SEC Charges Utah-Based Retirement Plan Administrator With Defrauding Investors

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SEC Charges Utah-Based Retirement Plan Administrator With Defrauding Investors

The Securities and Exchange Commission today announced fraud charges and an asset freeze against a Utah-based retirement plan administrator who defrauded investors in self-directed individual retirement accounts (IRAs), causing them to lose millions of dollars of savings.

The SEC alleges that American Pension Services Inc. (APS) and its founder, president and CEO Curtis L. DeYoung squandered more than $22 million of investor funds on high-risk investments.  DeYoung hid the losses by issuing inflated account statements, allowing him to continue collecting fees and further victimizing his customers.

“This misconduct jeopardized retirement security for thousands of APS customers,” said Karen L. Martinez, director of the SEC’s Salt Lake Regional Office.

According to the SEC’s complaint unsealed yesterday in federal court in Salt Lake City,  DeYoung’s scheme dates back to at least 2005 and targeted customers with retirement accounts holding non-traditional assets typically not available through traditional 401(k) retirement plans or other IRA custodians.  Although APS has no authority to direct customer trades, DeYoung allegedly used forged letters and signatures to invest on behalf of customers, including in promissory notes issued by a friend whose businesses never turned a profit.  DeYoung continued to recommend that APS customers invest in the notes, and he sent customer funds to the friend until at least April 2013 without disclosing to investors that the friend had defaulted on the notes in 2010 and DeYoung had forgiven the debt.

The SEC further alleges that investments in other bankrupt ventures, including an office building in Wichita, Kan., caused APS customers to lose more money.  APS concealed those losses and issued account statements that inflated the value of customer holdings, allowing APS to levy fees based on the full value of the holdings even when they were worthless.

According to the SEC’s complaint, when DeYoung was questioned by the SEC about a $22 million gap between actual holdings and those showing on account statements, he invoked his Fifth Amendment privilege against self-incrimination and refused to answer.

The Honorable Robert J. Shelby granted the SEC’s request for a temporary restraining order to freeze the assets of APS and DeYoung.  The court appointed Diane Thompson of Ballard Spahr LLP as the receiver in this case to recover investor assets.  The receiver can be reached at info@apsreceiver.com and has created a website for more information: www.apsreceiver.com

The SEC’s investigation was conducted by Paul Feindt, Scott Frost, Cheryl Mori, and Marie Iovino of the Salt Lake office.  The SEC’s litigation will be handled by Daniel J. Wadley.

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SEC Charges Technology Company Insider in California With Tipping Confidential Information Exploited by Hedge Funds

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SEC Charges Technology Company Insider in California With Tipping Confidential Information Exploited by Hedge Funds

The Securities and Exchange Commission today filed insider trading charges against a former accounting manager at Nvidia Corp. who tipped a friend with confidential company information that set in motion a chain of tipping and illegal trading among a network of hedge fund traders who reaped millions of dollars in illicit gains.




The SEC alleges that Chris Choi of San Jose, Calif., tipped his friend Hyung Lim with nonpublic information about Nvidia’s financial performance in advance of the technology company’s quarterly earnings announcements in 2009 and 2010.  Lim relayed Choi’s information to a fellow poker player Danny Kuo, who was a hedge fund manager at Whittier Trust Company.  Kuo illegally traded on the inside information for his firm and passed it along to analysts at such other firms as Diamondback Capital Management, Level Global Investors LP, and Sigma Capital Management, which is an affiliate of S.A.C. Capital Advisors LP.  The analysts relayed Choi’s information to their portfolio managers who caused funds to conduct insider trading in Nvidia securities.




Choi, who agreed to settle the SEC’s charges, is the 45th defendant charged by the SEC in its ongoing investigation into the activities of expert networks.  The investigation has exposed widespread insider trading by investment professionals, hedge funds, and corporate insiders for illicit profits of approximately $430 million.  The SEC previously charged Choi’s tippees, including Lim as well as Kuo, Diamondback, and Level Global and Sigma Capital.  The expert networks investigation arose out of the SEC’s inquiry into Galleon Management and Raj Rajaratnam – a case in which the SEC has charged an additional 35 defendants whose insider trading generated illicit profits of more than $96 million.




