SEC Brings Fraud Charges Against Self-Described Idaho Nuclear Power Company
The Securities and Exchange Commission today charged a self-described power company in Idaho with fraudulently raising funds for a $10 billion nuclear power project. The SEC is seeking an emergency court order to freeze the assets of the company and two executives.
The SEC alleges that Alternate Energy Holdings Inc. (AEHI) has raised millions of dollars from investors in Idaho and throughout the U.S. and Asia while fraudulently manipulating its stock price through misleading public statements that conceal the secret profits reaped by its CEO Donald L. Gillispie and Senior Vice President Jennifer Ransom. Gillispie has touted the company as a tremendous investment opportunity that could rival Exxon Mobil in profitability, despite the fact that AEHI has essentially no revenue and minimal operations.
The SEC suspended trading in AEHI stock earlier this week.
"In light of AEHI's ongoing efforts to raise funding while promoting itself through a daily deluge of press releases, we needed to take immediate action to get to the bottom of the company's misleading statements," said Marc Fagel, Director of the SEC's San Francisco Regional Office. "Documents we have obtained to date indicate a scheme to personally enrich the CEO at the expense of investors."
According to the SEC's complaint filed today in federal district court in Boise, AEHI's fundraising was facilitated by a scheme to drive up the company's stock price, both through frequent press releases (at least 87 in 2010 alone) and efforts of paid stock promoters to manipulate the stock price. The SEC alleges that the company has made multiple misrepresentations, including claims that its executives had such confidence in AEHI that they had not sold a single share of company stock. Records obtained by the SEC show that Gillispie and Ransom have instead secretly unloaded extensive stock holdings and funneled the money back to Gillispie.
The SEC's complaint also alleges that AEHI reported to the SEC and investors that Gillispie's compensation was $133,000. However, Gillispie has actually reaped approximately six times that amount in 2010.
The SEC's complaint charges AEHI, Gillispie, and Ransom with violations of the anti-fraud provisions of the federal securities laws, and names as relief defendants two companies controlled by Gillispie and Ransom (Energy Executive Consulting LLC and Bosco Financial LLC). In a motion filed simultaneously with the enforcement action, the SEC seeks emergency relief for investors including an asset freeze and a temporary restraining order enjoining the defendants from further violations of the securities laws.
The SEC's case was investigated by KC Waldron, David Berman, Heather Marlow, and Tracy Davis of the San Francisco Regional Office. The SEC acknowledges the assistance of the Idaho Department of Finance and FINRA in this matter. The SEC's investigation is continuing.
Marc J. Fagel, Regional Director, SEC's San Francisco Regional Office, (415) 705-2449
Michael S. Dicke, Associate Regional Director, SEC's San Francisco Regional Office, (415) 705-2458
(Press Rel. 2010-249)
Alvin L. Dahl, CPA Reinstated to Appear and Practice Before the Commission as an Accountant Responsible for the Preparation or Review of Financial Statements Required to be Filed With the Commission
Pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice, Alvin L. Dahl, CPA has applied for and been granted reinstatement of his privilege to appear and practice before the Commission as an accountant responsible for the preparation or review of financial statements required to be filed with the Commission. Mr. Dahl was suspended from appearing or practicing before the Commission as an accountant on August 28, 2008. His reinstatement is effective immediately. (Rel. 34-63560; AAE Rel. 3218; File No. 3-13150)
SEC Completes Review of Performance by Bank of America Under Auction Rate Securities Settlements
The Securities and Exchange Commission today announced that Bank of America (BOA), which previously settled the Commission's auction rate securities (ARS) charges against it, has satisfied its obligations under its settlement and that BOA has returned more than $6.7 billion to its ARS customers.
Under the settlement, BOA was required to offer to purchase ARS at par from its individual, charitable, and small business customers. Nearly 100% of these customers accepted BOA's offer resulting in approximately $4.7 billion of liquidity.
The settlement also required BOA to use "best efforts" to provide liquidity to its institutional customers. From February 2008, when the ARS market failed, through October 2010, the ARS holdings of BOA's institutional customers were reduced by $2 billion or 56.4% (from $3.68 billion to $1.6 billion), primarily through settlements with individual customers and issuer redemptions. In further compliance with its "best efforts" obligation, in November 2010, BOA launched a program offering favorable loans or buybacks to all its remaining institutional investors, including legacy customers of Merrill Lynch.
