In the Matter of F&S Asset Management Group, Inc.
On November 22, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(e) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions (Order) against F&S Asset Management Group, Inc. (FSAMG). The Order finds that FSAMG is an investment adviser registered with the Commission and a Florida corporation with its principal place of business in Jacksonville, Florida. The Order further finds that on Aug. 13, 2010, the U.S. District Court for the Southern District of Florida entered by consent a judgment against FSAMG, permanently enjoining it from future violations of 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 Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, in the civil action entitled SEC v. Estate of Kenneth Wayne McLeod, et al., Civil Action Number 10-22078-CIV-MORENO.
The Order finds that the Commission's complaint alleged that, among other things, from at least 2008 through June 2010, McLeod and FSAMG violated the antifraud provisions of the federal securities in connection with a Ponzi scheme, through which McLeod raised at least $34 million from active and retired federal and state government employees. The complaint alleged that McLeod and FSAMG solicited employees to invest in a purported bond fund invested in long-term government securities and promised them guaranteed, tax-free returns of eight to ten percent annually. In reality, the purported bond fund did not exist.
Based on the above, the Order revokes FSAMG's registration as an investment adviser. FSAMG consented to the Commission's Order without admitting or denying any of the findings therein, except as to the entry of the judgment, which it admitted. (Rel. IA-3112; File No. 3-14131)
In the Matter of George Wesley Harris
On November 22, 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 George Wesley Harris, a resident of Mansfield, Texas. The Order finds that, on September 21, 2010, a judgment was entered against Harris, permanently enjoining him from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder, in the civil action entitled SEC v. Giant Operating, LLC, et al., Civil Action Number 3:09-cv-01809-B in the United States District Court for the Northern District of Texas, Dallas Division. The Order further finds that the Commission's complaint in the civil action alleged that Harris and others participated in fraudulent securities offerings, which were not registered with the Commission as required under the law, through which Giant Operating, LLC raised at least $16.6 million from at least 150 investors throughout the United States.
Based on the above, the Order bars Harris from association with any broker or dealer. Harris consented to the issuance of the Order without admitting or denying any of the findings except as to the entry of the judgment, which he admitted. (Rel. 34-63353; File No. 3-14090)
In the Matter of World Group Securities, Inc.
On November 22, 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 World Group Securities (WGS). The Order finds that WGS failed to supervise certain registered representatives in WGS' Pomona branch office who recommended the use of home equity to purchase variable universal life insurance policies, the recommendation of which was unsuitable.
Based on the above, the Order WGS is (1) censured; (2) shall pay a civil monetary penalty in the amount of $200,000; and, (3) shall retain an outside vendor not unacceptable to the Commission to provide annual suitability training to each of WGS' registered representatives for a period of two years focusing specifically on (a) suitability of variable universal life insurance policies and (b) suitability considerations related to the use of home equity to purchase securities. (Rel. 34-63354; File No. 3-14132)
Settlement of Emil C. Busse, Jr., Former Head of Securities Lending for FAF Advisors, Inc.
On November 22, the Commission issued a settled Order Instituting Administrative and Cease-and-Desist Proceedings (Order) against Emil C. Busse, Jr., (Busse), the former head of securities lending for FAF Advisors, Inc. (FAF), for the improper reallocation of numerous loans of securities between two investment portfolios he managed in an effort to artificially increase the net asset value (NAV) in one of the portfolios.
The Order finds that Busse managed a mutual fund that contained a money market portfolio and a bond portfolio. Both portfolios contained funds received exclusively from loans of securities made by customers of FAF's parent company. From early February through at least March 2008, Busse caused the reallocation of numerous loans of securities from customers invested in the money market portfolio to customers invested in the bond portfolio in an effort to increase the assets in the bond portfolio and enable the fund to keep its portfolio NAV at $1 per share. Busse did not disclose these reallocations to customers or to his supervisors. Because of his improprieties, certain customers in the inflated bond portfolio suffered losses of approximately $6 million when, despite the efforts of the Respondent, the portfolio's NAV dropped to $.99 per share.
The Order bars Busse from association with any broker, dealer, investment adviser, or investment company with the right to reapply for association after three years, and requires Busse to cease and desist from committing or causing violations and any future violations of Sections 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-8 promulgated thereunder, Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The Order also imposes a civil penalty on Busse of $65,000. Busse consented to the issuance of the Order without admitting or denying any of the findings therein. (Rels. 33-9159; 34-63355; IA-3113; IC-29503; File No. 3-14133)
In the Matter of Catherine Rozanski, CPA
The Securities and Exchange Commission announced that on Nov. 17, 2010, it settled pending charges against Catherine Rozanski, the former Director of Financial Accounting and Reporting at Delphi Corporation (Delphi).
