In the Matter of Pritchard Capital Partners, LLC, Thomas Ward Pritchard, Joseph John VanCook, and Elizabeth Ann McMahon
On April 23, the Commission announced that it accepted settlement offers made by Pritchard Capital Partners, LLC, Thomas Pritchard and Elizabeth McMahon in previously instituted proceedings brought by the Commission. Pritchard Capital is a registered broker-dealer headquartered in Mandeville, Louisiana, and Thomas Pritchard is the firm's managing director. McMahon was formerly associated with Pritchard Capital in its New York office from approximately March 2001 through January 2004.
The Commission's order finds that, among other things, from as early as November 2001 through approximately July 2003, Pritchard Capital allowed some of its market timing customers, who provided 25% of the firm's revenue in 2003, to late trade mutual fund shares. The order further finds that virtually all of the late trading occurred through Pritchard Capital's New York office and involved Joseph VanCook and McMahon, two associated persons in that office. According to the order, Pritchard Capital allowed customers to submit tentative trades before 4:00 p.m. Eastern Time and confirm the trades, or not, after 4:00 p.m. The firm generally did not document the time that its mutual fund customers actually confirmed their trades. The order also finds that Pritchard Capital and Thomas Pritchard failed reasonably to supervise VanCook. Thomas Pritchard was Pritchard Capital's principal owner, managing director and chief compliance officer during the relevant period.
In accordance with the offers of settlement, the Commission:
The Commission's proceedings against Joseph VanCook are ongoing. For further information see Exchange Act Rel. No. 56374, Investment Company Act Rel. No. 27966 (Sept. 7, 2007). (Rels. 34-57704; IC-28251; File No. 3-12753)
In the Matter of Claude Fernandez (CPA)
On April 23, the Commission issued an Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions against Claude Fernandez, formerly the chief accounting officer and currently a managing director of W.P. Carey & Co. The Order finds that on March 21, 2008, in the case entitled Securities and Exchange Commission v. W.P. Carey & Co. LLC, et al., 08 Civ. 2846 (JSR) (S.D.N.Y.), a Final Judgment was entered against Fernandez permanently enjoining him from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Section 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 13b2-1 promulgated thereunder, and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 promulgated thereunder, and ordering him to pay a civil money penalty of $75,000.
Based on the above, the Order suspends Fernandez from appearing or practicing before the Commission as an accountant, with a right to apply for reinstatement after two years from the date of the order. Fernandez consented to the issuance of the Order without admitting or denying the findings in the Order, except the Court's entry of the Final Judgment against him.
W.P. Carey is the manager of real estate investment trusts (REITs). The complaint in this action, which was filed on March 18, 2008, alleged, among other things, that from approximately April 2000 until December 2003, Fernandez, as W.P. Carey's chief accounting officer, participated in having the REITs make a series of undisclosed revenue sharing payments totaling approximately $9.7 million to a broker-dealer. These payments were omitted from the offering documents of the REITs and misrepresented in quarterly and annual reports filed with the Commission, including registration statements and periodic reports signed by Fernandez. Fernandez also participated in improperly labeling and misclassifying these payments, which allowed W.P. Carey to evade an applicable regulatory limitation on compensation to broker-dealers.
