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U.S. Securities and Exchange Commission

SEC News Digest

Issue 2008-116
June 16, 2008

ENFORCMENT PROCEEDINGS

In the Matter of John E. Tencza

On June 16, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions (Order) against John. E. Tencza (Tencza). The Order finds that on May 9, 2008, an order of permanent injunction was entered by consent against Tencza, permanently enjoining him from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act of 1934 and Rules 10b-5 and 10b-10 thereunder, and from aiding and abetting violations of Exchange Act Rule 10b-10, in the civil action entitled Securities and Exchange Commission v. Michael E. Kelly, et al., Civil Action Number 07-C-4979, in the United States District Court for the Northern District of Illinois. The Commission’s complaint alleged that Tencza and AEG participated in a massive fraud run by Michael E. Kelly that victimized thousands of investors across the United States by raising at least $428 million through the offer and sale of fraudulent and unregistered securities called Universal Leases. Universal Leases were securities in the form of investment contracts that were structured as timeshares in several hotels in Cancun, Mexico, coupled with pre-arranged servicing agreements with a purportedly independent leasing agent that promised investors a safe investment and guaranteed returns. The complaint alleged that Tencza and AEG offered and sold Universal Leases to investors and that Tencza also sold Universal Leases under the name “American Investment Management Group, Inc.” The complaint further alleged, among other things, that Tencza made false and misleading statements about the safety of the Universal Leases and about the purportedly independent leasing agent, and also failed to make required disclosures about the commissions he was being paid for his Universal Lease sales.

Based on the above, the Order bars Tencza from association with any broker or dealer. Tencza consented to the issuance of the Order without admitting or denying any of the findings in the Order except as to the entry of the order of permanent injunction against him. (Rel. 34-57968; File No. 3-13068)


In the Matter of Richard E. Riner

On June 16, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions (Order) against Richard E. Riner (Riner). The Order finds that on May 9, 2008, an order of permanent injunction was entered by consent against Riner, permanently enjoining him from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act of 1934 and Rules 10b-5 and 10b-10 thereunder, and from aiding and abetting violations of Exchange Act Rule 10b-10, in the civil action entitled Securities and Exchange Commission v. Michael E. Kelly, et al., Civil Action Number 07-C-4979, in the United States District Court for the Northern District of Illinois. The Commission’s complaint alleged that Riner and SIMI participated in a massive fraud run by Michael E. Kelly that victimized thousands of investors across the United States by raising at least $428 million through the offer and sale of fraudulent and unregistered securities called Universal Leases. Universal Leases were securities in the form of investment contracts that were structured as timeshares in several hotels in Cancun, Mexico, coupled with pre-arranged servicing agreements with a purportedly independent leasing agent that promised investors a safe investment and guaranteed returns. The complaint alleged that Riner and SIMI offered and sold Universal Leases to investors. The complaint further alleged, among other things, that Riner made false and misleading statements about the safety of the Universal Leases and about the purportedly independent leasing agent, and also failed to make required disclosures about the commissions he was being paid for his Universal Lease sales.

Based on the above, the Order bars Riner from association with any broker or dealer. Riner consented to the issuance of the Order without admitting or denying any of the findings in the Order except as to the entry of the order of permanent injunction against him. (Rel. 34-57969; File No. 3-13069)


SEC Issues Cease-And-Desist Order Against Citigroup Inc.

The Commission today issued an Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 (Order) against Citigroup Inc. for violations of reporting, record-keeping and internal controls provisions of the federal securities laws.

In its Order, the Commission found that Citigroup accounted for four Argentine transactions in a manner that did not conform with generally accepted accounting principles (GAAP) and thereby overstated its income reported in the company’s earnings press release included in a Form 8-K filed with the Commission on January 18, 2002, and in the company’s annual report on Form 10-K for 2001 filed with the Commission on March 12, 2002. Had Citigroup accounted for the four Argentina-related items in conformity with GAAP, the company would have recorded additional charges in the fourth quarter 2001 of at least $311 million after-tax and would have reduced earnings by more than 8% and earnings per share by at least $.06.

Without admitting or denying the Commission’s findings, Citigroup consented to the issuance of the Order, which orders Citigroup to cease and desist from committing or causing violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-11 thereunder. (Rel. 34-57970; AAE Rel. 2838; File No. 13070)


In the Matter of American Golden Century Investments, Inc.

