Temporary Conditional Exemption Pursuant To Section 36 Of The Exchange Act
The Commission extended a temporary exemption granted to the International Securities Exchange, ("ISE"), subject to certain conditions, under Section 36 of the Exchange Act from the rule filing procedures of Section 19(b) of the Exchange Act in connection with the ISE Holdings, Inc.'s equity interest in Direct Edge Holdings, LLC. Publication is expected in the Federal Register during the week of June 22. (Rel. 34-60152)
The SEC Charges Ram Capital Resources, LLC and Its Two Principals With Operating an Unregistered Broker-Dealer
On June 19, the Securities and Exchange Commission instituted a settled administrative proceeding charging Ram Capital Resources, LLC (Ram) and its two principals - Michael E. Fein and Stephen E. Saltzstein - with willfully violating Section 15(a) of the Securities Exchange Act of 1934 (Exchange Act).
The Commission found that Michael E. Fein and Stephen E. Saltzstein, neither of whom was registered as a broker or associated with a registered broker-dealer, operated and controlled Ram as an unregistered broker-dealer while serving as it principals. Specifically, from 2001 through early 2005, Ram engaged in the business of identifying, structuring, and soliciting investors -- a majority of which were hedge funds -- for PIPE offerings (an acronym for "private investments in public equities"). Ram's business model focused on identifying investment opportunities within the PIPEs market and soliciting hedge funds and other investors to invest in these PIPE offerings. Ram also played a significant role in structuring, and negotiating the terms of, the PIPE offerings.
The investors compensated Ram by paying to it a certain percentage of the gross amount invested and, in most instances, allocated to Ram a certain percentage of any warrants they received as part of their investment in the PIPE offerings. Fein's and Saltzstein's compensation was directly derived from the fees Ram earned.
Under the terms of the settlement, Ram, Fein, and Saltzstein, without admitting or denying the Commission's findings, consented to the issuance of an administrative order requiring each of them to cease and desist from committing or causing any violations and any future violations of Section 15(a) of the Exchange Act. Ram also consented to the issuance of an administrative order imposing a censure. In addition, Fein and Saltzstein consented to the issuance of an administrative order (i) requiring each to pay disgorgement of $364,721, plus prejudgment interest of $83,657; (ii) requiring Fein and Saltzstein to pay civil penalties of $90,000 and $60,000, respectively; and (iii) suspending Fein and Saltzstein from association with any broker or dealer for a period of twelve and six months, respectively. (Rel. 34-60149; File No. 3-13524)
In the Matter of Anthony R. Russo
Today, the Securities and Exchange Commission announced the issuance of an Order Instituting Administrative Proceedings Pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) as to Anthony R. Russo, CPA. The Order finds, among other things, that on May 15, 2009, the United States District Court, Southern District of Florida, entered an order, by consent, permanently enjoining Russo from future violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, barring him from participating in an offering of a penny stock, and required him to pay disgorgement, prejudgment interest and a civil penalty.
Based on the above, the Order suspends Russo, by consent, from appearing or practicing before the Commission as an accountant. Russo consented to the issuance of the Order without admitting or denying the findings in the Order. (Rel. 34-60155; AAE-2996; File No. 3-13525)
Court Freezes the Assets of Guillermo David Clamens, FTC Capital Markets, Inc., and FTC Emerging Markets, Inc (Also D/B/A FTC Group) in Pending Fraud Action
On June 17, 2009, Honorable Judge Colleen McMahon granted the Commission's application for an emergency asset freeze against Guillermo David Clamens, FTC Capital Markets, Inc., a registered broker-dealer he controls, ("FTC"), and FTC Emerging Markets, Inc. also d/b/a/ FTC Group, halting Clamens' attempts to move assets offshore. The Court scheduled a hearing on the matter later in the month.
On May 20, the Securities and Exchange Commission filed a civil injunctive action charging Guillermo David Clamens, FTC, Emerging Markets and Lina Lopez, an FTC employee, with a fraudulent scheme to engage in tens of millions of dollars of unauthorized securities trading in the accounts of two FTC customers. Clamens and Lopez allegedly defrauded FTC's customers in part to conceal their prior fraudulent sale of $50 million in non-existent notes to a Venezuelan bank. When the fictitious notes held by the Venezuelan bank purportedly came due in August 2008, Clamens misappropriated $50 million from FTC's customers to fund the redemption. The complaint further alleges that in order to conceal the unauthorized activity, Clamens and Lopez provided the customers with fake account statements.