The Commission previously announced settlements of the civil action with W.P. Carey, Carey Financial, Fernandez, and John J. Park, W.P. Carey's former chief financial officer. For further information see SEC v. W.P. Carey & Co. LLC, et al., 08 Civ. 2846 (JSR) (S.D.N.Y.); LR-20501. (Rel. 34-57705; AAE Rel. 2812; File No. 3-13018)
Gabelli Funds LLC Agrees To Pay $16 Million to Settle SEC Charges in Connection with an Undisclosed Market Timing Arrangement; SEC Sues Former Gabelli Funds LLC Portfolio Manager Marc Gabelli and Chief Operating Officer Bruce Alpert in a Related Civil Fraud Action
On April 24, the Commission simultaneously instituted and settled administrative and cease-and-desist proceedings against Gabelli Funds LLC (Gabelli Funds), a registered investment adviser, in connection with an undisclosed market timing arrangement involving Gabelli Global Growth Fund (GGGF), currently known as GAMCO Global Growth Fund, which violated the anti-fraud provisions of the federal securities laws. Without admitting or denying the Commission's findings, Gabelli Funds consented to the issuance of a Commission Order finding that, notwithstanding its internal de facto policy to reject market timing purchases and that it had told GGGF's Board of Directors (Board) that it was taking steps to block market timing, Gabelli Funds allowed a market timer to time GGGF and failed to disclose to the Board the market timing arrangement, that the market timer's investment in a Gabelli Funds-affiliated hedge fund was made in exchange for increased market timing capacity in GGGF, or the detrimental effects of the market timer's trading on GGGF shareholders. As a result, the Order finds the firm breached its fiduciary duty to GGGF. The Order also finds that Gabelli Funds, an affiliated person of GGGF, acting as principal, entered into a joint arrangement with GGGF, without seeking or obtaining approval from the Commission, whereby it permitted the market timer to time GGGF in exchange for an investment in a Gabelli Funds-affiliated hedge fund. In addition, the Order finds that on 115 days, GGGF sold shares to the market timer such that after the sale, the market timer had an aggregate investment in GGGF that exceeded three percent of GGGF's total outstanding shares in violation of federal securities laws.
Based on its conduct, the Order finds that Gabelli Funds willfully violated Section 206(2) of the Investment Advisers Act, Section 17(d) of the Investment Company Act, and Investment Company Act Rule 17d-1, and willfully aided and abetted and caused violations by GGGF of Section 12(d)(1)(B)(i) of the Investment Company Act. Gabelli Funds was censured, ordered to cease and desist its securities law violations, and ordered to pay $9.7 million in disgorgement, $1.3 million in prejudgment interest, and a penalty of $5 million, for a total payment of $16 million. As described in the Order, Gabelli Funds' payment will be distributed to shareholders harmed by the market timing activity during the relevant period.
In a related action, the Commission filed a civil fraud complaint on April 24 in the United States District Court for the Southern District of New York against Marc J. Gabelli, the former portfolio manager of GGGF, and Bruce Alpert, Chief Operating Officer of Gabelli Funds, charging them with fraud for aiding and abetting Gabelli Funds' violations of Sections 206(1) and 206(2) of the Investment Advisers Act in connection with the undisclosed market timing arrangement. The Complaint also charges Alpert with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5 for misleading public statements he made regarding Gabelli Funds' efforts to identify and restrict market timers. (Rels. IA-2727; IC-28253; File No. 3-13019); [SEC v. Marc J. Gabelli and Bruce Alpert, C.A. No. 08CV3868 (S.D.N.Y.)] (LR-20539)
Kevin R. Andersen, CPA Reinstated to Appear and Practice Before the Commission as an Accountant Responsible for the Preparation or Review of Financial Statements Required to be Filed with the Commission
Pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice, Kevin R. Andersen, CPA has applied for and been granted reinstatement of his privilege to appear and practice before the Commission as an accountant responsible for the preparation or review of financial statements required to be filed with the Commission. Mr. Andersen was suspended from appearing or practicing before the Commission on March 5, 2002. His reinstatement is effective immediately. (Rel. 34-57709; AAE Rel. 2813; File No. 3-10714)
In the Matter of First Montauk Securities Corp. and Herbert Kurinsky
On April 24, the Commission issued an Order Instituting Public Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (Exchange Act) against First Montauk Securities Corp. (First Montauk) and Herbert Kurinsky (Order). The Order finds that First Montauk and Kurinsky failed reasonably to supervise former First Montauk employee Berton M. Hochfeld within the meaning of Sections 15(b)(4)(E) and 15(b)(6) of the Exchange Act. The Order further finds that First Montauk willfully violated Section 15(b)(7) of the Exchange Act and Rule 15b7-1 thereunder, and Kurinsky willfully aided and abetted and caused First Montauk's violations. Finally, the Order finds that First Montauk failed to comply with Regulation AC, promulgated under the Exchange Act.