BOA also met its other settlement obligations, including compensating investors who sold ARS below par, reimbursing investors for excess interest costs associated with loans taken out due to ARS illiquidity, and participating in a special arbitration proceeding before the Financial Industry Regulatory Authority.
Under the settlement, the Commission retained the right to seek a civil penalty if BOA did not meet its obligations. Because the Commission has determined that BOA has met its settlement obligations, it will not seek a penalty.
Pursuant to a preliminary settlement in principle with the SEC's Division of Enforcement announced on August 22, 2008, BOA's subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), has returned $7.9 billion to its ARS customers. Separately, under its preliminary settlement, Merrill Lynch was required to offer to purchase ARS at par from its individual, charitable, and small business customers. Nearly 100% of these customers accepted Merrill Lynch's offer, resulting in approximately $7 billion of liquidity. From February 2008 through October 2010, the ARS holdings of Merrill Lynch's institutional customers were reduced by $976 million or 76.9% (from $1.27 billion to $294 million). Merrill Lynch's satisfaction of its obligation under the preliminary settlement to use "best efforts" to provide liquidity to its institutional customers remains under review.
The Commission's several ARS settlements followed the Commission's investigation into the ARS market collapse of February 2008 that left tens of thousands of investors holding ARS they could not sell. A major focus of the Commission's several ARS settlements, including with Citigroup, UBS, RBC, Deutsche Bank, and Wachovia, as well as with BOA, was to return liquidity to investors as quickly as possible, particularly to individuals, charities, and small businesses. More than $67 billion has been returned to the ARS customers of the settling firms. [SEC v. Banc of America Securities LLC and Banc of America Investment Services, Inc., Civil Action No. 08 CIV 5170 (S.D.N.Y.)] (LR-21780)
In the Matter of Certain Trading in OptionsXpress
The Securities and Exchange Commission announced the filing of a civil injunctive action in Charlotte, North Carolina on December 15, 2010, alleging that William K. Harrison (Harrison) and Eddie W. Sawyers (Sawyers) violated the antifraud provisions of the federal securities laws.
The Commission's complaint alleges that between approximately December 2007 and October 2008, Harrison and Sawyers used misrepresentations and omissions of material fact to defraud at least forty-two Wachovia brokerage customers of at least $8 million in customer funds. The complaint further alleges that on or around December 2007, Harrison and Sawyers, acting under the d/b/a "Harrison/Sawyers Financial Services," began offering their Wachovia customers an investment opportunity that they misrepresented was guaranteed to make a 35% return, with no risk of loss of principal. In those instances when customers were informed that their monies would be used for trading options, Harrison and Sawyers misrepresented the riskiness of their trading strategy by telling customers that they had a foolproof approach to trading options and that their principal investment was secure and would make handsome returns regardless of market volatility. Harrison and Sawyers either opened accounts with optionsXpress in the client's name or commingled the client's funds in accounts opened in Harrison's wife's name or a joint account in the name of Harrison and his wife. So as to not draw attention to their conduct, Harrison and Sawyers placed "limited trading authorizations" and other related documentation associated with their scheme in the name of Harrison's wife. Although the trading strategy that Harrison and Sawyers employed was initially successful, it soon resulted in substantial investor losses. By October 2008, they had depleted the vast majority of the money they had raised from investors. On October 13, 2008, Harrison submitted to Wachovia a resignation letter in which he confessed to "misdirecting" $6.6 million from seventeen of his Wachovia customers in order to trade online. He also admitted that he had conducted this online trading without first securing the authorization of these 17 individuals.
In its Complaint, the Commission alleges that Harrison and Sawyers violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 promulgated thereunder. [SEC v. William K. Harrison, et al., Case No. 3:10-cv-00634-FDW-DLH] (LR-21781)
SEC Charges Former Law Firm Partner in Multi-Million Dollar Misappropriation Scheme
The Securities and Exchange Commission today charged Jonathan Star Bristol, attorney for former financial advisor Kenneth Ira Starr, with aiding and abetting Starr's multi-million dollar fraud by allowing Starr to use Bristol's attorney trust accounts to mask the misappropriation scheme. Beginning in November 2008 through Starr's arrest in May 2010, more than $25 million of Starr's clients' funds flowed through Bristol's attorney trust accounts. Throughout that time, Bristol was a partner with a prominent international law firm.
