SEC Orders a Suspension of Trading in Stock of Pax Clean Energy, Inc.
The Securities and Exchange Commission announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (Exchange Act), of trading of the securities of Pax Clean Energy, Inc. (Pax Energy), of North Saanich, British Columbia at 9:30 a.m. EDT on April 28, 2009, and terminating at 11:59 p.m. EDT on May 11, 2009.
The Commission temporarily suspended trading in the securities of Pax Energy, which are quoted on the OTC Bulletin Board and on the Pink Sheets operated by Pink OTC Markets Inc. under the ticker symbol PXCE, because it appears to the Commission that there is a lack of current and accurate information concerning, among other things, an acquisition by the company, the value of the company after the completion of the acquisition, and the company's current and future financial condition.
The Commission cautions broker dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company.
Further, brokers and dealers should be alert to the fact that, pursuant to Rule 15c2-11 under the Exchange Act, at the termination of the trading suspension, no quotation may be entered unless and until they have strictly complied with all of the provisions of the rule. If any broker or dealer has any questions as to whether or not he has complied with the rule, he should not enter any quotation but immediately contact the staff in the Division of Trading and Markets, Office of Interpretation and Guidance, at (202) 551-5777. If any broker or dealer is uncertain as to what is required by Rule 15c2-11, he should refrain from entering quotations relating to Pax Energy's securities until such time as he has familiarized himself with the rule and is certain that all of its provisions have been met. If any broker or dealer enters any quotation which is in violation of the rule, the Commission will consider the need for prompt enforcement action.
If any broker dealer or other person has any information which may relate to this matter, the Los Angeles Regional Office of the Securities and Exchange Commission should be telephoned at (323) 965-3998. (Rel. 34-59827)
James Brigagliano, Daniel Gallagher Named Co-Acting Directors of SEC Division of Trading and Markets
On April 27, Securities and Exchange Commission Chairman Mary Schapiro named James Brigagliano and Daniel M. Gallagher as Co-Acting Directors of the SEC's Division of Trading and Markets, replacing Erik R. Sirri, who left the agency on April 24.
Brigagliano and Gallagher are currently Deputy Directors of the Division, which oversees the Commission's programs related to securities and options exchanges, brokers, dealers, clearing agencies, transfer agents, and, since 2007, credit rating agencies.
"Jamie and Dan are both skilled leaders who can be counted upon to provide wise counsel in the oversight of trading practices and market regulation," said Schapiro, who became SEC Chairman in January. "I look forward to working closely with both of them to protect investors and restore confidence in the marketplace."
Mr. Brigagliano is a 20-year SEC veteran who joined the Division in 1998. He has managed oversight of trading practices, including rules regulating short sales and market manipulation. Previously, Mr. Brigagliano served in the SEC's Office of General Counsel, representing the Commission in a wide range of matters in federal district and appellate courts. Mr. Brigagliano received his law degree from Georgetown University and undergraduate degree from Amherst College.
Mr. Gallagher was named Deputy Director of the Division in 2008 after working on market regulation and enforcement matters as a counselor to former SEC Chairman Christopher Cox and former SEC Commissioner Paul S. Atkins. In those capacities, Mr. Gallagher worked on major rulemakings including the implementation of the Credit Rating Agency Reform Act and several broker-dealer initiatives. Mr. Gallagher was formerly the General Counsel of a clearing broker-dealer, and he began his career in private practice advising clients on broker-dealer regulatory and enforcement matters. Mr. Gallagher earned his J.D., magna cum laude, from the Catholic University of America, and he received his undergraduate degree from Georgetown University. (Press Rel. 2009-91)
SEC Halts On-Going Multi-Million Dollar Fraud Involving Investments in a Connecticut-Based Hedge Fund
On April 27, the Commission filed an emergency action in the United States District Court for the Western District of Texas to halt an on-going multi-million dollar fraud involving investments in a Stamford, Connecticut-based hedge fund and its affiliates -- Ponta Negra Fund I, LLC, Ponta Negra Offshore Fund I, Ltd., and Ponta Negra Group, LLC (the "Hedge Fund"). The Commission's complaint alleges, among other things, that Defendant Francesco Rusciano, 27, of Stamford, Connecticut, in selling interests in the Hedge Fund, (i) forged documents, (ii) promised false returns, and (iii) misrepresented assets managed by the Hedge Fund. U.S. District Judge Sam Sparks granted a temporary restraining order, asset freeze, and other emergency relief against the Defendants.
