SEC FILES INJUNCTIVE ACTION AGAINST MAN AND FOUR COMPANIES FOR FRAUDULENT INVESTMENT OFFERINGS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Securities and Exchange Commission v. Glenn Hoppes, United States Energy Corp., TN-KY Development Fund LP, TN-KY Development Fund II LP and TN-KY Development Fund III LP, Civil Action No. 13-CV-00868-SDM-AEP
The Securities and Exchange Commission today announced it has filed a civil injunctive action against Glenn Hoppes, of Clearwater, Florida, and four companies he controls, United States Energy Corp., TN-KY Development Fund LP, TN-KY Development Fund II LP and TN-KY Development Fund III LP, for fraudulently offering unregistered investments in oil drilling projects.

The SEC’s complaint alleges Hoppes hired Joseph Hilton to sell limited partnership units in three oil drilling projects in 2011 and 2012 and financially supported Hilton’s boiler room despite knowing Hilton was barred from acting as a broker by a 2008 SEC enforcement action and was using an alias to avoid association with the prior SEC action. Through Hilton’s efforts, US Energy raised approximately $2.5 million from approximately 100 investors. The US Energy securities offerings were not registered with the SEC as required under the federal securities laws.

According to the SEC’s complaint, Glenn Hoppes also made misrepresentations to investors in the sale of the units. Hoppes misled investors about US Energy’s oil well assets and omitted information from offering material concerning his personal bankruptcy and the prior SEC action against Hilton. The SEC brought an emergency action against Hilton in 2012 for violations of the antifraud and registration provisions of the federal securities laws in connection with his conduct at US Energy and at a subsequent company he founded.

The SEC’s complaint charges Hoppes, US Energy, TN-KY I, TN-KY II and TN-KY III with violations of Sections 5(a) and (c) and 17(a)(2) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(b). The complaint also charges Hoppes and US Energy with violations of 17(a)(1) and (3) of the Securities Act and Exchange Act Rule 10b-5(a) and (c) and with aiding and abetting Hilton’s Exchange Act Section 15(a) violations. The SEC is seeking disgorgement of ill-gotten gains plus prejudgment interest, civil penalties, and permanent injunctions against Hoppes and his entities.

FINAL JUDGEMENTS ENTERED AGAINST J.C. REED AND COMPANY FOR VIOLATIONS OF SECURITIES LAWS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Court enters final judgment against Defendants

The Securities and Exchange Commission ("Commission") announced today that the Honorable William J. Haynes, Jr., United States District Judge for the Middle District of Tennessee, entered final judgments on February 27, 2013 against J.C. Reed & Company ("JC Parent"), J.C. Reed Advisory Group ("JC Advisory") and Barron A. Mathis ("Mathis"). The final judgment against JC Parent and JC Advisory held them liable for disgorgement of $11,000,000 and prejudgment interest of $3,910,003.07, for a total of $14,910,003.07. The final judgment against Mathis restrained and enjoined him from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Mathis also was held liable for disgorgement of $11,000,000 and prejudgment interest of $4,944,175.39, for a total of $15,944,175.39.

The Commission's Complaint, filed on November 18, 2008, alleged that, at various times from no later than 2005 through at least September 2008, JC Parent, JC Advisory, John C. Reed ("Reed"), the founder of JC Parent and JC Advisory, and Mathis facilitated the offer and sale of more than $11 million of JC Parent stock in unregistered transactions to over 100 investors in several states. According to the Complaint, JC Parent, JC Advisory, and Reed misrepresented and omitted material facts to investors relating to the value of the investors' stock, JC Parent's revenues and profitability, the use of key man life insurance proceeds for redemptions of Reed's JC Parent stock, and undisclosed sales commissions. The Complaint also alleges that Mathis promoted JC Parent stock to advisory clients and misrepresented material facts to investors about undisclosed sales commissions. In addition, the Complaint alleges that JC Advisory used JC Parent's inflated stock values to falsely report assets under management as JC Advisory's basis for registration with the Commission and on reports filed with the Commission.

CHINA BASED INSURER CHARGED BY SEC WITH FAILING TO IMPLEMENT PROPER INTERNAL ACCOUNTING CONTROLS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission ("Commission") today charged Keyuan Petrochemicals, Inc., a China-based issuer formed through a reverse merger in April 2010, with violations of the anti-fraud, reporting, books and records, and internal control provisions of the federal securities laws. The SEC further charged Aichun Li, Keyuan’s former Chief Financial Officer, with aiding and abetting Keyuan’s reporting and books and records violations and for failing to implement internal accounting controls. Keyuan and Li have agreed to settle the SEC’s claims against them.

According to the SEC’s complaint, between May 2010 and January 2011, in what was its first year as a U.S. public company, Keyuan systematically failed to disclose in its SEC filings numerous material related party transactions, as required by U.S. Generally Accepted Accounting Principles ("GAAP") and Commission rules and regulations. The related parties included the company’s three founding and controlling shareholders, including its current Chief Executive Officer, entities controlled by or affiliated with these persons, and entities controlled by Keyuan’s management or their family members. The related party transactions included sales of products, purchases of raw materials, loan guarantees, and short term financing.

Keyuan also operated an off-balance sheet cash account that was kept off the company’s books by the former Vice President of Accounting. The account was used to pay for various items, including cash bonuses for senior officers and reimbursements to the CEO for business expenses, including travel, entertainment, and rent for an apartment. The account was also used to fund gifts—both cash and non-cash—for Chinese government officials. By failing to properly record these transactions on the company’s books and records, the company misstated its reported balances in its financial statements filed with the Commission.

The SEC further alleges that Keyuan’s then-CFO Aichun Li, a resident of North Carolina, played a role in the company’s failure to disclose the related party transactions. Li was hired to ensure the company’s compliance with U.S. accounting and financial reporting regulations, and she received information and encountered red flags that should have indicated that the company was not properly identifying or disclosing related party transactions. Despite such knowledge, Li signed Keyuan’s registration statements and quarterly reports that failed to disclose material related party transactions.

The SEC’s complaint, which was filed in federal court in Washington, D.C., charges Keyuan with violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 ("Securities Act"), Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 12b-20 and 13a-13 thereunder. The SEC’s complaint further charges Li with violations of Section 13(b)(5) of the Exchange Act and aiding and abetting Keyuan’s violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.

Without admitting or denying the claims against them, Keyuan and Li have consented to the entry of a judgment permanently enjoining them from violations of the respective provisions of the Securities Act and Exchange Act. Keyuan has agreed to pay a civil penalty in the amount of $1,000,000. Li has agreed to pay a civil penalty in the amount of $25,000. Li also has consented to the issuance of a Commission order, pursuant to Rule 102(e)(3) of the Commission’s Rules of Practice, suspending her from appearing or practicing as an accountant before the Commission with the right to apply for reinstatement after two years. The proposed settlement is subject to approval by the court.

3 FORMER BANK EXECUTIVES CHARGED BY SEC WITH MASKING HEALTH OF LOAN PORTFOLIO

FROM:  SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Jan. 9, 2013 — The Securities and Exchange Commission today charged three former executives at Norfolk, Va.-based Bank of the Commonwealth for understating millions of dollars in losses and masking the true health of the bank’s loan portfolio at the height of the financial crisis.

The SEC alleges that Edward J. Woodard, who was CEO, president, and chairman of the board, was responsible along with CFO Cynthia A. Sabol and executive vice president Stephen G. Fields for misrepresentations to investors by the bank’s parent company Commonwealth Bankshares. The consistent message in Commonwealth’s public statements and SEC filings was that its portfolio of loans — which comprised approximately 94 percent of the company’s total assets in 2008 — was conservatively managed according to strict underwriting standards aimed at keeping the bank’s reserved losses low during a time of unprecedented economic turmoil.

