In the Matter of Christi R. Sulzbach
On June 25, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against Christi R. Sulzbach. The Order finds that on June 18, 2009, a final judgment was entered against Sulzbach in SEC v. Tenet Healthcare Corp., et al., CV 07-2144 RSWL (RZx) (C.D. Cal.), permanently enjoining her from future violations of the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and aiding and abetting violations of the issuer reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
Based on the above, the Order suspends Sulzbach from appearing or practicing before the Commission as an attorney. Sulzbach consented to the issuance of the Order without admitting or denying any of the allegations in the civil injunctive action. (Rel. 34-60170; AAE Rel. 3000; File No. 3-13528)
In the Matter of Lawrence D. Morris
On June 25, the Commission announced the entry of an Order Making Findings and Imposing Remedial Sanctions Pursuant to Section 15(b) of the Securities Exchange Act of 1934 (Order) regarding Lawrence D. Morris (Morris or Respondent). The Order bars Morris from association with any broker or dealer.
The Commission finds that, on Dec. 11, 2008, a final judgment by default was entered against Morris permanently enjoining Morris from future violations of Section 5 of the Securities Act of 1933 and Section 15(a) of the Exchange Act. The civil action was entitled Securities and Exchange Commission v. ProVision Operation Systems, Inc., et al., Civil Action Number SACV 07-1130 AHS (JWJx), and was filed in the United States District Court for the Central District of California, Southern Division on Sept. 26, 2007. (Rel. 34-60171; File No. 3-13432)
SEC Charges Tampa, Florida Resident in Connection With Fraudulent Pump and Dump Scheme
The Securities and Exchange Commission filed a civil injunctive action on April 15, 2009 against Michael J. Muzio alleging that he was involved in a fraudulent pump-and-dump scheme to manipulate the public trading market for International Business Ventures Group, Inc. (IBVG) stock in violation of the federal securities laws. Previously, on March 6, 2009, the SEC temporarily suspended trading in the securities of IBVG, a Palm Beach Gardens, Florida-based company.
The Commission's complaint alleges that Muzio obtained control of IBVG, a public shell, in August 2008 and undertook a number of steps to fraudulently increase the price of the company's stock. In particular, the complaint alleges that Muzio drafted and caused IBVG to issue materially false and misleading press releases, arranged for the publication of research and analyst reports that touted the company's stock, and regularly bought and sold the company's stock through accounts he controlled at various broker-dealers.
The Commission's complaint, filed in the United States District Court for the Southern District of Florida, charges Muzio with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks a permanent injunction, disgorgement and civil money penalties against Muzio.
Separately, on April 14, 2009, the United States Attorney's Office for the Southern District of Florida filed an indictment charging Muzio with securities and wire fraud as well as making false statements to the Commission and Federal Bureau of Investigation in connection with their investigations. [SEC v. Michael J. Muzio, Civil Action No. 09-80581 (S.D. Fla.)] (LR-21104)
In the Matter of Prime Time Group, Inc.
The Securities and Exchange Commission today charged Prime Time Group, Inc. (now known as Hunt Gold Corporation), its former chief executive officers, Johnny Ray Arnold and Dallas L. Robinson, and its former chief operating officer, Troy K. Metz, with securities fraud for their participation in the dissemination of materially false and misleading press releases. The Commission also charged Prime Time, Arnold, and one of Prime Time's largest shareholders, John A. Mattera, with securities antifraud and registration violations for their participation in a fraudulent scheme to evade the registration requirements.
The Commission's complaint, filed in the United States District Court for the Southern District of Florida, alleges that from February 2006 through November 2007, defendants Prime Time, Arnold, Robinson, and Metz participated in the dissemination of false and misleading press releases to the public concerning, among other things, Prime Time's acquisition and ownership interest in a Puerto Rico convenience store franchise, agreements the Company claimed to have with other wireless businesses, and its purported acquisitions of other companies.
The complaint also alleges that during the same period, Prime Time, Arnold, and Mattera made false statements to the Company's transfer agent in connection with a fraudulent scheme involving the issuance of bogus promissory notes. This scheme allowed Mattera to obtain millions of unlegended shares of Prime Time stock, most of which he later sold in the open market in November 2007.
The complaint further alleges that Prime Time, Arnold, and Mattera violated the securities registration provisions by engaging in unregistered distributions of Prime Time stock. For instance, the Commission alleges that Prime Time, Arnold, and Mattera engaged in an improper "gypsy swap" transaction in which Mattera agreed to transfer his unlegended shares to various stock promoters on behalf of Prime Time. In return, Mattera received restricted stock from the Company. This scheme was designed to circumvent the securities registration requirements because Prime Time could not legally issue unrestricted shares to the stock promoters without filing a registration statement.
The Commission's complaint charges: Prime Time, Arnold, and Mattera with violating Sections 5(a) and 5(c) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and Robinson and Metz with violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. In its complaint, the Commission seeks permanent injunctions and civil penalties against all the defendants, disgorgement plus prejudgment interest against Mattera, and penny stock bars against Arnold, Robinson, Metz, and Mattera.
