OWNERS OF TAX PREPARATION BUSINESS CHARGED WITH HELPING CLIENTS EVADE TAXES

FROM: U.S. DEPARTMENT OF JUSTICE
Friday, June 15, 2012
Three Tax Return Preparers Charged with Helping Clients Evade Taxes by Hiding Millions in Secret Accounts at Two Israeli Banks Defendants Operated Return Preparation Businesses Located in 12 Locations Throughout the U.S., Including California, New York and Maryland

David Kalai, Nadav Kalai and David Almog were indicted by a federal grand jury in the Central District of California and charged with conspiring to defraud the United States, the Justice Department and Internal Revenue Service (IRS) announced today. The superseding indictment, which was returned late yesterday, was unsealed following the defendants’ arrests.

According to the superseding indictment, David Kalai and Nadav Kalai were principals of United Revenue Service Inc. (URS), a tax preparation business with 12 offices located throughout the United States. David Kalai worked primarily at URS’s former headquarters in Newport Beach, Calif., and later at URS’s location in Costa Mesa, Calif.  Nadav Kalai, who is David Kalai’s son, worked out of URS’s headquarters in Bethesda, Md., as well as URS locations in Newport Beach and Costa Mesa, Calif.  David Almog was the branch manager of the New York office of URS and supervised tax return preparers for URS’s East Coast locations.

As alleged in the superseding indictment, U.S. citizens, resident aliens and legal permanent residents have an obligation to report to the IRS on Schedule B of the U.S. Individual Income Tax Return, Form 1040, whether they had a financial interest in, or signature authority over, a financial account in a foreign country in a particular year by checking “Yes” or “No” in the appropriate box and identifying the country where the account was maintained.  They further have an obligation to report all income earned from the foreign financial account on the tax returns.  Separately, U.S. citizens, resident aliens and permanent legal residents with a foreign financial interest in, or signatory authority over, a foreign financial account worth more than $10,000 in a particular year, must also file a Report of Foreign Bank and Financial Accounts (FBAR) with the Treasury disclosing such an account by June 30 of the following year.

 The superseding indictment alleges that the co-conspirators prepared false individual income tax returns which did not disclose the clients’ foreign financial accounts nor report the income earned from those accounts.  In order to conceal the clients’ ownership and control of assets and conceal the clients’ income from the IRS, the co-conspirators incorporated offshore companies in Belize and elsewhere and helped clients open secret bank accounts at the Luxembourg locations of two Israeli banks, Bank A and Bank B.  Bank A is a large financial institution headquartered in Tel-Aviv, Israel, with more than 300 branches across 18 countries worldwide.  Bank B is a mid-size financial institution also headquartered in Tel-Aviv, with a worldwide presence on four continents.
                                                                                                                     
As further alleged in the superseding indictment, the co-conspirators incorporated offshore companies in Belize and elsewhere to act as named account holders on the secret accounts at the Israeli banks.  The co-conspirators then facilitated the transfer of client funds to the secret accounts and prepared and filed tax returns that falsely reported the money sent offshore as a false investment loss or a false business expense.  The co-conspirators also failed to disclose the existence of, and the clients’ financial interest in, and authority over, the clients’ secret accounts and caused the clients to fail to file FBARs with the Department of the Treasury.
         
If convicted, each defendant faces a maximum of five years in prison and a maximum fine of $250,000.  The charges contained in the indictment are only allegations.  The defendants are presumed innocent and it is the government’s burden to prove guilt beyond a reasonable doubt.

Kathryn Keneally, Assistant Attorney General of the Justice Department’s Tax Division, thanked Tax Division Trial Attorneys Christopher S. Strauss and Ellen M. Quattrucci, who prosecuted the case, and Assistant U.S. Attorney Sandra A. Brown of the U.S. Attorney’s Office for the Central District of California, who assisted with the prosecution.  The case was investigated by special agents of IRS – Criminal Investigation.

