Eric Bustillo Named Regional Director of SEC's Miami Regional Office
The Securities and Exchange Commission announced today that Eric Bustillo has been named Regional Director of the SEC's Miami Regional Office. Mr. Bustillo joins the SEC from the U.S. Attorney's Office in the Southern District of Florida where he is an Assistant U.S. Attorney and has been Chief of the Economic & Environmental Crimes Section since 2005. He formerly served in the SEC's Miami Regional Office from 1990 to 1995 as an enforcement staff lawyer and as a branch chief. He anticipates assuming his new position in mid-January 2010.
"The SEC's Miami Office is a critical ingredient in our national enforcement effort," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Eric's great talent and experience, along with the expertise and professional excellence of the current enforcement management and staff, will combine to continue that office's record of smart and informed enforcement actions and investor protection."
John Walsh, Acting Director of the SEC's Office of Compliance, Inspections and Examinations, said, "I welcome Eric back to the Commission and know that he will be an asset to the SEC's oversight of securities firms in the region."
Mr. Bustillo said, "I had the privilege of starting my legal career as an enforcement attorney at the SEC's Miami Office and I am very excited to rejoin and lead the office at this crucial time for the Commission. As a federal prosecutor in Miami over the last 15 years, I have often had the opportunity to work with lawyers and examiners in the SEC's Miami Regional Office and have always been impressed with their professionalism, dedication, and commitment to protecting investors. Under the skilled guidance of Associate Directors Glenn Gordon and John Mattimore, the Office has built an exceptionally talented group of enforcement and examination professionals. I look forward to working with Glenn, John, and the rest of the team to accomplish the SEC's mission of protecting investors and this country's capital markets."
As Chief of the Economic & Environmental Crimes Section in the U.S. Attorney's Office in Miami, Mr. Bustillo has been responsible for managing over 60 employees, including 35 Assistant U.S. Attorneys and Special Assistant U.S. Attorneys and a number of financial analysts, paralegals, and other support personnel. In that role, he has led the investigation and prosecution of complex white-collar criminal matters, including securities and corporate fraud, commodities fraud, financial institution fraud, mortgage fraud, consumer fraud, and money laundering.
As Regional Director, he will oversee the office's enforcement and examination functions in five southeast jurisdictions: Florida, Mississippi, Louisiana, Puerto Rico, and the U.S. Virgin Islands. Mr. Bustillo succeeds David Nelson, the former Regional Director, who is now in private practice. The office has been effectively led in the interim by Associate Directors Gordon and Mattimore.
Mr. Bustillo earned his Bachelor of Business Administration degree with a major in Economics from the University of Miami School of Business in 1985, and his J.D. from the University of Miami School of Law in 1989. (Press Rel. 2009-267)
RULES AND RELATED MATTERS
SEC Approves Extension and Modification of Temporary Exemptions Permitting the Chicago Mercantile Exchange Inc. to Operate As Central Counterparty for Credit Default Swaps
On Dec. 14, 2009, the Securities and Exchange Commission took additional action to help improve transparency in the multi-trillion dollar credit default swap market by approving an extension and modification of temporary exemptions that allow the Chicago Mercantile Exchange Inc. (CME) to operate as a central counterparty for credit default swaps. On March 13, 2009, the SEC previously granted CME a similar exemption that was scheduled to expire on Dec. 14, 2009. The SEC's December 14th action extends and modifies the exemptions that were set to expire and expands them to address additional activities related to the central clearing of credit default swaps.
The SEC is soliciting public comment on all aspects of these exemptions to assist in its consideration of any further action that may be needed in this area. (Rel. 34-61164)
Commission Sanctions Gregory O. Trautman for Violations of the Antifraud Provisions of the Securities Laws
The Commission has found that Gregory O. Trautman, who was co founder, president, and chief executive officer of Trautman Wasserman & Company (TWCO), a registered broker dealer, willfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b 5 by participating in a scheme involving deceptive market timing and illegal late trading of mutual fund shares. The Commission found that Trautman, as TWCO's president and chief executive officer, engaged in numerous deceptive acts as part of the scheme: he personally engaged in the late trading of mutual funds on behalf of several customers; he deceptively sought market timing capacity from mutual funds by materially misrepresenting the nature of TWCO's trading and its impact on the funds; and he fraudulently induced customers to invest or to continue investing with TWCO by falsely assuring them of the legality of the late trading. In addition, the Commission found that Trautman willfully aided and abetted, and was a cause of, TWCO's violations of Exchange Act Section 15(c) and Exchange Act Rule 10b 3, which prohibit broker dealers from effecting transactions in, or inducing or attempting to induce, the purchase or sale of securities by means of a manipulative, deceptive, or other fraudulent device or contrivance.
