SEC News Digest

ENFORCEMENT PROCEEDINGS

Commission Issues Order Directing Disbursement of Disgorgement Fund in Previously Settled Administrative Proceedings Against Gerson Asset Management, Inc. and Seth Gerson

On June 2, 2009, the Commission issued an order in the matter of Gerson Asset Management, Inc. and Seth Gerson directing the disbursement of the Disgorgement Fund and approving technical amendments to the Plan for the Administration and Distribution of the Disgorgement Fund (Plan). Specifically, the order directed the Commission staff to disburse $139,340.94 of the Disgorgement Fund as provided for in the Plan and amended the Plan to provide that distribution checks shall be void one year after the date of the check if not presented for payment and to provide that the date by which the Fund Administrator must submit a final accounting is ninety days after all the checks have been cashed or voided, whichever is later. In accordance with the order, and the Plan, distribution checks were recently been issued by the U.S. Treasury.

In an order entered on consent on Dec. 2, 2005, the Commission found that GAM, a registered investment adviser, and Gerson, its sole owner, officer, and employee, engaged in "cherry picking" -- the unfair allocation of profitable trades to Gerson at the expense of GAM clients - in violation of the antifraud provisions of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. See Gerson Asset Management, Inc., Exchange Act Release No. 52880 (Dec. 2, 2005). GAM and Gerson consented to the issuance of the Order without admitting or denying the Commission's findings. As part of the settlement of the proceedings, Gerson paid disgorgement in the amount of $160,237. Based upon GAM's and Gerson's sworn representation of their financial condition, payment of prejudgment interest was waived, and no penalty was imposed.

By order issued on Dec. 5, 2007, the Commission approved the Plan, which provided for pro rata distribution of the Disgorgement Fund among identified clients of Gerson Asset Management, Inc. who suffered a "New Loss," as defined by the Plan, as a result of the violative conduct that was the subject of the proceeding. Additional details about the distribution are available in the Plan, which can be accessed by hyperlink in the Notice of Proposed Modified Distribution Plan and Opportunity for Comments published on Oct. 15, 2007. (Rel. 34-56659; File No.3-12121). (Rel. 34-60024; File No. 3-12121)

In the Matter of Newbridge Securities Corp., et al.

An Administrative Law Judge has issued an Initial Decision in Administrative Proceeding No. 3-13099, Newbridge Securities Corp. The Securities and Exchange Commission issued its Order Instituting Proceedings (OIP) on July 25, 2008.

Three of the five Respondents (Newbridge Securities Corporation, Eric M. Vallejo, and Daniel M. Kantrowitz) submitted Offers of Settlement which the Commission previously accepted. The other two Respondents (Guy S. Amico and Scott H. Goldstein) were the subject of an eleven-day hearing during December 2008 and January 2009.

In relevant part, the OIP alleges that Kantrowitz, formerly a registered representative and trader at Newbridge, an introducing broker and dealer located in Ft. Lauderdale, Florida, participated in an unregistered distribution of the stock of Roanoke Technology Corporation (Roanoke) and manipulated the market for Roanoke shares. The OIP also charges that Kantrowitz manipulated the market for the shares of Concorde America, Inc. (Concorde). Finally, the OIP contends that Amico and Goldstein, Newbridge's president and chief executive officer, respectively, failed reasonably to supervise Kantrowitz in connection with his activities in Roanoke and Concorde.

The Initial Decision concludes that Kantrowitz willfully violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rule 10b-5. It also concludes that Amico and Goldstein failed reasonably to supervise Kantrowitz, within the meaning of Sections 15(b)(4)(E) and 15(b)(6) of the Exchange Act, with a view to preventing and detecting his violations of the registration and antifraud provisions of the federal securities laws.