ALLEGED VIOLATOR OF EMPLOYEE RETIREMENT INCOME SECURITY ACT RECEIVES INJUNCTION

FROM:  U.S. DEPARTMENT OF LABOR
US Department of Labor obtains preliminary injunction against Matthew D. Hutcheson and Hutcheson Walker Advisors LLC
WASHINGTON — On June 13, the U.S. District Court for the District of Idaho granted the U.S. Department of Labor's motion for preliminary injunction against Matthew D. Hutcheson and Hutcheson Walker Advisors LLC. The court found that the department had "demonstrated the type of immediate and irreparable injury necessitating entry of a preliminary injunction."

On May 15, the department filed a complaint in the same court against Hutcheson and others alleging that Hutcheson had violated the Employee Retirement Income Security Act. The complaint alleged that, toward the end of 2010, Hutcheson used more than $3.2 million in retirement plan savings of workers from multiple employers for his own personal benefit and in an attempt to purchase an interest in the Tamarack Resort, a failed ski and golf resort in Idaho.

Hutcheson's alleged misconduct has left the affected retirement plans without sufficient funds to pay participants all the benefits owed to them. Hutcheson also faces a separate criminal indictment, filed by the U.S. Department of Justice in the same court on April 10, in connection with the same transaction and others. Concurrent with its civil complaint, the department filed a motion for a temporary restraining order and preliminary injunction, seeking removal of defendants Hutcheson and Hutcheson Walker Advisors as fiduciaries of the Retirement Security Plan and Trust, formerly known as the Pension Liquidity Plan and Trust. The secretary of labor also requested the appointment of Jeanne B. Bryant of Receivership Management Inc. as independent fiduciary to the Retirement Security Plan and Trust and the plans. On May 16 the court granted the secretary's motion for a temporary restraining order and took the motion for preliminary injunction under advisement. Today's order is the court's granting of the injunctive relief sought by the department.

In addition to Hutcheson and Hutcheson Walker Advisors LLC, defendants in the secretary's action include Green Valley Holdings LLC and the Retirement Security Plan and Trust.

CO-OWNER OF HOME HEALTH CARE AGENCY SENTENCED TO 108 MONTHS IN PRISON FOR MEDICARE FRAUD

FROM:  U.S. DEPARTMENT OF JUSTICE
Wednesday, June 13, 2012
Co-Owner of Houston-Area Home Health Care Agency Sentenced to 108 Months in Prison for Role in $5.2 Million Medicare Fraud

WASHINGTON – The former co-owner of a Houston-area home health care company was sentenced today in Houston to 108 months in prison for his participation in a $5.2 million Medicare fraud scheme, announced the Department of Justice, the FBI and the Department of Health and Human Services (HHS).

Clifford Ubani, a former co-owner and chief financial officer at Family Healthcare Group, was sentenced by U.S. District Judge Nancy Atlas in the Southern District of Texas.  In addition to his prison term, Ubani was sentenced to three years of supervised release and was ordered to pay $4.2 million in restitution jointly and severally with his co-defendants.  In January 2011, Ubani pleaded guilty to one count of conspiracy to commit health care fraud, one count of conspiracy to pay illegal kickbacks to patient recruiters and 16 counts of paying such illegal kickbacks.

According to court documents and other evidence presented to the court, Family Healthcare Group, a Houston home health care company, purported to provide skilled nursing to Medicare beneficiaries.  According to court documents and other evidence, Clifford Ubani paid co-conspirators to recruit Medicare beneficiaries for the purpose of Family Healthcare Group filing claims with Medicare for skilled nursing that was medically unnecessary or not provided.  Ubani’s co-conspirators would then falsify documents to support the fraudulent payments from Medicare.  Ubani also paid co-conspirators to sign fraudulent plans of care stating that the beneficiaries needed home health care when in fact they knew the beneficiaries were not home-bound and not in need of skilled nursing.
Ubani is the eighth defendant sentenced in connection with this scheme.  Two other defendants, co-owner Princewill Njoku and patient recruiter Cynthia Garza Williams, await sentencing.

The sentences were announced by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney Kenneth Magidson of the Southern District of Texas; Special Agent-In-Charge Stephen L. Morris of the FBI’s Houston Field Office; Special Agent-in-Charge Mike Fields of the Dallas Regional Office of HHS’s Office of the Inspector General (HHS-OIG); and the Texas Attorney General’s Medicaid Fraud Control Unit (OAG-MFCU).

