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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SEC Charges Texas Man With Running Bitcoin-Denominated Ponzi Scheme

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539730583#.UfRwcI21FG0

Washington D.C., July 23, 2013 —
The Securities and Exchange Commission today charged a Texas man and his company with defrauding investors in a Ponzi scheme involving Bitcoin, a virtual currency traded on online exchanges for conventional currencies like the U.S. dollar or used to purchase goods or services online.

The SEC alleges that Trendon T. Shavers, who is the founder and operator of Bitcoin Savings and Trust (BTCST), offered and sold Bitcoin-denominated investments through the Internet using the monikers “Pirate” and “pirateat40.” Shavers raised at least 700,000 Bitcoin in BTCST investments, which amounted to more than $4.5 million based on the average price of Bitcoin in 2011 and 2012 when the investments were offered and sold. Today the value of 700,000 Bitcoin exceeds $60 million.

The SEC alleges that Shavers promised investors up to 7 percent weekly interest based on BTCST’s Bitcoin market arbitrage activity, which supposedly included selling to individuals who wished to buy Bitcoin “off the radar” in quick fashion or large quantities. In reality, BTCST was a sham and a Ponzi scheme in which Shavers used Bitcoin from new investors to make purported interest payments and cover investor withdrawals on outstanding BTCST investments. Shavers also diverted investors’ Bitcoin for day trading in his account on a Bitcoin currency exchange, and exchanged investors’ Bitcoin for U.S. dollars to pay his personal expenses.

The SEC issued an investor alert today warning investors about the dangers of potential investment scams involving virtual currencies promoted through the Internet.

“Fraudsters are not beyond the reach of the SEC just because they use Bitcoin or another virtual currency to mislead investors and violate the federal securities laws,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “Shavers preyed on investors in an online forum by claiming his investments carried no risk and huge profits for them while his true intentions were rooted in nothing more than personal greed.”

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of Texas, Shavers sold BTCST investments over the Internet to investors in such states as Connecticut, Hawaii, Illinois, Louisiana, Massachusetts, North Carolina, and Pennsylvania. Shavers posted general solicitations on a website dedicated to Bitcoin discussions, and he misled investors with such false assurances about his investment opportunity as “It’s growing, it’s growing!” and “I have yet to come close to taking a loss on any deal,” and “risk is almost 0.” Contrary to the representations made to investors, BTCST was not in the business of buying and selling Bitcoin at all.

The SEC alleges that Shavers, who lives in McKinney, Texas, paid 507,148 Bitcoin in investor withdrawals and purported interest payments. He transferred at least 150,649 Bitcoin to his personal account at an online Bitcoin currency exchange. Shavers suffered a net loss from his day trading, but realized net proceeds of $164,758 from his sales of 86,202 Bitcoin. Shavers transferred $147,102 from his personal account at the online Bitcoin currency exchange to accounts he controlled at an online payment processor as well as his personal checking account. He used this money to pay his rent, utilities, and car-related expenses as well as for food and retail purchases and gambling.

The SEC’s complaint charges Shavers and BTCST with offering and selling investments in violation of the anti-fraud and registration provisions of the securities laws, specifically Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. The SEC is seeking a court order to freeze the assets of Shavers and BTCST in addition to other relief, including permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

The SEC’s investor alert, prepared by the agency’s Office of Investor Education and Advocacy, recommends that investors be wary of so-called investment opportunities that promise high rates of return with little or no risk, especially when dealing with unregistered, Internet-based investments sold by unlicensed promoters.

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SEC Charges Steven A. Cohen With Failing to Supervise Portfolio Managers and Prevent Insider Trading

Source- http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539726923#.UeswNY21FG0

The Securities and Exchange Commission today announced charges against hedge fund adviser Steven A. Cohen for failing to supervise two senior employees and prevent them from insider trading under his watch.

The SEC’s Division of Enforcement alleges that Cohen received highly suspicious information that should have caused any reasonable hedge fund manager to investigate the basis for trades made by two portfolio managers who reported to him – Mathew Martoma and Michael Steinberg. Cohen ignored the red flags and allowed Martoma and Steinberg to execute the trades. Instead of scrutinizing their conduct, Cohen praised Steinberg for his role in the suspicious trading and rewarded Martoma with a $9 million bonus for his work. Cohen’s hedge funds earned profits and avoided losses of more than $275 million as a result of the illegal trades.

“Hedge fund managers are responsible for exercising appropriate supervision over their employees to ensure that their firms comply with the securities laws,” said Andrew J. Ceresney, Co-Director of the SEC’s Division of Enforcement. “After learning about red flags indicating potential insider trading by his employees, Steven Cohen allegedly failed to follow up to prevent violations of the law. In addition to the more than $615 million his firm has already agreed to pay for the alleged insider trading, the Enforcement Division is seeking to bar Cohen from overseeing investor funds.”

According to the SEC’s order instituting administrative proceedings against Cohen, portfolio managers Martoma and Steinberg obtained material non-public information about publicly traded companies in 2008, and they traded on the basis of that information. The SEC charged Martoma and his tipper with insider trading in an enforcement action last year, and charged Steinberg with insider trading in a complaint filed earlier this year. In connection with those cases, CR Intrinsic, an affiliate of Cohen’s firm S.A.C. Capital Advisors, agreed to pay more than $600 millionin the largest-ever insider trading settlement. Another Cohen affiliate, Sigma Capital,agreed to pay nearly $14 million to settle insider trading charges.

