SEC SHUTS DOWN ALLEGED PYRAMID AND PONZI SCHEME THAT USED 'TRIPLE ALGORITHM' AND '3-D MATRIX'

FROM:  U.S. SECURITIES  AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze against two operators of a Colorado-based pyramid and Ponzi scheme that promises investors extraordinary returns of 700 percent through a purported “triple algorithm” and “3-D matrix.”

In a complaint unsealed yesterday afternoon in federal court in Denver, the SEC alleges that Kristine L. Johnson of Aurora, Colo., and Troy A. Barnes of Riverview, Mich., have raised more than $3.8 million since April 2014 from investors they enticed into buying positions in their company Work With Troy Barnes Inc., which is doing business as “The Achieve Community.”  In Internet videos and other web promotions, investors were pitched “you and anyone you know can make as much money as you want” by purchasing positions that cost $50 each, and as they progress through the matrix they would receive a $400 payout on each position within three to six months.  Barnes claimed to have hired a seasoned programmer to perfect the triple algorithm investment formula supposedly generating the extraordinary returns.

The SEC alleges that while Johnson and Barnes explicitly claimed their program was not a pyramid scheme, their company has no legitimate business operations and they are merely paying purported investment returns to earlier investors as they receive funds from new investors.  Meanwhile, Johnson and Barnes have been making cash withdrawals of investor funds for such personal uses as buying a new car and paying credit card bills.

“Johnson and Barnes allegedly claim to be operating a successful investment program when in fact they are taking funds from new investors to pay phony profits to earlier investors,” said Julie Lutz, Director of the SEC’s Denver Regional Office.

The SEC’s complaint alleges that Work With Troy Barnes, Johnson, and Barnes violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The SEC’s complaint names Achieve International LLC as a relief defendant for the purpose of recovering ill-gotten gains from the scheme in its accounts.  The Honorable Robert E. Blackburn, U.S. District Judge for the District of Colorado, granted a temporary restraining order that in part freezes the assets of Johnson, Barnes, and their company.  

The SEC’s investigation, which is continuing, is being conducted by Jeffrey Felder, Kerry Matticks, and Jay A. Scoggins in the Denver office.  The SEC’s litigation is being led by Nicholas Heinke of the Denver office.  The SEC appreciates the assistance of the Colorado Division of Securities.

SEC ANNOUNCES FRAUD CHARGES AGAINST FORT LAUDERDALE, FLORIDA-BASED INVESTMENT ADVISORY FIRM

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
01/21/2015 01:15 PM EST

The Securities and Exchange Commission announced fraud charges and an asset freeze against a Fort Lauderdale, Florida-based investment advisory firm, its manager, and three related funds in a scheme that raised more than $17 million since November 2013.

The SEC’s complaint filed in federal court in the Southern District of Florida last week charged Elm Tree Investment Advisors LLC, its founder and manager, Frederic Elm, and Elm Tree Investment Fund LP, Elm Tree “e”Conomy Fund LP, and Elm Tree Motion Opportunity LP.  According to the complaint, Elm, formerly known as Frederic Elmaleh, his unregistered investment advisory firm, and the three funds misled investors and used most of the money raised to make Ponzi-like payments to the investors.  The complaint alleges that Elm treated the funds as his personal piggy bank, tapping them to buy a $1.75 million home, luxury automobiles, and jewelry, and to cover daily living expenses.  Elm’s wife, Amanda Elm, formerly Elmaleh, is named as a relief defendant based on her receipt of investor monies.

"Elm misled investors about how he and his funds would use their money and about how much he charged them in fees," said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  "As a result, Elm was able to wrongfully take millions of dollars from investors without their knowledge."

The SEC's complaint charges Elm, his advisory firm and the Elm Tree funds with violating anti-fraud provisions of federal securities laws and SEC anti-fraud rules.  The SEC is seeking relief for investors, including return of allegedly ill-gotten gains, with interest, and financial penalties.

The Honorable William Dimitrouleas on Friday granted the SEC’s request for a temporary restraining order and temporary asset freeze against Elm, his firm, and the three Elm Tree funds.  The judge ordered a temporary asset freeze against Amanda Elm and required her and the other defendants to provide accountings.  Judge Dimitrouleas also entered an order appointing Grisel Alonso as receiver for Elm Tree Investment Advisors and the Elm Tree funds.  A court hearing has been scheduled for January 29.

