In the Matter of David W. Baldt
On May 11, 2010, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Section 21C of the Securities Exchange Act of 1934, Sections 203(f) and 203(k) of the Investment Advisers Act of 1940, and Section 9(b) of the Investment Company Act of 1940 (Order) against David W. Baldt (Baldt).
In the Order, the Division of Enforcement alleges that Baldt, while employed as a portfolio manager of Schroder Investment Management North America, Inc. (Schroders), advised his family members to sell their shares in the Short-Term Municipal Bond Fund that Baldt managed, while Baldt was in possession of material non-public information. Baldt's material non-public information included the knowledge that redemptions from that fund were mounting, and that it was highly likely that either the net asset value of that fund would fall in connection with efforts to meet those rising redemptions (due to forced sales of large quantities of bonds), or that the fund would suspend cash redemptions entirely. The Division further alleges that, with that knowledge in hand, Baldt advised one family member to "go the full route" in redeeming her shares in the fund that he managed, and also told her to tell another family member to do the same thing. The family members did redeem shares in the fund, and advised others to do so as well. Subsequently, the additional family members also attempted to redeem their shares in the fund.
The Division alleges that, as a result of the conduct described above, Baldt willfully violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in the offer and sale of securities and in connection with the purchase or sale of securities. Baldt owed Schroders and the fund a fiduciary duty and breached that duty when he advised his family members to sell shares in the fund while in possession of material non-public information regarding the fund. Further, Baldt willfully violated Sections 206(1) and 206(2) of the Advisers Act, which prohibit fraudulent conduct by an investment adviser. By tipping his family members to sell their shares while in possession of material non-public information, Baldt breached his fiduciary duty to the fund and committed a fraud on the fund.
A hearing will be scheduled before an administrative law judge to determine whether the allegations of the Division contained in the Order are true, to provide Respondent an opportunity to respond to such allegations, and to determine what, if any, remedial action is appropriate in the public interest. As directed by the Commission, the Administrative Law Judge shall issue an initial decision in this matter not later than 300 days from the date of service of the Order. (Rels. 33-9124; 34-62076; IA-3024; IC-29266; File No. 3-13887)
Commission Orders Hearings on Registration Suspension or Revocation Against Eight Companies for Failure to Make Required Periodic Filings
On May 11, 2010, the Commission instituted 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 eight companies for failure to make required periodic filings with the Commission:
In this Order, the Division of Enforcement (Division) alleges that the eight issuers are delinquent in their required periodic filings with the Commission.
In this proceeding, 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 or 13a-16 thereunder, are true. The judge in the proceeding 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 this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-62077; File No. 3-13888)
In the Matter of Diego M. Rolando
On May 12, 2010, the Commission issued an Order Instituting Administrative Proceedings Pursuant Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions (Order) against Diego M. Rolando. The Order finds that on Dec. 10, 2008, the United States District Court for the District of Connecticut issued a judgment against Rolando finding that he willfully violated Sections 4b(a) and 4c(b) of the Commodity Exchange Act, 7 U.S.C. SS 6b(a) and 6c(b), and S 33.10(a)-(c) of the United States Commodity Futures Trading Commission's Regulations, 17 C.F.R S 33.10(a)-(c) 2007. The Order finds that the District Court permanently enjoined Rolando from future violations of the above-listed sections of the Commodity Exchange Act and the rules thereunder. The District Court also ordered the return of funds to customers, restitution of $197,125.52 in commissions that Rolando collected, prejudgment interest, and a civil money penalty of $10 million.
The Order finds that Rolando, a citizen of Argentina who resides in Buenos Aires, was an unregistered investment adviser, who purported to operate through an entity called IA Trading, and maintained a website with the address IA Trading.com that he used to promote his services. The Order also finds that the District Court made the following findings in its judgment. From 2005 to 2007 Rolando obtained approximately $34 million from 420 investors residing in Argentina, the U.S., and around the world. Rolando opened trading accounts at an online securities and commodities broker with offices in Connecticut and Chicago. Rolando represented to investors that he would invest in highly rated stocks and indexes and that such trading would take place exclusively through the NYSE or NASDAQ. Contrary to his representations, Rolando traded in futures and options, incurring trading losses of approximately $10.6 million of the $34 million that had been invested with him. To conceal the losses, Rolando provided investors with false account statements falsely representing that investor funds were entirely invested in securities, when, according to the actual account records, futures and options accounted for over 95% of the notional value traded in client accounts.
