Haven, Minnesota, pleaded guilty on January 22, 2013, to conspiracy to commit securities fraud. Murphy is currently waiting to be sentenced.

On April 27, 2011, a criminal bill of information and a Deferred Prosecution Agreement were filed against CommunityONE Bank N.A. related to its failure to file a suspicious activity report (SAR) and maintain an effective anti-money laundering program. As court records show, Simmons was a customer of CommunityONE and used various accounts with the bank in furtherance of the Ponzi scheme. However, according to filed court documents, the bank did not file any suspicious activity reports on Simmons, despite the hundreds of suspicious transactions that took place in his accounts. The bank agreed to pay $400,000 toward restitution to victims of the Ponzi scheme that operated through accounts maintained at the bank.



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Wednesday, February 13, 2013

Three Provident Executives Guilty in Investment Fraud Scheme


Source- http://www.fbi.gov/dallas/press-releases/2013/three-provident-executives-guilty-in-investment-fraud-scheme

PLANO, TX—Three more executives from Provident Royalties, Inc. have pleaded guilty in connection with an investment fraud scheme in the Eastern District of Texas, announced U.S. Attorney John M. Bales.

Brendan W. Coughlin, 46, of Dallas; Henry D. Harrison, 47, of Dallas; and W. Mark Miller, 59, of Plano, Texas, each acknowledged their roles in the multi-million-dollar oil and gas investment fraud scheme.

According to documents filed in court, Coughlin and Harrison founded and controlled Provident, and Miller served as its chief financial officer and later, as president. Between January 1, 2009 and February 3, 2009, Coughlin and Harrison conspired with others to defraud investors throughout the United States of $2.3 million. Specifically, Coughlin, Harrison, and other individuals made materially false representations and failed to disclose material facts to their investors in order to induce the investors into providing payments to Provident. Among these false representations were statements that funds invested would be used only for the project for which those funds were raised; among the material facts omitted from disclosure was that funds from investors in later oil and gas projects were being used to pay individuals who invested in earlier oil and projects. Miller knew that the crime had occurred but failed to report it to the authorities and instead took affirmative action—authorizing the lulling payments to investors—to conceal the crime from discovery.

Coughlin, Harrison, and Miller join two other Provident principals who have been held accountable for their crimes. Joseph Blimline, 35, pleaded guilty in connection with the scheme and was sentenced to 20 years in federal prison. Provident CEO/founder Paul R. Melbye, 47, pleaded guilty in connection with the scheme and faces up to five years in federal prison.

Coughlin and Harrison face up to five years in federal prison for their roles in the conspiracy. Miller faces up to three years in federal prison.

This law enforcement action is part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and with state and local partners to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.



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Tuesday, February 12, 2013

Manhattan U.S. Attorney and FBI Assistant Director in Charge Announce Arrests of Three Defendants in $2.5 Million Ponzi Scheme


Source- http://www.fbi.gov/newyork/press-releases/2013/manhattan-u.s.-attorney-and-fbi-assistant-director-in-charge-announce-arrests-of-three-defendants-in-2.5-million-ponzi-scheme

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director in Charge of the New York Office of the Federal Bureau of Investigation (FBI), announced the filing of a three-count criminal complaint charging Charles Huggins, Christopher Butchko, and Anne Thomas for allegedly perpetrating a $2.5 million Ponzi scheme involving investments in gold and diamonds purportedly mined in West Africa for sale in the United States. Huggins and Thomas were arrested this morning in Edgewater, New Jersey, and Cliffside Park, New Jersey, respectively. Butchko was arrested this morning in Murrieta, California. Huggins and Thomas are expected to be presented in Manhattan federal court before Magistrate Judge Debra Freeman later today, and Butchko is expected to be presented in federal court in the Central District of California later today.

Manhattan U.S. Attorney Preet Bharara said, “The promise of riches mined in Africa was fool’s gold that these defendants allegedly dangled in front of investors in what was nothing more than a scam. For those Ponzi schemers who have yet to get the message, be aware that you will be exposed by law enforcement and punished accordingly.”

Assistant Director in Charge George Venizelos said, “As alleged, these defendants lied about their intentions regarding investors’ money, pocketing most of it for personal use. So long as there are people with money to invest, there will likely be investment swindlers eager to take their money under false pretenses. There will also be the FBI to arrest the swindlers.”

