Press Releases http://www.sec.gov/servlet/Satellite/News/Page/List/Page/1356125649507 <div> Official announcements highlighting recent actions taken by the SEC and other newsworthy information.&nbsp; To view Press Releases prior to 2012, click <a href="http://www.sec.gov/news/press/pressarchive/2011press.shtml" target="_blank">View Archive</a>.</div> en-us Thu Apr 17 13:45:22 EDT 2014 SEC Halts Pyramid Scheme Targeting Dominican and Brazilian Immigrants http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541520559 The Securities and Exchange Commission today announced that on Tuesday it filed charges against the Massachusetts-based operators of a large pyramid scheme that mainly targeted Dominican and Brazilian immigrants in the U.S.  The charges were filed under seal, in connection with the Commission’s request for an immediate asset freeze.  That asset freeze, which the U.S. District Court in Boston ordered on Wednesday, secured millions of dollars of funds and prevented the potential dissipation of investor assets.  After the SEC staff implemented the asset freeze, at the SEC’s request the court lifted the seal today, permitting public announcement of the SEC’s charges.

The SEC alleges that TelexFree, Inc. and TelexFree, LLC claim to run a multilevel marketing company that sells telephone service based on “voice over Internet” (VoIP) technology but actually are operating an elaborate pyramid scheme.  In addition to charging the company, the SEC charged several TelexFree officers and promoters, and named several entities related to TelexFree as relief defendants based on their receipt of investor funds. 

According to the SEC’s complaint, the defendants sold securities in the form of TelexFree “memberships” that promised annual returns of 200 percent or more for those who promoted TelexFree by recruiting new members and placing TelexFree advertisements on free Internet ad sites.  The SEC complaint alleges that TelexFree’s VoIP sales revenues of approximately $1.3 million from August 2012 through March 2014 are barely one percent of the more than $1.1 billion needed to cover its promised payments to its promoters.  As a result, in classic pyramid scheme fashion, TelexFree is paying earlier investors, not with revenue from selling its VoIP product but with money received from newer investors.

“This is one of several pyramid-scheme cases that the SEC has filed recently where parties claim that investors can earn profits by recruiting other members or investors instead of doing any real work,” said Paul G. Levenson, director of the SEC’s Boston Regional Office.  “Even after the SEC and other regulators have alleged that such programs are a fraud, the promoters of TelexFree continued selling the false promise of easy money.”

According to the SEC’s complaint, the defendants have continued enrolling new investors but recently changed TelexFree’s method of compensating promoters, requiring them to actually sell the VoIP product to qualify for payments that TelexFree had previously promised to pay them.  The complaint also alleges that since December 2013, TelexFree has transferred $30 million or more of investor funds from TelexFree operating accounts to accounts controlled by TelexFree affiliates or the individual defendants.

In addition to the TelexFree firms, the complaint charges TelexFree co-owner James Merrill, of Ashland, Mass., TelexFree co-owner and treasurer Carlos Wanzeler, of Northborough, Mass., TelexFree CFO Joseph H. Craft, of Boonville, Ind., and TelexFree’s international sales director, Steve Labriola, of Northbridge, Mass.  The SEC also charged four individuals who were promoters of TelexFree’s program:  Sanderley Rodrigues de Vasconcelos, formerly of Revere, Mass., now of Davenport, Fla., Santiago De La Rosa, of Lynn, Mass., Randy N. Crosby, of Alpharetta, Ga., and Faith R. Sloan of Chicago.  The SEC’s complaint alleges that TelexFree, Inc., TelexFree, LLC, Merrill, Wanzeler, Craft, Labriola, Rodrigues de Vasconcelos, De La Rosa, Crosby, and Sloan violated the registration and antifraud provisions of U.S. securities laws and the SEC’s antifraud rule. The SEC also charged three entities related to TelexFree as relief defendants based on their receipt of investor funds.

The SEC’s investigation was conducted by Scott R. Stanley, James M. Fay, Mark Albers, John McCann, Frank Huntington, and Kevin Kelcourse, all of the SEC’s Boston Regional Office.  

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2014-79 Thu Apr 17 13:45:22 EDT 2014
SEC Proposes Rules for Security-Based Swap Dealers and Major Security-Based Swap Participants http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541519773 The Securities and Exchange Commission voted yesterday to propose new rules for security-based swap dealers and major security-based swap market participants.  The proposed rules cover recordkeeping, reporting, and notification requirements for security-based swap dealers and major security-based swap participants and would establish additional recordkeeping requirements for broker-dealers to account for their security-based swap activities.

The rulemaking is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which authorizes the SEC and other regulators to put in place a comprehensive framework to regulate the over-the-counter swaps and security-based swaps markets.

The SEC will seek public comment on the proposed rules for 60 days following their publication in the Federal Register.

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2014-78 Thu Apr 17 12:18:44 EDT 2014
SEC Charges Former BP Employee with Insider Trading During the Deepwater Horizon Oil Spill http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541517274 The Securities and Exchange Commission today charged a former 20-year employee of BP p.l.c. and a senior responder during the 2010 Deepwater Horizon oil spill with insider trading in BP securities based on confidential information about the magnitude of the disaster.  The price of BP securities fell significantly after the April 20, 2010 explosion on the Deepwater Horizon rig, and the subsequent oil spill in the Gulf of Mexico, resulted in an extensive clean-up effort.

According to the SEC’s complaint, filed in U.S. District Court for the Eastern District of Louisiana, BP tasked Keith A. Seilhan with coordinating BP’s oil collection and clean-up operations in the Gulf of Mexico and along the coast.  Seilhan, an experienced crisis manager, directed BP’s oil skimming operations and its efforts to contain the expansion of the oil spill.  The complaint alleges that within days, Seilhan received nonpublic information on the extent of the evolving disaster, including oil flow estimates and data on the volume of oil floating on the surface of the Gulf.

“Seilhan sold his family’s BP securities after he received confidential information about the severity of the spill that the public didn't know,” said Daniel M. Hawke, chief of the Division of Enforcement’s Market Abuse Unit.  “Corporate insiders must not misuse the material nonpublic information they receive while responding to unique or disastrous corporate events, even where they stand to suffer losses as a consequence of those events.”

The complaint alleges that by April 29, 2010, in filings to the SEC, BP estimated that the flow rate of the spill was up to 5,000 barrels of oil per day (bopd).  The company’s public estimate was significantly less than the actual flow rate, which was estimated later to be between 52,700 and 62,200 bopd.  The information that Seilhan obtained indicated that the magnitude of the oil spill and thus, BP’s potential liability and financial exposure, was likely to be greater than had been publicly disclosed.

According to the complaint, while in possession of this material, nonpublic information, and in breach of duties owed to BP and its shareholders, Seilhan directed the sale of his family’s entire $1 million portfolio of BP securities over the course of two days in late April 2010.  The trades allowed Seilhan to avoid losses and reap unjust profits as the price of BP securities dropped by approximately 48 percent after the sales on April 29 and April 30, 2010, reaching their lowest point in late June 2010.

Without admitting or denying the allegations, Seilhan consented to the entry of a final judgment permanently enjoining him from future violations of federal antifraud laws and SEC antifraud rules.  Seilhan, of Tomball, Texas, also agreed to return $105,409 of allegedly ill-gotten gains, plus $13,300 of prejudgment interest, and pay a civil penalty of $105,409.  The settlement is subject to court approval.

The SEC’s investigation was conducted by Matthew S. Raalf, Brian P. Thomas, John S. Rymas, Kelly L. Gibson, Brendan P. McGlynn, G. Jeffrey Boujoukos, Michael J. Rinaldi, and Christopher R. Kelly in the Philadelphia Regional Office.  The SEC appreciates the assistance of the U.S. Department of Justice’s Deepwater Horizon Task Force.

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2014-77 Thu Apr 17 11:01:55 EDT 2014
SEC Charges San Diego-Based Investment Adviser http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541502917 The Securities and Exchange Commission today announced charges against a San Diego-based investment advisory firm, its chief executive officer, chief compliance officer, and another employee for misleading investors and breaching their fiduciary duties to clients.

The SEC’s Enforcement Division alleges that Total Wealth Management and its owner and CEO Jacob Cooper entered into undisclosed revenue sharing agreements through which they paid themselves kickbacks or so-called “revenue sharing fees.”  They failed to disclose to clients the conflicts of interest created by these agreements as they recommended the underlying investments to clients and investors in the Altus family of funds.  Total Wealth and Cooper also materially misrepresented the extent of the due diligence conducted on the investments they recommended.  Total Wealth’s CCO Nathan McNamee and investment adviser representative Douglas Shoemaker also breached their fiduciary duties and defrauded clients by failing to disclose conflicts of interest and concealing the kickbacks they received from the investments they recommended.

“Investment advisers owe a fiduciary duty of utmost good faith and full and fair disclosure to their clients,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office.  “Total Wealth violated that duty with its pervasive practice of placing clients in funds holding risky investments while concealing the revenue sharing fees they paid themselves.”

In the order instituting administrative proceedings, the SEC’s Enforcement Division alleges that Total Wealth and Cooper willfully violated the antifraud provisions of the federal securities laws, and McNamee and Shoemaker violated or aided and abetted violations of the antifraud provisions.  They also are charged with violations of Form ADV disclosure rules and the custody rule.  The SEC’s order seeks return of allegedly ill-gotten gains plus interest, financial penalties, an accounting, and remedial relief. 