To protect the public interest, the Initial Decision sanctions Amico and Goldstein by barring them from associating with any broker or dealer in a supervisory capacity. The Initial Decision provides that Amico and Goldstein may file petitions for reinstatement after two years from the effective date of the supervisory bars. The Initial Decision also orders Amico and Goldstein to pay third-tier civil penalties of $79,000 each. (Initial Decision No. 380; File No. 3-13099)

In the Matter of Michael A. Callaway

On June 8, the Commission announced the settlement of the matter instituted against Michael A. Callaway on Jan. 30, 2009. Pursuant to the settlement, the Commission issued an Order Making Findings and Imposing Remedial Sanctions Pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934 and Sections 203(f) and 203(k) of the Investment Advisers Act of 1940 and Imposing a Cease-and-Desist Order (the Order) against Michael A. Callaway.

The Order finds that from at least 2000 through 2005, Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch), through its pension consulting services advisory program, breached its fiduciary duty to certain of the firm's pension fund clients and prospective clients by omitting to disclose material information. During this time period, Callaway was an investment adviser representative for Merrill Lynch, and in that capacity owed a fiduciary duty to the firm's pension fund clients to whom he provided advice. Those clients included public pension funds seeking advice in developing appropriate investment strategies and in selecting investment managers to manage the assets entrusted to their care. In providing such advice, Callaway omitted to disclose to some of the firm's pension consulting clients that certain managers included in search results had not been vetted and approved in advance by Merrill Lynch Consulting Services in New Jersey. Callaway also failed to disclose material facts involving a conflict of interest inherent in clients' use of Merrill Lynch's transition management group. In addition, up to and including 2003, Callaway failed to disclose fully when entering into an arrangement for directed brokerage the facts creating a material conflict of interest inherent in recommending the use of directed brokerage to pay hard dollar fees. By omitting to disclose these facts to his clients, Callaway aided and abetted and caused Merrill Lynch's violation of Section 206(2) of the Advisers Act.

Based on the above, the Order orders that Callaway be censured, cease and desist from committing or causing any violations and any future violations of Section 206(2) of the Advisers Act, and pay a penalty of $20,000. Callaway consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. 34-60071; IA-2889; File No. 3-13356)

Initial Decision Barring Byron S. Rainner Declared Final

The decision of an administrative law judge barring Byron S. Rainner from associating with any broker or dealer and from associating with any investment adviser has become final. The law judge found that on Feb. 9, 2006, Rainner pled guilty to one count of wire fraud before the United States District Court for the Northern District of Florida, United States v. Byron S. Rainner, Case No. 1:05 CR 029 WBH (N.D. Ga.). On Nov. 20, 2006, a judgment in the criminal case was entered against Rainner. He was sentenced to a prison term of thirty months, followed by three years of supervised probation, and ordered to make restitution in the amount of $2,036,134.

Rainner was associated with a dually registered broker dealer and investment adviser, MetLife Financial Services (MetLife), from February 2000 through January 2004. Rainner was responsible for selling MetLife financial products and services.

Rainner devised a scheme to defraud Fulton County, Georgia, the Sheriff's Department of Fulton County and the citizens of Fulton County by proposing that the Sheriff's Department invest the proceeds realized from the seizure and sale of real property, pursuant to writs of fieri facias used to collect delinquent property taxes, penalties, and interest owed to Fulton County, which was maintained in a "surplus" account, in a much riskier venture capital arrangement.

As a result of Rainner's fraudulent scheme, the Sheriff's Department lost the entire amount of its investment of over $2 million and Rainner personally netted monies in excess of $300,000. (Rel. 34-60073; IA-2890; File No. 3-12828)

In the Matter of Michael Beaulieu (CPA)

On June 9, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against Michael Beaulieu. The Order finds that Beaulieu held several senior finance positions at Cardinal Health, Inc. (Cardinal) from 1998 until his resignation in March 2006. On May 29, 2009, a final judgment was entered against Beaulieu, permanently enjoining him from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Rules 10b-5 and 13b2-1 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, in the civil action entitled Securities and Exchange Commission v. Richard J. Miller, Gary S. Jensen, and Michael E. Beaulieu, Civil Action Number 09-CV-4945, in the United States District Court for the Southern District of New York. Beaulieu was ordered to pay a $50,000 civil penalty and barred from serving as an officer or director of a publicly traded company for three years. The Commission's complaint alleged, among other things, that, at different times from at least September 2000 through at least March 2004, Beaulieu and other former senior accounting and finance officers of Cardinal engaged in a fraudulent earnings and revenue management scheme to inflate Cardinal's publicly reported operating revenue, earnings and growth trends.