For these violations, which the Commission noted "generated at least $22 million in illicit profits for TWCO and caused dilution losses to mutual fund shareholders of more than $102 million," Trautman was barred from association with any broker or dealer, ordered to cease and desist from committing future violations of the relevant federal securities law provisions, ordered to pay $608,886 in disgorgement plus prejudgment interest, and assessed a $120,000 civil money penalty. (Rels. 33-9088A; 34-61167A; File No. 3-12559)
SEC Obtains Preliminary Injunction Against Jeremy J. Blackburn in Lawsuit Alleging Misappropriation of Investors Funds and Ponzi Scheme
The Securities and Exchange Commission announced that on Dec. 8, 2009, the Honorable Blanche M. Manning in the U.S. District Court of the Northern District of Illinois entered a preliminary injunction order enjoining Jeremy J. Blackburn (Blackburn) from violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)] and the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5 thereunder] (Preliminary Injunction Order). Blackburn consented to the entry of the Preliminary Injunction Order. The asset freeze order entered by the Court on Nov. 30, 2009, freezing Blackburn's assets continues.
Filed under seal on Nov. 30, 2009, in an emergency TRO action, the Commission's complaint alleges that Blackburn, a co-founder and former President and Chief Operating Officer of privately-held Canopy Financial, Inc. (Canopy), engaged in a scheme to defraud investors in a $75 million private placement offering and as part of the scheme misappropriated investor funds. The Commission's Complaint seeks, among other things, permanent injunctions against Blackburn and Canopy. The Commission's Complaint also seeks the disgorgement of ill-gotten gains, plus prejudgment interest thereon, and civil penalties.
Blackburn was charged in a federal criminal complaint unsealed on Dec. 2, 2009, in the Northern District of Illinois. [SEC v. Canopy Financial, Inc. and Jeremy J. Blackburn, Case No. 09-CV-7429, USDC, N.D. Ill.] (LR-21336)
SEC Halts Multi-Million Dollar Ongoing Fraud in Orange County
On Dec. 14, 2009, the Securities and Exchange Commission obtained a temporary restraining order, asset freeze and other emergency relief in a civil fraud action filed against Michael Bowen (Bowen) and three of his companies, Eagle Development Enterprises, Inc., Eagle Storage & Development, LLC, Eagle Aviation Sales & Leasing, LLC, for conducting a $28 million fraudulent offering scheme involving storage facilities and helicopters. Although one of these entities is in Chapter 7 bankruptcy, Bowen's solicitation and lulling efforts are ongoing.
The Commission alleges that Bowen, age 57, of Rancho Cucamonga, Calif., solicited investors nationwide through three different unregistered offerings that hyped an imminent public offering in the U.K., embellished his companies' assets, and concealed a prior cease and desist order imposed by the Alabama Securities Commission in 2005.
The Commission's complaint, filed in the U.S. District Court in Orange County, Calif., alleges that since at least 2003, the defendants have raised $28 million from approximately 500 investors through various offerings, each time promising to invest the funds in different schemes ranging from storage and assisted living facilities to helicopters. According to the complaint, the defendants enticed investors by dangling the prospect of an upcoming initial public offering in the U.K., when they knew full well that no steps had been taken for this purpose. The complaint further alleges that the defendants made baseless predictions about the future price of the stock after the purported public offering. Further, the Commission alleges that Bowen commingled and misused at least $3 million of the investor funds to purchase luxury vehicles and to transfer monies to his other companies. Finally, the complaint alleges that defendants failed to disclose to investors that Bowen and Eagle Storage were subjects of Alabama's cease and desist order involving the unregistered sale of Eagle Storage securities.
Acting on the Commission's lawsuit, the Honorable James Selna, United States District Judge for the Central District of California, issued a temporary restraining order against the defendants and issued orders freezing their assets, requiring accountings from them, prohibiting the defendants from destroying documents, and ordering expedited discovery. A hearing on whether a preliminary injunction should be issued against the defendants is scheduled for 1:30 p.m. on Dec. 23, 2009.
The Commission's complaint alleges that all of the defendants violated the securities registration and antifraud provisions of the federal securities laws, Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to emergency relief, the Commission's complaint seeks from each defendant preliminary and permanent injunctions and disgorgement with prejudgment interest. As to Bowen, Eagle Development and Eagle Aviation, the Commission also seeks a civil penalty. The complaint also names as relief defendants Eagle Assets & Management, LLC, Eagle Housing & Development AZ, LLC, Eagle Housing & Development, Inc., and Eagle Helicopters & Aviation, Inc., all of which are controlled by Bowen and which hold assets acquired from investor proceeds. [SEC v. Eagle Development Enterprises, Inc., Eagle Storage & Development, LLC, Eagle Aviation Sales & Leasing, LLC, Michael J. Bowen, defendants, and Eagle Assets & Management, LLC, Eagle Housing & Development AZ, LLC, Eagle Housing & Development, Inc., and Eagle Helicopters & Aviation, Inc., relief defendants, United States District Court for the Central District of California, Case No. SACV09-1470 JVS (MLGX)] (LR-21337)
SEC Halts Multi-Million Dollar Investment Scheme
On Dec. 14, 2009, the Securities and Exchange Commission charged two Southern California residents, Dean P. Gross, age 47, residing in Agoura Hills, CA, and Gregory W. Laser, age 46, residing in San Diego, CA, with securities fraud in connection with a Ponzi scheme. The SEC obtained an emergency court order freezing their assets and halting the scheme.