An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default (Default Order) in the matter of American Golden Century Investments, Inc. The Order Instituting Proceedings alleged that American Golden Century Investments, Inc., Growtex, Inc. (n/k/a Canadexx, Inc.), and Information Highway.com, Inc., each failed repeatedly to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission. The Default Order finds these allegations to be true and revokes the registrations of each class of registered securities of American Golden Century Investments, Inc., Growtex, Inc. (n/k/a Canadexx, Inc.), and Information Highway.com, Inc., pursuant to Section 12(j) of the Securities Exchange Act of 1934. (Rel. 34-57971; File No. 3-13027)


Federal Judge Permanently Enjoins Five Unregistered Southern California Brokers in a $50 Million Securities Fraud Scheme

On June 10, 2008, the Honorable Andrew Guilford, United States District Judge for the Central District of California, entered judgments against defendants Donald G. Ryan, age 42, of Irvine, Calif, Richard McGill, age 58, of Laguna Niguel, Calif., William L. Sanders, age 56, of Norco, Calif., Michael Tuchman, age 38, of Irvine, Calif., and Danny Rayburn, age 47, of Westminster, Calif. The judgments permanently enjoin all five defendants from committing future violations of the securities registration and broker registration provisions of the federal securities laws, and the judgment as to Ryan enjoins him from committing future violations of the securities antifraud provisions of the federal securities laws. The judgment also orders disgorgement of ill-gotten gains with prejudgment interest, but waives payments of those amounts based upon the five defendants’ demonstrated inability to pay. Ryan, McGill, Sanders, Tuchman, and Rayburn each consented to the entry of the judgments against them without admitting or denying any of the allegations in the Commission’s complaint.

The Securities and Exchange Commission’s complaint, which was filed on September 6, 2007, alleges that between January 2003 and August 2006, the defendants raised $50 million from over 1600 investors nationwide by selling security interests in a series of seven offerings. The Commission’s complaint alleges that defendant Real Estate Partners (REP), its related funds, and defendants Dawson Davenport, Michael Owens, and Ryan made several key misrepresentations to investors in the course of the fund offerings. First, the complaint alleges that these defendants misrepresented how REP would use investor funds, failing to disclose to investors that they spent over $26 million, or 52% of the money raised, on commissions to salespeople, including $10.9 million to two companies controlled by Owens and $3 million to a company controlled by Ryan.

The complaint further alleges that REP was running a Ponzi-like scheme. Specifically, the complaint alleges that REP paid investors annual dividends using money obtained from other investors. The complaint also alleges that the defendants falsely claimed that Coldwell Banker was associated with the funds, when, in actuality, Coldwell Banker had nothing to do with the fund offerings. The complaint alleges that the defendants enticed investors with baseless promises of high rates of return on their investments, and dangled the unlikely possibility of conducting a public offering by converting the funds and REP into a publicly-traded real estate investment trust.

Finally, the complaint alleges that the defendants conducted an unregistered offering of securities, and that defendants Owens, Ryan, McGill, Sanders, Tuchman, and Rayburn all sold REP’s securities without being registered as broker-dealers, or associated with a registered broker-dealer.

The Commission’s complaint alleges that REP, the funds, Davenport, Owens, Ryan, McGill, Sanders, Tuchman, and Rayburn each violated the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933. The complaint also alleges that REP, the funds, Davenport, Owens, and Ryan violated 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 complaint further alleges that Owens, Ryan, McGill, Sanders, Tuchman, and Rayburn violated the broker-dealer registration requirement of Section 15(a) of the Exchange Act.

Litigation of the charges against REP, the funds, Davenport, and Owens in this matter continues. [SEC v. Real Estate Partners, Inc.; Real Estate Partners Income Fund I, LLC; Real Estate Partners Income Fund II, BT; Real Estate Partners Income Fund III, BT; Real Estate Partners Unit Investment Business Trust I; Real Estate Partners Unit Investment Business Trust II; Real Estate Partners Equity Fund, BT; Real Estate Partners Growth Fund, BT; Dawson Davenport; Michael P. Owens; Donald G. Ryan; Richard McGill; William L. Sanders; Michael Tuchman; and Danny Rayburn, Case No. SACV 07-1022 AG (RNBx) (C.D. Cal.)] (LR-20618)


SELF-REGULATORY ORGANIZATIONS

Proposed Rule Changes

The American Stock Exchange filed a proposed rule change (SR-Amex-2008-44) under Rule 19b-4 of the Securities Exchange Act of 1934 modifying the provisions governing contacts between specialists and issuers. Publication is expected in the Federal Register during the week of June 16. (Rel. 34-57952)

The Options Clearing Corporation filed a proposed rule change (SR-OCC-2008-08) under Section 19(b) of the Exchange Act relating to its facilities management agreements. Publication is expected in the Federal Register during the week of June 16. (Rel. 34-57963)


SECURITIES ACT REGISTRATIONS


RECENT 8K FILINGS

 

http://www.sec.gov/news/digest/2008/dig061608.htm


Modified: 06/16/2008