Revocation of Registration of Securities of Headliners Entertainment Group, Inc.
The Securities and Exchange Commission announced the revocation of the registration of the securities of Headliners Entertainment Group, Inc. (Headliners), of Montclair, New Jersey, registered with the Commission pursuant to Section 12 of the Exchange Act, on March 11 pursuant to Section 12(j) of the Securities Exchange Act of 1934 (Exchange Act).
In its Order revoking the registration of securities of Headliners registered with the Commission pursuant to Section 12 of the Exchange Act, the Commission found the following: Headliners has failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder, while its common stock was registered with the Commission in that it has not filed an Annual Report on Form 10-KSB since April 2006 or quarterly reports on Form 10-QSB for any fiscal period subsequent to its fiscal quarter ending Sept. 30, 2006.
The Commission cautions brokers, dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company.
Further, brokers and dealers should be alert to the fact that, 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 pursuant to the preceding sentence.
Without admitting or denying the findings in the Order Instituting Proceedings Pursuant to Section 12(j) of the Securities Exchange Act of 1934, Making Findings, and Revoking Registration of Securities, Headliners Entertainment Group consented the entry of an order finding that it had failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Headliners' securities registered with the Commission pursuant to Section 12 of the Exchange Act. (Rel. 34-59554; File No. 3-13406)
In the Matter of Merrill Lynch, Pierce, Fenner, & Smith Incorporated
On March 11, the Commission issued an Order Instituting Proceedings Pursuant to Sections 15(b)(4) and 21C of the Securities Exchange Act of 1934 and Sections 203(e) and 203(k) of the Investment Advisers Act of 1940, Making Findings, and Imposing Cease-and-Desist Order, Penalties, and Other Relief (Order) against Merrill Lynch, Pierce, Fenner, & Smith Incorporated (Merrill Lynch).
The Order finds that from 2002 to 2004, several Merrill Lynch retail brokers permitted day traders to hear confidential information regarding Merrill Lynch institutional customers' unexecuted orders as they were transmitted over Merrill Lynch's squawk box system. The equity squawk box is an industry-standard audio communication tool that Merrill Lynch's institutional equities business uses to allow position traders to transmit internally customer order information, among other information. The day traders used the customer order information to "trade ahead" of the institutional customer orders and, in many instances, profited from price movements that were caused by the market impact of the institutional customer order. The day traders compensated the brokers for access to this material, nonpublic order information through commissions and cash payments. The brokers' misuse of material, nonpublic information was in violation of the antifraud provisions of the federal securities laws and was the subject of civil enforcement actions by the Commission. See SEC v. Amore, et al., CV-053885 (Glasser) (E.D.N.Y. August 15, 2005); SEC v. A.B. Watley Group, Inc., et al., CV-061274 (Glasser) (E.D.N.Y. March 21, 2006).
Merrill Lynch maintained policies prohibiting insider trading, the front running of customer orders, and the improper disclosure of information about customer orders. Merrill Lynch informed its brokers, including those brokers who improperly disclosed customer order information to day traders, of these policies. However, Merrill Lynch lacked written policies or procedures to limit access to the equity squawk box, to track which employees had access to the equity squawk box or to monitor employees' use of the equity squawk box. Consequently, an undetermined number of retail brokers received access to equity squawk boxes despite the absence of any bona fide need for the information, such as demonstrating any ability to fill block orders; Merrill Lynch was unable to identify which employees had equity squawk boxes; and several retail brokers were able to provide equity squawk box information to day traders simply by placing their telephone receiver next to the equity squawk box for the entire trading day.
As a result, Merrill Lynch violated Section 15(f) of the Exchange Act and Section 204A of the Advisers Act, which require registered broker dealers and registered investment advisers to establish, maintain and enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information.
Based on the above, the Order censures Merrill Lynch, orders Merrill Lynch to cease and desist from committing or causing any violations and any future violations of Section 15(f) of the Exchange Act and Section 204A of the Advisers Act, orders Merrill Lynch to pay a civil money penalty of $7,000,000, and orders Merrill Lynch to comply with certain undertakings concerning the confidentiality of customer order information and the equity squawk box as set forth in the Order. Merrill Lynch consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rels. 34-59555; IA-2851; File No. 3-13407)
SEC Obtains Injunctions Against iBIZ Technology Corp., Kenneth W. Schilling, H. Mark Perkins, Jerrold B. McRoberts, and Jeffrey Firestone; Jury Returns Verdict for D. Scott Elliott
On Feb. 20, 2009, the United States District Court for the District of Arizona entered judgments by consent against iBIZ Technology Corp., its CEO Kenneth W. Schilling and its Exec.VP H. Mark Perkins, all of Phoenix, Arizona and consultant, Jerrold B. McRoberts, of Santa Fe, New Mexico. The judgments enjoin iBIZ, Schilling and Perkins from violating, or aiding and abetting violations of Sections 5(a) and 5(c) of the Securities Act of 1933, Sections 10(b) and 13(a), and Rules 10b-5, 12b-20, 13a-1, and 13a-13, and as to iBIZ and Schilling from violating the proxy provisions of Sections 14(a), and 14(c) of the Securities Exchange Act of 1934 and Rules 14a-3, 14a-9, 14c-2 and 14c-6. The defendants, in their consents, neither admitted nor denied the allegations of the Commission's complaint.
