RULES AND RELATED MATTERS
Notice of a Revised Privacy Act System of Records
The Commission issued a notice requesting comments on a proposed revised Privacy Act system of records: "Information Pertaining or Relevant to SEC Registrants and Their Activities (SEC-55)." The system revises existing routine uses 9, 10, 11, 13, and 18; consolidates existing routine uses 4, 5 and 6 into new routine use 3; consolidates existing routine uses 15 and 21 into new routine use 13; and adds additional routine uses 19 through 22. Publication of this notice is expected in the Federal Register during the week of June 21. (Rel. PA-43; File No. S7-13-10)
On Remand, Commission Sustains NYSE's Imposition of Censure and 10 Year Bar on Luis Miguel Cespedes
On remand from the United States Court of Appeals for the D.C. Circuit, after consideration of a hearing transcript previously not included in the record certified by the NYSE, the Commission has sustained the determinations in its Feb. 13, 2009 opinion that the sanctions imposed on Luis Miguel Cespedes (a censure and a ten year bar from membership, allied membership, approved person status, and from employment or association in any capacity with any member or member organization) for the violations found therein are neither excessive nor oppressive and are consistent with the public interest. In the February 2009 Opinion, the Commission found that "Cespedes's recommendations that [his] customers invest with significant concentrations in the technology sector, often using margin to purchase the securities in their accounts, were unsuitable and inconsistent with just and equitable principles of trade," in violation of NYSE Rule 476(a)(6). (Rel. 34-62374; File No. 3 12988r).
Commission Revokes Registration of Securities of Bonanza Explorations, Inc. (f/k/a Copperstone Resources Corp.) (n/k/a Bonanza Resources Corp.) for Failure to Make Required Periodic Filings
On June 25, 2010, the Commission revoked the registration of each class of registered securities of Bonanza Explorations, Inc. (f/ka Copperstone Resources Corp.) (n/k/a Bonanza Resources Corp.) (Bonanza Explorations) for failure to make required periodic filings with the Commission.
Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Bonanza Explorations consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Bonanza Explorations, Inc. (f/ka Copperstone Resources Corp.) (n/k/a Bonanza Resources Corp.) finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-16 thereunder and revoking the registration of each class of Bonanza Explorations' securities pursuant to Section 12(j) of the Exchange Act. This order settled the proceedings brought against Bonanza Explorations in In the Matter of BCI Telecom Holding, Inc., et al., Administrative Proceeding File No. 3-13888.
Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:
No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .
For further information see Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934, In the Matter of BCI Telecom Holding, Inc., et al., Administrative Proceeding File No. 3-13888, Exchange Act Release No. 62077, May 11, 2010. (Rel. 34-62375; File No. 3-13888)
Florida Brokers, New York Supervisors Sanctioned for Fraud in Selling Variable Annuities
Florida stockbrokers Eric J. Brown, Matthew J. Collins, Kevin J. Walsh, and Mark W. Wells have been sanctioned in connection with their sale of variable annuities to elderly Floridians. Each has been barred from association with any broker, dealer, or investment adviser, ordered to cease and desist from committing or causing any violations or future violations of the antifraud and books and records provisions of the federal securities laws, ordered to pay a $130,000 civil penalty, and ordered to disgorge ill-gotten gains plus prejudgment interest. The stockbrokers were associated with Prime Capital Services, Inc. (PCS), a registered broker-dealer, and its parent, Gilman Ciocia, Inc. (G&C), at the time of their wrongdoing. Michael P. Ryan and Rose M. Rudden, PCS's president and chief compliance officer, respectively, located at PCS and G&C's Poughkeepsie, NY, headquarters, were each barred from association in a supervisory capacity with any broker, dealer, or investment adviser with the right to reapply after one year and ordered to pay a $65,000 civil penalty for their failure to supervise the four stockbrokers so as to detect and prevent their wrongdoing. The sanctions were ordered after a hearing before an administrative law judge. (Initial Decision No. 398; File No. 3-13532)
SEC Charges Benefits Consultant to Government Agencies With Ponzi Scheme
On June 24, the Securities and Exchange Commission obtained an asset freeze and other emergency relief against a Jacksonville, Fla., retirement benefits consulting firm that defrauded active and retired government employees and law enforcement agents nationwide through a Ponzi scheme that promised safe investments. The SEC charged the estate of the recently deceased Kenneth Wayne McLeod, his benefits consulting firm, Federal Employee Benefits Group, Inc. (FEBG), and his registered investment adviser, F&S Asset Management Group, Inc. with fraudulently soliciting government employees to invest in a government bond fund that didn't exist. The SEC alleges McLeod offered investors guaranteed annual returns of eight to ten percent through a purported tax-free "FEBG Bond Fund" or "FEBG Special Fund." He falsely told investors that their principal would be 100 percent invested in and secured by government bonds. The SEC alleges that McLeod lured many of his investors through retirement benefits seminars he gave at government agencies nationwide. He raised at least $34 million since 1988 from an estimated 260 investors around the country. The security of the government bonds was a key element of McLeod's deception but he never purchased any bonds. Instead, he used the investors' retirement savings to conduct a Ponzi scheme, to pay himself, and to pay for lavish entertainment.
