In the Matter of L. Daniel Ferrer, Esq.
On August 26, the Securities and Exchange 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 against L. Daniel Ferrer, Esq. The Order finds that on August 3, 2009, Ferrer, an attorney licensed to practice law in the State of Florida, was enjoined from future violations of Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Based on that finding, the Order suspends Ferrer from appearing or practicing before the Commission as an attorney. Ferrer consented to the issuance of the Order without admitting or denying any of the findings against him. (Rels. 34-60575, AAER-3038; File No. 3-13600)
In the Matter of Jerry F. Wells, Jr.
On August 27, the Securities and Exchange 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 against Jerry F. Wells, Jr. The Order finds that, on July 7, 2009, an injunction was entered against Wells in SEC v. Jerry F. Wells, Jr. (Civil Action No. 3:09-CV-01792-MJP), enjoining him from future violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Rules 10b-5, 13b2-1, 13b2-2 and 13a-14 thereunder, and from aiding and abetting any violation 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. The complaint in that litigation alleged that between 2003 and 2008, Wells, a certified public accountant licensed to practice in the State of South Carolina and Executive Vice President and Chief Financial Officer of UCI Medical Affiliates, Inc. (UCI or the Company) at the time of the events in question, fraudulently obtained more than $2.9 million from UCI by misusing UCI's expense reimbursement process and corporate credit card to pay his personal expenses and otherwise orchestrating unapproved, improper payments by the Company for his personal benefit.
The complaint also alleged that in an effort to conceal his misconduct, Wells also knowingly caused the Company to record these illicit payments as legitimate business expenses and asset purchases and thereby materially misrepresent its financial performance and that as a result of his actions, UCI filed materially false and misleading financial information for its quarterly and annual reports during the period in question.
Based on the above, the Order suspends Jerry F. Wells, Jr. from appearing or practicing before the Commission as an accountant. Wells consented to the issuance of the Order without admitting or denying any of the findings in the Order, except he admitted the entry of the injunction. (Rels. 34-60576, AAER-3039; File No. 3-13601)
In the Matter of Conversion Solutions Holdings Corp.
On August 27, an Administrative Law Judge issued an Order Making Findings and Revoking Registration of Securities by Default in Conversion Solutions Holdings Corp., Admin. Proc. 3-13538 (August 27, 2009). The Default Order finds that Conversion Solutions Holdings Corp. failed to comply with Section 13(a) of the Securities Exchange Act of 1934 and Exchange Act Rules 13a-1 and 13a-13 by failing to file required periodic reports from November 2006 through May 2009. The Default Order also finds that Conversion failed to comply with Exchange Act Rule 12b-25 that requires an issuer unable to file a timely periodic report to notify the Commission by filing a Form 12b-25. Based on these findings, the Default Order finds it in the public interest to revoke the registration of each class of Conversion's registered securities. (Rel. 34-60577; File No. 3-13538)
SEC Files Amended Complaint Charging Thomas Genzale With Insider Trading
On August 27, the Securities and Exchange Commission filed a First Amended Complaint in its pending insider trading case originally filed on March 13, 2008, against John F. Marshall, the former Vice Chairman of International Securities Exchange Holdings, Inc. ("ISE"), Alan L. Tucker and Mark R. Larson. The original complaint alleged that Marshall tipped his business partners, Tucker and Larson, concerning ISE's merger talks with Eurex Frankfurt AG ("Eurex"), a German company, and that both men traded on the information ahead of the April 30, 2007 announcement of Eurex's $2.8 billion cash merger agreement with ISE, for illegal profits totaling approximately $1.1 million and $31,000, respectively. (See LR-20491) The First Amended Complaint adds a new defendant, Thomas Genzale, and charges him with having also traded in ISE securities in advance of the April 30, 2007 acquisition announcement based on tips from defendant Marshall, resulting, in Genzale's case, in profits of approximately $826,000. Genzale, Marshall, and Tucker have all agreed to settle the Commission's charges set forth in the First Amended Complaint without admitting or denying those allegations, and their settlement papers, in the form of Consents with attached Final Judgments, have been submitted to the Court for its consideration.
Recently, on the Commission's motion, the Court dismissed the Commission's charges against defendant Larson with prejudice. In place of the original complaint's allegation that Marshall tipped Larson, the First Amended Complaint alleges that Marshall recommended the purchase of ISE securities to a business partner, who, in turn, purchased 1,700 shares of ISE, resulting in profits of approximately $31,000.
Genzale's, Marshall's, and Tucker's Consents--which are subject to approval by the Court--provide that, without admitting or denying the Commission's allegations, each would be permanently enjoined against future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Genzale has consented to pay $826,118.84 in disgorgement, $105,977.61 in prejudgment interest, and an $826,118.74 penalty. Marshall has consented to pay $31,452.73 in disgorgement (the alleged amount of the trading profits of the business partner to whom he recommended ISE), and $4,034.88 in prejudgment interest--and has also consented to be permanently barred from serving as an officer or director of a publicly-traded company. Finally, Tucker has consented to pay $18,342.06 in prejudgment interest.
