SEC Conducts Regional Securities Market Enforcement Program to Address Pyramid Schemes
The Securities and Exchange Commission announced today that it conducted an Understanding and Combating Unregulated Investment Schemes seminar in Jamaica from October 29 to 31. The three-day program included intensive training on methods for investigating and prosecuting pyramid and Ponzi-type investment schemes.
The regional program featured 65 delegates from 20 countries throughout Latin America and the Caribbean. The program was conducted primarily by SEC, Commodity Futures Trading Commission (CFTC), and International Monetary Fund (IMF) staff, and was hosted and co-sponsored by the IMF, Financial Services Commission of Jamaica, U.S. Agency for International Development, and the Caribbean Regional Technical Assistance Centre.
Ethiopis Tafara, Director of SEC's Office of International Affairs, said, "Pyramid schemes have been with us since at least 1920 when Charles Ponzi first swindled nearly 17,000 investors out of millions before his scheme's inevitable collapse. Pyramid schemes spread like viruses in financial markets, and continue to plague our markets today. The SEC is pleased to share its experience and techniques in investigating and prosecuting these pernicious frauds with our partners in the Caribbean and Latin America."
Linda Chatman Thomsen, Director of the SEC's Division of Enforcement said, "Securities authorities must remain constantly vigilant for pyramid and Ponzi schemes and stamp them out as quickly as possible before they run their course. Since the beginning of 2008, the SEC has worked on over 24 Ponzi-type cases that raised over $1 billion from over 15,000 defrauded investors. The SEC appreciates the opportunity to collaborate with our international colleagues, particularly since these schemes are increasingly becoming global in scale."
George Roper, Acting Executive Director, Financial Services Commission of Jamaica, added, "Given the current state of markets around the world, it is crucial that regulators remain committed to the task of protecting investors from predatory organizers who employ Ponzi-type schemes to deprive the public of their hard-earned money. It was our pleasure to collaborate with our Latin American and Caribbean counterparts, and we thank the SEC, CFTC, and IMF, as well as the other conference speakers, hosts, and sponsors, for conducting this valuable training program."
The SEC's technical assistance training program consists of bilateral and regional training programs, assessments, consultations, and review and comment on statutory and regulatory initiatives. The SEC has provided training for more than 1,900 foreign capital market officials from 117 foreign jurisdictions in fiscal year 2008 alone.
For more information on SEC's technical assistance program contact Dr. Robert M. Fisher or Z. Scott Birdwell at the Office of International Affairs at 202-551-6690, or by email at OIA@SEC.gov. (Press Rel. 2008-261)
Report on Administrative Proceedings
The Report on Administrative Proceedings for the Period April 1, 2008, through Sept. 30, 2008, has been issued giving summary statistical information on the Commission's administrative proceedings caseload. The report is published in the SEC Docket and appears on the Commission's website. (Rel. 34-58892; Report on Administrative Proceedings for Period April 1, 2008 through September 30, 2008)
Donald A. Erickson, Former Audit Committee Chairman and Director of Magnum Hunter Resources, Enjoined and Ordered to Disgorge Illegal Insider Trading Gains; Court also Imposes Officer and Director Bar and Civil Penalty
The Commission announced that on Oct. 31, 2008, the United States District Court for the Northern District of Texas entered a final judgment against Donald A. Erickson (Erickson), the former audit committee chairman and a former director of Magnum Hunter Resources, Inc. (MHR) for unlawful insider trading in the securities of MHR ahead of the Jan. 26, 2005 announcement of merger between MHR and Cimarex Energy Company (Cimarex). The judgment permanently enjoins Erickson from violating the antifraud provisions and certain reporting provisions of the federal securities laws (Sections 10(b) and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 16a-3(a), and 16a-3(g)(1)) and finds Erickson liable for disgorgement of $46,200, plus prejudgment interest of $11,399.67. Erickson consented to the entry of the judgment regarding the injunction and disgorgement without admitting or denying the allegations in the Complaint. Further, the Court found Erickson liable for a civil penalty of $46,200 based on Erickson's illegal insider trading and permanently barred Erickson from acting as an officer or director of a public company.
On Feb. 6, 2007, the Commission commenced this action by filing its complaint against Erickson. The complaint alleged that in late December 2004, Donald A. Erickson, while serving as audit committee chairman and a director of MHR, purchased MHR call options during the time MHR was exploring a possible merger or sale of the company. The complaint alleged that Erickson was briefed regularly on the status of negotiations and participated in key decisions regarding the Cimarex deal. The complaint also alleged that in mid-January 2005-just two trading days before the public announcement of the merger, and one day after he attended a board meeting addressing the status of negotiations with Cimarex-Erickson exercised his call options and acquired 30,000 shares of MHR stock. According to the Commission, Erickson purchased and exercised the options based on material, nonpublic information about MHR's merger negotiations and, ultimately, the Cimarex deal.