The judgments ordered Schilling and Perkins to pay disgorgement and prejudgment interest totaling $1,065,432 and $1,180,476 respectively, but waived payment and civil penalties based on their sworn statements of financial condition. Schilling was permanently barred, and Perkins was barred for ten years, from serving as officers or directors of a public company, and barred from participating in the offering of penny stocks. No disgorgement or civil penalties were ordered against the company, which is now defunct.
The judgment against McRoberts enjoins him from violating Sections 5(a) and 5(c) of the Securities Act and orders $25,000 in disgorgement, but imposes no civil penalty based on his sworn statement of financial condition. McRoberts was barred from participating in the offering of penny stocks for two years. A default judgment was entered on June 6, 2008 against consultant Jeffrey Firestone, which enjoins him from violating Sections 5(a) and 5(c) of the Securities Act and orders him to pay $2,018,685 in disgorgement, plus prejudgment interest, and a civil penalty of $120,000.
In its complaint, the SEC alleged that iBIZ, Schilling, and Perkins made false and misleading statements regarding the company's involvement with a development-stage product called the "Virtual Keyboard." While these statements were being disseminated, Schilling and Perkins sold over $1 million of their own iBIZ shares into a falsely inflated market. The complaint also alleged that the defendants engaged in a scheme to raise money by improperly using Form S-8 registrations statements and that iBIZ, Schilling and Perkins illegally distributed shares through its consultants, Firestone, McRoberts, and Doyle Scott Elliott, who then sold the shares into the public market. LR-19571 (Feb. 17, 2006)
On Feb. 27, 2009, after a four day trial, a federal jury returned a verdict for defendant Elliott, finding that he did not violate Sections 5(a) and 5(c) of the Securities Act.
On Feb. 16, 2006, the SEC revoked the registration of the common stock of iBIZ Technology Corporation pursuant to Section 12(j) of the Exchange Act. See iBIZ Technology Corporation, Exchange Act Rel. No. 54129 (July 11, 2006). [SEC v. iBIZ Technology Corp., Kenneth W. Schilling, H. Mark Perkins, Jeffrey Firestone, Jerrold B. McRoberts, and D. Scott Elliott, CV 2:06-CV-0502 (D. Arizona)] (LR-20939)
SEC Prevails in Bench Trial of Jonathan Curshen, a Promoter in an Internet "Pump and Dump" Scheme While Complaint Against Timothy Miles, a Principal Shareholder Dismissed
The Commission announced that on March 6, 2009, the United States District Court for the District of Colorado, entered a final judgment against Jonathan Curshen, finding him liable for securities fraud for acting as a promoter in an internet "pump and dump" scheme. Based on the Commission's evidence at the bench trial held on April 30 and May 1, 2007, the Court concluded that in early 2000, Curshen knowingly or recklessly posted on various Internet sites baseless projections and other financial information about Freedom Golf Corporation, a now-defunct Denver-based golf club manufacturer. The Court further found that Curshen knowingly failed to disclose that he was being paid to promote Freedom Golf and was selling the company's stock at the same time he was touting the company.
According to the Court's findings, Timothy Miles, a principal shareholder of Freedom Golf, arranged for the company to hire Carter Allen Jones and Curshen to promote Freedom Golf. Jones prepared an "investor report" touting Freedom Golf based on information provided by the company's president. The report contained factually baseless profit and revenue projections for Freedom Golf, which was in dire financial condition at the time. Curshen posted a link to the report on Internet websites, despite knowing of the company's poor financial condition. Furthermore, the Court found Curshen posted numerous messages touting Freedom Golf on various Internet web sites without disclosing his receipt and sale of Freedom Golf stock in exchange for promoting the company.
The Court's final judgment enjoins Curshen from violating Sections 17(a) and 17(b) 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, and bars him from participating in any penny stock offering. The final judgment also orders Curshen to pay disgorgement of $66,235, representing profits gained from his participation in the illegal scheme. The Court reserved jurisdiction as to prejudgment interest and a civil penalty.