[Securities and Exchange Commission v. FTC Capital Markets, Inc., FTC Emerging Markets, Inc. also d/b/a FTC Group, Guillermo David Clamens and Lina Lopez a/k/a Nazly Cucunuba Lopez, 09 Civ. 4755(PGG) (S.D.N.Y.)] (LR-21093)
SEC Obtains Contempt Judgment Against Jeffrey G. Turino Resulting in Permanent Penny Stock Bar and an Order to Pay $9.95 Million in Disgorgement and Prejudgment Interest
On June 16, 2009, Judge Elizabeth A. Kovachevich of the U. S. District Judge for the Middle District of Florida entered a final judgment of civil contempt against Jeffrey G. Turino. The final judgment also required Turino to pay $9.6 million in disgorgement, plus prejudgment interest, and permanently banned him from participating in any penny stock offering.
In her ruling, Judge Kovachevich found that the Commission had demonstrated by clear and convincing evidence that Turino acted in flagrant and repeated contempt of the penny stock bar that she had imposed against him in December 2003 in connection with a previous Commission enforcement action brought against Turino in May 2002. In that action, the Commission had alleged that Turino and one of his associates had committed securities fraud by making materially false and misleading statements about the business operations of a penny stock company that they controlled. Turino settled that enforcement action by consenting to the entry of a permanent fraud injunction, a permanent officer and director bar, payment of a $60,000 civil penalty, and a five-year penny stock bar.
In its motion to hold Turino in contempt, the Commission outlined its evidence that Turino had violated the five-year penny stock bar by, first, spearheading the reverse merger in 2004 of a penny stock issuer and arranging the accompanying penny stock offering and, second, by using two nominees, one a former exotic dancer whom he had been dating, and the other a former nightclub manager, to participate in penny stock offerings by four other issuers during 2006 through 2008. Turino gave detailed instructions to his nominees to create corporations, open bank and brokerage accounts, buy, sell, and transfer billions of shares of penny stock companies, and deposit, withdraw, and distribute millions of dollars worth of penny stock proceeds to his friends and family. Altogether, Turino improperly obtained at least 3.5 billion shares of penny stocks. He subsequently sold at least 1.8 billion of these shares into the U. S. securities markets, generating approximately $9.6 million in ill-gotten proceeds. (LR-21094)
SEC Charges Madoff Solicitors With Fraud
Today, the Securities and Exchange Commission charged Cohmad Securities Corporation, a New York-based broker-dealer, as well as its chairman Maurice J. Cohn, chief operating officer Marcia B. Cohn, and registered representative Robert M. Jaffe alleging that they collectively raised billions of dollars from investors for Bernard L. Madoff's Ponzi scheme.
In a complaint filed in U.S. District Court for the Southern District of New York, the SEC charged the defendants for actively marketing investment opportunities with Madoff while knowingly or recklessly disregarding facts indicating that Madoff was operating a fraud. The SEC previously charged Madoff and Bernard L. Madoff Investment Securities LLC (BMIS) as well as their auditors with committing securities fraud through a Ponzi scheme perpetrated on advisory and brokerage customers of BMIS.
The SEC's complaint against the Cohmad defendants alleges that while bringing investors to Madoff, they ignored and even participated in many suspicious practices that clearly indicated Madoff was engaged in fraud. For example, the SEC's complaint alleges that the Cohns and Cohmad filed false Forms BD and FOCUS reports that concealed Cohmad's primary business of bringing in investors for BMIS. This referral business comprised as much as 90 percent of Cohmad's revenue in some years, brought in more than 800 accounts, and billions of dollars into BMIS' advisory business, for which BMIS paid them more than $100 million.
The SEC's complaint also alleges that the compensation arrangement between BMIS and Cohmad indicated fraudulent conduct at BMIS. Cohmad was paid an annual percentage of the funds its representatives (except Jaffe) brought into BMIS offset by any withdrawals from those investor accounts. This compensation arrangement indicated to Cohmad and the Cohns that BMIS was not providing any real returns to investors. For example, where the client's principal investment had been $10,000, Cohmad stopped receiving fees if a client withdrew $15,000 from an account, even if under BMIS' management the account had purportedly grown to $100,000. In Cohmad's internal records, such an account was designated with a negative $5,000 number.