The SEC’s investigation found that in his supervisory role, Cohen oversaw trading by Martoma and Steinberg and required them to update him on their stock trading and convey the reasons for their trades. On at least two separate occasions in 2008, they provided information to Cohen indicating their potential access to inside information to support their trading. However, Cohen stood by on both occasions instead of ascertaining whether insider trading was taking place.

According to the SEC’s order, Cohen watched Martoma build a massive long position in the stock of two pharmaceutical companies – Elan and Wyeth – based on their joint clinical trial of a drug with the potential to treat Alzheimer’s disease. Cohen allowed this despite repeated e-mails and instant messages to Cohen from other analysts at CR Intrinsic advocating against it. The analysts questioned whether Martoma possessed undisclosed data on the results of the trial. Cohen responded by saying it was “tough” to know whether Martoma knew something, but that he would follow Martoma’s advice because he was “closer to it than you.” In later exchanges of instant messages, Cohen further remarked that it “seems like mat [Martoma] has a lot of good relationships in this arena.” Cohen also was told about a doctor who had provided his portfolio managers with potentially non-public information about the clinical trial, but failed to express any concern about the use of that information. During his e-mail exchanges, Cohen displayed no concern that Martoma might possess non-public information or about his use of such information to inform investment decisions at his firm. Instead, Cohen encouraged Martoma to talk further with a doctor familiar with the clinical trial.

The SEC’s Enforcement Division alleges that after months of building up the massive position and being bullish on both Elan and Wyeth, Martoma had a 20-minute phone conversation with Cohen on July 20, 2008. According to Cohen, Martoma said that he was no longer comfortable with the Elan investments that CR Intrinsic and SAC held. Despite Martoma’s abrupt change in view and red flags that he likely received confidential information about the clinical trials from a tipper, Cohen failed to take prompt action to determine whether an employee under his supervision was violating insider trading laws. Starting the next morning, Cohen oversaw the liquidation of his and Martoma’s positions in Elan and Wyeth and the accumulation of a short position instead.

According to the SEC’s order, Cohen also supervised Steinberg while he was involved in insider trading of Dell securities in August 2008. After being looped into a highly suspicious e-mail between Steinberg and other firm employees reflecting the clear possibility that they possessed material non-public information about an upcoming earnings announcement at Dell, Cohen again failed to take prompt action to determine whether Steinberg was engaged in unlawful insider trading. Instead, Cohen liquidated his Dell shares based on the recommendation of Steinberg, who continued short selling Dell shares in his Sigma Capital portfolio based on the confidential information. Dell’s stock price dropped sharply after its August 28 earnings announcement, and funds managed by Cohen’s firms profited or avoided losses totaling at least $1.7 million. Three hours after the earnings announcement, Cohen e-mailed Steinberg: “Nice job on Dell.”

The SEC’s Division of Enforcement alleges that by engaging in the conduct described in the SEC’s order, Cohen failed reasonably to supervise Martoma and Steinberg with a view to preventing their violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The administrative proceedings will determine what relief is in the public interest against Cohen, including financial penalties, a supervisory and financial services industry bar, and other relief.

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SEC Halts Texas-Based Forex Trading Scheme

Source- http://www.sec.gov/news/press/2013/2013-125.htm

Washington, D.C., July 12, 2013 — The Securities and Exchange Commission today announced an emergency asset freeze against an unregistered money manager and his companies in Plano, Texas, who are charged with defrauding investors in a foreign currency exchange trading scheme

The forex market is a large and generally liquid financial market in which the risk of loss for individual investors can be substantial. The SEC has previously warned individual investors about the risks involved with forex trading.

The SEC alleges that Kevin G. White raised more than $7.1 million from investors by touting a sophisticated low-risk forex trading strategy yielding astronomical returns. He advertised his purported "25-year Wall Street career." In reality, the forex trading has incurred losses of investor funds, and White actually spent only six years as a licensed securities professional in Houston before being barred by the New York Stock Exchange two decades ago. White also lied about his education. Meanwhile, White has siphoned away more than $1.7 million of investor money to pay personal expenses, finance expensive trips, and fund other unrelated and undisclosed businesses and investments.

"White and his companies brandished phony credentials and a can't-miss trading strategy to lure investors into a web of deceit," said David Woodcock, Director of the SEC's Fort Worth Regional Office. "In reality, White was suffering forex trading losses and putting investor money to other uses."

The Commodity Futures Trading Commission (CFTC) today announced parallel charges against White and his companies.

According to the SEC's complaint that was unsealed late yesterday in U.S. District Court of the Eastern District of Texas, White raised investor money through two entities that he owns and controls: KGW Capital Management and Revelation Forex Fund. KGW Capital purports to be "one of the world's leading private investment firms."

The SEC alleges that White and his companies used websites, press releases, and presentations to prospective investors to solicit funds. White and his companies told investors that Revelation Forex was a $1 billion hedge fund that had achieved total returns of more than 393 percent since its January 2009 inception, and earned a compound annual rate of return of more than 36 percent. Marketing materials provided to prospective investors boasted that an initial investment of $250,000 in Revelation Forex in January 2009 would have grown to $983,111 by May 2013.

