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Archive for September, 2012

SEC to take second look at money market fund regulation

The US Securities and Exchange Commission is again seeking a study of money-market regulations after ChairmanSchapiro’s bid to advance new rules fell short. SEC Republican commissioners Gallagher and Paredes, together with Democrat Aguilar, sent a letter yesterday to Schapiro and SEC Chief Economist Craig Lewis reiterating a call for an analysis of whether certain rules could disrupt money-market funds and short-term credit markets, said the person, who asked not to be identified because the matter isn’t public.  John Nester, an SEC spokesman, declined immediate comment.

The request for the study comes about three weeks after Schapiro canceled a vote on staff proposals for new money-market rules, saying that the SEC “will not act” because three of the five commissioners did not support them. The statement, in which Schapiro dismissed the need for additional study, marked the start of an unusually public spat among the commissioners.  Schapiro, backed by the Federal Reserve, has worked to make money funds more stable in the wake of the collapse of the $62.5 billion Reserve Primary Fund in September 2008.

Its closing triggered a wider run on money funds, helping to freeze global credit markets. Schapiro’s Aug. 22 announcement marked a victory for the mutual-fund industry, which lobbied against new rules.

The plan called for funds to abandon their traditional $1 share price or adopt capital buffers and redemption restrictions, changes executives said would destroy products that manage $2.6 trillion for U.S. companies and households.  […] In an Aug. 28 response to Schapiro’s statement, Gallagher and Paredes said they supported an alternative proposal that would allow firms running money funds to prohibit withdrawals to stop investor flight in the event of a run.

Oregon based hedge fund manager charged with running Ponzi scheme

The Securities and Exchange Commission today filed fraud charges against a Portland, Oregon-based investment adviser who perpetrated a long-running Ponzi scheme that raised over $37 million from more than 100 investors in the Pacific Northwest and across the country.

The SEC alleges that Yusaf Jawed used false marketing materials that boasted double-digit returns to lure people to invest their money into several hedge funds he managed. He then improperly redirected their money into accounts he personally controlled. As part of the scheme, Jawed created phony assets, sent bogus account statements to investors, and manufactured a sham buyout of the funds to make investors think their hedge fund interests would soon be redeemed. Jawed misused investor money to pay off earlier investors, pay his own expenses and travel, and create the overall illusion of success and achievement to impress investors.

According to the SEC’s complaint filed in federal court in Portland, Jawed managed a number of hedge funds through at least two companies he controlled: Grifphon Asset Management LLC and Grifphon Holdings LLC. Jawed’s marketing materials claimed that the Grifphon funds earned double-digit returns year after year even as the S&P 500 Index declined. For certain funds, Jawed also falsely claimed they would invest in publicly-traded securities and that their assets were maintained at reputable financial institutions.

The SEC alleges that Jawed instead invested very little of the more than $37 million that he raised from investors. For one fund, 70 percent of the money raised was either paid in redemptions to investors in other funds, paid to finders, or merely transferred to accounts belonging to Grifphon Asset Management or other entities that Jawed controlled. Jawed concealed the fraud by telling Grifphon’s bookkeepers that the money transfers represented purchases of offshore bonds – though in reality the purported investment was a sham entity supposedly managed by Jawed’s unemployed aunt who lives in Bangladesh.

According to the SEC’s complaint, Jawed further deceived investors as the funds were collapsing by telling them that independent third parties were buying the Grifphon funds’ alleged assets at a premium. In truth, the so-called third-parties were sham entities originally formed by Grifphon and Jawed containing no assets, no income, and no ability to pay for the funds’ alleged assets.

The SEC’s complaint against Jawed additionally charges Robert P. Custis, an attorney who Jawed hired to assist him in the fraud. Custis sent false and misleading statements to investors about the status of the purported purchase of the Grifphon funds’ assets. Custis consistently misrepresented that this purchase was imminent and would result in investors’ investments being repaid at a profit.

