In the Matter of Edentify, Inc.
An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default (Default Order) in Edentify, Inc., Administrative Proceeding No. 3-14118. The Order Instituting Proceedings (OIP) alleged that Respondents repeatedly failed to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission. The Default Order finds these allegations to be true and revokes the registrations of each class of registered securities of Edentify, Inc., Embryo Development Corp., Enesco Group, Inc., Entertainment Is Us, Inc., Entropin, Inc., Epicus Communications Group, Inc., Epixtar Corp., and Evans, Inc. (n/k/a Fur Company A), pursuant to Section 12(j) of the Securities Exchange Act of 1934. (Rel. 34-63446; File No. 3-14118)
Commission Issues Order Discharging Fund Administrator and Terminating Disgorgement Fund in Previously Settled Administrative Proceedings Against Gerson Asset Management, Inc. and Seth Gerson
On December 7, the Commission issued an order in the matter of Gerson Asset Management, Inc. (GAM) and Seth Gerson discharging the administrator of the disgorgement fund and terminating the fund.
Previously, in an order entered on Dec. 2, 2005, the Commission found that GAM, a registered investment adviser, and Gerson, its sole owner, officer, and employee, engaged in "cherry picking" - the unfair allocation of profitable trades to Gerson at the expense of GAM clients - in violation of the antifraud provisions of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. See Gerson Asset Management, Inc., Exchange Act Release No. 52880 (Dec. 2, 2005). GAM and Gerson consented to the issuance of the Order without admitting or denying the Commission's findings and, as part of the settlement of the proceedings, Gerson paid disgorgement in the amount of $160,237. By order issued on Dec. 5, 2007, the Commission approved the Plan for the Administration and Distribution of the Disgorgement Fund and appointed Leslie Kazon, SEC Assistant Regional Director, New York Regional Office, as Administrator of the Disgorgement Fund. On June 2, 2009, the Commission issued an Order Directing Disbursement of the Disgorgement Fund and Approving Amendments to the Distribution Plan. Shortly thereafter, distribution checks in amounts totaling $139,340.94 were issued by the U.S. Treasury. (Rel. 34-63449; File No. 3-12121)
In the Matters of Banc of America Securities LLC, now known as Merrill Lynch, Pierce, Fenner & Smith Incorporated, successor by merger, and Douglas Lee Campbell
On December 7, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order against Banc of America Securities LLC, now known as Merrill Lynch, Pierce, Fenner & Smith Incorporated, successor by merger (BAS), and an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions against Douglas Lee Campbell, a former officer of BAS.
According to the SEC's Order against BAS, from at least 1998 through 2002, officers of BAS at the Municipal Reinvestment and Risk Management Group (the Desk) participated in and condoned improper bidding practices involving the temporary investment of proceeds of tax-exempt municipal securities in reinvestment products, such as guaranteed investment contracts (GICs), repurchase agreements (Repos), and forward purchase agreements (FPAs). These practices affected the prices of the reinvestment products and jeopardized the tax-exempt status of the underlying municipal securities.
The Order finds that bidding agents steered business to the Desk by providing information on competing bids and deliberately obtaining off-market courtesy bids or purposefully non-winning bids so that the Desk could win the transaction. As a result, the Desk won the bids for 88 affected reinvestment instruments. In return, the Desk steered business to those bidding agents and submitted courtesy and purposefully non-winning bids upon request. In addition, those bidding agents were at times rewarded with, among other things, undisclosed, gratuitous payments and kickbacks.
Without admitting or denying the SEC's findings, BAS consented to the entry of an order of the Commission censuring BAS, requiring it to cease-and-desist from committing or causing any violations and any future violations of Section 15(c)(1)(A) of the Securities Exchange Act of 1934, and paying disgorgement plus prejudgment interest totaling $36,096,442 to 88 specific payees. In determining to accept BAS's settlement offer, the Commission considered the cooperation of and the remedial actions undertaken by BAS in connection with the Commission's investigation as well as investigations conducted by other law enforcement agencies.