The SEC alleges that these claims were false. While White and KGW Capital tout a track record for the fund that began in January 2009, Revelation Forex did not actually receive investor funds or begin forex trading until September 2011. The fund has since incurred realized trading losses of more than $550,000 plus approximately $1,419,600 in unrealized losses through May 31, 2013. Meanwhile, bank records reveal that White has taken more than $1.7 million for himself, KGW Capital, and two of his other businesses, including approximately $248,600 in investor funds from Revelation Forex to fund an unrelated and undisclosed propane business and $97,000 on another business entitled KGW Real Estate. The SEC's complaint names both of these companies as relief defendants for the purpose of seeking disgorgement of investor funds in their possession.

The court has granted the SEC's request for an asset freeze and temporary restraining order against White, KGW Capital, Revelation Forex, and RFF GP LLC, which is the general partner of Revelation Forex. The court appointed Kelly Crawford as the receiver over these entities. A hearing has been scheduled for July 18, 2013, on the SEC's motion for a preliminary injunction.

The SEC's complaint alleges that White, KGW Capital, Revelation Forex, and RFF violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC is seeking disgorgement of ill-gotten gains with prejudgment interest and financial penalties as well as preliminary and permanent injunctions.

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SEC Freezes Assets Of Insider Traders in Onyx Pharmaceuticals

Source- http://www.sec.gov/news/press/2013/2013-123.htm

Washington, D.C., July 3, 2013 — The Securities and Exchange Commission today obtained an emergency court order to freeze the assets of traders using foreign accounts to reap approximately $4.6 million in potentially illegal profits by trading in advance of the Sunday, June 30, 2013 announcement that Onyx Pharmaceuticals, Inc. had received, but rejected an acquisition offer from Amgen, Inc.

The SEC alleges that unknown traders took risky bets that Onyx's stock price would increase by purchasing call options on June 26, 27 and 28, the three trading days before the announcement. Through quick, cross country coordination between the agency's Los Angeles and New York offices, the SEC took emergency action to freeze the traders' assets before courts closed for the holiday.

"This action demonstrates that the SEC will not hesitate to freeze the assets of suspicious foreign traders when the timing and size of their trades indicate that they were misusing inside information, and use of foreign accounts will not dissuade us," said Michele Wein Layne, Director of the SEC's Los Angeles Regional Office.

According to the SEC's complaint filed in federal court in Manhattan, on June 30, 2013 Onyx announced that it had received, but rejected, an unsolicited proposal from Amgen to acquire all of Onyx's outstanding shares and share equivalents for $120 per share in cash. The Announcement also stated that Onyx's board of directors rejected Amgen's proposal and that Onyx had authorized its financial advisors to contact potential acquirers who may have an interest in a transaction with Onyx. Amgen's $120 per share price offer represented a 38% premium to Onyx's closing share price on Friday June 28, 2013. The complaint further alleges that as a result of the announcement, Onyx's share price increased from a close of $86.82 on over 51% on Monday July 1 compared with the prior trading day's closing price, and that the trading volume of its stock increased by over 900% that day. The complaint alleges that the traders, as a result of these well-timed trades, collectively earned a profit of approximately $4.6 million in just three days.

The SEC alleges that certain unknown traders were in possession of material nonpublic information about the offer to acquire Onyx at a substantial premium over the stock price at the time they made thy purchased Onyx call options, many of which were out-of-the-money, in the three trading days before the announcement. According to the complaint, the timing and size of the trades were highly suspicious because they constituted large increases over the historical volume for those call options purchased.

The emergency court order obtained by the SEC freezes the traders' assets related to the Onyx call options transactions and prohibits the traders 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 Exchange Act Rule 10b-5. In addition to the emergency relief, the Commission is seeking a final judgment ordering the traders to disgorge their ill-gotten gains with interest, pay financial penalties, and permanently bar them from future violations

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SEC Charges Medical Imaging Device Company and Its CEO with Fraud

Source- http://www.sec.gov/news/press/2013/2013-117.htm

Washington, D.C., June 26, 2013 — The Securities and Exchange Commission today announced that it filed fraud charges on Tuesday against Burbank, Calif.-based Imaging3, Inc., and its founder and chief executive Dean Janes for misleading shareholders about the Food and Drug Administration (FDA)’s view of the company’s medical device.

The SEC’s complaint alleges that Janes held a conference call with investors in November 2010 after the FDA denied clearance for Imaging3, Inc. to market its proprietary scanner, which provides three-dimensional images for use in medical diagnosis. The denial was the product’s third, as the FDA denied clearance in 2008 and earlier in 2010. Even though the FDA cited concerns about the safety of the device and the quality of the images, Janes told investors that the FDA’s issues were “not substantive” and largely “administrative.”

“Shareholders have a right to trust corporate officers to tell them the truth about the business. When CEOs abuse that trust and make misstatements, innocent shareholders are victimized,” said Michele Wein Layne, Regional Director of the SEC’s Los Angeles Regional Office. “The SEC will hold corporate officers accountable for misleading shareholders.”

