SEC CHARGES COAL COMPANY, FOUNDER WITH MAKING FALSE DISCLOSURES ABOUT WHO WAS IN CHARGE

FROM:  SECURITIES AND EXCHANGE COMMISSION 
The Securities and Exchange Commission today announced fraud charges against a Seattle-headquartered coal company and its founder for making false disclosures about who was running the company.

The SEC’s Enforcement Division alleges that L&L Energy Inc., which has all of its operations in China and Taiwan, created the false appearance that the company had a professional management team in place when in reality Dickson Lee was single-handedly controlling the company’s operations.  An L&L Energy annual report falsely listed Lee’s brother as the CEO and a woman as the acting CFO in spite of the fact that she had rejected Lee’s offer to serve in the position the month before.  L&L Energy and Lee continued to misrepresent that they had an acting CFO in the next three quarterly reports.  Certifications required under the Sarbanes Oxley Act ostensibly bore the purported acting CFO’s electronic signature.  Lee and L&L Energy also allegedly misled NASDAQ to become listed on the exchange by falsely maintaining they had accurately made all of their required Sarbanes-Oxley certifications.

In a parallel action, a criminal indictment against Lee was unsealed today in federal court in Seattle.  The U.S. Attorney’s Office in the Western District of Washington is prosecuting the case.

“Lee and L&L Energy deceived the public by falsely representing that the company had a CFO, which is a critical gatekeeper in the management of public companies,” said Antonia Chion, associate director in the SEC’s Enforcement Division.  “The integrity of Sarbanes-Oxley certifications is critical, and executives who manipulate the process will be held accountable for their misdeeds.”

This enforcement action stems from the work of the SEC’s Cross-Border Working Group, which focuses on companies with substantial foreign operations that are publicly traded in the U.S.  The Cross-Border Working Group has contributed to the filing of fraud cases against more than 90 companies, executives, and auditors.  The securities of more than 60 companies have been deregistered.

The SEC separately issued a settled cease-and-desist order against L&L Energy’s former audit committee chair Shirley Kiang finding that she played a role in the company’s reporting violations by signing an annual report that she knew or should have known contained a false Sarbanes-Oxley certification by Lee.  Kiang, who neither admitted nor denied the charges, must permanently refrain from signing any public filing with the SEC that contains any certification required pursuant to Sarbanes-Oxley.

According to the SEC’s order against Lee and L&L Energy, the false representations began in the annual report for 2008 and continued with quarterly filings in 2009.  The purported acting CFO did not actually sign any public filings during this period or provide authorization for her signature to be placed on any filings.  After Lee was confronted by the purported acting CFO in mid-2009, he nonetheless continued to falsely represent to L&L Energy’s board of directors that the company had an acting CFO.  When L&L Energy filed its annual report for 2009, it contained a false Sarbanes-Oxley certification by Lee that all fraud involving management had been disclosed to the company’s auditors and audit committee.  Then, in connection with an application to gain listing on NASDAQ, Lee informed the exchange that L&L Energy had made all of its required Sarbanes-Oxley certifications – including during the period of the purported service of an acting CFO.  As a result, L&L Energy became listed on NASDAQ.  

The SEC’s order against Dickson Lee and L&L alleges that they violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 17(a) of the Securities Act of 1933.  The order also alleges other violations of rules under the Exchange Act concerning Sarbanes-Oxley certifications, disclosure controls and procedures, and obtaining and retaining electronic signatures on filings.  The order seeks disgorgement and financial penalties against L&L Energy and Lee as well as an officer-and-director bar against Lee.  The order also seeks to prohibit Lee, who is a certified public accountant, from practicing before the SEC pursuant to Rule 102(e) of the Commission’s rules of practice.

The SEC’s investigation, which is continuing, has been conducted by Joseph Griffin, Jennie Krasner, and Brad Mroski under the supervision of Ricky Sachar.  The SEC’s litigation will be led by Cheryl L. Crumpton.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Western District of Washington and the Federal Bureau of Investigation.

TWO ORTHOPEDIC CLINICS TO PAY $1.85 MILLION TO SETTLE FALSE CLAIMS ACT ALLEGATIONS

FROM:  JUSTICE DEPARTMENT 
Friday, January 24, 2014
Tennessee and Virginia Orthopedic Clinics to Pay $1.85 Million to Settle Allegations of Billing Medicare for Reimported Products

Two orthopedic clinics will pay a combined $1.85 million to resolve state and federal False Claims Act allegations that they knowingly billed state and federal health care programs for reimported osteoarthritis medications, known as viscosupplements, the Department of Justice announced today.  Tennessee Orthopaedic Clinics P.C., headquartered in Knoxville, Tenn., will pay $1.3 million, and Appalachian Orthopaedic Clinics P.C., headquartered in Kingsport, Tenn., will pay $550,000.

“The Department of Justice will not tolerate the conduct of companies that impermissibly shift risks onto patients in order to increase their own profits,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery.  “The department is committed to maintaining the integrity of the health care system, ensuring that patients receive drugs and devices that are safe and effective and taking action against companies that take chances with the health of consumers so as to improve their own bottom lines.”

Viscosupplements, such as Synvisc and Orthovisc, are injections approved by the Food and Drug Administration for the treatment of osteoarthritis pain in the knee.  Viscosupplements are reimbursed by Medicare, Medicaid and other federal health care programs at a set rate based on the average sales price of the domestic product.  The government contended that the clinics knowingly purchased deeply discounted viscosupplements that were reimported from foreign countries and billed them to state and federal health care programs in order to profit from the reimbursement system, when such reimported viscosupplements were not reimbursable by those programs.  Allegedly, the reimported product included labeling in foreign languages and in English for additional uses not approved in the United States, which demonstrated that the product was reimported.  Moreover, because the product was reimported, the government alleged there was no manufacturer assurance that it had not been tampered with or that it was stored appropriately.  

“This scheme is yet another example of illegal actions by health care providers to profit from drugs imported into the United States,” said U.S. Attorney for the Eastern District of Tennessee William C. Killian.  “Medicare and FDA requirements are designed to prevent potential harm to patients.  Noncompliance with the law to increase profit at the risk of patients will be pursued by the Department of Justice.”
         
“Attempts to increase profits by circumventing the law will not be tolerated,” said Special Agent in Charge of the U.S. Department of Health and Human Services Office of Inspector General in Atlanta Derrick L. Jackson.  “Health care providers buying cut-rate, cheap drugs from foreign sources will end up paying a steep price.”

The allegations resolved by the settlement were first raised in a lawsuit filed against the clinics under the qui tam, or whistleblower, provisions of the False Claims Act by Douglas Estey, a physician’s assistant who was occasionally paid by Genzyme Corp. to speak to medical providers about the use of Synvisc.  The Act allows private citizens with knowledge of fraud to bring civil actions on behalf of the government and to share in any recovery.  Estey will receive $323,750.

The government’s investigation was a coordinated effort by the Civil Division of the Department of Justice, the U.S. Attorney’s Office for the Eastern District of Tennessee, the Department of Health and Human Services Office of Inspector General and Office of General Counsel, the Food and Drug Administration Office of Criminal Investigations and Office of Chief Counsel, the Federal Bureau of Investigation and the Tennessee Bureau of Investigation.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by Attorney General Eric Holder and Secretary of Health and Human Services Kathleen Sebelius.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $17.1 billion through False Claims Act cases, with more than $12.2 billion of that amount recovered in cases involving fraud against federal health care programs.

The case is captioned United States ex rel. Estey v. Tennessee Orthopaedic Clinics P.C., Appalachian Orthopaedic Associates P.C. and Appalachian Orthopaedic Partners LLC, Docket No. 3:12-cv-85 Varlan/Guyton.  The claims settled by these agreements are allegations only; there have been no determinations of liability.  

