Friday, June 29, 2012

SEC Litigation Releases: Week in Review


SEC Shuts Down Mortgage Fund Ponzi-like Scheme June 28, 2012, (Litigation Release No. 22406).

According to the complaint (opens to PDF), Small Business Capital Corp. ("SB Capital") and Mark Feathers ("Feathers"), its principal, are operating an “alleged Ponzi-like scheme.” $42 million have been raised by SB Capital and Feathers through selling securities issued by their mortgage investment funds, Investors Prime Fund, LLC and SBC Portfolio Fund, LLC (“Funds”).  The Funds attracted more than 400 investors by promising profits of yielding 7.5 percent or more in annual returns from the mortgage investments. However, Feathers paid investors through Fund profits and other investors. From 2009 to early 2012, more than $6 million was improperly transferred from the Funds to SB Capital to pay expenses. Additionally, in February and March 2012, one Fund was sold to another Fund at an inflated price to generate a “profit.” This “profit” was used to pay SB Capital management fees in excess of $575,000.
The request for a temporary restraining order and asset freeze was granted by the Honorable Edward J. Davila.

SEC Charges Long Island Software Company in Connection with Bribery Scheme June 27, 2012, (Litigation Release No. 22405).

The SEC has charged FalconStor Software, Inc., a data storage company, with misleading investors about bribes the Company paid to secure business with J.P. Morgan Chase & Co. Allegedly, from October 2007 through July 2010, the CEO of FalconStor ordered bribes, totaling in $430,000, paid to three executives of JPMorgan Chase Bank, National Association, and their relatives. These bribes included “grants of FalconStor options and restricted stock, direct cash payments, gift cards, payment of golf club fees, and lavish entertainment, including gambling in Macau and Las Vegas casinos.” Additionally, FalconStor secured a contract with JPMC after the improper payments began, and it never disclosed that this contract was due (at least in part) to the bribes given to JPMC’s employees. Furthermore, relatives of two of the executives received restricted stock and options which were not covered by FalconStor’s registered Incentive Stock Plan. The Company failed to accurately record expenses and had no effective internal accounting controls to detect the bribes, thereby violating state law. After confessing involvement with the bribes, the CEO resigned in September 2010. FalconStor will pay a $2.9 million civil penalty in order to settle the case.

SEC Obtains Final Judgments On Consent Against All Defendants in the Mariner Energy Insider Trading Case June 27, 2012, (Litigation Release No. 22404).

On June 1, 2012, the Honorable Robert P. Patterson entered final judgments on H. Clayton Peterson, former Mariner Energy, Inc. Director and his tippees Drew Clayton, Drew K. Brownstein, and Big 5 Asset Management, LLC in the insider trading case SEC v. H. Clayton et al. In April 2010 Clayton Peterson learned in confidential board meetings that Apache Corporation was about to acquire Mariner. He then tipped off his son, Drew Peterson, instructing him to purchase Mariner securities for Clayton Peterson’s daughter. Drew Peterson not only used this nonpublic information for his own accounts, but also used it for his family members, his investment clubs and clients, and certain friends, including Brownstein. Drew Peterson’s trading, along with the trading of his tippees, resulted in profits exceeding $200,000. Brownstein used this information to trade shares for himself, his family, and for hedge funds managed by Big 5. In total, Brownstein, along with his family and Big 5, received over $5 million in profits. This week, the SEC has announced that “Clayton Peterson [has been suspended] from appearing or practicing before the SEC as an accountant, and bar[red] Drew Peterson and Brownstein from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.” Also, Clayton Peterson and Drew Peterson are ordered to pay over $200,000, while Brownstein and Big 5 are ordered to pay a nearly $4.5 million. 

SEC Charges Philip A. Falcone and Harbinger Charged with Securities Fraud June 27, 2012, (Litigation Release No. 22403).

The SEC has filed charges of fraud against Philip A. Falcone and his advisory firm, Harbinger Capital Partners, LLC, along with Peter A. Jenson, Harbinger’s former COO. Harbert Management Corporation’s affiliates were the managing members of two Harbinger-related entities. The SEC has charged Harbert “as a controlling person in the market manipulation.” In 2009 Falcone used $113.2 million he fraudulently obtained to pay off personal taxes. From 2006 to 2008, Falcone, along with two Harbinger investment managers, manipulated the price and availability of MAAX Holdings, Inc., by creating an illegal “short squeeze.” In 2009, Falcone and Harbinger exempted strategically important investors “from soon-to-be imposed liquidity restrictions – provided that those investors voted to approve restrictions that would temporarily stabilize the decline in Harbinger’s assets under management.” Between April and June 2009, Harbinger also engaged in “short selling securities during a restricted period and then purchasing the same securities in a public offering.” Along with seeking financial penalties and disgorgement of ill-gotten gains, the SEC “seeks…an order barring Falcone from serving as an officer or director of a public company.” Harbert and two related investment entities, HMC-NY and HMC Investors, will pay $1 million in civil penalties. Harbinger will pay over $2 million in penalties.

