Director of Legislative and Intergovernmental Affairs William Schulz to Leave SEC
On May 14, the Securities and Exchange Commission announced that William Schulz, Director of Legislative and Intergovernmental Affairs, plans to leave the agency to enter the private sector after having served as a key liaison between the Commission and the Congress.
"Bill has served the Commission extraordinarily well during a particularly tumultuous time in our financial markets," said SEC Chairman Mary Schapiro. "He has been a tireless advocate for the SEC and its mission of protecting investors, maintaining orderly markets, and promoting capital formation. We will miss Bill's sound judgment, steadiness under pressure, and keen understanding of both the SEC and Capitol Hill."
Mr. Schulz said, "It has been an honor to serve with the talented men and women of the Commission and to work on their behalf with the Congress. And it has been particularly rewarding to work with Chairman Schapiro and the Commission to ensure that the core responsibilities of the SEC - to protect investors and to maintain the integrity of our securities markets - are sustained and remain critical components of any regulatory restructuring the Congress may contemplate."
The SEC's Office of Legislative and Intergovernmental Affairs carefully monitors legislative activities and initiatives on Capitol Hill, and works with Members of Congress and their staffs to achieve legislative policy goals related to the SEC's mission.
Mr. Schulz has served as Director of Legislative Affairs since August 2008. Prior to becoming Director, Mr. Schulz served as Senior Advisor to then-Chairman Christopher Cox starting in 2006. Before joining the SEC, Mr. Schulz served as Chief Counsel of the House Policy Committee and in a variety of senior legislative positions in the U.S. House of Representatives. From 1998 to 2002, he served as Special Master at the Court of Federal Claims, where he oversaw the management and resolution of multi-billion dollar banking litigation spawned by the collapse of the savings and loan industry and the passage of the Financial Institutions Reform, Recovery and Enforcement Act.
Mr. Schulz received his BA from Duke University in 1988 and received his JD from William and Mary's Marshall-Wythe School of Law in 1995. (Press Rel. 2009-111)
Closed Meeting - Thursday, May 21, 2009 - 2:00 p.m.
The subject matter of the Closed Meeting scheduled for Thursday, May 21, 2009, will be: institution and settlement of injunctive actions; institution and settlement of administrative proceedings of an enforcement nature; and other matters related to enforcement proceedings.
At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551-5400.
Commission Dismisses Boston Options Exchange Group, LLC's Application for Review of OPRA Participation Fee
The Commission has dismissed Boston Options Exchange Group, LLC's application for review of a $2,300,000 participation fee assessed by the Options Price Reporting Authority. The Commission found that BOX's application was untimely under both Section 11A(b)(5) of the Securities Exchange Act of 1934 and Exchange Act Rule 608(d) and that Boston Options Exchange had failed to show that the Commission should exercise its discretion to accept an untimely application. (Rel. 34-59927; File No. 3-13088)
Delinquent Filer's Stock Registration Revoked
The registration of the stock of Bagdad Chase, Inc., has been revoked. The company had repeatedly failed to file required annual and quarterly reports with the Securities and Exchange Commission. Thus, it violated a crucial provision of the federal securities laws that requires public corporations to publicly disclose current, accurate financial information so that investors may make informed decisions. The revocation was ordered in an administrative proceeding before an administrative law judge. (Initial Decision No. 378; File No. 3-13385)
Commission Bars Mitchell M. Maynard and Dorice A. Maynard from Association With Investment Advisers
The Commission has barred Mitchell M. Maynard and Dorice A. Maynard from association with any investment adviser. The Maynards were the principals of Leveraged Index Management Company, a former registered investment adviser. The Commission's action was based on a five-year bar from association with registered broker-dealers and investment advisers and other sanctions imposed on the Maynards by the Vermont Department of Banking, Insurance, Securities, and Health Care Administration. The Commission concluded that the public interest requires that the Maynards be barred. In reaching this determination, the Commission noted that the Maynards' misconduct was egregious, recurrent and was done with scienter. The Commission further noted that, as the Maynards have shown no recognition of the wrongful nature of their conduct and have provided no assurance against future violations, there is a significant risk that, given the opportunity, the Maynards would commit further misconduct if they were not barred. (Rel. IA-2875; File No. 3-13008)
In the Matter of Wealthwise, LLC and Jeffrey A. Forrest
On May 15, the Commission issued an Order Making Findings and Imposing Remedial Sanctions Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Sections 203(e) and 203(f) of the Investment Advisers Act of 1940 (Order) against WealthWise, LLC (WealthWise), a registered investment adviser based in San Luis Obispo, California, and Jeffrey A. Forrest (Forrest), its owner and principal, based on the entry of a permanent injunction against WealthWise and Forrest in the civil action entitled Securities and Exchange Commission v. WealthWise, LLC, et al., Civil Action No. 2:08-cv-06278-GAF-SS, in the U.S. District Court for the Central District of California.