Based on the above, the Order suspends Beaulieu from appearing or practicing before the Commission as an accountant with a right to apply for reinstatement after three years. Beaulieu consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. 34-60074; AAE Rel. 2986; File No. 3-13508)

In the Matter of Gary Jensen (CPA)

On June 9, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against Gary Jensen. The Order finds that Jensen was the senior vice president and corporate controller of Cardinal Health, Inc. (Cardinal) from August 2002 until his resignation in February 2005, and that, from January 2003 until October 2004, Jensen was also Cardinal's principal accounting officer. On May 29, 2009, a final judgment was entered against Jensen, permanently enjoining him from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, in the civil action entitled Securities and Exchange Commission v. Richard J. Miller, Gary S. Jensen, and Michael E. Beaulieu, Civil Action Number 09-CV-4945, in the United States District Court for the Southern District of New York. Jensen was ordered to pay a $75,000 civil penalty and barred from serving as an officer or director of a publicly traded company for three years. The Commission's complaint alleged, among other things, that, at different times from at least September 2000 through at least March 2004, Jensen and other former senior accounting and finance officers of Cardinal engaged in a fraudulent earnings and revenue management scheme to inflate Cardinal's publicly reported operating revenue, earnings and growth trends.

Based on the above, the Order suspends Jensen from appearing or practicing before the Commission as an accountant with a right to apply for reinstatement after three years. Jensen consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. 34-60075; AAE Rel. 2987; File No. 3-13509)

In the Matter of Richard Miller (CPA)

On June 9, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions (Order) against Richard Miller. The Order finds that Miller was the Chief Financial Officer of Cardinal Health, Inc. (Cardinal) from 1998 until his resignation in July 2004. On May 29, 2009, a final judgment was entered against Miller, permanently enjoining him from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Rules 10b-5, 13b2-1, 13b2-2, and 13a-14 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, in the civil action entitled Securities and Exchange Commission v. Richard J. Miller, Gary S. Jensen, and Michael E. Beaulieu, Civil Action Number 09-CV-4945, in the United States District Court for the Southern District of New York. Miller was ordered to pay a $120,000 civil penalty and barred from serving as an officer or director of a publicly traded company for five years. The Commission's complaint alleged, among other things, that, at different times from at least September 2000 through at least March 2004, Miller and other former senior accounting and finance officers of Cardinal engaged in a fraudulent earnings and revenue management scheme to inflate Cardinal's publicly reported operating revenue, earnings and growth trends.

Based on the above, the Order suspends Miller from appearing or practicing before the Commission as an accountant with a right to apply for reinstatement after five years. Miller consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. 34-60076; AAE Rel. 2988; File No. 3-13510)

Federal Court Enjoins John Donnelly, Tower Analysis, Inc., Nasco Tang Corp., And Nadia Capital Corp. From Committing Securities Fraud

The Securities and Exchange Commission announced that on June 5, 2009, the Honorable Judge Glen E. Conrad, United States District Judge for the Western District of Virginia, entered a judgment against John M. Donnelly and three entities that he controlled, Tower Analysis, Inc., Nasco Tang Corp., and Nadia Capital Corp. The judgment permanently restrains Donnelly and the other defendants from violating the antifraud provisions 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. Judge Conrad also ordered the defendants to pay disgorgement of ill-gotten gains, prejudgment interest, and civil penalties in amounts to be determined by the Court upon motion of the Commission at a later date. Although Donnelly and the other defendants consented to the entry of the judgment without admitting or denying the allegations in the Commission's complaint, the allegations in the complaint will be deemed admitted for purposes of the Commission's motion for disgorgement, prejudgment interest and civil penalties, and defendants will be precluded from arguing that they did not violate the federal securities laws.

