The SEC alleges that Michael J. Stewart, John J. Packard, and Randall A. Smith created Apartments America, LLC to pool investor proceeds from an unregistered offering of securities and invest primarily in apartment buildings in Southern California and Arizona. They solicited potential investors through a website, Internet advertisements and postings, cold calls, solicitation letters, and advertising in a national newspaper. They boasted a track record of producing more than a 60 percent annual return on investment and creating more than $100 million in net equity.

According to the SEC’s complaint filed in federal court in Orange County, California, what potential investors did not know is that Apartments America was a new company with no assets and no track record. Stewart, Packard, and Smith were merely using the same investment strategy and selective statistics from their prior bankrupt company that had defaulted on $91.6 million in promissory notes held by 647 investors.

According to the SEC’s complaint, Stewart lives in San Clemente, California, and Packard and Smith each live in Long Beach, California. Together they formed Apartments America in September 2009, just three months after Pacific Property Assets (PPA) filed for bankruptcy. Stewart and Packard owned PPA and Smith worked for them. In the months prior to defaulting on its promissory notes, PPA was actively soliciting investor funds and promising an annual interest rate of 24 to 30 percent.

The Commission filed charges against Dr. Bobby V. Khan in September 2010, alleging that he traded illegally in the stock of Georgia-based pharmaceutical company Sciele Pharma, Inc. on the basis of nonpublic information he received just days before the public announcement of a tender offer by a Japanese company to purchase all of that company’s shares. Khan obtained confidential details about the acquisition from a longtime business associate and friend who was a senior officer at Sciele. Khan subsequently opened an online brokerage account for the first time in several years, transferred approximately one-third of his liquid net worth into it, and purchased 4,000 shares of Sciele stock just days before the tender offer’s public announcement. Khan sold all of his shares after the announcement for an illicit profit of $47,171.

Without admitting or denying the Commission’s allegations, Dr. Khan agreed, as set forth in the Court’s order, to pay a total of $100,857.79, consisting of disgorgement, prejudgment interest thereon, and a civil penalty. Dr. Khan also consented to permanent injunctions against violations of Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder.

The Commission’s complaint alleges that from at least April 8, 2010 through at least August 20, 2010, the defendants were directly responsible for introducing six individuals, who invested $1.95 million, to the fraudulent scheme. The complaint alleges that in furtherance of the scheme, the defendants forwarded misrepresentations made by others to investors. These misrepresentations included: 1) that investors could draw upon bank issued guarantees worth millions of dollars without having to repay the withdrawn funds; and 2) that investor funds would be held in escrow until the bank guarantees were issued. The complaint alleges that defendants knew or were reckless in not knowing that both of these representations were false because no such bank guarantees existed and investor funds were misappropriated immediately upon receipt.

Defendants also misrepresented that they would be paid commissions only once the investor received the bank guarantee. In fact, defendants were paid commissions relatively soon after the investors transferred the money. Defendants further told investors that they had previously worked on a successful bank guarantee program. Defendants, however, had actually reported this purportedly successful bank guarantee program to the Federal Bureau of Investigation because they believed it was a fraud.

The Financial Industry Regulatory Authority, or Finra, has ordered Citigroup Inc. (C), Morgan Stanley (MS), UBS AG (UBS) and Wells Fargo & Co. (WFC) to pay a combined $9.1 million for allegedly improper sales of leveraged and inverse exchange-traded funds.

Wall Street’s self-regulator fined the companies a total of more than $7.3 million and also ordered them to pay $1.8 million in restitution to customers who bought the ETFs.

Finra said the brokerages failed to reasonably supervise sales of these types of ETFs in 2008 and part of 2009, and wrongly steered some clients to them. Leveraged and inverse ETFs are designed for short-term trading, and aren’t for long-term investors.

ETFs trade daily on exchanges like stocks, and the leveraged versions use futures or derivatives to multiply the daily returns of an index, sometimes striving to double or triple the return. Inverse ETFs seek to return the opposite of the index. Over terms longer than a day, the compounding effect can lead to results that vary significantly from the one-day outcome, making them unpredictable and highly risky to hold for longer periods.

Finra said Tuesday that each of the four companies sold billions of dollars of these non-traditional ETFs to customers, and some were held for extended periods when markets were volatile.

