In the Matter of Christian Hainsworth
On March 26, 2010, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions (Order) against Christian Hainsworth. The Order finds that from at least March 2007 through September 2008, Hainsworth hired telemarketers, who were not registered as brokers or dealers nor associated with a registered broker or dealer, to solicit investors to purchase the stock of Winning Kids, Inc. Hainsworth also paid these telemarketers transaction based compensation and supplied them with lead lists of prospective investors. Hainsworth was neither registered as a broker or dealer nor associated with a registered broker or dealer.
Based on the entry of an injunction in the civil action entitled SEC v. Christian Hainsworth, et al., Civil Action Number 9:10-CV-80186, in the United States District Court for the Southern District of Florida, the Order bars Christian Hainsworth from association with any broker or dealer. Hainsworth 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. (Rel. 34-61792; File No. 3-13837)
Delinquent Filers' Stock Registrations Revoked
The registrations of the registered securities of U.S. Biomedical Corp. (f/k/a United Textiles & Toys, Inc.), USA Bridge Construction of N.Y., Inc., and USA Broadband, Inc., have been revoked. Each had repeatedly failed to file required annual and quarterly reports with the Securities and Exchange Commission. Thus, each violated a crucial provision of the federal securities laws that requires public corporations to publicly disclose current, accurate financial information so that investors may make informed decisions. The revocations were ordered in an administrative proceeding before an administrative law judge. (Rel. 34-61794; File No. 3-13793)
In the Matter of Gerald P. Alexander
On March 26, 2010, the Commission issued an Order Making Findings and Imposing Remedial Sanctions Pursuant to Section 15(b) of the Securities Exchange Act of 1934 (Order) against Gerald P. Alexander. In the Order, the Commission finds that Alexander, a resident of Alpharetta, Georgia, acted as a broker or dealer in acquiring shares directly from thirteen companies as part of a distribution to other investors, and was a necessary participant and substantial factor in the sales of the penny stocks of the thirteen companies through the brokerage accounts of CJB Consulting, Inc. and Regis Filia Holdings, Inc. However, the Order finds that Alexander was not registered with the Commission in any capacity or affiliated with an entity that is registered with the Commission in any capacity. The Order also finds that a final judgment was entered by default against Alexander in the civil action entitled Securities and Exchange Commission v. Gerald P. Alexander, et al., Civil Action Number 1:09-CV-0805 in the United States District Court for the Northern District of Georgia. The Order finds that the Commission's complaint in the civil case alleged that, from at least March 2006 through March 2008, Alexander, acting on behalf of and through two corporations that he controlled, offered and sold shares of stock of at least thirteen corporations to investors in numerous transactions, when no registration statements were filed or in effect with the Commission for the transactions and no exemption from registration was available. The Order finds that the complaint also alleged that Alexander and his corporations engaged in a regular business of buying and selling securities for their own accounts when they were not registered as dealers with the Commission. The complaint alleged that as a result of this conduct, Alexander violated Sections 5(a) and 5(c) of the Securities Act, which prohibit the public offer and sale of securities when no registration statement is filed or in effect, and Section 15(a) of the Securities Exchange Act of 1934, which prohibits a dealer from engaging in securities transactions without being registered with the Commission as a broker-dealer or being associated with a registered broker-dealer. The Order finds that the district court entered an injunction against Alexander prohibiting him from future violations of those provisions. (LR-20973, LR-21363)
Based on the above, the Order barred Alexander from association with any broker or dealer. Alexander consented to issuance of the Order without admitting or denying any of the findings except as to the entry of the final judgment. (Rel. 34-61795; File No. 3-13753)
In the Matter of Thomas Lester Irby II and Titan Wealth Management, LLC
On March 29, 2010, the Commission issued an an Order Making Findings and Imposing Remedial Sanctions Pursuant to Sections 203(e) and 203(f) of the Investment Advisers Act of 1940 (Order) against Thomas Lester Irby II (Irby) and Titan Wealth Management, LLC (Titan).
The Order finds that the United States District Court for the Eastern District of Texas entered a judgment on September 10, 2009 against Irby and Titan, permanently enjoining them from future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act. Securities and Exchange Commission v. Titan Wealth Management, LLC, et al., Civil Action Number 4:09-cv-418 (E.D. Tex.).
