First Circuit Court of Appeals Affirms Summary Judgment Against Former Prudential Registered Representative in Connection With Deceptive Market Timing Practices
The Commission today announced that, on Dec. 15, 2008, the U.S. Court of Appeals for the First Circuit issued a mandate relating to its Oct. 20, 2008 decision affirming summary judgment obtained by the Commission against Justin F. Ficken of Boston, Massachusetts, a defendant in a civil injunctive action filed by the Commission on Nov. 4, 2003. The Commission alleged that Ficken, a former registered representative of broker-dealer Prudential Securities, Inc., committed fraud in connection with his deceptive market timing trades in dozens of mutual funds. The final judgment enjoined Ficken from future violations of the federal securities laws and ordered him to pay $589,854 in disgorgement and pre-judgment interest. The First Circuit's decision affirms this judgment.
The Commission filed its complaint against Ficken, four other former Prudential Securities registered representatives, and their former branch manager, on Nov. 4, 2003, and amended its complaint on July 14, 2004. The amended complaint alleged that Ficken was part of a three-person group of registered representatives, known as the "Druffner Group," that defrauded mutual fund companies and the funds' shareholders by placing thousands of market timing trades worth more than $1 billion for five hedge fund customers from at least January 2001 through September 2003. According to the amended complaint, Ficken knew that the mutual fund companies monitored and attempted to restrict excessive trading in their mutual funds. The amended complaint alleged that, to evade those restrictions when placing market timing trades, Druffner Group members disguised their own identities by establishing multiple broker identification numbers and disguised their customers' identities by opening numerous customer accounts for what were, in reality, only a handful of customers.
The final judgment affirmed by the First Circuit enjoins Ficken from violating 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 orders him to pay disgorgement of $494,975, representing profits gained as a result of the conduct alleged in the amended complaint, together with prejudgment interest thereon in the amount of $94,879. [SEC v. Martin J. Druffner, et. al., United States District Court for the District of Massachusetts Civil Action No. 03-12154-NMG] (LR-20844)
Southern California Defendant in SEC Enforcement Action Sentenced to 57 Months in Prison on a Related Criminal Charge for Defrauding Investors in a "Pump and Dump" Stock Manipulation
The Commission announced that on Nov. 19, 2008, the federal court in the Central District of California sentenced Stephen C. Sayre (Sayre), age 52, of Hollywood, California on a criminal securities fraud charge relating to his "pump and dump" stock manipulation. The sentence ordered Sayre to serve 57 months in prison to be followed by three years of supervised release. The sentence reflects a sentencing enhancement because the Court found that Sayre obstructed justice by lying under oath to the Commission during its investigation.
Sayre was criminally indicted on Feb. 25, 2005, by a federal grand jury convened by the United States Attorney's Office for the Central District of California. The indictment alleged that, in March 2000, Sayre made materially false and misleading statements in "buy" recommendations issued through his company, Independent Financial Reports, Inc. (IFR), about eConnect, whose stock at the time was quoted on the Over-The Counter Bulletin Board. The indictment also alleged that Sayre purchased eConnect shares before issuing the buy recommendations and sold them at dramatically higher prices once the recommendations drove up eConnect's stock price. The indictment also alleged, however, that Sayre falsely stated that IFR held no eConnect stock and would not receive any benefit for the buy recommendations. According to court documents filed by the United States Attorney's Office, Sayre was arrested in Canada on Feb. 3, 2006, after having fled from the United States in 2000, and extradited to Los Angeles on July 11, 2007. On July 25, 2008, Sayre was found guilty of securities fraud following a twelve-day jury trial.
The Commission previously filed a civil injunctive action against Sayre and IFR on April 7, 2000, in the United States District Court for the Central District of California, alleging the same fraudulent scheme charged in the criminal action. On May 31, 2001, the Commission obtained a default judgment against Sayre and IFR finding them liable for securities fraud, ordering them and relief defendant Silver Screen Industries, Inc. to pay approximately $1.1 million in disgorgement and prejudgment interest, and assessing a $110,000 civil penalty against Sayre.