According to the SEC’s complaint, filed in the U.S. District Court for the Central District of California, on the conference call, Janes did not discuss the issues raised by the FDA in an October 2010 letter, such as the device’s potential for over-heating, and the fact that some sample images the company submitted were “scientifically invalid and useless.”

Even when asked on the call whether any of the FDA’s concerns were “safety-related” or involved image quality, Janes said, “Nope,” and that there was “really and honestly not one question about the technology or its consistency. It just doesn’t make sense to me.”

After an investor obtained the FDA’s denial letter and posted it on an Internet blog in early 2011, Janes used his personal Facebook page in another effort to mischaracterize the denial, the SEC alleged. Janes and his company didn’t officially issue the full text of the denial letter until earlier this year, more than two years after the call to discuss it.

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SEC Charges China-Based Company and CEO in Latest Cross-Border Working Group Case

Source- http://www.sec.gov/news/press/2013/2013-115.htm

Washington, D.C., June 20, 2013 — The Securities and Exchange Commission today charged a China-based company and the CEO with fraudulently misleading investors about its financial condition by touting cash balances that were millions of dollars higher than actual amounts.

The case is the latest from the SEC's Cross-Border Working Group that focuses on companies with substantial foreign operations that are publicly traded in the U.S. The Working Group has enabled the SEC to file fraud cases against more than 65 foreign issuers or executives and deregister the securities of more than 50 companies.

The SEC alleges that China MediaExpress, which purports to operate a television advertising network on inter-city and airport express buses in the People's Republic of China, began falsely reporting significant increases in its business operations, financial condition, and profits almost immediately upon becoming a publicly-traded company through a reverse merger. In addition to grossly overstating its cash balances, China MediaExpress also falsely stated in public filings and press releases that two multi-national corporations were its advertising clients when, in fact, they were not. The company's chairman and CEO Zheng Cheng signed the public filings and attested to their accuracy. After suspicions of fraud were raised by the company's external auditor and an internal investigation ensued, Zheng attempted to pay off a senior accountant assigned to the case.

"Investor confidence in the representations made by publicly-traded companies is critically important to the proper functioning of our financial markets," said Antonia Chion, Associate Director in the SEC's Division of Enforcement. "China MediaExpress and Zheng falsely reported whopping increases in its cash balances and deceptively raised money from stock sales. Today's action demonstrates the Commission's commitment to policing financial fraud in the U.S. markets, regardless of whether it is perpetrated by persons who live here or abroad."

According to the SEC's complaint filed in Washington D.C., China MediaExpress became a publicly-traded company in October 2009 and began materially overstating its cash balances in press releases and SEC filings. For example, its 2009 annual report filed on March 31, 2010, reported $57 million in cash on hand when it actually had a cash balance of merely $141,000. Later that year on November 9, 2010, China MediaExpress issued a press release boasting a cash balance of $170 million at the end of the third quarter of its fiscal year. The actual cash balance was just $10 million.

According to the SEC's complaint, after China Media materially misrepresented its financial condition, its stock price tripled to more than $20 per share. At the same time, China Media received $53 million from a hedge fund pursuant to a sale of the company's preferred and common stock to that fund. Zheng was financially incentivized to misrepresent China MediaExpress' financial condition, as he had agreements to receive stock if the company met certain net income targets. For instance, when China Media met net income targets for fiscal year 2009, Zheng personally received 600,000 shares of China MediaExpress stock that were worth approximately $6 million at the time.

According to the SEC's complaint, China MediaExpress' external auditor resigned in March 2011 due to suspicions about fraudulent bank confirmations and statements. The company's audit committee then retained a law firm to conduct an internal investigation. The law firm hired a Hong Kong forensic accounting firm to assist in obtaining bank statements from China MediaExpress' banks to verify the publicly reported cash balances. The evening before a planned visit to the banks by the accounting firm's team, Zheng called a senior accountant assigned to the team and told him that he had the authorization letters necessary to obtain China MediaExpress' bank statements. He asked the accountant to meet him alone to obtain the authorization letters. During the meeting, Zheng admitted that there would be discrepancies dating back one to two years between China MediaExpress' reported and actual cash balances. Zheng offered the accountant approximately $1.5 million to "assist with the investigation." The accountant refused the offer. Approximately one month later, the bank statements were obtained, and they showed substantial discrepancies between publicly reported and actual cash balances.

The SEC's complaint charges Zheng and China MediaExpress with violations of the antifraud provisions of the federal securities laws. The complaint charges China MediaExpress with violations of the reporting, books and records, and internal control provisions, and charges Zheng with violating the SEC's rules prohibiting lying to auditors and making false certifications required under the Sarbanes-Oxley Act. The complaint seeks financial penalties, permanent injunctions, disgorgement, and an officer and director bar against Zheng.

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San Diego-Based Promoter in Penny Stock Scheme

Source- http://www.sec.gov/news/press/2013/2013-114.htm

Washington, D.C., June 18, 2013 — The Securities and Exchange Commission today charged a penny stock promoter in the San Diego area for fraudulently arranging the purchase of $2.5 million worth of shares in a penny stock company in an attempt to generate the false appearance of market interest and induce other investors to purchase the stock.