The Commission's complaint alleges that from at least as early as September 1, 2007 to the present, the Hedge Fund, acting through Rusciano, raised at least $31 million from at least 15 investors. According to the Commission's complaint, on at least two occasions, Rusciano forged brokerage account statements for the Hedge Fund to make it appear that the Hedge Fund had millions of dollars more in assets than it actually had. Specifically, the Commission alleges that Rusciano provided a selling agent for the Hedge Fund a January 11, 2008 brokerage statement, reflecting an account balance for Ponta Negra Fund I of $42,967,338.90. According to the Commission's complaint, the correct balance for that account as of January 11, 2008 was $2,967,338.90 -- $40 million less than the amount represented by Rusciano. Similarly, the Commission alleges that, on August 5, 2008, Rusciano produced to another selling agent a brokerage account statement reflecting an "equity" balance for Ponta Negra Fund, LLC of more $64 million. According to the Commission's complaint, Rusciano altered the August 1, 2008 account statement by, among other things, redacting the word "excess" in the "excess equity" field on the account statement to make it appear as though the Hedge Fund had in excess of $64 million in that account. In reality, the account had less than $7 million.
According to the Commission's complaint, Rusciano also misrepresented the Hedge Fund's monthly and yearly performance results. With regard to monthly returns, the Commission alleges that Rusciano falsely represented that the Hedge Fund had consistently achieved positive results for every month throughout 2007 and 2008. In fact, in the account that held most of its assets, the Hedge Fund lost money in 10 of the 24 months from March 2007 through March 2009. With regard to yearly results, the Commission alleges that Rusciano misrepresented that the Hedge Fund earned total annual returns of 42.99% for 2007, 24.85% for 2008, and 6.14% for the first two months of 2009. In reality, the account that held most of the Hedge Funds' assets suffered substantial trading losses in 2007, had modest profits in 2008, and again sustained losses in 2009. Finally, the Commission alleges that, on April 21, 2009, Rusciano sent an email to a selling agent for the Hedge Fund, detailing the Hedge Fund's assets under management. According to the e-mail, the Hedge Fund had $59 million in assets under management as of February 2009. According to the Commission's complaint, the Hedge Fund had less than $10 million.
The complaint alleges that Defendants Ponta Negra Fund I, LLC, Ponta Negra Offshore Fund I, Ltd., Ponta Negra Group, LLC, and Francesco Rusciano violated the anti-fraud provisions of 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. In addition to the emergency relief granted by the Court, the Commission seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil money penalties against the Defendants. (LR-21012)
SEC Freezes Assets of Financier Danny Pang For Misrepresenting Investments and Forging Documents to Investors
The Securities and Exchange Commission has obtained an emergency court order freezing the assets of Newport Beach, Calif.-based financier Danny Pang and his two companies for allegedly defrauding investors of hundreds of millions of dollars by misrepresenting investments in the life insurance policies of senior citizens and in timeshare real estate. The SEC obtained additional relief against Pang including an order requiring him to repatriate assets sent overseas and turn over to the court all of his passports. The SEC's complaint alleges that Pang and his Irvine, Calif.-based firms Private Equity Management Group, Inc. and Private Equity Management Group LLC (the PEM Group) violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The SEC alleges that Pang and the PEM Group misled investors by falsely claiming that their returns would come from proceeds made on the timeshare or insurance policies investments. Instead, some of the purported returns were paid out of funds raised from newer investors. Furthermore, in at least one instance, the PEM Group presented investors with a forged $108 million insurance policy to support a false claim that a particular investment was entirely covered by insurance.
The SEC also alleges that Pang and the PEM Group attracted investors by falsely representing Pang as a former senior vice president and high-tech merger adviser from Morgan Stanley & Co. with an MBA from the University of California at Irvine. Pang never worked at Morgan Stanley nor did he attend or obtain any degrees from UC Irvine. Neither Pang nor his entities have ever been registered with the SEC.
According to the SEC's complaint, Pang and the PEM Group have been engaged in the fraudulent offering of securities since at least 2003 and raised several hundreds of millions of dollars from investors, primarily located in Taiwan. Pang and the PEM Group told investors that they would generate enough profit to pay returns on their investments through purchasing life insurance policies at a discount before maturity and then collecting the proceeds of the policy upon the death of the insured. In fact, the life insurance policies did not generate sufficient profit to cover the cost of the premiums to maintain the policies and pay the purported returns to investors. Pang instead directed PEM Group to use funds raised from subsequent investors, who were supposed to be investing in timeshares, to pay the purported returns of earlier investors in the ill-fated life insurance investment.
The SEC alleges that Pang and the PEM Group claimed that both principal and interest were insured and "guaranteed" by the purported $108 million of insurance when in fact the relevant insurance policy was for approximately $31 million. In response to investor requests to see the policy, Pang had the policy altered to increase the face amount of the policy and the PEM Group provided investors with the bogus insurance policy when soliciting their investments.