For additional information, see Lit. Rel. No. 16509 (April 10, 2000), Lit. Rel. No. 16525 (April 21, 2000), and Lit. Rel. No. 17038 (June 19, 2001). [U.S. v. Stephen C. Sayre, Case No. 05-CR-198-VBF (C.D. Cal.); SEC v. Stephen C. Sayre, et al., Case No. CV-00-3800-MMM (JWJx) (C.D. Cal.)] (LR-20845)
Mutual Benefits' Founding Principals and Others Charged in $1 Billion Investor Fraud and Ponzi Scheme
On January 5, the United States Attorney for the Southern District of Florida announced the Indictment of Joel Steinger, Steven Steiner, Michael McNerney and Anthony Livoti, Jr., in connection with their involvement with Mutual Benefits Corp. (MBC), a viatical and life settlement company that raised more $1.25 billion from over 30,000 investors worldwide from October 1994 through May 2004. A viatical or life settlement is an investment in which the investor purchases a right to receive the proceeds on a terminally ill or elderly person's insurance policy when the insured dies. According to the 25-count Indictment, Steinger and Steiner, two of the founding principals of MBC, and attorneys McNerney and Livoti, participated in a wide-scale fraud involving the sale of these investments, falsely promising investors "safe" and "secure" investments when they knew that MBC had, among other things, improperly acquired policies, pressured doctors to rubber-stamp false life expectancy figures, and mismanaged escrowed premium funds in a "Ponzi" scheme fashion. The Indictment charges the defendants with conspiracy, mail fraud, wire fraud and money laundering in violation of 18 U.S.C. §§ 1341, 1343, 1349, and 1956(h); the criminal case has been filed in the United States District Court for the Southern District of Florida.
The SEC halted MBC's on-going fraud through an emergency action filed in May 2004. The SEC's case named as defendants, among others, Joel Steinger and Steven Steiner. The SEC's complaint alleged that MBC and the defendants violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In the SEC's action, both Joel Steinger and Steven Steiner each consented to entry of a Final Judgment of Permanent Injunction and Other Relief, entered by the District Court on December 6, 2005 and April 10, 2007, respectively. In addition to being enjoined from further violations of the federal securities laws, under their respective final judgments, Joel Steinger was ordered to pay disgorgement in the amount of $9 million and a civil penalty in the amount of $500,000, and Steven Steiner was ordered to pay disgorgement in the amount of $3,925,000. [U.S. v. Joel Steinger, et al., Case No. 08-21158-CR-COOK/Bandstra (S.D. Fla.)] (LR-20846)
INVESTMENT COMPANY ACT RELEASES
TWB Investment Partnership, L.P., et al.
An order has been issued on an application filed by TWB Investment Partnership, L.P., et al. to exempt certain vehicles formed for the benefit of partners and key eligible current and former employees of Perkins Coie LLP from certain provisions of the Investment Company Act. Each such vehicle will be an "employees' securities company" as defined in Section 2(a)(13) of the Act. (Rel. IC-28576 - January 6)
TIAA-CREF Life Funds, et al.
An order has been issued approving an application filed by TIAA-CREF Life Funds (the Trust), the TIAA-CREF Life Insurance Company (TIAA-CREF Life), and Teachers Advisors, Inc. (Advisors) (collectively, Applicants) pursuant to Section 6(c) of the Investment Company Act granting exemptions from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Trust and shares of any other future investment company (Other Investment Companies) that is designed to fund insurance products and for which TIAA-CREF Life, or any of its affiliates, may serve as administrator, investment manager, principal underwriter or sponsor (the Trust and Other Investment Companies being hereinafter referred to, collectively, as Insurance Investment Companies), or permit shares of any current or future series of any Insurance Investment Company (Insurance Fund), to be sold to and held by: (1) separate accounts funding variable annuity and variable life insurance contracts issued by both affiliated and unaffiliated life insurance companies of TIAA-CREF Life; (2) trustees on behalf of tax-qualified and certain other retirement and employee benefit plans outside of the separate account context; (3) Advisors and any affiliate of Advisors that serves as an investment adviser, manager, principal underwriter, sponsor, or administrator for the purpose of providing seed capital to an Insurance Fund; and (4) any insurance company general account that is permitted to hold shares of an Insurance Fund consistent with the requirements of Treasury Regulation 1.817-5 under the circumstances described in the application. (Rel. IC-28577 - January 6)
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