SEC Warns Investors and Financial Firms of Government Impersonators
The Securities and Exchange Commission today is warning investors and financial services firms about con-artists who may use the names of actual SEC employees to mislead potential victims. The agency also is providing information to help potential victims protect themselves from SEC impersonators.
In some instances, investors in the U.S. and abroad have been tricked into revealing private information, giving fraudsters access to their brokerage accounts, and even sending money and other assets to imposters. In other instances, unknown individuals have attempted to impersonate SEC examiners to gather confidential information from broker-dealers and investment advisers. Imposters have contacted firms by telephone, identified themselves as members of the SEC staff, and demanded immediate access to the firm's records, sometimes claiming to be conducting an "emergency" examination.
Investors should be aware that the SEC never makes or endorses investment offers or participates in money transfers. Nor does the SEC send e-mails asking for detailed personal information, or financial information such as PIN numbers.
"Investors should be especially wary, in these turbulent times, of any unsolicited investment offer, and should always verify the credentials of the individuals making the offer," said Kristin J. Kaepplein, Director of the SEC's Office of Investor Education and Advocacy. "If contacted by someone claiming to represent the Securities and Exchange Commission and vouching for investments, it's a scam. The SEC never endorses or participates in investment offers."
Always verify the identity of someone claiming to be from the SEC. Ask for the caller's name, the SEC office in which they work, and their telephone number. Then verify the caller's identity by calling the SEC's personnel locator at 202-551-6000 and asking to speak directly to that SEC staff member.
If contacted by someone unfamiliar to you claiming to be an SEC employee, please report it to the SEC by calling 800-732-0330 or e-mailing: firstname.lastname@example.org. If a caller claiming to be an SEC examiner is found not to be a member of the SEC's staff, please report the incident to the SEC's Examination Hotline at (202) 551-EXAM.
Most importantly, if the caller is suspicious and can't be verified, do not share any information. Similarly, if the caller resists providing proof of identity, or efforts to reach the caller through a published SEC telephone number are unsuccessful, do not give the caller any information.
SEC Investor Alert
SEC Imposter Alert
SEC Examination Hotline
Fake Seals and Phony Numbers: How Fraudsters Try to Look Legit
FTC Identity Theft Site
(Press Rel. 2009-39)
Commission Dismisses Review Proceeding in the Matter of Markland Technologies, Inc.
The Commission has dismissed a review proceeding in the matter of Markland Technologies, Inc. based on the petitioner's failure to file a brief in support of its petition for review. In dismissing the proceeding, the Commission also gave notice that the Dec. 15, 2008, initial decision of the administrative law judge has become the final decision of the Commission with respect to Markland Technologies, Inc. and declared the order contained in that decision revoking the registration of the registered securities of Markland Technologies, Inc. effective. (Rel. 34-59476; File No. 3-13147)
In the Matter of M.A.G. Capital, LLC and David F. Firestone
On March 2, the Securities and Exchange Commission announced that it sanctioned M.A.G. Capital, LLC (M.A.G.), a Los Angeles registered investment adviser, and David F. Firestone, age 42, of Laguna Nigel, its president and sole owner, for taking warrants from three hedge funds that it advises (the Funds) without compensating the Funds for them. M.A.G. and Firestone agreed to settle the charges, without admitting or denying the Commission's findings, by agreeing to the issuance of a censure, a cease-and-desist order, and payment of civil penalties of $100,000 and $50,000, respectively.
On forty-four separate occasions between May 2003 and September 2006, M.A.G. took warrants from the Funds without compensating the Funds for them. The Funds had purchased the warrants and other securities in PIPEs transactions (private investment in public equity). As part of these transactions, M.A.G. took, as compensation for itself, warrants that were being paid for by its clients, the Funds. M.A.G. did not adequately disclose that the warrants that M.A.G. took were being paid for by the Funds and that M.A.G. was not compensating the Funds for these warrants. The net value of the warrants retained by M.A.G. was approximately $18.9 million. Firestone instituted the warrant-taking practice and knew that M.A.G. did not compensate the Funds for the warrants that it took.
M.A.G. and Firestone consented to the issuance of an order which censures them and orders them to cease and desist from committing or causing violations and any future violations of Section 206(2) of the Investment Advisers Act of 1940, and to pay civil penalties of $100,000 and $50,000, respectively. The Commission considered remedial acts promptly undertaken by M.A.G. and Firestone and the cooperation they afforded the Commission staff in its investigation. (Rel. IA-2849; File No. 3-13387)
Final Judgment Entered Against Demetrius B. Brown
On Feb. 10, 2009, the Honorable William D. Quarles, Jr. of the United States District Court for the District of Maryland, entered a Final Judgment that permanently enjoins Demetrius B. Brown from future violations of Section 13(a) of the Securities Exchange Act of 1934, and Rules 13a-1, 13a-13, and 12b-20 thereunder; and orders Brown to pay a civil penalty in the amount of $15,000. See SEC v. Nathan A. Chapman, et al., Civil Action No. 03-1877-WDQ (D. Md.).
Brown consented to the entry of the Final Judgment without admitting or denying the Commission's allegations.
The Commission's complaint in this matter, filed on June 26, 2003, alleged a fraudulent scheme conducted by defendant Nathan A. Chapman, Jr. and others in connection with the June 2000 initial public offering of, and subsequent secondary market trading in, the common stock of eChapman, Inc. With respect to Brown, who at relevant times was the former Chief Executive Officer, Treasurer and Assistant Secretary of eChapman, Inc., the complaint alleged that he caused eChapman to misrepresent the use of proceeds of its initial public offering in filings with the Commission.