“Insiders at public companies who are entrusted with confidential information are duty bound to protect it,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office.  “Choi violated that sacred duty by regularly tipping his friend with nonpublic financial data that hedge fund traders exploited for millions of dollars in illegal profits.” 




According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Choi’s illegal tips enabled hedge funds to reap approximately $16.5 million in illicit profits and avoided losses.  Choi routinely provided Lim with nonpublic information about Nvidia’s highly confidential calculations of its revenues, gross profit margins, and other financial metrics ahead of its quarterly earnings announcements.




The SEC’s complaint charges Choi with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 17(a) of the Securities Act of 1933.  Choi has agreed to pay a $30,000 penalty and be barred from serving as an officer or director of a public company for five years.  Without admitting or denying the allegations, Choi agreed to be permanently enjoined from future violations of these provisions of the federal securities laws.  The settlement is subject to court approval.




The SEC’s investigation, which is continuing, has been conducted by Stephen Larson and Daniel Marcus of the Enforcement Division’s Market Abuse Unit in New York along with Matthew Watkins, Diego Brucculeri, James D’Avino, and Neil Hendelman of the New York Regional Office.  The case has been supervised by Sanjay Wadhwa and Joseph G. Sansone, deputy chief of the Enforcement Division’s Market Abuse Unit.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.

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SEC Charges Six Individuals With Insider Trading in Stock of E-Commerce Company Prior to Acquisition by eBay

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SEC Charges Six Individuals With Insider Trading in Stock of E-Commerce Company Prior to Acquisition by eBay

The Securities and Exchange Commission today charged a former executive with insider trading in advance of eBay’s acquisition of the e-commerce company where he worked by tipping friends and relatives with confidential information about the pending deal so they could attain more than $300,000 in illegal profits.

In a case that the SEC unraveled in part due to extensive cooperation by some of the tippees, the SEC also charged five traders and entered into a non-prosecution agreement with a trader who provided extraordinary cooperation in the investigation.  It’s the agency’s first non-prosecution agreement with an individual.  The SEC’s investigation is continuing into trading by other individuals.

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The SEC alleges that Christopher Saridakis violated a duty of trust as CEO of the marketing solutions division of GSI Commerce by providing two family members and two friends with nonpublic information about the pending acquisition and encouraging them to trade on it.  To settle the SEC’s charges, Saridakis agreed to an officer-and-director bar and must pay $664,822, which includes a penalty equal to twice the amount of his tippees’ profits.  In a parallel action, the U.S. Attorney’s Office for the Eastern District of Pennsylvania today announced criminal charges against Saridakis, who lives in Delaware.

The five traders and the individual who entered into a non-prosecution agreement will pay a combined total of more than $490,000 in their settlements, which range from disgorgement-only or reduced penalties for cooperators to penalties of two or three times the trading profits for other traders. 

“Although Saridakis’ tips spun a web of illegal trading, some of the downstream tippees substantially assisted in our investigation while others hindered it,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement.  “The reduction in penalties for those tippees who assisted us, together with the non-prosecution agreement for one of the traders, demonstrate the benefits of cooperating with our investigations.  The increased penalties for others highlight the risks of impeding our work.”

Scott Friestad, associate director of the SEC’s Division of Enforcement, added, “Saridakis chose to dole out confidential, market-moving information to enrich relatives and friends, and the nonpublic details then spread further through multiple levels of tippers and tippees.  The SEC thoroughly investigates suspicious trading to trace it to the source and pursue all those involved.”

According to the SEC’s complaint filed in federal court in Philadelphia, GSI Commerce was renamed eBay Enterprise after the merger and is still based in King of Prussia, Pa.  When the deal was publicly announced on March 28, 2011, GSI’s stock price increased more than 50 percent.  Saridakis became aware of negotiations between GSI and eBay in early 2011, and his involvement increased when he participated in a meeting between eBay and GSI executives on March 11.  GSI took steps to ensure the pending deal remained secret, and Saridakis understood that any information concerning the potential acquisition was confidential.