On March 2, in a separate order, the Court entered an amended judgment dismissing the complaint against Miles, finding him not liable for securities fraud after a bench trial held on June 20 and 21, 2005. The Court dismissed the complaint against Miles with prejudice after concluding the Commission failed to prove that false statements Miles made were material to investors.
According to the Court's findings concerning Miles, Miles arranged to have false information submitted on a Form 211 to the NASD (now FINRA) to arrange for Freedom Golf's predecessor, Auric Enterprises, quoted on the Over-The-Counter Bulletin Board. The false information concerned Miles' relationships to many of Auric's shareholders, among other things. The Judge, however, rejected the Commission's argument that the false information would have been material to a reasonable investor.
Previously, Carter Allen Jones, another promoter, and his company, C. Jones & Co. were permanently enjoined by default against future violations of Sections 17(a) and 17(b) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Jones was ordered to pay disgorgement and a civil penalty. Based on the Commission's motion, the Court dismissed its claims of disgorgement and penalties against C. Jones & Co., because it was defunct. In addition, Freedom Golf's president, Gaylen Johnson, previously consented to a permanent injunction against future violations of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 13a-1 and 13a-13. Johnson was also barred from participating in any offering of a penny stock. Based on his financial condition, the Commission did not seek a civil penalty. [SEC v. C. Jones & Company, Carter Allen Jones, Timothy J. Miles, Gaylen P. Johnson, and Jonathan Curshen, Civil Action No. 03-CV-00636-WDM-PAC (D. Colo.)] (LR-20940)
SEC Files Complaint Against John M. Donnelly, Tower Analysis Inc., Nasco Tang Corp., and Nadia Capital Corp. for Operating a Multi-Million Dollar Ponzi Scheme and Obtains Order Freezing Assets
The Securities and Exchange Commission filed a complaint today in the United States District Court for the Western District of Virginia against John M. Donnelly (Donnelly), a resident of Charlottesville, Virginia, and his firms, Tower Analysis, Inc., Nasco Tang Corp., and Nadia Capital Corp., alleging that they are conducting a multi-million dollar Ponzi scheme. The Commission also filed an application for an ex parte temporary restraining order, asset freeze, and other emergency relief against Donnelly and his entities.
According to the Commission's complaint, from at least 1998, Donnelly fraudulently obtained at least $11 million from as many as 31 investors through the sale of securities in the form of limited partnership interests in three investment funds. The SEC alleges that Donnelly orchestrated the scheme through three entities, Tower Analysis Inc., Nasco Tang Corp., and Nadia Capital Corp. The complaint alleges that Donnelly told investors that he would pool their funds to invest in, among other things, stock and bond index derivatives. According to the complaint, despite representations to investors that he had generated annual returns of as much as 22%, Donnelly has done almost no securities trading, and none since 2002. The complaint alleges that instead of using investor funds to execute trades, Donnelly used investor funds to repay other investors, and paid himself approximately $1 million in salary and fees during the last three years alone. The complaint also alleges that Donnelly has been soliciting investors for a new fund called Nadia Capital Partners, LP based on misrepresentations about his past trading results.
On the Commission's application, the court today entered a temporary restraining order enjoining Donnelly, Tower Analysis, Nasco Tang, and Nadia Capital from future violations of 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. In addition, the court entered an order freezing all assets under the control of Donnelly and his firms.
The Commission acknowledges the assistance of the U.S. Attorney's Office for the Western District of Virginia and the Federal Bureau of Investigation in bringing this action. The U.S. Commodity Futures Trading Commission has filed a parallel action concerning Donnelly. [SEC v. John B. Donnelly, et al., United States District Court for the Western District of Virginia (Civil Action No. 3:09CV0015)] (LR-20941).
SEC Settles With Two Defendants in Peregrine Systems Accounting Fraud Case
The Securities and Exchange Commission ("SEC" or "Commission") today announced settlements with two defendants in connection with the accounting fraud at Peregrine Systems, Inc. ("Peregrine"). On March 4, 2009, United States District Judge John A. Houston entered an Amended Final Judgment by consent against Michael D. Whitt, the former president of Barnhill Associates, Inc. ("Barnhill"), a reseller of Peregrine's software. The Court's Judgment enjoined Whitt from violating Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and ordered Whitt to pay a civil penalty of $60,000. On January 5, 2009, Judge Houston entered a Final Judgment by consent against former Peregrine Director of Strategic Alliances Peter J. O'Brien, enjoining him from violating the anti-fraud and other provisions of the federal securities laws, and ordering him to disgorge $124,792 in ill-gotten gains from unlawful sales of Peregrine stock and from a bonus he received from Peregrine during the fraud. Whitt and O'Brien settled the Commission's claims without admitting or denying the allegations in the Commission's complaint.