In reality, the SEC alleges that internal practice deviated significantly from what the public was being told. Woodard knew the true state of Commonwealth’s rapidly-deteriorating loan portfolio, yet he worked to hide the problems and engineer the misleading public statements, particularly those made in earnings releases. Sabol knew of the activity to mask the problems with the company’s loan portfolio and the corresponding effect these masking practices had on the bank’s financial statements and disclosures, yet she signed the disclosures and certified to the investing public that they were accurate. Fields oversaw the bank’s largest portfolio of construction and development loans and was involved in the masking practices.

"During times of financial stress, it’s more important than ever for executives to make full and honest disclosure to the investing public," said Scott W. Friestad, Associate Director of the SEC’s Division of Enforcement. "Commonwealth’s executives did the opposite and hid the company’s worsening performance from shareholders through masking practices that understated the losses on its most troubled loans."

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of Virginia, Commonwealth understated its allowance for loan and lease losses (known as ALLL) by approximately 17 to 25 percent from November 2008 to August 2010. This caused the bank to understate its reported loss before income taxes by approximately 64 percent for fiscal year 2008. Commonwealth also understated its losses on real estate repossessed by the bank (known as OREO) in two fiscal quarters, which caused the bank to understate its reported loss before income. For eight consecutive fiscal quarters, Commonwealth underreported its total non-performing loans.

The SEC’s complaint alleges that Commonwealth obtained an appraisal for its largest collateral-dependent loan that falsely inflated the value of the collateral. The bank executed hundreds of "change-in-terms agreements" at the end of the quarter to remove tens of millions of dollars of loans from its reported non-performing loans. Woodard, Sabol, and Fields helped enable the bank to artificially bring otherwise-delinquent loans current by permitting checking accounts associated with the guarantors of the delinquent loans to be overdrawn. The bank also disbursed loan proceeds without inspecting the property to confirm that the work requiring the disbursement had actually been performed.

The SEC’s complaint charges Woodard, Sabol, and Fields with violations of the antifraud, reporting, recordkeeping, internal controls, deceit of auditors, and Sarbanes-Oxley certification provisions of the federal securities laws.

The SEC’s investigation, which is continuing, has been conducted by Laura B. Josephs, Thomas D. Silverstein, David S. Karp, Lucas R. Moskowitz, and David Estabrook. The SEC’s litigation will be led by Richard Hong. The SEC appreciates the cooperation of the Federal Bureau of Investigation, the U.S. Attorney’s Office for the Eastern District of Virginia, the Office of the Special Inspector General for the Troubled Asset Relief Program, the Board of Governors of the Federal Reserve Board, the Federal Reserve Bank of Richmond, the Federal Deposit Insurance Corporation, and the Bureau of Financial Institutions of the Virginia State Corporation Commission.

SEC FILES FCPA CHARGES AGAINST ELI LILLY AND COMPANY

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today charged Eli Lilly and Company with violations of the Foreign Corrupt Practices Act (FCPA) for improper payments its subsidiaries made to foreign government officials to win millions of dollars of business in Russia, Brazil, China and Poland.

The SEC alleges that the Indianapolis-based pharmaceutical company’s subsidiary in Russia used offshore "marketing agreements" to pay millions of dollars to third parties chosen by government customers or distributors, despite knowing little or nothing about the third parties beyond their offshore address and bank account information. These offshore entities rarely provided any services, and in some instances were used to funnel money to government officials in order to obtain business for the subsidiary. Transactions with off-shore or government-affiliated entities did not receive specialized or closer review for possible FCPA violations. Paperwork was accepted at face value and little was done to assess whether the terms or circumstances surrounding a transaction suggested the possibility of foreign bribery.

The SEC alleges that when the company did become aware of possible FCPA violations in Russia, Lilly did not curtail the subsidiary’s use of the marketing agreements for more than five years. Lilly subsidiaries in Brazil, China, and Poland also made improper payments to government officials or third party entities associated with government officials. Lilly agreed to pay more than $29 million to settle the SEC’s charges.

As alleged in the SEC’s complaint filed in federal court in Washington D.C.:
Lilly’s subsidiary in Russia paid millions of dollars to off-shore entities for alleged "marketing services" in order to induce pharmaceutical distributors and government entities to purchase Lilly’s drugs, including approximately $2 million to an off-shore entity owned by a government official and approximately $5.2 million to off-shore entities owned by a person closely associated with an important member of Russia’s Parliament. Despite the company’s recognition that the marketing agreements were being used to "create sales potential" with government customers and that it did not appear that any actual services were being rendered under the agreements, Eli Lilly allowed its subsidiary to continue using the agreements for years.
Employees at Lilly’s subsidiary in China falsified expense reports in order to provide spa treatments, jewelry, and other improper gifts and cash payments to government-employed physicians.
Lilly’s subsidiary in Brazil allowed one of its pharmaceutical distributors to pay bribes to government health officials to facilitate $1.2 million in sales of a Lilly drug product to state government institutions.
Lilly’s subsidiary in Poland made eight improper payments totaling $39,000 to a small charitable foundation that was founded and administered by the head of one of the regional government health authorities in exchange for the official’s support for placing Lilly drugs on the government reimbursement list.
Lilly agreed to pay disgorgement of $13,955,196, prejudgment interest of $6,743,538, and a penalty of $8,700,000 for a total payment of $29,398,734. Without admitting or denying the allegations, Lilly consented to the entry of a final judgment permanently enjoining the company from violating the anti-bribery, books and records, and internal controls provisions of the FCPA, Sections 30A, 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act. Lilly also agreed to comply with certain undertakings including the retention of an independent consultant to review and make recommendations about its foreign corruption policies and procedures. The settlement is subject to court approval.

ALLIANZ SE CHARGED BY SEC WITH VIOLATING PROVISIONS OF THE FOREIGN CORRUPT PRACTICES ACT

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Dec. 17, 2012 — The Securities and Exchange Commission today charged Germany-based insurance and asset management company Allianz SE with violating the books and records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA) for improper payments to government officials in Indonesia during a seven-year period.

The SEC’s investigation uncovered 295 insurance contracts on large government projects that were obtained or retained by improper payments of $650,626 by Allianz’s subsidiary in Indonesia to employees of state-owned entities. Allianz made more than $5.3 million in profits as a result of the improper payments.

Allianz, which is headquartered in Munich, agreed to pay more than $12.3 million to settle the SEC’s charges.

"Allianz’s subsidiary created an 'off-the-books' account that served as a slush fund for bribe payments to foreign officials to win insurance contracts worth several million dollars," said Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit.

According to the SEC’s order instituting settled administrative proceedings against Allianz, the misconduct occurred from 2001 to 2008 while the company’s shares and bonds were registered with the SEC and traded on the New York Stock Exchange. Two complaints brought the misconduct to Allianz’s attention. The first complaint submitted in 2005 reported unsupported payments to agents, and a subsequent audit of accounting records at Allianz’s subsidiary in Indonesia uncovered that managers were using "special purpose accounts" to make illegal payments to government officials in order to secure business in Indonesia. The misconduct continued in spite of that audit.