The SEC's investigation, which is continuing, has been conducted by Katharine E. Zoladz and Mark Dee and supervised by Elisha L. Frank in the Miami Regional Office.  Patrick Costello is leading the SEC’s litigation.

ASSETS FROZEN OF DEBT COLLECTOR ACCUSED OF USING LIES AND THREATS

FROM:  U.S. FEDERAL TRADE COMMISSION 

Court Halts Debt Collector’s Operations, Freezes Assets

Defendants Behind Buffalo, New York-based Operation Used Lies and Threats to Pursue Fraudulent Debt Collection Strategy, FTC and New York Attorney General Allege

At the request of the Federal Trade Commission and the New York Attorney General’s Office, a U.S. district court halted a Buffalo, NY-based debt collection operation, froze the operation’s assets, and appointed a temporary receiver to take over the defendants’ business pending trial.

In a joint complaint, the FTC and New York Attorney General charged the operation with using lies and threats against consumers in violation of federal and state law. The defendants misrepresented that consumers had committed check fraud or another criminal act; falsely threatened to arrest or imprison consumers, sue them, garnish their wages, or put a lien on their property; failed to back up their claims that consumers owed the debt; charged illegal fees; and improperly revealed consumers’ debts to third parties, according to the complaint.

Operating the scheme since February 2010, the defendants have collected at least $8.7 million dollars in payments for purported debts, according to the complaint. The joint complaint charged that the defendants’ tactics violated the Federal Trade Commission Act, the Fair Debt Collection Act and various New York state laws.

“These debt collectors continued to harass consumers and violate the law after the validity of the debt was called into question, and after the New York Attorney General’s office ordered them to stop,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “By working together with our state partners, we can leverage our resources to stop these illegal tactics.”

“All too often, innocent New Yorkers are relentlessly harassed by predatory, abusive debt collectors,” Attorney General Eric T. Schneiderman said. “My office, along with partners like the Federal Trade Commission, will keep fighting to protect hardworking consumers and put a stop to unfair financial bullying once and for all.”

Part of the FTC’s continuing crackdown on scams that target consumers in financial distress, the agencies have charged three individuals – Joseph C. Bella, III, Diane Bella, Luis A. Shaw – and 9 interrelated companies they control. Going by various names including National Check Registry, the operation began using another name – eCapital Services, LLC – to evade detection and continue its illegal behavior after signing an agreement with New York State authorities in October 2013 that prohibited it from violating federal and state debt collection laws, according to the complaint.

Also, according to the complaint, the defendants:

told one consumer in Washington State that they would have the “Washington County Police” issue a warrant for her arrest, and another serving in the military that they would bring an action against him under the Uniform Code of Military Justice;
said the only way to avoid arrest, imprisonment, lawsuits, wage garnishments, and seized assets would be to make an immediate payment over the phone;
continued to accuse consumers of check fraud and other crimes even after they produced evidence showing they didn’t owe the debt in question;
contacted friends, family members, and co-workers of consumers whom they claimed owed a debt, and in some cases, not only revealed the supposed debt but also said the consumers had committed check fraud, and would be arrested or imprisoned if the debt was not paid;
added an illegal $8 “processing fee” when consumers made payments on supposed debts over the phone;
failed to provide consumers with debt collection notices and disclosures that are required under state and federal law, making it difficult for consumers to determine whether they owed the debt, and how they could dispute its validity; and
continued trying to collect a debt from a consumer who had discharged the debt in bankruptcy.

In addition to Joseph and Diane Bella, Luis A. Shaw, National Check Registry, LLC, and eCapital Services, LLC, the complaint names as defendants Check Systems, LLC, Interchex Systems, LLC, Goldberg Maxwell, LLC, Morgan Jackson, LLC, Mullins & Kane, LLC, Buffalo Staffing, Inc., and American Mutual Holdings, Inc.

The Commission vote authorizing the staff to file the complaint was 5-0. The FTC and the New York Attorney General’s Office filed the complaint and the request for a temporary restraining order in the U.S. District Court for the Western District of New York on June 23, 2014. The court granted the plaintiffs’ request for a temporary restraining order with an asset freeze, the appointment of a receiver, immediate access to the business premises and limited discovery on June 24, 2014, and it approved a stipulated preliminary injunction on July 10, 2014.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.