LOAN MODIFICATION OPERATORS ARRESTED IN ALLEGED SCAM

FROM;  U.S. JUSTICE DEPARTMENT
Wednesday, December 4, 2013
Federal Agents Arrest Operators of Loan Modification Scam That Targeted Struggling Homeowners

Federal agents arrested yesterday Bryan D’Antonio, 47, of Brea, Calif., and Charles Wayne Farris, 53, of Aliso Viejo, Calif., for operating the Rodis Law Group and America’s Law Group, businesses that allegedly offered bogus loan modification assistance to struggling homeowners.  Attorney Ronald Rodis, 49, of Irvine, Calif., surrendered today to federal agents on charges alleging that he participated in, and lent his name and the law license he formerly possessed to, the fraudulent operation.  All three defendants were named in a federal indictment unsealed yesterday following an investigation by the FBI and IRS-Criminal Investigation.

According to the indictment, as a result of the scheme run by D’Antonio, Farris and Rodis, more than 1,800 financially distressed homeowners lost a total of at least $12 million in fees they paid to the companies.  Many homeowners also lost their homes to foreclosure.  During a nine month period that began in October 2008, the Rodis Law Group and America’s Law Group allegedly defrauded distressed homeowners by making false promises and guarantees regarding the companies’ ability to negotiate loan modifications from the homeowners’ mortgage lenders, falsely representing that a “team of attorneys” would represent the homeowners and advising homeowners to cease making their mortgage payments.

“These arrests send a strong message to those who would prey on vulnerable homeowners during these tough financial times,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery.  “If you defraud homeowners, you will be found and brought to justice.”

The Rodis Law Group, and its successor company, America’s Law Group, allegedly advertised loan modification assistance on radio stations nationwide.  According to the indictment, many of these radio advertisements featured Rodis’ voice telling homeowners that a “team of experienced attorneys,” who were “highly skilled in negotiating lower interest rates and even lowering your principal balance,” would negotiate with mortgage lenders.  Sales staff hired and trained by Farris and D’Antonio allegedly told interested homeowners that Rodis Law Group was “100% successful,” “routinely lowered monthly payments” and obtained reduced principal balances.  According to the indictment, once the defendants and their co-conspirators convinced homeowners to pay a fee of several thousand dollars, little to no effort was made to obtain loan modifications.  After making their payments, homeowners who tried to get updates on the status of their cases were often unable to contact anyone at either company.

The indictment further alleges that D’Antonio committed these crimes after having been convicted of mail and wire fraud for his role in a previous telemarketing scheme.  The previous scheme resulted in a civil case by the Federal Trade Commission and ultimately a court order, entered in 2001, which permanently banned D’Antonio from participating in future telemarketing operations.  The indictment in this case alleges that D’Antonio committed criminal contempt of court by directing the telemarketing activities of Rodis Law Group and America’s Law Group and by misrepresenting the services they provided.

“Posing as successful lawyers, these defendants offered struggling homeowners false hopes and bogus promises of quality legal representation,” said U.S. Attorney for the Central District of California André Birotte Jr.  “The market offering loan modifications is rife with fraud, which is why we have redoubled our efforts to investigate and prosecute those who engage in financial crimes that target distressed homeowners.”

“The unconscionable act of scamming homeowners already facing foreclosure is far too common,” said Assistant Director in Charge of the FBI’s Los Angeles Field Office Bill Lewis.  “This indictment should send a clear message to anyone contemplating similar crimes, and should also remind potential victims to be cautious before paying fees to those offering financial rescue, regardless of whether the solicitor holds a law degree.”

D’Antonio, Farris and Rodis are each charged with 10 felony counts – nine counts of wire fraud and one count of conspiracy.  Each of these counts carries a statutory maximum penalty of 20 years’ imprisonment.  In addition, D’Antonio is charged with 13 counts of criminal contempt for violating the 2001 court order.  Criminal contempt of court has no statutory maximum penalty.

This indictment was brought in coordination with the President’s Financial Fraud Enforcement Task Force’s Mortgage Fraud Working Group.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.  Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants.

SEC ANNOUNCES COURT ORDER AGAINST INDIVIDUAL AND COMPANY TO PAY OVER $9.8 MILLION

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Court Orders Massachusetts-Based Viking Financial Group, Inc. and Steven Palladino to Pay Over $9.8 Million

The Securities and Exchange Commission announced today that, on November 18, 2013, a Massachusetts federal court entered orders against Steven Palladino of West Roxbury, Massachusetts and his Massachusetts-based company, Viking Financial Group, Inc. requiring them to pay more than $9.8 million in disgorgement of ill-gotten gains and prejudgment interest and permanently enjoining them from future violations of the antifraud provisions of the securities laws. The Court also ordered that an asset freeze imposed in April 2013 remain in effect.

The Commission initially filed this action on April 30, 2013, as an emergency enforcement action against the Defendants seeking a temporary restraining order, asset freeze and other emergency relief, which the Court granted. In its Complaint, the Commission alleged that, since April 2011, Palladino and Viking falsely promised at least 33 investors that their money would be used to conduct the business of Viking - which was purportedly to make to short-term, high interest loans to those unable to obtain traditional financing. The Commission also alleged that the Defendants misrepresented to investors that the loans made by Viking would be secured by first interest liens on non-primary residence properties and that investors would be paid back their principal, plus monthly interest at rates generally ranging from 7-15%, from payments made by borrowers on the loans. The Complaint alleges that, in truth, the Defendants made very few real loans to borrowers, and instead used investors' funds largely to make payments to earlier investors and to pay for the Palladino family's substantial personal expenses, including cash withdrawals and hundreds of thousands of dollars spent on gambling excursions, vacations, luxury vehicles and tuition.

After the parties had an opportunity to brief the issues, on July 15, 2013, the Court held that the Commission had established that the Defendants' conduct violated the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. The orders of disgorgement and injunction against the Defendants were entered by the Honorable Douglas P. Woodlock of the United States District Court for the District of Massachusetts. The Court has delayed a determination as to civil penalties until a later date. The Commission acknowledges the assistance of Suffolk County (Massachusetts) District Attorney Daniel F. Conley's Office, which filed related criminal charges against Palladino and Viking in March 2013.

COMPANY AND FORMER CFO CHARGED BY SEC WITH FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Commission Charges Anchor Bancorp Wisconsin and Former CFO with Fraud

The Securities and Exchange Commission announced today that it filed a settled civil action in the United States District Court for the District of Columbia against Anchor Bancorp Wisconsin, Inc. (Anchor) and Dale C. Ringgenberg, Anchor's former Chief Financial Officer. The Commission's complaint alleged, among other things, that Anchor and Ringgenberg intentionally or recklessly made material misstatements in Anchor's quarterly Report on Form 10 Q for the period ended June 30, 2009.

The Commission's complaint alleges that Ringgenberg took, or failed to take, actions to keep from having to correct earnings that Anchor had already released to its shareholders. Ringgenberg manipulated an estimate to offset an accounting adjustment required by Anchor's external auditors, and he refused or failed to properly account for real estate appraisals and related information that was available after the quarter closed but before Anchor filed its quarterly report.

Without admitting or denying the allegations in the Commission's complaint, Anchor agreed to settle the action against it by consenting to the entry of a final judgment permanently enjoining it from violating Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5 and 13a-13 thereunder. Ringgenberg agreed to consent, without admitting or denying the allegations in the Commission's complaint, to the entry of a final judgment: (1) permanently enjoining him from violating Section 10(b) of the Exchange Act and Exchange Act Rules 10b-5, 13a 14, 13b2 1, and 13b2-2(a) and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rule 13a-13 thereunder; (2) imposing a civil penalty of $75,000; and (3) barring him from serving as an officer or director of a public company for five years. The settlement is subject to the approval of the district court.

The Commission acknowledges the assistance and cooperation of the Special Inspector General for the Troubled Asset Relief Program, the Office of the United States Attorney for the Western District of Wisconsin, and the Madison, Wisconsin Office of the Federal Bureau of Investigation.