According to the SEC’s order, the second complaint was made to Allianz’s external auditor in 2009. Allianz failed to properly account for certain payments in their books and records. The improper payments were disguised in invoices as an "overriding commission" for an agent that was not associated with the government insurance contract. In other instances, the improper payments were structured as an overpayment by the government insurance contract holder, who was later "reimbursed" for the overpayment. Excess funds were then paid to foreign officials who were responsible for procuring the government insurance contracts. Allianz lacked sufficient internal controls to detect and prevent the wrongful payments and improper accounting.

The SEC’s order found that Allianz violated the books and records and internal controls provisions of the FCPA, specifically Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. Without admitting or denying the findings, Allianz agreed to cease and desist from further violations and pay disgorgement of $5,315,649, prejudgment interest of $1,765,125, and a penalty of $5,315,649 for a total of $12,396,423.

The SEC’s investigation was conducted by Irene Gutierrez, Jennifer Baskin and Tracy L. Price of the FCPA Unit.

FORMER CEO SENTENCED TO 50 YEARS IN PRISON FOR ROLE IN $200+ MILLION FRAUD SCHEME

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON – The former chief executive officer of Fair Financial Company, an Ohio financial services business, was sentenced today to serve 50 years in prison for his role in a scheme to defraud approximately 5,000 investors of more than $200 million, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney for the Southern District of Indiana Joseph H. Hogsett.

Timothy S. Durham, 50, of Fortville, Ind., was sentenced today by U.S. District Judge Jane Magnus-Stinson. In addition to his prison term, Durham was sentenced to serve two years supervised release.

James F. Cochran, the former chairman of the board of Fair, was sentenced today by Judge Magnus-Stinson to serve 25 years in prison and three years of supervised release.

Rick D. Snow, the former chief financial officer of Fair, was sentenced today by Judge Magnus-Stinson to ten years in prison and two years of supervised release.

Judge Snow also ordered Durham, Cochran and Snow to pay restitution in the amount of $208 million.

"The lengthy prison sentences handed down today are just punishment for a group of executives who built a business on smoke and mirrors," said Assistant Attorney General Breuer. "By deliberately misleading their investors and state regulators, Mr. Durham and his co-conspirators were able defraud thousands of innocent investors. The Justice Department will continue to devote considerable time and resources to ensure that fraudsters like Mr. Durham, Mr. Cochran and Mr . Snow are brought to justice for their crimes."

"This ordeal is truly a tragedy for all families involved," said U.S. Attorney Hogsett. "All we can do is ask that today's decision send a warning to others in Indiana that if you sacrifice truth in the name of greed, if you steal from another's American dream to enhance your own, you will be caught and you will pay a significant price."

"The FBI will continue to aggressively pursue financial crimes investigations," said Special Agent in Charge Robert A. Jones of the FBI Indianapolis Division. "Today’s sentencing represents a significant step toward justice. We must remain mindful that the victims of this crime still suffer."

On June 20, 2012, following an eight-day trial, a federal jury in the Southern District of Indiana convicted Durham and two co-conspirators for their roles in this scheme. Durham was convicted of one count of conspiracy to commit wire and securities fraud, 10 counts of wire fraud and one count of securities fraud. James F. Cochran, 57, of McCordsville, Ind., was convicted of one count of conspiracy to commit wire and securities fraud, one count of securities fraud and six counts of wire fraud. Rick D. Snow, 49, Fishers, Ind., was convicted of one count of conspiracy to commit wire and securities fraud, one count of securities fraud and three counts of wire fraud.

Durham and Cochran purchased Fair, whose headquarters was in Akron, Ohio, in 2002. According to evidence presented at trial, between approximately February 2005 through November 2009, Durham, Cochran and Snow executed a scheme to defraud Fair’s investors by making and causing others to make false and misleading statements about Fair’s financial condition and about the manner in which they were using Fair investor money. The evidence also established that Durham, Cochran and Snow executed the scheme to enrich themselves, to obtain millions of dollars of investors’ funds through false representations and promises and to conceal from the investing public Fair’s true financial condition and the manner in which Fair was using investor money.

When Durham and Cochran purchased Fair in 2002, Fair reported debts to investors from the sale of investment certificates of approximately $37 million and income producing assets in the form of finance receivables of approximately $48 million. By November 2009, after Durham and Cochran had owned the company for seven years, Fair’s debts to investors from the sale of investment certificates had grown to more than $200 million, while Fair’s income producing assets consisted only of the loans to Durham and Cochran, their associates and the businesses they owned or controlled.

Durham, Cochran and Snow terminated Fair’s independent accountants who, at various points during 2005 and 2006, told the defendants that many of Fair’s loans were impaired or did not have sufficient collateral. After firing the accountants, the defendants never released audited financial statements for 2005, and never obtained or released audited financial statements for 2006 through September 2009. With independent accountants no longer auditing Fair’s financial statements, the defendants were able to conceal from investors Fair’s true financial condition.

Evidence introduced at trial showed that the defendants engaged in a variety of other fraudulent activities to conceal from the State of Ohio Division of Securities and from investors Fair’s true financial health and cash flow problems. Evidence showed that the defendants made false and misleading statements to concerned investors who either had not received principal or interest payments on their certificates from Fair or who were worried about Fair’s financial health. The defendants also directed employees of Fair not to pay investors who were owed interest or principal payments on their certificates.

Even though Fair’s financial condition had deteriorated and Fair was experiencing severe cash flow problems, Durham and Cochran continued to funnel Fair investor money to themselves for their personal expenses, to their family, friends and acquaintances, and to the struggling businesses that they owned or controlled.

This case is being prosecuted by Trial Attorney Henry P. Van Dyck and Senior Deputy Chief for Litigation Kathleen McGovern of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Winfield D. Ong and Nicholas E. Surmacz of the Southern District of Indiana. The investigation was led by the FBI in Indianapolis.

SEC CHARGES J.P. MORGAN SECURITIES LLC WITH MISLEADING INVESTORS IN RMBS OFFERINGS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
In coordination with the federal-state Residential Mortgage-Backed Securities Working Group, the Securities and Exchange Commission today charged J.P. Morgan Securities LLC and affiliated entities with misleading investors in offerings of residential mortgage-backed securities (RMBS). The firm agreed to a settlement in which it will pay $296.9 million. The SEC plans to distribute the money to harmed investors.

The SEC alleges that JP Morgan misstated information about the delinquency status of mortgage loans that provided collateral for an RMBS offering in which it was the underwriter. JP Morgan received fees of more than $2.7 million, and investors sustained losses of at least $37 million on undisclosed delinquent loans. JP Morgan also is charged for Bear Stearns' failure to disclose its practice of obtaining and keeping cash settlements from mortgage loan originators on problem loans that Bear Stearns had sold into RMBS trusts. The proceeds from this bulk settlement practice were at least $137.8 million.

According to the SEC's complaint against JP Morgan filed in federal court in Washington D.C., federal regulations under the securities laws require the disclosure of delinquency information related to assets that provide collateral for an asset-backed securities offering. Information about the delinquency status of mortgage loans in an RMBS transaction is important to investors because those loans are the primary source of funds by which investors can earn interest and obtain repayment of their principal.

The SEC alleges that in the prospectus supplement for the $1.8 billion RMBS offering that occurred in December 2006, JP Morgan made materially false and misleading statements about the loans that provided collateral for the transaction. The firm represented that only four loans (.04 percent of the total loans collateralizing the transaction) were delinquent by 30 to 59 days, and that those four were the only loans that had had an instance of delinquency of 30 or more days in the 12 months prior to the "cut-off date" for the transaction. However, at the time JP Morgan made these representations, the firm actually had information showing that more than 620 loans (above 7 percent of the total loans collateralizing the transaction) were, and had been, 30 to 59 days delinquent, and the four loans represented as being 30 to 59 days delinquent were in fact 60 to 89 days delinquent.