This case is being prosecuted by Trial Attorney Charles D. Reed and Deputy Chief Sam S. Sheldon of the Criminal Division’s Fraud Section.  The case was investigated by the FBI, HHS-OIG, Texas OAG-MFCU and the Federal Railroad Retirement Board-OIG, and was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Southern District of Texas.

Since their inception in March 2007, Medicare Fraud Strike Force operations in nine locations have charged more than 1,330 defendants who collectively have falsely billed the Medicare program for more than $4 billion.  In addition, the HHS Centers for Medicare and Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.

14 SALES PEOPLE GET IN TROUBLE FOR SELLING NON-EXISTENT SHARES IN A COMPANY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., June 12, 2012 — The Securities and Exchange Commission today charged 14 sales agents who misled investors and illegally sold securities for a Long Island-based investment firm at the center of a $415 million Ponzi scheme.

The SEC alleges that the sales agents — which include four sets of siblings — falsely promised investor returns as high as 12 to 14 percent in several weeks when they sold investments offered by Agape World Inc. They also misled investors to believe that only 1 percent of their principal was at risk. The Agape securities they peddled were actually non-existent, and investors were merely lured into a Ponzi scheme where earlier investors were paid with new investor funds. The sales agents turned a blind eye to red flags of fraud and sold the investments without hesitation, receiving more than $52 million in commissions and payments out of investor funds. None of these sales agents were registered with the SEC to sell securities, nor were they associated with a registered broker or dealer. Agape also was not registered with the SEC.

“This Ponzi scheme spread like wildfire through Long Island’s middle-class communities because this small group of individuals blindly promoted the offerings as particularly safe and profitable,” said Andrew M. Calamari, Acting Regional Director for the SEC’s New York Regional Office. “These sales agents raked in commissions without regard for investors or any apparent concern for Agape’s financial distress and inability to meet investor redemptions.”

According to the SEC’s complaint filed in the U.S. District Court for the Eastern District of New York, more than 5,000 investors nationwide were impacted by the scheme that lasted from 2005 to January 2009, when Agape’s president and organizer of the scheme Nicholas J. Cosmo was arrested. He was later sentenced to 300 months in prison and ordered to pay more than $179 million in restitution.

The SEC alleges that the sales agents misrepresented to investors that their money would be used to make high-interest bridge loans to commercial borrowers or businesses that accepted credit cards. Little, if any, investor money actually went toward this purpose. Investor funds were instead used for Ponzi scheme payments and the agents’ sales commissions, and Cosmo lost $80 million while trading futures in personal accounts. Meanwhile, the sales agents assuredly offered and sold Agape securities to investors despite numerous red flags of fraud including Cosmo’s prior conviction for fraud, the too-good-to-be-true returns, and the incredible safety of principal promised to investors. The sales agents also ignored Agape’s relatively small and unknown status as a private issuer of securities, Agape’s series of extensions and defaults, and other dire warnings about Agape’s financial condition. None of the Agape securities offerings were registered with the SEC.

The SEC’s complaint charges the following sales agents:
Brothers Bryan Arias and Hugo A. Arias of Maspeth, N.Y., who offered and sold Agape securities to at least 195 and 1,419 investors respectively. They received more than $9.5 million combined in commissions and payments.

Brothers Anthony C. Ciccone of Locust Valley, N.Y. and Salvatore Ciccone of Maspeth, N.Y., who offered and sold Agape securities to at least 535 and 348 investors respectively. They received more than $17 million combined in commissions and payments.

Brothers Jason A. Keryc of Wantagh, N.Y. and Michael D. Keryc of Baldwin, N.Y. Jason Keryc offered and sold Agape securities to at least 1,617 investors and received at least $16 million in commissions and payments. He also paid sub-brokers, including his brother, at least $7.4 million to sell Agape securities for him. Michael Keryc offered and sold Agape securities to at least 177 investors and received more than $1 million in commissions and payments.

Siblings Martin C. Hartmann III of Massapequa, N.Y. and Laura Ann Tordy of Wantagh, N.Y. Hartmann enlisted his sister in his sales effort while he worked as a sub-broker for Jason Keryc. Hartmann and Tordy offered and sold Agape securities to at least 441 investors and received more than $3.5 million in commissions and payments.