The SEC's complaint charges the Estate of McLeod, FEBG, and F&S Asset Management Group with 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. The complaint further charges the Estate of McLeod and F&S Asset Management Group with violations of Sections 206(1) and (2) of the Investment Advisers Act. In addition to emergency relief, the SEC is seeking disgorgement against all of the defendants, and money penalties, and preliminary and permanent injunctions against FEBG and F&S Asset Management Group. [SEC v. Estate of Kenneth Wayne McLeod, Federal Employee Benefits Group, Inc., and F&S Asset Management Group, Inc., Civil Action No. 10-cv-22078 (S.D. Fla.)] (LR-21569)
SEC Obtains Emergency Relief and Charges Multiple Defendants in Lawsuit Alleging Multi- Million Dollar Ponzi Schemes Targeting Mormon Community
On June 23, 2010, the Securities and Exchange Commission filed fraud and other charges against four individuals and five companies in connection with three related Ponzi schemes largely targeting the Mormon community. The Commission obtained an emergency court order freezing assets and halting the scheme that was ongoing. The Commission also named five relief defendants.
The Commission's complaint, filed in the United States District Court for the District of Utah, alleges that from approximately June 2005 through January 2007, Anthony C. Zufelt (Zufelt) and Joseph A. Nelson (Nelson) raised at least $3.6 million by convincing at least 36 investors to invest in offerings by defendants Zufelt, Inc. and Silver Leaf Investments, Inc. The complaint alleges that Zufelt and Nelson promised investment returns of up to 220% and fraudulently claimed that Zufelt ran a profitable credit card transaction processing business that was selling secure investments backed by a so-called "merchant portfolio" of credit card processing accounts. According to the complaint, defendants David Decker and Cache Decker acted as promoters and helped Zufelt and Nelson solicit investors for these schemes.
The complaint further alleges that from approximately August 2005 to the present day, Nelson has separately solicited investors by fraudulently claiming that he buys and sells merchant portfolios for a profit through his companies, defendants JCN, Inc., JCN Capital, LLC, and JCN International, LLC. To date, Nelson has raised at least $12 million from over 100 investors by promising investors that their investments were secure and that he would provide investment returns of up to 200% in a very short period of time.
According to the Commission's complaint, Zufelt, Nelson, David Decker and Cache Decker each solicited members of the Mormon community to invest in these schemes. The complaint further alleges that Zufelt, Nelson, David Decker and Cache Decker each encouraged and convinced potential investors to borrow against their homes in order to invest in these schemes.
Unbeknownst to investors in any of the three Ponzi schemes, as the complaint alleges, Zufelt and Nelson misused investors' funds to pay personal expenses, pay commissions and bonuses to associates, fund unrelated businesses, make gifts, and make payments to investors in order to perpetuate their schemes. The complaint further alleges that both Zufelt and Nelson diverted investor funds to friends and family members, some of whom are named relief defendants in the Commission's complaint.
The Commission's complaint alleges violations of the antifraud, registration, and broker-dealer provisions of the federal securities laws: Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The complaint seeks permanent injunctive relief, disgorgement, civil penalties, and officer and director bars against Zufelt, Nelson, David Decker and Cache Decker. The complaint also seeks disgorgement of investor funds or other illicit benefits obtained by relief defendants Jennifer M. Zufelt (Zufelt's former wife), Shae L. Morgan (Zufelt's girlfriend), Garth W. Jarman, Jr. (Zufelt's brother-in-law), Eric R. Nelson (Nelson's brother) and Kevin J. Wilcox (a relative of Nelson's wife).
The Commission obtained an emergency court order that, among other things, (1) freezes assets of Nelson and his entities (defendants JCN, Inc., JCN Capital, LLC, and JCN International, LLC), and Kevin Wilcox; (2) requires accountings; and (3) prohibits the destruction of documents. [SEC v. Anthony C. Zufelt, et al., Civil Action No. 2:10-cv-00574 (United States District Court for the District of Utah) (Benson, J.)] (LR-21570)
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