Securities and Exchange Commission Suspends Trading in the Securities of Eight Issuers for Failure to Make Required Periodic Filings
The U.S. Securities and Exchange Commission announced the temporary suspension of trading in the securities of the following issuers, commencing at 9:30 a.m. EDT on April 20, 2010, and terminating at 11:59 p.m. EDT on May 3, 2010.
The Commission temporarily suspended trading in the securities of these eight issuers due to a lack of current and accurate information about the companies because they have not filed periodic reports with the Commission in over two years. This order was entered pursuant to Section 12(k) of the Securities Exchange Act of 1934 (Exchange Act).
The Commission cautions brokers, dealers, shareholders and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by these companies.
Brokers and dealers should be alert to the fact that, pursuant to Exchange Act Rule 15c2-11, at the termination of the trading suspensions, no quotation may be entered relating to the securities of the subject companies unless and until the broker or dealer has strictly complied with all of the provisions of the rule. If any broker or dealer is uncertain as to what is required by the rule, it should refrain from entering quotations relating to the securities of these companies that have been subject to a trading suspension until such time as it has familiarized itself with the rule and is certain that all of its provisions have been met. Any broker or dealer with questions regarding the rule should contact the staff of the Securities and Exchange Commission in Washington, DC at (202) 551-5720. If any broker or dealer enters any quotation which is in violation of the rule, the Commission will consider the need for prompt enforcement action.
If any broker, dealer or other person has any information which may relate to this matter, they should immediately communicate it to the Delinquent Filings Branch of the Division of Enforcement at (202) 551-5466, or by e-mail at DelinquentFilings@sec.gov. (Rel. 34-61939)
SEC Files Emergency Action to Halt Fraudulent Scheme at Albany-Based Firm
The Securities and Exchange Commission today filed an emergency enforcement action to halt a fraudulent scheme being orchestrated by two co-owners of an Albany, N.Y.-based firm who misused investor money to fund their struggling business operations and meet ever-increasing liquidity needs. The SEC has obtained a court order to freeze their assets.
According to the SEC's complaint, filed in U.S. District Court for the Northern District of New York, Timothy M. McGinn and David L. Smith - through their firm McGinn, Smith & Co., Inc. (MS & Co.) and affiliated entities - raised approximately $120 million from investors in more than 25 debt offerings that were not registered with the SEC under the securities laws. They misrepresented that the investments would generate sufficient income to support the promoted interest rates and the return of principal at the end of the notes' terms.
The SEC alleges that McGinn and Smith knew that it would never be possible to repay investors their principal, let alone the quarterly interest payments promised. McGinn and Smith instead misused offering proceeds to support their financially troubled or bankrupt entities, to make payroll for MS & Co., and even for their own personal activities such as procuring strippers for a "sexually themed" cruise. Although the full extent of the fraud is not yet known, it appears that investors are currently owed at least $80 million.
"McGinn and Smith deceived investors about the true purpose behind these offerings," said Andrew M. Calamari, Associate Director of the SEC's New York Regional Office. "They falsely promised investors a profitable payday but secretly siphoned off money for their own payroll."
According to the SEC's complaint, the debt offerings have been sold to hundreds of investors through four funds and at least 18 trusts created by MS & Co. affiliates. They made a host of representations about the extent of due diligence they had performed, among other things. Contrary to their representations to investors, McGinn and Smith used much of the money raised in these offerings to make prohibited investments in their other businesses or make unsecured loans to financially support them. They also misused investor funds to pay exorbitant commission and transaction fees to their affiliated entities and make interest payments to investors in the other entities.
The Commission would like to thank the Financial Industry Regulatory Authority (FINRA) for its assistance in this matter. The SEC's investigation is continuing. (Press Rel. 2010-62)
Commission Orders Hearings on Registration Suspension or Revocation Against Eight Companies for Failure to Make Required Periodic Filings
In conjunction with today's trading suspension, the Commission also instituted two separate public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registration of each class of the securities of ten companies for failure to make required periodic filings with the Commission:
In the Matter of Valesc Holdings, Inc., et al., Administrative Proceeding File No. 3-13865
In the Matter of V-GPO, Inc., et al., Administrative Proceeding File No. 3-13864
In each Order, the Division of Enforcement (Division) alleges that the respective Respondents are delinquent in their required periodic filings with the Commission.
