Initial Decision Barring Linus N. Nwaigwe Declared Final
The Commission has declared final the initial decision of an administrative law judge barring Linus N. Nwaigwe from association with any broker or dealer. The initial decision found that, on April 22, 2009, the United States District Court in the Eastern District of New York, found Nwaigwe guilty of one count of conspiracy to commit securities fraud, a felony. United States v. Mahaffy, No. 05 CR 613 (E.D. NY April 22, 2009). Nwaigwe was sentenced to twelve months and a day in prison; and was also ordered to forfeit the gross proceeds of his crime.
The initial decision found that Nwaigwe participated in a criminal scheme, over an extended period of time, to defraud brokerage houses of property and honest services when he was wrongfully permitted to listen to transmissions made over brokerage houses' squawk boxes. The transmissions contained references to orders to buy/sell quantities of stock large enough to affect the market prices of the affected stock. (Rel. 34-61581; File No. 3-13481)
In the Matter of Robert P. Copeland, Esq.
The Securities and Exchange Commission announced the issuance of an Order of Forthwith Suspension Pursuant to Rule 102(e)(2) of the Commission's Rules of Practice suspending Robert P. Copeland, Esq. from appearing or practicing before the Commission. The Commission's order finds that on Sept. 21, 2009, the United States District Court for the Northern District of Georgia entered a judgment convicting Copeland of wire fraud and that on June 8, 2009, the Supreme Court of Georgia ordered that his name be removed from the rolls of persons entitled to practice law in Georgia. Copeland, an attorney who has appeared and practiced before the Commission, devised a "Ponzi" scheme to defraud investors by making materially false and fraudulent representations to investors. This conduct defrauded more than 125 individuals out of more than $28 million. (Rel. 34-61584; File No. 3-13790)
In the Matter of Anthony Santos
On Feb. 25, 2010, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions (Order) against Anthony Santos. The Order finds that from March 2003 through May 2005, Santos served as the executive vice president, chief compliance officer, and general counsel of NevWest Securities Corporation (NevWest), a broker-dealer registered with the Commission. On Feb. 9, 2010, a judgment of permanent injunction was entered by consent against Santos, permanently enjoining him from future violations of Section 5 of the Securities Act of 1933, in the civil action entitled Securities and Exchange Commission v. CMKM Diamonds, Inc., et al., Civil Action No. 2:08-cv-00437-LRH-RJJ in the United States District Court for the District of Nevada. The Commission's complaint alleged that, among other things, from March 2003 until May 2005, Santos improperly participated in the sale of more than 259 billion shares of unregistered securities of CMKM Diamonds, Inc. The complaint also alleged that this unregistered distribution generated more than $53.3 million in proceeds.
Based on the above, the Order bars Anthony Santos from association with any broker or dealer, with the right to reapply for association after five years to the appropriate self-regulatory organization, of if there is none, to the Commission. Anthony Santos consented to the issuance of the Order without admitting or denying any of the findings in the Order. (Rel. 34-61585; File No. 3-13791)
SEC Charges Madoff's Director of Operations With Falsifying Accounting Records and Siphoning Investor Funds
The Securities and Exchange Commission today charged one of convicted Ponzi schemer Bernard Madoff's key operatives with falsifying accounting records to enable the multi-billion dollar fraud and illegally enrich himself, Madoff, and Madoff's family and employees.
According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, Daniel Bonventre disguised Madoff's fraud and the financial losses at Madoff's firm by misusing and improperly recording investor money to create the false appearance of legitimate income.
As Madoff's Director of Operations, Bonventre ran the back office at Bernard L. Madoff Investment Securities LLC (BMIS) and oversaw the firm's accounting and securities clearing functions for at least 30 years. The SEC alleges that Bonventre knew that billions of dollars in investor funds were not being used to purchase securities on behalf of investors. The SEC further alleges that Bonventre made at least $1.9 million in illicit personal profits from the scheme through fake, backdated "trades" in his own investor account at BMIS.