The SEC's complaint also alleges that Bear Stearns' bulk settlements covered loans collateralizing 156 different RMBS transactions issued from 2005 to 2007. Loan originators were usually required by contract to buy back loans that suffered early payment defaults or had other defects. However, Bear Stearns frequently negotiated discounted cash settlements with these loan originators in lieu of a buy-back on loans that were owned by the RMBS trusts. The firm - both before and after the merger with JP Morgan - then kept most of the bulk settlement proceeds. The firm failed to disclose the practice to investors who owned the loans. Bear Stearns repurchased only about 13 percent of these defective bulk settlement loans from the trusts, compared to a nearly 100 percent repurchase rate when loan originators agreed to buy back the defective loans. For most loans covered by bulk settlements, the firm collected money from originators without paying anything to the trusts.

JP Morgan and J.P. Morgan Acceptance Corporation I settled the SEC's charges by consenting to pay disgorgement of $39,900,000, prejudgment interest of $10,600,000, and a penalty of $24,000,000 for the delinquency misstatements, which the SEC will seek to distribute to harmed investors in the transaction through a Fair Fund. JP Morgan; EMC Mortgage, LLC; Bear Stearns Asset Backed Securities I, LLC; Structured Asset Mortgage Investments II, Inc.; and SACO I, Inc. agreed to pay disgorgement of $137,800,000, prejudgment interest of $24,265,536, and a penalty of $60,350,000 for the bulk settlement practice misconduct, and the SEC will seek to distribute these funds to harmed investors through a separate Fair Fund. JP Morgan and each of the other defendants consented, without admitting or denying the allegations, to the entry of a final judgment permanently enjoining them from violating Section 17(a)(2) and (3) of the Securities Act of 1933. The settlement is subject to court approval.

SEC CHARGES INVESTMENT ADVISER AND FIRM OF FRAUD

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington D.C., Nov. 9, 2012 — The Securities and Exchange Commission today charged a Miami-based investment adviser for defrauding his clients by concealing trading losses and diverting investor funds for personal use.

The SEC alleges that Anand Sekaran and his firm Wasson Capital Advisors Ltd. fabricated documents showing illusory profits after his trading strategy became unprofitable in 2008 and produced substantial losses for clients. Sekaran also misused client funds to pay various personal and business expenses, and he collected fees in excess of what he was due under the arrangements he had with clients.

Sekaran and Wasson agreed to resolve the SEC’s charges as well as a parallel criminal action announced today by the U.S. Attorney’s Office for the Southern District of New York.

"An investment adviser’s fiduciary duty applies equally in good times and bad," said Bruce Karpati, Chief of the SEC Enforcement Division’s Asset Management Unit. "Sekaran breached that duty when he concealed trading losses and misled clients rather than simply admitting that his investment strategy was unsuccessful."

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Sekaran provided investors with a spreadsheet inaccurately showing that Wasson was profitable. He inflated account balances on some clients’ account statements, using the letterhead of a defunct British Virgin Islands trust company for one client and the letterhead of a New Zealand firm for another client. He misappropriated investor money for personal mortgage and maintenance payments, restaurant and travel expenses, entertainment and event tickets, employee salaries and health insurance, and rent and office expenses.

In settling the SEC’s charges, Sekaran and Wasson consented to a final judgment imposing permanent injunctions from future violations of the anti-fraud provisions of the federal securities laws. Sekaran separately consented to an SEC order barring him from the securities industry and penny stock industry. Sekaran is required to pay $2.3 million to satisfy restitution and forfeiture orders in the criminal matter.

The SEC’s investigation was conducted by Salvatore Massa and Anthony Kelly of the Asset Management Unit and Tonya Tullis of the Miami Regional Office. Omar Santos conducted a related SEC examination. The SEC thanks the U.S. Attorney’s Office for the Southern District of New York and the U.S. Postal Inspection Service for their assistance in this matter

GOLDMAN SACHS & CO. CHARGED BY SEC WITH "PAY TO PLAY" VIOLATIONS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Sept. 27, 2012 – The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its former investment bankers with "pay-to-play" violations involving undisclosed campaign contributions to then-Massachusetts state treasurer Timothy P. Cahill while he was a candidate for governor.

Pay-to-play schemes involve campaign contributions or other payments made in an attempt to influence the awarding of lucrative public contracts for securities underwriting business. This marks the first SEC enforcement action for pay-to-play violations involving "in-kind" non-cash contributions to a political campaign.

According to the SEC’s order against Goldman Sachs, Neil M.M. Morrison was a vice president in the firm’s Boston office and solicited underwriting business from the Massachusetts treasurer’s office beginning in July 2008. Morrison also was substantially engaged in working on Cahill’s political campaigns from November 2008 to October 2010. Morrison at times conducted campaign activities from the Goldman Sachs office during work hours and using the firm’s phones and e-mail. Morrison’s use of Goldman Sachs work time and resources for campaign activities constituted valuable in-kind campaign contributions to Cahill that were attributable to Goldman Sachs and disqualified the firm from engaging in municipal underwriting business with certain Massachusetts municipal issuers for two years after the contributions. Nevertheless, Goldman Sachs subsequently participated in 30 prohibited underwritings with Massachusetts issuers and earned more than $7.5 million in underwriting fees.

While the SEC’s case against Morrison continues, Goldman Sachs agreed to settle the charges by paying $7,558,942 in disgorgement, $670,033 in prejudgment interest, and a $3.75 million penalty, which is the largest ever imposed by the SEC for Municipal Securities Rulemaking Board (MSRB) pay-to-play violations. The SEC coordinated this enforcement action with a related action filed by the Massachusetts Attorney General against Goldman Sachs.

"The pay-to-play rules are clear: municipal finance professionals that use their firm’s resources to campaign on behalf of political candidates compromise themselves and the firms that employ them," said Robert Khuzami, Director of the SEC’s Division of Enforcement.

Elaine C. Greenberg, Chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit, added, "Fighting efforts to improperly influence the underwriting selection process is one of the unit’s top priorities. These practices result in undisclosed conflicts of interest and undermine public confidence in the integrity of the municipal securities market."

According to the SEC’s orders against Morrison and Goldman Sachs, among the campaign activities that Morrison engaged in for Cahill were fundraising, drafting speeches, communicating with reporters, approving personnel decisions, and interviewing at least one possible running mate. Morrison at times referenced his campaign work while soliciting underwriting business in an apparent attempt to curry favor during the selection process. Morrison sent e-mails to a deputy treasurer in Cahill’s office making the following statements while discussing the selection of underwriters:
"The boss [Cahill] mentioned to me this morning that he spoke to [the Assistant Treasurer] and that it is looking good for us [Goldman Sachs] on the build America bond deal."
"From my standpoint as an advisor/consultant/friend I am saying, PLEASE don’t give these [underwriter] slots away willy-nilly. You are in the fight of your lives and need to reward loyalty and encourage friendship. If people aren’t willing to be creative with their support then they shouldn’t expect business. This has to be a political decision."
"We have discussed the Build American Bond transaction and how important it is to me. You have been great keeping me up to speed. This is my number 1 priority and most important ask. Having Goldman as the lead and getting 50% of the economics would be such a home run for me."
According to the SEC’s orders, in addition to his direct campaign work for Cahill, Morrison made an indirect cash contribution to Cahill by giving cash to a friend who then wrote a check to the Cahill campaign. Morrison’s campaign work and his indirect financial contribution created a conflict of interest that was not disclosed by Goldman Sachs in the relevant municipal securities offerings in violation of pay-to-play rules. Morrison himself acknowledged the existence of this conflict in an e-mail to a campaign official, saying, "I am staying in banking and don’t want a story that says that I am helping Cahill, who is giving me banking business. If that came out, I’m sure I wouldn’t get any more business."