The Order finds that on February 4, 2009, the U.S. District Court for the Central District of California entered a Judgment of Permanent Injunction by consents against WealthWise and Forrest, permanently enjoining WealthWise and Forrest from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The complaint alleged that from April 2005 to October 2006, Forrest recommended that more than 60 of WealthWise's clients invest approximately $40 million in Apex Equity Options Fund, a hedge fund managed by Salt Lake City-based Thompson Consulting, Inc. (TCI). WealthWise and Forrest failed to disclose a side agreement in which WealthWise received a portion of the performance fee that Apex paid TCI for all WealthWise assets invested in the hedge fund. From April 2005 to September 2007, WealthWise received $388,401.80 in performance fees from TCI. Apex collapsed in August 2007, and WealthWise clients lost nearly all of the money they invested. The Order finds that, for a portion of the time in which Forrest engaged in the conduct underlying the complaint, he was associated with a registered broker-dealer.
Based on the above, the Order revokes WealthWise's registration as an investment adviser with the Commission. The Order also bars Forrest from associating with any broker, dealer, or investment adviser with the right to reapply for association after five years. WealthWise and Forrest consented to the issuance of the Order without admitting or denying any of the findings in the Order, except with respect to jurisdiction and the entry of the injunction. (Rel. 34-59931; IA-2874; File No. 3-13381)
SEC Files Emergency Action in Offering Fraud Case
On May 14, the Securities and Exchange Commission filed an emergency civil injunctive action in the United States District Court for the District of New Jersey charging two investment firms and their two owner-managers with securities fraud. The Commission alleged that Paul G. Bultmeyer, Arthur J. Piacentini, Sherbourne Capital Management, Ltd. and Sherbourne Financial, Ltd. orchestrated an offering fraud in connection with the sale of "Prime Certificates of Participation." The defendants targeted retirees in their websites and in advertisements on Craigslist and in print publications. The defendants defrauded at least 23 investors of over $1.1 million by making numerous misrepresentations. After obtaining investor funds, the defendants funneled investor money into the operation of their payroll-services company and a charter-aviation company, as well as making payments to themselves. The Honorable Jose L. Linares, United States District Judge of the District of New Jersey, granted the Commission's application for emergency relief and, among other things, froze the assets of the defendants and appointed a receiver over Sherbourne Capital, Sherbourne Financial, and Relief Defendant Ameripay, LLC.
According to the Commission's Complaint, the fraudulent scheme was orchestrated by Paul G. Bultmeyer, 68, of Upper Saddle River, NJ, and Arthur J. Piacentini, 48, of Saddle Brook, NJ. At least since 2004, Bultmeyer and Piacentini have operated the investment firms Sherbourne Capital Management, Ltd. and Sherbourne Financial, Ltd. Bultmeyer and Piacentini also operate Ameripay, LLC, a payroll services company based in Rochelle Park, NJ, that has numerous New Jersey municipalities and small businesses as clients. Bultmeyer is also Chief Executive Officer of Equitair, Ltd., a charter aviation company. The Complaint alleges that Sherbourne Financial, on its website, offered investors "Prime Certificates of Participation" and claimed that Sherbourne would use the proceeds to invest in private placement debt, high-grade corporate bonds, preferred stock, and government securities. Sherbourne claimed that its investments were safe and in some cases insured. Sherbourne, however, did not invest in any such securities. Rather, Sherbourne transferred a net of over $900,000 to Ameripay, Bultmeyer, Piacentini, and Equitair.
The SEC's complaint charges each of the defendants with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also names Ameripay and Equitair as relief defendants only. The SEC's complaint seeks injunctions against future violations of the securities laws, disgorgement of ill-gotten gains, and civil money penalties against the defendants, in addition to the expedited relief the Court granted. [SEC v. Sherbourne Capital Management, Ltd., Sherbourne Financial, Ltd., Paul G. Bultmeyer, and Arthur J. Piacentini, Civil Action No. 09- 2302 (D-NJ)] (LR-21038)
SEC Charges Home Builder's Former Human Resources Executive with Stock Options Backdating
The Securities and Exchange Commission yesterday filed settled civil fraud charges against Gary A. Ray, the former vice president of human resources of Los Angeles homebuilder KB Home, Inc., for his participation in a multi-year scheme to backdate stock options to himself and other KB Home officers and employees.
The SEC's complaint alleges that Ray used hindsight to pick advantageous grant dates for KB Home's annual stock option grants in order to enrich himself and others at KB Home. On many occasions, the grant dates coincided with dates of low monthly closing prices for the company's common stock. The SEC's complaint further alleges that Ray continued to use hindsight for stock option grant dates even after the Sarbanes-Oxley Act of 2002 imposed stricter reporting requirements. The complaint alleges that, because of the backdating scheme, KB Home filed proxy statements with the SEC that inaccurately stated that KB Home granted options at market value on the date of the grant. In addition, the complaint alleges that, by concealing his knowledge about stock option backdating at KB Home, Ray contributed to KB Home's filing of a false and misleading quarterly report with the SEC in 2006. Ray received backdated annual stock option awards amounting to 380,000 shares of KB Home stock and profited more than $480,000 from exercising many of these options.