The SEC’s investigation was conducted by Carol Lally, Dora Zaldivar, and Robert Conrrad of the Los Angeles Regional Office.  Sam Puathasnanon will lead the SEC’s litigation.  The SEC examination that led to the investigation was conducted by Meredith O. Eng, Dara M. Campbell, Charles T. Liao, and Martin J. Murphy of the Los Angeles office’s investment adviser/investment company examination program.

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2014-76 Tue Apr 15 12:11:30 EDT 2014
SEC Names David Gottesman as Deputy Chief Litigation Counsel http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541497164 The Securities and Exchange Commission today announced the appointment of David J. Gottesman as deputy chief litigation counsel in the Division of Enforcement.

Mr. Gottesman joined the SEC in 2004 and was promoted to a supervisory role in the trial unit in 2011, where he has litigated cases involving financial and accounting fraud, insider trading, market manipulation, investment company and adviser fraud, offering fraud, and registration violations. 

“David is an outstanding lawyer, demonstrating great judgment, significant securities law expertise, and a drive to succeed,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement.  “I am pleased that he will bring his considerable skills as a trial lawyer to a leadership role in the national litigation program.”

Matthew C. Solomon, chief litigation counsel in the Enforcement Division, added, “David has a keen sense of what works with judges and juries and has distinguished himself as an advocate by winning challenging trials against top defense counsel.  His trial acumen, together with his subject matter expertise and strong management experience, will be critical assets to our national litigation program.”

Mr. Gottesman has successfully led several jury trials on behalf of the Commission, including a two-week jury trial that concluded with a finding of liability for accounting fraud against former executives of Hayes-Lemmerz, an international auto parts supplier.  He also led one of the SEC's financial crisis cases against two former executives of Charles Schwab & Co. for misleading statements and omissions in marketing the Schwab YieldPlus Fund.  The defendants' settlements included significant civil money penalties and industry bars or suspensions.  Mr. Gottesman also was a member of the team that obtained admissions of liability as part of an $18 million settlement with hedge fund adviser Philip A. Falcone and his advisory firm Harbinger Capital Partners.

Mr. Gottesman said, “I am honored to have the chance to serve as deputy chief litigation counsel.  I look forward to continue helping the Enforcement Division carry out its mission of protecting investors and the markets.” 

Mr. Gottesman received his bachelor’s and law degrees from the University of Minnesota.  He was a partner at the law firm of Rosenthal and Schanfield, P.C. in Chicago from 1988 to 1991 and began there as an associate in 1982.  He was a trial attorney in the Commercial Litigation Branch of the Civil Division of the U.S. Department of Justice from 1991 to 2004.

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2014-75 Tue Apr 15 10:19:09 EDT 2014
SEC Charges Brokerage Firm Executives in Kickback Scheme to Secure Business of Venezuelan Bank http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541487258 The Securities and Exchange Commission today announced another round of charges in its ongoing case against several individuals involved in a massive kickback scheme to secure the bond trading business of a state-owned Venezuelan bank.

The SEC alleges that two executives at New York City-based brokerage firm Direct Access Partners (DAP) were integral participants in the wide-ranging fraud.  Benito Chinea, who was a co-founder and CEO of the firm, and Joseph DeMeneses, who was DAP’s managing partner of global strategy, devised and facilitated sham arrangements to conceal multi-million dollar kickback payments to a high-ranking Venezuelan finance official of the bank.  In one instance, DeMeneses made kickback payments from funds he controlled to a shell entity controlled by the Venezuelan official, and Chinea arranged for the firm to reimburse DeMeneses.  The allegations were made in a second amended complaint that the SEC submitted in federal court in Manhattan as part of its pending action against four individuals with ties to DAP as well as the head of DAP’s Miami office, who were charged last year for their roles in the scheme. 

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York and the U.S. Department of Justice’s Criminal Division today announced criminal charges against Chinea and DeMeneses.

“The corruption at Direct Access Partners reached the very top,” said Andrew M. Calamari, director of the SEC’s New York Regional Office. “The schemers depended on Chinea as CEO to authorize outsized payments from the firm to be funneled as kickbacks to Venezuela.”

The filing of the SEC’s second amended complaint is subject to court approval.  The SEC seeks disgorgement of ill-gotten gains plus interest and financial penalties against Chinea, who lives in Manalapan, N.J., and DeMeneses, who lives in Fairfield, Conn., as well as the five previously named defendants with ties to DAP, which has filed for bankruptcy.

The SEC’s investigation, which is continuing, has been conducted by Wendy Tepperman, Amanda Straub, and Michael Osnato of the New York Regional Office, and supervised by Amelia Cottrell.  Howard Fischer is leading the SEC’s litigation.  An SEC examination of DAP that that led to the investigation was conducted by members of the New York office’s broker-dealer examination staff.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Department of Justice’s Criminal Division, and the Federal Bureau of Investigation.

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2014-74 Mon Apr 14 10:26:59 EDT 2014
SEC Charges Hewlett-Packard With FCPA Violations http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541453075 The Securities and Exchange Commission today charged Hewlett-Packard with violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries in three different countries made improper payments to government officials to obtain or retain lucrative public contracts.

Hewlett-Packard has agreed to pay more than $108 million to settle the SEC’s charges and a parallel criminal case announced today by the U.S. Department of Justice.

The SEC’s order instituting settled administrative proceedings finds that the Palo Alto, Calif.-based technology company’s subsidiary in Russia paid more than $2 million through agents and various shell companies to a Russian government official to retain a multi-million dollar contract with the federal prosecutor’s office.  In Poland, Hewlett-Packard’s subsidiary provided gifts and cash bribes worth more than $600,000 to a Polish government official to obtain contracts with the national police agency.  And as part of its bid to win a software sale to Mexico’s state-owned petroleum company, Hewlett-Packard’s subsidiary in Mexico paid more than $1 million in inflated commissions to a consultant with close ties to company officials, and money was funneled to one of those officials. 

“Hewlett-Packard lacked the internal controls to stop a pattern of illegal payments to win business in Mexico and Eastern Europe.  The company’s books and records reflected the payments as legitimate commissions and expenses,” said Kara Brockmeyer, chief of the SEC Enforcement Division’s FCPA Unit.  “Companies have a fundamental obligation to ensure that their internal controls are both reasonably designed and appropriately implemented across their entire business operations, and they should take a hard look at the agents conducting business on their behalf.”

According to the SEC’s order, the scheme involving Hewlett-Packard’s Russian subsidiary occurred from approximately 2000 to 2007.  The bribes were paid through agents and consultants in order to win a government contract for computer hardware and software.  Employees within the subsidiary and elsewhere raised questions about the significant markup being paid to the agent on the deal and the subcontractors that the agent expected to use.  Despite the red flags, the deal went forward without any meaningful due diligence on the agent or the subcontractors.

The SEC’s order finds that bribes involving Hewlett-Packard’s subsidiary in Poland occurred from approximately 2006 to 2010.  Acting primarily through its public sector sales manager, the subsidiary agreed to pay a Polish government official in order to win contracts for information technology products and services.  The official received a percentage of net revenue earned from the contracts, and the bribes were delivered in cash from off-the-books accounts.

According to the SEC’s order, Hewlett-Packard’s subsidiary in Mexico paid a consultant to help the company win a public IT contract worth approximately $6 million.  At least $125,000 was funneled to a government official at the state-owned petroleum company with whom the consultant had connections.  Although the consultant was not an approved deal partner and had not been subjected to the due diligence required under company policy, HP Mexico sales managers used a pass-through entity to pay inflated commissions to the consultant.  This was internally referred to as the “influencer fee.”

Hewlett-Packard consented to the SEC’s order, which finds that it violated the internal controls and books and records provisions of the Securities Exchange Act of 1934.  The company agreed to pay $29 million in disgorgement (approximately $26.47 million to the SEC and $2.53 million to satisfy an IRS forfeiture as part of the criminal matter).  Hewlett-Packard also agreed to pay prejudgment interest of $5 million to the SEC and fines totaling $74.2 million in the criminal case for a total of more than $108 million in disgorgement and penalties.   

The SEC’s investigation was conducted by David A. Berman and Tracy L. Davis of the FCPA Unit in San Francisco.  The SEC appreciates the assistance of the U.S. Department of Justice’s Fraud Section and the U.S. Attorney’s Office for the Northern District of California as well as the Federal Bureau of Investigation, Internal Revenue Service, and Public Prosecutor’s Office in Dresden, Germany.

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2014-73 Wed Apr 09 12:45:02 EDT 2014
SEC Announces Charges Against Honolulu Woman Defrauding Investors Through Social Media http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541446454 The Securities and Exchange Commission today announced fraud charges against a Honolulu woman posing as an investment banker and soliciting investors through Twitter, Facebook, and other social media.

An SEC investigation found that Keiko Kawamura engaged in two separate fraudulent schemes to raise money from investors while casting herself as an investment and hedge fund expert when in fact she had virtually no prior trading experience.  In one scheme, she sought investors for her self-described hedge fund and posted on Twitter some screenshots of brokerage account statements suggesting she was personally obtaining incredible investment returns.  However, the account statements were not hers.  And instead of investing the money she raised from investors, she spent it on her own living expenses and luxury trips to Miami and London.  In a later scheme, Kawamura continued to boast phony experience to attract investors to her subscription service for investment advice.  She falsely told subscribers that she had been in the investment banking industry for nearly a decade and had achieved 800 percent returns in her personal brokerage account. 