The SEC's amended complaint, filed in federal court in Manhattan, alleges that Bristol repeatedly allowed Starr to use Bristol's attorney trust accounts as conduits when Starr stole money from his advisory clients. Starr would transfer, without authorization, clients' funds into the attorney trust accounts, and then Bristol, who was the sole owner of the trust accounts, would transfer the stolen funds to, among others, Starr and two Starr-controlled entities - Starr Investment Advisors LLC and Starr & Company LLC. The account documentation for the attorney trust accounts was sent directly to Bristol's home address. Bristol received monthly statements for the attorney trust accounts, which clearly listed the names of Starr's clients as the source of the incoming transfers. Bristol never disclosed the existence of the accounts to his law firm. Bristol did, however, tout his relationship with Starr to his colleagues and others, even claiming that Starr managed $70 billion in assets, when in fact Starr managed a fraction of that amount.
The SEC further alleges that, when confronted by one of Starr's victims about an unauthorized $1 million transfer from the victim's account, Bristol lied to the victim that the funds were being bundled with other clients' funds for an investment with UBS Financial Services. In fact, Bristol had already used the misappropriated funds to pay a multi-million dollar legal settlement with one of Starr's former clients. Bristol subsequently sought to represent that same victim in connection with the SEC's investigation.
The SEC previously charged Starr, Starr Investment Advisors and Starr & Company (together, the "Starr Parties") with using misappropriated client funds to, among other things, buy a multimillion dollar luxury condominium on Manhattan's Upper East Side, and with violating securities laws pertaining to investment advisers' custody of clients' assets. The SEC's original complaint also named two relief defendants in order to recover client assets now in their possession: Diane Passage, who is Starr's wife, and Colcave, LLC, a Starr-controlled entity through which Starr purchased the apartment.
Today's amended complaint charges Bristol with aiding and abetting the Starr Parties' violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with pre-judgment interest and financial penalties.
Sanjay Wadhwa, Maureen F. Lewis, Timothy Casey and Sandeep Satwalekar, all members of the Market Abuse Unit in New York, and George O'Kane of the New York Regional Office conducted the SEC's investigation, which is continuing. The SEC's litigation effort will be led by Todd Brody. The SEC thanks the U.S. Attorney's Office for the Southern District of New York, the New York County District Attorney's Office, and the New York Office of the Internal Revenue Service's Criminal Investigation Division for their assistance in this matter. [SEC v. Kenneth Ira Starr, et al, 10 cv 4270 (S.D.N.Y.) (SHS)] (LR-21782)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-NASDAQ-2010-163) filed by The NASDAQ Stock Market relating to the collection of exchange fees 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 120. (Rel. 34-63536)
A proposed rule change filed by NYSE Amex to amend Rule 123C - NYSE Amex Equities to clarify that exchange systems enforce Rule 123C with respect to Market At-The-Close and Limit At-The-Close order entry after 3:45 p.m. (SR-NYSEAmex-2010-110) 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 120. (Rel. 34-63537)
A proposed rule change filed by New York Stock Exchange to amend Rule 123C to clarify that exchange systems enforce Rule 123C with respect to Market At-The-Close and Limit At-The-Close order entry after 3:45 p.m. (SR-NYSE-2010-75) 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 120. (Rel. 34-63538)
A proposed rule change (SR-C2-2010-011) filed by the C2 Options Exchange to amend the C2 Fees Schedule 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 120. (Rel. 34-63544)
A proposed rule change submitted by the New York Stock Exchange (SR-NYSE-2010-82) to extend for 12 months the pilot program permitting the Exchange's ownership interest in BIDS Holdings L.P. (BIDS) and the affiliation of BIDS with the New York Block Exchange LLC 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 120. (Rel. 34-63545)
A proposed rule change filed by NYSE Amex (SR-NYSEAmex-2010-120) establishing strike price intervals of $1 and increasing position and exercise limits with respect to options on the KBW Bank Index 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 120. (Rel. 34-63552)
A proposed rule change filed by NYSE Amex (SR-NYSEAmex-2010-119) to establish royalty fees for non-Customer executions in options based on the KBW Bank Index 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 120. (Rel. 34-63553)
Proposed Rule Changes
The Chicago Board Options Exchange filed a proposed rule change (SR-CBOE-2010-106), as modified by Amendment No. 1, pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to amend margin requirements for credit options. Publication is expected in the Federal Register during the week of December 120. (Rel. 34-63546)
International Securities Exchange filed a proposed rule change (SR-ISE-2010-115) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 regarding registration and qualification requirements for associated persons. Publication is expected in the Federal Register during the week of December 120. (Rel. 34-63554)
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