According to the Commission's complaint, beginning in 1999, Whitt caused Barnhill to enter into a series of sham transactions with Peregrine, which Peregrine used to artificially inflate its revenue. For several fiscal quarters, Whitt signed contracts--some of which were backdated to the prior quarter--that appeared to bind Barnhill to purchase Peregrine software licenses when, in fact, Barnhill had no obligation to pay Peregrine. Peregrine improperly recorded revenue on the sham contracts in contravention of U.S. Generally Accepted Accounting Principles ("GAAP").
With respect to O'Brien, the Commission's complaint alleged that in December 2000, O'Brien and another Peregrine executive persuaded an executive at a re-seller to sign two contingent sales agreements with Peregrine. The agreements related to software licenses that Peregrine was trying unsuccessfully to sell to two customers. O'Brien understood that Peregrine would only seek payment from the re-seller if the two Peregrine customers bought the licenses from the re-seller. Despite the contingent nature of the sale to the re-seller, Peregrine nevertheless recorded revenue on the two agreements in contravention of GAAP. Additionally, the complaint alleged that O'Brien was involved in a September 2001 contingent sale to a re-seller, for which Peregrine improperly recorded revenue. While participating in the fraud, O'Brien sold Peregrine stock.
In September 2006, Whitt entered a guilty plea in a related criminal case brought by the U.S. Attorney's Office for the Southern District of California. He pleaded guilty to obstructing justice by making false statements to Commission attorneys investigating the Peregrine fraud. Whitt was sentenced to six months of incarceration followed by six months of residency in a community confinement center, and he was ordered to pay $1 million in restitution.
In October 2004, O'Brien entered a guilty plea in the related criminal case. He pleaded guilty to obstructing justice by withholding relevant information and providing inaccurate information about his and others' knowledge and conduct to government investigators. O'Brien was sentenced to one year of probation.
In addition to the disgorgement order in the SEC action, O'Brien agreed to be enjoined from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, and 13b2-1; and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1 and 13a-13.
The Commission also announced that, on January 7, 2009, Judge Houston issued an order granting the parties' Joint Motion of Dismissal for Defendant Joseph G. Reichner. The Commission had filed its action against Reichner in October 2004.
The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of California and the FBI. [SEC v. Stephen P. Gardner, et al., Civil Action No. 04 CV 2002 JAH (RBB) (S.D. Cal.)] (LR-20942; AAE Rel. 2947)
SEC Charges Two Northern California Residents in $40 Million Ponzi Scheme
The Securities and Exchange Commission today charged Northern California residents Anthony Vassallo and Kenneth Kenitzer for orchestrating a multi-million dollar investment fraud. Vassallo agreed to a court order freezing his assets. The SEC is seeking an emergency court order to also freeze the assets of Vassallo's company, Equity Investment Management and Trading, Inc. (EIMT).
According to the SEC's complaint, Vassallo and Kenitzer raised more than $40 million from about 150 investors from approximately May 2004 to November 2008. Vassallo told investors, many of whom he met through his church, that he had a proprietary computer software program that allowed him to buy and sell stock options and generate returns of 3.5 percent per month with little risk of loss. The SEC alleges that Vassallo and Kenitzer instead used investors' money for unauthorized purposes, including a variety of other schemes never disclosed to investors.
The SEC's complaint, filed in federal court in Sacramento, alleges that Vassallo told investors that their money was being invested in securities pursuant to a proprietary trading strategy that promised high returns with minimal risk. From September 2007 through approximately November 2008, Kenitzer, who participated in EIMT's day-to-day operations, posted false trading results on the company's Web site and distributed phony investment reports to investors that led them to believe EIMT was achieving consistent, positive returns. According to the SEC's complaint, EIMT actually had not conducted any stock trades since at least September 2007, when its brokerage firm terminated Vassallo's trading privileges. The SEC alleges that Vassallo and Kenitzer kept the scheme going by using money raised from new investors to pay earlier investors, a classic hallmark of a Ponzi scheme.
The SEC's complaint charges Vassallo, Kenitzer and EIMT with violations of the anti-fraud provisions of the federal securities laws. In addition to an emergency order freezing EIMT's assets, the SEC seeks injunctive relief, disgorgement of defendants' ill-gotten gains, and financial penalties.
The Securities and Exchange Commission today charged [SEC v. Anthony Vassallo, Kenneth Kenitzer, and Equity Investment Management and Trading, Inc., Case No. 2:09-CV-00665-LKK-DAD (E.D. Cal.] (LR-20943)
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