In the Matter of Robert F. Malin
On August 3, the Commission issued an Order Making Findings and Imposing Remedial Sanctions Pursuant to Section 15(b) of the Securities Exchange Act of 1934 (the Order) against Robert F. Malin (Malin). The Order finds that Malin was Vice Chairman of Watley Group from approximately January 1999 through 2004 and President of A.B. Watley, Inc. (Watley), a day trading firm registered with the Commission as a broker-dealer, from approximately September 2002 through April 2004. During all relevant times, Malin had Series 7 and 63 licenses.
The Order further finds that on April 22, 2009, Respondent was found guilty of one count of conspiracy to commit securities fraud, a felony, in the United States District Court in the Eastern District of New York. U.S. v. Mahaffy, No. 05-CR-613 (JG) (E.D.N.Y. April 22, 2009). The conspiracy count of the criminal indictment of which Respondent was found guilty alleges that, while associated with a broker-dealer, Respondent participated in a scheme to use confidential information improperly obtained from broker-dealers' "squawk boxes" to trade ahead of the broker-dealers' institutional orders.
Based on the above, the Order bars Malin from association with any broker or dealer. Malin consented to the issuance of the Order without admitting or denying any of the findings in the Order except as to his criminal conviction, which he admits. (Rel. 34-60417; File No. 3-13512)
In the Matter of Ryan Douglas Smith
On August 3, the Commission issued an Order Instituting Administrative and Cease-And-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-And-Desist Order Pursuant to Sections 9(b) and 9(f) of the Investment Company Act of 1940 (Order) against Ryan Douglas Smith. The Order finds, among other things, that: (1) between December 2004 and May 2007, Smith served as president of Bellwether Capital Fund I, Inc.; (2) during this period, Smith knew that Bellwether was operating as an investment company within the meaning of Section 3(a)(1) of the Investment Company Act of 1940; (3) Smith knew that Bellwether was not registered as an investment company under Section 8 of the Investment Company Act.
Based on the above, Smith was ordered to cease and desist from causing violations and any future violations of Section 7(a) of the Investment Company Act and prohibited from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter, with the right to reapply for association after five (5) years. Smith consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. IC-28841; File No. 3-13568)
SEC Halts $77 Million Offering Fraud
On August 3, the Securities and Exchange Commission obtained an emergency court order halting a $77 million offering fraud perpetrated by defendants Medical Capital Holdings, Inc. (MCHI), Medical Capital Corporation (MCC), Medical Provider Funding Corporation VI (MP VI), Sidney M. Field, and Joseph J. Lampariello. The SEC's complaint, filed in federal court in Orange County, California, alleges that the defendants defrauded investors by misappropriating about $18.5 million of investor funds and by misrepresenting to investors that no prior offerings had defaulted on or been late in making payments to investors of principal and/or interest.
MCHI is a medical receivables financing company that operates through MCC, its wholly-owned subsidiary, to administer several Special Purpose Corporations (SPCs), including MP VI. Field and Lampariello are directors of MCHI, MCC, and MP VI, with Field also serving as the defendant entities' CEO and Lampariello serving as their president and COO. Field, 63, resides in Villa Park, California, and Lampariello, 55, resides in Huntington Station, New York and Newport Beach, California.
The SEC's complaint alleges that, since 2003, MCHI, MCC, Field, and Lampariello have raised over $2.2 billion through offerings of notes in MP VI and five other similarly structured SPCs. As of March 31, 2009, MP VI and its affiliated SPCs had over $1.2 billion in notes outstanding, and since August 2008, five of the SPCs have been in default or late in paying principal and/or interest on $992.5 million in notes.
As alleged in the SEC's complaint, the defendants defrauded investors by misappropriating approximately $18.5 million of the $76.9 million raised through the sale of MP VI notes to pay administrative fees to MCC. The complaint alleges that these fee payments were contrary to representations in MP VI's original offering documents, which stated that administrative fees would not be paid out of proceeds from the sale of notes. The complaint also alleges that these fee payments were contrary to representations in MP VI's May 27, 2009 supplemental offering documents that less than $4 million had been used for purposes other than purchasing accounts receivables.
In addition, the SEC's complaint alleges that the defendants defrauded investors by misrepresenting in MP VI's offering documents that none of the SPCs affiliated with MP VI had defaulted on or been late in making payments of principal and/or interest to their respective investors. In fact, two MP VI-affiliated SPCs began defaulting on interest and/or principal payments in the same month that MP VI began its offering, and recently two other MP VI-affiliated SPCs have defaulted or been late in making interest payments.