Christopher E. Curran of Amityville, N.Y., who worked as a sub-broker for Keryc. Curran offered and sold Agape securities to at least 132 investors and received at least $531,890 in commissions and payments.

Ryan K. Dunaske of Ronkonkoma, N.Y., who worked as a sub-broker for Keryc. Dunaske offered and sold Agape securities to at least 70 investors and received more than $700,000 in commissions and payments.

Michael P. Dunne of Massapequa, N.Y., who worked as a sub-broker for Keryc. Dunne offered and sold Agape securities to at least 99 investors and received more than $1.5 million in commissions and payments.

Diane Kaylor of Bethpage, N.Y., who offered and sold Agape securities to at least 249 investors and received at least $3.7 million in commissions and payments.

Anthony Massaro of Boynton Beach, Fla., who offered and sold Agape securities to at least 826 investors and received more than $5.9 million in commissions and payments.

Ronald R. Roaldsen, Jr. of Wantagh, N.Y., who worked as a sub-broker for Keryc. Roaldsen offered and sold Agape securities to at least 159 investors and received more than $600,000 in commissions and payments.

The SEC’s complaint charges Bryan and Hugo Arias, Anthony and Salvatore Ciccone, Jason and Michael Keryc, Dunne, Hartmann, Kaylor, Massaro, and Tordy with violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint charges all 14 defendants with violations of Section 15(a) of the Exchange Act, and Sections 5(a) and 5(c) of the Securities Act.

The SEC thanks the U.S. Attorney’s Office of the Eastern District of New York and the Federal Bureau of Investigation for its assistance in this matter. Anthony Ciccone, Kaylor, Jason Keryc, and Massaro have previously been arrested on a criminal complaint charging each of them with conspiracy to commit mail fraud based on their conduct as Agape sales agents. The SEC also acknowledges the assistance of the U.S. Postal Inspection Service and the Commodity Futures Trading Commission.

ING BANK N.V. FORFEITS $619 MILLION FOR ILLEGAL TRANSACTIONS WITH CUBAN AND IRANIAN ENTITIES

FROM:  U.S. DEPARMENT OF JUSTICE
Tuesday, June 12, 2012
ING Bank N.V. Agrees to Forfeit $619 Million for Illegal Transactions with Cuban and Iranian Entities

WASHINGTON – ING Bank N.V., a financial institution headquartered in Amsterdam, has agreed to forfeit $619 million to the Justice Department and the New York County District Attorney’s Office for conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) and for violating New York state laws by illegally moving billions of dollars through the U.S. financial system on behalf of sanctioned Cuban and Iranian entities.  The bank has also entered into a parallel settlement agreement with the Treasury Department’s Office of Foreign Assets Control (OFAC).

The announcement was made by Lisa Monaco, Assistant Attorney General for National Security; Ronald C. Machen, U.S. Attorney for the District of Columbia; Assistant Attorney General Lanny A. Breuer of the Criminal Division; District Attorney Cyrus R. Vance Jr., of the New York County District Attorney’s Office; James W. McJunkin, Assistant Director in Charge of the FBI Washington Field Office; Richard Weber, Chief, Internal Revenue Service (IRS) Criminal Investigation; and Adam J. Szubin, Director of the Office of Foreign Assets Control.

A criminal information was filed today in federal court in the District of Columbia charging ING Bank N.V. with one count of knowingly and willfully conspiring to violate the IEEPA and TWEA.  ING Bank waived the federal indictment, agreed to the filing of the information and has accepted responsibility for its criminal conduct and that of its employees.  ING Bank agreed to forfeit $619 million as part of the deferred prosecution agreements reached with the Justice Department and the New York County District Attorney’s Office. ,

According to court documents, starting in the early 1990s and continuing until 2007, ING Bank violated U.S. and New York state laws by moving more than $2 billion illegally through the U.S. financial system – via more than 20,000 transactions – on behalf of Cuban and Iranian entities subject to U.S. economic sanctions.  ING Bank knowingly and willfully engaged in this criminal conduct, which caused unaffiliated U.S. financial institutions to process transactions that otherwise should have been rejected, blocked or stopped for investigation under regulations by OFAC relating to transactions involving sanctioned countries and parties.