According to the SEC’s orders against Goldman Sachs and Morrison, Goldman Sachs terminated Morrison in December 2010.

The SEC’s order against Goldman Sachs found that the firm violated Section 15B(c)(1) of the Exchange Act and MSRB Rule G-37(b), which prohibits firms from underwriting offerings for municipal issuers within two years after any contribution to an official of such issuer. The SEC’s order found that Goldman Sachs did not disclose any of the contributions on MSRB Forms G-37, and did not make or keep records of the contributions in violation of MSRB Rules G-37(e), G-8 and G-9. The order found that Goldman Sachs did not take steps to ensure that the attributed contributions or campaign work or the conflicts of interest raised by them were disclosed in the bond offering documents, in violation of MSRB Rule G-17, which requires broker-dealers to deal fairly and not engage in any deceptive, dishonest, or unfair practice. The order found that Goldman Sachs failed to effectively supervise Morrison in violation of MSRB Rule G-27.

Goldman Sachs consented to the SEC’s order without admitting or denying the findings. In addition to paying disgorgement, prejudgment interest, and the penalty, Goldman Sachs agreed to be censured and to cease and desist from committing or causing any violations and any future violations of the provisions referenced in the order.

In its order against Morrison, the SEC’s Enforcement Division alleges that Morrison violated MSRB Rule G-37(d) by making a secret, undisclosed cash campaign contribution to Cahill, that he violated MSRB Rule G-37(c) by soliciting campaign contributions for Cahill, and that he violated MSRB Rule G-17 by failing to disclose conflicts of interest to the purchasers of municipal securities. The Division of Enforcement further alleges that Morrison caused Goldman Sachs to violate Rule G-8, Rule G-9, Rule G-37(b) and Rule G-37(e).

The SEC’s investigation was conducted by members of the Enforcement Division's Municipal Securities and Public Pensions Unit including Senior Enforcement Counsel Louis A. Randazzo and Assistant Director LeeAnn Ghazil Gaunt, and supervised by Unit Chief Elaine C. Greenberg and Deputy Chief Mark Zehner. Richard Harper of the SEC’s Boston Regional Office will lead the litigation against Morrison.

SEC CHARGES TYCO INTERNATIONAL LTD. WITH VIOLATING THE FOREIGN CORRUPT PRACTICES ACT

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Sept. 24, 2012 — The Securities and Exchange Commission today charged Tyco International Ltd. with violating the Foreign Corrupt Practices Act (FCPA) when subsidiaries arranged illicit payments to foreign officials in more than a dozen countries.

The SEC alleges that subsidiaries of the Swiss-based global manufacturer perpetuated schemes that typically involved payments of fake "commissions" or the use of third-party agents to funnel money improperly to obtain lucrative contracts. Overall, Tyco reaped illicit benefits amounting to more than $10.5 million as a result of the paid to win business.

Tyco, whose securities are publicly traded in the U.S., agreed to pay more than $26 million to settle the SEC’s charges and resolve a criminal matter announced today by the U.S. Department of Justice.

"Tyco’s subsidiaries operating in Asia and the Middle East saw illicit payment schemes as a typical way of doing business in some countries, and the company illicitly reaped substantial financial benefits as a result," said Scott W. Friestad, Associate Director of the SEC’s Division of Enforcement.

The SEC alleges that Tyco subsidiaries operated 12 different illicit payment schemes around the world starting before 2006 and continuing until 2009. The most profitable scheme occurred in Germany, where agents of a Tyco subsidiary paid third parties to secure contracts or avoid penalties or fines in several countries. These payments were falsely recorded as "commissions" in Tyco’s books and records when they were in fact bribes to pay off government customers. Tyco’s benefit as a result of these illicit payments was more than $4.6 million.

According to the SEC’s complaint, Tyco’s subsidiary in China signed a contract with the Chinese Ministry of Public Security for $770,000 but reportedly paid approximately $3,700 to the "site project team" of a state-owned corporation to be able to obtain the contract. This amount was improperly recorded as a commission. Tyco’s subsidiary in France recorded payments to individuals from 2005 to 2009 for "business introduction services." However, one of the individuals receiving payments was a security officer at a government-owned mining company in Mauritania, and many of the earlier payments were deposited in the official’s personal bank account in France. In Thailand, Tyco’s subsidiary had a contract to install a CCTV system in the Thai Parliament House in 2006, and paid more than $50,000 to a Thai entity that acted as a consultant. The invoice for the payment refers to "renovation work," but Tyco is unable to ascertain what, if any, work was actually done.

The SEC alleges that another scheme occurred in Turkey, where Tyco’s subsidiary retained a New York City-based sales agent who made illicit payments involving the sale of microwave equipment in September 2006 to an entity controlled by the Turkish government. Employees at Tyco’s subsidiary were well aware that the agent was paying foreign government customers to obtain orders. One internal e-mail stated, "Hell, everyone knows you have to bribe somebody to do business in Turkey. Nevertheless, I’ll play it dumb if [the sales agent] should call." The benefit obtained by Tyco as a result of the September 2006 deal was $44,513.

The SEC’s complaint alleges that Tyco’s books and records were misstated as a result of the misconduct, and Tyco failed to devise and maintain internal controls sufficient to detect the violations. The complaint also alleges that the payments by the sales agent to Turkish government officials violated the anti-bribery provisions of the FCPA.

In arriving at the settlement, the Commission considered Tyco’s extensive efforts to identify and remediate its wrongdoing. Tyco conducted a global review and internal investigation for potential FCPA violations and voluntarily disclosed its findings to the SEC while implementing significant, broad-spectrum remedial measures. Tyco consented to a proposed final judgment that orders the company to pay $10,564,992 in disgorgement and $2,566,517 in prejudgment interest. Tyco also agreed to be permanently enjoined from violating Section 13(b)(2)(A), Section 13(b)(2)(B), and Section 30A(a) of the Securities Exchange Act of 1934.

In the parallel criminal proceedings, the Justice Department entered into a Non-Prosecution Agreement with Tyco in which the company will pay a penalty of approximately $13.68 million.

The SEC’s case was investigated by David Frohlich, Stephen E. Jones, Matthew B. Greiner, and Brent S. Mitchell. The Commission acknowledges the assistance of the U.S. Department of Justice’s Fraud Section in this matter.

SEC ANNOUNCES ASSET FREEZE AGAINST FIRM AND OWNER WHO ALLEGEDLY RAN $50 MILLION REAL ESTATE INVESTMENT FRAUD SCHEME

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Sept. 7, 2012 – The Securities and Exchange Commission announced an asset freeze against a San Diego-based firm and its owner accused of running a real estate investment fraud that raised approximately $50 million from hundreds of investors nationwide.

The SEC alleges that Western Financial Planning Corporation and Louis V. Schooler sold units in partnerships that Western had organized to buy vacant land in Nevada and hold for sale at a profit at a later date. Schooler and Western failed to tell investors that they were paying an exorbitant mark-up on the land, in some cases more than five times its fair market value. Schooler and Western also failed to tell investors that the land held by the partnerships was often encumbered by mortgages that Western used to help finance the initial purchase of the land.