WHITE HOUSE PRESS SECRETARY MAKES STATEMENT ON FURTHER SANCTIONS REGARDING UKRAINE

FROM:  THE WHITE HOUSE 

April 28, 2014

Statement by the Press Secretary on Ukraine

The United States has taken further action today in response to Russia’s continued illegal intervention in Ukraine and provocative acts that undermine Ukraine’s democracy and threaten its peace, security, stability, sovereignty, and territorial integrity.  At the contact group meeting in Geneva on April 17, 2014, Russia, Ukraine, the United States, and the European Union decided on a number of steps to deescalate the situation in eastern Ukraine, including refraining from further violence or provocative acts.   Since April 17, Russia has done nothing to meet its Geneva commitments and in fact has further escalated the crisis.  Russia’s involvement in the recent violence in eastern Ukraine is indisputable.

The United States made clear it would impose additional costs on Russia if it failed live up to its Geneva commitments and take concrete steps to deescalate the situation in Ukraine.  Consequently, today the United States is imposing targeted sanctions on a number of Russian individuals and entities and restricting licenses for certain U.S. exports to Russia.  The Department of the Treasury is imposing sanctions on seven Russian government officials, including two members of President Putin’s inner circle, who will be subject to an asset freeze and a U.S. visa ban, and 17 companies linked to Putin’s inner circle, which will be subject to an asset freeze.  In addition, the Department of Commerce has imposed additional restrictions on 13 of those companies by imposing a license requirement with a presumption of denial for the export, re-export or other foreign transfer of U.S.-origin items to the companies.  Further, today the Departments of Commerce and State have announced a tightened policy to deny export license applications for any high-technology items that could contribute to Russia’s military capabilities.  Those Departments also will revoke any existing export licenses that meet these conditions.

The international community has been unified in its position that Russia must cease its illegal intervention and provocative actions in Ukraine.  The United States, working closely with its partners, remains prepared to impose still greater costs on Russia if the Russian leadership continues these provocations instead of de-escalating the situation, consistent with its Geneva commitments.  The executive order signed by the President on March 20, 2014, authorizes the Secretary of the Treasury to impose sanctions on individuals and entities operating in key sectors of the Russian economy, such as financial services, energy, metals and mining, engineering, and defense.  If there is further Russian military intervention in Ukraine, we are prepared to sanction entities under this authority.

SEC CHARGES OPERATORS OF ALLEGED PYRAMID SCHEME TARGETING DOMINICAN AND BRAZILIAN IMMIGRANTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced that on Tuesday it filed charges against the Massachusetts-based operators of a large pyramid scheme that mainly targeted Dominican and Brazilian immigrants in the U.S.  The charges were filed under seal, in connection with the Commission’s request for an immediate asset freeze.  That asset freeze, which the U.S. District Court in Boston ordered on Wednesday, secured millions of dollars of funds and prevented the potential dissipation of investor assets.  After the SEC staff implemented the asset freeze, at the SEC’s request the court lifted the seal today, permitting public announcement of the SEC’s charges.

The SEC alleges that TelexFree, Inc. and TelexFree, LLC claim to run a multilevel marketing company that sells telephone service based on “voice over Internet” (VoIP) technology but actually are operating an elaborate pyramid scheme.  In addition to charging the company, the SEC charged several TelexFree officers and promoters, and named several entities related to TelexFree as relief defendants based on their receipt of investor funds.

According to the SEC’s complaint, the defendants sold securities in the form of TelexFree “memberships” that promised annual returns of 200 percent or more for those who promoted TelexFree by recruiting new members and placing TelexFree advertisements on free Internet ad sites.  The SEC complaint alleges that TelexFree’s VoIP sales revenues of approximately $1.3 million from August 2012 through March 2014 are barely one percent of the more than $1.1 billion needed to cover its promised payments to its promoters.  As a result, in classic pyramid scheme fashion, TelexFree is paying earlier investors, not with revenue from selling its VoIP product but with money received from newer investors.

“This is one of several pyramid-scheme cases that the SEC has filed recently where parties claim that investors can earn profits by recruiting other members or investors instead of doing any real work,” said Paul G. Levenson, director of the SEC’s Boston Regional Office.  “Even after the SEC and other regulators have alleged that such programs are a fraud, the promoters of TelexFree continued selling the false promise of easy money.”