In its complaint filed on March 11, 2009, the Commission alleged that from at least 1998, Donnelly fraudulently raised 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 Commission further alleged that Donnelly orchestrated the scheme through three entities, Tower Analysis Inc., Nasco Tang Corp., and Nadia Capital Corp. 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 had done almost no securities trading. The Commission further alleged 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 Commission also alleged that Donnelly was in the process of soliciting investors for a new fund called Nadia Capital Partners, LP based on misrepresentations about his past trading results.

In a related criminal action arising from the same conduct alleged in the Commission's complaint, on May 11, 2009 Donnelly pled guilty to charges of wire fraud, securities fraud, fraud in connection with futures contracts, and impeding administration of internal revenue laws. Donnelly is scheduled to be sentenced on Sept. 14, 2009.

The Commission acknowledges the assistance of the United States Attorney's Office for the Western District of Virginia, the Federal Bureau of Investigation, the Internal Revenue Service, the U.S. Department of Justice Tax Division, and the U.S. Commodity Futures Trading Commission. [SEC v. John B. Donnelly, et al., Civil Action No. 03:09CV0015, United States District Court for the Western District of Virginia] (LR-21073)

SEC Brings Fraud Charges in Connection With a Multi-Million Dollar Oil and Gas Offering Fraud

On June 8, the Securities and Exchange Commission filed a complaint in the United States District Court for the Southern District of Indiana charging Berkshire Resources, L.L.C. (Berkshire), a Wyoming company purportedly involved in oil and gas exploration, its principals, Jason T. Rose and David G. Rose, the six companies through which Berkshire carried out a securities offering - Berkshire (40L), L.L.P., Berkshire 2006-5, L.L.P., Passmore-5, L.L.P., Gueydan Canal 28-5, L.L.P., Gulf Coast Development #12, L.L.P., Drilling Deep in the Louisiana Water, J.V. (collectively, the Berkshire Offerings)- with securities fraud in connection with an oil and gas offering fraud. The complaint also charged Berkshire's head sales agents, Mark D. Long and Yolanda C. Velazquez, with securities registration and broker-dealer registration violations.

In its complaint, the Commission alleges that from April 2006 through December 2007, Berkshire raised approximately $15.5 million from about 265 investors in the U.S. and Canada through a series of unregistered, fraudulent offerings of securities in the form of "units of participation." The defendants marketed the offerings to the public through cold call sales solicitations, and at trade shows and "wealth expositions." The purported purpose of the offerings was to fund oil and gas development projects that Berkshire was to oversee. According to the complaint, Jason Rose was the public face of Berkshire and was held out as its lead manager with significant experience in the oil and gas industry. In reality, Jason Rose had no experience managing an oil and gas company, and David Rose, Jason's father, ran the company behind the scenes. David Rose has an extensive disciplinary history for securities fraud and is facing a criminal indictment in connection with another similar but unrelated oil and gas scam.

The complaint further alleges that Berkshire, the Berkshire Offerings, Jason Rose, and David Rose also misled investors, among other things, about the use of investor proceeds. The defendants assured investors they would use 100 percent of their funds for the oil and gas drilling projects. Contrary to these representations, Berkshire spent approximately $6.7 million on items having nothing to do with developing the projects, including its own payroll and outside sales commissions, as well as marketing and promotional expenses. Moreover, of the $6.7 million, approximately $1.3 million went directly to members of the Rose family to pay for mortgages on their homes, home furnishings and electronics, cars, and personal credit card charges. The complaint also alleges that to further their scheme, Jason and David Rose enlisted Velazquez and Long to run two boiler-room type sales offices on Berkshire's behalf; one in Lake Mary, Florida and the other in Jeffersonville, Indiana. Long and Velazquez received commissions for their sales efforts, despite the fact that neither they nor Berkshire were registered broker-dealers. The complaint also alleges that Velazquez violated a prior Commission order issued in March 2005 that barred her from association with any broker or dealer. Finally, the complaint names Brian C. Rose and Joyce A. Rose as relief defendants and alleges that they received ill-gotten gains.

