In the Matter of David L. Hersh
On Nov. 20, 2009, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions (Order) against David L. Hersh (Respondent).
The Order finds that during 2007 and 2008, Respondent acted as an unregistered investment adviser. On Nov. 2, 2009, a final judgment was entered by consent against Respondent in Securities and Exchange Commission v. David L. Hersh, Civil Action Number 5:09-cv-417 (SEC v. Hersh), enjoining him from future violations of 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, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act and Rule 206(4)-8 thereunder.
The Complaint in SEC v. Hersh alleged that Respondent offered and sold securities to unsophisticated investors on the basis of misrepresentations and omissions of material fact to fund an options trading scheme. Respondent pooled investor funds and diverted some of the funds for his personal use. Respondent knowingly misrepresented the expected returns from the options trading scheme to existing and potential investors and did not disclose the related trading risks. Respondent routinely created and used fraudulent documents to mislead existing and potential investors. The complaint also alleged that Respondent sold unregistered securities.
Based on the above, the Order bars Respondent from association with any investment adviser. Respondent consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. IA-2953; File No. 3-13693)
In the Matter of Valcapx Acquisition Corp.
An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default (Default Order) in Valcapx Acquisition Corp., Administrative Proceeding No. 3-13676. The Order Instituting Proceedings alleged that Respondents repeatedly failed to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission. The Default Order finds these allegations to be true and revokes the registrations of each class of registered securities of Valcapx Acquisition Corp., Valuestar Corp., Vandelay, Inc., VelocityHSI, Inc., Ventura Entertainment Group, Ltd. (n/k/a Insight Entertainment Group, Ltd.), and Verida Internet Corp., pursuant to Section 12(j) of the Securities Exchange Act of 1934. (Rel. 34-61047A; File No. 3-13676)
SEC Halts Affinity Fraud Targeting the Somali Community
The Securities and Exchange Commission obtained a court order to halt a securities fraud targeting investors in the Somali immigrant community in San Diego, Seattle, and elsewhere.
The Commission's complaint names Mohamud A. Ahmed (Ahmed), age 45, of Spring Valley, Calif., and his company, Shidaal Express, Inc. (Shidaal Express), which operates in the San Diego area. The complaint alleges Ahmed formed Shidaal Express to provide check-cashing, money transfer, and other financial services for the Somali immigrant community, and a sign at one storefront location listed "Investment Opportunities" among the services provided. According to the complaint, Ahmed raised at least $3 million, including $200,000 from a San Diego mosque, by promising exorbitant guaranteed returns of 5% per month, or 60% annually.
The Commission charged Ahmed and Shidaal Express with committing securities fraud by making false and misleading statements to persuade people to invest with them. According to the complaint, Ahmed solicited investors through word-of-mouth, at a mosque in San Diego, at a presentation given in a Seattle-Tacoma hotel, and through Shidaal Express's website. The Commission alleges that Ahmed lured investors by assuring them they could receive their money back at any time. While initially paying investors monthly returns, the complaint alleges Ahmed tried to extract more money from the investors. The complaint alleges Ahmed eventually stopped paying monthly returns but continued lulling investors.
The Honorable Jeffrey Miller, United States District Judge, granted the Commission's application for emergency relief and froze the defendants' assets. The Judge also appointed Thomas Hebrank as the temporary receiver over the assets of Shidaal Express and its affiliates. On Nov. 30, 2009, the Court will hold a hearing on the Commission's motion for a preliminary injunction and appointment of a permanent receiver.
The Commission's complaint charges defendants with violating the antifraud provisions, 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, of the federal securities laws. In addition to the emergency relief, the Commission's complaint seeks preliminary and permanent injunctions, disgorgement, prejudgment interest, and financial penalties against Ahmed and Shidaal Express.