“The fine announced today is the largest ever against a bank in connection with an investigation into U.S. sanctions violations and related offenses and underscores the national security implications of ING Bank’s criminal conduct.  For more than a decade, ING Bank helped provide state sponsors of terror and other sanctioned entities with access to the U.S. financial system, allowing them to move billions of dollars through U.S. banks for illicit purchases and other activities,” said Assistant Attorney General Monaco.  “I applaud the agents, analysts and prosecutors who for years pursued this case.”

“Banks that try to skirt U.S. sanctions laws undermine the integrity of our financial system and threaten our national security,” said U.S. Attorney Machen.  “When banks place their loyalty to sanctioned clients above their obligation to follow the law, we will hold them accountable.  On more than 20,000 occasions, ING intentionally manipulated financial and trade transactions to remove references to Iran, Cuba and other sanctioned countries and entities.  Today’s $619 million forfeiture – the largest ever – holds ING accountable for its wrongdoing.”

“For years, ING Bank blatantly violated U.S. laws governing transactions involving Cuba and Iran, and then used shell companies and other deceptive measures to cover up its criminal conduct,” said Assistant Attorney General Breuer.  “Today’s resolution reflects a strong collaboration among federal and state law enforcement partners to hold ING accountable.”

“Investigations of financial institutions, businesses and individuals who violate U.S. sanctions by misusing banks in New York are vitally important to national security and the integrity of our banking system,” said New York County District Attorney Vance.  “These cases give teeth to sanctions enforcement, send a strong message about the need for transparency in international banking and ultimately contribute to the fight against money laundering and terror financing.  I thank our federal partners for their cooperation and assistance in pursuing this investigation.”

“Today, ING Bank was held accountable for their illegal actions involving the movement of more than $2 billion through the U.S. financial system on behalf of Cuban and Iranian entities subject to U.S. economic sanctions,” said FBI Assistant Director in Charge McJunkin.  “Investigations of this type are complicated and demand significant time and dedication from agents, analysts and prosecutors.  In this case, their steadfast tenacity brought this case through to today’s result, and we will continue to pursue these matters in diligent fashion.”

“In today’s environment of increasingly sophisticated financial markets, it’s critical that global institutions follow U.S. law, including sanctions against other countries,” said IRS Criminal Investigation Chief Weber.  “The IRS is proud to share its world-renowned financial investigative expertise in this and other complex financial investigations.  Creating new strategies and models of cooperation among our law enforcement partners to ensure international financial compliance is a top-priority of the IRS.”

“Our sanctions laws reflect core U.S. national security and foreign policy interests and OFAC polices them aggressively.  Today's historic settlement should serve as a clear warning to anyone who would consider profiting by evading U.S. sanctions,” said OFAC Director Szubin.  “We commend our federal and state colleagues for their work on this important investigation.”

The Scheme
According to court documents, ING Bank committed its criminal conduct by, among other things, processing payments for ING Bank’s Cuban banking operations through its branch in Curaçao on behalf of Cuban customers without reference to the payments’ origin, and by providing U.S. dollar trade finance services to sanctioned entities through misleading payment messages, shell companies and the misuse of ING Bank’s internal suspense account.

Furthermore, ING Bank eliminated payment data that would have revealed the involvement of sanctioned countries and entities, including Cuba and Iran; advised sanctioned clients on how to conceal their involvement in U.S. dollar transactions; fabricated ING Bank endorsement stamps for two Cuban banks to fraudulently process U.S. dollar travelers’ checks; and threatened to punish certain employees if they failed to take specified steps to remove references to sanctioned entities in payment messages.
According to court documents, this conduct occurred in various business units in ING Bank’s wholesale banking division and in locations around the world with the knowledge, approval and encouragement of senior corporate managers and legal and compliance departments.  Over the years, several ING Bank employees raised concerns to management about the bank’s sanctions violations.  However, no action was taken.