The SEC alleges that Saridakis, who became president of eBay Enterprise after the merger and has since resigned, tipped two family members in the weeks leading up to eBay’s acquisition of GSI.  The relatives made a combined $41,060 by trading on the nonpublic information provided by Saridakis, who in his settlement has agreed to pay disgorgement of that amount plus interest on behalf of those family members.

According to the SEC’s complaint, Saridakis tipped his longtime friend and former colleague Jules Gardner, who lives in Villanova, Pa.  The two regularly exchanged text messages during the weeks leading up to the merger, including an exchange one week before the public announcement in which Saradakis encouraged Gardner to buy shares in GSI.  Gardner discussed the text messages from Saridakis with two friends who also traded.  Gardner has agreed to fully disgorge his ill-gotten gains of $259,054 as part of a cooperation agreement in which the SEC is not seeking a penalty.  Gardner agreed to continue cooperating in the ongoing investigation.

The SEC alleges that Saridakis separately tipped his friend Suken Shah, a doctor who resides in Wilmington, Del., with nonpublic information about the deal following the March 11 meeting with eBay executives.  Shah earned insider trading profits of $9,838 and provided the nonpublic information to his brother and another individual.  Shah agreed to settle the SEC’s charges in an administrative proceeding by paying disgorgement of $10,446, which includes $609 in trading profits made by the other individual he tipped.  Shah agreed to pay prejudgment interest of $1,007 and a penalty of $64,965 for a total of $76,418.  Shah’s penalty is three times the amount of his and his tippees’ trading profits.

In a separate settled administrative proceeding, the SEC charged Shimul Shah, a doctor who now resides in Cincinnati, with insider trading on the nonpublic information he received from his brother.  Besides trading himself, Shah tipped others with the nonpublic information during a group dinner he attended with several friends from his medical residency.  To settle the SEC’s charges, Shah agreed to disgorge his trading profit of $11,209 and pay prejudgment interest of $1,022 and a penalty of $22,418 for a total of $34,650.  Shah’s penalty is twice the amount of his trading profit.

The individual who entered into the non-prosecution agreement was tipped by Shah at the group dinner.  This individual has agreed to disgorge a trading profit of $31,777 and pay $2,725 in prejudgment interest for a total of $34,502.  The SEC entered into a non-prosecution agreement because this individual provided early, extraordinary, and unconditional cooperation.

The SEC also instituted settled administrative proceedings against two other traders in GSI stock who received material nonpublic information from a different source than Saridakis.  The SEC’s investigation found that the wife of another insider at GSI became aware of the proposed acquisition and shared the news with a friend the weekend before the public announcement.  The friend shared the information with Oded Gabay, who then tipped his friend Aharon Yehuda.  Gabay and Yehuda, who live in New York, each proceeded to trade GSI stock the following Monday morning.

Gabay agreed to settle the SEC’s charges by disgorging his trading profit of $23,615 and paying prejudgment interest of $1,207 and a penalty of $22,177 for a total of $46,999.  Gabay’s penalty was reduced to half the amount of his and Yehuda’s trading profits to reflect his early cooperation in the investigation.  Yehuda agreed to settle the SEC’s charges by disgorging his trading profit of $20,740 and paying prejudgment interest of $1,666 and a penalty of $20,740 for a total of $43,146.

The SEC’s investigation has been conducted by Jessica Medina and Virginia Rosado Desilets, and supervised by Jeffrey Finnell.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of Pennsylvania, Federal Bureau of Investigation, Financial Industry Regulatory Authority, and Options Regulatory Surveillance Authority.

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SEC Charges Former Stock Promoter With Defrauding Investors in Florida Real Estate Venture

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SEC Charges Former Stock Promoter With Defrauding Investors in Florida Real Estate Venture

The Securities and Exchange Commission today filed fraud charges against a former Florida-based stock promoter currently serving a two-year prison sentence for lying to SEC investigators.

The SEC’s complaint filed in U.S. District Court in the Southern District of Florida alleges that Robert J. Vitale defrauded investors in a Florida real estate venture, sold unregistered securities, and acted as an unregistered broker-dealer.  Vitale and his firm Realty Acquisitions & Trust Inc. raised at least $8.7 million from investors, including many senior citizens.  Vitale allegedly told investors their funds were “100% protected” when they were not, and he claimed to be a financial expert with a business degree from Notre Dame when he never attended college after graduating from Notre Dame High School in West Haven, Conn. 