The SEC alleges that David F. Bahr of Rancho Santa Fe, Calif., artificially increased the trading price and volume of iTrackr Systems stock when he conspired with a purported businessman with access to a network of corrupt brokers. What Bahr didn’t know was that the purported businessman was actually an undercover FBI agent. During a test run of their arrangement, Bahr paid a $3,000 kickback in exchange for the initial purchase of $14,000 worth of iTrackr shares.

In a parallel action, the U.S. Attorney’s Office for the Southern District of California today filed criminal charges against Bahr.

“Bahr tried to artificially inflate the price and volume of iTrackr shares to the detriment of retail investors who wouldn’t have known the real story behind the flurry of market activity,” said Michele Wein Layne, Director of the SEC’s Los Angeles Office. “Working with criminal authorities, we were able to stop Bahr’s misconduct before he could seriously impact the markets and harm investors.”

The SEC also has issued an order to suspend trading in iTrackr securities.

According to the SEC’s complaint filed in federal court in San Diego, Bahr set out to give the markets a false impression of supply and demand in iTrackr stock where none actually existed. He coordinated the purchase of iTrackr shares so the stock price could remain high enough for him to effectively promote it at a later date and artificially inflate the price even higher. Bahr arranged for the dissemination of promotional material that overstated the likelihood of iTrackr’s success and future profits.

According to the SEC’s complaint, Bahr connected with the undercover agent in November 2012 and was told that that he represented a group of registered representatives who had trading discretion over certain client accounts. In exchange for a 30 percent kickback, the brokers could arrange to purchase iTrackr stock through their customers’ accounts and hold the shares for up to a year in order to avoid sales that might decrease iTrackr’s stock price. Bahr agreed to pay the kickback and sought the purchase of 10 million iTrackr shares at an average of 25 cents per share for a total of $2.5 million. Bahr agreed not to disclose the kickback to any iTrackr investors.

According to the SEC’s complaint, Bahr agreed to a test run involving the purchase of modest amounts of iTrackr stock on the open market, and Bahr would then pay a small commission. During the first week of December 2012, a total of 135,000 iTrackr shares were purchased, which represented approximately 32 percent of iTrackr’s trading volume during that time.

Bahr was then informed that the test purchases totaled approximately $14,000, and he owed a $4,000 commission. Bahr paid $3,000 through a wire transfer, and he asked another person to pay the remaining $1,000.

The SEC’s complaint alleges that Bahr violated Section 17(a)(1) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks financial penalties, a penny stock bar, and a permanent injunction against Bahr.

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SEC Charges Duncan MacDonald and Gloria Solomon in Ponzi Scheme At Dallas-Based Medical Insurance Company

Source- http://www.sec.gov/news/press/2013/2013-113.htm

Washington, D.C., June 17, 2013 — The Securities and Exchange Commission today charged two executives at a Dallas-based medical insurance company with operating a $10 million Ponzi scheme that victimized at least 80 investors.

The SEC alleges that Duncan MacDonald and Gloria Solomon solicited investments for Global Corporate Alliance (GCA) by promoting it as a proven business with a strong track record of generating revenue from the sale of limited-benefit medical insurance. In reality, GCA was merely a start-up company with no operating history and virtually no revenue. As they raised investor funds, MacDonald and Solomon used proceeds from new investors to pay returns to existing investors. Once they couldn’t find any new investors, MacDonald and Solomon used a stall campaign of purported excuses to delay making any further payments to investors.

“MacDonald and Solomon raised millions of dollars by lying to investors about their company’s business and history and their planned use of investor funds,” said David Woodcock, Director of the SEC’s Fort Worth Regional Office. “When they could no longer fuel their Ponzi scheme with money from new victims, they told more lies in a failed effort to prevent their scheme from unraveling sooner.”

David Peavler, Associate Director of the SEC’s Fort Worth Regional Office, added, “MacDonald and Solomon created fake monthly statements to falsely portray GCA as a thriving health insurance company successfully enrolling thousands of premium-paying policyholders each month. In reality, they never had more than 40 policyholders, and half of those were GCA’s own employees.”

In a parallel action, the U.S. Attorney’s Office for the Northern District of Texas has filed criminal charges against MacDonald and Solomon.

According to the SEC’s complaint filed in federal court in Dallas, MacDonald set out in 2008 to start an insurance company that would market medical insurance to large groups. He tried for months to find a single investor to fund the company’s initial capital needs, but was unsuccessful. Meanwhile, MacDonald and Solomon began spending money on the business before raising any capital. They hired employees, heavily marketed the program, and secured a sponsorship agreement with a large national membership group. MacDonald was GCA’s president and chairman, and Solomon was chief administrative officer.

The SEC alleges that when unable to land a major investor, MacDonald fractionalized his efforts and sought individual investors who could contribute smaller amounts. When pitching GCA to investors as well as brokers assisting him in identifying investors, MacDonald significantly misrepresented the history and state of his business. Besides misleading investors to believe there were more than 100,000 premium-paying members, MacDonald misrepresented that GCA had previously sold a portion of its revenue stream from paying members to a Chinese hedge fund. GCA had no relationships with a Chinese hedge fund or any other institutional investors.