SEC CHARGES FORMER OFFICERS AND INVESTOR IN DEFUNCT COMPANY FOR ROLES IN PENNY STOCK SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Former Officers and Investor in Houston Company in Fraudulent Penny Stock Scheme

The Securities and Exchange Commission today charged two former officers of now-defunct PGI Energy, Inc., as well as an investor in the company, for their roles in a fraudulent penny stock scheme to issue purportedly unrestricted PGI Energy shares in the public markets.

The SEC's complaint, filed in U.S. District Court for the Southern District of Texas, alleges that starting in 2011, PGI Energy's former Chief Investment Officer Robert Gandy and former CEO and Chairman Marcellous McZeal engaged in a scheme that included creating false promissory notes, signing misleading certifications, and altering the company's balance sheet to cause its transfer agent to issue millions of PGI Energy common stock shares without restrictive legends. The SEC also charged investor Alvin Ausbon for his role in the scheme, which included signing false promissory notes and diverting proceeds from the sale of PGI Energy stock back to the company and Gandy.

Gandy is also the CEO of Houston-based Pythagoras Group, which purports to be an "investment banking firm." McZeal is an attorney licensed in Texas. The complaint alleges that Gandy and McZeal made material misstatements and provided false documents to attorneys and a transfer agent who relied on them to conclude that PGI Energy shares could be issued without restrictive legends. The SEC alleges that Gandy and McZeal backdated promissory notes that purported to memorialize debt supposedly owed by PGI Energy and a prior business venture. They also are alleged to have added false debt to PGI Energy's balance sheet, and signed bogus "gift" letters and certifications of non-shell status, all in an effort to get unrestricted, free-trading PGI Energy shares unlawfully released into the market. Ausbon is charged with furthering the scheme by signing bogus promissory notes and remitting proceeds from the sale of PGI Energy shares back to the company and Gandy.

According to the complaint, the scheme collapsed in February 2012 when the SEC ordered a temporary suspension of trading in PGI Energy's securities, due to questions regarding the accuracy and adequacy of the company's representations in press releases and other public statements.

The SEC's complaint charges all defendants with violating Sections 5 and 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint seeks permanent injunctions, disgorgement plus prejudgment interest, a financial penalty, and penny stock bars against all three defendants and officer and director bars against Gandy and McZeal.

Without admitting or denying the allegations in the SEC's complaint, McZeal has consented to the entry of a final judgment enjoining him from future violations of Sections 5 and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. He has also agreed to pay disgorgement plus prejudgment interest thereon of $19,919.37 and a civil penalty of $70,000. In addition, McZeal has agreed to permanent officer and director and penny stock bars. This settlement is subject to court approval. Subject to final settlement of the district court proceeding, McZeal has also agreed to the institution of a settled administrative proceeding pursuant to Rule 102(e) of the SEC's Rules of Practice, pursuant to which he would be barred from appearing before the SEC as an attorney.

FLORIDA-BASED AMERIFIRST MANAGEMENT LLC AND OWNERS CHARGED IN FRAUDULENT PRECIOUS METALS SCHEME

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
CFTC Charges Florida-Based AmeriFirst Management LLC and Its Owners, John P. D’Onofrio, George E. Sarafianos, and Scott D. Piccininni, in Multi-Million Dollar Fraudulent Precious Metals Scheme

CFTC alleges that the Defendants engaged in illegal, off-exchange commodity transactions and deceived retail customers regarding financed precious metals transactions

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it filed a civil injunctive enforcement action in the U.S. District Court for the Southern District of Florida against AmeriFirst Management LLC (AML) of Fort Lauderdale, Florida, and its owners, John P. D’Onofrio of Fort Lauderdale, George E. Sarafianos of Lighthouse Point, Florida, and Scott D. Piccininni of Fort Lauderdale.  The CFTC Complaint charges the Defendants with operating a precious metals scheme where the Defendants marketed illegal, off-exchange financed commodity transactions and fraudulently misrepresented the nature of those transactions.

According to the Complaint, filed on July 29, 2013, AML held itself out as a precious metals wholesaler and clearing firm, operating through a network of more than 30 precious metals dealers. As alleged, these dealers solicited retail customers to invest in financed precious metals transactions, where a customer gave a percentage deposit of the total value of the metal, typically 20%, and the dealer supposedly made a loan to the customer for the remaining 80%, supposedly sold the customer the total metal amount, and supposedly allocated the total metal amount at a depository to be held for the customer.

The Complaint alleges that AML created customer documents that represented that the dealer had in fact made such a loan and sold and allocated the total metal amount to the customer. However, these documents were false because the dealer never made a loan to the customer, nor did the dealer sell or allocate any metal to the customer, according to the Complaint. Further, the Complaint alleges that although there was no loan and no metal was allocated to the customer, AML charged the customer finance and storage fees.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 expanded the CFTC’s jurisdiction over transactions like these and requires that such transactions be executed on or subject to the rules of a board of trade, exchange, or commodity market, according to the Complaint. This new requirement took effect on July 16, 2011. The Complaint alleges that all of the Defendants’ financed commodity transactions took place after this date and were illegal. The Complaint also alleges that the Defendants defrauded customers in these financed commodity transactions.

In its continuing litigation, the CFTC seeks a permanent injunction from future violations of federal commodities laws, permanent registration and trading bans, restitution to defrauded customers, disgorgement of ill-gotten gains, and civil monetary penalties.

The CFTC Division of Enforcement staff responsible for this action are David Chu, Mary Beth Spear, Eugene Smith, Patricia Gomersall, Ava Gould, Scott Williamson, Rosemary Hollinger, and Richard Wagner.

CHINA INTELLIGENT LIGHTING AND OTHERS ARE CHARGED WITH FRAUD BY SEC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Files Fraud Charges Against China Intelligent Lighting and Electronics, Inc.; NIVS Intellimedia Technology Group, Inc.; and Their Sibling CEOs

The Securities and Exchange Commission today announced that the Commission filed fraud and other related charges against China Intelligent Lighting and Electronics, Inc. (CIL); NIVS IntelliMedia Technology Group, Inc. (NIV); and their respective CEOs, Xuemei Li and, her brother, Tianfu Li. CIL reports that it is a lighting company, and NIV reports that it is a consumer electronic company. Both are located in China.

The Commission alleges that CIL, NIV, and their CEOs engaged in fraudulent schemes to raise and divert offering proceeds, and then attempted to hide the diversions by lying to auditors and making false and materially misleading filings with the Commission. CIL and NIV are U.S. issuers that raised approximately $7.7 million and $21.5 million, respectively, in public registered offerings in the U.S. capital markets in 2010. Thereafter, Xuemei Li, and Tianfu Li diverted those offering proceeds from CIL and NIV contrary to the stated uses of proceeds set forth in the offering documents. Specifically, on June 24, 2010, $7.7 million in offering proceeds was deposited into CIL’s Hong Kong bank account. The next day, Xuemei Li transferred approximately $6.8 million, or almost 90%, to a company that has no disclosed relation to CIL, but continued to tell CIL’s auditor that the funds remained in the account. Similarly, on April 26, 2010, $21.5 million in offering proceeds was deposited in NIV’s Hong Kong bank account. Even though almost all of the money was transferred out of the Hong Kong bank account by May 5, 2010, NIV and Tianfu Li told the company’s auditor that the funds continued to be held in the account.

In addition to lying to auditors to mask the diversions, CIL, NIV, and their respective CEOs also falsified bank and accounting records to reflect inflated cash balances, and filed false and misleading quarterly reports on Forms 10-Q with the SEC that contained inflated cash balances. In addition, the defendants filed registration statements signed by the Lis that misled investors about how the offering proceeds would be used.