From March 2003 through December 2003, Hochfeld engaged in illegal "scalping" of securities he covered in research reports distributed to First Montauk's institutional customers. Specifically, Hochfeld traded in the same stocks covered in his research reports in a manner inconsistent with those reports, without disclosing such inconsistent trades. First Montauk failed to adopt reasonable policies and procedures to monitor Hochfeld's trading so as to prevent and detect this fraudulent conduct. Kurinsky, the firm's CEO and president at the time, failed reasonably to supervise Hochfeld with a view to preventing and detecting this fraudulent conduct. Kurinsky improperly delegated supervisory responsibilities to an individual who did not hold a supervisory license. Moreover, Kurinsky failed to follow-up on his supervisory delegation and failed to address whether reasonable policies and procedures to monitor Hochfeld's activities had been implemented.
Additionally, First Montauk distributed Hochfeld's reports to customers and potential customers without certifications required by Regulation AC, specifically, that the views expressed in Hochfeld's research reports accurately reflected his personal views and identifying the type and amount of compensation, if any, Hochfeld received related to specific recommendations or views expressed in the reports.
Based on the above, the Order censures First Montauk, requires First Montauk and Kurinsky to cease and desist from committing or causing any violations and future violations of Section 15(b)(7) of the Exchange Act and Rule 15b7-1 thereunder, and as to First Montauk, Regulation AC under the Exchange Act; orders First Montauk to pay a civil penalty in the amount of $100,000, disgorgement of $597.24, and prejudgment interest in the amount of $145.64; orders Kurinsky to pay a civil penalty in the amount of $50,000; and suspends Kurinsky from acting in any supervisory capacity for a period of six months. First Montauk and Kurinsky consented to the issuance of the Order without admitting or denying any of the findings therein.
The Commission previously filed a settled injunctive action against Hochfeld. SEC v. Hochfeld, 05 CV 9921 (SDNY Jan 5, 2005); Lit. Rel. No. 19474 (Nov. 29, 2005). The Commission also previously instituted administrative proceedings against Hochfeld. Berton M. Hochfeld, Exch. Act Rel. No. 53160 (Jan. 20, 2006). (Rel. 34-57710A; File No. 3-13020)
SEC Files Subpoena Enforcement Action
Global 1 Investment Holdings Corporation and W. E. Tucker Fail to Produce Documents or Appear for Testimony Before Commission Staff
The Commission today announced that on April 14, 2008, it filed a subpoena enforcement action in U.S. District Court for the Northern District of Georgia against Global 1 Investment Holdings Corporation (Global 1) and W. E. Tucker a/k/a Willie E. Tucker, Jr. (Tucker). Pursuant to a subpoena issued on Oct. 10, 2007, Global 1 was obligated to produce documents to the staff by Oct. 29, 2007, and appear for testimony at the Atlanta Regional Office of the Commission on Nov. 5, 2007. Pursuant to a subpoena issued on Nov. 29, 2007, Tucker was obligated to produce documents to the staff by Dec. 13, 2007, and appear for testimony at the Atlanta Regional Office of the Commission on Dec. 18, 2007. Neither Global 1 nor Tucker produced any documents pursuant to subpoena, and neither appeared for testimony as required. Accordingly, the Commission filed its Application for an Order to Show Cause and for an Order Requiring Obedience to Subpoenas, along with a supporting Memorandum and Declaration.