In a related action, Douglas Lee Campbell, a former officer of BAS, consented to a Commission Order barring him from association with any broker, dealer or investment adviser, based upon his guilty plea to a criminal information on Sept. 9, 2010, in U.S. v. Douglas Lee Campbell (Criminal Action No. 10-cr-803) charging him with him with two counts of conspiracy and one count of wire fraud. The criminal information charged, among other things, that Campbell engaged in fraudulent misconduct in connection with the competitive bidding process involving the investment of proceeds of tax-exempt municipal bonds.
The SEC thanks the Antitrust Division of the Department of Justice and the Federal Bureau of Investigation for their cooperation and assistance in this matter. The SEC is bringing this action in coordination with the Internal Revenue Service, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and 20 State Attorney Generals. (D. Campbell - Rel 34-63450; IA-3120; File No. 3-14152 and Banc of America Securities LLC - 34-63451; File No. 3-14153)
Commission Sustains Disciplinary Action Taken by FINRA Against Mission Securities Corporation and Craig M. Biddick
The Commission sustained FINRA disciplinary action against Mission Securities Corporation, formerly a FINRA member firm, and Craig M. Biddick, formerly a registered representative associated with the Firm. The Commission found that Applicants converted and misused customer securities in violation of NASD Rules 2330 and 2110 by transferring their customers' holdings of Chartwell International, Inc. stock out of the customers' accounts and then liquidating some of those shares to pay the Firm's operating expenses - all without notice or authorization. The Commission also sustained FINRA's decision to expel Mission, bar Biddick in all capacities, and order Mission and Biddick to disgorge $38,946.06 in ill gotten gains. (Rel. 34-63453; File No. 3 13841)
Former President of Massachusetts-Based Paradigm Tactical Products, Inc. Sentenced
On December 7, the Honorable Mark L. Wolf of the United States District Court for the District of Massachusetts sentenced Daniel O'Riordan of Providence Village, Texas, to 6 months imprisonment, to be followed by 3 years of supervised release, a $10,000 fine and forfeiture of $220,736.12. O'Riordan is the former president of Paradigm Tactical Products, Inc. (Paradigm), a company formerly based in Georgetown, Massachusetts. On April 2, 2010, the United States Attorney's Office for the District of Massachusetts (USAO) charged O'Riordan with one count of criminal securities fraud arising from his conduct at Paradigm, and the Commission filed a settled civil injunctive action against O'Riordan arising from the same conduct. O'Riordan agreed to plead guilty to the criminal charge pursuant to a plea agreement with the USAO.
Both actions were based on allegations that O'Riordan, as the president of Paradigm, violated the anti-fraud provisions of the federal securities laws. The Commission's Complaint further alleged that O'Riordan also engaged in a scheme to evade the registration provisions with respect to certain sales of Paradigm securities. On April 20, 2010, the court entered a final judgment in the Commission's action wherein O'Riordan consented to the entry of a permanent injunction enjoining him from further violations of the registration and anti-fraud provisions of the federal securities laws, barring him from serving as an officer or director of a public company, and barring him from participating in any penny stock offering.
On Oct. 14, 2010, the Commission filed a related Complaint charging LocatePlus Holdings Corporation (LocatePlus), a Massachusetts-based information technology company that sells on-line access to public record databases for investigative searches, with securities fraud concerning a scheme to fraudulently inflate revenue. The Complaint was amended on Nov. 10, 2010, to further charge Jon Latorella of Marblehead, Massachusetts, and James Fields of Brookline, Massachusetts, the former CEO and CFO respectively of LocatePlus, with orchestrating two related schemes to commit securities fraud.
Separately, on Nov. 10, 2010, the USAO filed an indictment charging Latorella and Fields with criminal violations based on the same misconduct. The SEC also acknowledges the assistance of the New England Field Division of the Federal Bureau of Investigation, the Boston Field Division of the Internal Revenue Service and the Massachusetts Securities Division.
The Commission's investigation is continuing.
