SEC Launches New Offensive to Alert Investors About Phony Investment Solicitations
The Securities and Exchange Commission today announced the launch of its latest offensive targeting online boiler rooms, cold calls, and other potentially fraudulent financial solicitations circulating to unsuspecting investors. Such solicitations often use phony claims of SEC registration, false U.S. addresses, or endorsements from make-believe government agencies or international organizations to make their investment opportunities appear more credible. Some also falsely claim to be affiliated with established brokerage firms.
The SEC's initiative is called "PAUSE" for Public Alert: Unregistered Soliciting Entities. The SEC is providing investors with factual information that the agency has received from investor complaints and other sources, including foreign regulators, about questionable e-mail or phone solicitations involving stock or securities sales.
Receiving this information in real-time can help investors proactively detect suspicious solicitations and determine whether an entity exists as advertised, before investing their money. The SEC's PAUSE Web pages are initially listing 56 unregistered soliciting entities and affiliated phony agencies or organizations that investors should beware. The lists will be updated regularly based on information received by SEC staff.
"Anyone thinking about investing online needs this in their tool kit," said SEC Chairman Christopher Cox. "PAUSE is a great resource for investors looking to steer clear of the latest phony investment offers that permeate the Internet. It's designed to make it easier for investors to figure out whether an investment solicitation is legitimate by quickly seeing whether the person making the offer is SEC-registered, has a valid U.S. address, and is affiliated with an authentic U.S. brokerage. Too many "investments" that are too good to be true flunk these basic tests. By arming investors with this online resource, we're making it increasingly difficult for swindlers to succeed with their illegal activities."
John Reed Stark, Chief of the SEC's Office of Internet Enforcement, added, "PAUSE is a good summary of the program's message. Rather than succumb to high-pressure sales tactics, investors should take a moment to consider whether the promises being made are too good to be true. They should approach financial solicitations with the same degree of care and reflection with which they consider any important life decision."
The benefits of the PAUSE program go not just to U.S. investors, but to the rest of the world as well. Since the SEC receives a large volume of complaints and inquiries from foreign investors about solicitations that purport to be made from legitimate U.S.-registered broker-dealers, the PAUSE program will have a beneficial impact around the globe.
Detective Chief Superintendent Steve Wilmott, head of the Economic Crime Department at the City of London Police, said, "The City of London Police appreciates this initiative by the U.S. SEC in establishing an early warning system to help investors identify possible boiler room and advance fee schemes. The City of London Police is responsible for coordinating Operation Archway, the UK's national intelligence reporting system for boiler room fraud, and for pooling resources from the Financial Services Authority, the Serious Fraud Office, the Serious Organised Crime Agency and other authorities to identify, investigate and prosecute these schemes. These schemes, which often purport to be legitimate entities located in the U.S., have been mercilessly targeting UK investors, particularly our vulnerable senior citizens, with assurances about bogus opportunities to invest in the U.S. market. This is a growing international problem that will take a combination of creative initiatives like PAUSE, as well as good old-fashioned international cooperation among regulatory and law enforcement authorities to protect investors from these callous financial crimes."
Investors can use information provided by PAUSE and similar Web sites maintained by overseas regulators like the U.K. Financial Services Authority (http://www.fsa.gov.uk/pages/Doing/Regulated/Law/Alerts/overseas.shtml) and the Australian Securities and Investments Commission (http://www.asic.gov.au/fido/fido.nsf/byheadline/
For each soliciting entity on the PAUSE Web pages, the SEC's staff has determined either that there is no U.S.-registered securities firm with that name, or that there is a U.S. registered securities firm with the same or similar name and solicitations appear to have been made by people not affiliated with that firm.
The PAUSE Web pages also include links to information bulletins from the SEC's Office of Investor Education and Advocacy describing common tactics of boiler-room solicitors, such as falsely offering to purchase low-value shares at an above-market price upon payment of specious "advance fees."
PAUSE Web Pages
(Press Rel. 2008-60)
SEC Chairman Cox Statement on Financial Stability Forum's Report on Recent Financial Market Turmoil
The Financial Stability Forum (FSF) has issued its "Report on Enhancing Market and Institutional Resilience." This work was undertaken at the request of the G-7 Finance Ministers and Central Bank Governors and delivered for their recent meeting in Washington, D.C.