Based on the above, the Order bars Irby from association with any investment adviser, and the investment adviser registration of Titan Wealth Management LLC is revoked. Irby and Titan consented to the issuance of the Order without admitting or denying the findings therein, except he admitted the entry of the injunction. (Rel. IA-3008; File No. 3-13697)
Initial Decision Suspending the Effectiveness of the Registration Statement Filed By Tsukuda-America Inc. Declared Final
The Commission has declared final the initial decision of a law judge. The law judge found that Tsukuda-America Inc. (Tsukuda) made the false representation that Weinberg & Company, P.A., Certified Public Accountants (Weinberg) audited and prepared an audit report on Tsukuda and consented to the inclusion of the audit report in Tsukuda's registration statement. The law judge also found Tsukuda in default because it failed to answer, to appear through a representative at a hearing of which it had notice, and to otherwise defend the proceeding. The law judge ordered, pursuant to Section 8(d) of the Securities Act of 1933, that the effectiveness of the registration statement filed by Tsukuda-America Inc. be suspended.
On Jan. 26, 2010, the Commission filed a complaint in the United States District Court for the Northern District of Texas, alleging that John W. Petros, sole officer and director of Tsukada, filed a registration statement that was declared effective on April 14, 2009, included a false audit report purportedly performed by Weinberg. SEC v. Tsukuda-America Inc. and John W. Petros, No. 3:10-cv-00136-M (Jan. 26, 2010). (Rel. 33-9114; File No. 3-13761)
SEC Files Charges Against Three Additional Individuals in Stock Manipulation Ring
The SEC announced that The Honorable Gregory M. Sleet, Chief Judge of the United States District Court for the District of Delaware, has authorized the SEC to file an amended complaint, alleging that three new defendants -- Richard A. Bailey, Gary C. Heath, and Florian R. Ternes -- each participated in the pump-and-dump scheme, described in the original complaint, involving GH3 International, Inc. during 2006. SEC v. Dynkowski, et al., Civil Action No. 09-361 (D. Del.). The amended complaint alleges that Bailey and Ternes, who were officers of GH3 at the time, made hundreds of millions of GH3 shares available, through Heath, to Pawel Dynkowski and other defendants to liquidate in the market once they had pumped the stock through manipulative trading and false, misleading and touting press releases. Bailey and Ternes shared in the scheme's proceeds of $747,609 and, when it was nearly over, sold almost a billion shares of GH3 on their own for proceeds of $272,000.
The original complaint alleged that Dynkowski and seven others had manipulated the trading in four penny stocks: GH3, Asia Global Holdings, Inc., Playstar Corp., and Xtreme Motorsports of California, Inc. They did so by pumping the stocks through manipulative trading (using washed sales and matched orders) and false or misleading press releases. They then dumped on the market billions of shares of unregistered stock that they obtained from the issuers. Together, these schemes reaped more than $6.2 million in illicit proceeds.
The amended complaint alleges that Bailey and Ternes violated 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; and that Heath violated Sections 5(a) and 5(c) of the Securities Act. The complaint seeks against each defendant a permanent injunction against future violations, disgorgement of ill-gotten gains with prejudgment interest, civil monetary penalties, and orders barring them from participating in penny stock offerings.
The SEC thanks the U.S. Attorney's Office for the District of Delaware; the Department of Homeland Security, Immigration and Customs Enforcement; the Internal Revenue Service - Criminal Investigations; and the Delaware State Police for their assistance in this matter. [SEC v. Dynkowski, et al., Civil Action No. 09-361 (D. Del.)] (LR-21463)
SEC Charges Unregistered Investment Adviser With Fraud in Managing Over $39 Million in Client Funds
The Securities and Exchange Commission today filed fraud charges against an unregistered investment adviser for misrepresenting the safety and nature of his investment strategy, and for misappropriating millions of dollars of client funds.
The SEC's complaint, filed in U.S. District Court in Cleveland, charges Enrique F. Villalba, Jr., 47, of Cuyahoga Falls, Ohio, with misappropriating approximately $6 million of client funds. The complaint alleges that Villalba through his former investment advisory business, Money Market Alternative, L.P. and affiliated entities, Money Market Alternative Ltd., Money Market Plus, and Hybrid Money Market Management LLC, solicited prospective clients from Ohio, California, Washington, Tennessee, and Illinois. The complaint alleges that Villalba touted an investment strategy he developed that he falsely claimed was conservative, relatively risk free and would preserve his clients' principal capital while still earning them returns of 8% to 12% annually. To substantiate the safety of his investment strategy, the complaint alleges that Villalba falsely claimed that he placed stop orders approximately 2% above or below the entry price of the investments. The complaint also alleges that Villalba further enticed prospective clients by assuring them their money would only be used for investments in securities, including S&P 500 Index contracts, treasury bills, or interest earning money market accounts, and that his management fees would be limited to between 12% and 15% of the profits he generated on their behalf.