For additional information, see Litigation Releases Nos. 21474 (April 2, 2010); 21692 (Oct. 14, 2010); and 21735 (Nov. 10, 2010). [U.S. v. Daniel O'Riordan, No. 1:10-CR-10102 MLW (D. Mass); SEC v. Daniel O'Riordan, No. 1:10-CV-10550 (D. Mass.)] (LR-21763)
SEC Charges Former Law Firm Technology Manager and Brother-In-Law in Serial Insider Trading Scheme
The Securities and Exchange Commission today charged a former information technology (IT) manager at a prominent Delaware law firm and his brother-in-law with insider trading on confidential information about impending mergers and acquisitions by the law firm's clients.
The SEC alleges that Jeffery J. Temple, a former Information Systems and Security Manager at a Wilmington, Del.-based law firm, accessed material nonpublic information in the course of his employment and then traded in advance of at least 22 merger and acquisition public announcements involving 20 companies that retained his former employer as counsel in some capacity. Temple also tipped his brother-in-law, Benedict M. Pastro, who traded in concert with Temple in advance of twelve public announcements. The pair reaped over $182,000 in illegal profits during their insider trading scheme. Temple was terminated from his position on Oct. 11, 2010 once his illegal scheme was uncovered.
According to the SEC's complaint filed in the U.S. District Court for the District of Delaware, the scheme began in 2009 as Temple used his IT position to access nonpublic information about impending deals involving law firm clients. Temple, who lives in Newark, Delaware, corresponded with his online brokerage firm using his law firm e-mail address. Electronic login records for Temple's brokerage account reflect that he often placed trades from work. Frequent telephone calls around the time of the trades indicate that Temple closely coordinated his trading with Pastro, who also lives in Newark.
Among the many deals mentioned in the Complaint, the SEC alleges, for example, that Temple and Pastro conducted insider trading based on confidential information Temple accessed about an impending merger and acquisition involving DynCorp International, Inc. Temple's law firm was hired on Oct. 6, 2009 to act as special Delaware outside counsel to Dyncorp's Board of Directors in connection with its possible acquisition by Cerberus Capital Management L.P. Temple and Pastro purchased stock and call options in DynCorp shortly before an Apr. 12, 2010 public merger and acquisition announcement. Immediately following the announcement, Temple and Pastro sold their positions for illicit trading profits of more than $34,000.
The SEC further alleges that Temple and Pastro also traded on nonpublic information that Temple obtained about an impending deal between Facet Biotech Corporation and Abbott Laboratories, Inc. Temple's law firm was retained as counsel to Facet on or before Aug. 25, 2009, in connection with Abbott Labs's proposed tender offer to Facet. Temple and Pastro bought stock and call options only days before the March 9, 2010 public announcement that Facet agreed to be acquired by Abbott Labs. Pastro and Temple sold all of their positions immediately after the announcement for combined trading profits of more than $23,000.
The SEC also alleges that Temple was trading on material nonpublic information obtained during the course of his employment and profiting from his scheme as recently as September.
Finally, the SEC alleges that Temple and Pastro violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.
The SEC's investigation is continuing. [SEC v. Jeffery J. Temple and Benedict M. Pastro, Case No. 10-CV-1058 (D. Del.)] (LR-21765)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-C2-2010-009) filed by C2 Options Exchange related to the Penny Pilot Program 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 December 6. (Rel. 34-63431)
The Commission issued notice of filing and immediate effectiveness of proposed rule change (SR-BX-2010-082) filed by NASDAQ OMX BX under Rule 19b-4 of the Securities Exchange Act of 1934 modifying fees for the NASDAQ OMX BX equities system. Publication is expected in the Federal Register during the week of December 6. (Rel. 34-63432)
A proposed rule change (SR-ISE-2010-116) filed by the International Securities Exchange to extend the Penny Pilot Program 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 December 6. (Rel. 34-63437)
A proposed rule change filed by the NASDAQ Stock Market to clarify market maker quote management procedures (SR-NASDAQ-2010-158) 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 December 6. (Rel. 34-63439)
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