SEC Sues Fund Adviser for Fees Charged in Breach of Duty Under the Investment Company Act,  June 27, 2012, (Litigation Release No. 22402).

This week the SEC sued AMMB Consultant Sendirian Berhad (AMC). From 1996 to 2007, AMC, a unit of AMMB Holdings Berhad, allegedly misrepresented its services, collecting fees for advisory services which it did not provide. According to the SEC, AMC has violated the Investment Company Act of 1940 in regards to compensation. Each year, AMC submitted a report that falsely claimed AMC provided advice, research, and assistance to its principal investment adviser, Morgan Stanley Investment Management, Inc. In actuality, AMC only provided two monthly reports that MSIM did not request or use. AMC has agreed to disgorge $1.3 million of its advisory fees and pay a $250,000 penalty. 

 SEC Charges Founder of Equity Research Firm with Insider Trading,  June 27, 2012, (Litigation Release No. 22401). 

According to the complaint (opens to PDF), Tai Nguyen, owner of the equity research firm Insight Research, has been charged with insider trading involving “expert networks.” From 2006 through 2009, Nguyen allegedly traded in the securities of Abaxis, Inc. based on information he received from a close relative employed at the Company. Not only did he trade for himself, but Nguyen also gave the inside information to hedge fund clients of Insight Research, Barai Capital Management, and Sonar Capital Management. He reaped approximately $145,000 in illicit trading profits during this time frame.  The hedge fund managers of Barai Capital Management and Sonar Capital Management reaped over $7.2 million in illicit gains. The SEC seeks “a final judgment ordering [Nguyen] to disgorge his ill-gotten gains, with interest, and pay financial penalties, and permanently barring him from future violations.”
  
SEC Charges Owner of Two New Jersey-Based Firms in Stock Lending Scheme,  June 25, 2012, (Litigation Release No. 22400).

According to this complaint (opens to PDF), Ayuda Equity Funding, LLC and AmeriFund Capital Holdings, LLC, along with owner Manuel M. Bello, reaped over $3.2 million of illegal gains from “loans to public company officers and directors who put up stock as collateral.” Ayuda and AmeriFund sold these shares before or shortly after making the loans, despite written and oral assurance that the stock would not be sold if the borrowers did not default on their loans. Bello and the firms agreed to return $3.2 million of the gains, and Bello agreed “to pay a $500,000 penalty and be permanently barred from the securities industry.” 

SEC Charged Former Broker in Orlando, Fla., With Defrauding Investors In an Astrology-based Ponzi Scheme,  June 25, 2012, (Litigation Release No. 22399). 

According to the complaint (opens to PDF), Gurudeo “Buddy” Persaud convinced family and friends, among others, to invest in his firm, White Elephant Trading Company LLC. From July 2007 through January, Persaud raised over $1 million, by falsely guaranteeing their money’s security and high returns from 6 to 18 percent and he neglected to disclose that his trading strategy was based on astrology. He used investors’ money to pay other investors, while losing $400,000 of investor funds through his trading. Additionally, he used at least $415,000 to pay for his own expenses. To hide his trading losses, Persaud created false account statements. The SEC “seeks disgorgement of ill-gotten gains, financial penalties and permanent injunctive relief against Persaud to enjoin him from future violations.”

Court Approves SEC Settlements with Two Former Bear Stearns Hedge Fund Portfolio Managers; SEC Bars Managers from Regulated Industries,  June 25, 2012, (Litigation Release No. 22398).  

According to the complaint (opens to PDF), “Bear Stearns funds collapsed in June 2007 after taking highly leveraged positions in structured securities based largely on subprime mortgage-backed securities.” In April 2007, Ralph R. Cioffi, senior portfiolio manager, and Matthew M. Tannin, portfolio manager and chief operating officer for the funds, misrepresented the full extent of fund investment in securities backed by subprime mortgages. Furthermore, Cioffi misrepresented investor redemption request levels. He neglected to disclose his personal investment in Enhanced Leverage Fund to investors. Tannin also misled investors into thinking he was going to add to his own investment in the Enhanced Leverage Fund. Cioffi and Tannin are ordered to pay $800,000 and $250,000 in penalties, respectively.