Today, the Honorable Philip S. Gutierrez, U.S. District Judge for the Central District of California issued an order (1) freezing the assets of PEM Group and Pang; (2) requiring accountings; (3) prohibiting the destruction of documents; (4) granting expedited discovery; (5) appointing a receiver over the PEM Group; and (6) temporarily enjoining PEM Group and Pang from future violations of 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. A hearing on whether a preliminary injunction should be issued against the defendants is scheduled for May 11, 2009 at 1:30 p.m. The SEC also seeks permanent injunctions, disgorgement, and civil penalties against PEM Group and Pang.
The SEC's investigation is continuing.
[SEC v. Private Equity Management Group, LLC, et. al., Civil Action No. CV 09-2901 (PSG)(Central District of California)] (LR-21013)
SEC Sues Former Officers of American Home Mortgage with Fraud; Former CEO Agrees to Pay $2.45 Million to Settle Charges
Today, the Commission charged American Home Mortgage Investment Corporation's former chairman and chief executive officer Michael Strauss and former chief financial officer Stephen Hozie with securities fraud. The Commission alleges that Strauss and Hozie fraudulently understated American Home Mortgage's first quarter 2007 loan loss reserves by tens of millions of dollars, converting the company's loss into a fictional profit. The Commission further alleges that Strauss and Hozie made misleading disclosures concerning the company's financial condition including misrepresenting the company's liquidity and failing to adequately disclose the riskiness of the mortgages American Home Mortgage originated and held. The complaint also alleges that Strauss, Hozie and the company's former controller, Robert Bernstein, misled American Home Mortgage's auditor about the adequacy of the reserves, among other violations.
The complaint alleges that Strauss and Hozie violated Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1, 13b2-2 and 13a-14 thereunder and that Bernstein is liable for violating Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder. The complaint further alleges that Strauss and Hozie aided and abetted violations by American Home Mortgage of Section 10(b) and Rules 10b-5 and 13a-11 of the Exchange Act and that Strauss, Hozie and Bernstein aided and abetted violations by American Home Mortgage of Section 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.
The complaint seeks a final judgment permanently enjoining the defendants from future violations of the federal securities laws and ordering them to pay civil penalties and disgorgement of ill-gotten gains plus prejudgment interest. The complaint also seeks a judgment barring Strauss and Hozie from serving as officers or directors of any public company.
Without admitting or denying the allegations in the complaint, Strauss has agreed to settle the charges. He will be permanently enjoined from violating the antifraud, reporting, record-keeping, and internal controls provisions of the federal securities laws, to pay approximately $2.2 million in disgorgement and prejudgment interest and a $250,000 penalty. Strauss will also be barred from serving as an officer or director of a public company for five years.
[SEC v. Michael Strauss, Stephen Hozie and Robert Bernstein, Civil Action No. 09-CV-4150 (RB) (S.D.N.Y.)] (LR-21014; AAE Rel. 2967)
SEC Files Settled Insider Trading Charges Against Oklahoma Attorney
The Securities and Exchange Commission filed a civil action in the United States District Court for the Northern District of Oklahoma on April 28, 2009, alleging that Matthew J. Browne, a Tulsa, Oklahoma attorney, engaged in insider trading in securities of then Nasdaq-listed SemGroup Energy Partners, LP ("SGLP").
According to the Commission's complaint, on the morning of July 14, 2008, and in the course of providing legal services to a client, Browne learned that SGLP's privately-held parent company and largest customer, SemGroup, LP, was experiencing liquidity issues. The complaint further alleges that, immediately after learning this information, Browne sold his entire position in SGLP (5,200 units), at an average price of $24.06 per share. According to the complaint, by secretly trading on the non-public information, Browne breached duties of trust and confidence owed to his client and the law firm at which he was then employed.
On July 17, after the close of trading, SGLP announced that SemGroup, LP was "experiencing liquidity issues" and was considering bankruptcy. On July 18, SGLP's unit price closed at $8.30 per share, 65.5% lower than Browne's July 14 average sale price. According to the complaint, by liquidating his SGLP holdings on July 14, Browne avoided losses of $81,773.
Without admitting or denying the allegations in the complaint, Browne has consented to a permanent injunction against future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and to pay disgorgement of the $81,773 loss he avoided by his illegal trading, plus prejudgment interest of $1,505.98, and a civil penalty of $81,773. In a separate administrative action, Browne has also consented to a five-year suspension from appearing or practicing before the Commission, under Rule 102(e) of the Commission's Rules of Practice.
The staff's investigation is ongoing. (LR-21015)
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