In each of these proceedings, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the judge will hear evidence from the Division and the Respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder, are true. The judge in the proceedings will then determine whether the registrations pursuant to Exchange Act Section 12 of each class of the securities of these Respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in each proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-61940 - In the Matter of V-GPO, Inc., et al., File No. 3-13864); (Rel. 34-61941 - In the Matter of Valesc Holdings, Inc., et al., File No. 3-13865)
William J. Herisko Sanctioned
William J. Herisko (Herisko), of Palm Springs, California, has been barred from association with any broker or dealer. The sanction was ordered in an administrative proceeding before an administrative law judge, following a court-ordered injunction against him. In September 2006, Herisko was enjoined from violating the antifraud provisions of the federal securities laws based on his involvement in a fraudulent offering of about $78 million in securities issued by U.S. Reservation Bank & Trust, a phony bank based in Arizona. (Rel. 34-61945; File No. 3-13743)
The SEC Settles Its Claims Against Defendant Schottenfeld Group, LLC
The SEC announced that, on April 19, 2010, The Honorable Jed S. Rakoff, United States District Judge, United States District Court for the Southern District of New York, approved a settlement with Schottenfeld Group, LLC ("Schottenfeld Group") in SEC v. Galleon Management, LP, et al., 09-CV-8811 (S.D.N.Y.) (JSR), an insider trading case the Commission filed on October 16, 2009. Schottenfeld Group, a New York limited liability company and registered broker-dealer based in New York, New York, consented to the entry of a final judgment.
The final judgment against Schottenfeld Group permanently enjoins it from violating the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. It also orders Schottenfeld Group to disgorge $460,475.28, representing its share of profits gained and/or losses avoided as a result of the conduct alleged, together with prejudgment interest thereon in the amount of $72,202.72. In addition to disgorgement of profits, the judgment orders a civil penalty representing fifty percent of the disgorgement amount, a discount from a one-time penalty, in recognition of Schottenfeld Group's agreement to cooperate in the Commission's investigation.
In addition, Schottenfeld Group has agreed to implement enhanced policies and procedures to prevent securities law violations such as those alleged. It will retain an independent consultant to review its policies and procedures within 1 year, and to report its findings to the Commission staff. [SEC v. Galleon Management, LP, et al., Civil Action No. 09-CV-8811 (S.D.N.Y.) (JSR)] (LR-21493)
SEC Halts Internet-Based Scam by Staten Island Firm Luring Investors With Phony Stock Tips and Fictional Trading Experts
The Securities and Exchange Commission today charged a Staten Island, N.Y.-based investment advisory firm, its owner, and four associates with operating an Internet-based scam that misleads investors into paying fees for phony stock tips and investment advice from fictional trading experts. The SEC obtained an emergency court order to freeze the assets of the firm and individuals involved.
The SEC alleges that Gryphon Holdings Inc., owner Kenneth E. Marsh, and the Gryphon associates induced investors to pay fees of up to $250,000 for securities recommendations that they falsely claim are based on sound research and successful strategies of trading experts with superior knowledge. In an effort to lend legitimacy to the firm's advisory business, Gryphon touts trading experts with fake names who boast millions of dollars in trading riches as well as top-notch educational backgrounds and prominent experience at major Wall Street firms. Gryphon representatives even fabricated glowing testimonials from George Soros and purported clients who profited by trading securities the firm recommended.
According to the SEC's complaint, filed in U.S. District Court for the Eastern District of New York, investors who followed the guidance of Gryphon's purported experts have suffered significant losses by trading on those tips or, in at least one instance, by allowing Gryphon to trade on their behalf.
In addition to Gryphon and Marsh, the SEC's complaint charges Baldwin Anderson and Robert Anthony Budion, both of Staten Island, N.Y., Jeanne Lada of Freehold, N.J., and James Levier of Beachwood, N.J.
According to the SEC's complaint, Gryphon obtained more than $17.5 million from its operations over the past three years. Gryphon and its associates made numerous material misrepresentations and omissions since at least 2007 to entice unsuspecting clients to purchase its services. Gryphon's representatives used high-pressure tactics to obtain additional fees from clients to purportedly give those clients access to "better" yielding investment tips, even if Gryphon had not provided all the advisory services for which the client had already paid.
The SEC specifically alleges that Gryphon falsely touted that it:
The SEC's complaint alleges that Gryphon made these and many other material misrepresentations in the course of inducing clients to purchase investment services or providing personalized securities recommendations to clients.
Gryphon markets itself as a publisher of financial information. Gryphon frequently posts investment tips on the Internet using at least 40 different monikers such as "Wolves of Wall Street," "Wall Street's Most Wanted," "Pure Profit," and "Mafia Trader." In reality, as alleged in the SEC's complaint, Gryphon's financial publications only serve as a vehicle to attract unsuspecting clients to pay fees for personalized investment recommendations, portfolio analysis, and money management services that Gryphon purportedly provided.