According to the SEC’s complaint, MacDonald and Solomon began fabricating enrollment numbers to make it appear that GCA was enrolling new members each month. They created a so-called “Monthly Overage Disbursement Statement” that purported to show the monthly member enrollments and cancellations. The statements were meant to look as if they were generated from a database, but they were actually made in Excel and populated by Solomon. These monthly statements were provided to the brokers by MacDonald and Solomon so they could be used to induce investments from potential investors and serve as the basis for payments to existing investors. At MacDonald’s direction, Solomon was primarily responsible for making the monthly payments to investors based on the false enrollment numbers. In reality, these were Ponzi payments rather than revenues from policyholders.

The SEC alleges that by the time the scheme collapsed, GCA had raised nearly $10 million from investors and returned about $2 million to investors in the form of Ponzi payments. MacDonald and Solomon each took around $1 million of investor funds, and spent the remaining investor funds on various business-related expenses until GCA’s accounts were left with a negative balance. After investor money was gone and GCA could no longer make monthly payments to investors, MacDonald and Solomon spent the next year concocting various reasons to investors about why they could not make payments. Meanwhile, MacDonald was pursuing alternative means of financing the company and redeeming the investors, but no more money ever came.

The SEC’s complaint charges MacDonald and Solomon with securities fraud and conducting an unregistered securities offering while acting as unregistered broker-dealers. The SEC seeks various relief for investors including disgorgement of ill-gotten gains with prejudgment interest, financial penalties, and permanent injunctions.

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SEC Charges Revlon with Misleading Shareholders in Going Private Transaction

Source- http://www.sec.gov/news/press/2013/2013-110.htm

Washington, D.C., June 13, 2013 — The Securities and Exchange Commission today charged cosmetics and beauty care manufacturer Revlon with violating federal securities laws when the company misled shareholders during a "going private transaction."

Going private transactions can occur in many forms and typically involve the company delisting and deregistering its stock and cashing out their shareholders so the company or a private equity firm can acquire all of the outstanding shares. An SEC investigation found that during a voluntary exchange offer to satisfy a significant debt to its controlling shareholder, Revlon engaged in "ring fencing" that deprived its independent board members from knowing critical information: the transaction's consideration had been deemed inadequate by a third party who evaluated whether current and former employees invested in Revlon common stock through the company's 401(k) plan could exchange their shares.

Revlon agreed to settle the SEC's charges and pay an $850,000 penalty.

"Going private transactions create opportunities for shareholder abuse and can have coercive effects on minority shareholders," said Antonia Chion, Associate Director in the SEC's Division of Enforcement. "By erecting informational barriers, Revlon kept critically important information from its board and, in turn, misled investors."

According to the SEC's order instituting settled administrative proceedings, controlling shareholder MacAndrews and Forbes (M&F) asked Revlon in 2009 to offer minority shareholders the option to exchange their common stock shares on a one-for-one basis for preferred shares with certain financial characteristics. The exchanged shares would then be provided to M&F to pay down Revlon's debt. The trustee administering Revlon's 401(k) plan decided that 401(k) members could tender their shares only if a third-party financial adviser made an "adequate consideration determination," which involved assessing whether the value of the preferred stock 401(k) members would receive was at least equal to the fair market value of the exchanged common stock shares. The third-party financial adviser ultimately found that the consideration offered in the transaction was inadequate for tendering 401(k) shareholders.

The SEC's order finds that Revlon did not want to disclose the third-party financial adviser's view on the adequacy of the transaction's consideration. In an attempt to avoid a potential disclosure obligation, the company engaged in what one employee termed as "ring fencing" to avoid receiving the adequate consideration determination from the third-party adviser:
Revlon amended the trust agreement it had with the trustee to ensure that the trustee would not share the adequate consideration determination with Revlon.
Revlon ensured that it was not a party to any engagement letter concerning the adequate consideration determination.
Revlon directed the trustee to inform Revlon of its decision whether to allow 401(k) members to tender their shares without any reference to the adequate consideration determination.
In a notice sent to the 401(k) members and publicly filed as an exhibit to the exchange offer documents, Revlon removed the explicit term "adequate consideration" and replaced it with citations to ERISA statutes.

The SEC's order finds that Revlon's ring-fencing conduct resulted in various materially misleading disclosures to its shareholders. For example, Revlon represented in its offering documents that the board's process was full, fair, and complete in determining the fairness of the exchange offer. In reality, the process was compromised because Revlon's board was unable to consider the adequate consideration determination as part of its process to evaluate and ultimately approve the offer. Thus, Revlon's shareholders were deprived of the opportunity to receive revised, qualified, or supplemental disclosures, including any that might have informed them of the adequate consideration determination.

The SEC's order finds that Revlon violated Section 13(e) of the Securities Exchange Act of 1934 and Rule 13e-3(b)(1)(iii), which prohibits issuers and their affiliates in going private transactions from directly or indirectly engaging in any act, practice, or course of business that operates or would operate as a fraud or deceit. The SEC's order requires Revlon to cease and desist from committing or causing these violations and any future violations. Without admitting or denying the SEC's findings, Revlon agreed to the settlement and financial penalty.

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SEC Announces More Charges in Massive Kickback Scheme to Secure Business of Venezuelan Bank

Source- http://www.sec.gov/news/press/2013/2013-109.htm

Washington, D.C., June 12, 2013 — The Securities and Exchange Commission today charged the former head of the Miami office at brokerage firm Direct Access Partners (DAP) for his role in a massive kickback scheme to secure the bond trading business of a state-owned Venezuelan bank.