According to the complaint filed in Manhattan federal court:

From 2008 through September 2011, Huggins, Butchko, and Thomas solicited $2.5 million from various investors through companies known as JYork Industries Inc. (JYork) and Urogo Inc. (Urogo). Huggins and Butchko and others repeatedly made false and misleading representations about how they would use the investors’ money to mine gold and diamonds from Sierra Leone and Liberia and promised high rates of return, based on the profits they said would be generated by the sale of the gold and diamonds in the United States.

Huggins, Butchko, and Thomas misappropriated the majority of the money they raised and kept it for themselves or used it to repay other investors. For example, investor funds were diverted to Orpheus Inc., a record label owned by Huggins, and VASNC Pvt Ltd., a petroleum company owned by Butchko, and used to pay monthly apartment rental payments, restaurant bills, personal credit card bills, and other expenses. Thomas personally received more than $90,000 in cash and disbursed more than $830,000 in investor proceeds through wire transfers to the Bahamas and checks repeatedly issued in amounts less than $10,000 in an apparent attempt to avoid the reporting threshold. Contrary to the defendants’ representations, only a small portion of the money they raised was transferred to Africa.

When investors complained that they had not received the return on their investment that they were promised, Huggins, Butchko, and Thomas frequently converted or offered to convert their investment into restricted shares of Oraco Resources, a publicly traded company of which Huggins, Butchko, and Thomas were majority shareholders. The investigation has revealed that only one investor to date has been made whole. That investor received the principal of his investment only after he threatened to bring civil litigation.


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Monday, February 11, 2013

Russell N. Daniel Sentenced to 37 Months in Prison for Swindling Investors in Multi-Million-Dollar Scheme


Source- http://www.fbi.gov/louisville/press-releases/2013/purported-louisville-real-estate-entrepreneur-sentenced-to-37-months-in-prison-for-swindling-investors-in-multi-million-dollar-scheme

LOUISVILLE—A purported Louisville real estate entrepreneur was sentenced in United States District Court today by District Judge Charles R. Simpson, III to 37 months in federal prison and was ordered to pay $2,797,000 in restitution for a single count of mail fraud connected to real estate schemes that resulted in the loss of more than $1 million to investors, announced David J. Hale, United States Attorney for the Western District of Kentucky. There is no parole in the federal system.

“The three year prison sentence is a well-deserved punishment for this fraudulent real estate scheme,” stated U.S. Attorney Hale. “My office and the Department of Justice will continue to pursue and prosecute investor fraud.”

On September 7, 2012, Russell N. Daniel, age 63, pleaded guilty to devising a scheme and an artifice to defraud investors in the defendant’s real estate business and to obtain money and property from investors by means of false and fraudulent pretenses, representations, and promises. Specifically, between March 1, 2005 and October 31, 2008, Daniel induced persons to invest in his real estate business by promising returns on investments ranging from 10-15 percent. Further, the defendant represented that money invested in his real estate business would be used by him to purchase, and on occasion, rehabilitate houses which in return would be sold for a profit.

In court, Daniel admitted that he solicited more than $700,000 to purchase houses purportedly located in Prospect, Shelbyville, Goshen, and Lexington, Kentucky, as well as Jeffersonville, Indiana, when in fact the addresses were fictitious. Daniel used the money received from investors in these fictitious transactions to fund unrelated matters, including using the investment monies to make payments of promised returns on unrelated investments.

Also, between December 28, 2006 and August 14, 2008, Daniel falsely represented to investors in properties located in Louisville, Pleasureville, and Lexington, Kentucky, that they would receive valid and legally enforceable mortgages on the properties, which would provide legal security for their investments, but Daniel instead provided investors with false and fictitious mortgages totaling more than $530,000, which contained the forged signature of the notary public.

In a separate incident, between March 23, 2005 and May 27, 2009, Daniel caused $35,000 to be invested with him by falsely representing to investors in two properties located in Louisville, Kentucky, that the investors would receive valid and legally enforceable first mortgages on the properties, which would provide legal security for their investments, when in fact, he did not provide investors with valid and legally enforceable first mortgages.



