In the Matter of Albert Fase Kaleta
On Feb. 2, 2010, 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 Albert Fase Kaleta. The Order finds that on Dec. 2, 2009, a final judgment was entered by consent against Kaleta, permanently enjoining him from future 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, and Sections 206(1) and (2) of the Investment Advisers Act of 1940, in the civil action titled SEC v. Albert Kaleta, et al., Civil Action Number 4:09-cv-03674, in the United States District Court for the Southern District of Texas. The Order further finds that the Commission's complaint in the federal court case alleged that, in connection with the sale of promissory notes made by KCM, Kaleta falsely stated to investors that the note proceeds would be used to make short-term loans to small businesses; that KCM would only lend to creditworthy individuals or entities whose models Kaleta had fully researched and understood; that Kaleta would perform due diligence to ensure that borrowers had the ability to repay their loans; that KCM would charge 12-14% annual interest on the loans, and would profit from the spread between that amount and the 10% promised investors. Instead, Kaleta misused and misappropriated investor funds. Kaleta paid himself, his family members, and his affiliated companies which were not creditworthy.
Based on the above, the Order bars Kaleta from association with any investment adviser. Kaleta consented to the issuance of the Order without admitting or denying any of the findings in the Order, except as to the entry of the injunction, which he admitted. (Rel. IA-2983; File No. 3-13773)
SEC Brings Fraud Charges Against Children's Book Company
The Securities and Exchange Commission charged Winning Kids, Inc. and its founder and CEO, Christian Hainsworth, as well as three former sales agents, Robert Comiskey, Edward Tamimi, and Victor Selenow, for conducting a fraudulent offering scheme wherein they raised approximately $2 million from approximately 200 investors nationwide. The SEC alleges that the defendants misrepresented to investors the status of the company's business operations, falsely promised baseless profit projections of 300%, and failed to disclose that the sales agents were receiving up to 20% selling commissions. Hainsworth also failed to disclose he was using offering proceeds for his personal expenses.
The SEC's complaint, filed in the United States District Court for the Southern District of Florida, charges Winning Kids, Hainsworth, Comiskey, Tamimi, and Selenow with violating 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 further charges Comiskey, Tamimi, and Selenow with violating Section 15(a) of the Exchange Act, and Hainsworth with aiding and abetting their violations of this provision. The SEC is seeking permanent injunctions, disgorgement with prejudgment interest, and civil money penalties against all defendants.
Without admitting or denying the SEC's allegations, Winning Kids and Hainsworth have consented to the entry of a judgment that: (i) permanently enjoins them from committing future violations of the above provisions; and (ii) orders them to pay disgorgement of ill-gotten gains, prejudgment interest thereon, and civil penalties, in amounts to be determined by the court upon the Commission's motion. [SEC v. Winning Kids, Inc., Christian Hainsworth, Robert Comiskey, Edward Tamimi, and Victor Selenow, Defendants, Case No. 10-CV-80186 (S.D. Fla.)] (LR-21400)
SEC Charges New York Securities Lawyer With Fraud for Role in Pump-and-Dump Scheme
On Feb. 1, 2010, the United States Securities and Exchange Commission sued Stephen Czarnik, a securities lawyer, for his role in multi-million dollar pump-and-dump stock schemes. According to the complaint, the actions of Czarnik allowed three stock promoters - Ryan Reynolds, Jason Wynn and Carlton Fleming - to purchase millions of shares of stock in three penny stock companies for pennies per share, hype the companies through promotional mailers and other advertising, and illicitly sell their shares to the public for millions of dollars in profits. The Commission alleges that because the shares were not registered, Reynolds, Wynn and Fleming were able to deprive the investing public of important information about the actual financial condition and business operations of the companies.
According to the SEC, Czarnik purportedly served as counsel to the companies -- My Vintage Baby, Inc., Alchemy Creative, Inc., and Beverage Creations, Inc. -- and issued legal opinion letters and other documents proclaiming improper registration exemptions under Rule 504 of Regulation D. In these documents, Czarnik falsely represented that Reynolds, Wynn and Fleming intended to hold, rather than illegally distribute, shares of My Vintage Baby, Inc., Alchemy Creative, Inc. and Beverage Creations, Inc. in the public market. The SEC alleges that Czarnik knew or was reckless in not knowing that Reynolds, Wynn and Fleming intended to distribute the stock because he received emails describing the distribution plan and saw other indications of their promotional and trading activities.
The SEC alleges that by the above-mentioned conduct, Czarnik served as a necessary and substantial participant in unregistered offerings of stock, and as such, violated the registration provisions of the Securities laws, Sections 5(a) and (c) of the Securities Act of 1933. The SEC also alleges that by his fraudulent statements in the opinion letters and other associated documents, Czarnik violated Section 17(a) of the Securities Act and Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking against Czarnik a permanent injunction, a civil penalty, disgorgement of ill-gotten gains and a penny stock bar, among other relief.