The SEC charged four individuals last month who enabled the global markets group at DAP to generate more than $66 million in revenue from transaction fees related to fraudulent trades they executed for Banco de Desarrollo Económico y Social de Venezuela (BANDES). A portion of this revenue was illicitly paid to the Vice President of Finance at BANDES, who authorized the fraudulent trades.

The SEC alleges that as managing partner of the global markets group, Ernesto Lujan was an integral participant in the wide-ranging fraudulent scheme that included sham arrangements to hide the kickback payments and route money to the BANDES official through shell corporations. Lujan and others charged in the scheme deceived DAP's clearing brokers, executed internal wash trades, interpositioned another broker-dealer in the trades to conceal their role in the transactions, and engaged in massive roundtrip trades to pad their revenue.

"For a scheme this bold to succeed, it required the sneaky collaboration of several individuals including the head of the Miami office," said Andrew M. Calamari, Director of the SEC's New York Regional Office. "Lujan and the others may have believed they were covering their tracks, but the SEC's exam and enforcement teams unraveled their fraud."

In a parallel action, the U.S. Attorney's Office for the Southern District of New York announced criminal charges against Lujan.

The SEC's amended complaint filed in federal court in Manhattan charges Lujan and the other defendants with fraud and seeks final judgments that would require them to return ill-gotten gains with interest and pay financial penalties.

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Chicago Board Options Exchange Charged for Regulatory Failures

Source- http://www.sec.gov/news/press/2013/2013-107.htm

Washington, D.C., June 11, 2013 — The Securities and Exchange Commission today charged the Chicago Board Options Exchange (CBOE) and an affiliate for various systemic breakdowns in their regulatory and compliance functions as a self-regulatory organization, including a failure to enforce or even fully comprehend rules to prevent abusive short selling.

CBOE agreed to pay a $6 million penalty and implement major remedial measures to settle the SEC's charges. The financial penalty is the first assessed against an exchange for violations related to its regulatory oversight. Previous financial penalties against exchanges involved misconduct on the business side of their operations.

Self-regulatory organizations (SROs) must enforce the federal securities laws as well as their own rules to regulate trading on their exchanges by their member firms. In doing so, they must sufficiently manage an inherent conflict that exists between self-regulatory obligations and the business interests of an SRO and its members. An SEC investigation found that CBOE failed to adequately police and control this conflict for a member firm that later became the subject of an SEC enforcement action. CBOE put the interests of the firm ahead of its regulatory obligations by failing to properly investigate the firm's compliance with Regulation SHO and then interfering with the SEC investigation of the firm.

According to the SEC's order instituting settled administrative proceedings, CBOE demonstrated an overall inability to enforce Reg. SHO with an ineffective surveillance program that failed to detect wrongdoing despite numerous red flags that its members were engaged in abusive short selling. CBOE also fell short in its regulatory and compliance responsibilities in several other areas during a four-year period.

"The proper regulation of the markets relies on SROs to aggressively police their member firms and enforce their rules as well as the securities laws," said Andrew J. Ceresney, Co-Director of the SEC's Division of Enforcement. "When SROs fail to regulate responsibly the conduct of their member firms as CBOE did here, we will not hesitate to bring an enforcement action."

Daniel M. Hawke, Chief of the SEC Enforcement Division's Market Abuse Unit, added, "CBOE's failures in this case were disappointing. The public depends on SROs to provide a watchful eye on their exchanges and market activities occurring through them. They must have strong compliance cultures and adequate and dedicated compliance resources to ensure that they do not stray from their bedrock obligation to provide rigorous self-regulation."

According to the SEC's order, CBOE moved its surveillance and monitoring of Reg. SHO compliance from one department to another in 2008, and the transfer of responsibilities adversely affected its Reg. SHO enforcement program. After that transfer, CBOE did not take action against any firm for violations of Reg. SHO as a result of its surveillance or complaints from third parties. Reg. SHO requires the delivery of equity securities to a registered clearing agency when delivery is due, generally three days after the trade date (T+3). If no delivery is made by that time, the firm must purchase or borrow the securities to close out that failure-to-deliver position by no later than the beginning of regular trading hours on the next day (T+4). CBOE failed to adequately enforce Reg. SHO because its staff lacked a fundamental understanding of the rule. CBOE investigators responsible for Reg. SHO surveillance never received any formal training. CBOE never ensured that its investigators even read the rules. Therefore, they did not have a basic understanding of a failure to deliver.

According to the SEC's order, CBOE received a complaint in February 2009 about possible short sale violations involving a customer account at a member firm. CBOE began investigating whether the trading activity violated Rule 204T of Reg. SHO. However, CBOE staff assigned to the case did not know how to determine if a fail existed and were confused about whether Reg. SHO applied to a retail customer. CBOE closed its Reg. SHO investigation later that year.

