James Capezzuto Named Associate Regional Director for Examinations in SEC New York Regional Office
The Securities and Exchange Commission today announced the selection of James A. Capezzuto as Associate Regional Director for Examinations in the agency's New York Regional Office.
Mr. Capezzuto succeeds Norm Champ, who was appointed Deputy Director of the SEC's Office of Compliance, Inspections and Examinations in June. Mr. Capezzuto will direct a staff of approximately 100 accountants and examiners responsible for the inspections of investment advisers and investment companies within the New York region. Mr. Capezzuto, who has been serving as Acting Associate Regional Director, will immediately assume his new post.
"Jim Capezzuto brings to our inspection program vast experience in the investment management industry, mastery of the securities laws, and a record of outstanding leadership within the SEC," said George S. Canellos, Director of the SEC's New York Regional Office. "His unique blend of talents, integrity and complete dedication to the mission of the SEC make him ideally suited to lead our investment management exam program."
Carlo di Florio, Director of the SEC's Office of Compliance Inspections and Examinations, added, "Jim brings terrific knowledge of the industry and proven leadership skills to the job of overseeing compliance examinations of investment advisers and investment companies in an important period of transition for our national exam program."
Mr. Capezzuto said, "I am honored and look forward to continuing to work with my talented and dedicated colleagues in the examination program in the New York Regional Office and throughout the SEC. I hope to build on the spirit of collaboration in the office and support of the SEC's mission to protect investors during this time of significant change."
For the past three years, Mr. Capezzuto has served as Senior Attorney Adviser within the investment management examination program of the SEC's New York Regional Office.
Before joining the SEC in 2007, Mr. Capezzuto served for 18 years in legal and compliance positions in the investment management industry, including as U.S. Counsel and Chief Compliance Officer of Aberdeen Asset Management, Director and Associate General Counsel of UBS Global Asset Management, and Senior Vice President and Chief Compliance Officer at Bank of America Alternative Investments.
Mr. Capezzuto received a bachelor's degree from the University at Buffalo in 1985 and a juris doctor degree from New York Law School in 1990. (Press Rel. 2010-194)
SEC Charges Two Florida-Based Fund Managers With Facilitating Petters Ponzi Scheme
The Securities and Exchange Commission today charged two Florida-based hedge fund managers and their firms with fraudulently funneling more than a billion dollars of investor money into a Ponzi scheme operated by Minnesota businessman Thomas Petters.
The SEC alleges that Bruce F. Prévost of Palm Beach Gardens and David W. Harrold of Del Ray Beach falsely assured their investors and potential investors that the flow of their money would be safeguarded by collateral accounts and described a phony process for protecting their assets. When Petters was unable to make payments on investments held by the funds they managed, Prévost, Harrold, and their firms concealed it from investors by concocting sham note exchange transactions with Petters, who the SEC charged last year along with an Illinois-based hedge fund manager who also facilitated the scheme.
"Prévost and Harrold portrayed themselves as guardians of their hedge fund investors while in fact they facilitated Tom Petters's fraudulent scheme through lies and deceit," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Their betrayal cost investors more than one billion dollars, while they pocketed millions in fees."
The SEC's complaint filed in U.S. District Court for the District of Minnesota alleges that Prévost, Harrold, and their firms Palm Beach Capital Management LP and Palm Beach Capital Management LLC invested more than $1 billion in hedge fund assets with Petters while pocketing more than $58 million in fees. Petters promised investors that their money would be used to finance the purchase of vast amounts of consumer electronics by vendors who then re-sold the merchandise to such "Big Box" retailers as Wal-Mart and Costco. In reality, Petters's "purchase order inventory financing" business was merely a Ponzi scheme. There were no inventory transactions. Petters sold promissory notes to feeder funds like those controlled by Prévost, Harrold, and their firms, and Petters used some of the note proceeds to pay returns to earlier investors, diverting the rest of the cash to his own purposes.
According to the SEC's complaint, Prévost, Harrold, and their firms funneled money into the Petters Ponzi scheme beginning as early as 2004 through at least June 2008. Prévost and Harrold sold interests in their Palm Beach Funds to individuals, foundations, family trusts and other hedge funds throughout the U.S. The Palm Beach Funds invested all investor contributions into the Petters Ponzi Scheme and were holding more than $1 billion worth of notes when the scheme collapsed.