Madoff checks mailed by trustee

Victims of Bernard Madoff’s fraud will soon receive $2.48 billion to help cover their losses, more than tripling their total recovery to about $3.63 billion, the trustee liquidating the imprisoned swindler’s firm said.  Checks ranging from $1,784 to $526.9 million were mailed on Wednesday to 1,230 former customers of Bernard L. Madoff Investment Securities LLC, according to trustee Irving Picard. The average payout is $2.02 million.  Madoff’s victims earlier recovered $1.15 billion, including sums committed by the Securities Investor Protection Corp, which helps customers of failed brokerages.

U.S. Bankruptcy Judge Burton Lifland in Manhattan authorized the latest distribution last month following two legal victories for the trustee.  In June, the U.S. Supreme Court let stand a lower court decision that endorsed Picard’s methods for calculating losses. In July, a former Madoff customer dropped a court challenge to a $7.2 billion forfeiture by the estate of Madoff investor Jeffry Picower. Of that sum, $5 billion would go to the Madoff firm’s estate, and the rest to the U.S. government.  Picard has recovered $9.15 billion, or

53 percent of the $17.3 billion he believes was lost in Madoff’s Ponzi scheme.  The trustee is holding some funds in reserve as some Madoff victims pursue their own cases to recover more money.  Picard said this litigation is delaying further distributions. The trustee is also appealing court decisions that have limited his claims against banks such as JPMorgan Chase & Co that did business with Madoff.

Ex-Stanford investment chief sentenced to 3 years

Laura Holt the former chief investment officer for Standford Financial Group was sentenced to three years in prison for obstructing a U.S. Securities and Exchange Commission probe of a $7 billion Ponzi scheme at the company.

Pendergest Holt, 39, was sentenced today by U.S. District Judge Hittner in Houston. She was the third-highest- ranking executive in the financial services firm Texas financier R. Allen Stamford built on what the U.S. said was a fraud based on bogus offshore bank certificates.

“I’m sorry that I was so trusting,” she said in court, fighting back tears. Referring to Stanford, she said, “He didn’t deserve my trust. And in so trusting, I harmed others.”

Her statement drew criticism from Assistant U.S. Attorney Jasopn Varnado.  “She did not plead guilty to trusting others,” Varnado said. “She pled guilty to obstructing the SEC. That’s a serious crime.”

“When it was time to tell the truth, Mrs. Holt chose not to do that,” the prosecutor said, referring to her interviews with the SEC. “She corruptly obstructed justice. She stalled. She delayed. She frustrated their efforts.”

Several charged in $100 million Ponzi

After at least four years of investigation, federal authorities announced sweeping indictments of seven businessmen who they say ran the largest Ponzi scheme in the history of the region.  Lee Loomis and his father-in-law, John Hagener, were charged along with five associates in an indictment unsealed today that accuses each of 19 counts of mail fraud and 31 counts of wire fraud.  Federal authorities have said losses from the scheme the men allegedly pioneered could top $100 million and affected investors nationwide who poured their life savings and retirement accounts into bogus business deals that offered them returns as high as 12 percent.

Instead, authorities say, Loomis and his confederates used a constant stream of money from new investors to pay “returns on investments” to the old ones and finance their own lavish lifestyles. The Loomis plan allegedly enticed investors into buying second mortgages with promises of high returns on their money.

Federal prosecutors say the money instead went into the pockets of the indicted men, who put off questions from investors by producing account statements showing they had $10 million in holdings to pay investors. The accounts actually held about $200,000, the indictment alleges.

SEC Charges Connecticut-Based Broker for Stealing Investor Funds

The Securities and Exchange Commission announced today that it has charged Stephen B. Blankenship, a resident of New Fairfield, Connecticut, and Deer Hill Financial Group, LLC, a Connecticut limited liability company under Blankenship’s control, with a scheme to defraud investors. The Commission’s Complaint alleges that, from at least 2002 through November 2011, Blankenship misappropriated at least $600,000 from at least 12 brokerage customers by falsely representing that he would invest their funds in securities through defendant Deer Hill.

