Commission Revokes Registration of Securities of Dover Petroleum Corp. for Failure to Make Required Periodic Filings
On May 19, the Commission revoked the registration of each class of registered securities of Dover Petroleum Corp. (DVPC) for failure to make required periodic filings with the Commission.
Without admitting or denying the findings in the order, except as to jurisdiction, which it admitted, DVPC consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Dover Petroleum Corp. finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of DVPC's securities pursuant to Section 12(j) of the Exchange Act. This order settled the charges brought against DVPC in In the Matter of Dover Petroleum Corp., et al., Administrative Proceeding File No. 3-13015.
Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:
No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .
For further information see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of Dover Petroleum Corp., et al., Administrative Proceeding File No. 3-13015, Exchange Act Release No. 57692 (April 21, 2008). (Rel. 34-57832; File No. 3-13015)
In the Matter of William B. Deakins
On May 19, the Commission issued an Order Making Findings and Imposing Remedial Sanctions Pursuant to Section 15(b) of the Securities Exchange Act of 1934 (the Order) against William B. Deakins (Deakins). The Order finds that from February 2002 through February 2004, Deakins was a proprietary trader and an employee at A.B. Watley, Inc. (Watley). For some or all of the time in which he engaged in the conduct underlying the information described below, Deakins was a registered person associated with Watley, a broker-dealer registered with the Commission. Deakins held Series 7, Series 24, Series 55, and Series 63 licenses.
The Order further finds that on March 16, 2006, Deakins pleaded guilty to conspiracy to commit securities fraud in violation of 18 U.S.C. § 371, a felony. United States v. Deakins, 1:06-cr-00163 (ILG) (E.D.N.Y. 2008). The count of the criminal information in the case in which Deakins pleaded guilty alleged, inter alia, that Deakins conspired to carry out a fraudulent scheme whereby Deakins, among others, obtained material, non-public information from a registered representative at Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) concerning large orders by Merrill Lynch's customers to purchase and sell securities. After receiving this information, Deakins executed trades prior to the execution of these large orders, in anticipation of the movement in price that the larger trades were likely to cause. In furtherance of the conspiracy, Deakins and others with whom Deakins worked committed and caused to be committed the making of cash payments to the Merrill Lynch registered representative in exchange for providing such information.
Based on the above, the Order bars Deakins from association with any broker or dealer. Deakins consented to the issuance of the Order without admitting or denying any of the findings in the Order except as to his guilty plea, which he admits. (Rel. 34-57835; File No. 3-12275)
SEC v. Watermark Financial Services Group, Inc., et al.
The Commission announced today that the Honorable William M. Skretny of the United States District Court for the Western District of New York entered an order, on May 16, 2008, temporarily restraining defendants Watermark Financial Services Group, Inc. (Watermark Financial), Watermark M-One Holdings, Inc. (Watermark Holdings), M-One Financial Services, LLC (M-One), Watermark Capital Group, LLC (Watermark Capital), Guy W. Gane, Jr., and Lorenzo Altadonna from violating the antifraud provisions of the federal securities laws. The court also restrained defendants Watermark Financial, Watermark Holdings, M-One, Gane, and Altadonna from violating the securities registration provisions, and Gane from violating the broker-dealer registration provisions. In addition, the court's order also froze the assets of the defendants and relief defendants Denkon, Inc., a Florida company, and two of Gane's children, Guy W. Gane, III and Jenna Gane.
The Commission's complaint, filed in federal court in Buffalo, New York, alleges that from at least May 2005 to the present, Gane and M-One orchestrated a securities offering fraud that has raised at least $5.7 million from approximately 90 investors, including a number of senior citizens, through the sale of debentures and promissory notes issued by the various entity defendants. Gane is a principal of each of the issuing entities. The complaint further alleges that the defendants told investors that their money would be used to purchase or develop real estate, but instead Gane: (i) used new investor funds to pay back earlier investors; (ii) misappropriated investors' funds by using them to pay himself, his family, and others; and (iii) transferred substantial portions of investor funds to Denkon, Inc., Guy W. Gane, III, and Jenna Gane for no apparent consideration. In addition, the complaint alleges that the debentures offering was not registered with the Commission and that Gane violated the broker-dealer registration provisions of the federal securities laws.
The court's order temporarily restrained Watermark Financial, Watermark Holdings, M-One, Watermark Capital, Gane, and Altadonna from violating Section 17(a) of the Securities Act of 1933 (Securities Act), and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5; Watermark Financial, Watermark Holdings, M-One, Gane, and Altadonna from violating Sections 5(a) and 5(c) of the Securities Act; and Gane from violating Section 15(a) of the Exchange Act. The court also enjoined and restrained the defendants and relief defendants from destroying, altering, or concealing documents. [SEC v. Watermark Financial Services Group, Inc., et al., Civil Action No. 08-CV-00361 (WMS) W.D.N.Y.] (LR-20583)
SEC Charges Brooks Automation, Inc. With Violations in Stock Options Backdating Scheme
On May 19, the Commission announced the filing of a civil injunctive action against Brooks Automation, Inc., alleging that it overstated income and understated employee compensation expenses in its financial statements by $64.5 million during the period from 1996 through 2005 as a result of its failure to properly account for employee stock options. Brooks has agreed to settle to charges that it violated the reporting, books and records, and internal controls provisions of the federal securities laws.