The SEC alleges that Prévost, Harrold, and their firms falsely assured investors that the inventory financing transactions were structured in such a way that after the retailers received their merchandise from vendors, they were supposed to send their payments for the merchandise directly into the funds' collateral accounts to pay off the notes held by the funds. This arrangement purported to protect investors inasmuch as the receipt of funds directly from the retailers would ostensibly verify their participation in each transaction. But in reality, money for the repayment of notes held by the funds always came directly from Petters and never came from any retailers. Prévost and Harrold did not disclose this material fact to investors in the funds, and instead continued to lie about the operation of the collateral accounts.
The SEC further alleges that Prévost, Harrold, and their firms devised with Petters a series of bogus note exchange transactions beginning around February 2008. The Palm Beach Funds on multiple occasions exchanged groups of mature notes that were due to be repaid on or about the date of the exchange for newly-issued notes that were not due to be paid for six months and purported to be collateralized by different merchandise associated with different inventory finance transactions. Instead of receiving cash repayments and then reinvesting that cash in new notes as they had done in the past, Prévost and Harrold simply began exchanging old IOUs for new ones, ultimately swapping the vast majority of notes held by the funds. Meanwhile, they continued to falsely report in monthly communications to investors that the funds were generating the same steady profits they had generated since their inceptions. These overstated rates of return resulted in the payment of excessive fees to Prévost, Harrold, and their firms.
The SEC's complaint charges Prévost, Harrold, and their firms 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, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206-4(8) thereunder. The SEC seeks entry of a court order of permanent injunction against Prévost, Harrold, and their firms, as well as an order of disgorgement, including prejudgment interest and financial penalties.
Andrew P. O'Brien, Donald A. Ryba, Barry Isenman and Peter K.M. Chan of the SEC's Chicago Regional Office conducted the SEC's investigation. The SEC's litigation will be led by Daniel J. Hayes and John E. Birkenheier. The SEC's investigation is continuing.
For more information about this enforcement action, contact: Timothy L. Warren Associate Regional Director, SEC's Chicago Regional Office (312) 353-7394
Peter K.M. Chan, Assistant Regional Director, SEC's Chicago Regional Office (312) 353-7410 (Press Rel. 2010-195)
Closed Meeting - Thursday, October 21, 2010 - 2:00 p.m.
The subject matter of the Closed Meeting scheduled for Thursday, October 21, will be: institution and settlement of injunctive actions; institution and settlement of administrative proceedings; and other matters relating to enforcement proceedings.
At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551-5400.
In the Matter of e-DOCS.MD, Inc.
An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default (Default Order) in e-DOCS.MD, Inc., Administrative Proceeding No. 3-14060. The Order Instituting Proceedings (OIP) alleged that nine Respondents each failed repeatedly to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission.
The Default Order finds the allegations of the OIP to be true and revokes the registrations of each class of registered securities of e-DOCS.MD, Inc., Electrical Generation Technology Corp., Electrosource, Inc., eLinear, Inc., Elite Logistics, Inc., Elite Technologies, Inc., Emerald Capital Holdings, Inc., Enviropact, Inc., and eTravelServe.com, Inc., pursuant to Section 12(j) of the Securities Exchange Act of 1934. (Rel. 34-63099; File No. 3-14060)
Delinquent Filers' Stock Registrations Revoked
The registrations of the registered securities of Millennia Automated Products, Inc., Millennium Software, Inc., Momentum Software Corp., Moonlight International Corp., MovieFone, Inc., MSI Electronics, Inc., and Multimedia Concepts International, Inc., have been revoked. Each had repeatedly failed to file required annual and quarterly reports with the Securities and Exchange Commission. Thus, each violated a crucial provision of the federal securities laws that requires public corporations to publicly disclose current, accurate financial information so that investors may make informed decisions. The revocations were ordered in an administrative proceeding before an administrative law judge. (Rel. 34-63100; File No. 3-14058)
SEC Files Securities Fraud Charges Against Massachusetts-Based Information Technology Company
The Securities and Exchange Commission filed a civil enforcement action today in federal district court in Massachusetts alleging that Beverly, Massachusetts-based LocatePlus Holdings Corporation (LocatePlus) violated the anti-fraud and the books and records provisions of the federal securities laws. LocatePlus sells on-line access to public record databases for investigative searches. Locate Plus' stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and is currently quoted in the Pink Sheets, operated by Pink OTC Markets, Inc.