In its complaint, the Commission alleges that the Defendants violated the antifraud provisions of the securities laws, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 (Exchange Act) and Rule 10b-5. The Commission further alleges that Xuemei Li and Tianfu Li lied to the auditors and aided and abetted the companies’ violations of the reporting, recordkeeping, and internal controls provisions of the securities laws, including Sections 13(a), 13(b)(2)(A), 13(b)(2) (B), and 13(b)(5) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-13, 13a-14, 13b2-1, and 13b2-2. The Commission seeks permanent injunctive relief to prevent future violations of the federal securities laws, disgorgement of ill-gotten gains with prejudgment interest, civil penalties, officer and director bars, and any other appropriate relief.

The Commission also announced today the entry of an order instituting administrative proceedings to determine whether the registration of each class of securities of CIL and NIV should be revoked for failure to make required periodic filings with the Commission.

MAN AND COMPANY CHARGED WITH MAKING MISTATEMENTS OF FDA'S VIEW OF COMPANY

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., June 26, 2013 — The Securities and Exchange Commission today announced that it filed fraud charges on Tuesday against Burbank, Calif.-based Imaging3, Inc., and its founder and chief executive Dean Janes for misleading shareholders about the Federal and Drug Administration (FDA)’s view of the company’s medical device

The SEC’s complaint alleges that Janes held a conference call with investors in November 2010 after the FDA denied clearance for Imaging3, Inc. to market its proprietary scanner, which provides three-dimensional images for use in medical diagnosis. The denial was the product’s third, as the FDA denied clearance in 2008 and earlier in 2010. Even though the FDA cited concerns about the safety of the device and the quality of the images, Janes told investors that the FDA’s issues were "not substantive" and largely "administrative."

"Shareholders have a right to trust corporate officers to tell them the truth about the business. When CEOs abuse that trust and make misstatements, innocent shareholders are victimized," said Michele Wein Layne, Regional Director of the SEC’s Los Angeles Regional Office. "The SEC will hold corporate officers accountable for misleading shareholders."

According to the SEC’s complaint, filed in the U.S. District Court for the Central District of California, on the conference call, Janes did not discuss the issues raised by the FDA in an October 2010 letter, such as the device’s potential for over-heating, and the fact that some sample images the company submitted were "scientifically invalid and useless."

Even when asked on the call whether any of the FDA’s concerns were "safety-related" or involved image quality, Janes said, "Nope," and that there was "really and honestly not one question about the technology or its consistency. It just doesn’t make sense to me."

After an investor obtained the FDA’s denial letter and posted it on an Internet blog in early 2011, Janes used his personal Facebook page in another effort to mischaracterize the denial, the SEC alleged. Janes and his company didn’t officially issue the full text of the denial letter until earlier this year, more than two years after the call to discuss it.

The SEC's action charges Imaging3, Inc. and Janes with fraud and seeks a court order to bar them from future violations of federal securities laws, require them to pay civil monetary penalties, and bar Janes from serving as a public company officer or director.

Alka Patel and Katharine Zoladz of the Los Angeles Regional Office conducted the SEC’s investigation and David Van Havermaat will lead the litigation.

CITY OF VICTORVILLE AND OTHERS CHARGED WITH DEFRAUDING MUNICIPAL BOND INVESTORS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Charges City of Victorvile, Underwriter, and Others with Defrauding Municipal Bond Investors

Washington, D.C., April 29, 2013 — The Securities and Exchange Commission today charged that the City of Victorville, Calif., a city official, the Southern California Logistics Airport Authority, and Kinsell, Newcomb & DeDios (KND), the underwriter of the Airport Authority’s bonds, defrauded investors by inflating valuations of property securing an April 2008 municipal bond offering.

Victorville Assistant City Manager and former Director of Economic Development Keith C. Metzler, KND owner J. Jeffrey Kinsell, and KND Vice President Janees L. Williams were responsible for false and misleading statements made in the Airport Authority’s 2008 bond offering, the SEC alleged. It also charged that KND, working through a related party, misused more than $2.7 million of bond proceeds to keep itself afloat.

"Financing redevelopment projects by selling municipal bonds based on inflated valuations violates the public trust as well as the antifraud provisions of the federal securities laws," said George S. Canellos, Co-Director of the SEC’s Division of Enforcement. "Public officials have the same obligation as corporate officials to tell the truth to their investors."

Elaine C. Greenberg, Chief of the SEC’s Municipal Securities and Public Pensions Unit, said, "Investors are entitled to full disclosure of material financial arrangements entered into by related parties. Underwriters who secretly line their own pockets by taking unauthorized fees will be held accountable."

The SEC alleges the Airport Authority, which is controlled by the City of Victorville, undertook a variety of redevelopment projects, including the construction of four airplane hangars on a former Air Force base. It financed the projects by issuing tax increment bonds, which are solely secured by and repaid from property-tax increases attributable to increases in the assessed value of property in the redevelopment project area.

According to the SEC’s complaint filed in U.S. District Court for the Central District of California, by April 2008, the Airport Authority was forced to refinance part of the debt incurred to construct the hangars, and other projects, by issuing additional bonds. The principal amount of the new bond issue was partly based on Metzler, Williams, and Kinsell using a $65 million valuation for the airplane hangars even though they knew the county assessor valued the hangars at less than half that amount. The inflated figure allowed the Airport Authority to issue substantially more bonds and raise more money than it otherwise would have. It also meant that investors were given false information about the value of the security available to repay them.

In addition, the SEC’s investigation found that Kinsell, KND, and another of his companies misappropriated more than $2.7 million in bond proceeds that were supposed to be used to build airplane hangars for the Airport Authority. According to the SEC’s complaint, the scheme began when Kinsell learned of allegations that the contractor building the hangars had likely diverted bond proceeds for his own personal use. When the contractor was removed, Kinsell stepped in to oversee the hangar project through another company he owned, KND Affiliates, LLC, even though Kinsell had no construction experience.

The SEC alleges that the Airport Authority loaned KND Affiliates more than $60 million in bond proceeds for the hangar project and agreed that as compensation for the project, KND Affiliates would receive a construction management fee of two percent of the remaining cost of construction. However, Kinsell and KND Affiliates took an additional $450,000 in unauthorized fees to oversee the construction and took $2.3 million in fees that the Airport Authority was unaware of and never agreed to, purportedly as compensation to "manage" the hangars. The SEC alleges that Kinsell and KND Affiliates hid these fees from the Airport Authority representatives and from the auditors who reviewed KND Affiliates’ books and records.

The SEC’s complaint alleges that the Airport Authority, Kinsell, KND, and KND Affiliates violated the antifraud provisions of U.S. securities laws and that KND violated 15B(c)(1) of the Exchange Act and Municipal Securities Rulemaking Board Rules G-17, G-27 and G-32(a)(iii)(A)(2). The complaint also alleges that Victorville, Metzler, KND, Kinsell, and Williams aided and abetted various violations. The SEC is seeking the return of ill-gotten gains with prejudgment interest, financial penalties, and permanent injunctions against all of the defendants, as well as the return of ill-gotten gains from relief defendant KND Holdings, the parent company of KND.

The SEC’s investigation was conducted by Robert H. Conrrad and Theresa M. Melson in the Municipal Securities and Public Pensions Unit, and Lorraine B. Echavarria, Todd S. Brilliant, and Dora M. Zaldivar of the Los Angeles Regional Office. Sam S. Puathasnanon will lead the SEC’s litigation.

SEC ANNOUNCES ASSET FREEZE AGAINST ASSET ADVISER CHARGED WITH STEALING

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., March 18, 2013 — The Securities and Exchange Commission today announced an asset freeze against a Massachusetts-based investment adviser charged with stealing money from clients who were given the false impression they were investing in a hedge fund.

In a complaint unsealed today in federal court in Boston, the SEC alleges that Gregg D. Caplitz and Insight Onsite Strategic Management in Wilmington, Mass., raised at least $1.1 million from clients that was used for purposes other than investing in the hedge fund they purported to manage. Investor money was merely transferred to the firm’s chief investment officer and other members of her family who spent it on personal expenses. The firm reported in SEC filings that it has $100 million in assets under management, however the purported hedge fund actually has no assets.