On June 15, 2009, the Commission temporarily suspended trading in the securities of Hunt Gold Corporation (Prime Time's new name) because of questions raised about the accuracy and adequacy of publicly disseminated information concerning, among other things, Hunt Gold's gold mining exploration business. The Commission staff acknowledges the assistance of the British Columbia Securities Commission in its investigation.
For further information, see Exchange Act Release No. 60109 (June 15, 2009). [SEC v. Prime Time Group, Inc., Case No. 09-80952-CIV-COHN (S.D. Fla.)] (LR-21105)
SEC Charges Former DVI, Inc. Executives With Financial Fraud
The Securities and Exchange Commission announced that it has filed a settled civil action in the United States District Court for the Eastern District of Pennsylvania against Steven R. Garfinkel (Garfinkel) and Michael O'Hanlon (O'Hanlon) for their participation in a financial fraud. This caused the collapse of DVI, Inc. (DVI), a specialty finance company that loaned money to small healthcare service providers for the purchase of high-end medical equipment. The Commission's complaint alleges that over a period of four years, Garfinkel, DVI's former Chief Financial Officer, and O'Hanlon, DVI's former Chief Executive Officer and President, used fraudulent means to conceal the company's liquidity crisis from investors and to fraudulently obtain additional funding from its commercial lenders. Without admitting or denying the Commission's allegations, Garfinkel and O'Hanlon consented to settle the action.
According to the Commission's complaint, Garfinkel and O'Hanlon engaged in a fraudulent scheme to obtain additional funding from DVI's commercial lenders by pledging collateral that did not meet the quality-related criteria specified in the loan covenants. In addition, Garfinkel and O'Hanlon manipulated paperwork to enable DVI to double pledge collateral and sent DVI's commercial lenders false monthly reports to make it appear that there was adequate and appropriate collateral securing DVI's lines-of-credit. Garfinkel and O'Hanlon concealed the fraudulent scheme from investors by knowingly filing false and materially misleading Commission reports and issuing false and materially misleading press releases. In furtherance of their scheme, Garfinkel and O'Hanlon also aided and abetted DVI's filing violations by knowingly falsifying or causing others to falsify certain books and records, circumventing internal controls and misleading DVI's auditors.
By engaging in the conduct described in this Complaint, Garfinkel and O'Hanlon violated 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 aided and abetted DVI's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Garfinkel and O'Hanlon have agreed to the entry of a Final Judgment that permanently enjoins them from further violations of the relevant provisions of the Exchange Act and prohibits them from acting as officers or directors of a public company.
On Nov. 17, 2006, the United States Attorney's Office for the Eastern District of Pennsylvania filed an Information against Garfinkel charging him with violations of 18 U.S.C. SS 1341 (mail fraud) and 1350 (false certification of financial reporting) of the Sarbanes Oxley Act. On March 28, 2007, Garfinkel pled guilty to violations of these provisions, was sentenced to 30 months incarceration and was ordered to pay restitution of $51 million. Garfinkel is currently incarcerated. [SEC v. Steven R. Garfinkel and Michael O'Hanlon, Civil Action No. 09-CV-2851 (E.D.Pa.)] (LR-21106; AAE Rel. 2999)
SEC Resolves Fraud Action Against Mark Cocchiola and Steven Venechanos, Former CEO and CFO of Suprema Specialties, and 11 Other Defendants, in Connection With $700 Million Round-Tripping Scheme
The Securities and Exchange Commission announced today that on June 3, 2009, the Honorable Stanley R. Chesler, of the United States District Court for the District of New Jersey, entered Final Judgments against Mark Cocchiola, former CEO, president, and chairman of the board of directors of New Jersey-based Suprema Specialties, Inc. (Suprema), and Steven Venechanos, former CFO, secretary, and director of the company. The Commission's complaint against Cocchiola and Venechanos alleged that they violated the antifraud and other provisions of the federal securities laws through their participation in a multi-year financial fraud orchestrated by Suprema's management. Without admitting or denying the allegations in the complaint, Cocchiola and Venechanos each consented to the entry of final judgments imposing full injunctive relief and permanent officer and director bars. The final judgments ordered Venechanos to pay $1,484,202 in disgorgement and $732,126.45 in prejudgment interest and Cocchiola to pay $4,834,565 and prejudgment interest in the amount of $2,446,852.74, which obligations were deemed satisfied by the prior entry of restitution orders against each defendant in the parallel criminal action captioned U.S. v. Cocchiola and Venechanos, No. CR05-533-SRC.
The Commission also announced today that on June 4, 2009, the Commission brought to a close related civil injunctive proceedings against eleven other defendants, listed below, whom the Commission alleged had participated in the Suprema financial fraud:
Each of the eleven above-listed individuals and entities had previously consented to the entry of judgments imposing full permanent injunctive relief and, in the case of the individuals, officer and director bars. These judgments had reserved the Commission's right to apply to the court at a later time to determine disgorgement and civil penalties. In view of the restitution orders and other criminal sanctions subsequently imposed on these defendants in the parallel criminal case, the Commission has withdrawn its claims for additional disgorgement and civil penalties from these defendants. The Commission has also withdrawn its claims for additional relief against Van Sickell, who died in June 2008.