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Sunday, February 10, 2013

Investment Advisor to the Detroit Pension Funds Pleads Guilty to Conspiring with Former City Treasurer Jeffrey Beasley to Pay Him Bribes


Source- http://www.fbi.gov/detroit/press-releases/2013/investment-advisor-to-the-detroit-pension-funds-pleads-guilty-to-conspiring-with-former-city-treasurer-jeffrey-beasley-to-pay-him-bribes

Chauncey Mayfield, a former investment advisor to the two city of Detroit pension funds, pleaded guilty today to conspiring with former Detroit Treasurer Jeffrey Beasley to pay him bribes in exchange for new business from the pension funds, United States Attorney Barbara L. McQuade announced today. McQuade was joined in the announcement by Special Agent in Charge Robert Foley of the Federal Bureau of Investigation (FBI).

During a hearing this afternoon before United States District Judge Nancy Edmunds, Mayfield, 56, of Ft. Lauderdale, Florida, admitted that between 2006 and 2008, he had an agreement with the then city treasurer Beasley to pay bribes to Beasley and others to influence Beasley’s decisions as a trustee of Detroit’s Police and Fire Retirement System and General Retirement System.

Mayfield was the principal owner and chief executive officer of MayfieldGentry Realty Advisors L.L.C. (“MayfieldGentry”). MayfieldGentry was an investment advisor and fiduciary to the two Detroit pension funds overseeing a real estate investment portfolio worth more than $200 million of pension fund assets. According to Mayfield, Beasley agreed to maintain business for Mayfield’s company and to give Mayfield new pension fund business in exchange for cash others things of value. In particular, Mayfield gave $50,000 to the Kilpatrick Civic Fund. In addition, Mayfield paid for Beasley and others to take a trip to Las Vegas costing $60,000; paid for another private plane trip to Tallahassee, Florida, costing $24,000; paid for a private jet flight to Bermuda; and hired Beasley’s paramour to work at MayfieldGentry at Beasley’s request. Because of the pension fund business directed to MayfieldGentry by Beasley, Mayfield earned significant investment advisory fees from Detroit’s two pension funds.

United States Attorney McQuade said, “Detroit’s pension fund officials are entrusted to care for the retirement savings of the city’s employees, including police officers and firefighters. Officials who abuse their positions of trust for personal gain will be brought to justice.”

Robert Foley, Special Agent in Charge, Federal Bureau of Investigation said, “Those individuals who engage in pay to play schemes rob citizens of their right to honest government. The FBI-led Detroit Area Public Corruption Task Force is committed to stopping these illegal acts.”

Based on his guilty plea and felony conviction for conspiring to pay bribes, Mayfield is facing a maximum of five years in prison and a fine of up to $250,000.

A criminal indictment is pending against Beasley and against Roy Dixon, a former investment advisor to the two pension funds who paid bribes to Beasley and other officials and who embezzled millions from the funds.

In addition, a number of other defendants have been convicted in relation to the pension fund investigation, including (1) Monica Conyers, a former trustee of the General Retirement System and former member of the Detroit city council, for conspiracy to take bribes, including bribes relating to a proposed multi-million-dollar pension fund investment in Wireless Resources and a $10,000 extortion payment relating to the Police and Fire Retirement System’s investment in the Romulus Deep Injection Waste Well; (2) Samuel L. Riddle, Conyers’ chief of staff, for conspiracy to commit bribery and extortion relating to the Wireless Resources and Romulus Deep Injection Well investments; (3) DeDan Milton, a former trustee of Detroit’s two pension funds; (4) Andrew Park, an owner of Asian Village, who paid a bribe to obtain a $2.75 million loan from Detroit’s General Retirement System; and (5) Derrick Miller, former chief information officer of Detroit, who accepted the bribe from Park and who took a kickback of more than $500,000 on a $44 million investment by Detroit’s two pension funds.



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Saturday, February 9, 2013

SEC Halts $150 Million Investment Scheme to Dupe Foreign Investors


Source- http://www.sec.gov/news/press/2013/2013-20.htm

Washington, D.C., Feb. 8, 2013 — The Securities and Exchange Commission today announced charges and an asset freeze against an individual living in Illinois and two companies behind an investment scheme defrauding foreign investors seeking profitable returns and a legal path to U.S. residency through a federal visa program.