U.S. District Judge Mark L. Wolf granted the SEC’s request for an emergency court order to freeze the assets of Caplitz and his firm as well as others who received investor money and have been named as relief defendants for the purposes of recovering investor funds in their possession.

"Caplitz and his firm conjured up a hedge fund to lure longtime clients into investing substantial amounts of money that became nothing more than a slush fund to pay bills for others," said Julie M. Riewe, Deputy Chief of the SEC Enforcement Division’s Asset Management Unit.

According to the SEC’s complaint, Caplitz’s scheme began around 2009. While soliciting funds, Caplitz convinced one client and his wife to invest $275,000 in the hedge fund that Caplitz claimed would generate them about $1,000 per month in returns. Caplitz also solicited a 20-year client who after considering his sales pitch decided not to invest in the hedge fund because she considered it too risky of an investment for someone her age. But Caplitz apparently took action to obtain funds from the client’s IRA account and wire thousands of dollars to an Insight Onsite Strategic Management bank account. The client was not aware of the transfers and did not authorize them.

The SEC alleges that instead of using investor funds to purchase shares in a hedge fund or to manage or develop a hedge fund, Caplitz transferred control of client money to Rosalind Herman, his friend who works at the firm. Investor funds also were transferred to her sons Brad and Brian Herman, daughter-in-law Charlene Herman, and a company called The Knew Finance Experts. The Hermans, who all live in Las Vegas, own that company. The Hermans used investor money to pay legal bills and other personal expenses at gas stations, drugstores, and restaurants.

The SEC alleges that as part of his scheme, Caplitz obtained funds from a real estate investment trust (REIT) by falsely representing that a hedge fund he operated was interested in making an investment in that trust. The public, non-traded REIT gave $135,000 to Caplitz so he could conduct due diligence on the REIT as a precursor to making a $5 million investment that never materialized.

The SEC alleges that Caplitz and Insight Onsite Strategic Management violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, Section 17(a) of the Securities Act of 1933, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The complaint seeks a permanent injunction plus disgorgement, prejudgment interest, and a penalty against Caplitz and his firm. The complaint also names the four Hermans and The Knew Finance Experts as relief defendants and seeks disgorgement plus prejudgment interest.

The SEC’s investigation was conducted in the Boston Regional Office by Mayeti Gametchu and Kevin Kelcourse of the Asset Management Unit and Susan Cooke Anderson. The litigation will be led by Kathy Shields and Ms. Gametchu.

ILLINOIS RESIDENT SETTLES FRAUD CHARGES FOR $1.8 MILLION

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION

CFTC Orders Illinois Resident Joshua T.J. Russo to Pay More than $1.8 Million in Restitution and Penalties for Futures and Options Fraud and Unauthorized Trading

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an order filing and settling charges against Joshua T.J. Russo of Chicago, Ill., for fraudulently soliciting at least one customer to participate in a fictitious commodity futures and options pool, engaging in unauthorized trading, and issuing false account statements.

The CFTC order requires Russo to pay restitution of $960,000, a $645,000 civil monetary penalty, and disgorgement of $215,000. The order permanently prohibits Russo from engaging in any commodity-related activity, including trading, and from registering or seeking exemption from registration with the CFTC. The order also permanently prohibits Russo from further violations of the Commodity Exchange Act and CFTC regulations, as charged.

The CFTC order finds that, from around March 2007 through April 2011, Russo, as a registered Associated Person of an independent Introducing Broker (IB), fraudulently solicited at least one of the IB’s customers by telling the customer that he would be a general partner in a fictitious pool called Peak Performance Fund, LP (PPF). According to the order, Russo issued false statements to the PPF customer in the form of purported PPF audited financial statements and in the form of weekly spreadsheets that Russo represented were summaries of the customer’s account values. In fact, however, the statements grossly overinflated the value of the customer’s accounts, the order finds.

In addition, the order finds that Russo provided at least five other customers with similar spreadsheets that grossly inflated the value of the customers’ accounts. Russo also engaged in a significant amount of unauthorized trading in these customers’ accounts, and in the accounts of three other customers, the order finds. Russo engaged in speculative trading for at least one customer, contrary to the hedging strategy that Russo represented he would utilize, according to the order.

According to the order, Russo’s eight customers deposited at least $3 million into trading accounts to trade commodity futures and options in managed and self-directed accounts. Russo, through his false statements to the eight customers, concealed his unauthorized trading and overall trading losses of approximately $1.7 million, the order finds.

On October 25, 2012, Russo was charged with a single count of commodities fraud in a related criminal action (USA v. Russo, 1: 12-cr-00836). His arraignment is currently scheduled for November 1, 2012.

The CFTC appreciates the assistance of the U.S. Attorney’s Office for the Northern District of Illinois and the National Futures Association.

CFTC Division of Enforcement staff members responsible for this case are Katherine S. Driscoll, Michael Solinsky, Michelle Bougas, Kassra Goudarzi, Melanie Bates, Gretchen L. Lowe, and Vincent A. McGonagle

CVS SUBSIDIARY SETTLES WITH U.S. FOR ALLEGEDLY SUBMITTING FALSE PRICING

FROM: U.S. DEPARTMENT OF JUSTICE
Monday, October 15, 2012

CVS Subsidiary, RxAmerica, Reaches $5 Million Settlement with US for Allegedly Submitting False Pricing Relating to the Company’s Medicare Part D Plan

In one of the first False Claims Act settlements involving Medicare’s Prescription Drug Program, known as Part D, RxAmerica LLC. has entered into a civil settlement agreement with the United States in which it has agreed to pay the government $5.25 million to resolve allegations that it made false submissions to the Centers for Medicare & Medicaid Services (CMS), the Justice Department announced today. RxAmerica, a wholly-owned subsidiary of CVS Caremark Corporation, provides prescription drug benefits to Medicare beneficiaries pursuant to a prescription drug plan.

The Medicare program offers Part D participants prescription drug coverage. For Medicare participants to obtain this drug coverage, they must join a Medicare-approved plan, often referred to as a Part D plan. Medicare Part D plans can vary in both the drugs that they cover, the amount they reimburse for those drugs, and the deductibles and co-pays they require their participants to pay.

To assist participants to choose a Part D plan that minimized their out-of-pocket costs, CMS offered a web-based tool called Plan Finder, which allowed Medicare Part D beneficiaries to determine estimated prescription drug prices for each Medicare Part D plan that the beneficiary considered for enrollment. CMS obtained the pricing information that is contained on Plan Finder from data submitted to CMS by each Part D Plan sponsor.

The United States alleged that during the period Jan. 1, 2007, to Dec. 31, 2008, RxAmerica made false submissions to CMS regarding prices for certain generic prescription drugs used for Plan Finder, despite certifying to CMS that it would submit accurate pricing data for Plan Finder. As a result, the government alleged that RxAmerica received Medicare Part D payments for claims for the covered drugs at prices that in some cases were significantly higher than the pricing data RxAmerica submitted to CMS for use on Plan Finder.

"The Department of Justice is committed to protecting the Medicare drug prescription program against all types of misconduct," said Stuart F. Delery, Acting Assistant Attorney General for the Justice Department's Civil Division. "As today's settlement demonstrates, we will ensure that Medicare Part D sponsors submit accurate drug pricing information, to ensure the integrity of the Medicare Part D program and to protect the beneficiaries who participate in the program."

"The health care choices facing Americans are complicated enough without patients being misinformed and forced to select a Part D plan based on false data. Those navigating our Medicare system deserve accurate information so they can make informed choices and obtain the benefits to which they are entitled. The Medicare system deserves honest input from plan sponsors, so it can continue to safeguard taxpayer dollars. Nothing less will suffice," stated Loretta Lynch, U.S. Attorney for the Eastern District of New York. "This case exemplifies our continuing dedication to combating all types of alleged health care fraud that can eat away at our precious public health care dollars."