The complaint charges that: (a) Berkshire, Jason Rose, and David Rose violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act) and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5; (b) the Berkshire Offerings violated Sections 5(a), 5(c), and 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5; (c) Mark D. Long violated Sections 5(a) and 5(c) of the Securities Act, and Section 15(a) of the Exchange Act; and (d) Yolanda C. Velazquez, violated Sections 5(a) and 5(c) of the Securities Act, and Sections 15(a) and 15(b)(6)(B)(i) of the Exchange Act. In its complaint, the Commission seeks permanent injunctions, accountings, disgorgement plus prejudgment interest, and civil money penalties against all of the defendants and an accounting and disgorgement against the relief defendants. [SEC v. Berkshire Resources, L.L.C., et al. (United States District Court for the Southern District of Indiana, Case No. 09-CV-704 SEB/JMS] (LR-21074)

SEC Charges Swiss National With Insider Trading

On June 8, the Securities and Exchange Commission filed an amended complaint in the United States District Court for the Eastern District of Pennsylvania, alleging that Lorenz Kohler (Kohler), a resident of Switzerland, and Swiss Real Estate International Holding AG (Swiss Real Estate) engaged in insider trading in advance of the October 9, 2006 public announcement of a $566 million merger between CNS, Inc. (CNS) and GlaxoSmithKline plc.

The Commission alleges that Kohler purchased out-of-the-money call options in CNS in his personal account and in an account in the name of Swiss Real Estate, a company controlled by Kohler, based on material non-public information relating to the company's potential acquisition. The Commission alleges that Kohler and Swiss Real Estate realized illicit gains of approximately $387,566.

The Commission further alleges that Kohler tipped his wife and his brother-in-law, who then traded in CNS options in advance of the announcement of the acquisition of CNS. The amended complaint also names Sacho Todorov Dermendjiev, a resident of Bulgaria, as a relief defendant. The Commission alleges that Dermendjiev, who resides in Bulgaria, was the beneficial owner of banking and securities accounts over which Kohler held power of attorney. According to the amended complaint, Kohler purchased option contracts on CNS stock for Dermendjiev's account just prior to announcement of the acquisition of CNS and sold these options immediately after announcement of the CNS acquisition, resulting in illicit gains of $74,655 for Dermendjiev.

According to the amended complaint, Kohler has engaged in a pattern of highly suspicious trading both prior to and immediately after the trades in CNS securities that are charged in the amended complaint. During late 2005 and 2006, Kohler and a group of his friends and relatives also traded in the securities of five other public companies in advance of acquisitions or earnings announcements. The Commission alleges that Kohler and his circle of traders realized over $5 million in profits on these trades.

In the pending lawsuit, the Commission alleges that Kohler and Swiss Real Estate engaged in illegal insider trading in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The Commission seeks permanent injunctive relief, the disgorgement of all illegal profits, and the imposition of civil monetary penalties.

The amended complaint supersedes the Commission's original complaint in this action, which was filed on an emergency basis against purchasers of CNS call options whose identities were not, at that time, known to the Commission.

For further information see SEC v. One or More Unknown Purchasers of Call Options for the Common Stock of CNS, Inc., Civil Action No. 06-4540 (Eastern District of Pennsylvania) (LR-19867, Oct. 13, 2006). [SEC v. Lorenz Kohler and Swiss Real Estate International Holding AG, Defendants, and Sacho Todorov Dermendjiev, Relief Defendant, Civil Action No. 06-4540 (E.D. Pa.) ] (LR-21075)

SEC Charges Operators of $80 Million Ponzi Scheme Targeting Korean-Americans

The Securities and Exchange Commission today charged two California men and two companies they control for conducting an $80 million Ponzi scheme that targeted Korean-American investors with false promises of extraordinarily high returns from foreign currency (forex) trading.