The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, the Options Regulatory Surveillance Authority (ORSA), the New York Stock Exchange (NYSE), and the Chicago Board Options Exchange (CBOE). [SEC v. John F. Marshall, et al. Civil Action No. 08-CV-2827, S.D.N.Y.] (LR-21185A)
SEC Brings Fraud Charges and Obtains Emergency Relief to Stop Prime Bank Scheme
On August 26, the Commission filed an emergency action in the United States District Court for the District of New Jersey against William Graulich, IV, of Henryville, Pennsylvania, and his company, iVest International Holdings, Inc. (iVest) for operating a fraudulent prime bank scheme. On August 26, the Court entered an order granting a temporary restraining order against the defendants, freezing their assets, and imposing other emergency relief.
"Prime bank" and "high yield" investment schemes are offering frauds typically characterized by, among other things, promises of spectacular returns for investors, at little or no risk. The Commission's complaint alleges that, from at least October 2006 through the present, Graulich and iVest have raised approximately $13 million from at least five investors by offering and selling investments in a trading program that purports to generate guaranteed weekly returns ranging from 22 to 140 per cent with little or no risk. Graulich falsely promised prospective investors that their funds would remain on deposit in a segregated account and, together with those of other investors, would be used solely as collateral to obtain a line of credit, which Graulich would then use to trade certain instruments issued by reputable international banks and other financial institutions.
The complaint further alleges that the iVest trading program was a complete sham, and that Graulich never entered into any of the promised transactions. Instead, he has misappropriated investor funds for, among things, personal expenses including New York Yankees tickets, a Jaguar automobile, large cash withdrawals, payments for back taxes owed, and daily living expenses, while also making payments to investors under the guise of investment profits.
As a result of the conduct described in the complaint, the Commission alleges that the defendants violated 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 permanent injunctions, disgorgement together with prejudgment interest, and civil monetary penalties from the defendants.
Additional information on how prime bank and other banking-related investment schemes work can be found on the SEC's website: (http://www.sec.gov/divisions/enforce/primebank.shtml). [SEC v. William Graulich, IV and iVest International Holdings, Inc., Civil Action No. 09-CV-4355, D.N.J., JAG, Aug. 26, 2009] (LR-21186)
SEC Sues Former Universal Food & Beverage, Co. CEO for Fraud
On August 26, the Securities and Exchange Commission filed a civil action in the U.S. District Court for the Northern District of Illinois, charging Duane Martin - former CEO of St. Charles, Illinois-based Universal Food & Beverage, Inc. ("Universal"), a now-defunct company - and stock promoter Gary Trump with violations of federal securities law.
The Commission's Complaint alleges that Martin and Trump violated the registration provisions of the Securities Act of 1933 by improperly issuing S-8 stock to stock promoters and Martin's personal creditors. Trump, who took S-8 shares in exchange for promoting Universal stock, (a) helped engineer the illegal S-8 offering by hand-picking a team of promoters who participated in the offering and (b) illegally distributed his S-8 shares to the public without registration.
The Complaint also alleges that Martin violated the antifraud provisions of federal securities law in at least three instances. First, Martin misrepresented the true purpose of the S-8 offering in Universal's Form S-8. Second, Martin reviewed, signed, and certified Universal's 2005 Form 10-KSB which (a) recorded bogus "Consulting Agreements" with the S-8 recipients as prepaid assets, thereby overstating Universal's assets and understating its losses, (b) falsely stated that Martin was deferring 50 per cent of his salary when, in reality, he had improperly paid himself $240,000 of deferred salary to which he was not entitled, and (c) failed to disclose $858,871.66 in payments that Martin directed to himself and his creditors in 2005 and 2006, including the deferred salary payment, payments of S-8 stock and cash to his creditors, and $234,430.66 in short-term loans that Martin took from Universal in violation of Section 13(k) of the Securities Exchange Act of 1934. Third, Martin defrauded investors in a February 2006 preferred stock offering by misrepresenting (a) the use of proceeds from that offering, and (b) the nature of services provided by the S-8 "consultants."
The Commission's Complaint seeks a court order permanently enjoining Martin and Trump from violating the registration provisions of the Securities Act of 1933 [Sections 5(a) and 5(c)]. It also seeks to enjoin Martin from violating the antifraud provisions of the Securities Act [Section 17(a)] and the Exchange Act [Section 10(b) and Rule 10b-5], and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(k) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. In addition, the Complaint seeks an order (a) requiring Martin and Trump to pay disgorgement and a civil monetary penalty, (b) barring Martin and Trump from participating in any offering of penny stock, and (c) barring Martin from serving as an officer or director of a public company. [SEC v. Duane N. Martin and Gary Trump, Case No. 09-cv-05259, N.D. Ill.] (LR-21187)
SEC Obtains Emergency Relief to Halt Offering Fraud Targeting Mobile Home Park Communities
On August 26, the Securities and Exchange Commission filed a complaint in the United States District Court for the Central District of California against Pomona, Calif.-based Jerry E. Benson and his two entities, Ben-Wal Leasing Company and Ben-Wal Management, Inc. (the Ben-Wal entities) for perpetrating an ongoing investment fraud targeting investors, including seniors, at mobile home park communities throughout California. The court entered an order halting the alleged fraud and freezing the assets of Benson and the Ben-Wal entities.