The SEC alleges that Anshoo R. Sethi created A Chicago Convention Center (ACCC) and Intercontinental Regional Center Trust of Chicago (IRCTC) and fraudulently sold more than $145 million in securities and collected $11 million in administrative fees from more than 250 investors primarily from China. Sethi and his companies duped investors into believing that by purchasing interests in ACCC, they would be financing construction of the “World’s First Zero Carbon Emission Platinum LEED certified” hotel and conference center near Chicago’s O’Hare Airport. Investors were misled to believe their investments were simultaneously enhancing their prospects for U.S. citizenship through the EB-5 Immigrant Investor Pilot Program, which provides foreign investors an avenue to U.S. residency by investing in domestic projects that will create or preserve a minimum number of jobs for U.S. workers.

The SEC alleges that Sethi and his companies falsely boasted to investors that they had acquired all the necessary building permits and that several major hotel chains had signed onto the project. They also provided falsified documents to U.S. Citizenship and Immigration Services (USCIS) — the federal agency that administers the EB-5 program — in an attempt to secure the agency’s preliminary approval of the project and investors’ provisional visas. Meanwhile, Sethi and his companies have spent more than 90 percent of the administrative fees collected from investors despite their promise to return this money to investors if their visa applications are denied. More than $2.5 million of these funds were directed to Sethi’s personal bank account in Hong Kong.

Swift coordination between the SEC and USCIS has brought the scheme to a halt in its application stage at USCIS. The SEC filed its complaint under seal earlier this week and obtained an emergency court order to protect the remaining $145 million in investor assets that were at risk of being similarly misappropriated by Sethi and his companies. The case was unsealed this morning.

“Sethi orchestrated an elaborate scheme and exploited these investors’ dream of earning legal U.S. residence along with a positive return on their investment in a project that was not nearly the done deal that he portrayed,” said Stephen L. Cohen, Associate Director in the SEC’s Division of Enforcement. “The good news is that working closely with USCIS, we intervened early and stopped him from getting very far, and the asset freeze preserves nearly all of the money invested.”

According to the SEC’s complaint filed in U.S. District Court for the Northern District of Illinois, the EB-5 program enables foreign investors to possibly qualify for a green card if they invest $1 million (or $500,000 in a “Targeted Employment Area” with a high unemployment rate) in a project that creates or preserves at least 10 jobs for U.S. workers, excluding the investor and his or her immediate family. Sethi and his companies used the lure of a pathway to U.S. citizenship to convince investors to wire a minimum of $500,000 apiece plus a $41,500 “administrative fee” to U.S. bank accounts. These administrative fees are separate from the investment capital that the EB-5 program requires to be deployed into a job-creating enterprise. More than $11 million in administrative fees were collected with the claim that they were fully refundable to investors if their visa applications are rejected. Sethi and his companies have instead been spending those funds.

The SEC alleges that Sethi submitted false claims about the project to USCIS. Among the phony documentation that he provided to the agency in seeking preliminary approval for the project under the EB-5 program were a comfort letter from Hyatt Hotels and a backup financing letter from the Qatar Investment Authority.

The SEC’s complaint alleges that Sethi and his companies made a number of misrepresentations about the project to dupe investors. Offering materials stated that investors’ funds would help build “a convention center and hotel complex, including convention and meeting space, five upscale hotels, and amenities including restaurants, lounges, bars, and entertainment facilities.” Sethi and his companies prominently featured in their marketing materials the purported participation of three major hotel chains in the project: Hyatt, Intercontinental Hotel Group, and Starwood Hotels. However, none of these hotel chains have executed franchise agreements to include a brand hotel in this project as represented to investors in the offering materials. Two of the chains actually terminated prior deals with other Sethi-related entities more than two years before these offering materials were circulated to investors.

The SEC further alleges that the offering materials falsely stated that construction would begin in summer 2012 and occupancy of the first tower would occur in early spring 2014. A search of the Chicago Building Permits database for the project address shows that the only recent permits are for a tent for a purported groundbreaking ceremony held in November 2012, a demolition permit, construction of a fence, and a minor electrical wiring permit.

According to the SEC’s complaint, the 29-year-old Sethi misrepresented to investors in offering materials that he has “over fifteen years of experience in real estate development and management, specifically in the lodging area.” Offering materials also misleadingly state that the project’s developer Upgrowth LLC has “more than 35 years of experience.” Illinois corporate records show that Upgrowth was just recently organized in 2010.



