Friday, April 11, 2014

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Charges Carter's, Inc.'s Former Vice-President of Operations with Insider Trading and Tipping
, April 10, 2014, (Litigation Release No. 22970)

Richard T. Posey, former Vice-President of Carter's, Inc., has been charged with trading "based on inside information that he possessed as a result of his position at Carter's, and...tip[ping] material nonpublic information to the company's former Vice-President and Director of Investor Relations, Eric M. Martin." Posey consented to the entry of an order that enjoins him from future violations of the securities laws, orders him to pay $60,625 in disgorgement and prejudgment interest, and permanently bars him from acting as an officer and director of a public company.

SEC, Criminal Authorities Halt Florida Ponzi Scheme Targeting Investors in Virtual Concierge Machines, April 8, 2014, (Litigation Release No. 22969)

This week the SEC filed an "emergency action to halt a Ponzi scheme conducted by JCS Enterprises, Inc., T.B.T.I. Inc., and their respective principals Joseph Signore...and Paul L. Schumack II." The SEC alleges that from 2011 through the present, the "defendants fraudulently raised at least $40 million from hundreds of investors nationwide through the ongoing sale of investments in Virtual Concierge machines." The complaint charges the defendants with violating various provisions of the Exchange Act and Securities Act and seeks disgorgement, prejudgment interest, civil penalties, and "any other relief that may be necessary and appropriate." In a parallel action, criminal charges have been announced against Signore and Schumack.

SEC Charges CVS with Misleading Investors and Committing Accounting Violations, April 8, 2014, (Litigation Release No. 22968)

According to the complaint (PDF), CVS Caremark misled "investors about significant financial setbacks and us[ed] improper accounting that artificially boosted its financial performance." Allegedly, the "improper accounting adjustments were orchestrated by Laird Daniels, who was the retail controller at CVS." Daniels has been "charged with accounting violations in a related SEC administrative proceeding." Daniels has agreed to settle these charges by paying a $75,000 penalty and agreeing to a one year bar from practicing as an accountant "on behalf of any publicly traded company or other entity regulated by the SEC." The SEC has charged CVS with violating provisions of the Securities Act and Exchange Act. CVS consented to a final judgment that orders it to pay a $20 million penalty, and permanently enjoins it from future violations of the securities laws.

SEC Charges Hedge Fund Manager for Defrauding Investors, April 7, 2014, (Litigation Release No. 22967)

According to the complaint (PDF), Matthew D. Sample raised almost $1 million through his hedge fund, The Lobo Volatility Fund, LLC, and then "fraudulently diverted approximately one-third of the money for his personal use and to make payments to other investors." Sample has consented to a permanent injunctions from future violations of the securities laws and from "directly or indirectly soliciting or accepting funds from any person or entity for any unregistered offering of securities." The SEC also seeks disgorgement, prejudgment interest, and civil penalties against Sample.

SEC Settles with Remaining Defendant in Fictitious Offering, April 7, 2014, (Litigation Release No. 22967)

A final judgment was entered against Mia Baldassari who allegedly "received $24,500 in investor funds to which she had no lawful claim." The final judgment orders that "she is liable for disgorgement of $24,500, and that such amount shall be deemed satisfied from funds she deposited into the court’s account." Last month, the Court dismissed "relief defendant Brett A. Cooper from the action." Cooper is "now a principal defendant in a separate enforcement action," SEC v. Brett A. Cooper, et. al., "alleging that he and several of his companies perpetrated fraudulent investment schemes from 2008 to 2012. "

CFTC ENFORCEMENT ACTIONS

CFTC Orders California, Florida, and Nevada Companies and Their Owners to Pay More than $940,000 in Restitution to Defrauded Customers for Offering Illegal, Off-Exchange Precious Metals Transactions
, April 8, 2014, (CFTC Press Release No. 6909-14)

The CFTC "filed and settled charges against three companies and their owners for engaging in illegal, off-exchange precious metals transactions, and requires that the Respondents jointly pay more than $940,000 in restitution to their defrauded precious metals customers." The first CTFC Order (PDF) found that PGS Capital Wealth Management, PGS Capital Credit, Inc., and their owner, Charles Victoria "unlawfully solicited retail customers to buy and sell off-exchange precious metals, such as gold and silver, on a financed basis." The second CTFC Order (PDF) found that Rockwell Asset Management, Inc and its owner, Frank O. Davies "unlawfully solicited retail customers to buy and sell off-exchange precious metals, such as gold and silver, on a financed basis." The Orders also found that "customers sent the deposit, finance charge, and commission to PGS and Rockwell, respectively, who then confirmed the transaction and ultimately transferred the funds to Hunter Wise Commodities, LLC, whose existence was not disclosed to the customers." Hunter then allegedly "remitted $462,727.50 back to the PGS companies and Victoria, and $477,210 back to Rockwell and Davies, as their respective portions of the customers’ commissions and fees for the retail financed precious metals transactions executed through Hunter Wise." In 2012, the CFTC sued Hunter Wise "charging it with engaging in illegal, off-exchange precious metals transactions, as well as fraud and other violations."  In March 2014, a bench trial was concluded against Hunter, "and the parties are awaiting the court’s final judgment."

Capital Market Services, LLC Ordered to Pay $275,000 Penalty to Settle CFTC Charges of Violating Minimum Financial Requirement Rules , April 7, 2014, (CFTC Press Release No. 6908-14)

The CFTC filed an Order (PDF) and settled charges that Capital Market Services, LLC  "failed to comply with minimum financial requirements for FCMs and RFEDs." The Order requires CMS " to pay a $275,000 civil monetary penalty and to cease and desist from violating the Commodity Exchange Act and CFTC Regulations, as charged."

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