For decades, the United States has employed sanctions and embargoes on Iran and Cuba.  Financial transactions conducted by wire on behalf of Iranian or Cuban financial institutions have been subject to these U.S. sanctions.  The TWEA prohibits U.S. persons from engaging in financial transactions involving or benefiting Cuba or Cuban nationals and prohibits attempts to evade or avoid these restrictions.  IEEPA makes it a crime to willfully attempt to commit, conspire to commit, or aid and abet in the commission of any violations of the Iranian Transaction Regulations, which prohibit the exportation of any services from the United States to Iran and any attempts to evade or avoid these restrictions.  IEEPA and TWEA regulations are administered by OFAC.

The Investigation
The Justice Department’s investigation into ING Bank arose out of ongoing investigations into the illegal export of goods from the United States to sanctioned countries, including Iran.  For instance, ING processed payments on behalf of one customer, Aviation Services International B.V. (ASI), a Dutch aviation company which was the subject of a U.S. Commerce Department-initiated criminal investigation, through the United States for trade services relating to the procurement by ASI of dual-use U.S. aviation parts for ASI’s Iranian clients.  The ING Bank investigation also resulted in part from a criminal referral from OFAC, which was conducting its own probe of ING Bank.

ING Bank’s forfeiture of $309.5 million to the United States and $309.5 million to the New York County District Attorney’s Office will settle forfeiture claims by the Department of Justice and the state of New York.  In light of the bank’s remedial actions to date and its willingness to acknowledge responsibility for its actions, the Department will recommend the dismissal of the information in 18 months, provided ING Bank fully cooperates with, and abides by, the terms of the deferred prosecution agreement.
OFAC’s settlement agreement with ING deems the bank’s obligations to pay a civil settlement amount of $619 million to be satisfied by its payment of an equal amount to the Justice Department and the state of New York.  OFAC’s settlement agreement further requires the bank to conduct a review of its policies and procedures and their implementation, taking a risk-based sampling of U.S. dollar payments, to ensure that its OFAC compliance program is functioning effectively to detect, correct and report apparent sanctions violations to OFAC.

The case was prosecuted by Trial Attorney Jonathan C. Poling of the Justice Department’s National Security Division; Assistant U.S. Attorneys Ann H. Petalas and George P. Varghese, of the National Security Section of the U.S. Attorney’s Office for the District of Columbia; and Trial Attorney Matthew Klecka of the Criminal Division’s Asset Forfeiture and Money Laundering Section.

The case was investigated by the FBI’s Washington Field Office and the IRS-Criminal Investigation’s Washington Field Division, with assistance from the Treasury Department’s OFAC and the Commerce Department’s Bureau of Industry and Security.

The Department of Justice expressed its gratitude to Executive Assistant District Attorney, Chief of Investigation Division Adam Kaufmann; and Assistant District Attorneys Sally Pritchard and Garrett Lynch of the New York County District Attorney’s Office, Major Economic Crimes Bureau.

LIGHTHOUSE FINANCIAL PARTNERS, LLC USED BY OWNER TO MISAPPROPRIATE CLIENT FUNDS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
June 11, 2012
SEC Charges Atlanta Investment Advisor and its Owner for Misappropriating Client Funds
On Saturday, June 9, 2012, The Securities and Exchange Commission filed a civil action in the United States District Court for the Northern District of Georgia against Benjamin Daniel DeHaan and Lighthouse Financial Partners, LLC. Lighthouse, an investment advisor located in Atlanta and registered with the State of Georgia, has been owned and operated by DeHaan since 2007.

The Commission’s complaint alleges that from approximately January 2011 through early May 2012, DeHaan moved approximately $1.2 million in funds belonging to his clients from their accounts at a custodial broker-dealer into a bank account in Lighthouse’s name that he controlled, thus gaining custody and control of these client assets. DeHaan and Lighthouse told the clients that these funds would be used to open new accounts at another broker-dealer. Once in this account, at least some of these funds were moved to a personal account belong to DeHaan and to accounts used by Lighthouse for business expenses. At least $600,000 in client funds remains unaccounted for. DeHaan is also alleged to have provided false documents to the Commission’s staff and to an examiner for the State of Georgia.