“As alleged in our case, Kawamura used social media to ensnare investors and raise money to support her lifestyle,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office.  “Investors should beware of fraudsters who use social media to hide behind anonymity and reach many investors with little to no cost or effort.”

The SEC’s order instituting administrative proceedings alleges that Kawamura willfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 20(4)-8.  The administrative proceedings will determine any remedial action or financial penalties that are appropriate in the public interest against Kawamura.

The SEC’s investigation was conducted by Brent Smyth and Finola H. Manvelian of the Los Angeles Regional Office.  The SEC’s litigation will be led by Donald Searles.

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SEC Investor Alert: Social Media and Investing - Avoiding Fraud

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2014-72 Tue Apr 08 16:29:41 EDT 2014
SEC Charges Las Vegas-Based Transfer Agent With Disclosure Failures in Registration Forms http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541443215 The Securities and Exchange Commission today announced enforcement actions against two leaders at a Las Vegas-based transfer agent firm who were responsible for disclosure failures in registration forms filed with the SEC.

Empire Stock Transfer Inc. and the two individuals agreed to settle the SEC’s charges.

Publicly traded companies typically use transfer agents to keep track of individuals and entities that own their stocks and bonds.  Transfer agents generally act as an intermediary for the company, issue and cancel certificates upon changes in ownership, and handle certificates that are lost, destroyed, or stolen.  Transfer agents must file registration forms with the SEC and include information about the individuals who control or finance the firm.  The forms must be amended whenever any information becomes inaccurate or incomplete. 

An SEC examination and subsequent investigation found that Empire’s sole owner according to its registration forms – Patrick R. Mokros – failed to disclose that he relied on another individual to finance the purchase of the firm.  Also not disclosed in Empire’s forms is the fact that Mokros allowed his financier to play a significant role in the firm’s operations and receive a substantial portion of the profits.

The SEC also found that Empire’s registration forms failed to disclose the role of another leader at the firm – Matthew J. Blevins – who was hired in January 2007 to run Empire’s day-to-day operations and oversee the firm’s finances.  Empire didn’t update its registration forms to disclose the additional control person until last month as the SEC’s investigation was winding down.

“Transfer agents ensure the orderly transfer of securities, and it’s critical for such gatekeepers to accurately disclose who is financing and controlling their operations,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office.  “Empire’s filings told a different story than what was actually happening behind the scenes.”

The SEC’s order instituting settled administrative proceedings finds that Empire, Mokros, and Blevins committed or caused violations of Sections 17(a)(3) and 17A(c)(2) of the Securities Exchange Act of 1934, and Rules 17Ac2-1(a) and (c).  Empire and Mokros agreed to pay a $50,000 penalty and Blevins agreed to pay a $25,000 penalty to settle the SEC’s charges.  Without admitting or denying the SEC’s findings, Empire, Mokros and Blevins agreed to a censure and must cease and desist from committing or causing further violations.  Empire must retain an independent compliance consultant.

The SEC’s investigation was conducted by Ronnie Lasky, Kelly Bowers, and Diana Tani of the Los Angeles Regional Office.  The examination that led to the investigation was conducted by Cindy Wong, Erik Barker, and Ed Brady of the Los Angeles office.

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2014-71 Tue Apr 08 15:03:22 EDT 2014
SEC, Criminal Authorities Halt Florida-Based Ponzi Scheme Targeting Investors Through YouTube Videos http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541437884 The Securities and Exchange Commission today announced fraud charges and an asset freeze against the operators of a South Florida-based Ponzi scheme targeting investors through YouTube videos and selling them investments in a product called virtual concierge machines (VCMs) that would purportedly generate guaranteed returns of 300 to 500 percent in four years.

In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges.

The SEC alleges that Joseph Signore of West Palm Beach, Paul L. Schumack II of Pompano Beach, and their respective companies JCS Enterprises Inc. and T.B.T.I. Inc. falsely promised hundreds of investors nationwide that their funds would be used to purchase ATM-like machines that businesses could use to advertise products and services via touch screen and printable tickets or coupons.  Investors supposedly needed to do nothing to earn returns on their investment in a VCM, which would purportedly be placed at such locations as hotels, airports, and stadiums where they would derive revenue from the businesses paying to advertise through them.  However, instead of advertising revenue serving as the driving force behind the returns paid to investors, the two men and their companies paid returns to earlier investors using money from newer investors.  Signore and Schumack also diverted millions of dollars in investor funds for their personal use and other unrelated expenses. 

“Signore and Schumack touted VCMs as a revolutionary enterprise and fail-safe investment based on a stream of advertising revenue that would generate the guaranteed returns paid to investors,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.  “However, the advertising revenue was virtually non-existent and investors aren’t enjoying the riches touted on YouTube.”

According to the SEC’s complaint unsealed today in U.S. District Court for the Southern District of Florida, Signore, Schumack, JCS, and T.B.T.I. fraudulently raised more than $40 million since at least 2011 by guaranteeing exorbitant returns.  The SEC alleges that JCS Enterprises promoted VCMs through YouTube videos, e-mail solicitations, and investor seminars.  In one YouTube video, an apparent investor is polishing his new Cadillac as a friend proclaims, “What an amazing car! How can you afford this?”  The investor responds, “My Virtual Concierge.”  A similar scene ensues with a different investor showing a friend her new pool.  A spokesperson appears and asks the viewer, “Do you want to make more money?  Then it is time for you to own a Virtual Concierge.” 


YouTube Video Used in Ponzi Scheme

The SEC alleges that Signore, Schumack, and their companies promised to locate, place, and manage the VCMs while informing investors where their VCMs were located.  Investors were to be provided a password to allow them online access to monitor the activity of their VCMs.  However, VCMs were not placed anywhere near the rate of those purchased by investors, who were never provided the locations of their VCM and could not track activity as promised.  The scheme collapsed in typical Ponzi fashion once new investor funds dried up.  The majority of investors stopped receiving their monthly payments in January 2014, yet Signore and Schumack continued to solicit new investors while fabricating excuses to placate irate investors no longer receiving their returns.  JCS went so far as to issue a press release claiming that TBTI had defrauded JCS and it was “investigating the matter.” 

Glenn S. Gordon, associate director of the SEC’s Miami Regional Office, said, “The defendants never told investors the most important way in which these machines resembled ATMs – as a source of ready cash from investors that the defendants used for their own benefit.”

The SEC also alleges that Signore and Schumack misappropriated investor funds for themselves while never telling investors they would do so.  Signore used investor funds from accounts at JCS to divert approximately $2 million directly to himself and family members. Signore also routed investor money to unrelated business ventures he operates with his wife.  Debit charges from JCS accounts indicate that approximately $56,000 in investor funds were spent at restaurants, merchandising stores, and a tanning salon as well as other credit card bills.  Money from T.B.T.I’s accounts was similarly used for personal expenses.  For example, Schumack’s wife signed a check for $500,000 made out to the IRS.  T.B.T.I. also has transferred approximately $4 million from its investor account to an unrelated account from which Schumack and others executed more than 100 cash withdrawals totaling around $4.8 million, which was 91 percent of the account balance.  Another $23,000 of investor money was used by Schumack for personal expenses including restaurants, merchandising stores, and a nutrient therapy center.

The SEC’s complaint charges JCS Enterprises, T.B.T.I., Signore, and Schumack with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 along with Rule 10b-5.  The SEC seeks disgorgement of ill-gotten gains, prejudgment interest, and financial penalties among other relief for investors.  The Honorable Donald Middlebrooks granted the SEC’s request for a temporary restraining order and a temporary asset freeze against JCS, T.B.T.I., Signore and Schumack, and further required the defendants to provide accountings.  Judge Middlebrooks also entered an order appointing James D. Sallah, Esq. as receiver for JCS and T.B.T.I.  A court hearing has been scheduled for April 17.

The SEC’s investigation, which is continuing, has been conducted by Fernando Torres, Linda S. Schmidt, Vincent T. Hull, and Mark Dee in the Miami Regional Office.  The case has been supervised by Jason R. Berkowitz.  The SEC’s litigation is being led by Russell Koonin and Mr. Hull.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Florida as well as the Federal Bureau of Investigation, Florida Office of Financial Regulation, and Texas State Securities Board.

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2014-70 Tue Apr 08 12:44:10 EDT 2014
SEC Charges CVS With Misleading Investors and Committing Accounting Violations http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541437806 The Securities and Exchange Commission today charged CVS Caremark Corp. with misleading investors about significant financial setbacks and using improper accounting that artificially boosted its financial performance.

CVS has agreed to pay $20 million to settle the charges.