In its Application and supporting filings, the Commission alleges that on Sept. 27, 2007, the Commission issued its Order Directing Private Investigation and Designating Officers to Take Testimony (Formal Order) in the Global 1 Investment Holdings Corporation investigation. The Formal Order authorizes the staff to conduct an investigation into whether, among other things, Global 1, Tucker, or certain other persons and entities associated with Global 1 violated the anti-fraud provisions of the federal securities laws.
Pursuant to its Application, the Commission is seeking an Order directing Global 1 and Tucker to show cause why the Court should not enter an Order requiring them to appear for testimony and produce the required documents. [SEC v. Global 1 Investment Holdings Corporation and W. E. Tucker a/k/a Willie E. Tucker, Jr., Case No. 1:08-CV-1381 (N.D. Ga.)] (LR-20533)
Marc Freedman Sentenced to More Than 5 Years in Prison for Wire Fraud and Money Laundering in a Scheme to Defraud Investors
The Commission announced today that, in a judgment entered on April 17, 2008, Marc Freedman, of North Potomac, Maryland, was sentenced in the United States District Court for the District of Maryland to 63 months in prison followed by three years of supervised release for wire fraud and money laundering related to a scheme to defraud investors and use the money for his personal benefit. Freedman also was ordered to pay $1,200,000 in restitution and a $200 assessment. Freedman was the President, Chief Compliance Officer and part-owner of TriCapital Advisors, Inc. (TriCapital), an investment adviser registered with the Commission and located in North Bethesda, Maryland.
Freedman pled guilty to an information from the United States Attorney for the District of Maryland, which charged that, between 2002 and 2004, Freedman defrauded clients of TriCapital. For example, between March 2002 and June 2003, Freedman took more than $300,000 from a trust account he controlled on behalf of a client, purportedly to make 19 transactions for stock purchases that were not in fact made. On June 14, 2004, Freedman also wrote a $5,000 check, drawn on the trust account, and made payable to the Washington Asset Group, a company owned by Freedman.
In addition, according to the information, on Aug. 2, 2002, another client of TriCapital established a living trust account. In March 2004, Freedman falsely told the client that the money was in "securitized notes." In fact, $1.2 million of the client's funds had been wired to an account in the name of the Washington Asset Group. Freedman used the money to write a check for $1,048,545 to pay off a third TriCapital client whose account Freedman had largely dissipated; reimburse the trust account $45,000 for monies used by Freedman for his personal benefit; and write a check for $13,500 to purchase an automobile.
On Dec. 5, 2007, the Commission filed a civil action in the United States District Court for the District of Maryland against Freedman, based on the same conduct. Without admitting or denying the allegations of the complaint, Freedman consented to the entry of a final judgment permanently enjoining him from 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 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. By an Order of the Commission, Freedman was also barred from association with any investment adviser. For additional information, see Litigation Release No. 20383 (Dec. 5, 2007). [U.S. v. Marc Freedman, 07-0514 (D. Md.)] (LR-20534)
Robert Macgregor Ordered to Pay $655,115 to Settle Charges of Violating the Broker-Dealer Registration Requirements
The Commission announced today that on April 11, 2008, a final judgment was entered by consent against Robert MacGregor, permanently enjoining him from aiding and abetting future violations of Section 15(b)(7) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 15b7-1 thereunder, in the civil action entitled Securities and Exchange Commission v. Michael W. Crow, et al., Civil Action Number 07 Civ. 3814 (CM), in the United States District Court for the Southern District of New York. The final judgment also orders MacGregor to disgorge $480,563 in ill-gotten gains, together with prejudgment interest of $114,552, and to pay a civil penalty in the amount of $60,000, for total monetary relief of $655,115, plus postjudgment interest. MacGregor, 42 years old, is a resident of New York, New York.