"Schooler conned hundreds of people into investing with Western by leading them to believe that they were getting a good value for plots of vacant land," said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. "What he didn’t tell them was that the land was worth only a small fraction of their investment and that he was profiting at their expense."

The SEC’s complaint filed in federal court in San Diego alleges that Western and Schooler misled investors since 2007 by providing them with comparative prices or "comps" of supposedly similar plots of land that had sold for prices higher than those offered by Western. In reality, the real estate comps that Schooler and Western provided were in no way comparable to the land sold by Western. The SEC also alleges that since the spring of 2011, Schooler paid "hush money" to silence investors who discovered they had been defrauded, allowing the scheme to continue.

The Honorable Larry A. Burns for the U.S. District Court for the Southern District of California yesterday granted the SEC’s request for a temporary restraining order and asset freeze against Schooler, Western, and all entities under Western’s control, and appointed Thomas C. Hebrank as a temporary receiver over Western and the entities. Judge Burns has scheduled a court hearing for Sept. 17, 2012, on the SEC’s motion for a preliminary injunction.

The SEC’s investigation was conducted by Sara Kalin and Carol Shau of the Los Angeles Regional Office. Molly White will lead the SEC’s litigation. Ron Warton, Andy Ganguly, Michelle Royston, and Karol Pollack conducted the SEC examination that prompted the investigation.

THE BIOCHAR CHARCOAL SUBSTITUTE PONZI SCHEME

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Obtains Final Judgments Ordering More Than $135 Million in Monetary Relief in "Green" Investment Ponzi Scheme
The Securities and Exchange Commission announced that on September 13, 2012, the Honorable Christine M. Arguello, U.S. District Court Judge for the District of Colorado, entered final judgments against Troy B. Wragg, Amanda E. Knorr, Speed of Wealth, LLC, Wayde M. McKelvy, and Donna M. McKelvy ordering disgorgement, prejudgment interest, and civil penalties totaling more than $135 million. The Court ordered Wragg and Knorr to pay $37,031,035.36 in disgorgement plus interest of $3,713,772.06 jointly and severally with Mantria Corporation and a civil penalty of $37,031,035.36 each; Speed of Wealth and Wayde McKelvy to pay $6,273,632.78 in disgorgement plus interest of $869,141.87 jointly and severally and a civil penalty of $6,273,632.78 each; and Donna McKelvy to pay $429,731.84 in disgorgement plus interest of $55,172.93 and a civil penalty of $214,865.92.

The parties were originally charged in a Complaint filed on November 17, 2009. The Complaint alleged that Wayde and Donna McKelvy, through their Denver-based company Speed of Wealth LLC, as well as Mantria executives Wragg and Knorr, raised funds for numerous Mantria "green" initiatives such as a supposed "carbon negative" housing community in rural Tennessee and a "biochar" charcoal substitute made from organic waste. The SEC alleged that Mantria’s "green" representations were fraudulent and that investors were falsely promised enormous returns on their investments ranging from 17 percent to "hundreds of percent" annually. Mantria’s environmental initiatives did not generate any significant cash, and any returns paid to investors were funded almost exclusively from other investors’ funds. In addition, none of the relevant offerings were registered with the Commission, nor were any of the defendants registered as a broker-dealer or associated with a registered broker-dealer.

Upon the Commission’s motion, the Court entered a temporary restraining order on November 16, 2009, and an order of preliminary injunction on December 2, 2009. After entry of the September 13, 2012 final judgments, permanent injunctions have now been entered against all Defendants.

ATTORNEY AND COMPANY EXECS. CHARGED IN ALLEGED $27.5 MILLION INVESTMENT SCHEME

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Sept. 5, 2012 – The Securities and Exchange Commission today charged an attorney and two others living in South Florida for their roles in a $27.5 million investment scheme that led investors to believe they were purchasing securities consisting of "pre-sold" commodities contracts with a pre-determined profit. However, the supposed profits actually distributed to investors were largely taken from other investors’ funds.

The SEC halted the scheme last year when it obtained an asset freeze and a court-appointed receiver over the companies involved: Commodities Online LLC and Commodities Online Management LLC. The SEC’s follow-up charges are against the founder and former president of the company, James C. Howard III, as well as the company’s vice president Louis N. Gallo III and outside counsel Michael R. Casey, who later became the president.

"This trio teamed up to employ all the hallmarks of an investment scheme," said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. "Howard met with prospective investors at a luxury hotel to emanate a false sense of wealth and security, Gallo oversaw an in-house boiler room that drummed up investor interest, and Casey was the company’s purported legal counsel who acted anything but lawyerly."

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

According to the SEC’s complaint filed in federal court in Miami, Commodities Online offered investors the chance to participate in its purportedly profitable brokering of physical commodities via pre-sold contracts – for example, the purchase and sale of large amounts of seafood or iron ore. Investors were sold participation units in unregistered private placement offerings, each supposedly tied to a commodities transaction in which Commodities Online had already secured a buyer and a seller of the commodity. These participation units would purportedly generate predetermined profits for investors.

The SEC alleges that in reality, Commodities Online performed only a limited percentage of the commodities transactions that were promised to investors. The majority of "profits" allocated or distributed to investors were not profits from completed commodities transactions, but instead taken from the funds of other investors. Meanwhile, Howard and Gallo were dissipating millions of dollars in investor funds to largely sham companies. Through these companies, Howard and Gallo stole investor funds for their own use. For example, Howard met with prospective investors at a luxury hotel in Fort Lauderdale and offered Commodities Online membership interests. He told investors that the funds raised from the offering would be used for the company’s start-up costs such as salaries, marketing, and advertising. However, within weeks of receiving $2 million in investor funds for the purchase of the membership units, Howard siphoned $1.45 million to another entity he controlled. Furthermore, Howard failed to disclose to prospective investors that he’s a convicted felon.

According to the SEC’s complaint, Howard stepped down as the company’s president in 2010 after he was arrested for an unrelated investment fraud. He was replaced by Casey, who misled investors about Howard’s continuing control over Commodities Online while also misrepresenting the profitability, structure, and existence of the purported commodities contracts to investors. Casey also failed to tell at least one investor that the funds raised from the purchase of membership interests had previously been misappropriated by Howard.

The SEC alleges that Gallo ran an in-house "boiler room" of telephone sales agents and a network of approximately 20 regional and international sales offices. He failed to disclose to investors that he previously pled guilty to federal bank fraud and other felonies and was serving a term of supervised release while employed at Commodities Online. Gallo also misled investors about Howard’s role at Commodities Online.

The SEC’s complaint charges Howard, Gallo and Casey with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. They’re also charged with aiding and abetting violations by Commodities Online and Commodities Online Management of Section 10(b) of the Exchange Act and Rule 10b-5. Howard is further charged with a violation of Section 20(a) of the Exchange Act as a control person of Commodities Online, and the complaint alleges he is therefore jointly and severally liable for Commodities Online’s violations of Section 10(b) of the Exchange Act and Rules 10b-5. The SEC is seeking disgorgement of ill-gotten gains plus prejudgment interest, financial penalties, and permanent injunctions against Howard, Gallo, and Casey. The SEC’s complaint also names several relief defendants for the purposes of recovering investor money steered to those entities in the scheme: Sutton Capital LLC, J&W Trading LLC, American Financial Solutions LLC, and Minjo Corporation.