" RxAmerica was charged with advertising false drug prices to Medicare Part D enrollees," said Daniel R. Levinson, Inspector General of the Department of Health and Human Services. "Protecting people in government health programs from those seeking to profit by misrepresenting goods and services is one of our top law enforcement priorities."

Today’s settlement resolves allegations made in two separate complaints against RxAmerica filed under the False Claims Act’s qui tam or whistleblower provisions, which permit a private individual to file suit for false claims to the United States and share in any recovery. The first complaint, U.S. ex rel. Doe v. RxAmerica, was filed in the United States District Court of the Eastern District of New York in November 2008. The second complaint, U.S. ex rel. Hauser v. CVS Caremark Corp. and RxAmerica, was filed in the United States District Court for the Western District of North Carolina in June 2009. The two cases were consolidated in the Eastern District of New York in November 2011.

This resolution is part of the government’s emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services in May 2009. The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation. One of the most powerful tools in that effort is the False Claims Act, which the Justice Department has used to recover over $10 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department’s total recoveries in False Claims Act cases since January 2009 are over $13.8 billion.

The Federal Trade Commission reached an agreement with CVS, RxAmerica’s parent corporation, earlier this year in which CVS agreed to pay $5 million to resolve allegations relating to RxAmerica’s inaccurate Plan Finder submissions from late 2007 through 2008. The resolution from the FTC’s settlement is being used to compensate beneficiaries.

The investigation in this matter was handled by the Department of Justice’s Civil Division, the U.S. Attorney’s Office for the Eastern District of New York, HHS-OIG and CMS. The claims resolved by this settlement are allegations only, and there has been no admission of liability by RxAmerica or CVS.

TWO CHARGED WITH DEFRAUDING COMPANY USING FALSE INVOICES

FROM: U.S. DEPARTMENT OF JUSTICE

Former COO of Louisiana Construction Management Company and Brother-In-Law Charged in Fraud Scheme

Former COO Sentenced Yesterday to 60 Months in Prison for Role in Related Scheme

WASHINGTON – Mark J. Titus, former Chief Operations Officer of Garner Services Ltd. (GSL), and his brother-in-law Dominick Fazzio, have been charged in a second superseding indictment returned today by a federal grand jury in New Orleans for defrauding GSL of over $1 million, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division.

The 32-count indictment returned today in U.S. District Court in New Orleans charges Titus and Fazzio with conspiracy, mail fraud, wire fraud, money laundering and tax charges for participating in the fraud scheme. Fazzio has also been charged with a separate tax fraud scheme.

According to the second superseding indictment, between approximately May 2008 and approximately May 2011, Titus and Fazzio defrauded GSL, a construction management company based in Pascagoula, Miss., by creating and submitting fraudulent invoices for services never rendered on construction projects managed by GSL, causing payments to be made from GSL to two companies owned by Fazzio. The two defendants then allegedly laundered the money by engaging in a series of financial transactions for the purpose of concealing the illegal nature of the payments. According to the second superseding indictment, Titus and Fazzio also submitted false tax returns by improperly deducting the disbursement of their fraudulently obtained money as legitimate business activity and failing to report the money received from the fraud scheme as taxable income.

In addition, Fazzio is charged in connection with a tax fraud scheme perpetrated with Hendrikus Ton, the owner of Abe’s Boat Rentals in Belle Chase, La., and two other companies that provide services to offshore oil production facilities. Fazzio and Ton allegedly conspired to under-report income paid to employees of Ton’s by transferring taxable income from Abe's Boat Rentals to a dormant company, improperly deducting that money as legitimate business activity and using that money to pay employees of Abe’s Boat Rentals in order to conceal the actual amount of income paid to the employees, thereby reducing the tax liability of Ton’s companies by over $3.5 million. According to the second superseding indictment, Fazzio prepared the tax returns for Ton’s companies and willfully omitted wages paid out of the dormant company.

In October 2011, Titus pleaded guilty to one count of conspiracy to commit mail fraud, arising from his role in a fraud scheme allegedly related to the scheme set forth in the second superseding indictment returned today. Last month, Titus moved to withdraw his October 2011 guilty plea, but the request was denied yesterday by U.S. District Judge Ivan Lemelle in the Eastern District of Louisiana, and sentencing proceeded yesterday as scheduled. U.S. District Judge Lemelle sentenced Titus yesterday to 60 months in prison on his guilty plea. Judge Lemelle also sentenced Titus to pay a $100,000 fine and ordered Titus to pay $925,320 in restitution to GSL.

An indictment is merely a charge and is not evidence of guilt. The defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

The case is being prosecuted by Deputy Chief Peter Koski and Trial Attorneys Brian Lichter and Menaka Kalaskar of the Criminal Division’s Public Integrity Section, as well as Assistant U.S. Attorney Gregory Kennedy of the Eastern District of Louisiana. The case is being investigated by the FBI and the New Orleans Office of the Internal Revenue Service-Criminal Investigation Division

SEC CHARGES COMPANY AND FORMER EXECS WITH DEFRAUDING INVESTORS

Photo:  Solar Panels.  Credit:  U.S. Navy

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Sept. 6, 2012 – The Securities and Exchange Commission today charged a solar panel manufacturer headquartered in South San Francisco and three of its former executives with defrauding investors by concealing the transfer of nearly half of the ownership stake in its Chinese subsidiary to three individuals in China who manage the subsidiary.

The SEC alleges that Worldwide Energy and Manufacturing USA Inc. (WEMU) raised nearly $9 million from U.S. investors in early 2010 in order to expand its solar subsidiary based in Rugao City, China. The Chinese subsidiary represented the bulk of WEMU’s operations and generated 77 percent of the company’s revenue the previous year. In a power point presentation at road shows and in other communications with investors, the company’s founder and chairman of the board Jimmy Wang and the company’s president Jeffrey Watson touted the solar subsidiary’s success as the primary growth area for the company and represented that the company fully owned its Chinese subsidiary. They neglected to tell investors that WEMU actually was set to transfer 49 percent of the equity in the Chinese subsidiary to its three managers. This critical ownership deal was not disclosed in the company’s filings or offering documents. Later, Wang and his wife Mindy Wang, who served as the company’s vice president, secretary and treasurer, went so far as to sign additional agreements to effectuate the transfer that were concealed from WEMU’s board and auditors.

WEMU, the Wangs, and Watson agreed to settle the SEC’s charges.

"WEMU and its executives deliberately withheld the fact that its investors would not have a full ownership stake in its largest and most profitable subsidiary," said Marc J. Fagel, Director of the SEC’s San Francisco Regional Office. "The decreased ownership interest in the subsidiary would be a key piece of information for anyone investing in a company with significant offshore operations."

According to the SEC’s complaint filed in federal court in San Francisco, because the company’s future success depended on the technical expertise and sales connections of the three Chinese solar managers, WEMU entered into a stock option agreement with them in January 2008 that included consideration for a future change in organizational structure. The Chinese subsidiary grew dramatically over the next year and quickly became WEMU’s most profitable subsidiary. In February 2009, Jimmy Wang signed two key agreements on behalf of WEMU to share 49 percent of the Chinese subsidiary’s net profits with the solar managers and to transfer 49 percent of the subsidiary’s equity to them in February 2010. Failure to disclose these agreements resulted in WEMU filing false and misleading quarterly reports for the first three quarters of 2009 and first quarter of 2010.

According to the SEC’s complaint, WEMU management began planning a capital raise in the fall of 2009 so it could expand its solar operations by building a factory in China to manufacture solar panels. When Jimmy Wang and Watson went out to raise money from investors in early 2010, there was no mention of the agreement to transfer an ownership stake. Instead, in order to avoid informing investors about the profit sharing arrangement and contractual obligation to transfer equity to the Chinese subsidiary’s managers, Jimmy and Mindy Wang traveled to China in March 2010 to secretly sign a set of side agreements that allowed the solar managers to begin the registration process with the Chinese government to effectuate the transfer. Both Jimmy and Mindy Wang concealed these side agreements from WEMU’s auditors, other executives, and its board of directors. The company’s failure to report the transfer of the solar subsidiary resulted in a material overstatement of net income to WEMU’s reported financial statements.