The Commission's first amended complaint (complaint) alleges that from November 2003 through at least January 2005, MacGregor was an employee of, and associated with, Duncan Capital LLC, a broker-dealer registered with the Commission, while MacGregor was not registered with the National Association of Securities Dealers (NASD). The complaint further alleges that, during the relevant period, Duncan Capital's sole business was arranging private investment in public equity (PIPE) offerings for small cap companies. As the placement agent, Duncan Capital solicited investors and received a fee from the issuers based on the amounts it raised. MacGregor allegedly conducted brokerage activities for Duncan Capital on many of these PIPE offerings, even though he knew that he was not registered with, and that he was required to be registered with, the NASD, and knew that he had not passed the examinations required in order to conduct his activities. The complaint further alleges that MacGregor received hundreds of thousands of dollars in commissions as a result of his brokerage activities.
In related administrative proceedings, MacGregor agreed to be barred from association with any broker or dealer with the right to reapply for association after one year to the appropriate self-regulatory organization, or if there is none, to the Commission. MacGregor consented to the entry of the final judgment in the civil action without admitting or denying any of the allegations in the complaint.
The action was commenced on May 15, 2007, and is continuing against the other defendants. For further information see Litigation Release No. 20117 (May 15, 2007).
SEC Amended Complaint in this matter. [SEC v. Michael W. Crow, Duncan Capital LLC, Duncan Capital Group LLC, Robert David Fuchs, and Robert MacGregor, 07-Civ-3814 (CM) (S.D.N.Y.).] (LR-20535)
SEC Files Charges Against USA Capital's Joseph Milanowski for Multimillion Dollar Securities Fraud
On April 23, the Commission filed charges against Joseph Milanowski, former President of USA Commercial Mortgage Company, dba USA Capital, for perpetrating a multimillion dollar securities fraud. USA Capital is a mortgage broker based in Las Vegas, Nevada, and Milanowski, age 46, lives in Las Vegas, Nevada.
The Commission's complaint alleges that from May 2000 to September 2005, USA Capital raised $150 million from 1,900 investors through the offer and sale of securities in the USA Capital Diversified Trust Deed Fund (the Fund). As alleged in the complaint, contrary to the representations to the Fund investors, Milanowski used the vast majority of the Fund's offering proceeds to make unsecured loans to entities affiliated with him, which entities eventually defaulted on the loans. The complaint further alleges that, as a result of Milanowski's misuse of the Fund's money and the large number of defaulted loans, USA Capital, certain of its affiliates, and the Fund filed for Chapter 11 bankruptcy in April 2006, and Fund investors lost over half their investments.
The Commission charged Milanowski with violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933 (Securities Act) and the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks a permanent injunction, disgorgement with prejudgment interest, civil penalties, and an officer and director bar against Milanowski. [SEC v. Joseph Milanowski, Civil Action No. 2:08-CV-00511-KJD-PAL (D. Nev.)] (LR-20536)
SEC Charges Wall Street Trader with Fraud for Spreading False Rumor
The Commission today filed a settled civil action in the United States District Court for the Southern District of New York, charging Paul S. Berliner, a Wall Street trader formerly associated with Schottenfeld Group, LLC, with securities fraud and market manipulation for intentionally disseminating a false rumor concerning The Blackstone Group's acquisition of Alliance Data Systems Corp. The Commission's complaint alleges that on Nov. 29, 2007 -- approximately six months after Blackstone entered into an agreement to acquire ADS at $81.75 per share -- Berliner drafted and disseminated a false rumor that ADS's board of directors was meeting to consider a revised proposal from Blackstone to acquire ADS at a significantly lower price of $70 per share. The Commission alleges that this false rumor caused the price of ADS stock to plummet, and that Berliner profited by short selling ADS stock and covering those sales as the false rumor caused the price of ADS stock to fall.