According to the SEC's complaint, Bonventre was responsible for the firm's general ledger and financial statements that were materially misstated because they did not reflect the manner in which investor funds were maintained and used. Bonventure ensured that BMIS financial reports did not reflect the firm's massive liabilities to investors or the corresponding assets received from investors. To hide the fact that BMIS normally operated at a significant loss, the firm used more than $750 million in investor funds to artificially improve reported revenue and income.
The SEC alleges that Bonventre also helped Madoff, his lieutenant Frank DiPascali, Jr., and others orchestrate lies to investors and regulators when investment advisory operations at BMIS came under review. With Bonventre's assistance, they made serial misrepresentations to external reviewers by manufacturing reams of false reports and data.
The SEC further alleges that Bonventre personally siphoned $1.9 million from the scheme by directing that profits from fake, backdated trades be put into his own investor account at BMIS. One of these trades was backdated by 12 years. Bonventure instructed another fake, backdated trade in a handwritten note to a BMIS employee that read: "Hi ... As per our phone conversation, I need a long term capital gain of $449000.-- on an investment of $129000- for a sale proceed of $578000.-- I'll be back in NY on March 30th but if you need to speak to me before then, call me.... Thanks[,] Dan."
This is the SEC's seventh enforcement action in the Madoff fraud since the scheme collapsed in December 2008. The Commission previously charged Madoff and BMIS, DiPascali, and auditors David G. Friehling and Friehling & Horowitz CPAs, P.C., who have all pleaded guilty to criminal charges related to their conduct. The SEC also charged certain feeder funds with committing securities fraud, and charged two computer programmers at Madoff's firm for their roles in covering up the scheme.
The SEC's complaint specifically alleges that Bonventre violated Section 17(a) of the Securities Act of 1933; violated and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder; and aided and abetted violations of Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 (Advisers Act) and Rule 206(4)-2 thereunder, Sections 15(c) and 17(a) of the Exchange Act and Rules 10b-3, 17a-3, and 17a-5 thereunder, and Section 204 of the Advisers Act and Rule 204-2 thereunder. Among other things, the SEC's complaint seeks financial penalties and a court order requiring Bonventre to disgorge his ill-gotten gains.
The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation, with which the Commission has coordinated its investigation. The SEC's investigation is continuing. [SEC v. Daniel Bonventre, USDC, SDNY, Civ. 10 CV 1576)] (LR-21424)
SEC Files Settled Insider Trading Charges Against Former Deloitte Tax Professional and Three Others; Related Administrative Proceeding Against a Fifth Individual also Instituted and Simultaneously Settled
The Securities and Exchange Commission today filed settled insider trading charges against four individuals--John A. Foley, Aaron M. Grassian, Timothy L. Vernier, and Bradley S. Hale--for their respective roles in an alleged pattern of insider trading and tipping in the securities of four public companies over a 22-month period that yielded illegal profits totaling $210,580.62. The four public companies involved are Crocs, Inc., YRC Worldwide, Inc., Spectralink Corporation and SigmaTel, Inc. All four defendants have agreed to settle the Commission's charges without admitting or denying the allegations in the Commission's Complaint, and their settlement papers have been submitted to the Court for its consideration. Separately, a fifth individual, Tara R. Eisler, was named in a related administrative proceeding instituted and simultaneously settled today.
According to the Complaint, which was filed in federal court in the District of Columbia, Foley served as an employee benefits specialist at Deloitte between July 2005 and May 2007, and learned, through his work on Deloitte client engagements, material, non-public information concerning (i) Crocs' first earnings release after going public; (ii) a potential acquisition of YRC by a third party (that ultimately was not consummated); and (iii) the acquisition of Spectralink, via tender offer, by another public company. According to the Complaint, Foley traded in all three issuers' securities based on this material, non-public information through nominee accounts; Foley also tipped his friend Vernier concerning all, and Grassian concerning part, of this information; and both men traded on Foley's communications.