Without admitting or denying the allegations in the Commission’s complaint, DeHaan and Lighthouse have offered to consent to interim relief in the form of an order providing for a preliminary injunction against violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, allowing for expedited discovery, freezing their assets, preventing the destruction or concealment of documents and requiring an accounting. The Commission may seek additional relief, such as a permanent injunction, disgorgement of any ill-gotten gains with prejudgment interest and civil penalties, at a later time.
The Commission acknowledges the assistance and cooperation of the Securities Division of the Georgia Secretary of State’s Office in investigating this matter.

COMPANY AND OWNER CHARGED IN ALLEGED $90 MILLION SILVER BULLION PONZI SCHEME

FROM:  COMMODITY FUTURES TRADING COMMISSION
CFTC Charges Ronnie Gene Wilson of South Carolina and His Company, Atlantic Bullion & Coin, Inc., with Operating a $90 Million Silver Bullion Ponzi Scheme

Defendants are allegedly to have fraudulently sold contracts of sale of silver in a nationwide scheme
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a federal civil enforcement action charging defendants Ronnie Gene Wilson (Wilson) and Atlantic Bullion & Coin, Inc. (AB&C), both of Easley, S.C., with fraud in connection with operating a $90 million Ponzi scheme, in violation of the Commodity Exchange Act (CEA) and CFTC regulations.

The CFTC’s complaint charges violations under the agency’s new Dodd-Frank authority prohibiting the use of any manipulative or deceptive device, scheme, or contrivance to defraud in connection with a contract of sale of any commodity in interstate commerce in violation of Section 6(c)(1) of the CEA, as amended, to be codified at 7 U.S.C. §§ 9, 15 and the CFTC’s implementing Regulation 180.1 (a). The complaint was filed on June 6, 2012, in the U.S. District Court for the Southern District of South Carolina, Anderson Division.

According to the complaint, since at least 2001 through February 29, 2012, Wilson and AB&C operated a Ponzi scheme, and, as part of the scheme, fraudulently offered contracts of sale of silver, a commodity in interstate commerce. Through their 11-year long scheme, the defendants allegedly fraudulently obtained at least $90.1 million from at least 945 investors for the purchase of silver.

From August 15, 2011, through February 29, 2012 – the time period during which the CFTC has had jurisdiction over the defendants’ actions under new provisions contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 – the defendants allegedly fraudulently obtained at least $11.53 million from at least 237 investors in 16 states for the purchase of contracts of sale of silver. The complaint further alleges that during this period, the defendants failed to purchase any silver whatsoever. Instead, the defendants allegedly misappropriated all of the investors’ funds and to conceal their fraud, issued phony account statements to investors.

In its continuing litigation, the CFTC seeks restitution to defrauded investors, a return of ill-gotten gains, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of the federal commodities laws.

The CFTC appreciates the cooperation and assistance of the U.S. Attorney’s Office in Greenville, S.C., and the U.S. Secret Service.

CFTC Division of Enforcement staff responsible for this case are A. Daniel Ullman II, George H. Malas, Antoinette Chance, John Einstman, Richard Foelber, Paul G. Hayeck, and Joan M. Manley.

MAJOR MUTUAL FUND COMPANY TO PAY $35 MILLION TO SETTLE CHARGES OF MAKING MISLEADING STATEMENTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., June 6, 2012 – The Securities and Exchange Commission today charged investment management company OppenheimerFunds Inc. and its sales and distribution arm with making misleading statements about two of its mutual funds struggling in the midst of the credit crisis in late 2008.

The SEC’s investigation found that Oppenheimer used derivative instruments known as total return swaps (TRS contracts) to add substantial commercial mortgage-backed securities (CMBS) exposure in a high-yield bond fund called the Oppenheimer Champion Income Fund and an intermediate-term, investment-grade fund called the Oppenheimer Core Bond Fund. The 2008 prospectus for the Champion fund didn’t adequately disclose the fund’s practice of assuming substantial leverage in using derivative instruments. And when declines in the CMBS market triggered large cash liabilities on the TRS contracts in both funds and forced Oppenheimer to reduce CMBS exposure, Oppenheimer disseminated misleading statements about the funds’ losses and their recovery prospects.

Oppenheimer agreed to pay more than $35 million to settle the SEC’s charges.