Securities and Exchange Commission Chairman Christopher Cox today issued the following statement regarding the FSF report:
"The report by the Financial Stability Forum represents an important contribution to ongoing international discussions of these topics. It provides a backdrop for actions considered by the SEC and others to deal with the issues underlying the recent market turmoil. As the Commission prepares to write new rules for credit rating agencies under the recent authority granted us by Congress, this report will be of great value."
The FSF report draws heavily on the relevant work of the President's Working Group on Financial Markets, the International Organization of Securities Commissions (IOSCO), and the Senior Supervisor's Group (SSG). Chairman Cox is a principal of the President's Working Group on Financial Markets and is currently the Co-Chair of the IOSCO Task Force on the Subprime Crisis, as well as the Vice Chairman of the IOSCO Technical Committee.
The SEC, along with the Department of the Treasury and the Board of Governors of the Federal Reserve System, is a member of the Financial Stability Forum. The FSF was created in 1999 to promote international financial stability through information exchange and international cooperation in financial supervision and surveillance. It brings together on a regular basis national authorities responsible for financial stability in significant international financial centers, international financial institutions, sector-specific international groupings of regulators and supervisors, including IOSCO, and committees of central bank experts.
(Press Rel. 2008-61)
SEC Charges 6 Defendants in $1.2 Million Dollar Stock Loan Scam
On April 15, the Commission filed a civil injunctive action in the United States District Court for the Eastern District of New York charging 6 defendants with engaging in a scheme to defraud a large bank and broker-dealer through the payment of sham "finder" fees in connection with a series of "stock loan" transactions. The defendants include a former stock loan trader employed at JP Morgan Chase Bank (Chase), three so-called "finders" with whom he schemed and the two entities through which they perpetrated the fraud. In its complaint, the Commission alleges that the defendants conspired to misappropriate Chase's lending profits on a series of April 2003 stock loans made by Chase to Dresdner Kleinwort Wasserstein Securities LLC (DKW), and in doing so pocketed $1.2 million from their unlawful scheme.
The defendants named in the Commission's complaint are:
Robert Durant, age 42, resides in Milford, Connecticut. From 1994 through July 2003, Durant was a stock loan trader at Chase. After leaving Chase, Durant worked briefly for a registered broker-dealer but is no longer employed in the securities industry.
Robert Johnson, age 44, resides in Somers, New York. From March 1999 through October 2004, Johnson purported to perform stock loan finding services through Tyde, Inc. ("Tyde"), which he formed in 1999. Johnson currently holds series 7 and series 63 securities licenses.
Lori Caporicci, age 39, resides in Staten Island, New York. From 2001 through at least July 2003, she purported to perform stock loan finding services through Tyde as an independent contractor. From 1989 through 1999, Caporicci worked as a stock loan trader for several broker-dealers.
James Bennett, age 65, resides in New Port Richey, Florida. From 1993 through April 2004, he purported to perform stock loan finding services through Bearcat Financial Services, Inc. ("Bearcat"), which he formed in 1993.
Tyde, Inc. is a New York corporation with a business address in New York, New York. Tyde is owned and controlled by Johnson.
Bearcat Financial Services, Inc. is a Florida corporation with a business address in New Port Richey, Florida. Bearcat is owned and controlled by Bennett.
The Commission's complaint specifically alleges as follows: Durant, a stock loan trader then employed by Chase, schemed with so-called stock loan finders Johnson, Caporicci, and Bennett to misappropriate the bulk of Chase's profits on a series of stock loan transactions involving Italian securities. As a result of the defendants' scheme, DKW paid Bearcat, a stock loan finder firm owned by Bennett, sham finder fees out of the interest payments that DKW owed to Chase. From May 2003 through June 2003, the defendants caused DKW to pay Bearcat a total of approximately $1.2 million in sham finder fees in connection with the loans. Using off-shore and other nominee accounts, defendants Durant, Bennett, Johnson and Caporicci later split the sham finder fees among themselves. Neither Bearcat nor Tyde, the firm through which Johnson and Caporicci conducted their stock loan finder business and perpetrated the fraud, performed any finding services at all on these loan transactions. Under the terms of the loan transactions as originally recorded, all of the money paid to the defendants was to go to Chase, but Durant, pursuant to the scheme, later altered Chase's stock loan records and caused DKW's records to be altered so as to drastically reduce the amount of interest payable to Chase -- from an average of 7.15% down to 0.25% on each of the seven loans -- and divert the balance to Bearcat.