According to the complaint, a backdated exercise in 1999 by former President and CEO Robert J. Therrien and other grants for which the company improperly accounted resulted in misleading disclosures, with Brooks overstating its net income by as much as 30% in fiscal year 2000 alone. Brooks misstated in its public filings that all stock options were granted at or above the fair market value of the stock on the date of the award, when that was not the case. Brooks also filed misstated financial statements with the SEC in its Forms 10-K and 10-Q that did not recognize compensation expense for the company's stock option grants, as required by generally accepted accounting principles.
The Commission's complaint, filed in federal court in Boston, seeks a permanent injunction. [SEC v. Brooks Automation, Inc., Civil Action No.08 CA 10834 WGY (D. Mass.)] (LR-20584; AAE Rel. 2828)
SEC Obtains Asset Freeze in the United Kingdom Against Hedge Fund Manager
U.K. Court Freezes Approximately $1 Million
The Commission announced today that on May 16, 2008, the High Court of Justice in London issued an order freezing assets held in the United Kingdom by Glenn Manterfield, a citizen of the United Kingdom and a resident of Sheffield, England. Manterfield is a defendant in a pending Commission enforcement action in the United States in which the Commission obtained emergency relief, including an asset freeze, against Manterfield and others in connection with an alleged on-going fraudulent hedge fund operation.
On Feb. 29, 2008, the Commission filed a limited notice application with the High Court of Justice, Queen's Bench Division seeking an emergency order freezing approximately $1 million in assets held by Manterfield in the United Kingdom. The Commission filed the application after learning that a separate freeze order previously obtained by British authorities against Manterfield's assets might be lifted. After a hearing on the Commission's application on Feb. 29, 2008, the British Court issued an order freezing the assets until Thursday, March 6, 2008. Manterfield consented to continue the freeze until an evidentiary hearing could be held to determine whether the freeze should be extended. An evidentiary hearing was held in the High Court of Justice on April 30, 2008, and May 1, 2008. On May 16, 2008, the British Court issued an order continuing the freeze of Manterfield's assets until the resolution of the Commission's pending enforcement action in the United States.
The Commission had previously filed its U.S. enforcement action on April 12, 2007, in the U.S. District Court in Massachusetts against Manterfield, Evan Andersen, of Boston, Massachusetts, and Lydia Capital, LLC, a registered investment adviser based in Boston, Massachusetts. The Commission's Amended Complaint alleges that, between June 2006 and April 2007, Manterfield and Andersen, acting through Lydia, engaged in a scheme to defraud more than 60 investors, who invested approximately $34 million in Lydia Capital Alternative Investment Fund LP, a hedge fund managed by Lydia. The Amended Complaint alleges that defendants told investors that they intended to use the Fund's assets to acquire a portfolio of life insurance polices in the life settlement market. According to the Amended Complaint, Manterfield, Andersen, and Lydia made a series of material misrepresentations and omissions, including but not limited to: (1) materially overstating, and in some instances completely fabricating the Fund's performance; (2) inventing business partners, offices, and investors in an attempt to legitimatize the firm and concealing the truth as to why key vendors and banks ceased relationships with the defendants; (3) lying about Manterfield's significant criminal history, and failing to disclose a February 2007 criminal asset freeze in England; (4) lying about how the Fund planned to address certain material risks and failing to disclose others; and (5) misstating the nature of the Fund's assets and its investment process. In addition, the Amended Complaint alleges that Manterfield and Andersen misappropriated millions of dollars of investors' funds by withdrawing investor monies to which they were not entitled.
On April 12, 2007, the U.S. District Court issued a temporary restraining order that, among other things, froze the three defendants' assets. On May 3, 2007, following a hearing before the Court on May 2, 2007, the Court issued a consented-to preliminary injunction and ordered a continuation of an asset freeze of the defendants' assets. The action is pending against all three defendants.