The SEC’s investigation was conducted by Senior Investigations Counsel Robert H. Murphy, Senior Counsel Melissa J. Mitchell, and Staff Accountant Timothy J. Galdencio under the supervision of Assistant Regional Director Eric R. Busto in the Miami Regional Office. James M. Carlson will lead the SEC’s litigation efforts.

HEDGE FUND MANAGER AND HIS FIRM ORDERED TO DISGORGE MORE THAN $2 MILLION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission announced that on August 29, 2012, the U. S. District Court for the District of New Jersey entered final judgments against New Jersey hedge fund firm Clay Capital Management, LLC and its former Chief Investment Officer, James F. Turner II, for their roles in an insider trading scheme involving the securities of three companies – Moldflow Corporation, Autodesk, Inc. and Salesforce.com, Inc. The Court ordered Clay Capital and Turner to pay $2.1 million in illicit gains and permanently enjoined them from future violations of the antifraud provisions of the federal securities laws.

The Commission’s August 31, 2011 complaint alleged that Turner’s brother-in-law, a director at Autodesk, tipped Turner with inside information about Autodesk’s planned acquisition of Moldflow in advance of Autodesk’s public merger announcement on May 1, 2008 and about Autodesk’s fourth quarter 2008 earnings in advance of Autodesk’s public earnings announcement in February 2008. The complaint further alleged that Turner’s close friend, a manager at Salesforce, tipped Turner with confidential information about Salesforce’s performance in advance of Salesforce’s public earnings announcement in February 2008. Turner traded on the inside information in Clay Capital’s hedge fund’s account, his personal accounts and several family member’s accounts. Turner also recommended that several other friends and family members trade in the three companies’ securities. In total, the traders made illicit gains of nearly $3.9 million.

In December 2011, Turner pled guilty to securities fraud in a related criminal action brought by the U. S. Attorney’s Office for the District of New Jersey and was sentenced in April 2012 to a prison term of twelve months followed by three years of supervised release and ordered to pay a fine in the amount of $25,000. U. S. v. James Turner, Case No. 2:11-cr-00868 (D.N.J.).

The final judgments, entered pursuant to Clay Capital’s and Turner’s consents, permanently enjoined them from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. Without admitting or denying the Commission’s allegations, Clay Capital consented to an order for disgorgement of $1,062,822.36 plus prejudgment interest of $182,444.73, provided that all but $850,000 is waived based on its financial condition. Turner consented to an order for disgorgement of $2,585,241.94 plus prejudgment interest of $430,047.42, provided that all but $1,250,000 is waived based on his financial condition. Turner also has agreed to settle an administrative proceeding, to be instituted based on his criminal conviction and the entry of the permanent injunction, in which the Commission would bar him from associating with any broker, dealer, investment adviser, municipal securities dealer or transfer agent.

SEC CHARGES PETRO-SUISSE LTD. AND MARK GASARCH WITH OFFERING FRAUD

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission announced today that on August 14, 2012, it filed a civil injunctive action in the United States District Court for the Southern District of New York charging Petro-Suisse Ltd. ("Petro-Suisse") and Mark Gasarch ("Gasarch") with offering fraud.

The Commission’s complaint alleges that between 2003 and 2006, in connection with the purchase and sale of 21 limited partnership interests offered by Petro-Suisse to finance the drilling of oil wells in Trinidad, Gasarch, Petro-Suisse’s Director, Treasurer, and legal counsel, drafted 21 private placements memorandums ("PPMs") that contained materially false and misleading information. Specifically, the PPMs stated that Petro-Suisse or an affiliate, as general partner of the 21 limited partnership offerings, would cause each of the 21 partnerships to enter into written agreements to finance the drilling of oil wells in Trinidad for which the partnerships would receive contractual rights to receive returns measured by the net revenues of the wells drilled and payable out of those revenues. The PPMs contained materially false and misleading information because the partnerships never entered into any such written agreements.

Without admitting or denying the allegations in the complaint, Petro-Suisse consented to the entry of a proposed Final Judgment enjoining it from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Gasarch consented to the entry of a proposed Final Judgment enjoining him from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The proposed Final Judgments also orders Gasarch and Petro-Suisse jointly and severally liable to pay $8,370,000 in disgorgement, deemed satisfied by the previous payments made by Petro-Suisse to the limited partnership investors, and for Gasarch to pay a $130,000 civil penalty. The proposed settlements are subject to the approval of the district court.

FORMER PUBLIC COMPANY CEO CHARGED BY SEC WITH FRAUD

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Former Public Company CEO with Fraud
　
On August 9, the Securities and Exchange Commission filed a complaint in the United States District Court for the Northern District of Texas alleging that Ronald D. Brooks committed securities fraud while serving as CEO and chairman of Standard Oil Company USA, Inc., a purported energy company headquartered in Dallas, Texas.

According to the SEC’s complaint, Brooks signed and certified Standard Oil’s initial disclosure statement filed with the Pink OTC Markets and made available to investors through that market’s website. Brooks represented in the disclosure statement that he had no prior criminal convictions. In fact, however, Brooks has three prior felony convictions, two for securities violations. The SEC therefore alleges that Brooks defrauded Standard Oil’s investors. The complaint charges Brooks with violating Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder and seeks a permanent injunction, a civil monetary penalty, an officer-and-director bar, and a penny-stock bar.

SEC V. HEART TRONICS, INC., ET AL.

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission announced today that Martin B. Carter and Ryan A. Rauch have agreed to settle charges brought against them in SEC v. Heart Tronics, Inc., et al. The complaint alleged that Heart Tronics repeatedly announced millions of dollars in fraudulent sales orders for its heart monitoring device between 2006 and 2008 when, in fact, the company never had viable sales orders from actual customers. Carter fabricated numerous documents to support the false disclosures, and also arranged to ship products to a friend to create the illusion that the company was delivering its product to a bona fide customer. The Commission's complaint also alleged that Rauch solicited numerous investors to buy Heart Tronics stock but failed to disclose that he was being paid by Heart Tronics in exchange for promoting the company.
On October 5, 2011, Carter pled guilty to one criminal count of conspiracy to commit mail fraud, wire fraud and obstruction of justice based on his creation of fake sales orders and other documents for Heart Tronics and providing false and misleading information to Commission staff during the investigation. To settle the Commission's civil charges, Carter has consented to the entry of a final judgment permanently enjoining him from violating Sections 5(a) and (c) , 17(a)(1) and 17(a)(3) of the Securities Act of 1933 (Securities Act); Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act); and Exchange Act Rules 10b-5(a), 10b-5(c) and 13b2-1; and aiding and abetting violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 10b-5(a), 10b-5(c), 12b-20, 13a-1, 13a-11, and 13a-13. In addition, Carter has agreed to a permanent penny stock bar pursuant to Section 20(g) of the Securities Act and Section 21(d)(6) of the Exchange Act. Carter's proposed judgment, which is subject to court approval, will not impose disgorgement or penalties based on Carter's sworn financial condition.
Rauch has consented, without admitting or denying the Commission's allegations, to the entry of a final judgment that permanently enjoins him from violating Section 17(b) of the Securities Act, imposes a three-year penny stock bar pursuant to Section 20(g) of the Securities Act, and orders him to pay $15,000 of disgorgement plus prejudgment interest of $2,789.04 and a civil penalty of $20,000. The proposed judgment is subject to court approval.
On December 20, 2011, the Commission filed a civil enforcement action in federal district court in the Central District of California alleging that Heart Tronics, Inc. (formerly known as Signalife, Inc. and Recom Managed Systems, Inc.), and several individuals associated with the Company, engaged in a wide-ranging series of frauds, including the repeated announcement of fictitious sales orders in Heart Tronics' SEC filings, press releases and other public broadcasts. The fraud schemes were masterminded by Mitchell J. Stein, the purported outside counsel to Heart Tronics and the husband of Heart Tronics' majority shareholder. From at least December 2005 through September 2008, while he was leading a campaign of public misinformation to drive up the price of Heart Tronics' stock, Mitchell Stein continuously directed the sale of his and his wife's Heart Tronics stock through a series of trusts and other nominee accounts for a net profit of more than $5.8 million. On December 13, 2011, a grand jury indicted Stein on 14 criminal counts of conspiracy to commit mail and wire fraud; mail fraud; wire fraud; securities fraud; money laundering; and conspiracy to obstruct justice. The Commission's civil action against the remaining defendants, including Stein, Heart Tronics' co-CEOs Willie Gault and Rowland Perkins, and former stock broker Mark Nevdahl, is stayed until the conclusion of the criminal case against Stein