The civil action continues against defendants Earl Bravo, Nathan Chapman, and Chapman Capital Management, Inc. [SEC v. Nathan A. Chapman, et al., Civil Action No. 03-1877-WDQ (D. Md.)] (LR-20919)
SEC Charges Operators of Multi Billion Dollar Real Estate Enterprise
The Commission today charged Oregon-based Sunwest Management Inc., with securities fraud. The SEC alleges that Sunwest, which operates hundreds of retirement homes across the United States, lied to investors about its operations and concealed the risks of the investments, exposing investors to massive losses when the economic downturn triggered Sunwest's collapse.
According to the SEC's complaint, Sunwest raised at least $300 million from more than 1,300 investors nationwide by promising a steady income stream and touting its success in running the properties. The complaint, filed today in federal district court in Eugene, Ore., charges Sunwest, its former President and CEO Jon M. Harder of Salem, Ore., and several related entities with securities fraud. According to the complaint, Sunwest, which operates more than 200 retirement homes at one point valued at $2 billion, told investors that they would be investing in a particular property. Investors were told that the property would generate sufficient profits to pay annual returns of around 10 percent, and that Sunwest had a track record of never missing a payment. Between 2006 and 2008, Sunwest raised more than $300 million from investors, which was used for the down payments on approximately 100 retirement homes, with the balance financed by institutional lenders and banks.
The SEC alleges that at least half of the properties had lost money, and Sunwest concealed this information from investors by commingling all of its finances and making investor payments from this pot of cash. The SEC further alleges that investor returns came not just from these commingled assets, but from mortgage refinancings as well as loans from Harder. According to the SEC's complaint, Sunwest concealed its precarious financial position and the risks it posed to investors by failing to disclose that Sunwest was being run as a single massive enterprise with its fortunes tied to the success of hundreds of properties and contingent on future financing ability. When the recent credit crisis derailed Sunwest's ability to continue to refinance the properties, payments to investors ceased and many of them stood to lose their entire investments.
The SEC further alleges that, even after Sunwest encountered difficulties refinancing properties and lenders began foreclosing, the defendants continued raising money from investors. Sunwest obtained millions more in investments up through June 2008, continuing to misrepresent that the money was designated for a specific property when, according to the SEC, it was being used to prop up the failing business.
The Commission's complaint charges all of the Defendants 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 seeks an order temporarily freezing the assets of Defendants and the appointment of a receiver for the entities they control as well as preliminary and permanent injunctions, disgorgement, and civil penalties. The Commission's complaint additionally seeks disgorgement from a number of relief defendants who may have received proceeds related to the misconduct of the Defendants and seeks an order temporarily freezing their assets as well. [SEC v. Sunwest Management, Inc., Canyon Creek Development, Inc., Canyon Creek Financial, LLC, and Jon M. Harder, Case No. CV-06056-TC (D. Ore.] (LR-20920)
INVESTMENT COMPANY ACT RELEASES
DFA Investment Dimensions Group Inc., et al.
A notice has been issued giving interested persons until March 23, 2009, to request a hearing on an application filed by DFA Investment Dimensions Group Inc., et al. for an order under Section 12(d)(1)(J) of the Investment Company Act for exemption from Sections 12(d)(1)(A) and (B) of the Act and under Sections 6(c) and 17(b) of the Act for an exemption from Section 17(a) of the Act. The order would permit certain management investment companies and unit investment trusts registered under the Act to acquire shares of certain open end management investment companies or unit investment trusts registered under the Act that are outside of the same group of investment companies as the acquiring investment companies. (Rel. IC-28637 - February 26)
IndexIQ ETF Trust, et al.
A notice has been issued giving interested persons until March 19, 2009, to request a hearing on an application filed by the IndexIQ ETF Trust, IndexIQ Advisors LLC and ALPS Distributors, Inc. for an order to permit (a) series of registered open-end management investment companies whose portfolios will consist of the component securities of certain domestic and international equity securities indexes to issue shares that can be redeemed only in large aggregations, (b) secondary market transactions in shares of the series to occur at negotiated prices, (c) certain affiliated persons of the series to deposit securities into, and receive securities from, the series, (d) certain series to pay redemption proceeds more than seven days after the tender of shares for redemption under certain circumstances, and (e) certain registered management investment companies and unit investment trusts outside of the same group of investment companies as the series to acquire shares of certain series. (Rel. IC-28638 - February 27)
Proposed Rule Change
The Options Clearing Corporation filed a proposed rule change (SR-OCC-2009-01) under Section 19(b)(2) of the Securities Exchange Act of 1934 that would amend previously adopted interpretative guidance regarding the administration and application of the new adjustment method for cash dividends and distributions. Publication is expected in the Federal Register during the week of March 2. (Rel. 34-59442)
Accelerated Approval of Proposed Rule Change
The Commission is approving a proposed rule change (SR-FICC-2009-02) filed by the Fixed Income Clearing Corporation on an accelerated basis. The proposed rule change, filed pursuant to Section 19(b)(2) of the Securities Exchange Act, will allow for direct membership in FICC's Government Securities Division for non-US entities. Publication is expected in the Federal Register during the week of March 2. (Rel. 34-59463)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by NYSE Alternext US amending Rule 300.10T - NYSE Alternext Equities to provide a grace period under that rule for member organizations that have applied for a trading license to comply with certain NYSE Alternext rules (SR-NYSEALTR-2009-16) 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 March 2. (Rel. 34-59468)
A proposed rule change filed by the New York Stock Exchange amending Rule 300.10T to provide a grace period under that rule for NYSE Alternext US LLC member organizations that have applied for a trading license to comply with certain NYSE rules (SR-NYSE-2009-19) 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 March 2. (Rel. 34-59469)
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