According to the SEC's complaint, from 1996 through June 2009, Villalba attracted over $39 million in client funds, and from 1998 through 2009, Villalba lost, through trading, over $17 million of his clients' money. The SEC's complaint also alleges that Villalba misappropriated client funds by (i) paying over $4.1 million for Villalba's management fees, salary and his company's overhead, (ii) purchasing over $700,000 in real property, (iii) investing over $1.2 million in two start-up coffee businesses Villalba owned, and (iv) making Ponzi-like payments. The complaint further alleges that Villalba, to hide his investment failures and his misappropriation of client funds, prepared and provided his clients with false quarterly accounts statements, which always showed that his clients' accounts had overall increased in value. The complaint also alleges that Villalba provided one investor with falsified brokerage statements using the letterhead of a brokerage firm.
The SEC's complaint charges Villalba with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. In addition to a permanent injunction, the complaint seeks disgorgement with prejudgment interest and a civil penalty.
The U.S. Attorney's Office for the Northern District of Ohio filed an information against Villalba in a related criminal action today. The U.S. Commodity Futures Trading Commission (CFTC) also filed a complaint against Villalba today.
The SEC acknowledges the assistance of the U.S. Attorney's Office for the Northern District of Ohio, the Federal Bureau of Investigation, and the CFTC. [SEC v. Enrique F. Villalba, Jr., United States District Court for the Northern District of Ohio, Civil Action No. 5:10-cv-00649-DDD] (LR-21464)
INVESTMENT COMPANY ACT RELEASES
MetLife Insurance Company of Connecticut, et al.
A notice has been issued giving interested persons until April 19, 2010, to request a hearing on an application filed by MetLife Insurance Company of Connecticut, et al. requesting an order pursuant to Section 26(c) of the Investment Company Act to permit substitution of shares of certain registered management investment companies with shares of certain other registered management investment companies. The applicants also seek an order of exemption pursuant to Section 17(b) of the Act from Section 17(a) of the Act to the extent necessary to permit certain in-kind transactions in connection with certain of the substitutions. (Rel. IC-29190 - March 25)
MCG Capital Corporation
A notice has been issued giving interested persons until April 19, 2010, to request a hearing on an application filed by MCG Capital Corporation (Company) for an order under Section 23(c)(3) of the Investment Company Act for an exemption from Section 23(c) of the Act. The order would amend a prior order that permits the Company to issue restricted shares of its common stock under the terms of its employee and director compensation plans (Plans). The amended order would permit the Company, pursuant to the Plans, to engage in certain transactions that may constitute purchases by the Company of its own securities within the meaning of Section 23(c) of the Act. (Rel. IC-29191 - March 25)
Legg Mason Partners Equity Trust, et al.
A notice has been issued giving interested persons until April 20, 2010 to request a hearing on an application filed by Legg Mason Partners Equity Trust, et al., under Section 12(d)(1)(J) of the Investment Company Act for an exemption from Sections 12(d)(1)(A) and (B) of the Act, and under Sections 6(c) and 17(b) of the Act for an exemption from Section 17(a) of the Act. The order would permit certain registered open-end management investment companies to acquire shares of other registered open-end management investment companies and unit investment trusts that are within and outside the same group of investment companies. (Rel. IC-29192 - March 26)
Proposed Rule Change
New York Stock Exchange filed a proposed rule change (SR-NYSE-2010-22) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder to make permanent a Unit-of-Count metric alternative for NYSE OpenBook. Publication is expected in the Federal Register during the week of March 29. (Rel. 34-61779)
Accelerated Approval of Proposed Rule Change
The Commission published notice of, and granted accelerated approval to, a proposed rule change (SR-NYSE-2010-21), submitted by the New York Stock Exchange pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to extend the pilot period for a revised Unit-of-Count methodology for NYSE OpenBook. Publication is expected in the Federal Register during the week of March 29. (Rel. 34-61780)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by the National Stock Exchange (SR-NSX-2010-02) to adopt rules on Self Trade Prevention Order Modifiers 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 March 29. (Rel. 34-61781)
A proposed rule change (SR-BX-2010-021) filed by NASDAQ OMX BX extending the pilot period to receive inbound routes of orders from Nasdaq Execution Services 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 March 29. (Rel. 34-61782)
A proposed rule change filed by NYSE Amex amending its fee schedule (SR-NYSEAmex-2010-07) 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 March 29. (Rel. 34-61788)
Approval of Proposed Rule Change
The Commission approved a proposed rule change to apply retroactively a correction of a drafting error in Rule 7018, submitted under Rule 19b-4 by The NASDAQ Stock Market (SR-NASDAQ-2010-015). Publication is expected in the Federal Register during the week of March 29. (Rel. 34-61787)
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