The SEC alleges that Jaffe also participated in Madoff's fraud by soliciting investors and bringing more than $1 billion into BMIS. The Complaint alleges, among other things, that Madoff compensated Jaffe with outsized returns in Jaffe's personal accounts that he knew, or was reckless in not knowing, were manufactured by BMIS employees entering fictitious, backdated trades onto trade confirmations and account statements for his personal accounts at BMIS.
The SEC's complaint against the Cohmad defendants specifically alleges that Cohmad violated Section 17(a) of the Securities Act, Sections 10(b), 15(b)(1), 15(b)(7), and 17(a) of the Exchange Act and Rules 10b-5, 15b3-1, 15b7-1 and 17a-3 thereunder and aided and abetted violations of Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-3 thereunder; that the Cohns violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder and aided and abetted violations of Sections 10(b), 15(b)(1), 15(b)(7), and 17(a) of the Exchange Act and Rules 10b-5, 15b3-1, 15b7-1 and 17a-3 thereunder and Sections 206(1), 206(2) and 206(4) of the Advisers Act of 1940 and Rule 206(4)-3 thereunder; and that Robert Jaffe violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and aided and abetted violations of Sections 10(b), 15(b)(7), and 17(a) of the Exchange Act and Rules 10b-5, 15b7-1 and 17a-3 thereunder and Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-3 thereunder.
Among other things, the SEC's complaint seeks injunctions, financial penalties and a court order requiring Cohmad, the Cohns, and Jaffe to disgorge their ill-gotten gains.
The SEC acknowledges the assistance of the Trustee for the Securities Investor Protection Corporation. The SEC's investigation is continuing.
For more information see prior Litigation Release Nos. LR-20834, LR-20889 and LR-20959. [SECURITIES AND EXCHANGE COMMISSION V. COHMAD SECURITIES CORPORATION, MAURICE J. COHN, MARCIA B. COHN, AND ROBERT M. JAFFE, (S.D.N.Y. Civ. 09 CV 5680)] (LR-21095; Press Rel. 2009-141)
SEC Charges California Madoff Feeder With Fraud
Today, the Securities and Exchange Commission charged Stanley Chais (Chais), a California-based investment adviser who acted as adviser to, and general partner of, three funds that invested all of their assets with Bernard Madoff (Madoff), with fraud for misrepresenting his role in managing the funds' assets and for distributing account statements that he should have known were false.
As alleged in the complaint filed today in federal court in Manhattan, for the last 40 years, Chais has held himself out as an investing wizard who managed hundreds of millions of dollars of investor funds in three partnerships, the Lambeth, Popham and Brighton Companies (the Funds). Chais made a number of misrepresentations over the years to the Funds' investors indicating that he formulated and executed the Funds' trading strategy. In reality, Chais was an unsophisticated investor who did nothing more than turn all of the Funds' assets over to Madoff, while charging the Funds well over $250 million in fees for his purported "services." Despite the fact that Chais turned all of the Funds' assets over to Madoff, many of the Funds' investors had never heard of Madoff before the collapse of his Ponzi scheme, and had not known that Chais invested with Madoff until Chais informed them after Madoff's arrest.
The SEC also alleges that Chais ignored red flags indicating that Madoff's reported returns were false. For example, Chais told Madoff that Chais did not want there to be any losses on any of the Funds' trades. Madoff complied with Chais's request, and from 1999 to 2008, despite reportedly executing thousands of trades on behalf of the Funds, Madoff did not report a loss on a single equities trade. Chais however, with the assistance of his accountant, prepared account statements for the Funds' investors based upon the Madoff statements, and continued to distribute them to the Funds' investors even though he should have known they were false.
According to the complaint, Chais also opened and exercised control over approximately 60 other accounts at Madoff's firm on behalf of his family members and related entities. Taking all of these accounts collectively, between 1995 and 2008, Chais and his family members and related entities withdrew more than $500 million more than they actually invested with Madoff.
The SEC's complaint specifically alleges that Chais violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder.