The SEC alleges that until November 2011, Blankenship was a registered representative of Vanderbilt Securities, LLC, a registered broker-dealer based in Melville, New York. According to the complaint, Blankenship lied to his brokerage customers and in many instances, lured customers to withdraw money from their brokerage accounts with promises that they could obtain a greater rate of return by investing through Deer Hill. The complaint alleges that Blankenship assured his customers that he would invest their money in established securities such as publicly traded mutual funds. When customers requested account statements, Blankenship provided the customers with fictitious statements from Deer Hill that falsely represented that Blankenship had invested their money in a variety of investments.

According to the SEC’s Complaint, Blankenship never invested the customers’ money. Instead, Blankenship used the customers’ money for personal expenses, business expenses and to make Ponzi-like payments to other customers who requested a return of all or part of their investment.

Illinois couple sentenced for investment fraud

The U.S. Department of Justice says a Will County couple has been sentenced to federal prison for stealing more than $1 million through an investment scheme.

The department says 68-year-old James Pilon was sentenced Wednesday to 53 months in prison after pleading guilty to fraud before going to trial. Fifty-nine-year-old Verna Pilon pleaded guilty to fraud after her trial started in May and was sentenced Wednesday to 78 months.

The Monee couple took money through a pair of investment funds. One promised returns of 100 percent or more within 90 days of investment, but neither existed.

SEC Charges Massachusetts-Based Corporation and Senior Officers in $26 Million Fraudulent Securities Offering

On September 10, 2012, the Securities and Exchange Commission filed an enforcement action in federal court in Boston charging Massachusetts-based Bio Defense Corporation and others for their roles in a fraudulent offering of unregistered Bio Defense securities. The defendants are charged with defrauding investors through various misrepresentations and schemes while raising at least $26 million in investor funds.

In addition to Bio Defense, the Commission’s complaint charges Michael Lu of Lexington, Massachusetts, the founder and former CEO and Chairman of Bio Defense; Jonathan Morrone of Newton, Massachusetts, a former Senior Executive Vice President of Bio Defense; Z. Paul Jurberg of Brookline, Massachusetts, a senior officer of Bio Defense and most recently a Senior Vice President of Sales and Marketing; Anthony Orth of Tustin, California, a former Vice President of Marketing for Bio Defense; and Brett Hamburger of Delray Beach, Florida, a consultant to Bio Defense who raised investor funds for the company. The Commission also named May’s International Corporation, an entity controlled by Michael Lu, as a relief defendant based on its receipt of investor funds.

According to the Commission’s complaint, filed in the United States District Court for the District of Massachusetts, Bio Defense, which purports to develop, manufacture and sell a machine for combating the use of dangerous biological agents through the mails, and its principals began engaging in unregistered offers and sales of securities to investors in the United States by at least 2004 and, after attracting the attention of various domestic state regulators in 2008, began utilizing “boiler room” firms to assist in selling shares of Bio Defense securities to overseas investors primarily in the United Kingdom.

SEC v. ICP Asset Management LLC

The Securities and Exchange Commission today announced that New York-based investment advisory firm ICP Asset Management and its founder and president Thomas C. Priore have agreed to settle the agency’s charges that they defrauded several collateralized debt obligations (CDOs) they managed.

ICP, Priore, and related entities have agreed to a final judgment ordering them to pay more than $23 million to settle the case the SEC filed against them in June 2010 in federal court in Manhattan. The SEC alleged they engaged in fraudulent practices and misrepresentations that caused the CDOs to overpay for securities and lose millions of dollars. Priore and the ICP companies also improperly obtained fees and undisclosed profits at the expense of the CDOs and their investors.

The court approved the settlement terms on September 6. The final judgment orders Priore to pay disgorgement of $797,337, prejudgment interest of $215,045, and a penalty of $487,618. ICP and its holding company Institutional Credit Partners LLC are ordered, on a joint and several basis, to pay disgorgement of $13,916,005 and prejudgment interest of $3,709,028. ICP also is ordered to pay a penalty of $650,000. An affiliated broker-dealer ICP Securities LLC is ordered to pay disgorgement of $1,637,581, prejudgment interest of $301,893, and a penalty of $1,939,474. Priore also agreed to settle an administrative proceeding against him and be barred from association with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent, and from participating in any offering of a penny stock. He has a right to reapply for association or participation after a period of five years.

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