Court Finds Bay Area Hedge Fund Manager in Civil Contempt for Failing to Pay More Than $12 Million in Disgorgement to Defrauded Investors,  June 25, 2012, (Litigation Release No. 22397).   

Lawrence R. Goldfarb and Baystar Capital Management, LLC failed to pay or show reasonable attempt to pay disgorgement as a result of a Final Judgment entered against them last March. At the time, Goldfarb and Baystar agreed to pay over $12 million in disgorgement within a year of the entry. In total, they have only paid $80,000 in disgorgement. The Court has approved “the appointment of a receiver over defendants’ assets and reaffirmed its prior order limiting Goldfarb’s monthly spending.”

Wednesday, June 27, 2012

401(k) Fees Can Drastically Reduce Nest Egg

By Tim Dulaney, PhD

recent report conducted by Demos -- a New York City-based public policy organization -- points out that the high fees charged by 401(k)'s can cut nest eggs by 30% for median-income two-wage family.

Company-sponsored 401(k) plans often include a list of mutual funds in which employees can invest.  Although these fees are disclosed on the individual fund prospectuses, the account statements from 401(k)'s generally do not include such fees (only the result of the fund performance net of fees).  The report enumerates the many fees mutual funds can levy, including: administrative fees, asset management fees, marketing fees (12b-1 fees) and trading fees.

Trading fees are the result of commissions paid to brokers when transacting fund assets as well as the bid-ask spreads surrounding the market prices of the fund assets: funds must sell (buy) at a price lower (higher) than the market price.  Generally speaking, the more illiquid the fund assets, the larger the bid-ask spread.

It has been pointed out in the literature that Exchange Traded Products (ETPs) such as ETFs and ETNs offer 401(k)'s more bang for their buck.  In a November 2009 working paper from the Center for Retirement Research at Boston College, Kopcke, Vitagliano and Karamcheva note that
[b]y shifting investment options from managed mutual funds to exchange-traded funds (ETFs) or commingled trusts, 401(k) plans can align the fees they pay more closely with the expense of the services they use.  This realignment can allow an average plan to reduce its administration and management fees between 0.20 and 0.40 percent of assets.  In addition, the shift to ETFs and commingled trusts that hold ETFs can reduce average trading costs 0.50 percent of assets or more for participants holding managed equity mutual funds.
It remains to be seen whether 401(k) plans will replace mutual funds with ETFs, or what other potential problems might arise from that change.  However, this issue highlights the fact that fund expenses are one of the most overlooked aspects of index investing.  Investors with long time horizons should strongly consider minimizing those fees by choosing low-cost index funds, and ETFs may be able to offer better rates than currently available mutual funds.

Hat tip to Alex Ulam over at IndexUniverse for drawing our attention to the report.

Friday, June 22, 2012

SEC Litigation Releases: Week in Review

By Tim Dulaney, PhD

SEC Charges Massachusetts Investment Adviser with Fraud and Obtains Asset Freeze June 20, 2012, (Litigation Release No. 22396).

Earlier this week, the SEC charged Gary J. Martel with defrauding investors through his companies Martel Financial Group and MFG Funding.  According to the complaint (link opens PDF), Martel defrauded at least a dozen investors of millions of dollars.  Martel allegedly told his clientele (including retirees) that he would invest in fixed-income securities.  Martel allegedly composed fraudulent account statements and made small interest payments to his clients to boost confidence in his legitimacy.  The SEC alleges that, rather than investing the funds as represented, Martel instead diverted the funds to his businesses.  A federal judge has now frozen Martel's assets.

US District Court Enters Final Judgments Against Ponzi Schemers Clements and Smidi June 18, 2012, (Litigation Release No. 22395).

Last March, the SEC filed a complaint (Litigation Release No. 21910) against James Clements and Zeina Smidi alleging that the duo perpetrated a $30 million Ponzi scheme that took advantage of hundreds of investors nationwide between 2005 and 2007 through their companies, known generally as Maximum Return Transaction or MRT.  The US District Court for the Southern District of Florida has ordered Clements and Smidi to pay financial penalties in excess of $750,000 and $5 million, respectively.

Former CEO of Massachusetts-Based LocatePlus Holdings Corporation Sentenced to 60 Months' Imprisonment for Securities Fraud June 18, 2012, (Litigation Release No. 22394).