The SEC alleges that Peter C. Son, of Danville, Calif., and Jin K. Chung, of Los Altos, Calif., lured approximately 500 investors in the United States, South Korea, and Taiwan into their investment scheme in which funds were not traded in the forex market as claimed, but instead used to pay cash "returns" to certain investors in Ponzi-like fashion. They also misappropriated investor money for their own personal use, including mortgage payments on Son's multi-million dollar home. The SEC is seeking an emergency court order to freeze the defendants' assets.

According to the SEC's complaint, filed in federal district court in San Francisco, Son and Chung operated their scheme through SNC Asset Management, Inc. (SNCA) and SNC Investments, Inc. (SNCI), which maintained offices in Pleasanton, Calif., and New York City. Son and Chung promised investors spectacular annual returns of up to 36 percent from forex trading, and told investors that SNCA had generated 50 percent profits from such trading each year since 2003.

The SEC alleges that Son and Chung faked SNCA's supposed forex trading profits, providing investors with monthly account statements showing fictitious returns. Son and Chung drained SNCA's and SNCI's bank accounts as their Ponzi scheme was collapsing and transferred investor funds to accounts they controlled overseas. In addition to paying Son's mortgage, investor funds were used to provide capital infusions to SNCI and pay Son's wife a salary for which she did no work.

The complaint charges the defendants with 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. Among other relief, the SEC seeks court orders prohibiting the defendants from engaging in future violations of these provisions; freezing their assets and compelling them to return overseas assets to the U.S.; and requiring them to disgorge their ill-gotten gains and pay financial penalties. [SEC v. Peter C. Son, Jin K. Chung, SNC Asset Management, Inc. and SNC Investments, Inc., Case No. CV-09-2554 MMC) (N.D. Cal.)] (LR-21076)

SEC v. Christopher M. Kunkel

The Securities and Exchange Commission announced that on June 4, 2009, it filed a complaint in the United States District Court for the Northern District of Georgia against Christopher M. Kunkel (Kunkel). The complaint alleges that Kunkel, an attorney and resident of Grayson, Georgia, provided services to Pinnacle Development Partners LLC (Pinnacle) and assisted in a fraudulent unregistered offering of securities by Pinnacle in the form of nominal general partnership interests.

The complaint alleges that from October 2005 until October 2006, Pinnacle raised more than $62 million from approximately 2,220 investors in 48 states and several foreign countries through a national advertising scheme which promised investors a 25% return in 45 or 60 days. The complaint further alleges that although the investments were described as general partnerships, they functioned as limited partnerships in that Pinnacle had sole control of the ventures. Further, the complaint alleges that Pinnacle's investment program purported to generate profits by buying and flipping foreclosed real estate in Atlanta. In fact, the investment program functioned as a Ponzi scheme in which Pinnacle used investments by later investors to generate returns for earlier investors.

The complaint further alleges that Kunkel knew Pinnacle was advertising a 25% profit to investors in 45 days and understood that the promised return was "nonsensical." Kunkel was also aware that Pinnacle was not effecting sufficient real estate transactions on behalf of the partnerships to generate the purported returns. Despite this knowledge, Kunkel allegedly spoke with prospective investors on a regular basis and vouched that the company had always paid investors profits on a timely basis. In his conversations with investors, Kunkel failed to disclose his belief that the promised return was nonsensical or that Pinnacle was not selling sufficient properties to pay the returns promised to investors. According to the complaint, Kunkel also wrote a reference letter that Pinnacle sent to prospective investors personally touting the integrity of Pinnacle and its business model and informing investors that they might forfeit their profits if they contacted other Pinnacle investors without his permission.

In a consent filed with the complaint, Kunkel agreed, without admitting or denying the allegations in the complaint, to the entry of a final judgment permanently enjoining him from future violations of the registration and antifraud provisions of the federal securities laws, Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition, Kunkel consented to pay disgorgement of $81,023 plus prejudgment interest of $2,796, provided that payment of the disgorgement be waived and a civil penalty not be imposed based on Kunkel's sworn representations in his Statement of Financial Condition. [SEC v. Christopher M. Kunkel, 1:09-CV-1481 (N.D. Ga)] (LR-21077)

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