Based on the findings above, the Order bars Rolando from association with any investment adviser. Rolando consented to the issuance of the Order without admitting or denying any of the findings, except the finding that the District Court entered the judgment against him. (Rel. IA-3025; File No. 3-13889)
SEC Settles With Former Merrill Lynch Executive for Aiding and Abetting Enron Fraud
The Securities and Exchange Commission announced today that, on May 10, 2010, the U.S. District Court in Houston entered a final judgment in the Commission's civil action against Robert S. Furst (Furst), former senior investment banker at Merrill Lynch & Co., Inc. (Merrill Lynch) in charge of the Enron Corp. banking relationship.
On March 17, 2003, the Commission charged Furst and three other former executives of Merrill Lynch with aiding and abetting Enron Corp.'s earnings manipulation. That action remains stayed against two of Furst's co-defendants. On Jan. 6, 2010, the Commission announced that it settled all of its charges against Furst's other co-defendant, Daniel H. Bayly, former global head of investment banking at Merrill Lynch. On March 17, 2003, the Commission also sued and simultaneously settled all of its Enron aiding-and-abetting charges against Merrill Lynch, which was enjoined from violating the federal securities laws and paid $80 million in financial sanctions for distribution to injured investors through the Commission's Enron Fair Fund.
Without admitting or denying the allegations in the Commission's complaint, Furst has now been permanently enjoined from violating the antifraud provisions, as well as from aiding and abetting violations of the periodic reporting, books-and-records, and internal controls provisions; barred from serving as an officer or director of a public company for five years; and ordered to pay $300,001 in disgorgement and civil money penalties for deposit into the Commission's Enron Fair Fund.
As alleged in the Commission's complaint, Furst substantially assisted Enron in two sham transactions during late 1999. The first transaction was an asset-parking arrangement, whereby on Dec. 29, 1999, Enron entered into a sham "sale" of its interest in certain Nigerian barges so as to fraudulently record over $12 million in income. The "sale" was a sham since the risk and rewards of ownership in the barges never passed to Merrill Lynch because Enron's then Chief Financial Officer, Andrew Fastow, guaranteed Merrill Lynch that it would not lose money and that it would be taken out of the deal within six months. The complaint alleged that Furst was aware of the nature of the barge transaction and was responsible internally at Merrill Lynch to have the transaction completed. Furst also helped enable this sham "sale" of Enron's interest in the Nigerian barges so as to maintain favorable relations with Enron.
In the second transaction, also closed on Dec. 29, 1999, Enron agreed to pay Merrill Lynch a $17 million fee to enter into a virtually offsetting energy trade. The complaint alleged that Furst knew, among other things, that the transaction was essentially risk free to Merrill Lynch and had the purpose and effect of inflating Enron's reported income by approximately $50 million in 1999, and that such earnings were necessary for Enron to meet earnings and award bonuses to senior management. Furst also knew that Enron was contemplating unwinding the energy trade transaction after obtaining its earnings benefit. After the transaction was completed and Enron reported its inflated earnings, Enron and Merrill Lynch unwound the transaction on June 30, 2000, and Enron received $8.5 million, half of its original fee. By participating in the barge and energy trade transactions - which resulted in Enron's recognition of over $60 million in income for the fourth quarter of 1999 - Furst aided and abetted Enron's violations of the federal securities laws. [SEC v. Robert S. Furst, et al., Civil Action No. H-03-0946 (S.D. Tex.)] (LR-21523; AAE Rel. 3133)
SEC Obtains Final Judgment of Permanent Injunction and Other Relief Against Defendants David H. Andrus, Jay W. Downs, and Michael P. McQuade
The United States District Court for the District of Utah entered a Final Judgment of permanent Injunction and Other Relief Against Defendants David H. Andrus (Andrus), Jay W. Downs (Downs) and Michael P. McQuade (McQuade), permanently restraining and enjoining them from future violations of antifraud and aiding and abetting future violations of issuer reporting and books and records violations of the federal securities laws. The Court barred Andrus from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 (Exchange Act) or that is required to file reports pursuant to Section 15(d) of the Exchange Act for a period of five years. Downs and McQuade were permanently barred from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act.
The Court restrained and enjoined Andrus and Downs from violations of Section 17(a) of the Securities Act of 1933 (Securities Act), and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, 13b2-2 and 13a-14, and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13. The Court restrained and enjoined McQuade from violations Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13 and 13b2-2.