The Complaint further alleges that Grassian later reciprocated by, in turn, tipping Foley concerning the acquisition of SigmaTel by Freescale Semiconductor, Inc., after learning of that pending acquisition from his friend and former colleague, Hale, who worked on the acquisition for Freescale. According to the Complaint, Grassian traded on Hale's tips for himself, and also passed them on to Foley, who, in turn, both traded in SigmaTel for himself, and also tipped Vernier and recommended SigmaTel to others, who likewise traded. The Complaint further alleges that Vernier substantially assisted Foley's insider trading violations as to Crocs by allowing Foley to trade in Crocs securities through Vernier's account, while knowing of or recklessly disregarding Foley's breaches of duty to Deloitte and to Crocs. Finally, the Complaint alleges that, since Crocs was a Deloitte audit client and Foley served on the Crocs audit team at the time of his Crocs trading and tipping, Foley also committed, and caused his firm to commit, an auditor-independence violation, and caused related issuer-reporting violations by the issuer.
According to the Complaint, by their conduct each defendant violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; defendants Foley, Grassian and Vernier also violated Exchange Act Section 14(e) and Rule 14e-3 thereunder; defendant Vernier aided and abetted Foley's violation of Exchange Act Section 10(b) and Rule 10b-5 thereunder; defendant Foley violated, and aided and abetted and caused Deloitte's violation of, Rule 2-02(b) of Regulation S-X; and Foley also aided and abetted and caused Crocs' violation of Exchange Act Section 13(a) and Rule 13a-13 thereunder. No charges were filed against Deloitte or Crocs.
The four defendants' signed Consents--which are subject to approval by the Court--provide that, without admitting or denying the Commission's allegations, each defendant would be permanently enjoined against future violations of the statutes and rules each is alleged to have violated, with the monetary portions of each settlement being as follows: (i) Foley would pay disgorgement of $125,538.61, plus prejudgment interest thereon in the amount of $18,697.89, with no civil penalty being imposed against him based on his demonstrated inability to pay; (ii) Vernier would pay disgorgement of $50,285.08, plus prejudgment interest thereon in the amount of $6,320.29 and a civil penalty of $23,138.07, with no further civil penalty being imposed based on his demonstrated inability to pay; (iii) Grassian would pay disgorgement of $34,756.93, plus prejudgment interest thereon in the amount of $4,768.39 and a civil penalty of $34,756.93; and (iv) no civil penalty would be imposed upon Hale, based on his demonstrated inability to pay.
Separately today, the Commission also instituted, and simultaneously settled, a related administrative proceeding. See Matter of Tara R. Eisler, Admin. Proc. File No. 3-13792 (Feb. 25, 2010). In particular, in the Order Instituting Administrative Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order (Order), the Commission found that Eisler permitted Foley to utilize an on-line brokerage account in her name to trade in the securities of Spectralink in advance of its acquisition by Polycomm, Inc. The Order further found that, at the time, Eisler knew, or was reckless in not knowing, that Foley was trading in her name to evade restrictions on his own trading arising from his employment with Deloitte. The Order also found that Eisler helped Foley obscure his connection to her account by, among other things, delivering trading proceeds to him in cash. The Order found that, by engaging in the foregoing conduct while knowing or being reckless in not knowing that Foley was committing insider trading in violation of Exchange Act Section 10(b) and Rule 10b-5 thereunder, Eisler was a cause of Foley's violation of those provisions; and the Order directed Eisler to cease and desist from committing or causing any violations and any future violations of those provisions.
Eisler consented to the issuance of the Order without admitting or denying the findings contained therein. (Rel. 34-61586; File No. 3-13792; [SEC v. John A. Foley et al., Civil Action No. 1:10-cv-00300 (JDB) (D.D.C.)] (LR-21425)
INVESTMENT COMPANY ACT RELEASES
Assurant, Inc., Union Security Insurance Company and Union Security Life Insurance Company of New York
The Commission has issued an order to Assurant, Inc. (Assurant), Union Security Insurance Company and Union Security Life Insurance Company of New York under Section 9(c) of the Investment Company Act exempting applicants and any other company of which Assurant is or becomes an affiliated person from Section 9(a) of the Act with respect to an injunction entered by the U.S. District Court for the Southern District of New York on Jan. 26, 2010. (Rel. IC-29133 - February 23)
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