According to the complaint, Berliner disseminated the false rumor through instant messages to traders at brokerage firms and hedge funds. Shortly thereafter, the news media picked up the "story." As alleged in the complaint, heavy trading in ADS stock ensued, and within thirty minutes the false rumor had caused the price of ADS stock, which had been trading at approximately $77 per share, to plummet to an intraday low of $63.65 per share -- a 17% decline in the share price. According to the complaint, the false rumor had such a significant impact on trading in the securities of ADS that day that the New York Stock Exchange temporarily halted trading in ADS stock. Later in the day, ADS issued a press release announcing that the rumor was false and by the close of trading, the price of ADS stock had recovered. Over 33,000,000 shares of ADS were traded that day -- more than twenty times the previous day's trading volume.
By engaging in the foregoing conduct, the complaint alleges, Berliner violated Section 17(a) of the Securities Act of 1933, Sections 9(a)(4) and 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. Without admitting or denying the allegations in the Commission's complaint, Berliner agreed to settle the charges against him by consenting to entry of a final judgment that (i) enjoins him from future violations of the antifraud and antimanipulation provisions of the federal securities laws, (ii) orders him to disgorge $26,129 in illicit trading profits and prejudgment interest, and (iii) orders him to pay a third-tier civil penalty of $130,000. Berliner also consented to entry of a Commission Order barring him from association with any broker or dealer. [SEC v. Paul S. Berliner, Civil Action No. 08-CV-3859 (JES) (S.D.N.Y.)] (LR-20537)
SEC Settles Fraud Charges with Former CEO of Energytec, Inc.
On April 18, the Commission filed a settled civil action in Dallas federal court against Don L. Lambert, the former CEO of Energytec, Inc., charging that in various filings with the SEC, Lambert made materially false and misleading statements, and omitted material information, concerning his biography and background.
Energytec is a Plano, Texas-based oil and gas company, with shares quoted on the Pink Sheets and the OTC Bulletin Board under the symbol EYTC. In its complaint, the Commission charges that Lambert, when he was hired by Energytec, failed to disclose his prior federal securities fraud conviction, his multiple bankruptcies, and that he had forfeited his Texas law license to avoid being disbarred. The complaint further alleges that Lambert provided false information about his employment history. As a result, the Commission charges that the biographical summaries in Energytec's Commission filings omitted this material information, and included false information. The complaint also charges that, after he became CEO, Lambert certified Commission filings by Energytec that continued to omit material information and contained false information about his background.
The SEC's complaint alleges that Lambert violated Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13a-14 thereunder. The complaint also alleges that Lambert aided and abetted Energytec's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-11 thereunder. Without admitting or denying the allegations in the Commission's complaint, Lambert consented to the entry of a final judgment permanently enjoining him from violating these provisions, imposing an officer and director bar, and ordering him to pay a civil penalty of $50,000. [SEC v. Don L. Lambert, Defendant, Civil Action No. 308 CV-683-B, Northern District of Texas (Dallas Division)] (LR-20538)
INVESTMENT COMPANY ACT RELEASES
Kohlberg Capital Corporation
An order has been issued under Section 61(a)(3)(B) of the Investment Company Act on an application filed by Kohlberg Capital Corporation. The order approves applicant's proposal to issue stock options to non-employee directors under applicant's 2008 non-employee director plan. (Rel. IC-28239 - April 23)
Atlas Insurance Trust
An order has been issued under Section 8(f) of the Investment Company Act declaring that Atlas Insurance Trust has ceased to be an investment company. (Rel. IC-28250 - April 23)
Proposed Rule Change
NYSE Arca filed a proposed rule change (SR-NYSEArca-2008-32) and Amendment No. 1 relating to the Minor Rule Plan. Publication is expected in the Federal Register during the week of April 28. (Rel. 34-57697)
Immediate Effectiveness of Proposed Rule Change
A proposed rule change filed by the Chicago Board Options Exchange (SR CBOE-2008 48) regarding the handling of odd-lot orders on the CBOE Stock Exchange has become immediately effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934 and Rule 19b-4(f)(5) thereunder. Publication is expected in the Federal Register during the week of April 28. (Rel. 34-57702)
SECURITIES ACT REGISTRATIONS
RECENT 8K FILINGS