Jon Latorella, the former CEO of LocatePlus Holdings Corporation (an information technology company), was sentenced to five years imprisonment followed by three years of supervised release as a result of the November 2010 charges by the US Attorney's Office.  The charges alleged that Latorella and the former CFO of LocatePlus, James Fields, implemented a scheme to artificially inflate the revenue of LocatePlus and to manipulate the stock price of another company.  The SEC's civil injunctive action has been "stayed until the conclusion of the criminal case [...] against Fields and LocatePlus".

Friday, June 15, 2012

SEC Litigation Releases: Week in Review

By Tim Husson, PhD

Promoters of Convicted Ponzi Scheme Operator Jeffrey L. Mowen Ordered to Pay Over $20 Million in Disgorgement and Civil Penalties,  June 13, 2012, (Litigation Release No. 22393).

The US District Court for the District of Utah granted the SEC's motion for entry of final judgment against Defendants Michael W. Averett, Michael G. Butcher, Thomas R. Fry, Gary W. Hansen, James B. Mooring, and Bevan J. Wilde, who allegedly "acted as promoters...through the unregistered offer and sale of high-yield promissory notes" for the Ponzi scheme operated by Jeffrey L. Mowen from October 2006 to October 2008.  Mr. Mowen pled guilty in December 2011 to charges related to the scheme and is currently serving a 10 year prison sentence.  The disgorgement and civil penalties for the Defendants ranged from approximately $331,000 (Butcher) to over $17 million (Fry).  Also, the District Court granted in part the SEC's motion for summary judgment against Defendant David G. Bartholomew "for acting as an unregistered broker-dealer" in the scheme.

SEC Charges 14 Sales Agents In $415 Million Long Island-Based Ponzi Scheme, June 12, 2012, (Litigation Release No. 22391).

According to the complaint (link opens PDF), the Defendants were sales agents for Agape World, Inc., which allegedly issued "fictitious" securities from 2005 to January 2009.  The Defendants allegedly made knowing misrepresentations to investors about the securities--which were not registered with the SEC--and Agape.  Agape's former President, Nicholas J. Cosmo, was arrested in 2009 and later sentenced to 300 months in prison and ordered to pay more than $179 million in restitution for organizing the scheme (see SEC News Release 2012-112).

SEC Charges Atlanta Investment Advisor and its Owner for Misappropriating Client Funds, June 11, 2012, (Litigation Release No. 22390)

The SEC charged Benjamin Daniel DeHaan and Lighthouse Financial Partners, LLC, with "mov[ing] 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."  At least half of these funds, which were ostensibly transferred to open new accounts at another broker-dealer, remain missing.  The SEC also alleges that DeHaan provided them and the State of Georgia with false documents.  The civil action was filed in the United States District Court for the Northern District of Georgia.  On June 11, Judge Thomas W. Thrash issued a preliminary injunction against DeHaan and Lighthouse.

Friday, June 8, 2012

Oppenheimer Fined for Complex Derivatives in Bond Funds

By Geng Deng, PhD and Tim Husson, PhD

In May 2010, SCLG released a paper on the Oppenheimer Champion Income Fund, detailing the complex derivatives transactions that led that fund to accumulate huge losses in 2008 compared to other high-yield bond funds.  On Wednesday, the SEC charged OppenheimerFunds for material misrepresentations of these very risks in two funds, including the Champion Income Fund.  OppenheimerFunds agreed to pay $35 million to settle the SEC's claims.

The funds, the Oppenheimer Champion Income Fund and the Oppenheimer Core Bond Fund, used complex derivatives to leverage exposure to the commercial mortgage market.  From the SEC release:
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.
In our paper, we explain that the leverage was derived from total return and credit default swaps, which are highly complex securities that involve substantial risks.  The fund's credit default swap holdings, for example, had a notional value of over 70% of the fund's net asset value in early 2008, while the fund did not report any CDS holdings at all.  If the fund's total return and credit default swaps are excluded the Champion Income Fund performed much more closely to its peer group:

Even in 'traditional' fund classes such as high-yield bond funds, managers use complex investments which can involve substantial undisclosed risks. The SEC’s actions here demonstrate the need for complete and accurate disclosures of all derivatives-related risk.