Further, the Commission alleged that Erickson failed to report to the Commission his purchases of MHR call options, a requirement for corporate insiders. In addition, the Commission alleged that Erickson was late in disclosing to the Commission the exercise of his options, and further alleges that his ultimate disclosure was materially false-indicating, incorrectly, that he had exercised the options after the merger announcement. [SEC v. Donald A. Erickson, Civil Action No. 3-07-CV-0254-N, USDC, NDTX (Dallas Division)] (LR-20796)
Two Former Executives of Putnam Fiduciary Trust Company Settle Fraud Action Brought by SEC
The Commission announced that on Oct. 31, 2008, the United States District Court entered a final judgment by consent imposing permanent injunctions and other relief against two former executives of transfer agent Putnam Fiduciary Trust Company (PFTC) in a case filed by the Commission in December 2005. The Complaint alleged that the defendants engaged in a scheme beginning in January 2001 by which they and other executives of PFTC defrauded a defined contribution plan client and group of mutual funds of approximately $4 million. Karnig H. Durgarian, Jr., of Hopkinton, Massachusetts, a former senior managing director and chief of operations of PFTC, and Ronald B. Hogan of Saugus, Massachusetts, a former vice president who had responsibility for new business implementation, each consented to imposition of the final judgment without admitting or denying the allegations of the Commission's Complaint. The Court issued orders of permanent injunction against both defendants and imposed civil money penalties of $100,000 and $35,000, respectively. Durgarian and Hogan consented to the judgment without admitting or denying any of the allegations in the civil injunctive action. [SEC v. Karnig H. Durgarian, Jr., et al., (United States District Court for the District of Massachusetts,Civil Action No. 05-12618-NMG.] (LR-20797)
Massachusetts Federal Court Enters Final Judgment Against California Relief Defendant
On Oct. 28, 2008, a final judgment by default was entered against relief defendant Veritasiti Corporation d/b/a MediaData Corporation (Veritasiti) in an enforcement action filed in the United States District Court for the District of Massachusetts.
On June 6, 2006, the Commission filed a complaint alleging that Frank J. Russo, formerly of Wakefield, Massachusetts, operated a fraudulent ponzi scheme through his investment advisory corporation FJR Corporation. Russo, the Commission alleged, raised at least $15 million from at least 160 investors in 12 states to invest in two limited partnerships he controlled: Russo Associates Limited Partnership and Eliot Partners. On June 28, 2006, the Commission filed an amended complaint in the action naming Veritasiti, a California corporation, as a relief defendant based on its receipt of proceeds from the alleged fraud perpetrated by Russo.
The amended complaint alleged that while Russo told investors that their funds were being invested in bonds and other investment securities, and that the investments were safe and conservative, he diverted at least $11.5 million in investor funds to Veritasiti. The default judgment orders Veritasiti to pay disgorgement of $11.9 million plus prejudgment interest of $2.2 million for a total of $14.1 million. [SEC v. Frank J. Russo et al., Civil Action No. 06-10984 RGS, USDC, D. Mass.] (LR-20798)
INVESTMENT COMPANY ACT RELEASES
Notices of Deregistration under the Investment Company Act
For the month of October, 2008, a notice has been issued giving interested persons until Nov. 20, 2008, 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-28481 - October 31)
Approval of Proposed Rule Changes
The Commission granted approval to a proposed rule change (SR-FINRA-2008-010) submitted by the Financial Industry Regulatory Authority (f/k/a the National Association of Securities Dealers, Inc. (NASD)) to establish procedures that arbitrators must follow when considering requests for expungement relief under Rule 2130. Publication is expected in the Federal Register during the week of November 3. (Rel. 34-58886)
The Commission approved a proposed rule change (SR-NASDAQ-2008-072) submitted by the NASDAQ Stock Market to establish a PORTAL Reference Database and related fees. Publication is expected in the Federal Register during the week of November 3. (Rel. 34-58891)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by the Chicago Board Options Exchange (SR CBOE-2008 111) to temporarily increase the number of additional Quarterly Option Series in exchange-traded fund options that may be listed has become immediately effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934 and Rule 19b-4(f)(6) thereunder. Publication is expected in the Federal Register during the week of November 3. (Rel. 34-58887)
A proposed rule change filed by the New York Stock Exchange (SR-NYSE-2008-110) implementing a financial rebate of $.0015 per share to the SLP that posts liquidity in its assigned securities that results in an execution, provided the SLP meets its monthly quoting requirement for rebates averaging at least 3% at the National Best Bid or the National Best Offer in its assigned securities in round lots, 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 3. (Rel. 34-58889)
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