According to the SEC’s complaint filed in federal court in Rhode Island, CVS has two business segments as a pharmacy benefits manager and a retail chain of drug stores.  In offering documents for a $1.5 billion bond offering in 2009, CVS fraudulently omitted that it had recently lost significant Medicare Part D and contract revenues in the pharmacy benefits segment.  Investors were therefore misled about the expected future financial results for that line of business.  When CVS eventually revealed the full extent of the setbacks on Nov. 5, 2009, its stock price fell 20 percent in one day.  CVS further misled investors on an earnings call that same day by maintaining there was a slight improvement in its “retention rate,” which is a key metric of retained business often used to compare pharmacy benefits management companies.  But CVS omitted the fact that it had manipulated how it calculated the rate and concealed the full extent of its lost business.

“CVS broke faith with investors in both its stock and its bonds by disguising significant setbacks for its pharmacy benefits management business,” said Andrew Ceresney, director of the SEC’s Division of Enforcement.  “The intentional misconduct by CVS breached the core principle of fair and accurate reporting of financial performance.”

The SEC’s complaint further alleges that CVS made improper accounting adjustments that overstated the financial results for its retail pharmacy line of business.  During the same 2009 timeframe, CVS altered the accounting treatment for its acquisition of another drug store chain – Longs Drugs – and failed to disclose the adjustments in its quarterly report filed on November 5.  CVS improperly reduced the value of $189 million of personal property in the Longs stores down to $0, and then reversed $49 million of depreciation that had been taken on those assets since the acquisition.  The undisclosed depreciation reversal increased the third-quarter earnings and enabled CVS to exceed analysts’ expectations at a time when it was otherwise announcing significant bad news about earnings projections in its pharmacy benefits line of business. 

The SEC alleges that the improper accounting adjustments were orchestrated by Laird Daniels, who was the retail controller at CVS and is charged with accounting violations in a related SEC administrative proceeding.  According to the SEC’s order against Daniels, proper accounting would have treated the asset write-down as a current period expense, and the third quarter earnings per share for CVS would have been reduced by as much as 17 percent.  As Daniels described in an e-mail, the dramatic change in accounting turned the acquisition of Longs Drugs from a “bad guy” to a “good guy” in terms of purported profitability for CVS.

“The accounting standards are designed to provide the public with a fair and consistent measure of public company performance.  Instead, CVS and Daniels used improper accounting tactics to give investors a misleading picture of the company’s retail pharmacy earnings,” said Paul Levenson, director of the SEC’s Boston Regional Office.

Daniels has agreed to settle the administrative case against him by paying a $75,000 penalty and being barred for at least one year from practicing as an accountant on behalf of any publicly traded company or other entity regulated by the SEC.  Without admitting or denying the allegations, Daniels agreed to the entry of a cease-and-desist order finding that he willfully violated Sections 17(a)(2) and (3) of the Securities Act of 1933 and Rule 13b2-1 under the Securities Exchange Act of 1934.  The order finds that Daniels willfully aided, abetted, and caused violations by CVS of the reporting, books and records, and internal control provisions of the federal securities laws.

The SEC’s complaint charges CVS with violations of Section 10(b) of the Exchange Act and Rule 10b-5, and Section 17(a) of the Securities Act.  CVS also is charged with violations of the reporting, books and records, and internal control provisions of the federal securities laws.  In addition to the $20 million penalty, CVS consented to the entry of a final judgment permanently enjoining the company from violating various anti-fraud, books and records, and internal control provisions of the securities laws.  CVS neither admitted nor denied the allegations. 

The SEC’s investigation was conducted by Marc Jones, Ruth Anne Heselbarth, Frank Huntington, Amy Gwiazda, and Kevin Currid of the Boston Regional Office.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

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2014-69 Tue Apr 08 12:09:57 EDT 2014
SEC Announces Additional $150,000 Payment to Recipient of First Whistleblower Award http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541413136 The Securities and Exchange Commission today announced that the whistleblower who received the first award under the agency’s new whistleblower program will receive an additional $150,000 payout after the SEC collected additional funds in the case.

The whistleblower, who the SEC did not identify in order to protect confidentiality, has now been awarded a total of nearly $200,000 since the award was announced on Aug. 21, 2012.  The award recipient helped the SEC stop a multi-million dollar fraud by providing documents and other significant information that allowed its investigation to move at an accelerated pace and prevent the fraud from ensnaring additional victims.

The award represents 30 percent of the amount collected in the SEC enforcement action against the perpetrators of the scheme, the maximum percentage payout allowed under the law.  The additional payout comes after the SEC collected an additional $500,000 from one of the defendants in the case.

“This latest payment shows that the SEC’s aggressive collection efforts pay dividends not only for harmed investors but also for whistleblowers,” said Sean McKessy, chief of the SEC’s Whistleblower Office.  “As we collect additional funds from securities law violators, we can increase the payouts to whistleblowers.”

The SEC expects to collect additional money from defendants in this case as some are making payments under a periodic payment schedule ordered by the court.

The 2010 Dodd-Frank Act authorized the whistleblower program to reward individuals who offer high-quality original information that leads to an SEC enforcement action in which more than $1 million in sanctions is ordered.  Awards can range from 10 percent to 30 percent of the money collected.  The Dodd-Frank Act included enhanced anti-retaliation employment protections for whistleblowers and provisions to protect their identity.  The law specifies that the SEC cannot disclose any information, including information the whistleblower provided to the SEC, which could reasonably be expected to directly or indirectly reveal a whistleblower’s identity.

For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.


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2014-68 Fri Apr 04 12:51:13 EDT 2014
SEC Charges Owner of N.J.-Based Brokerage Firm With Manipulative Trading http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541406190 The Securities and Exchange Commission today charged the owner of a Holmdel, N.J.-based brokerage firm with manipulative trading of publicly traded stocks through an illegal practice known as “layering” or “spoofing.” 

The SEC also charged the owner and others for registration violations.  Two firms and five individuals agreed to pay a combined total of nearly $3 million to settle the case.

In layering, the trader places orders with no intention of having them executed but rather to trick others into buying or selling a stock at an artificial price driven by the orders that the trader later cancels.  An SEC investigation found that Joseph Dondero, a co-owner of Visionary Trading LLC, repeatedly used this strategy to induce other market participants to trade in a particular stock.  By placing and then canceling layers of orders, Dondero created fluctuations in the national best bid or offer of a stock, increased order book depth, and used the non-bona fide orders to send false signals to other market participants who misinterpreted the layering as true demand for the stock.

“The fair and efficient functioning of the markets requires that prices of securities reflect genuine supply and demand,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office.  “Traders who pervert these natural forces by engaging in layering or some other form of manipulative trading invite close scrutiny from the SEC.”

Joseph G. Sansone, co-deputy chief of the SEC Enforcement Division’s Market Abuse Unit, added, “Week after week, Dondero lined his pockets by placing phony orders and tricking others into trading with him at distorted prices.  The fact that Dondero perpetrated this deceit through the entry of trade orders did not allow him to evade detection.”

The SEC additionally charged Dondero, Visionary Trading, and three other owners with operating a brokerage firm that wasn’t registered as required under the federal securities laws.  New York-based brokerage firm Lightspeed Trading LLC is charged with aiding and abetting the registration violations, and its former chief operating officer is charged with failing to supervise one of the Visionary owners who shared with his co-owners commission payments that he received from Lightspeed while he was simultaneously working as a registered representative there.

According to the SEC’s order instituting settled administrative proceedings, the misconduct occurred from May 2008 to November 2011.  Visionary Trading and its four owners – Dondero, Eugene Giaquinto, Lee Heiss, and Jason Medvin – illegally received from Lightspeed a share of the commissions generated from trading by Visionary customers.  Lightspeed aided and abetted the violation by ignoring red flags that Visionary and its owners were receiving transaction-based compensation while Visionary and its owners were not registered as a broker or dealer or associated with a registered broker-dealer firm. 

According to the SEC’s order, Lightspeed also failed to establish reasonable policies and procedures designed to prevent and detect the improper sharing of commissions between its registered representatives such as Giaquinto, who was associated with Lightspeed for part of the relevant period, and others who were not registered with the SEC in any capacity.  Lightspeed’s former COO Andrew Actman failed reasonably to supervise Giaquinto by not taking appropriate steps to address red flags indicating that Giaquinto was sharing commission payments that he received from Lightspeed with the other Visionary owners. 

The SEC’s order finds that Dondero violated Sections 9(a)(2) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Visionary and its owners willfully violated Section 15(a)(1) of the  Exchange Act.  Giaquinto willfully aided and abetted and caused Visionary’s and his co-owners’ violations of Exchange Act Section 15(a)(1).  Lightspeed willfully aided and abetted and caused Visionary’s and its owners’ violations of Exchange Act Section 15(a)(1).  Lightspeed and Actman failed reasonably to supervise Giaquinto. 

In settling the SEC’s charges, Dondero agreed to pay disgorgement of $1,102,999.96 plus prejudgment interest of $46,792 and penalties of $785,000 for a total exceeding $1.9 million. He agreed to a bar from the securities industry.  Giaquinto, Heiss, and Medvin must each pay disgorgement of $118,601.96 plus prejudgment interest of $14,391.32 and a penalty of $35,000 for a combined total of more than $500,000 from the three of them.  They are barred from the securities industry for at least two years.  Lightspeed must pay disgorgement of $330,000 plus prejudgment interest of $43,316.54, post-order interest of $4,900.38, and a penalty of $100,000 for a total of approximately $478,000.  Actman agreed to a penalty of $10,000 and a supervisory bar for at least one year.