“Mutual fund providers have an obligation to clearly and accurately convey the strategies and risks of the products they sell,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Candor, not wishful thinking, should drive communications with investors, particularly during times of market stress.”

Julie Lutz, Associate Director of the SEC’s Denver Regional Office, added, “These Oppenheimer funds had to sell bonds at the worst possible time to raise cash for TRS contract payments and cut their CMBS exposure to limit future losses. Yet, the message that Oppenheimer conveyed to investors was that the funds were maintaining their positions and the losses were recoverable.”

According to the SEC’s order instituting settled administrative proceedings against OppenheimerFunds and OppenheimerFunds Distributor Inc., the TRS contracts allowed the two funds to gain substantial exposure to commercial mortgages without purchasing actual bonds. But they also created large amounts of leverage in the funds. Beginning in mid-September 2008, steep CMBS market declines drove down the net asset values (NAVs) of both funds. These losses forced Oppenheimer to raise cash for month-end TRS contract payments by selling securities into an increasingly illiquid market.

According to the SEC’s order, the funds’ portfolio managers under instruction from senior management began executing a plan in mid-November to reduce CMBS exposure. Just as they began to do so, however, the CMBS market collapse accelerated, creating staggering cash liabilities for the funds and driving their NAVs even lower.

The SEC’s order found that continued CMBS declines forced the funds to sell more portfolio securities in order to raise cash for anticipated TRS contract payments. This task became increasingly difficult for the Champion fund, ultimately prompting Oppenheimer to make a $150 million cash infusion into the fund on November 21. Over the next two weeks, the funds continued to reduce their CMBS exposure to avoid further losses.

According to the SEC’s order, Oppenheimer advanced several misleading messages when responding to questions in the midst of these events. For instance, Oppenheimer

communicated to financial advisers (whose clients were invested in the funds) and fund shareholders directly that the funds had only suffered paper losses and their holdings and strategies remained intact. Oppenheimer also stressed that absent actual defaults, the funds would continue collecting payments on the funds’ bonds as they waited for markets to recover. These communications were materially misleading because the funds were committed to substantially reducing their CMBS exposure, which dampened their prospects for recovering CMBS-induced losses. Moreover, the funds had been forced to sell significant portions of their bond holdings to raise cash for anticipated TRS contract payments, resulting in realized investment losses and lost future income from the bonds.

The SEC’s investigation found that the Champion fund’s 2008 prospectus was materially misleading in describing the fund’s “main” investments in high-yield bonds without adequately disclosing the fund’s practice of assuming substantial leverage on top of those investments. While the prospectus disclosed that the fund “invested” in “swaps” and other derivatives “to try to enhance income or to try to manage investment risk,” it did not adequately disclose that the fund could use derivatives to such an extent that the fund’s total investment exposure could far exceed the value of its portfolio securities and, therefore, that its investment returns could depend primarily upon the performance of bonds that it did not own.

The SEC’s order finds that OppenheimerFunds violated Section 34(b) of the Investment Company Act of 1940, Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (Securities Act), and Section 206(4) of the Investment Advisers Act of 1940 and Rule 205(4)-8 promulgated thereunder. The order finds that OppenheimerFunds Distributor violated Sections 17(a)(2) and 17(a)(3) of the Securities Act.

Without admitting or denying the SEC’s findings, OppenheimerFunds agreed to pay a penalty of $24 million, disgorgement of $9,879,706, and prejudgment interest of $1,487,190. This money will be deposited into a fund for the benefit of investors. OppenheimerFunds and OppenheimerFunds Distributor also agreed to provisions in the order censuring them and directing them to cease and desist from committing or causing any violations or future violations of these statutes and rules.

The SEC’s investigation was conducted by Coates Lear, Jeffrey E. Oraker, Hugh C. Beck, Patricia E. Foley, and Mary S. Brady in the Denver Regional Office. The related examination of Oppenheimer was conducted by Francesco Spinella, Tracy O’Sullivan, C. Michael Hooper, Kathleen A. Raimondi, and Paula S. Weisz under the supervision of branch chief Kenneth O’Connor and assistant director Dawn Blankenship in the New York Regional Office.