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Friday, February 8, 2013

Richard K. Olive and Susan L. Olive in Florida with Defrauding Seniors Investing in Purported Charity


Source- http://www.sec.gov/news/press/2013/2013-19.htm

Washington, D.C., Feb. 4, 2013 — The Securities and Exchange Commission today charged a husband and wife who raised millions of dollars selling investments for a purported charitable organization in Tallahassee, Fla., while defrauding senior citizens and significantly exaggerating the amount of contributions actually made to charity.

The SEC alleges that after Richard K. Olive and Susan L. Olive were hired at We The People Inc., the organization obtained $75 million from more than 400 investors in Florida, Colorado, and Texas among more than 30 states across the country by selling an investment product they described as a charitable gift annuity (CGA). However, the CGAs issued by We The People differed in several ways from CGAs issued legitimately, namely that they were issued primarily to benefit the Olives and other third-party promoters and consultants. Only a small amount of the money raised was actually directed to charitable services. Meanwhile the Olives received more than $1.1 million in salary and commissions, and they also siphoned away investor funds for their personal use.

The SEC further alleges that the Olives lured elderly investors with limited investing experience into the scheme by making a number of false representations about the purported value and financial benefits of We The People’s CGAs. The Olives also lied about the safety and security of the investments.

“The Olives raised millions from senior citizens by claiming that We The People’s so-called CGAs provided attractive financial benefits and were re-insured and backed by assets held in trust,” said Julie Lutz, Associate Director of the SEC’s Denver Regional Office. “Investors were not given the full story about the true value and security of their investments.”

According to the SEC’s complaint against the Olives filed in U.S. District Court for the Southern District of Florida, investors were coaxed to transfer assets including stocks, annuities, real estate, and cash to We The People in exchange for a CGA. We The People claimed to operate as a non-profit organization while it was offering the CGAs from June 2008 to April 2012. However, We The People was not operating as a charity but instead for the primary purpose of issuing CGAs and using the proceeds to pay substantial sums to the Olives, third-party promoters, and consultants. On rare occasions when We The People did actually direct money raised toward charitable services, it was insignificant. For instance, the organization made public statements that it donated $21.8 million in relief aid to AIDS orphans in Zambia, but in fact the supplies were donated by others and We The People merely made a small payment to the third party that was shipping the supplies.

The SEC alleges that We The People’s marketing and promotional materials for the CGA offering contained misrepresentations and omissions including:
False statements that the CGAs were worth the “full” accumulated value of the assets transferred by investors to We The People. Investors were not told in advance of transferring their assets that the value of the CGA as calculated by We The People was always substantially less than the “full” accumulated value of those assets because We The People took a significant percentage of the asset’s value and kept it as a purported “charitable gift.”

False statements about the safety and security of the CGA program including that We The People held in trust a reserve equal to 110 percent of its liabilities and that it “reinsured” its products through “highly rated” commercial insurance companies. We The People did not in fact have any restricted-access trust accounts let alone maintain a reserve in them, and it did not purchase reinsurance from any insurance company to cover its potential liabilities under the CGAs.

Omissions of the previous indictments and regulatory sanctions against Richard and Susan Olive when they previously sold similar products.

Omissions of the sizable commissions that We The People paid to third-party promoters and the Olives on the sale of the CGAs, hiding from investors that these commissions totaled several million dollars.

The SEC’s complaint charges the Olives with violations, or aiding and abetting violations, of the antifraud provisions of the federal securities laws as well as violations of the securities and broker-dealer registration provisions of the federal securities laws. The SEC is seeking disgorgement of ill-gotten gains plus pre- and post-judgment interest and financial penalties against the Olives.

The SEC also filed separate complaints today against We The People as well as the company’s in-house counsel William G. Reeves. They both agreed to settle the charges without admitting or denying the allegations. The settlements are subject to court approval.

We The People consented to a final judgment that will enable the appointment of a receiver to protect more than $60 million of investor assets still held by the company. The final judgment also provides for disgorgement of ill-gotten gains and provides injunctive relief under the antifraud and registration provisions of the federal securities laws.