The Commission acknowledges the assistance of the California Department of Financial Institutions, the Federal Bureau of Investigation, and the U.S. Attorney's Office for the Southern District of California. [SEC v. Shidaal Express, Inc. and Mohamud Abdi Ahmed, United States District Court for the Southern District of California, Case No. 09 cv 2610 JM (POR)] (LR-21310)
SEC Files Settled Offering Fraud Case Against Capital Mountain Holding Corporation and Derek Nelson and Obtains Appointment of a Receiver
On November 20, the Commission sued Capital Mountain Holding Corporation, Derek A. Nelson, and two other affiliated companies known as Systems XXI, Act I, LLC and Systems XXI, Act II, LLC, in the United States District Court in Dallas, Texas. The Commission alleges that CMHC, Nelson, and the two Systems XXI companies defrauded investors in the offer and sale of CMHC and Systems XXI-issued promissory notes in offerings that raised in excess of $25 million from hundreds of investors. The Commission also sued two other Nelson-owned entities, Plouteo, Inc. and Homaide Real Estate Services, Inc., as Relief Defendants solely for the purposes of equitable relief.
The Commission alleges that Nelson and his companies lied to investors about the intended uses of offering proceeds. Among other things, the Commission contends that Nelson used a substantial portion of investor proceeds to pay prior investors and took at least $3.6 million for himself or to pay personal expenses, including the purchase of a million-dollar home.
Without admitting or denying the complaint's allegations, Nelson and his companies have consented to permanent injunctions against future violations of the registration and antifraud provisions, as well as an asset freeze and an order appointing a receiver. The Court will determine the amount of disgorgement and civil penalty that will be assessed against CMHC, Nelson, and the two Systems XXI companies. The court entered the injunctions, freeze order and order appointing receiver on November 20. [SEC v. Capital Mountain Holding Corporation, et al, Civil Action No. 3:-09-cv-02222-F, United States District Court for the Northern District of Texas (Dallas Division)] (LR-21311)
INVESTMENT COMPANY ACT RELEASES
Pioneer Floating Rate Trust and Pioneer High Income Trust
A notice has been issued giving interested persons until Dec. 14, 2009, to request a hearing on an application filed by Pioneer Floating Rate Trust and Pioneer High Income Trust for an order under Section 6(c) of the Investment Company Act granting an exemption from Sections 18(a)(1)(A) and (B) of the Act for a period from the date of the order until Oct. 31, 2010. The order would permit each applicant to issue or incur debt that would be used to redeem all or a portion of the applicant's auction market preferred shares that were issued prior to Feb. 1, 2008 and that are outstanding at the time of such issuance or incurrence of debt (post-order debt), and to refinance such post-order debt, subject to the 200% asset coverage requirement ordinarily applicable to a senior security that is stock. The order also would permit each applicant to declare dividends or any other distributions on, or purchase, capital stock during the term of the order, provided that any such post-order debt has asset coverage of at least 200% after deducting the amount of such transaction. (Rel. IC-28998 - November 20)
Notices of Deregistration under the Investment Company Act
For the month of November 2009, a notice has been issued giving interested persons until Dec.15, 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-28999 - November 20)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by NYSE Amex (SR-NYSEAmex-2009-83) extending the operation of its New Market Model Pilot until the earlier of Securities and Exchange Commission approval to make such pilot permanent or March 30, 2010 has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-61030)
A proposed rule change filed by New York Stock Exchange (SR-NYSE-2009-113) extending the operation of its New Market Model Pilot until the earlier of Securities and Exchange Commission approval to make such pilot permanent or March 30, 2010 has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-61031)
A proposed rule change filed by NYSE Arca (SR-NYSEArca-2009-105) relating to the expansion of the $1.00 Strike Program to allow the listing of low-strike LEAPS has become immediately effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-61035)
A proposed rule change filed by NYSE Amex (SR-NYSEAmex-2009-84) relating to the expansion of the $1.00 Strike Program to allow the listing of low-strike LEAPS has become immediately effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of November 16. (Rel. 34-61036)
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