The SEC alleges that although Vitale told investors his success rested on his “great honesty and integrity,” he failed to tell them that he was charged by the SEC in 2004 for participating in a pump-and-dump market manipulation scheme or that he later settled the charges and was barred from the brokerage industry as part of the settlement.

Vitale is now an inmate at the Federal Detention Center in Miami.  He was sentenced in September 2013 after being convicted of obstruction of justice and providing false testimony in the SEC’s investigation that led to the charges filed today.

“We are gratified that the criminal authorities held Mr. Vitale responsible for his attempts to derail our investigation,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement.  “His prison sentence and our determination to uncover and charge his underlying misconduct notwithstanding his obstruction show how seriously we and our law enforcement partners take our missions.”

The SEC is seeking the return of allegedly ill-gotten gains with interest, a monetary penalty, and a permanent injunction against Vitale.  The SEC’s complaint also charges Coral Springs Investment Group Inc. as a relief defendant, alleging the company holds assets that came from defrauded investors that should be returned.

“Vitale hid the truth from investors just as he tried to hide his assets during our investigation,” said Stephen L. Cohen, associate director of the SEC’s Division of Enforcement. “When individuals barred from the industry continue their wrongdoing, we pursue them aggressively and seek to return their ill-gotten gains to investors.”

The SEC’s investigation was conducted by James J. Bresnicky and J. Lee Buck II.  The SEC appreciates the assistance of the Florida Office of the Attorney General in this matter.

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SEC Issues Stop Order to Prevent Northern California Company From Issuing Stock Under Amended Registration Statement

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SEC Issues Stop Order to Prevent Northern California Company From Issuing Stock Under Amended Registration Statement

The Securities and Exchange Commission today issued a stop order to prevent a Northern California-based company from issuing stock after including false and misleading information in its amended registration statement for an initial public offering (IPO).

Stop orders prevent the sale of privately held shares to the public under a registration statement that is materially misleading or deficient.  If a stop order is issued, no new shares can enter the market under that registration statement until the company has corrected the deficiencies or misleading information.

According to the SEC’s stop order against Comp Services Inc., its registration statement fails to disclose the identity of the control person and promoter behind the company, and falsely states that Comp Services earned revenue for providing computer services even though the company has never earned any revenue.  The registration statement has been amended 10 times, most recently in December 2013.

“Comp Services gave investors a false and misleading portrayal of the company as they were deciding whether or not to invest,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office.  “This stop order ensures that Comp Services stock cannot be sold in the public markets under this misleading registration statement.” 

Comp Services consented to the issuance of the stop order, which also triggers the bad actor disqualifications to prohibit Comp Services from engaging or participating in any unregistered offering conducted under Rule 506 of Regulation D for a five-year period.

The SEC’s investigation, which is continuing, has been conducted by Roberto Tercero and Spencer Bendell in the Los Angeles office.

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Mauri Osheroff to Retire After Nearly 40 Years at SEC

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Mauri Osheroff to Retire After Nearly 40 Years at SEC

The Securities and Exchange Commission today announced that Mauri L. Osheroff, associate director for regulatory policy in the Division of Corporation Finance, is retiring on April 30 after nearly 40 years at the SEC.

"Mauri Osheroff's career is an inspiration to all those called to public service,” said SEC Chair Mary Jo White.  “For nearly four decades, Mauri has worked tirelessly on behalf of American investors and I am deeply grateful for her efforts and expertise."

Ms. Osheroff began her SEC career as a summer employee in 1973 and returned the following year after graduating from law school.  She started as an attorney adviser in the Division of Corporation Finance and was promoted to a special counsel position in 1980.  She was named as the division’s deputy chief counsel in 1984 and became an associate director in 1987.  In that role, she initially oversaw the division’s rulemaking program and later assumed oversight of its offices of Mergers and Acquisitions, International Corporate Finance, and Small Business Policy. 