Reeves entered into a cooperation agreement with the SEC, and the terms of his settlement reflect his assistance in the SEC’s investigation and anticipated cooperation in its pending action against the Olives. Reeves agreed to be suspended from appearing or practicing before the SEC for at least five years, and consented to a final judgment providing injunctive relief under the provisions of the federal securities laws that he violated. The court will determine at a later date whether a financial penalty should be imposed against Reeves.



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Thursday, February 7, 2013

SEC Charges Real Estate Executives in Florida-Based $300 Million Investment Scheme


Source- http://www.sec.gov/news/press/2013/2013-15.htm

Washington, D.C., Jan. 30, 2013 — The Securities and Exchange Commission today charged five former real estate executives who defrauded investors into believing they were funding the development of five-star destination resorts in Florida and Las Vegas when they were actually buying into a Ponzi scheme.

The SEC alleges that Cay Clubs Resorts and Marinas raised more than $300 million from nearly 1,400 investors nationwide through a network of hundreds of sales agents, marketing seminars, and podcasts that touted the profitability of purchasing units at Cay Clubs resort locations. Investors were promised immediate income from a guaranteed 15 percent return and a future income stream through a rental program that Cay Clubs managed. But instead of using investor funds to develop resort properties and units, the Cay Clubs executives used new investor deposits to pay leaseback returns to earlier investors. Meanwhile they paid themselves exorbitant salaries and commissions totaling more than $30 million, and investor funds also were misused to buy airplanes and boats. While still advertising itself as a profitable venture, Cay Clubs eventually abandoned its operations. Many investors’ properties went into foreclosure.

“These Cay Clubs executives lined their pockets with millions of dollars that they told investors would be used to develop five-star resort properties,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “They continued to defraud investors as Cay Clubs collapsed.”

The SEC’s complaint filed in U.S. District Court for the Southern District of Florida charges the following former Cay Clubs executives:
Fred Davis Clark, Jr. – president and CEO
David W. Schwarz – chief accounting officer
Cristal R. Coleman – manager and sales agent
Barry J. Graham – sales director
Ricky Lynn Stokes – sales director

According to the SEC’s complaint, the scheme began in 2004. Clark, Coleman, Graham, and Stokes solicited investors with promises of guaranteed income, instant equity in undervalued properties, historic appreciation, and at least $30,000 in upgrades to the units they purchased at Cay Clubs resort locations in Florida and Las Vegas. The representations about investors’ profitability and instant equity were false because the purported triple-digit returns resulted from undisclosed insider transactions with Cay Clubs by Coleman, Graham, and Stokes. Their actions made it appear that Cay Clubs units had enormous rates of appreciation over a short period of time when in fact the transactions were merely part of an insider flipping scheme. Further, Stokes wrote letters directly to potential investors claiming that the leaseback payments and profits were “guaranteed” and that Cay Clubs was a “very stable financially healthy company worth BILLIONS.”

The SEC alleges that Cay Clubs continued to solicit new investors despite the fact that the company’s financial condition had deteriorated so significantly that it did not have sufficient funds to make the “guaranteed” leaseback or rental payments to investors. Clark, Coleman, and Schwarz misappropriated millions of dollars in investor funds using the multitude of bank accounts they controlled. Besides purchasing airplanes and boats, they misused investor money for unrelated business ventures including investments in precious metals and a liquor distillery that produced Pirate’s Choice Rum. After Cay Clubs abandoned its operations in 2008, Clark and Coleman (who are now husband and wife) moved to the Cayman Islands and continued to dissipate assets and funnel at least $2 million to offshore accounts.

The SEC’s complaint seeks financial penalties from Clark, Coleman, and Stokes and the disgorgement of ill-gotten gains plus prejudgment interest by all five executives. The complaint also seeks injunctive relief to enjoin them from future violations of the federal securities laws as well as an accounting and an order to repatriate investor assets.



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Wednesday, February 6, 2013

SEC Charges Trader in Houston-Area Investment Scheme Targeting Lebanese and Druze Communities


Source- http://www.sec.gov/news/press/2013/2013-13.htm

Washington, D.C., Jan 29, 2013 — The Securities and Exchange Commission today charged a day trader in Sugar Land, Texas, with defrauding investors in his supposed high-frequency trading program and providing them falsified brokerage records that drastically overstated assets and hid his massive trading losses.