All 6 defendants are charged with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and, in the alternative, with aiding and abetting certain of each other's violations of the above provisions of the federal securities laws. The Commission's complaint seeks permanent injunctive relief, disgorgement with prejudgment interest, and civil penalties. The Commission's investigation is ongoing. [SEC v. Robert Durant, et al., Civil Action No. 08-1539 (EDNY) (JG)] (LR-20526)
PKF Cyprus Agrees to Injunction in Fraud Settlement in Connection With AremiSoft Corporation Audits; Agrees to Pay $261,565 in Civil Penalties, Disgorgement and Prejudgment Interest
Savvides & Partners/PKF Cyprus (PKF Cyprus), a Cyprus-based accounting firm, has consented to the entry of a final judgment in the Commission's case charging it engaged in fraud in connection with its 1999 and 2000 audits of AremisSoft Corporation. The firm agreed to settle without admitting or denying the allegations in the Commission's complaint. The settlement, which is subject to Court approval, would permanently enjoin PKF Cyprus from violating or aiding and abetting violations of the anti-fraud, reporting, books and records and internal controls provisions of the federal securities laws: Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 10b-5, 12b-20, 13a-1 and 13b2-1. As part of this settlement, and following the entry of the proposed final judgment against it, PKF Cyprus, without admitting or denying the Commission's findings, has consented to the issuance of an administrative order pursuant to Rule 102(e)(3) of the Commission's Rules of Practice, suspending it from appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after five years. PKF Cyprus will disgorge $106,513, which includes fees received as a result of its engagements to audit the financial statements of AremisSoft, with prejudgment interest of $48,539, and a $106,513 civil money penalty.
In its complaint filed March 21, 2006, the Commission alleged that PKF Cyprus issued audit reports for AremisSoft subsidiaries in 1999 and 2000 signed by former firm partner Pavlos Meletiou (also named as a defendant in the complaint) that falsely stated that its audits were conducted in accordance with U.S. Generally Accepted Auditing Standards (U.S. GAAS) and that the subsidiaries' financial statements were fairly presented in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP). The false financial statements of these companies were included as part of AremisSoft's consolidated financial statements filed with AremisSoft's year 1999 and 2000 Forms 10-K filed with the Commission, and in AremisSoft registration statements. The complaint also alleges that the PKF Cyprus audit workpapers prepared by Meletiou during the 2000 audits of two AremisSoft subsidiaries, found in a trash heap outside AremisSoft's Indian offices, included phony customer and bank confirmations. The complaint further alleges that Meletiou attended meetings with senior AremisSoft executives in which the AremisSoft financial fraud was openly discussed. [SEC v. Savvides & Partners/PKF Cyprus, et al., Civil Action No. 06 CV 2223 (S.D.N.Y.)] (LR-20527; AAE Rel. 2810)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-Amex -2008-35) filed by the American Stock Exchange to clarify that current limitations on the trade allocation match for Registered Traders in ETFs also apply to DARTS has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of April 14. (Rel. 34-57645)
The Commission issued notice of filing and immediate effectiveness of a proposed rule change (SR-NYSEArca-2008-41) filed by NYSE Arca under Rule 19b-4 of the Securities Exchange Act of 1934 amending Rule 6.87 to include procedures for handling catastrophic errors. Publication is expected in the Federal Register during the week of April 14. (Rel. 34-57653)
A proposed rule change filed by the NASDAQ Stock Market to modify the charges for pre-trade risk management workstation add-ons (SR-NASDAQ-2008-030) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of April 14. (Rel. 34-57658)
Proposed Rule Changes
A proposed rule change (SR-CBOE-2008-40), has been filed by the Chicago Board Options Exchange under Section 19(b)(2) of the Securities Exchange Act of 1934 to provide for issuance of Interim Trading Permits. Publication is expected in the Federal Register during the week of April 14. (Rel. 34-57650)
The Commission issued a notice of filing of a proposed rule change by the Municipal Securities Rulemaking Board pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, relating to Rule G-11, on New Issue Syndicate Practices, and Rule G-12, on Uniform Practice (SR-MSRB-2008-03). Publication is expected in the Federal Register during the week of April 14. (Rel. 34-57659)
Accelerated Approval of Proposed Rule Change
The Commission granted accelerated approval to a proposed rule change (SR-NASDAQ-2008-028) submitted by the NASDAQ Stock Market under Rule 19b-4 of the Securities Exchange Act of 1934 to trade options on the full and reduced values of the Nasdaq 100 Index Publication is expected in the Federal Register during the week of April 14. (Rel. 34-57654)
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