The Commission's Complaint alleges that from 2005 through 2007, LocatePlus engaged in securities fraud by misleading investors about its funding and revenue, in violation of, among other provisions, Section 17(a) of the Securities Act of 1933, and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. During that time period, LocatePlus's then-CEO and CFO abused their positions to fraudulently inflate the company's publicly-reported revenue for fiscal years 2005 and 2006 by creating a fictitious customer called "Omni Data." LocatePlus then improperly recognized millions of dollars in payments from Omni Data as revenue. As the Complaint alleges, Omni Data was actually funded by approximately $2 million in cash routed from entities secretly controlled by the former LocatePlus CEO and CFO.
The Complaint further alleges that, to date, LocatePlus has not made public disclosure of the fraud or disclosed the fictitious nature of the previously-reported Omni Data revenue in any SEC filing, restatement or other public document.
In its Complaint against LocatePlus, the Commission is seeking an injunction prohibiting future violations of the federal securities laws, disgorgement plus prejudgment interest, and civil monetary penalties.
The Commission's investigation is continuing.
The Commission acknowledges the assistance of Secretary of the Commonwealth of Massachusetts William F. Galvin and the Massachusetts Securities Division in its investigation. [SEC v. LocatePlus Holdings Corporation, 10-CV-11751, (D. Mass.) (LR-21692; AAE Rel. 3197)
SEC v. Algird M. Norkus and Financial Update, Inc.
The Securities and Exchange Commission today announced fraud charges against Algird M. Norkus, a resident of Sugar Grove, Illinois and the corporation he controlled, Financial Update, Inc. (Financial Update). The Commission's complaint alleges that Norkus, acting as President of Financial Update, raised at least $6.4 million from at least 17 investors through the offer and sale of promissory notes issued by Financial Update. The complaint further alleges that Norkus told the investors that their money would be used to fund Financial Update's business activities and that he enticed investors by promising interest rates between 11% and 24% per year.
The complaint goes on to allege that in reality, Norkus used investor money to pay for personal expenses such as his mortgage and a car and that he also used the money provided by newer investors to make interest and principal payments to earlier investors. The complaint alleges that Norkus never disclosed to investors that he was using their money in this fashion.
The Commission's complaint charges Financial Update and Norkus with violating 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 and seeks, among other things, permanent injunctions, disgorgement plus prejudgment interest, civil penalties and asset freezes. Financial Update and Norkus have consented to certain relief sought by the Commission including orders freezing their assets and permanently enjoining them from future violations of 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 investigation of this matter is continuing. [SEC v. Algird M. Norkus and Financial Update, Inc., Case No. 1:10-cv-06582 (N.D. Ill.)] (LR-21693)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by the NASDAQ Stock Market to modify NASDAQ's order routing rule (SR-NASDAQ-2010-127) 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 October 18. (Rel. 34-63083)
A proposed rule change filed by the NASDAQ Stock Market to revise an optional depth data enterprise license fee for broker-dealer distribution of depth-of-book data (SR-NASDAQ-2010-125) 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 October 18. (Rel. 34-63084)
A proposed rule change filed by BATS Exchange to amend BATS Rule 21.9, entitled "Order Routing" (SR-BATS-2010-027) 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 October 18. (Rel. 34-63090)
A proposed rule change filed by the NASDAQ Stock Market (SR-NASDAQ-2010-129) to extend fee pilot program for NASDAQ Last Sale 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 October 18. (Rel. 34-63092)
Order Instituting Proceedings to Determine Whether to Disapprove Proposed Rule Change
The Commission issued an order instituting proceedings to determine whether to disapprove a proposed rule change submitted by the NASDAQ Stock Market (SR-NASDAQ-2010-074), as modified by Amendment No. 1, to adopt Rule 4753(c) as a six month pilot in 100 NASDAQ-listed securities. Publication is expected in the Federal Register during the week of October 18. (Rel. 34-63098)
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