“Mauri Osheroff has dedicated her professional career to the SEC and leaves a substantial legacy as a member of the division’s senior staff,” said Keith Higgins, director of the Division of Corporation Finance.  “She exemplifies the ideals of professionalism and integrity that are the hallmark of public service, and worked with great enthusiasm and uncompromising principles.  We are extremely grateful for her four decades of service advancing the SEC’s mission of facilitating capital formation and protecting investors.”

Ms. Osheroff said, “I’ve been very fortunate to be able to serve the public while having such a variety of interesting and challenging work over the years.  Most of all, I appreciate having had the opportunity to work with such talented and dedicated people, many of whom have become my friends along the way.  I will always be proud of my service with the Commission.”   

During her tenure Ms. Osheroff received numerous SEC awards, including the Supervisory Excellence Award in 1987, the Philip A. Loomis Award in 1993, and the Distinguished Service Award – the highest honor the agency bestows on an individual – in 2001.  She also received a number of group awards for projects that she managed or contributed to, most recently the Law and Policy Award in 2010 for her role in the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Ms. Osheroff made significant contributions to the SEC’s rulemaking program including:

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  Comprehensive changes to the beneficial ownership and short-swing profit recovery rules for corporate insiders (1991 and 1996) and implementation of accelerated, electronic filing of reports on insider transactions, as required by the Sarbanes-Oxley Act (2002 and 2003)


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  Rules requiring public companies to file their reports electronically on the SEC’s EDGAR system, starting with U.S. issuers in 1993 and foreign issuers in 2002


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  Improvements to the beneficial ownership reporting scheme for large security holders (1998), comprehensive revisions to the regulatory scheme for takeovers and security holder communications, including Regulation M-A (1999), and updates to the exemptive rules for cross-border takeovers and rights offerings (2008)


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  Overhaul of the requirements for foreign private issuer deregistration (2007), a revised exemption from U.S. registration for foreign private issuers (2008), and rule amendments to provide investors with enhanced disclosure by foreign private issuers (2008)


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  Regulatory simplification and relief for small businesses (2007), revisions to and electronic filing of Form D (2008), disqualifying “bad actors” from participating in certain private securities offerings, as required by the Dodd-Frank Act (2013), and a proposal to increase small business access to capital under an expanded Regulation A exemption, as required by the JOBS Act (2013).   

In addition to her work at the SEC, Ms. Osheroff taught securities law as an adjunct professor at Georgetown University from 1989 to 1995.  She is a graduate of Yale Law School and Radcliffe College, where she graduated with an A.B., magna cum laude, and was a member of Phi Beta Kappa.

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SEC Charges a Former Biopharmaceutical Company Executive and Two Others with Insider Trading

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SEC Charges a Former Biopharmaceutical Company Executive and Two Others with Insider Trading

The Securities and Exchange Commission today charged a former biopharmaceutical company executive and two others with insider trading on confidential information about the company’s key developmental drug.  The company’s stock price fell sharply when it announced clinical trial results for the drug.

Dr. Loretta Itri, president of pharmaceutical development and chief medical officer of Genta, Inc., her longtime friend, Dr. Neil Moskowitz, an emergency room physician, and one of his patients, were named in the insider-trading action.  In a complaint filed in U.S. District Court in New Jersey, the SEC alleged that Itri obtained material nonpublic information about Genta’s clinical trial results for an experimental drug designed to treat advanced melanoma.  In a telephone conversation just one day before the public announcement of the drug trial results, Itri provided Moskowitz with material nonpublic information.  Minutes after that, Moskowitz sold his Genta securities and tipped a friend and patient, Mathew Cashin, concerning the results.  As a result of their trading based on material nonpublic information, Moskowitz and Cashin reaped approximately $139,000 of illegal gains.

“Itri was entrusted with highly confidential information by Genta, but betrayed her duty as an executive allowing a friend to profit,” said Amelia A. Cottrell, associate director of the SEC’s New York Regional Office.  “We will continue to hold company insiders responsible and punish this type of betrayal of trust.”

According to the SEC’s complaint, Itri was directly involved in the drug trials at Genta, and was one of the first to learn of the results prior to the public announcement on October 29, 2009.  Genta’s stock dropped approximately 70 percent on the news, and the SEC alleges that Moskowitz and Cashin obtained illegal gains by selling their Genta stock the day before the announcement.