SEC Litigation Releases: Week in Review

By Tim Dulaney, PhD

Court Enters Final Judgments, Including Indemnity Bars, Against Rajnish K. Das and Stormy L. Dean, Former CFOs of infoUSA, Inc., June 1, 2012, (Litigation Release No. 22388)

As a result of the SEC complaint (link opens PDF) against Rajnish K. Das and Stormy L. Dean, the US District Court for the District of Nebraska barred the pair from serving as an officer or director of a public company for three years and levied a civil penalty of $50,000 against each of them.  In the complaint, the SEC alleged Das and Dean authorized company funds to be used for infoUSA CEO's personal expenses and underreported infoUSA CEO's compensation in company filings.  The court declared "that Das and Dean each acted in bad faith towards the shareholders of infoUSA, Inc. and that the defendants each knew their actions were contrary to the interests of the company and its shareholders."

SEC Charges Three Former CONSOL Energy, Inc. Employees with Illegal Trading in Advance of an Acquisition Announcement, June 1, 2012, (Litigation Release No. 22387)

The SEC recently charged Charles E. Mazur, Jr. (CONSOL's former Director of Corporate Strategy), Joseph A. Cerenzia (CONSOL's former Director of Public Relations) and James S. Poland (CONSOL's former General Manager of Engineering) with insider trading in CONSOL securities ahead of the public announcement of the acquisition of a portion of Dominion Resources, Inc.  In total, the trio has been fined more than $130,000 in disgorgement, prejudgment interest and civil penalties as a result of their actions.

SEC Charges Additional Defendants for Defrauding Investors in $90 Million Ponzi Scheme, June 1, 2012, (Litigation Release No. 22386)

The SEC amended its complaint (PDF) against Brian Raymond Callahan that stopped a nearly $100 million continuing Ponzi scheme to include additional offshore funds controlled by Callahan, Callahan's brother in law Adam Judd Manson and two of Manson's entities.  In addition, Callahan's wife (Sheri Manson Callahan) was named as a relief defendant in this matter.  According to the amended complaint, Manson helped create a paper trail to conceal the scheme, provided unsecured promissory notes, misrepresented the outstanding principal balances on the promissory notes as well as the callability of the notes.

SEC Charges Controlling Person of Transfer Agent for Misappropriating Share Certificates and Illegally Selling Stock, June 1, 2012, (Litigation Release No. 22385)

Late last month, the SEC filed a settled civil action against Steven H. Bethke as a result of a complaint that alleged Bethke misappropriated share certificates of Bederra Corporation.  Bethke allegedly used stolen stock certificates to issue more than a billion Bederra shares in exchange for approximately $350,000.  To facilitate his scheme, Bethke forged signatures of Bederra executives and misrepresented the securities' eligibility for registration exemptions.  Without admitting or denying the allegations in the complaint (PDF), Bethke has consented to a final judgment.

SEC Files Action Against Three Penny-Stock Fraudsters, June 1, 2012, (Litigation Release No. 22384)

Earlier this month, the SEC charged James Roland Dial (Grifco International, Inc.'s former president, CEO and director), Evan Nicholas Jarvis and Alex W. Ellerman (two stock promotors) with conducting a scheme to manipulate the market for Grifco International, Inc.'s stock.  The trio allegedly flooded the market with supposedly unrestricted Grifco securities -- which were not registered with the SEC and satisfied no exemptions from registration requirements -- and misleading marketing materials.  The trio allegedly realized over $3 million in ill-gotten gains.  The trio has consented to the entry of a final judgment requiring a total payment of over $4 million in financial penalties.  Dial and Jarvis have also been sentenced to five years in prison for wire fraud, while Ellerman received a reduced sentence for his cooperation in the investigation.

Friday, June 1, 2012

SEC Litigation Releases: Week in Review

By Tim Dulaney, PhD

SEC Charges Two Feeders for One of South Florida's Largest-Ever Ponzi Schemes, May 31, 2012, (Litigation Release No. 22383)

The SEC charged George Levin and Frank Preve with perpetrating a Ponzi scheme through which they raised nearly $160 million from close to 200 investors in less than two years.  The defendants used the investor funds to purchase (fraudulent) discounted legal settlements from Scott Rothstein (former Florida attorney).  Rothstein then used the investor funds to make Ponzi payments and finance his lifestyle.  Rothstein's scheme imploded in late 2009 and "[...] is currently serving a 50-year prison sentence."  The SEC alleges that the promissory notes Levin and Preve used to raise the investor funds "[...] contained material misrepresentations and omissions."