The SEC’s investigation was conducted by Jason Burt, a member of the Market Abuse Unit in Denver, and Thomas P. Smith, Jr. of the New York Regional Office.  It was supervised by Mr. Sansone, Mr. Wadhwa, and Daniel M. Hawke, chief of the Enforcement Division’s Market Abuse Unit.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

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2014-67 Fri Apr 04 10:42:49 EDT 2014
SEC Seeks Comment on Investor Advisory Committee Recommendation Regarding Target Date Funds http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541400897 The Securities and Exchange Commission today announced that it is seeking comment on a recommendation by its Investor Advisory Committee regarding disclosure by target date mutual funds.

In 2010, the SEC proposed a rule that would require marketing materials for target date funds to include a graphical or tabular depiction of changes in the fund's asset allocation over time, known as a fund’s “glide path.”  Today, the SEC is reopening the comment period on its 2010 proposal to request comment on the committee’s recommendation that the SEC develop a glide path illustration based on a standardized measure of fund risk, which would replace or supplement what it previously proposed.

“I greatly appreciate the input of the Investor Advisory Committee on this important matter and I look forward to carefully considering comments received on the committee’s recommendation,” said SEC Chair Mary Jo White.

Target date funds are designed to make investing for retirement more convenient by automatically making changes over time to the fund's allocation among different asset classes, such as stocks, bonds, and cash.  Target date fund allocations typically become more weighted to bonds and cash as the targeted retirement date nears, and sometimes continue becoming more weighted to bonds and cash for a number of years after retirement. 

The Dodd-Frank Wall Street Reform and Consumer Protection Act established the Investor Advisory Committee to advise the SEC on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. The Dodd-Frank Act authorizes the committee to submit findings and recommendations for review and consideration by the Commission.

The SEC’s target date fund proposal and today’s release are available on the SEC’s website.  Members of the public will have 60 days to comment on the Investor Advisory Committee’s recommendation after the release is published in the Federal Register.

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2014-66 Thu Apr 03 15:49:34 EDT 2014
SEC Charges Two Friends With Insider Trading Ahead of Impending Acquisition http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541394568 The Securities and Exchange Commission today charged two friends with insider trading on confidential information from an investment banker about an impending transaction between engineering and construction companies.

The SEC alleges that Walter D. Wagner of Rockville, Md., and Alexander J. Osborn of Alexandria, Va., illicitly profited by nearly $1 million combined by trading on nonpublic information in advance of the acquisition of The Shaw Group by Chicago Bridge & Iron Company.  Wagner was tipped by his longtime friend John W. Femenia, who worked at a firm that was considering whether to finance the transaction.  Wagner then tipped Osborn with the inside information so they could each trade heavily in Shaw Group securities ahead of the public announcement on July 30, 2012, when the closing stock price jumped approximately 55 percent from the previous day. 

Wagner has agreed to settle the SEC’s charges by disgorging his ill-gotten gains plus interest.  Any additional financial penalty will be decided by the court at a later date.  A parallel criminal action against Wagner was announced today by the U.S. Attorney’s Office for the Western District of North Carolina.

The SEC’s litigation continues against Osborn.  The SEC already charged Femenia in a related insider trading case.  He was subsequently barred from the securities industry.

“Wagner and Osborn had never bought stock or call options in The Shaw Group, yet they suddenly spent significant portions of their available cash resources to make sizeable purchases in the weeks preceding the public announcement of the acquisition,” said William P. Hicks, associate director for enforcement in the SEC’s Atlanta Regional Office.  “The SEC is committed to deciphering the stories behind suspicious trades and exposing those who trade on confidential information obtained from corporate insiders.”

According to the SEC’s complaint filed in federal court in Greenbelt, Md., all three attended the U.S. Merchant Marine Academy.  Wagner and Femenia met in college and remained friends after graduating in 2003.  Osborn, who graduated in 2006, became friends with Wagner around 2009 when they worked in the same office building for different government contractors.  The SEC alleges that Femenia collected nonpublic details about the acquisition while at work and communicated them to Wagner via text messages and phone calls in violation of the duty he owed his firm to keep the information confidential.  Wagner knew Femenia was employed in investment banking at Wells Fargo Securities.  Wagner in turn tipped Osborn, who knew that Wagner’s source was employed in the finance industry.  Wagner and Osborn used the nonpublic information to obtain illegal trading profits of approximately $517,784 and $439,830 respectively.

The SEC’s complaint charges Wagner and Osborn with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In addition to the financial sanction of $528,175 in disgorgement and prejudgment interest, Wagner has consented to the entry of a judgment permanently enjoining him from violations of Section 10(b) of the Exchange Act and Rule 10b-5.

The SEC’s investigation was conducted by Monifa F. Wright and supervised by Matthew F. McNamara in the Atlanta Regional Office.  The SEC’s litigation is being handled by Paul T. Kim.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Western District of North Carolina, Federal Bureau of Investigation, Financial Industry Regulatory Authority, and Options Regulatory Surveillance Authority.

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2014-65 Thu Apr 03 12:10:07 EDT 2014
SEC Charges Transamerica Financial Advisors With Improperly Calculating Advisory Fees and Overcharging Clients http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541392449 The Securities and Exchange Commission today announced charges against a St. Petersburg, Fla.-based financial services firm for improperly calculating advisory fees and overcharging clients.

SEC examinations and a subsequent investigation found that Transamerica Financial Advisors offered breakpoint discounts designed to reduce the fees that clients owed to the firm when they increased their assets in certain investment programs.  The firm permitted clients to aggregate the values of related accounts in order to get the discounts.  However, Transamerica failed to process every aggregation request by clients and also had conflicting policies on whether representatives were required to pass on to clients the savings from breakpoint discounts.  As a result, the firm overcharged certain clients by failing to apply the discounts and failed to have adequate policies and procedures to ensure that the firm was properly calculating its fees.

Transamerica has agreed to settle the SEC’s charges.  As a result of the SEC investigation, the firm reviewed client records and has reimbursed 2,304 current and former client accounts with refunds and credits totaling $553,624 including interest.  In the settlement, Transamerica has agreed to pay an additional $553,624 penalty.

“Transamerica failed to properly aggregate client accounts so that they could receive a fee discount, and this systemic breakdown caused retail investors to overpay for advisory services in thousands of client accounts,” said Julie M. Riewe, co-chief of the SEC Enforcement Division’s Asset Management Unit. 

According to the SEC’s order instituting settled administrative proceedings, Transamerica’s failure to properly process aggregation requests occurred since 2009.  SEC examiners first alerted Transamerica about aggregation problems in 2010 after an examination of a branch office.  While the firm went on to provide refunds to clients of that branch office, Transamerica failed to undertake a firm-wide review of all client accounts as SEC examiners recommended.  Hence during a subsequent examination of the firm’s headquarters in 2012, SEC examiners found that Transamerica was still failing to aggregate certain related client accounts.  The problem persisted beyond any one branch office.  In fact, Transamerica had conflicting policies throughout its branch offices on whether the firm required its representatives to provide breakpoint discounts to advisory clients.

“The securities laws require investment advisers to charge advisory fees consistent with their own disclosures and stated policies so investors get what they bargained for,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.  “Transamerica failed to take appropriate remedial steps even after SEC examiners had flagged the problem.”

The SEC’s order finds that Transamerica willfully violated Sections 206(2), 206(4), and 207 of the Investment Advisers Act of 1940 and Rule 206(4)-7.  Transamerica agreed to a censure without admitting or denying the SEC’s findings, and must cease and desist from committing or causing any further violations of those provisions of the federal securities laws.  In addition to the monetary reimbursements and sanctions, Transamerica agreed to retain an independent consultant to review its policies and procedures pertaining to its account opening forms, fee schedules, and fee computation methodologies as well as the firm’s account aggregation process for breakpoints. 

The SEC’s investigation was conducted by Salvatore Massa and Tonya Tullis under the supervision of Chad Alan Earnst in the Miami Regional Office.  Mr. Massa and Mr. Earnst are members of the Enforcement Division’s nationwide Asset Management Unit.  The 2012 examination that led to the investigation was conducted by Jean Cabot, Jesse Alvarez, and Roda Johnson under the supervision of John Mattimore in the Miami office.

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2014-64 Thu Apr 03 10:52:03 EDT 2014
Rebecca Olsen Named Chief Counsel in the Office of Municipal Securities http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541384702 The Securities and Exchange Commission today announced that Rebecca J. Olsen has been named chief counsel in its Office of Municipal Securities. 

Ms. Olsen joined the Office of Municipal Securities in 2013, where she made notable contributions to the municipal advisor registration rulemaking project, reviewed Municipal Securities Rulemaking Board (MSRB) rulemaking, and consulted with the Division of Enforcement on municipal securities enforcement matters.  Previously, Ms. Olsen spent more than 10 years at Ballard Spahr LLP, where she practiced primarily in the municipal securities area.

In her new role, Ms. Olsen will oversee analysis of legal issues that arise in the Office of Municipal Securities.  Her responsibilities will include review of MSRB rulemaking and analysis of disclosure policy issues.  In addition, Ms. Olsen will continue to serve as the office’s liaison to the Division of Enforcement’s Municipal Securities and Public Pensions Unit and to provide legal advice on enforcement efforts.