The SEC alleges that Firas Hamdan particularly targeted fellow members of the Houston-area Lebanese and Druze communities, raising more than $6 million during a five-year period from at least 33 investors. Hamdan told prospective investors that he would pool their investments with his own money and conduct high-frequency trading using a supposed proprietary trading algorithm. Hamdan promised annual returns of 30 percent and assured investors that his program was safe and proven when in reality it was a dismal failure, generating $1.5 million in losses. As he failed to deliver the promised profits, Hamdan told investors that his funds were tied up in the Greek debt crisis and the MF Global bankruptcy among other phony excuses.

The SEC is seeking an emergency court order to halt the scheme and freeze Hamdan’s assets and those of his firm, FAH Capital Partners.

“Hamdan’s affinity scam preyed upon people’s tendency to trust those who share common backgrounds and beliefs,” said David R. Woodcock, Director of the SEC’s Fort Worth Regional Office. “Hamdan raised money by creating the aura of a successful day trader among friends and family in his community, and he continued to mislead them and hide the truth while trading losses mounted.”

According to the SEC’s complaint filed in federal court in Houston, Hamdan is well-known in the Lebanese and Druze communities in the Houston area and is a former treasurer of the Houston branch of the American Druze Society. Hamdan found investors for his trading program by talking with his friends and family in these communities. As word spread about his purported trading success, he asked existing investors to solicit their friends for investments.

The SEC alleges that Hamdan misrepresented to investors that he generated positive returns in 59 of 60 months between 2007 and 2012. He showed them phony documentation to support his false claims. For instance, a purported brokerage statement he provided investors for the first quarter of 2010 showed an opening balance of more than $2.3 million with quarterly trading gains of $2.7 million for a closing balance above $5.1 million. An actual brokerage statement obtained by SEC investigators for Hamdan’s account during that same period shows the opening balance at just $27,970.76 and the closing balance at $148,210.02, with quarterly trading losses of $7,452.80.

According to the SEC’s complaint, Hamdan made several other false claims to potential investors. For instance, he lied about the existence of a cash reserve account that secured their investments. Hamdan falsely stated that investments were further secured by a $5 million “key-man” insurance policy. He also falsely claimed that a well-known hedge fund manager in the Dallas area made a million-dollar investment with him and promised to invest more based on Hamdan’s continuing success.



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Tuesday, February 5, 2013

Charged Former Jefferies Executive with Defrauding Investors in Mortgage-Backed Securities


Source- http://www.sec.gov/news/press/2013/2013-12.htm

Washington, D.C., Jan. 28, 2013 — The Securities and Exchange Commission today charged a former executive at New York-based broker-dealer Jefferies & Co. with defrauding investors while selling mortgage-backed securities (MBS) in the wake of the financial crisis so he could generate additional revenue for his firm.

According to the SEC’s complaint filed in federal court in Connecticut, Jesse Litvak arranged trades for customers as part of his job as a managing director on the MBS desk at Jefferies. Litvak would buy a MBS from one customer and sell it to another customer, but on many occasions he lied about the price at which his firm had bought the MBS so he could re-sell it to the other customer at a higher price and keep more money for the firm. On other occasions, Litvak misled purchasers by creating a fictional seller to purport that he was arranging a MBS trade between customers when in reality he was just selling MBS out of his firm’s inventory at a higher price. Because MBS are generally illiquid and difficult to price, it is particularly important for brokers to provide honest and accurate information.

The SEC alleges that Litvak generated more than $2.7 million in additional revenue for Jefferies through his deceit. His misconduct helped him improve his own standing at the firm, as his bonuses were determined in part by the amount of revenue he generated for the firm.

“Brokers must always tell their customers the truth, particularly in complex securities transactions in which it is difficult for investors to determine market prices on their own,” said George Canellos, Deputy Director of the SEC’s Division of Enforcement. “Litvak repeatedly lied to his customers and invented facts to bring additional profits into his firm and ultimately his own pocket at their expense.”

The U.S. Attorney’s Office for the District of Connecticut today announced criminal charges against Litvak.

According to the SEC’s complaint, Litvak worked in the Stamford, Conn., office at Jefferies, and his misconduct lasted from 2009 to 2011. Litvak’s customers included some funds created by the U.S. government under a program designed to help strengthen the markets for MBS during the financial crisis. Had these customers been aware that they could have paid less for the MBS they purchased, they likely would have done so.



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