The SEC's order found that not only did CBOE fail to adequately detect violations and investigate and discipline one of its members, but it also took misguided and unprecedented steps to assist that same member firm when it became the subject of an SEC investigation in December 2009. CBOE failed to provide information to SEC staff when requested, and went so far as to assist the member firm by providing information for its Wells submission to the SEC. The CBOE actually edited the firm's draft submission, and some of the information and edits provided by CBOE were inaccurate and misleading. The SEC brought its enforcement action against the firm in April 2012, and an administrative law judge recently rendered an initial decision in that case.

According to the SEC's order, CBOE had a number of other regulatory and compliance failures at various times between 2008 and 2012. CBOE failed to adequately enforce its firm quote and priority rules for certain orders and trades on its exchange as well as rules requiring the registration of persons associated with its proprietary trading members. CBOE also provided unauthorized "customer accommodation" payments to some members and not others without applicable rules in place, resulting in unfair discrimination. And CBOE and affiliate C2 Options Exchange failed to file proposed rule changes with the SEC when certain trading functions on their exchanges were implemented.

The SEC's order finds that CBOE violated Section 19(b)(1) and Section 19(g)(1) of the Securities Exchange Act as well as Section 17(a) and Rule 17a-1 when it failed to promptly provide information requested by the SEC that the exchange kept in the course of its business, including information related to the member firm that was under SEC investigation for Reg. SHO violations. CBOE and C2 agreed to settle the charges without admitting or denying the SEC's findings. CBOE agreed to pay $6 million, accept a censure and cease-and-desist order, and implement significant undertakings. C2 also agreed to a censure and cease-and-desist order and significant undertakings.

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SEC Charges Top Officials At Investment Adviser in Scheme to Hide Theft From Pension Fund of Detroit Police and Firefighters

Source- http://www.sec.gov/news/press/2013/2013-106.htm

Washington, D.C., June 10, 2013 — The Securities and Exchange Commission today charged the leader of a Detroit-based investment adviser for stealing nearly $3.1 million from the pension fund that the firm manages for the city's police officers and firefighters so he could buy two strip malls in California. The SEC charged four other top officials at the firm for helping him try to cover up the theft.

The SEC alleges that Chauncey C. Mayfield, who is the founder, president, and CEO of MayfieldGentry Realty Advisors, took the money from the Police and Fire Retirement System of the City of Detroit without obtaining permission. He used it to purchase the shopping properties and title them in the name of a MayfieldGentry affiliate. Other executives at MayfieldGentry gradually became aware that Mayfield had siphoned money away from their biggest client. Rather than come clean about the theft and risk losing the sizeable business the firm received from the pension fund, MayfieldGentry officials instead devised a plan to secretly repay the pension fund by cutting costs at the firm and selling the strip malls. Their plan ultimately failed when MayfieldGentry could not raise enough capital to put the stolen amount back into the pension fund.

Mayfield and his firm agreed to settle the charges by paying back the stolen amount.

"Mayfield stole pension money from Detroit's retired police officers, firefighters, and surviving spouses and children to buy strip malls," said Andrew Ceresney, Co-Director of the SEC's Division of Enforcement. "To make matters worse, other senior officers at the firm joined together with him to cover up his deceitful and grave betrayal of trust, all for the purpose of keeping the client."

The other MayfieldGentry executives charged in the SEC's complaint are chief financial officer Blair D. Ackman, chief operating officer Marsha Bass, chief investment officer W. Emery Matthew, and chief compliance officer and general counsel Alicia M. Diaz.

According to the SEC's complaint filed in federal court in Detroit, Mayfield took the money from a trust account for the pension fund in 2008. The stolen money could have provided a year of benefits for more than 100 retired police officers, firefighters, and surviving spouses and children. Shortly thereafter, Mayfield told Ackman about the misappropriation, and by May 2011 the other principals at MayfieldGentry were aware of the misdeed. They proceeded to hide the theft by affirmatively misleading the pension fund.

The SEC alleges that during a critical budget meeting with fund trustees in 2011, Diaz stressed MayfieldGentry's success in generating a cash return for the pension fund. He stated that "the cash we deliver at the end of the day is the ultimate testimony in terms of what we do." Diaz touted a projection that MayfieldGentry would remit $4.96 million to the pension fund in 2012. Diaz never told the pension fund trustees that the cash remittance would be reduced by more than 60 percent once the stolen money was taken into account. At the same meeting, Matthews claimed that MayfieldGentry had achieved a benchmark-beating 6.8 percent return for the pension fund. He didn't explain that the 6.8 percent return would be materially impacted by the $3.1 million theft.

According to the SEC's complaint, MayfieldGentry and its executives continued to cover up the theft until they finally informed the pension fund on the evening before the SEC filed a complaint against Mayfield and his firmin May 2012 for their participation in a "pay-to-play" scheme involving the former mayor and treasurer of Detroit. Upon learning of the theft, the pension fund promptly terminated its relationship with MayfieldGentry.

The SEC's complaint alleges that MayfieldGentry and Chauncey Mayfield violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and Ackman, Bass, Matthews, and Diaz aided and abetted those violations. Mayfield and his firm agreed to pay disgorgement in the amount of $3,076,365.88 and be permanently enjoined from violating Sections 206(1) and 206(2) of the Advisers Act. They neither admit nor deny the allegations in the settlement, which is subject to court approval. In a parallel criminal matter, Mayfield is awaiting sentencing in connection with his guilty plea for participation in the pay-to-play scheme.

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