The SEC alleges that Gross, doing business as Bridon Entertainment, and Laser raised more than $18 million by promising guaranteed returns on sales of advertising to large, well-known corporations. Defendants offered both short term (30-90 day) and longer term (one-year) investments. Typically, promised rates of return on the short term investment ranged from 8% to 30 %, while the year-long investment typically offered a return between 10% and 20%. In some instances, Gross offered a 40% return.
According to the SEC's complaint, Gross purported to be an advertising industry veteran with extensive connections which allow him to buy advertising time and space at a discount, and to resell it at a substantial profit to large, well-known corporations. When Gross offered a short-term investment, he identified a specific well-known corporation he claimed he contracted with to buy advertising. Gross provided investors a fabricated contract that appeared to be between Bridon and a representative of the well-known corporation. Gross and Laser told investors that Gross would use their money to purchase advertising time and space, and that their promised returns would be generated by the profitable resale of that advertising to the specifically identified company. In fact, the contracts provided to investors were fake, and Gross did not have relationships with the well-known companies he claimed were his clients. Gross did not buy or resell advertising, and investors' purported returns were not generated by the sale of advertising, but instead came from money raised from subsequent investors, in classic Ponzi fashion. The SEC's complaint also alleges that Gross diverted at least $6 million to his personal use.
On December 14, 2009, the SEC obtained an order (1) freezing the assets of Gross and Laser; (2) requiring accountings; (3) prohibiting the destruction of documents; and (4) granting expedited discovery; and (5) temporarily enjoining Gross and Laser from future violations of the registration and antifraud provisions of the federal securities laws. In addition to this emergency relief, the Commission's complaint alleges that Gross and Laser violated Section 5(a), Section 5(c) and Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934. The Commission's complaint also alleges that Laser violated Section 15(a) of the Exchange Act by acting as an unregistered broker-dealer. The Commission's complaint seeks a final judgment permanently enjoining the defendants and ordering them to pay disgorgement of ill-gotten gains and financial penalties.
The SEC's investigation is continuing. [SEC v. Dean P. Gross and Gregory W. Laser, Case No. CV 09-9144 (C.D. Cal.) (AHM) (RHx)] (LR-21338)
SEC Charges Former Employees of Global Firms in Serial Insider Trading Scheme
The Securities and Exchange Commission today announced charges against two former employees at major global financial institutions and two of their friends in a serial insider trading scheme to profit on highly confidential merger and acquisition information.
The Commission's complaint alleges that Vinayak S. Gowrish, a former associate at multi-billion dollar private equity firm TPG Capital L.P., and Adnan S. Zaman, a former vice president and investment banker at Lazard Freres & Co. LLC, stole confidential information from their firms in connection with five deals and tipped two friends - Pascal S. Vaghar and Sameer N. Khoury - in exchange for kickbacks. Vaghar and Khoury both then traded stock and options on the basis of the nonpublic information and made nearly $500,000 in illicit profits. Zaman, Vaghar, and Khoury have agreed to settle the charges against them by consenting to the entry of final judgments imposing the relief detailed below, without admitting or denying the allegations in the Commission's complaint.
According to the SEC's complaint in the case, the illegal tips, trades, and kickback payments were structured to avoid detection. They exchanged illegal tips through coded text messages and yellow sticky notes. Vaghar often wrote checks made payable to himself or cash rather than to Gowrish or Zaman directly so as not to create a paper trail. Vaghar also gave his credit card to Zaman so he could charge purchases of personal items in stores and on the Internet for himself in Vaghar's name. As alleged in the complaint, they also attempted to avoid drawing regulatory scrutiny to their illegal activities by deliberately trading relatively small amounts of the targeted securities.
According to the SEC's complaint, filed in U.S. District Court for the Northern District of California, Gowrish misappropriated and illegally tipped material, nonpublic information that TPG was in negotiations to acquire Sabre Holdings Corp., TXU Corp., and Alliance Data Systems Corp. Gowrish illegally tipped this information to Zaman, who then tipped the inside information to Vaghar and Khoury. The SEC further alleges that Zaman misappropriated and illegally tipped material, nonpublic information that Lazard clients were in negotiations to acquire webMethods, Inc. and Myogen, Inc. Zaman tipped the information to Vaghar and Khoury through in-person meetings or by writing trading instructions - including the ticker symbol of the call option (or stock) and the number of contracts (or shares) to purchase - on yellow sticky notes. Coded text messages were used to exchange trading instructions. In exchange for the confidential information, the complaint alleges, Gowrish received cash kickbacks from Vaghar, and Zaman received kickbacks in the form of cash, free rent, and other items of value from Vaghar and Khoury totaling approximately $70,000.