The SEC’s complaint charges Itri, Moskowitz, and Cashin with violating federal antifraud laws and the SEC’s antifraud rule.  Without admitting or denying the allegations in the complaint, the three defendants agreed to settle the SEC’s charges against them. 

The settlement, which is subject to court approval, would enjoin the defendants from further violations of the federal securities laws and require Itri to pay civil penalty of approximately $64,000 and bar her from serving as an officer or director of a public company for five years.  The settlement also requires Moskowitz to return $64,300 of allegedly ill-gotten gains, plus prejudgment interest of $9,556, and pay a civil penalty of $64,300.  The settlement requires Cashin to return $75,140 of allegedly ill-gotten gains, plus prejudgment interest of $10,955, and pay a civil penalty of $37,570, which reflects the cooperation Cashin provided to the SEC’s investigation.

The SEC’s investigation was conducted by Shannon Keyes, Charles D. Riely and Ella Wraga, and was supervised by Amelia A. Cottrell of the SEC’s New York Regional Office. The SEC appreciates the assistance of the U.S. Attorney's Office for the District of New Jersey, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.

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SEC Halts Pyramid Scheme Targeting Dominican and Brazilian Immigrants

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SEC Halts Pyramid Scheme Targeting Dominican and Brazilian Immigrants

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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SEC Proposes Rules for Security-Based Swap Dealers and Major Security-Based Swap Participants

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SEC Proposes Rules for Security-Based Swap Dealers and Major Security-Based Swap Participants

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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SEC Charges Former BP Employee with Insider Trading During the Deepwater Horizon Oil Spill

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SEC Charges Former BP Employee with Insider Trading During the Deepwater Horizon Oil Spill

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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SEC Charges Brokerage Firm Executives in Kickback Scheme to Secure Business of Venezuelan Bank

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SEC Charges Brokerage Firm Executives in Kickback Scheme to Secure Business of Venezuelan Bank

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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SEC Charges San Diego-Based Investment Adviser

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SEC Charges San Diego-Based Investment Adviser

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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SEC Charges Hewlett-Packard With FCPA Violations

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SEC Charges Hewlett-Packard With FCPA Violations

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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SEC, Criminal Authorities Halt Florida-Based Ponzi Scheme Targeting Investors Through YouTube Videos

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SEC, Criminal Authorities Halt Florida-Based Ponzi Scheme Targeting Investors Through YouTube Videos

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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SEC Charges Transamerica Financial Advisors With Improperly Calculating Advisory Fees and Overcharging Clients

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SEC Charges Transamerica Financial Advisors With Improperly Calculating Advisory Fees and Overcharging Clients

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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SEC Charges CVS With Misleading Investors and Committing Accounting Violations

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SEC Charges CVS With Misleading Investors and Committing Accounting Violations

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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SEC Charges Las Vegas-Based Transfer Agent With Disclosure Failures in Registration Forms

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SEC Charges Las Vegas-Based Transfer Agent With Disclosure Failures in Registration Forms

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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SEC Announces Charges Against Honolulu Woman Defrauding Investors Through Social Media

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SEC Announces Charges Against Honolulu Woman Defrauding Investors Through Social Media

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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SEC Charges Owner of N.J.-Based Brokerage Firm With Manipulative Trading

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SEC Charges Owner of N.J.-Based Brokerage Firm With Manipulative Trading

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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SEC Charges Two Friends With Insider Trading Ahead of Impending Acquisition

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SEC Charges Two Friends With Insider Trading Ahead of Impending Acquisition

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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SEC Announces Additional $150,000 Payment to Recipient of First Whistleblower Award

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SEC Announces Additional $150,000 Payment to Recipient of First Whistleblower Award

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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Jessica Kane Named Deputy Director in the Office of Municipal Securities

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Jessica Kane Named Deputy Director in the Office of Municipal Securities

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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SEC Seeks Comment on Investor Advisory Committee Recommendation Regarding Target Date Funds

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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Rebecca Olsen Named Chief Counsel in the Office of Municipal Securities

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Rebecca Olsen Named Chief Counsel in the Office of Municipal Securities

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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