Under the Dodd-Frank Act, the SEC established a standalone Office of Municipal Securities to administer SEC rules on practices of broker-dealers, municipal advisors, investors, and issuers in the municipal securities area and to coordinate with the MSRB on rulemaking and enforcement actions.  The Office of Municipal Securities advises the Commission and other SEC offices on policy matters, enforcement, and other issues affecting the municipal securities market and oversees MSRB rulemaking and the SEC’s municipal advisor registration program.

“Rebecca Olsen is a very talented municipal securities law expert with extensive experience in municipal securities transactions, whose intellectual curiosity and infectious enthusiasm have enhanced the Office of Municipal Securities,” said John J. Cross III, director of the Office of Municipal Securities.  “Rebecca will bring invaluable perspective as we move forward in addressing current legal issues that arise in an evolving regulatory framework for the municipal securities market.” 

Ms. Olsen received her B.A. degree, magna cum laude, from Boston College, her J.D. degree from Georgetown University, and her LLM degree in International Business Law, summa cum laude, from the Vrije Universiteit Amsterdam

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2014-63 Wed Apr 02 11:37:44 EDT 2014
Jessica Kane Named Deputy Director in the Office of Municipal Securities http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541384218 The Securities and Exchange Commission today announced that Jessica S. Kane has been named deputy director in its Office of Municipal Securities. 

For the past year, Ms. Kane has served as senior special counsel to the director in the Office of Municipal Securities, where she has played a leading role on the municipal advisor registration rulemaking project and other municipal securities initiatives.  She joined the SEC in 2007, where she worked on corporate securities disclosure matters in the Division of Corporation Finance from 2007 to 2012, and then worked in the SEC’s Office of Legislative and Intergovernmental Affairs from 2012 to 2013.

In her new role, Ms. Kane will play a leading role in overseeing all aspects of the Office of Municipal Securities, including implementation and operation of the municipal advisor registration regime, oversight of Municipal Securities Rulemaking Board (MSRB) rulemaking, municipal market structure initiatives, disclosure policy, and coordination on municipal enforcement matters.

Under the Dodd-Frank Act, the SEC established a standalone Office of Municipal Securities to administer SEC rules on practices of broker-dealers, municipal advisors, investors, and issuers in the municipal securities area and to coordinate with the MSRB on rulemaking and enforcement actions.  The Office of Municipal Securities advises the Commission and other SEC offices on policy matters, enforcement, and other issues affecting the municipal securities market and oversees MSRB rulemaking and the SEC’s municipal advisor registration program.

“Jessica Kane is an exceptional attorney who has made extraordinary contributions to the municipal advisor rulemaking project and to the development of the Office of Municipal Securities,” said John J. Cross III, director of the Office of Municipal Securities.  “Jessica’s strong legal analytic skills, impeccable judgment, insightful perspective on securities law matters, indefatigable work ethic, and inclusive collaborative approach to interactions with other offices and stakeholders will serve us well as we move forward on our mission to oversee the municipal securities market and vigilantly protect investors.”

Ms. Kane graduated with honors from Georgetown University, where she received her B.A. degree in English, with a minor in Economics.  She received her J.D. degree from George Mason University School of Law, where she was Executive Editor of the Civil Rights Law Journal.

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2014-62 Wed Apr 02 11:18:18 EDT 2014
SEC Charges Two Men With Insider Trading on Confidential Information From Their Wives http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541344904 The Securities and Exchange Commission today announced two separate cases against men who profited by insider trading on confidential information they learned from their wives about Silicon Valley-based tech companies. 

“Spouses and other family members may gain access to highly confidential information about public companies as part of their relationship of trust,” said Jina L. Choi, director of the SEC’s San Francisco Regional Office.  “In those circumstances, family members have a duty to protect and safeguard that information, not to trade on it.”  

The SEC alleges that Tyrone Hawk of Los Gatos, Calif., violated a duty of trust by trading after he overheard work calls made by his wife, a finance manager at Oracle Corp., regarding her company’s plan to acquire Acme Packet Inc.  Hawk also had a conversation with his wife in which she informed him that there was a blackout window for trading Oracle securities because it was in the process of acquiring another company.  According to the SEC’s complaint, Hawk bought Acme Packet shares before the acquisition was announced in February 2013, and reaped approximately $150,000 by selling after the stock price rose 23 percent on the news. Without admitting or denying the allegations, Hawk agreed to pay more than $300,000 to settle the SEC’s charges.

In an unrelated case, the SEC alleges that Ching Hwa Chen of San Jose, Calif., profited from gleaning confidential information in mid-2012 that his wife’s employer, Informatica Corp., would miss its quarterly earnings target for the first time in 31 consecutive quarters.  During a drive to vacation in Reno, Nev., Chen overheard business calls by his wife, who previously advised Chen not to trade in Informatica securities under any circumstances.  However, after they returned from Reno, he established securities positions designed to make money if the stock price fell.  Informatica’s shares declined more than 27 percent after it announced the earnings miss, and Chen realized nearly $140,000 in profits. Without admitting or denying the allegations, Chen agreed to pay approximately $280,000 to settle the SEC’s charges.   

The SEC has brought other insider trading cases involving individuals who traded on material, nonpublic information misappropriated from spouses.  For example, last year the SEC charged a Houston man with insider trading ahead of a corporate acquisition based on confidential details that he gleaned from his wife, a partner at a large law firm that was consulted on the deal.  In 2011, the SEC charged an Illinois man who bought the stock of an acquisition target of a company where his wife was an executive despite her requests that he keep the merger information confidential.  In a different 2011 case, the SEC charged the spouse of a CEO with insider trading on confidential information that he misappropriated from her in advance of company news announcements.

The SEC’s investigations were conducted by Jennifer J. Lee and Kashya K. Shei and supervised by Jina L. Choi, Michael S. Dicke, and Erin E. Schneider in the San Francisco office.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority and Options Regulatory Surveillance Authority.

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2014-61 Mon Mar 31 12:20:31 EDT 2014
SEC Halts Pyramid Scheme Targeting Asian and Latino Communities http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541324305 The Securities and Exchange Commission today announced charges and asset freezes against the operators of a worldwide pyramid scheme targeting Asian and Latino communities in the U.S. and abroad. 

The SEC alleges that three entities collectively operating under the business names WCM and WCM777 are posing as multi-level marketing companies in the business of selling third-party cloud computing services, which can include website hosting, data storage, and software support.  The entities are based in California and Hong Kong and controlled by “Phil” Ming Xu, who is a resident of Temple City, California. 

According to the SEC’s complaint filed in federal court in Los Angeles, WCM and WCM777 have raised more than $65 million since March 2013 by falsely promising tens of thousands of investors that the return on investment in the cloud services venture would be 100 percent or more in 100 days.  Investors were told they would receive “points” for making investments or enrolling other investors.  The points would be convertible into equity in initial public offerings of high-tech companies their money would help launch.  However, rather than building out cloud services or incubating high-tech companies, Xu and the WCM entities used investor funds to make Ponzi payments of purported investment returns to some investors.  They also spent investor money to purchase golf courses and other U.S.-based properties among other unauthorized expenditures.

The court has granted the SEC’s request for an asset freeze and the appointment of a temporary receiver over the assets of WCM, WCM777, and several other entities named as relief defendants for the purpose of recovering money from the scheme in their possession. 

“Xu and his entities claimed they were using investor funds to build a strong cloud services company that would then ignite other high-tech companies and ultimately make their investors very wealthy,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office.  “In reality, they were operating a pyramid scheme that preyed on investors in particular ethnic communities, leaving them with nothing left to show for their investment.” 

According to the SEC’s complaint, WCM and WCM777 sell their products exclusively to investors and have no other apparent sources of revenue.  Their offerings and operations depend almost entirely on the recruitment of new investors and purchases by existing investors to provide the money for returns.  On its website, WCM777 specifically addressed the question “Is WCM777 a Ponzi Game?” by writing, “In summary, we are not a Ponzi game company. We are creating a new business model.” 

The SEC alleges that Xu and his entities made various false claims to investors about purported partnerships with more than 700 major companies such as Siemens, Denny’s, and Goldman Sachs – in some instances falsely representing that they had permission to use their logos.  Meantime, besides buying two golf courses with investor money, Xu and his entities also purchased a warehouse, vacant land, and several single family homes  They also used investor funds to play the stock market and make other related investments through intermediary companies, such as an oil and gas offering.  They also sent investor money to a rough diamond jewel merchant in Hong Kong and another unrelated company affiliated with Xu.

The SEC’s complaint alleges that WCM, WCM777, and Xu violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5.  The complaint further alleges that Xu violated Section 20(a) of the Exchange Act.  In addition to the asset freezes and appointment of a temporary receiver, the Honorable Christina A. Snyder also granted the SEC’s request for an order prohibiting the destruction of documents and requiring the defendants to provide accountings. A court hearing has been scheduled for April 10, 2014. 

The SEC’s investigation has been conducted by Peter Del Greco, Maria Rodriguez, and Marc Blau of the Los Angeles office.  The SEC’s litigation will be led by John Bulgozdy.    

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For more information about the dangers of potential investment scams involving pyramid schemes posing as multi-level marketing programs, see the SEC’s investor alert, which also is available in Chinese.