Without admitting or denying the SEC’s allegations, WEMU agreed to pay a $100,000 penalty and be permanently enjoined from future violations of antifraud, reporting, books and records and internal controls provisions of the federal securities laws. The Wangs and Watson consented to permanent bars from serving as officers or directors of a public company and agreed to be permanently enjoined from future violations of the antifraud and other provisions of the federal securities laws. Mindy Wang and Watson each agreed to pay penalties of $50,000. The terms of the settlement with Jimmy Wang reflect credit given to him by the Commission for his substantial assistance in the investigation and the fact that he has entered into a cooperation agreement to assist in the ongoing investigation.

The SEC’s investigation was conducted by staff accountant Adrienne F. Miller, staff attorney Alice L. Jensen, and Assistant Regional Director Jina L. Choi in the SEC’s San Francisco Regional Office.

The SEC acknowledges the assistance of the U.S. Department of Labor in this matter.

CFTC CHARGES CALIFORNIA RESIDENT IN ALLEGED COMMODITY POOL FRAUD SCHEME

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a complaint in the U.S. District Court for the Northern District of California, charging defendant Jeffrey Gustaveson of Carlsbad, Calif., with fraud, misappropriation, and issuing false statements in an approximate $2.5 million commodity pool scheme.

According to the CFTC complaint, filed on August 29, 2012, from at least January 2010 through approximately July 2010, Gustaveson accepted at least $2,495,000 million from at least four individuals to invest in a commodity futures pool. However, rather than trade pool participants’ funds as promised, Gustaveson allegedly only used approximately $400,000 of the funds to trade commodity futures, which resulted in a net loss. Gustaveson kept the remaining funds in a checking account from which he used at least $400,000 of pool funds to pay his personal expenses, including hotels, restaurants, and online gambling, according to the complaint.

Furthermore, to conceal his fraud, Gustaveson allegedly distributed false trading account statements to pool participants that misrepresented the value of the pool, reported false profits, and failed to disclose Gustaveson’s misappropriation of pool participants’ funds. When his fraud was exposed, Gustaveson allegedly repaid a portion of pool participants’ funds, but, despite repeated requests to do so, Gustaveson allegedly has not returned $415,000 of pool participants’ money. According to the CFTC complaint, Gustaveson admitted in a California state court proceeding that he had misappropriated investor money and falsified financial statements in connection with the acts described in the CFTC complaint.

In its continuing litigation, the CFTC seeks restitution to defrauded customers, a return of ill-gotten gains, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of federal commodities laws, as charged.

CFTC Division of Enforcement staff members responsible for this case are Lindsey Evans, Mary Beth Spear, Diane Romaniuk, Ava M. Gould, Scott R. Williamson, Rosemary Hollinger, and Richard B. Wagner.

A CEO ACCUSED OF BEING A PHONY BY THE SEC

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., July 25, 2012 — The Securities and Exchange Commission today charged a New York man for his role in a scheme to disseminate news of a fake investment to boost a struggling penny stock company.

The SEC alleges that Ronald Feldstein pretended to be the president of a private company, LED Capital Corp., and entered into an investment agreement with penny stock issuer Interlink-US-Network Ltd. Feldstein in fact held no such position at LED Capital Corp. and was merely being paid by Interlink’s management to play the role of a purported Interlink investor so they could spread news of a much-needed capital infusion. Feldstein then helped Interlink disseminate the false information in an SEC filing.

The SEC charged Interlink last year as part of a complaint against several perpetrators of an alleged green product-themed Ponzi scheme.

"Feldstein was nothing more than a fake president for hire who schemed with a public company to tout news of a sham investment and deceive investors," said Andrew M. Calamari, Acting Regional Director of the SEC’s New York Regional Office.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Feldstein purportedly committed LED Capital Corp. – which in reality had no operations or assets – to pay $6 million for a minority block of Interlink shares that had an actual market value of less than $1.2 million. Although Feldstein knew the actual owner of LED Capital Corp., he concealed the purported contract committing his company to pay more than a 500 percent premium for a minority block of shares in a penny stock company that had liabilities far exceeding its assets. When SEC investigators spoke with the actual owner, he testified that he has been the sole officer-stockholder of LED Capital Corp. and never had any knowledge of the purported agreement. He testified that Feldstein had no authority or permission to act on behalf of the company, which he said doesn’t and likely never would have $6 million available to it. For his performance as the phony president of LED Capital Corp., Interlink awarded Feldstein shares of its common stock that had a market value of more than $400,000.

The SEC alleges that when Interlink sought to inform the stock market of the remarkable investment, Feldstein offered crucial assistance in developing the substance of a Form 8-K filing with the SEC to disclose the purported agreement. After Interlink’s CFO e-mailed Feldstein a draft Form 8-K for his review, Feldstein responded "Not good" and thereafter discussed the contents with Interlink’s CFO. Based on Feldstein’s comments, the agreement was instead called a "memorandum of understanding." Feldstein then separately signed a memorandum of understanding on behalf of "LED Capital LLC" – a company similar in name to LED Capital Corp. but that does not actually exist. On Dec. 14, 2010, Interlink filed with the SEC the version of the Form 8-K that reflected Feldstein’s input.

The SEC’s complaint charges Feldstein with aiding and abetting violations by Interlink and its President of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder as well as violations by Interlink of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-11 thereunder. The Commission seeks injunctions from future violations of these provisions, disgorgement of ill-gotten gains, and a monetary penalty.

The SEC’s investigation was conducted in the New York Regional Office by Celeste Chase and Daniel Michael, and the litigation will be conducted by Howard Fischer and Daniel Michael. The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Eastern District of New York and the Federal Bureau of Investigation with this matter.

SEC CHARGES STOCK PROMOTER IN INTERNET-BASED SCALPING SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission announced today that on July 20, 2012, it filed a civil fraud action against former Connecticut resident Jerry S. Williams, a stock promoter, and two companies that he controlled, Monk’s Den, LLC and First In Awareness, LLC. The Commission charged Williams with running a scalping scheme from which he made over $2.4 million. Scalping is a type of fraud in which the owner of shares of a security recommends that security for investment and then immediately sells it at a profit upon the rise in market price which follows the recommendation.
The Commission’s Complaint alleges that from at least early 2009 through at least the end of 2010, Williams recommended two stocks, Cascadia Investments, Inc. and Green Oasis Environmental, Inc., to a large group of potential investors who followed his trading recommendations and strategies. According to the Complaint, Williams, who was known to his followers as “Monk,” used his internet-based message board (called “Monk’s Den”), in-person seminars (called “Monkinars”), and other means to encourage people to buy, hold, and accumulate Cascadia and Green Oasis stock. In particular, the Complaint alleges that Williams told potential investors that by buying up the outstanding shares, or float, of these companies, they could collectively trigger a “short squeeze” that would allow them to sell their stock to “market makers” that had shorted the stock. The Commission’s Complaint alleges that Williams falsely stated that he had previously used this strategy to make himself and others enormous profits. The Complaint alleges that in fact, unknown to potential investors, Williams had been hired by Cascadia and Green Oasis to promote their stock and had been compensated with millions of free and discounted shares of these stocks. According to the Complaint, Williams secretly sold millions of Cascadia and Green Oasis shares at the same time he was encouraging potential investors to buy, hold and accumulate these stocks. Through this scheme, the Complaint alleges, Williams made over $2.4 million.