Rozanski consented to the entry of an injunction from future violations of Section 17(a) of the Securities Act of 1933 (Securities Act) and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5 and 13b2-1 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 and13a-1 thereunder. Rozanski also consented to pay a $40,000 civil money penalty. In settling the Commission's claims, Rozanski neither admitted nor denied the Commission's allegations. In addition, separately, without admitting or denying the Commission's findings, Rozanski consented to the institution of administrative proceedings pursuant to Rule 102(e)(3) of the Commission's Rules of Practice, suspending her from appearing or practicing before the Commission as an accountant, with a right to apply for reinstatement after three years, based on the entry of the injunction.
The Commission's Complaint against Rozanski alleged that as a result of her participation in a fraudulent scheme, Delphi filed materially false and misleading financial statements in the company's 2001 Form 10-K. According to the Complaint, Delphi improperly recorded a $20 million payment from an IT company in December 2001, made in connection with a new contract between the IT company and Delphi. The scheme in which Rozanski participated was one of four schemes alleged in the Commission's complaint.
The Commission's litigation as to remaining defendants continues (SEC v. Catherine Rozanski, No. 2:06-Cv-14891-AC-SDP, United States District Court for the Eastern District Of Michigan). (Rel. 34-63356; AAE Rel. 3214; File No. 3-14134)
In the Matter of New Castle Funds LLC
On November 22, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 203(e) of the Investment Advisers Act and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order (Order) against New Castle Funds LLC (New Castle). The Order finds that New Castle, a registered investment adviser at the time of the misconduct, violated Rule 105 of Regulation M of the Exchange Act (Rule 105), which prohibits short selling securities during a restricted period (generally defined as five business days before the pricing of a secondary offering) and then purchasing the same securities in a public secondary offering.
The Order instituted against New Castle finds that New Castle, through several of its advisory clients, violated Rule 105 in connection with short sales made in advance of a public offerings by Anadarko Petroleum Corp. (Anadarko) and Wells Fargo & Company (Wells Fargo), resulting in profits of $183,084. Specifically, New Castle sold short a total of 20,000 shares of Anadarko on May 7, 2009 and then received 100,000 shares from Anadarko's follow-on offering on May 12, 2009. New Castle also sold short a total of 40,000 shares of Wells Fargo on May 7, 2009 and then received 20,000 shares from Wells Fargo's follow-on offering on May 8, 2009.
Based on the above conduct, the Order censures New Castle, orders New Castle to cease and desist from committing or causing any violations or any future violations Rule 105, finds that New Castle willfully violated Rule 105, and orders New Castle to pay $183,084 in disgorgement, $9,980 in prejudgment interest and $100,000 in civil money penalty. New Castle consented to the issuance of the Order without admitting or denying any of the findings contained therein except for the Commission's jurisdiction over New Castle and the subject matter. (Rels. 34-63358; IA-3114; File No. 3-14135)
Delinquent Filer's Stock Registration Revoked
The registration of the securities of Cobalis Corp. has been revoked. It had repeatedly failed to file required annual and quarterly reports with the Securities and Exchange Commission. Thus, it 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 revocation was ordered in an administrative proceeding before an administrative law judge. (Initial Decision No. 407; File No. 3-13998)
George Georgiou Sentenced to 25 Years in Prison and Ordered to Pay $55,832,398 in Restitution as a Result of His Conviction for Securities Fraud and Other Charges Relating to Multimillion Dollar Market Manipulation Schemes
The Commission announced that on Nov. 19, 2010, George Georgiou, of Toronto Ontario, was sentenced in a parallel criminal action for his role in manipulating the market in four separate microcap stocks - Avicena Group, Inc., Neutron Enterprises, Inc., Hydrogen Hybrid Technologies, Inc., and Northern Ethanol, Inc. Judge Robert F. Kelly of the United States District Court for the Eastern District of Pennsylvania sentenced Georgiou to 25 years in federal prison, followed by three years of supervised release, and ordered him to pay $55,832,398 in restitution. Georgiou was convicted of securities fraud, conspiracy, and wire fraud on Feb. 12, 2010, after a three week jury trial prosecuted by the United States Attorney's Office in Philadelphia, Pennsylvania.
The Commission previously filed a civil injunctive action against Georgiou based on the same conduct. According to the Commission's complaint, from 2004 through September 2008, Georgiou, who controlled the publicly-traded stock of each company, manipulated the market for the purpose of artificially inflating each company's stock price or to create the false appearance of an active and liquid market. In order to do so, Georgiou used many nominee accounts that he either directly or indirectly controlled at offshore broker-dealers and banks, and used a variety of manipulative techniques, including matched orders and wash sales. The Commission's action is currently stayed.