As detailed in prior releases, the Commission's complaints in this matter alleged that Suprema engaged in fraudulent "round-tripping" transactions that resulted in total misstatements of Suprema's reported revenue of between approximately 35% and over 60% in each of the 1999, 2000 and 2001 fiscal years, and in the first quarter of fiscal year 2002. The complaints further alleged that the scheme resulted in total misstatements of Suprema's reported accounts receivable of 60% or more in each of the 1999, 2000 and 2001 fiscal years.
According to the complaints, the "round-tripping" transactions were effectuated through "circles" of entities, each of which included Suprema, a third-party "customer," and a related "vendor." As the complaints alleged, the customer and vendor in each circle tended to have a common owner. The complaints alleged that false paperwork was created documenting the fictitious transactions, and checks were circulated in purported payment for the transactions. Participants allegedly received a kick-back or "commission" on each transaction, the funds for which were generally drawn from Suprema's line of credit, which increased as Suprema's accounts receivable grew. With rare exceptions, the complaint alleged, no goods were actually sold, purchased, or exchanged in these transactions.
The Commission alleged that Cocchiola and Venechanos were aware of, approved of, and participated in the fraud from at least in or around February 2000. The Commission further alleged that Christensen was aware of improprieties in Suprema's cheese transactions from at least 1998 and that, from August 2001 through his resignation in December 2001, he assumed responsibility for coordinating the flow of false invoices and checks in the round-tripping scheme. The Commission further alleged that, from December 2001 through February 2002, Vieira assumed responsibility for coordinating the flow of false invoices and checks in the round-tripping scheme. Finally, the Commission further alleged that Battaglia, CMM, LNN, Packing Products, and WCC participated as customers and vendors in the round-tripping transactions and that Fransen, Gaglio, Quattrone, and Vieira controlled these entities and received commissions in return for their participation.
In related proceedings, Christensen, Fransen, Gaglio, Quattrone, Van Sickell, and Vieira pled guilty to criminal informations filed by the United States Attorney for the District of New Jersey, including counts of securities fraud and conspiracy to commit securities fraud. All of these defendants (except Van Sickell, who died prior to sentencing) were sentenced to terms of probation or imprisonment and were ordered jointly and severally to pay varying amounts of restitution that totaled in excess of $100 million. (U.S. v. Arthur Christensen, CR07-32 (D.N.J.); U.S. v. Lawrence Fransen, CR04-10 (D.N.J.); U.S. v. Jack Gaglio, CR05-141 (D.N.J.); U.S. v. Robert Quattrone, CR04-13 (D.N.J.); U.S. v. John Van Sickell, CR04-12 (D.N.J.); and U.S. v. George Vieira, CR04-11 (D.N.J.)). Also in related proceedings, Cocchiola and Venechanos were convicted by a jury on 38 felony counts of conspiracy, bank fraud, false statements to the Commission, mail fraud and wire fraud prosecuted by the United States Attorney for the District of New Jersey. Cocchiola and Venechanos were sentenced to 15 and 8 years of imprisonment, respectively, and were ordered joint and severally to pay over $115 million in restitution. (U.S. v. Mark Cocchiola and Steven Venechanos, CR05-533 (D.N.J.)).
The Commission acknowledges the assistance of the United States Attorney's Office for the District of New Jersey, the Federal Bureau of Investigation, and the U.S. Food and Drug Administration in its investigation. The Commission's investigation of this matter is now concluded. [SEC v. Mark Cocchiola and Steven Venechanos, Civil Action No. 05-CV-3450-SRC (D.N.J.); SEC v. Jack Gaglio, Civil Action No. 05-CV-1195-SRC (D.N.J.); SEC v. Robert Quattrone, et al., Civil Action No. 04-CV-33-SRC (D.N.J.)] (LR-21107; AAE Rel. 3001)
JOINT INDUSTRY PLAN RELEASES
Notice of Filing of the Eleventh Charges Amendment to the Second Restatement of the Consolidated Tape Association Plan
Pursuant to Rule 608 under the Securities Exchange Act of 1934, the Consolidated Tape Association (CTA) has filed an amendment to the CTA Plan (Plan) to waive the automatic annual increase in the Enterprise Cap for 2008. Publication is expected in the Federal Register during the week of June 29. (Rel. 34-60154)
Proposed Rule Change
NASDAQ OMX BX filed a proposed rule change (SR-BX-2009-028) to adopt rules to implement the Options Order Protection and Locked/Crossed Market Plan. Publication is expected in the Federal Register during the week of June 29. (Rel. 34-60158)
Approval of Proposed Rule Change
The Commission approved a proposed rule change submitted by the Chicago Board Options Exchange (SR-CBOE-2009-029) under Rule 19b-4 of the Securities Exchange Act of 1934 amending Rule 123C to permanently establish the Quarterly Option Series program. Publication is expected in the Federal Register during the week of June 29. (Rel. 34-60164)
Immediate Effectiveness of Proposed Rule Change
A proposed rule change filed by NASDAQ OMX BX to establish a Flash and Cancel Order (SR-BX-2009-029) 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 June 29. (Rel. 34-60165)
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