The SEC's complaint alleges that since approximately 1990, Benson has been offering and selling investments in Ben-Wal Leasing in the form of promissory notes, guaranteeing annual returns of 12 per cent and claiming that investors have earned annual returns up to 18 per cent. Ben-Wal Leasing raised at least $5.7 million from approximately 126 investors from 2004 through April 2009. The complaint alleges that the defendants offered the investment through advertisements in circulars provided to mobile home park communities throughout California. The complaint alleges that Benson falsely told investors that their funds would be used to purchase printing equipment that would be leased to printing companies and the income from the printing companies' lease payments would pay the 12 per cent returns to investors. He also represented that no investor had ever lost money.
The SEC's complaint alleges that the defendants did not use investor money as represented. Instead, a significant amount of investor money was transferred to CTR Web Printing, Inc. (CTR Printing), a company owned and operated by Benson's son, Scott W. Benson. In addition, Benson did not disclose to investors that CTR Printing was, in essence, the only lessee of printing equipment, and it was not regularly making its lease payments to Ben-Wal Leasing. Moreover, Benson never informed investors that Ben-Wal Leasing was using new investor funds to make principal and interest payments to previous investors in a Ponzi-like fashion.
In May 2009, Benson and Ben-Wal Leasing stipulated to a desist-and-refrain order issued by the California Department of Corporations (DOC), which ordered Benson and Ben-Wal Leasing to cease offering or selling securities in California in violation of state law. The SEC's complaint alleges that Ben-Wal Leasing stopped making interest payments to investors in June 2009. According to the complaint, Benson first claimed to investors that the cessation of payments was due to some account discrepancies requiring an audit. More recently, however, Benson falsely told investors they were not being paid because the SEC had not approved the payments and that he was working with the SEC to "expand business." The complaint alleges that despite the DOC's desist-and-refrain order, Benson continues to solicit investors under a different name - Ben-Wal Management, Inc.
In its lawsuit, the SEC obtained an order (1) freezing the assets of Benson and the Ben-Wal entities along with the assets of relief defendant CTR Printing; (2) appointing a temporary receiver over the Ben-Wal entities and their affiliates; (3) preventing the destruction of documents; (4) granting expedited discovery; (5) requiring accountings from Benson and the Ben-Wal entities; and (6) temporarily enjoining Benson, Ben-Wal Leasing, and Ben-Wal Management from future violations of Section 17(a) of the Securities Act of 1933 and temporarily enjoining Benson and Ben-Wal Leasing from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC also seeks preliminary and permanent injunctions, disgorgement, and civil penalties against Benson and the Ben-Wal entities and disgorgement from CTR and Scott Benson. A hearing on whether a preliminary injunction should be issued against the defendants and whether a permanent receiver should be appointed is scheduled for September 4, 2009 at 1:30 p.m.
Investors seeking more information about the SEC's enforcement action against Benson and the Ben-Wal entities should contact the Los Angeles Regional Office by telephone at (323) 965-4574 or by email at firstname.lastname@example.org.
[SEC v. Ben-Wal Leasing Company, Ben-Wal Management, Inc., and Jerry E. Benson, Civil Action No. CV 09-06223-ODW, FMOx, C.D. Cal.] (LR-21188)
INVESTMENT COMPANY ACT RELEASES
Arrow Investment Advisers, LLC and Arrow Funds Trust
A notice has been issued giving interested persons until September 21, 2009, to request a hearing on an application filed by Arrow Investment Advisers, LLC and Arrow Funds Trust for an order to permit (a) certain open-end management investment companies and their series, to issue shares (Shares) redeemable in large aggregations only (Creation Unit Aggregations); (b) secondary market transactions in Shares to occur at negotiated prices; (c) certain series to pay redemption proceeds, under certain circumstances, more than seven days after the tender of Shares for redemption; (d) certain affiliated persons of the series to deposit securities into, and receive securities from, the series in connection with the purchase and redemption of Creation Unit Aggregations; 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. (Rel. IC-28852 - August 25)
Orders of Deregistration Under the Investment Company Act of 1940
Orders have been issued under Section 8(f) of the Investment Company Act declaring that each of the following has ceased to be an investment company:
Immediate Effectiveness of Proposed Rule Change
A proposed rule change filed by BATS Exchange to amend BATS Rule 11.9, entitled "Orders and Modifiers," and BATS Rule 11.13, entitled "Order Execution" (SR-BATS-2009-028) 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 August 31. (Rel. 34-60569)
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