The Honorable David O. Carter, U.S. District Judge for the Central District of California, granted the SEC's request for emergency relief, including an order temporarily enjoining all defendants from future violations of the antifraud provisions and freezing the assets of and appointing a temporary receiver over MCHI, MCC, and MP VI. The SEC also seeks preliminary and permanent injunctions, disgorgement, and civil penalties against all defendants. A hearing on whether a preliminary injunction should be issued against the defendants and whether a permanent receiver should be appointed is scheduled for Aug. 17, 2009, at 8:30 a.m. PT. [SEC v. Medical Capital Holdings, Inc.; Medical Capital Corporation; Medical Provider Funding Corporation Vi; Sidney M. Field; And Joseph J. Lampariello, Civil Action No. SA CV09-818 DOC(RNBx) (C.D. Cal.)] (LR-21165)
SEC Charges General Electric with Accounting Fraud
The Securities and Exchange Commission today filed a civil injunctive action alleging civil fraud and other charges against General Electric Company (GE), a diversified technology, manufacturing, media, and financial services company with headquarters in Fairfield, Connecticut. The suit, filed in U.S. District Court for the District of Connecticut, alleges that GE misled investors by reporting materially false and misleading results in its financial statements. The SEC alleged that GE used improper accounting methods to increase its reported earnings or revenues and avoid reporting negative financial results. GE has agreed to pay a $50 million penalty to settle the SEC's charges.
According to the Commission's complaint, GE met or exceeded final consensus analyst earnings per share (EPS) expectations every quarter from 1995 through filing of its 2004 annual report. However, on four separate occasions in 2002 and 2003, high-level GE accounting executives or other finance personnel approved accounting that was not in compliance with Generally Accepted Accounting Principles (GAAP). In one instance, the improper accounting allowed GE to avoid missing analysts' final consensus EPS expectations. The four accounting violations were (1) beginning in January 2003, an improper application of the accounting standards to GE's commercial paper funding program to avoid unfavorable disclosures and an estimated approximately $200 million pre-tax charge to earnings; (2) a 2003 failure to correct a misapplication of financial accounting standards to certain GE interest-rate swaps; (3) in 2002 and 2003, reported end-of-year sales of locomotives that had not yet occurred in order to accelerate more than $370 million in revenue; and (4) in 2002, an improper change to GE's accounting for sales of commercial aircraft engines' spare parts that increased GE's 2002 net earnings by $585 million.
Without admitting or denying the SEC's allegations, GE agreed to the financial penalty and consented to the entry of an order permanently enjoining it from violating Section 17(a) of the Securities Act of 1933 (Securities Act) and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The charges announced today conclude the SEC's investigation with respect to the company. [SEC v. General Electric Company, 3:09 CV 1235 (RNC) (D. Conn.)] (LR-21166; AAE Rel. 3029)
SEC Charges Three for their Roles in a Fraudulent, Unregistered Securities Offering
On July 31, 2009, the Securities and Exchange Commission filed a complaint in United States District Court for the Northern District of Texas, charging Omar Ali Rizvi, Bellwether Venture Capital Fund I, Inc., and Strategy Partners, LLC for their roles in operating an unregistered investment company and an unregistered broker-dealer as vehicles for a fraudulent securities offering.
The Commission's complaint alleges that from August 2004 through at least June 2005, Rizvi raised over $1.8 million from over 170 investors in a fraudulent, unregistered securities offering on behalf of Bellwether, an unregistered investment company that Rizvi controlled. The complaint alleges that Rizvi raised those funds through Strategy Partners, an unregistered broker that Rizvi also controlled. The complaint further alleges that, during the offering, Rizvi misrepresented or omitted to disclose to investors numerous material facts regarding his personal and professional background, the professionals employed by Bellwether and Strategy Partners, the payment of commissions, and Bellwether's investment returns. In addition, the complaint alleges that Rizvi misappropriated and misapplied nearly $1.2 million of the offering proceeds.
As a result of the conduct described in the complaint, the Commission alleges that Rizvi violated Sections 5(a), 5(c), and 17(a) of the Securities Act, Sections 10(b), and 15(a)(1) of the Exchange Act and Rule 10b-5 thereunder; Bellwether violated Sections 5(a) and 5(c) of the Securities Act, and Section 7(a) of the Investment Company Act; and Strategy Partners violated Sections 5(a) and 5(c) of the Securities Act and Section 15(a)(1) of the Exchange Act.
The Commission seeks permanent injunctions against further violations of the securities laws, disgorgement plus prejudgment interest, and civil money penalties from each defendant.
In a related administrative proceeding against Ryan Douglas Smith, without admitting or denying the Commission's findings, Smith consented to an order finding that Smith willfully aided and abetted and caused violations of the registration provisions of the Investment Company Act. The order directs Smith to cease and desist from causing any violations and any future violations of Section 7(a) of the Investment Company Act. In the Matter of Ryan Douglas Smith, Investment Company Act of 1940 Release No. , Aug. 2, 2009. [SEC v. Omar Ali Rizvi, Bellwether Venture Capital Fund I, Inc., and Strategy Partners, LLC, Civil Action No. 4:09-CV-371 (N.D. Tx)] (LR-21167)
INVESTMENT COMPANY ACT RELEASES
Notices of Deregistration under the Investment Company Act
For the month of July 2009, a notice has been issued giving interested persons until Aug. 25, 2009, 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-28840 - July 31)
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