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2014-60 Fri Mar 28 12:58:27 EDT 2014
SEC Announces Fraud Charges Against Coal Company and CEO for False Disclosures About Management http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541317697 The Securities and Exchange Commission today announced fraud charges against a Seattle-headquartered coal company and its founder for making false disclosures about who was running the company.

The SEC’s Enforcement Division alleges that L&L Energy Inc., which has all of its operations in China and Taiwan, created the false appearance that the company had a professional management team in place when in reality Dickson Lee was single-handedly controlling the company’s operations.  An L&L Energy annual report falsely listed Lee’s brother as the CEO and a woman as the acting CFO in spite of the fact that she had rejected Lee’s offer to serve in the position the month before.  L&L Energy and Lee continued to misrepresent that they had an acting CFO in the next three quarterly reports.  Certifications required under the Sarbanes Oxley Act ostensibly bore the purported acting CFO’s electronic signature.  Lee and L&L Energy also allegedly misled NASDAQ to become listed on the exchange by falsely maintaining they had accurately made all of their required Sarbanes-Oxley certifications.

In a parallel action, a criminal indictment against Lee was unsealed today in federal court in Seattle.  The U.S. Attorney’s Office in the Western District of Washington is prosecuting the case.

“Lee and L&L Energy deceived the public by falsely representing that the company had a CFO, which is a critical gatekeeper in the management of public companies,” said Antonia Chion, associate director in the SEC’s Enforcement Division.  “The integrity of Sarbanes-Oxley certifications is critical, and executives who manipulate the process will be held accountable for their misdeeds.”

This enforcement action stems from the work of the SEC’s Cross-Border Working Group, which focuses on companies with substantial foreign operations that are publicly traded in the U.S.  The Cross-Border Working Group has contributed to the filing of fraud cases against more than 90 companies, executives, and auditors.  The securities of more than 60 companies have been deregistered.

The SEC separately issued a settled cease-and-desist order against L&L Energy’s former audit committee chair Shirley Kiang finding that she played a role in the company’s reporting violations by signing an annual report that she knew or should have known contained a false Sarbanes-Oxley certification by Lee.  Kiang, who neither admitted nor denied the charges, must permanently refrain from signing any public filing with the SEC that contains any certification required pursuant to Sarbanes-Oxley.

According to the SEC’s order against Lee and L&L Energy, the false representations began in the annual report for 2008 and continued with quarterly filings in 2009.  The purported acting CFO did not actually sign any public filings during this period or provide authorization for her signature to be placed on any filings.  After Lee was confronted by the purported acting CFO in mid-2009, he nonetheless continued to falsely represent to L&L Energy’s board of directors that the company had an acting CFO.  When L&L Energy filed its annual report for 2009, it contained a false Sarbanes-Oxley certification by Lee that all fraud involving management had been disclosed to the company’s auditors and audit committee.  Then, in connection with an application to gain listing on NASDAQ, Lee informed the exchange that L&L Energy had made all of its required Sarbanes-Oxley certifications – including during the period of the purported service of an acting CFO.  As a result, L&L Energy became listed on NASDAQ.   

The SEC’s order against Dickson Lee and L&L alleges that they violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 17(a) of the Securities Act of 1933.  The order also alleges other violations of rules under the Exchange Act concerning Sarbanes-Oxley certifications, disclosure controls and procedures, and obtaining and retaining electronic signatures on filings.  The order seeks disgorgement and financial penalties against L&L Energy and Lee as well as an officer-and-director bar against Lee.  The order also seeks to prohibit Lee, who is a certified public accountant, from practicing before the SEC pursuant to Rule 102(e) of the Commission’s rules of practice. 

The SEC’s investigation, which is continuing, has been conducted by Joseph Griffin, Jennie Krasner, and Brad Mroski under the supervision of Ricky Sachar.  The SEC’s litigation will be led by Cheryl L. Crumpton.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Western District of Washington and the Federal Bureau of Investigation. 

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2014-59 Thu Mar 27 17:00:00 EDT 2014
SEC Names Jeffrey Boujoukos as Associate Regional Director in Philadelphia Office http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541268174 The Securities and Exchange Commission today announced that G. Jeffrey Boujoukos has been named the associate regional director for enforcement in the Philadelphia office.

As the regional trial counsel since joining the SEC in 2009, Mr. Boujoukos has supervised the Philadelphia office’s trial unit.  He has litigated matters involving insider trading, Ponzi schemes, investment adviser fraud, and other securities laws violations.  Among the successful cases he prosecuted was a three-week trial last fall against a financial services company, subsidiary, and CEO accused of committing an offering fraud in the sale of millions of dollars of promissory notes and stock.  The jury returned a verdict finding them liable on all counts.

In his new role, Mr. Boujoukos will oversee the Philadelphia office’s enforcement efforts covering the Mid-Atlantic region.

“Jeff is a thoughtful lawyer and manager who can be counted on for sound advice,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement.  “I am pleased that the enforcement program in Philadelphia will continue to benefit from his skills and experience.”

Sharon B. Binger, director of the Philadelphia Regional Office, added, “Jeff is the perfect person to guide our hardworking lawyers, and I am thrilled that he will bring his excellent judgment and intellect to this important role.”

Mr. Boujoukos said, “It has been a privilege to work with the talented attorneys and staff in the Philadelphia office.  I look forward to continuing to collaborate with staff to build on the office’s strong track record of protecting investors and enforcing the federal securities laws.”

Prior to joining the SEC staff, Mr. Boujoukos was an associate and later a partner in the litigation department of Morgan, Lewis & Bockius in Philadelphia.  He graduated from Lehigh University in 1989, and graduated with honors from Temple University School of Law in 1992.

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2014-58 Tue Mar 25 13:36:17 EDT 2014
SEC Announces Agenda, Panelists for Cybersecurity Roundtable http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541253749 The Securities and Exchange Commission today announced the agenda and panelists for its March 26 roundtable on the issues and challenges cybersecurity presents for market participants and public companies.

The roundtable, announced in February, will begin at 9:30 a.m. and will be divided into four panels.  Participants on the first panel will discuss the cybersecurity landscape.  The second panel will discuss cybersecurity disclosure issues faced by public companies.  Participants on the third panel will discuss the cybersecurity issues faced by exchanges and other key market systems.  On the final panel, participants will discuss how broker-dealers, investment advisers, and transfer agents address cybersecurity issues, including those involving identity theft and data protection. 

Agenda and Panelists

9:30 a.m.         Opening Remarks

9:40 a.m.         Panel 1:  Cybersecurity Landscape

Moderators:  Thomas Bayer, Chief Information Officer, Keith Higgins, Director, Division of Corporation Finance, James Burns, Deputy Director, Division of Trading and Markets

Panelists:

  • Cyrus Amir-Mokri, Assistant Secretary for Financial Institutions, Department of the Treasury
  • Mary E. Galligan, Director, Cyber Risk Services, Deloitte & Touche LLP
  • Craig Mundie, Member, President’s Council of Advisors on Science and Technology; Senior Advisor to the Chief Executive Officer, Microsoft Corporation
  • Javier Ortiz, Vice President, Strategy and Global Head of Government Affairs, TaaSera, Inc.
  • Andy Roth, Partner and Co-Chair, Global Privacy and Security Group, Dentons US LLP
  • Ari Schwartz, Acting Senior Director for Cybersecurity Programs, National Security Council, The White House
  • Adam Sedgewick, Senior Information Technology Policy Advisor, National Institute of Standards and Technology
  • Larry Zelvin, Director, National Cybersecurity and Communications Integration Center, U.S. Department of Homeland Security

10:40 a.m.       Panel 2:  Public Company Disclosure

Moderator:  Keith Higgins, Director, Division of Corporation Finance

Panelists:

  • Peter J. Beshar, Executive Vice President and General Counsel, Marsh & McLennan Companies, Inc.
  • David Burg, Global and U.S. Advisor Cyber Security Leader, PricewaterhouseCoopers LLP
  • Roberta Karmel, Centennial Professor of Law, Brooklyn Law School
  • Jonas Kron, Senior Vice President, Director of Shareholder Advocacy, Trillium Asset Management LLC
  • Douglas Meal, Partner, Ropes & Gray LLP
  • Leslie T. Thornton, Vice President and General Counsel, WGL Holdings, Inc. and Washington Gas Light Company

11:40 a.m.       Break

12:45 p.m.       Panel 3:  Market Systems

Moderator:  James Burns, Deputy Director, Division of Trading and Markets

Panelists:

  • Mark G. Clancy, Managing Director and Corporate Information Security Officer, The Depository Trust and Clearing Corporation (DTCC)
  • Mark Graff, Chief Information Security Officer, NASDAQ OMX
  • Todd Furney, Vice President, Systems Security, Chicago Board Options Exchange
  • Katheryn Rosen, Deputy Assistant Secretary, Office of Financial Institutions Policy, Department of the Treasury
  • Thomas Sinnott, Managing Director, Global Information Security, CME Group
  • Aaron Weissenfluh, Chief Information Security Officer, BATS Global Markets, Inc.