SEC Charges Two Individuals in Fraudulent Offering of Investments in Dominican Republic Resorts, May 31, 2012, (Litigation Release No. 22382)

The SEC charged James B. Catledge and Derek F. C. Elliott (and certain related entities) with "[...] making material misrepresentations to investors in connection with the unregistered sale of interests in two resorts in the Dominican Republic."  The defendants raised more than $160 million from approximately 1,200 investors by promising timeshare (promising a 5% return) and ownership interests (promising an 8-12% return) in two Dominican Republic resorts.  The SEC alleges that over 35% of the funds were used to pay commissions to the defendants and that the funds were not used to finance the construction as represented.  For the SEC complaint in this matter, see here (link opens PDF).

SEC Charges Penny Stock Financiers and Two Public Companies With Illegal Unregistered Stock Distributions, May 30, 2012, (Litigation Release No. 22381)

The SEC filed a civil injunctive action in Florida against Mark A. Lefkowitz, Compass Capital Group, Inc., Mark A. Lopez, Unico, Inc., Steven R. Peacock, Shane H. Traveller, and Advanced Cell Technology, Inc., alleged that the group "[...] violated the federal securities laws in connection with the unregistered distribution of billions of shares of penny stocks through the repeated misuse of [...]" a registration exemption.   In 2006, Lefkowitz allegedly devised a scheme by which penny stock issuers could pay off past due debts and raise additional capital by selling unrestricted common stock "[...] at a substantial discount to the prevailing market price, purportedly to retire the past due debt" to financiers.  The sale included a settlement agreement (not disclosed in court) that required the financiers to remit monies to the issuers following the sale of the securities.  While each penny stock issuer did extinguish debt, in most cases the amount of money raised far exceeded the level of debt extinguished.

SEC Charges Chicago-Area Resident With Fraud, May 30, 2012, (Litigation Release No. 22380)

Earlier this week, the SEC charged Richard DeMaria with fraud "[...] alleging that he operated a prime bank scheme that defrauded at least thirteen investors out of approximately $4.3 million."  Instead of investing client funds in financial instruments as DeMaria allegedly represented, DeMaria misappropriated nearly 90% of the funds for his own personal use (e.g. business ventures, travel and expensive meals).  For the SEC complaint in this matter, see here (link opens PDF).

SEC Obtains Dismissal of Complaint Without Prejudice Against Three Swiss Entities in Insider Trading Case, May 29, 2012, (Litigation Release No. 22378)

In July 2011, the SEC filed a complaint (Litigation Release No. 22049) charging a trio of Swiss-based entities (Compania International Financiera S.A., Coudree Capital Gestion S.A. and Chartwell Asset Management Services) with insider trading in the securities of Arch Chemicals, Inc. ahead of the public announcement of their acquisition by Lonza Group Ltd.  Following a motion by the SEC earlier this year, a federal court in New York has now dismissed the complaint against each defendant without prejudice since "[...] the dismissal without prejudice would be in the interest of justice."

Court Enters Final Judgments Against New Hampshire Futures Day-Trading Business and Canadian Resident In Ponzi Scheme Case, May 29, 2012, (Litigation Release No. 22377)

In a November 2011 complaint (Litigation Release No. 22159), the SEC alleged that Henry Roche (who directed the New Hampshire business New Futures Trading International Corporation) has been involved in an  "[...] ongoing unregistered offering of securities in the United States."  Roche raised over $1.3 million from a group of investors by offering promissory notes "purportedly yielding either 5-10% per month, or a 200% return within 14 months."  The majority of the funds were used to make Ponzi payments to new investors while the other portion of the investment was misappropriated by Roche to finance his horse breeding venture, Majestic Horses, among other things.  Last week, the US District Court for the District of New Hampshire ordered Roche and his corporation to pay (in total) over $1.5 million in disgorgement, prejudgment interest and penalties.

SEC Charges Two Investment Advisers with Fraud, May 29, 2012, (Litigation Release No. 22376)

Earlier this week, the SEC charged Jorge Gomez and Roberto Aleph Espinosa with perpetrating a fraudulent scheme to misappropriate millions of dollars through investment advisory services provided to a client.  Gomez allegedly misrepresented his connection to two financial institutions to entice the client to invest nearly $11 million with him.  According to the SEC, Gomez misappropriated at least 40% of the funds and concealed this misappropriation by producing "fake account statements and securities certificates."  Gomez invested a large portion of the funds in a hedge fund started by Espinosa through which Espinosa was allegedly able to collect certain undisclosed fees.  For the SEC complaint in this matter, see here (link opens PDF).