Among other things, the SEC's complaint seeks financial penalties and a court order requiring Chais to disgorge his ill-gotten gains.
The SEC acknowledges the assistance of the Trustee for the Securities Investor Protection Corporation, and California Attorney General Jerry Brown. The SEC's investigation is continuing.
For more information see prior Litigation Release Nos. LR-20834, LR-20889 and LR-20959. [SECURITIES AND EXCHANGE COMMISSION V. STANLEY CHAIS (S.D.N.Y. Civ. 09 CV 5681)] (LR-21096; Press Rel. 2009-141)
Former Chairman of the Board of American Italian Pasta Company Settles SEC Charges
Today, the Securities and Exchange Commission filed a settled civil injunctive action against Horst W. Schroeder, former chairman of the board of directors of Kansas-City based American Italian Pasta Company (AIPC).
According to the Commission's complaint, from its fiscal year 2002 through the second quarter of its fiscal year 2004, AIPC inflated its reported income and earnings per share. As alleged in the complaint, during AIPC's 2004 fiscal year, Schroeder was provided with information showing that a $3.4 million receivable recorded at the end of AIPC's 2003 fiscal year was not valid and collectible. The Commission's complaint alleges that in May 2004, Schroeder signed AIPC's Form S-8 registration, which specifically incorporated by reference AIPC's fiscal year 2003 Form 10-K, which Schroeder also signed and which Schroeder should have known was materially misstated in part because of the invalid and uncollectible $3.4 million receivable.
Without admitting or denying the allegations in the Commission's complaint, Schroeder has consented to the entry of a final judgment enjoining him from violations Section 17(a)(3) of the Securities Act of 1933 and Rule 13b2-1 under the Securities Exchange Act of 1934 (Exchange Act), and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Further, Schroeder has agreed to pay a $50,000 civil penalty.
[SEC v. Horst W. Schroeder, Civil Action No. 4:09-cv-00470-DW (W.D. Mo.)] (LR-21098)
INVESTMENT COMPANY ACT RELEASES
Embarcadero Funds, Inc. et al.
A notice has been issued giving interested persons until July 17, 2009 to request a hearing on an application filed by Embarcadero Funds, Inc. and Van Wagoner Capital Management, Inc. for an order exempting them from Section 15(a) of the Investment Company Act and Rule 18f-2 under the Act. The order would permit the applicants to enter into and materially amend subadvisory agreements without shareholder approval and would grant relief from certain disclosure requirements. (Rel. IC-28769 - June 22)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by NYSE Arca, (SR-NYSEArca-2009-53) relating to the listing and trading of ProShares UltraShort MSCI Mexico Investable Market Fund 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 June 22. (Rel. 34-60128)
A proposed rule change filed by the New York Stock Exchange amending NYSE Rule 124 to clarify the pricing methodology for the odd-lot portion of a part of a round-lot order; clarify the systems capable of accepting PRL orders; and clarify the systems capable of accepting a Good `Til Cancelled order during the implementation of exchange system enhancements (SR-NYSE-2009-45) has become immediately 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 June 22. (Rel. 34-60138)
A proposed rule change filed by the NYSE Amex amending NYSE Amex Equities Rule 124 to clarify the pricing methodology for the odd-lot portion of a part of a round-lot order; clarify the systems capable of accepting PRL orders; and clarify the systems capable of accepting a Good `Til Cancelled order during the implementation of exchange system enhancements (SR-NYSEAmex-2009-18) has become immediately 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 June 22. (Rel. 34-60139)
A proposed rule change filed by NYSE Amex, (NYSEAmex-2009-27) relating to WAIT Modifiers, PNP Plus Orders, and Attributable Orders 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 June 22. (Rel. 34-60140)
The Commission issued notice of filing and immediate effectiveness of a proposed rule change (SR-OC-2009-02) filed by OneChicago under Rule 19b-7 of the Securities Exchange Act of 1934 widening the bid/ask spread for quoting market-makers. Publication is expected in the Federal Register during the week of June 22. (Rel. 34-60143)
Proposed Rule Change
The International Securities Exchange has filed a proposed rule change (SR-ISE-2009-32), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder relating to the penny pilot program. Publication is expected in the Federal Register during the week of June 22. (Rel. 34-60146)
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