The Honorable Jack B. Weinstein of the U.S. District Court for the Eastern District of New York granted the SEC's request for a temporary restraining order and asset freeze against the Defendants and six others named as Relief Defendants: Richard Borrello, Nicole Marsh, Ginna Mungiovi, Michael Scarpaci, Dominic Spinelli, and Paul Stokes. Specifically, the Commission seeks an Order: (i) temporarily and preliminarily enjoining the Defendants from violating Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder; (ii) temporarily and preliminarily enjoining Defendants Lada, Anderson, Budion and Levier from aiding and abetting any person's violations of Sections 206(1) and 206(2) of the Advisers Act; (iii) temporarily and preliminarily enjoining Defendant Kenneth Marsh from controlling a person who violates Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; (iv) prohibiting the Defendants and Relief Defendants from filing a bankruptcy proceeding on behalf of any Defendant or Relief Defendant without at least three days notice to the Commission and approval of the Court; (v) requiring each Defendant and Relief Defendant to provide a verified accounting; (vi) prohibiting the destruction, alteration, or concealment of documents; and (vi) directing expedited discovery.
The SEC's investigation is continuing. The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Eastern District of New York and the United States Postal Inspection Service, which today arrested Defendants Kenneth Marsh, Anderson, Budion, Lada, and Levier on charges of conspiracy to commit securities fraud and wire fraud. [SEC v. Gryphon Holdings, Inc., et al., United States District Court for the Eastern District of New York, Civ. Action No. 1:10-cv-01742-JBW -JO] (LR-21494)
INVESTMENT COMPANY ACT RELEASES
Northern Lights Fund Trust, et al.
A notice has been issued giving interested persons until May 11, 2010, to request a hearing on an application filed by Northern Lights Fund Trust, et al., for an order exempting applicants from Section 15(a) of the Investment Company Act and Rule 18f-2 under the Act. The order would permit the applicants to enter into and materially amend subadvisory agreements without shareholder approval and would grant relief from certain disclosure requirements. (Rel. IC-29208 - April 16)
Calvert Social Investment Fund, et al.
A notice has been issued giving interested persons until May 14, 2010, to request a hearing on an application filed by Calvert Social Investment Fund, et al., for an order under Section 6(c) of the Investment Company Act for an exemption from Rule 12d1-2(a) under the Act. The order would permit funds of funds relying on Rule 12d1-2 under the Act to invest in certain financial instruments. (Rel. IC-29209 - April 19)
Order Approving and Declaring Effective an Amendment to the Plan for the Allocation of Regulatory Responsibilities Relating to the Surveillance, Investigation, and Enforcement of Insider Trading Rules
The Commission noticed, approved, and declared effective a proposed plan for the allocation of regulatory responsibilities relating to the surveillance, investigation, and enforcement of insider trading Rules pursuant to Rule 17d-2 under the Securities Exchange Act of 1934 (File No. 4-566). Publication is expected in the Federal Register during the week of April 19. (Rel. 34-61919)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by The NASDAQ Stock Market to modify fees for members using the NASDAQ Market Center (SR-NASDAQ-2010-049) 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 April 19. (Rel. 34-61926)
A proposed rule change (SR-BX-2010-031) filed by NASDAQ OMX BX extending the effective date of the rule governing the Exchange's directed order process on the Boston Options Exchange has become effective under Section 19(b)(3)(A) under the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of April 19. (Rel. 34-61929)
A proposed rule change (SR-Phlx-2010-51), filed by NASDAQ OMX PHLX relating to a new category of fees for "Professionals" has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of April 19. (Rel. 34-61932)
A proposed rule change (SR-Phlx-2010-51), filed by NASDAQ OMX PHLX relating to a new category of fees for "Professionals" has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of April 19. (Rel. 34-61933)
Proposed Rule Changes
NYSE Arca filed a proposed rule change (SR-NYSEArca-2010-23) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder to modify NYSE Arca Trades fees, to establish the NYSE Arca BBO Service and related fees, and to provide an alternative Unit-of-Count methodology for those Services. Publication is expected in the Federal Register during the week of April 19. (Rel. 34-61937)
Chicago Board Options Exchange filed a proposed rule change (SR-CBOE-2010-0236 to Permit $1 Strikes for Options on Trust Issued Receipts. Publication is expected in the Federal Register during the week of April 19. (Rel. 34-61935)
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