The Court also ordered Andrus to disgorge $150,205.88, together with prejudgment interest of $66,075.50, for a total of $216,281.38 but waived payment of disgorgement and prejudgment interest and did not impose a civil penalty based on Andrus' statement of financial condition. The Court ordered Downs to pay disgorgement of $24,257.34, together with prejudgment interest of $7,236.76, and a civil penalty of $25,000.00. The Court ordered McQuade to pay a civil penalty of $50,000. Andrus, Downs and McQuade consented to the Court's entry of Final Judgment without admitting or denying the Complaint's allegations.
The action against Diatect International Corporation is still pending. [SEC v. Diatect International Corp., et al., Case Number 2:07CV00709 (D. Utah)] (LR-21524; AAE Rel. 3134)
SEC Obtains Permanent Injunctions Against David F. Merrick, Traders International Return Network and Others in Lawsuit Alleging Multimillion Dollar Ponzi Scheme
On May 11, 2010, the Honorable Judge Gregory Presnell of the U.S. District Court of the Middle District of Florida, Orlando Division entered an order of permanent injunction against David F. Merrick, a resident of Apopka, Florida, Traders International Return Network (TIRN), MS, Inc., GTT Services, Inc., MDD Consulting, Inc. and Go ! Tourism, Inc. (collectively, defendants), arising from their fraudulent conduct in operating an online Ponzi scheme.
On Oct. 14, 2009, the Commission filed its complaint against defendants alleging as follows: Since at least July 2008, Merrick and the entity defendants under his control engaged in a fraudulent scheme to misappropriate investors' funds for his personal use and to repay other investors in a Ponzi scheme, raising at least $22 million from at least 2500 investors throughout the United States. Merrick, acting as an investment adviser, and TIRN intentionally misled investors in TIRN by misrepresenting that their money would be used to buy Forex, international bonds, international stocks and other investments. Instead of purchasing these investments, Merrick and TIRN transferred investor funds among MS, GTT Services, MDD Consulting and Go ! Tourism and misappropriated at least $3.7 million of the funds for Merrick's personal expenditures. Further, Merrick directed that new investor funds be used to repay existing investors. In an order dated Oct. 14, 2009, Judge Presnell entered a preliminary injunctive order prohibiting the offer or sale of interests in TIRN, freezing the defendants' assets and ordering them to repatriate assets into the United States.
The permanent injunction order, consented to by defendants without admitting or denying the allegations in the Commission's complaint, enjoins Merrick, TIRN, MS, GTT Services, MDD Consulting and Go ! Tourism from violating the antifraud provisions of the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5 thereunder]; Merrick and TIRN from violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)]; Merrick from violating the antifraud provisions of the Investment Advisers Act [Sections 206(1), 206(2), 206(4) and Rule 206(4)-8]; Merrick and TIRN from violating the securities registrations provisions [Section 5(a) of the Securities Act], foreign investment company provisions [Section 7(d) of the Investment Company Act] and broker-dealer registration provisions [Section 15(a)(1) of the Exchange Act]. [SEC v. David F. Merrick, Traders International Return Network, MS, Inc., GTT Services, Inc., MDD Consulting, Inc., and Go ! Tourism, Inc., Civil Case No. 6:09-CV-1744-ORL-31KRS, USDC, M.D., Fla.] (LR-21525)
Approval of Proposed Rule Change
The Commission approved a proposed rule change (SR-NYSE-2010-22) submitted under Rule 19b-4 of the Securities Exchange Act of 1934 by the New York Stock Exchange to make permanent a Unit-of-Count metric alternative for NYSE Openbook products. Publication is expected in the Federal Register during the week of May 10. (Rel. 34-62038)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by NASDAQ OMX PHLX (SR-Phlx-2010-68) relating to one cent strike price intervals of foreign currency options 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 May 10. (Rel. 34-62060)
A proposed rule change (SR-FINRA-2010-020) filed by Financial Industry Regulatory Authority relating to the Trade Reporting Facility limited liability company agreements has become immediately 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 May 10. (Rel. 34-62064)
A proposed rule change filed by NYSE Arca (SR-NYSEArca-2010-37) to establish strike price intervals and trading hours for options on Index Linked Securities 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 May 10. (Rel. 34-62066)
A proposed rule change filed by NYSE Amex (SR-NYSEAmex-2010-41) to establish strike price intervals and trading hours for options on Index Linked Securities 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 May 10. (Rel. 34-62067)
A proposed rule change filed by the NASDAQ OMX PHLX relating to equity option fees (SR-Phlx-2010-66) 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 May 10. (Rel. 34-62069)
A proposed rule change (SR-NYSEArca-2010-40) filed by NYSE Arca amending its Fee Schedule 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 May 10. (Rel. 34-62071)
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