The Commission acknowledges the assistance of the Financial Services Authority of the United Kingdom and the Securities Division of the Secretary of State of the Commonwealth of Massachusetts, which also filed an action against the parties on April 13, 2007. [SEC v. Lydia Capital, LLC et al., Civil Action No. 07-10712-RGS (D.Mass.); SEC v. Glenn Manterfield, Claim No. HQ08X00798 (High Court of Justice, Queen's Bench Division, Royal Courts of Justice] (LR-20585)
SEC Charges Eight Former Executives of AOL Time Warner for the Company's Accounting Fraud
The Commission today filed civil fraud charges in the United States District Court for the Southern District of New York against eight former executives of AOL Time Warner Inc. for their roles in a fraudulent scheme that caused the company to overstate its advertising revenue by more than $1 billion. In SEC v. John Michael Kelly, Steven E. Rindner, Joseph A. Ripp, and Mark Wovsaniker, the SEC alleges that from at least mid-2000 to mid-2002, John Michael Kelly, former Chief Financial Officer of AOL Time Warner; Steven E. Rindner, former senior executive in the company's Business Affairs unit; Joseph A. Ripp, former Chief Financial Officer of the company's AOL division; and Mark Wovsaniker, former head of Accounting Policy, engineered, oversaw, and executed fraudulent round-trip transactions in which AOL Time Warner effectively funded its own advertising revenue by giving purchasers the money to buy online advertising that they did not want or need. The complaint alleges that Kelly, Wovsaniker, Ripp, and Rindner violated the antifraud provisions of the federal securities laws and aided and abetted AOL Time Warner's violations of the antifraud, reporting, and books and records provisions of the federal securities laws. It alleges that Kelly and Wovsaniker also falsified books and records and made false and misleading statements to AOL Time Warner's external auditor in violation of the federal securities laws. The complaint seeks injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, civil monetary penalties, and officer and director bars against each of them.
The Commission also filed a complaint today in SEC v. David M. Colburn, Eric L. Keller, James F. MacGuidwin, and Jay B. Rappaport against four former AOL Time Warner executives who participated in the scheme to artificially inflate the company's reported online advertising revenue. The four defendants have agreed to settle that action, without admitting or denying the allegations in the complaint. David M. Colburn, former the head of the Business Affairs unit; Eric L. Keller, former senior manager in the Business Affairs unit; James F. MacGuidwin, former Controller; and Jay B. Rappaport, former senior manager in the Business Affairs unit, have agreed to be permanently enjoined from violating and aiding and abetting violations of the federal securities laws and have agreed to pay disgorgement and prejudgment interest and civil penalties in the following amounts: Colburn will pay disgorgement and prejudgment interest of $3,222,107 and a penalty of $750,000; MacGuidwin will pay disgorgement and prejudgment interest of $2,100,000 and a penalty of $300,000; Rappaport will pay disgorgement and prejudgment interest of $493,629 and a penalty of $250,000; and Keller will pay disgorgement and prejudgment interest of $699,868 and a penalty of $250,000. Colburn and MacGuidwin have agreed to be barred from serving as officers or directors of a public company for ten years and seven years, respectively. The settlements are subject to court approval. [SEC v. John Michael Kelly, Steven E. Rindner, Joseph A. Ripp, and Mark Wovsaniker, Civil Action No. 08 CV 4612 (S.D.N.Y.); SEC v. David M. Colburn, Eric L. Keller, James F. MacGuidwin and Jay B. Rappaport, Civil Action No. 08 CV 4611 (S.D.N.Y.)] (LR-20586; AAE Rel. 2829)
Court Preliminarily Enjoins and Freezes Assets of Defendants in Fraudulent Investment Adviser Scheme; Appoints Permanent Receiver
On May 16, 2008, the Honorable Roger T. Benitez, United States District Judge for the Southern District of California, entered an order preliminarily enjoining defendants Plus Money, Inc. and Matthew La Madrid from violating the antifraud provisions of the federal securities laws. In addition to the preliminary injunction, the order freezes the assets of both the defendants and the relief defendants (the Premium Return Fund Limited-Liability Limited Partnerships I through III (the Premium Return Funds), the Return Fund LLCs I through VI (the Return Funds), Palladium Holding Company, and Donald Lopez), and appoints Stephen J. Donell as permanent receiver over Plus Money, the Premium Return Funds and the Return Funds.
On April 28, 2008, the Commission filed an emergency civil injunctive action and a complaint alleging that since May 2004, Plus Money, an entity controlled by La Madrid, has acted as investment adviser to the Premium Return Funds, and that from May 2004 through July 2007, the Premium Return Funds had raised approximately $30.6 million from at least 300 investors. The complaint further alleges that La Madrid told prospective investors that he would use their money to pursue an investment strategy solely focused on the buying and selling of covered calls. However, the defendants failed to disclose to their clients that in the fall of 2007, Plus Money transferred $10 million from the Premium Return Funds to relief defendant Palladium Holding Company, an entity controlled by relief defendant Lopez, or that Palladium used about half that amount to engage in short-sale transactions involving Treasury Bonds and transferred most of the remainder to various individuals and entities, many of which are associated with or controlled by Lopez. In its complaint, the Commission seeks the return of ill-gotten gains with prejudgment interest, and penalties against the defendants.
On April 30, 2008, the court issued a temporary restraining order halting the defendants' conduct and temporarily freezing the assets of the defendants and the relief defendants. The May 16 preliminary injunction order continues the asset freeze indefinitely and prohibits the defendants from violating Sections 206(1), (2) and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder.
Investors may direct their inquiries to the permanent receiver, Stephen J. Donell, at (310) 207-8481, or visit the receiver's website at www.fedreceiver.com. [SEC v. Plus Money, Inc. and Matthew La Madrid, et al., No.3:08-CV-0764-BEN-NLS (S.D. Cal.)] (LR-20587)
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