The Commission’s Complaint charged Williams, First In Awareness, LLC and Monk’s Den, LLC with violating Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a), (b), and (c) thereunder. The Commission also charged Williams with violating Sections 17(a)(1), 17(a)(2), 17(a)(3) and 17(b) of the Securities Act of 1933 and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The Commission is seeking permanent injunctions, disgorgement, prejudgment interest, and civil penalties against each defendant and, as to Williams only, a penny stock bar.

The Commission’s investigation is continuing.

COMPUTER STORAGE DEVICE COMPANY CHARGED BY SEC WITH INSIDER TRADING

FROM: SECURITIES AND EXCHANGE COMMISSION Washington, D.C., July 19, 2012
– The Securities and Exchange Commission today charged the chairman and CEO of a Santa Ana, Calif.-based computer storage device company with insider trading in a secondary offering of his stock shares with knowledge of confidential information that a major customer’s demand for one of its most profitable products was turning out to be less than expected.

The SEC alleges that Manouchehr Moshayedi sought to take advantage of a dramatically upward trend in the stock price of STEC Inc. by deciding to sell a significant portion of his stock holdings as well as shares owned by his brother, a company co-founder. The secondary offering was set to coincide with the release of the company’s financial results for the second quarter of 2009 and its revenue guidance for the third quarter. However, in the days leading up to the secondary offering, Moshayedi learned critical nonpublic information that was likely to have a detrimental impact on the stock price. Moshayedi did not call off the offering and abstain from selling his shares once he possessed the negative information unbeknownst to the investing public. Instead, he engaged in a fraudulent scheme to hide the truth through a secret side deal, and proceeded with the sale of 9 million shares from which he and his brother reaped gross proceeds of approximately $134 million each.

"Moshayedi put his own self-interest ahead of his responsibility to lead a public company, and shareholders who placed their trust in him suffered as a result," said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. "Company insiders are strictly prohibited under the securities laws from exploiting corporate dealings for private gain, particularly in the secretive and manipulative manner that Moshayedi did."

According to the SEC’s complaint filed in U.S. District Court for the Central District of California, STEC’s stock price increased more than 800 percent from January to August 2009 as the company reported higher revenues, sales, and margins for its products, particularly its flagship flash memory product called "ZeusIOPS," a solid state drive (SSD). The stock rise also came on the heels of STEC’s July 2009 announcement of a unique agreement with its largest customer, EMC Corporation, which agreed to buy $120 million worth of ZeusIOPS in the third and fourth quarter of 2009. Moshayedi touted the sales growth of ZeusIOPS and said the agreement with EMC was "part of the expected growth" for STEC going forward.

The SEC alleges that as the Aug. 3, 2009 date for the secondary offering approached, Moshayedi learned in the course of his CEO duties two critical pieces of nonpublic information indicating that EMC’s actual demand for the ZeusIOPS was lower than previously expected. First, Moshayedi learned that EMC’s actual demand for the ZeusIOPS product in the third quarter would only be approximately $34 million – not nearly enough to ensure that STEC’s third quarter revenue guidance could meet or exceed consensus analyst estimates. Analysts had increased STEC’s revenue guidance estimates for the third quarter after STEC announced the agreement with EMC. Second, EMC informed Moshayedi that it would never again enter into a similar agreement with STEC.

According to the SEC’s complaint, Moshayedi responded by entering into a secret side deal with EMC in order to meet third quarter consensus revenue estimates. Moshayedi convinced EMC on July 29 to take $55 million of ZeusIOPS product in the third quarter – far more than it actually needed – in exchange for an undisclosed additional $2 million price discount on the product in the fourth quarter. After securing this deal, STEC announced the orchestrated guidance figures that amounted to approximately $21 million more than EMC’s actual forecasted demand for the quarter. And even though EMC unequivocally informed Moshayedi on the morning of August 3 that it would not make further volume commitments, he withheld this critical information from investors prior to his secondary offering while at the same time touting in public documents the future growth of the ZeusIOPS product and the importance of the STEC-EMC $120 million agreement.

The SEC’s complaint charges Moshayedi with violating the anti-fraud provisions of U.S. securities laws and seeks a final judgment ordering him to disgorge his own ill-gotten gains and the trading profits of his brother Mehrdad Mark Moshayedi, pay prejudgment interest and financial penalties, and be permanently barred from future violations and from serving as an officer and director of any registered public company.

The SEC’s investigation was conducted by Finola H. Manvelian and Douglas Kobayashi in the Los Angeles Regional Office, and John W. Berry will lead the litigation.

THREE FORMER FINANCIAL SERVICES EXECUTIVES CONVICTED OF BID RIGGING

FROM:  U.S. DEPARTMENT OF JUSTICE
Mon, May 14, 2012 at 10:11 AM
WASHINGTON — A federal jury in New York City today convicted three former financial services executives for their participation in conspiracies related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts, the Department of Justice announced.
Dominick P. Carollo, Steven E. Goldberg and Peter S. Grimm, all former executives of General Electric Co. (GE) affiliates, were found guilty on all remaining counts of a superseding indictment in the U.S. District Court for the Southern District of New York. Carollo was found guilty on two counts of conspiracy to commit wire fraud and defraud the United States, Goldberg was found guilty on four counts of conspiracy to commit wire fraud and defraud the United States and Grimm was found guilty on three counts of conspiracy to commit wire fraud and to defraud the United States.

The trial began on April 16, 2012. Carollo, Goldberg and Grimm were initially indicted on July 27, 2010.
“The defendants corrupted the competitive bidding process and defrauded municipalities across the country for years,” said Deputy Assistant Attorney General Scott D. Hammond of the Antitrust Division. “Through corruption and fraud, they cheated cities and towns out of money for important public works projects. Today’s convictions reflect our determination to preserve fairness and competition in the financial services market. ”

According to evidence presented at trial, while employed at GE affiliates, Carollo, Goldberg and Grimm participated in separate fraud conspiracies with various financial institutions and insurance companies and their representatives at various time periods from as early as 1999 until 2006. These institutions and companies, or “providers,” offered a type of contract, known as an investment agreement, to state, county and local governments and agencies throughout the United States. The public entities were seeking to invest money from a variety of sources, primarily the proceeds of municipal bonds that they had issued to raise money for, among other things, public projects. Goldberg also participated in the conspiracies while employed at Financial Security Assurance Capital Management Services LLC (FSA).

According to evidence presented at trial, Carollo, Goldberg and Grimm and their co-conspirators corrupted the bidding process for dozens of investment agreements to increase the number and profitability of investment agreements awarded to the provider companies where they were employed. Carollo, Goldberg and Grimm deprived the municipalities of competitive interest rates for the investment of tax-exempt bond proceeds that were to be used by municipalities for various public works projects, such as for building or repairing schools, hospitals and roads. Evidence at trial established that they cost municipalities around the country millions of dollars.

“Fundamentally, this case is about fraud in the investment of public money,” said Janice K. Fedarcyk, Assistant Director in Charge of the FBI in New York. “The actions of the defendants denied public entities the benefits of true competitive bidding, and artificially depressed the yield on invested public funds. ”
“Today’s convictions are an important step forward in the coordinated effort by the IRS and the Department of Justice to aggressively rid the municipal bond industry of unfair and corrupt practices,” said Internal Revenue Service (IRS)-Criminal Investigation (IRS-CI) Special Agent in Charge Victor W. Lessoff. “Moreover, the convictions represent an important victory for America’s taxpayers, especially those who live in the municipalities harmed by the actions of the defendants. ”

A total of eighteen individuals have been charged as a result of the department’s ongoing municipal bonds investigation. Including today’s convictions, a total of 15 individuals have been convicted and three await trial. Additionally, one company has pleaded guilty.

Each of the fraud conspiracy charges carries a maximum penalty per count of five years in prison and a $250,000 fine. The maximum fines for the fraud conspiracy offense may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

The verdict announced today resulted from an ongoing investigation conducted by the Antitrust Division’s New York Office, the FBI and the IRS-CI. The division is coordinating its investigation with the U.S. Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York.