1:45 p.m.         Panel 4:  Broker-Dealers, Investment Advisers, and Transfer Agents

Moderators:   David Grim, Deputy Director, Division of Investment Management, James Burns, Deputy Director, Division of Trading and Markets, Andrew Bowden, Director, Office of Compliance Inspections and Examinations

Panelists:

  • John Denning, Senior Vice President, Operational Policy Integration, Development & Strategy, Bank of America/Merrill Lynch
  • Jimmie H. Lenz, Senior Vice President, Chief Risk and Credit Officer, Wells Fargo Advisors LLC
  • Mark R. Manley, Senior Vice President, Deputy General Counsel, and Chief Compliance Officer, AllianceBernstein L.P.
  • Marcus Prendergast, Director and Corporate Information Security Officer, ITG
  • Karl Schimmeck,  Managing Director, Financial Services Operations, Securities Industry and Financial Markets Association
  • Daniel M. Sibears, Executive Vice President, Regulatory Operations/Shared Services, FINRA
  • John Reed Stark, Managing Director, Stroz Friedberg
  • Craig Thomas, Chief Information Security Officer, Computershare
  • David G. Tittsworth, Executive Director and Executive Vice President, Investment Adviser Association

2:45 p.m.         Closing Remarks

3:00 p.m.         Roundtable concludes

The roundtable will be held at the SEC’s headquarters in Washington D.C., and is open to the public on a first-come, first-served basis.  The event also will be webcast live on the SEC website and archived for later viewing.

Members of the public are welcome to submit comments on the topics to be addressed at the roundtable.  Comments may be submitted electronically or on paper; please use one method only.  Any comments submitted will become part of the public record of the roundtable and posted on the SEC’s website.

Electronic submissions:

Use the SEC’s Internet submissions form or send an e-mail to rule-comments@sec.gov

Paper submissions:

Send paper submissions in triplicate to the Office of the Secretary, Securities and Exchange Commission, 100 F Street N.E., Washington, D.C. 20549-1090.

All submissions should refer to File Number 4-673 and the file number should be included on the subject line if e-mail is used.

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2014-57 Mon Mar 24 13:16:44 EDT 2014
Staff Analysis of Data and Academic Literature Related to Money Market Fund Reform http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541253716 The staff of the Securities and Exchange Commission today made available certain analyses of data and academic literature related to money market fund reform.  

The analyses, which were conducted by the staff of the SEC’s Division of Economic and Risk Analysis, are available for review and comment on the Commission’s website as part of the comment file for rule amendments proposed by the SEC in June 2013 regarding money market fund reform.

The analyses examine:

  • The spread between same-day buy and sell transaction prices for certain corporate bonds from Jan. 2, 2008 to Jan. 31, 2009.
  • The extent of government money market fund exposure to non-government securities.
  • Academic literature reviewing recent evidence on the availability of “safe assets” in the U.S. and global economies.
  • The extent various types of money market funds are holding in their portfolios guarantees and demand features from a single institution.


The SEC staff believes that the analyses have the potential to be informative for evaluating final rule amendments for the regulation of money market funds.  These analyses may supplement other information considered in connection with those final rule amendments, and the SEC staff is making these analyses available to allow the public to consider and comment on this supplemental information.  Comments on this supplemental information may be submitted to the comment file for rule amendments the SEC proposed in June 2013 regarding money market fund reform (File No. S7-03-13) and should be received by April 23, 2014.

Additional studies, memoranda, or other substantive items may be added by the Commission or staff to the comment file during this rulemaking.  A notification of the inclusion in the comment file of any such materials and an invitation for public comment will be made available on the Commission’s web page.  To ensure direct electronic receipt of such notifications, sign up through the “Stay Connected” option at www.sec.gov to receive by e-mail “Notifications Regarding the Money Market Fund Reform and Amendments to Form PF Rulemaking.”

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2014-56 Mon Mar 24 13:10:08 EDT 2014
SEC Charges Stockbroker and Law Firm Managing Clerk in $5.6 Million Insider Trading Scheme http://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370541172895 preview of graphic

View Chart of Trading Profits (pdf, 123 kb)

The Securities and Exchange Commission today charged a stockbroker and a managing clerk at a law firm with insider trading around more than a dozen mergers or other corporate transactions for illicit profits of $5.6 million during a four-year period.

The SEC alleges that Vladimir Eydelman and Steven Metro were linked through a mutual friend who acted as a middleman in the illegal trading scheme.  Metro, who works at Simpson Thacher & Bartlett in New York, obtained material nonpublic information about corporate clients involved in pending deals by accessing confidential documents in the law firm’s computer system.  Metro typically tipped the middleman during in-person meetings at a New York City coffee shop, and the middleman later met Eydelman, who was his stockbroker, near the clock and information booth in Grand Central Terminal.  The middleman tipped Eydelman, who was a registered representative at Oppenheimer and is now at Morgan Stanley, by showing him a post-it note or napkin with the relevant ticker symbol.  After the middleman chewed up and sometimes even ate the note or napkin, Eydelman went on to use the illicit tip to illegally trade on his own behalf as well as for family members, the middleman, and other customers.  The middleman allocated a portion of his profits for eventual payment back to Metro in exchange for the inside information.  Metro also personally traded in advance of at least two deals.

In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against Metro, who lives in Katonah, N.Y., and Eydelman, who lives in Colts Neck, N.J.  

“Law firms are sanctuaries for the confidential treatment of client information, and this scheme victimized not only a law firm but also its corporate clients and ultimately the investors in those companies,” said Daniel M. Hawke, chief of the SEC Enforcement Division’s Market Abuse Unit.  “We are continuing to combat serial insider trading schemes, particularly by law firm employees and other professionals who are entrusted with extremely sensitive market-moving information.”

According to the SEC’s complaint filed in U.S. District Court for the District of New Jersey, the insider trading scheme began in early February 2009 at a bar in New York City when Metro met the middleman and other friends for drinks.  When Metro and the middleman separated from the rest of their friends and began discussing stocks, the middleman expressed concern about his holdings in Sirius XM Radio and his fear that the company may go bankrupt.  Metro divulged that Liberty Media Corp. planned to invest more than $500 million in Sirius, and said he obtained this information by viewing documents at the law firm where he worked.  As a result, the middleman later called Eydelman and told him to buy additional shares of Sirius.  Eydelman expressed similar concern about Sirius’ struggling stock, but the middleman assured him that his reliable source was a friend who worked at a law firm.  Following the public announcement of the deal, whose news coverage noted that Simpson Thacher acted as legal counsel to Sirius, Eydelman acknowledged to the middleman, “Nice trade.”  The middleman told Metro following the announcement that he had set aside approximately $7,000 for Metro as a “thank you” for the information.  Instead of taking the money, Metro told the middleman to leave it in his brokerage account and invest it on Metro’s behalf based on confidential information that he planned to pass him in the future. 

According to the SEC’s complaint, Metro tipped and Eydelman traded on inside information about 12 more companies as they settled into a routine to cloak their illegal activities.  Metro shared confidential nonpublic information with the middleman by typing on his cell phone screen the names or ticker symbols of the two companies involved in the transaction.  Metro pointed to the names or ticker symbols to indicate which company was the acquirer and which was being acquired.  Metro also conveyed the approximate price of the transaction and the approximate announcement date.  The middleman then communicated to Eydelman that they should meet.  Once at Grand Central Station, the middleman walked up to Eydelman and showed him the post-it note or napkin containing the ticker symbol of the company whose stock price was likely to increase as a result of the corporate transaction.  Eydelman watched the middleman chew or eat the tip to destroy the evidence.  Eydelman also learned from the middleman an approximate price of the transaction and an approximate announcement date.

The SEC alleges that Eydelman then returned to his office and typically gathered research about the target company.  He eventually e-mailed the research to the middleman along with his purported thoughts about why buying the stock made sense.  The contrived e-mails were intended to create what Eydelman and the middleman believed to be a sufficient paper trail with plausible justification for engaging in the transaction.

“People often try to cover their insider trading tracks by using middlemen, destroying evidence, and creating phony documents.  They should learn that sham cover stories simply don’t work and won’t deter us from finding their schemes,” said Robert A. Cohen, co-deputy chief of the SEC Enforcement Division’s Market Abuse Unit. 

According to the SEC’s complaint, Eydelman also traded on inside information in the accounts of more than 50 of his brokerage customers.  Eydelman earned substantial commissions as a result of this trading, and received bonuses from his employers based on his performance driven in large part by the profits garnered through the insider trading scheme.  The middleman’s agreement with Metro resulted in more than $168,000 being apportioned to Metro as his share of profits from the insider trading scheme in addition to his profits from personally trading in advance of at least two transactions.

The SEC’s complaint charges Metro and Eydelman with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 as well as Section 17(a) of the Securities Act of 1933.  The complaint seeks a final judgment ordering Metro and Eydelman to pay disgorgement of their ill-gotten gains plus prejudgment interest and penalties, and permanent injunctions from future violations of these provisions of the federal securities laws.

The SEC’s investigation, which is continuing, has been conducted by Jason Burt and Carolyn Welshhans in the Market Abuse Unit.  John Rymas, Mathew Wong, Daniel Koster, and Leigh Barrett assisted with the investigation.  The case was supervised by Mr. Hawke and Mr. Cohen.  The SEC’s litigation will be led by Stephan Schlegelmilch and Bridget Fitzpatrick.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of New Jersey, Federal Bureau of Investigation, Financial Industry Regulatory Authority, and Options Regulatory Surveillance Authority.

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2014-55 Wed Mar 19 09:40:18 EDT 2014