SEC FILES CIVIL INJUCTIVE ACTION AGAINST FORMER CFO OF PREFERRED FINANCIAL HOLDINGS COL., LLC

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission announced today that it filed a civil injunctive action alleging fraud in connection with the unregistered offer and sale of securities by Michael A. Bodanza ("Bodanza"), the former chief financial officer and a founding member of Preferred Financial Holdings Co., LLC ("Preferred Holdings"), a company formed in 2006 to engage in oil and gas exploration, drilling, and leasing through operating subsidiaries.

In the complaint, filed in the U.S. District Court for the Northern District of Ohio, the Commission alleges that, from June 2007 to August 2010, Defendants Bodanza and Preferred Holdings raised $6,769,635 from at least 61 investors through the unregistered sale of Preferred Holdings promissory notes. During this period, Preferred Holdings experienced through its operating subsidiaries a series of material operational problems and suffered significant losses, including net losses of $1.0 million in 2007, $2.2 million in 2008, $1.8 million in 2009, and $1.3 million in 2010, according to consolidated financial statements prepared in 2011. Bodanza nonetheless depicted Preferred Holdings’ oil and gas operations in a positive light and failed to disclose to most investors that the company had suffered significant losses from 2007 through 2010. Further, Bodanza failed to disclose the following material facts to several investors: (i) Preferred Holdings removed one of its founding members and its chief operating officer in early 2008 and sued him for causing Preferred Holdings to suffer between $3 million to $4 million in damages; (ii) the only operating drilling rig held by Preferred Holdings’ drilling subsidiary suffered an irreparable breakdown in August 2008; (iii) Preferred Holdings was embroiled in an insurance coverage dispute to recover $1 million in losses and expenses incurred as a result of the rig breakdown; (iv) Preferred Holdings’ drilling subsidiary incurred $260,000 in drilling expenses above its original cost estimates in connection with a significant joint venture in 2009; and (v) Preferred Holdings’ subsidiary had failed to acquire certain property in Tennessee that could be used to drill and sell gas from its own producing wells. Finally, Bodanza also failed to disclose to at least three individuals who purchased promissory notes in 2010 that their investment proceeds would be used to make payments to other investors. The complaint further alleges that Preferred Holdings has failed to repay most of the investors whose notes have already come due and likely will default on a significant number of additional notes which come due in 2012. The complaint names Preferred Holdings’ subsidiaries, Preferred Drilling Co., LLC, Preferred Financial Investment Co., LLC, Preferred Financial Leasing Co., LLC, and Preferred Well Management Co., LLC as Relief Defendants based on their receipt or benefit from the funds raised through the unregistered, fraudulent offering.

The Defendants and Relief Defendants consented to entry of judgments against them without admitting or denying the allegations in the SEC’s complaint. Bodanza consented to a judgment permanently enjoining him from violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 and ordering disgorgement of $359,656 and prejudgment interest of $50,551, but waiving payment of all but $154,000 and not imposing a civil penalty based upon his financial condition. Preferred Holdings consented to a judgment permanently enjoining it from violations of Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5; and ordering disgorgement of $4,485,647 and prejudgment interest of $268,143, jointly and severally with the Relief Defendants. Each of the Relief Defendants consented to a judgment ordering disgorgement of $4,485,647 and prejudgment interest of $268,143, jointly and severally with Preferred Holdings.

INVESTMENT IN GOLD MINING COMPANY YIELDS PROFITS FOR COMPANY'S FAMILY OWNERS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today charged a father, son, and daughter with running a nationwide investment scheme that falsely promised investors whopping returns from a gold mining operation while their money was actually spent on family cars, jewelry, vacations, and vitamin supplements.

The SEC alleges that Harry Dean Proudfoot III of Mt. Vernon, Ohio, and his children Matthew Dale Proudfoot of Colbert, Wash., and Laurie Anne Vrvilo of Tigard, Ore., raised at least $2.7 million from approximately 140 investors in 23 states through their Portland, Oregon-based company 3 Eagles Research & Development LLC (3 Eagles). They told investors their company would extract gold worth more than $11 billion from gravel pits in central Ohio, and promised investors they could earn 35 times their initial investment. However, 3 Eagles did not even have rights to much of the property it claimed to be mining for gold, and the Proudfoots instead diverted investor money for personal use rather than the mining activities outlined in presentations to investors.

According to the SEC's complaint filed in federal court in Portland, the scheme primarily occurred between September 2009 and October 2011. The Proudfoots sold investors "royalty units" in the purported gold mining project, claiming their money would be used to purchase mining equipment and conduct mining operations at two gravel pits. The Proudfoots falsely touted they had an expert geologist on the mining project. They solicited investors in a variety of ways, including through a Power Point presentation filled with misleading information. They also hired a securities broker named Dennis Ashley Bukantis of Denver, who is not registered with the SEC and assisted in the sale of royalty units in exchange for nearly $165,000 in commissions. Bukantis is charged along with the Proudfoots in the SEC's complaint.

The SEC alleges that rather than using investor funds for gold mining equipment and operations, the Proudfoots siphoned off more than $1.1 million of investor money and misused 3 Eagles corporate accounts as their own personal piggy bank, leaving the company penniless and unable to pay the necessary expenses to get the Ohio mine into production. Among their illicit personal expenditures, the Proudfoots spent $80,000 on automobiles, $235,000 in personal travel, and upwards of $30,000 per year for vitamins and nutritional supplements.

According to the SEC's complaint, after being served investigative subpoenas by the SEC and various state securities regulators in the fall of 2011, Harry Proudfoot was removed from the company and 3 Eagles represented it stopped selling royalty units. However, by December, Matthew Proudfoot was again selling investors a stake in 3 Eagles, this time calling them "membership interests" that would be used to move the Ohio mining project into production. Yet once again, much of the investor money was misused for personal expenses, including defense lawyers for each of the Proudfoots and 3 Eagles as well as Matthew Proudfoot's bankruptcy payments and household bills.

The SEC's complaint charges 3 Eagles, Harry Proudfoot, Matthew Proudfoot and Laurie Vrvilo with violations of Sections 5(a), 5(c) and 17 (a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5(a), (b) or (c) thereunder. The complaint also charges Bukantis with acting as an unregistered broker in violation of Section 15 (a) of the Exchange Act. The complaint seeks permanent injunctions, disgorgement with prejudgment interest and civil monetary penalties.

The SEC's case was investigated by Heather E. Marlow and Tracy L. Davis of the SEC's San Francisco Regional Office, and the litigation will be led by John Yun. The SEC thanks the State of Washington's Department of Financial Institutions for its assistance in this matter.