To settle today's charges, Zaman, Vaghar, and Sameer Khoury have consented to the entry of final judgments permanently enjoining them from violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. Zaman and Vaghar will also be enjoined from violations of Section 14(e) of the Exchange Act and Rule 14e-3 thereunder.
Additionally, Zaman has consented to (i) disgorge $78,456 in ill-gotten gains and prejudgment interest thereon, and (ii) the issuance of an administrative order permanently barring him from associating with any broker or dealer. The final judgment against Vaghar further imposes $366,001 in disgorgement and prejudgment interest thereon, but waives all but $33,000 of that amount - and does not impose a civil penalty - based on his demonstrated inability to pay. The final judgment against Sameer Khoury imposes $198,607 in disgorgement and prejudgment interest thereon, but waives payment, and does not impose a civil penalty, based on a demonstrated inability to pay. Finally, Elias Khoury has consented to the entry of a final judgment ordering him, as a relief defendant, to pay a total of $6,700, consisting of disgorgement of $5,836 and prejudgment interest thereon of $864.
The Commission is seeking permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of financial penalties against Gowrish.
The Commission thanks the U.S. Attorney's Office for the Northern District of California, the Federal Bureau of Investigation, and the Chicago Board Options Exchange, Inc. for their cooperation and assistance in connection with this matter. [SEC v. Vinayak S. Gowrish, Adnan S. Zaman, Pascal S. Vaghar, Sameer N. Khoury, Defendants, and Elias N. Khoury, Relief Defendant, 09-CV- 5883 (N.D. Cal.)] (LR-21339)
INVESTMENT COMPANY ACT RELEASES
Pioneer Floating Rate Trust and Pioneer High Income Trust
An order has been issued on an application filed by Pioneer Floating Rate Trust and Pioneer High Income Trust for an order under Section 6(c) of the Investment Company Act granting an exemption from Sections 18(a)(1)(A) and (B) of the Act for a period from the date of the order until Oct. 31, 2010. The order permits each applicant to issue or incur debt that would be used to redeem all or a portion of the applicant's auction market preferred shares that were issued prior to Feb. 1, 2008 and that are outstanding at the time of such issuance or incurrence of debt (post-order debt), and to refinance such post-order debt, subject to the 200% asset coverage requirement ordinarily applicable to a senior security that is stock. The order also permits each applicant to declare dividends or any other distributions on, or purchase, capital stock during the term of the order, provided that any such post-order debt has asset coverage of at least 200% after deducting the amount of such transaction. (Rel. IC-29070 - December 15)
Proposed Rule Changes
NYSE Arca filed a proposed rule change (SR-NYSEArca-2009-108) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19-4 thereunder modifying the NYSE Arca Realtime Reference Prices service. Publication is expected in the Federal Register during the week of December 14. (Rel. 34-61143)
NYSE Amex filed a proposed rule change (SR-NYSEAmex-2009-85) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19-4 thereunder to establish the NYSE Amex Realtime Reference Prices service. Publication is expected in the Federal Register during the week of December 14. (Rel. 34-61144)
New York Stock Exchange filed a proposed rule change (SR-NYSE-2009-120) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19-4 thereunder relating to changes in the NYSE Realtime Reference Prices service. Publication is expected in the Federal Register during the week of December 14. (Rel. 34-61145)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by the NYSE Amex (SR-NYSEAmex-2009-88) amending NYSE Amex Rule 352 and adopting New Rule 2150 - NYSE Amex Equities to correspond with rule changes filed by the Financial Industry Regulatory Authority, Inc. 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 December 14. (Rel. 34-61157)
A proposed rule change filed by the New York Stock Exchange (SR-NYSE-2009-123) amending NYSE Rule 352 and adopting New Rule 2150 to Correspond with rule changes filed by the Financial Industry Regulatory Authority 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 December 14. (Rel. 34-61158)
A proposed rule change filed by the Financial Industry Regulatory Authority (SR-FINRA-2009-085) relating to order reporting requirements on the Alternative Display Facility 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 December 14. (Rel. 34-61165)
Accelerated Approval of Proposed Rule Change
The Commission has approved on an accelerated basis a proposed rule change (SR-NYSEArca-2009-103) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 regarding listing and trading of RP Short Duration ETF. Publication is expected in the Federal Register during the week of December 14. (Rel. 34-61163)
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