Ray agreed to settle the Commission's charges without admitting or denying the allegations in the complaint. Under the settlement, Ray consented to the entry of an order that (i) permanently enjoins him from future violations of Sections 10(b), 13(b)(5), and 16(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1, and 16a-3 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Rules 12b-20, 13a-13, and 14a-9 thereunder; (ii) requires him to pay $540,651.58 in disgorgement and interest and a civil penalty of $50,000; and (iii) bars him from serving as an officer or director of a public company for five years. [SEC v. Gary A. Ray, Civil Action No. CV 09-3430 R (CTx) USDC, C.D. Cal.] (LR-21039; AAE Rel. 2969)
Securities and Exchange Commission v. Wellco Energy, LLC, Justin William Rifkin, Patrick V. Looper, Richard G. Pacheco, and Dustin D. White
The Securities and Exchange Commission announced that, on May 14, it filed a civil action in the United States District Court for the District of Colorado alleging an ongoing fraudulent scheme conducted by Wellco Energy, LLC (Wellco). Wellco maintains offices in Colorado Springs, Colorado, and acts through its principal Justin William Rifkin, and salesmen Patrick Looper, Richard Pacheco, and Dustin White, each of whom are residents of Colorado Springs, Colorado.
According to the Complaint, the defendants defrauded investors by misrepresenting Wellco's role as the operator of the oil and gas projects, Rifkin's experience in oil and gas production, and Wellco's intended use of investors' funds. Among other things, Wellco's offering materials misrepresented that offering proceeds would be used to fund the drilling and completion operations of wells, when in fact less than half of investors' funds were used for that purpose. The Complaint alleges that, from approximately May 2007 through the present, the defendants raised more than $1 million from investors in four Wellco offerings. Justin William Rifkin, Patrick Looper, Richard Pacheco, and Dustin White allegedly solicited sales of these interests by cold-calling prospective investors nationwide. The Complaint further alleges that Wellco's offerings were not registered with the Commission, nor were Justin William Rifkin, Patrick Looper, Richard Pacheco, and Dustin White associated with a registered broker-dealer.
The Complaint claims that, based on this conduct, all of 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 (Exchange Act) and Rule 10b-5 thereunder. The Complaint also claims that Justin William Rifkin, Patrick Looper, Richard Pacheco, and Dustin White violated Exchange Act Section 15(a). On the Commission's application, the Court issued a Temporary Restraining Order, Order of Reference to Magistrate Judge, and Order Setting Hearing (Order) on May 14. Among other things, the Court's Order froze the assets of defendants Wellco and Rifkin traceable to the alleged violations pending determination of the Commission's Motion for a Preliminary Injunction. [SEC v. Wellco Energy, LLC, Justin William Rifkin, Patrick V. Looper, Richard G. Pacheco, and Dustin D. White, (United States District Court for the District of Colorado, Civil Action No. 09-cv-01114-MSK-KLM)] (LR-21040)
SEC Halts $14 Ponzi Scheme Conducted by Nevada-Based Firm and its Manager
On May 14, the Securities and Exchange Commission obtained a court order halting a $14 million Ponzi scheme that defrauded more than 100 investors in the United States and Canada. The SEC's complaint, filed in federal court in Los Angeles, alleges that Gordon A. Driver (Driver) and his company Axcess Automation, LLC (Axcess) raised $14.1 million from investors since approximately February 2006 by promising them a weekly return of up to 5 percent from trading in futures. The SEC alleges that Driver operated Axcess as a Ponzi scheme and misappropriated more than $1 million to pay his personal expenses. The court order obtained by the SEC freezes the assets of both the firm and Driver, who resides in Las Vegas, Nevada, and Hamilton, Ontario.
Specifically, the SEC's complaint alleges that Driver, of Las Vegas, Nevada, and Hamilton, Ontario, and Axcess represented to the investors that their funds would be used to trade futures using a "proprietary software program" that Driver developed and that they would receive returns of 1 percent to 5 percent per week from the trading. According to the complaint, Driver and Axcess actually used only $3.7 million of the $14.1 million raised for futures trading and lost nearly all of it in trading. The complaint further alleges that Driver and Axcess operated a Ponzi scheme by using $10.7 million to pay investors and another $1.1 million to pay Driver's personal expenses.
The SEC alleges that Driver and Axcess have violated the various registration and antifraud provisions of the federal securities laws. The court order obtained by the SEC temporarily enjoins Driver and Axcess from future violations of these provisions, freezes their assets, prevents the destruction of documents; grants expedited discovery; and requires them to provide accountings. The Commission also seeks preliminary and permanent injunctions, disgorgement, and financial penalties against both defendants. A hearing on whether a preliminary injunction should be issued against the defendants is scheduled for May 22, 2009, at 2 p.m. PDT.
The Commodity Futures Trading Commission (CFTC) also filed an emergency action yesterday against Driver and Axcess, alleging violations of the antifraud provisions of the Commodity Exchange Act. The Commission acknowledges the assistance of the CFTC and the Ontario Securities Commission in this matter. [SEC v. Gordon A. Driver and Axcess Automation, LLC, Civil Action No. CV 09-3410 ODW (RZx) (C.D. Cal.)] (LR-21041)
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