For further information, see Litigation Release Nos. 21426 (Feb. 25, 2010) and 20899 (Feb. 12, 2009). [U.S. v. George Georgiou, Criminal Action No. 09-88 (E.D. Pa.); SEC v. George Georgiou, Civil Action No. 09-CV-616 (E.D. Pa.)] (LR-21751)
SEC Halts Misappropriation Scheme By Former Registered Representative
On Nov. 19, 2010, the Securities and Exchange Commission filed an emergency civil action in the United States District Court for the Northern District of Illinois to halt an ongoing fraud on investors conducted by Edward L. Moskop and the company he owns and operates, Financial Services Moskop & Associates, Inc. From 1989 until the filing of the SEC's action, Moskop and his company misappropriated substantial sums from at least two elderly investors.
The Honorable Rebecca R. Pallmeyer, United States District Court Judge, granted the Commission's motion for emergency relief, including an order temporarily restraining Moskop and his company from committing further violations of the antifraud provisions of the federal securities laws and an order freezing the assets of Moskop and his company.
The SEC's complaint alleged that Moskop and his company have defrauded an elderly couple since 1989 by falsely claiming to make securities investments on their behalf. Moskop, who is 62 years old, is a former registered representative and a licensed insurance broker. Moskop is the principal of Moskop & Associates, which is located in Belleville, Illinois. In an earlier incident unrelated to the SEC's charges, the NASD (n/k/a FINRA) in 1990 imposed an associational bar against Moskop for the misappropriation of client funds. According to the SEC's complaint in this matter, Moskop received funds from an elderly couple on numerous different occasions throughout the years, with directions to invest their funds in securities such as fixed-rate trusts and certificates of deposit. In reality, the SEC alleged, Moskop misappropriated the investors' funds and never made the investments. Throughout the scheme, Moskop and Moskop & Associates sent the elderly couple account statements identifying non-existent investments in various securities. According to the SEC's complaint, Moskop also forged documentation related to the purported investments, including creating counterfeit CDs supposedly issued by a major insurance company. The SEC alleged that Moskop's fraud caused the elderly couple to lose the majority of their life savings. The SEC further alleged that Moskop recently claimed to have numerous other investors.
The SEC's complaint alleges that Moskop and Moskop & Associates, Inc. violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The SEC seeks injunctive relief, disgorgement, prejudgment interest and civil penalties. A preliminary injunction hearing in this case is scheduled for Nov. 30, 2010. [SEC v. Financial Services Moskop & Associates, Inc. and Edward L. Moskop, Civil Action No. 10 C 7462, in the United States District Court for the Northern District of Illinois, Eastern Division] (LR-21752)
INVESTMENT COMPANY ACT RELEASES
Notice of Applications for Deregistration under the Investment Company Act
For the month of November 2010, a notice has been issued giving interested persons until Dec. 14, 2010, to request a hearing on any of the following applications for an order under Section 8(f) of the Investment Company Act declaring that the applicant has ceased to be an investment company:
(Rel. IC-29502 - November 19)
Proposed Rule Change
Financial Industry Regulatory Authority filed a proposed rule change (SR-FINRA-2010-059) to Adopt FINRA Rule 4360 (Fidelity Bonds) in the Consolidated FINRA Rulebook. Publication is expected in the Federal Register during the week of November 22. (Rel. 34-63331)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by the NASDAQ Stock Market regarding a clerical change to Nasdaq rules (SR-NASDAQ-2010-146) 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 November 22. (Rel. 34-63332)
A proposed rule change filed by the NASDAQ Options Market (SR-Nasdaq-2010-147) to modify two aspects of the rules and operation of The NASDAQ Options Market 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 November 22. (Rel. 34-63341)
Approval of Proposed Rule Change
The Commission approved a proposed rule change filed by the Municipal Securities Rulemaking Board (SR-MSRB-2010-09) under Section 19(b)(2) of the Securities Exchange Act of 1934, consisting of fee changes to its Real-Time Transaction Price Service and Comprehensive Transaction Price Service, and termination of its T+1 Transaction Price Service. Publication is expected in the Federal Register during the week of November 22. (Rel. 34-63340)
Accelerated Approval of Proposed Rule Change
The Commission issued notice of filing of Amendment No. 1 to a proposed rule change, and an order granting accelerated approval of a proposed rule change, as amended (SR-BYX-2010-001) submitted by BATS Y-Exchange to amend BYX Rule 11.8, entitled "Obligations of Market Makers". Publication is expected in the Federal Register during the week of November 22. (Rel. 34-63342)
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