The SEC alleges that Garth R. Peterson, who was a managing director in Morgan Stanley’s real estate investment and fund advisory business, had a personal friendship and secret business relationship with the former Chairman of Yongye Enterprise (Group) Co. – a Chinese state-owned entity with influence over the success of Morgan Stanley’s real estate business in Shanghai. Peterson secretly arranged to have at least $1.8 million paid to himself and the Chinese official that he disguised as finder’s fees that Morgan Stanley’s funds owed to third parties. Peterson also secretly arranged for him, the Chinese official, and an attorney to acquire a valuable Shanghai real estate interest from a Morgan Stanley fund. Peterson was acquiring an interest from the fund but negotiated both sides of the transaction. In exchange for offers and payments from Peterson, the Chinese official helped Peterson and Morgan Stanley obtain business while personally benefitting from some of these same investments. Peterson’s deception, self-dealing, and misappropriation breached the fiduciary duties he owed to Morgan Stanley’s funds as their representative.

Peterson agreed to a settlement of the SEC’s charges in which he will be permanently barred from the securities industry, pay more than $250,000 in disgorgement, and relinquish his interest in the valuable Shanghai real estate (currently valued at approximately $3.4 million) that he secretly acquired through his misconduct. The U.S. Department of Justice has filed a related criminal case against Peterson.

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of New York, Peterson’s violations occurred from at least 2004 to 2007. His principal responsibility at Morgan Stanley was to evaluate, negotiate, acquire, manage and sell real estate investments on behalf of Morgan Stanley’s advisers and funds. He was terminated in 2008 due to his FCPA misconduct.

The SEC alleges that Michael Anthony Gonzalez raised approximately $1 million since February 2010 by telling investors he would invest their money in specific tax-exempt municipal bonds insured by the Securities Investor Protection Corporation (SIPC) . In reality, Gonzalez never purchased the bonds and instead deposited investor money into his own bank account for personal use. He later attempted to conceal the scheme by providing investors with phony confirmation statements.

According to the SEC’s complaint filed in the United States District Court for the Central District of California, Gonzalez falsely told investors that he was associated with New York-based broker-dealer May Capital Group in order to portray himself as a legitimate money manager. Gonzalez had no dealings with May Capital, and through his false representations and fake confirmations he succeeded in giving investors the false impression that their investments were insured and safe. Gonzalez also provided investors with phony trade confirmations that identified securities that were either not purchased or non-existent.

The Honorable S. James Otero, United States District Judge, granted the SEC’s request for a temporary restraining order against Gonzalez and issued orders freezing his assets, requiring accountings, prohibiting the destruction of documents, and granting expedited discovery .  The court will hold a hearing on the SEC’s motion for a preliminary injunction on May 25, 2012.

Security-based swaps are based on the underlying performance of a single security, loan, narrow index of securities or events relating to the performance of a single issuer or issuers of securities in such an index. These swaps are regulated by the SEC, while all other swaps are regulated by the CFTC.

In an opening statement before the definitions were announced, commission chair Mary Schapiro said the SEC staff had worked hard to tailor the rules to met the commissioners’ goal of “preserving key counterparty and market protections while promoting regulatory efficiency.”  The definitions focus on monetary thresholds to distinguish dealers and market participants who make some security and non-security based swaps as part of their general market strategies and those who focus on such activities.

The Massachusetts inquiry comes as the Securities and Exchange Commission also is looking into the product. The SEC review is preliminary, according to people familiar with the matter. Meanwhile, the Financial Industry Regulatory Authority also has been monitoring the situation. “We have been closely looking at the events and trading around [the exchange-traded note], but cannot comment beyond that,” a Finra spokesman said.

Secretary of the Commonwealth William Galvin submitted a written request on March 23 to Credit Suisse for information and documents related to every purchase of shares in the VelocityShares 2x Long VIX Short Term Exchange note from Feb. 20 to March 23. The regulator also is seeking information on what time Credit Suisse filed its statement with the SEC on its plans to reopen issuance of the exchange-traded note, or ETN, beginning on March 23 and who was involved in making that decision.

The scrutiny comes amid investor concern over trading in the ETN. The Credit Suisse product, which is designed to track stock-market volatility, plunged last week even though market volatility was little changed.

The justices without comment rejected call to take another look at the scope of a conspiracy charge — so-called “honest services” fraud.

The high court two years ago had given Skilling a temporary victory when it upheld the continued use of the popular federal prosecution tool but limited when it could be used against business executives and politicians. Lower federal courts were ordered to re-examine whether the trial judge should have allowed the jury to consider that charge. A federal appeals court subsequently ruled again for the government, prompting the latest Supreme Court appeal. 

Skilling, 58, is currently in federal prison. He was convicted of 19 counts of fraud, conspiracy, and insider trading relating to the collapse of the Texas-based energy services giant in late 2001.