The Commission acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in the investigation of this matter. [SEC v. Stephen Czarnik, Case Number 10-CV-745 (S.D. New York)] (LR-21401)
Court Enters Default Judgment Against Hedge Fund Manager Grant Ivan Grieve
The Commission announced that on Jan. 27, 2010, the Honorable Alvin K. Hellerstein, United States District Judge for the Southern District of New York, entered a default judgment against hedge fund manager Grant Ivan (Gad) Grieve. In an action filed on Feb. 10, 2009, the Commission charged Grieve and his solely-owned investment advisory firms, Finvest Asset Management, LLC and Finvest Fund Management, LLC (collectively, Finvest), with fraud in connection with two hedge funds that they managed and advised, Finvest Primer, L.P. (Primer Fund) and Finvest Yankee, L.P (Yankee Fund). According to related court filings by the Commission, Grieve and Finvest attracted more than $50 million in investments between the two funds.
The Court's judgment enjoins Grieve from future 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, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The Court also ordered Grieve to pay disgorgement of ill-gotten gains, prejudgment interest thereon, and civil monetary penalties in amounts to be determined in later proceedings.
The Commission's complaint alleged that defendants Grieve and Finvest fabricated and disseminated false financial information for the Primer Fund that was "certified" by a sham back-office administrator and phony auditing firm that Grieve himself created. The complaint also alleged that Grieve and Finvest provided current and prospective investors in Primer Fund and Yankee Fund with false monthly account statements, newsletters, and fact sheets that materially overstated the funds' performance and assets. According to the Commission, beginning in late 2008, Grieve engaged in similar misconduct overseas, including luring new investors and/or placating existing investors with counterfeit documents. [SEC v. Grant Ivan Grieve, Finvest Asset Management, LLC; and Finvest Fund Management, LLC; Civil Action No. 09-Civ-1198 (S.D.N.Y.) (AKH)] (LR-21402)
SEC Charges Former Hedge Fund Portfolio Manager in Insider Trading Scheme
The Securities and Exchange Commission today announced insider trading charges against David R. Slaine, a former hedge fund portfolio manager at DSJ International Resources Ltd. (d/b/a "Chelsey Capital"). The SEC alleges that Slaine used inside information tipped by a former executive at UBS Securities LLC (UBS) to trade ahead of upcoming UBS analyst recommendations for Chelsey Capital and in his personal brokerage account. The complaint alleges that Slaine's personal profits from this illicit scheme totaled more than $500,000.
The Commission previously filed insider trading charges against Chelsey Capital and other defendants in connection with this insider trading scheme. See SEC v. Guttenberg, et al., No. 07 CV 1774 (S.D.N.Y.) (PKC)/Lit. Rel. 20022. Chelsey Capital and these other defendants previously entered into settlements with the Commission, and final judgments have been entered against them. Without admitting or denying liability, Chelsey Capital consented to a final judgment that ordered permanent injunctive relief, disgorgement of $3,637,548, plus prejudgment interest of $1,626,344, and a $3,637,548 civil penalty.
As a result of conduct described in the complaint, the Commission alleges that Slaine violated 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. The Commission's complaint seeks permanent injunctive relief, disgorgement of Slaine's personal illicit profits, plus prejudgment interest, and civil monetary penalties.
In a related criminal case, the U.S. Attorney's Office for the Southern District of New York announced today that Slaine has pled guilty to criminal charges in connection with this insider trading scheme.
The Commission wishes to thank the U.S. Attorney's Office and the Federal Bureau of Investigation for their cooperation and assistance in connection with this matter. For further information, see Litigation Release Nos. 20022 (March 1, 2007), 20367 (Nov. 20, 2007), 20725 (Sept. 18, 2008), 21086 (June 16, 2009), 21244 (Oct. 8, 2009), and 21359 (Jan. 5, 2010). [SEC v. David R. Slaine, Civil Action No. 10 CV 754 (S.D.N.Y.) (DAB)] (LR-21403)
INVESTMENT COMPANY ACT RELEASES
Notices of Deregistration under the Investment Company Act
For the month of January 2010, a notice has been issued giving interested persons until Feb. 23, 2010, 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-29126 - January 29)
Approval of Proposed Rule Change
The Commission approved a proposed rule change (SR-NASDAQ-2009-077) submitted pursuant to Section 19(b)(1) and Rule 19b-4 under the Securities Exchange Act of 1934 by The NASDAQ Stock Market to modify the procedures followed when a listed company falls below certain listing requirements. Publication in the Federal Register is expected during the week of February 1. (Rel. 34-61446)
Immediate Effectiveness of Proposed Rule Change
A proposed rule change filed by The NASDAQ Stock Market to modify NASDAQ's order routing rule (SR-NASDAQ-2010-018) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication in the Federal Register is expected during the week of February 1. (Rel. 34-61460)
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