According to the SEC’s complaint, the defendants have continued enrolling new investors but recently changed TelexFree’s method of compensating promoters, requiring them to actually sell the VoIP product to qualify for payments that TelexFree had previously promised to pay them.  The complaint also alleges that since December 2013, TelexFree has transferred $30 million or more of investor funds from TelexFree operating accounts to accounts controlled by TelexFree affiliates or the individual defendants.

In addition to the TelexFree firms, the complaint charges TelexFree co-owner James Merrill, of Ashland, Mass., TelexFree co-owner and treasurer Carlos Wanzeler, of Northborough, Mass., TelexFree CFO Joseph H. Craft, of Boonville, Ind., and TelexFree’s international sales director, Steve Labriola, of Northbridge, Mass.  The SEC also charged four individuals who were promoters of TelexFree’s program:  Sanderley Rodrigues de Vasconcelos, formerly of Revere, Mass., now of Davenport, Fla., Santiago De La Rosa, of Lynn, Mass., Randy N. Crosby, of Alpharetta, Ga., and Faith R. Sloan of Chicago.  The SEC’s complaint alleges that TelexFree, Inc., TelexFree, LLC, Merrill, Wanzeler, Craft, Labriola, Rodrigues de Vasconcelos, De La Rosa, Crosby, and Sloan violated the registration and antifraud provisions of U.S. securities laws and the SEC’s antifraud rule. The SEC also charged three entities related to TelexFree as relief defendants based on their receipt of investor funds.

The SEC’s investigation was conducted by Scott R. Stanley, James M. Fay, Mark Albers, John McCann, Frank Huntington, and Kevin Kelcourse, all of the SEC’s Boston Regional Office.

COURT HALTS DEBT COLLECTOR'S ALLEGED DECEPTIVE AND ABUSIVE PRACTICES

FROM:  FEDERAL TRADE COMMISSION 
At FTC’s Request, Court Halts Debt Collector’s Allegedly Deceptive and Abusive Practices, Freezes Assets

Defendants Behind Buffalo, New York-based Operation Misrepresented They Were with the Government and Threatened Consumers with Arrest and Other Legal Action

At the request of the Federal Trade Commission, a U.S. district court halted a debt collection operation that the agency charged with violating the Federal Trade Commission Act and the Fair Debt Collection Act by misrepresenting that they were with the government, falsely accusing consumers of committing check fraud, and then threatening consumers with arrest.

The court order stops the illegal conduct, freezes the operation’s assets, and appoints a temporary receiver to take over the defendants’ business, pending a hearing scheduled for March 17.

“These debt collectors took deception to new lows,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “They bullied consumers, falsely accused them of crimes, and pretended to be government officials. Stopping their illegal activity is a real victory for consumers.”

Part of the FTC’s continuing crackdown on scams that target consumers in financial distress, the lawsuit charged two individuals – Mark Briandi and William Moses – and 13 interrelated companies in connection with the case.  Another company – that was not actively involved, but profited from the scheme – was charged as a relief defendant.  The defendants allegedly bought debts and collected debts owed to other companies, and much of the debts the defendants collected on had originated from payday loans.

Operating the scheme since at least May of 2010, the defendants portrayed themselves as representatives of the government by using company names that suggested a government affiliation or national presence, such as Federal Recoveries, LLC, Federal Check Processing, Inc, Federal Processing Services, Inc., Nationwide Check Processing, and State Check Processing, Inc..  The defendants threatened consumers with dire consequences – such as lawsuits, arrest and imprisonment or seizure of assets – unless consumers paid the debt immediately.

The defendants repeated these deceptive claims to consumers’ family members, friends, coworkers, and employers, and revealed the consumers’ debts to these third parties as well, the complaint stated. According to consumers interviewed by the FTC, the defendants routinely refused to provide information about the debt, as required by federal law, or to investigate the debt’s legitimacy – even after some consumers explained that they did not owe the debt, the debt had been paid in full, or the defendants did not have the authority to collect on the debt. The defendants allegedly collected millions of dollars from consumers using these unlawful tactics.

In addition to Briandi and Moses, the complaint names as defendants Federal Check Processing, Federal Recoveries, Federal Processing, Federal Processing Services, United Check Processing, Central Check Processing, Central Processing Services, American Check Processing, State Check Processing, Check Processing, Nationwide Check Processing, US Check Processing, and Flowing Streams. The complaint names Empowered Racing LLC as a relief defendant.

The FTC would like to thank the Buffalo Regional Office of the New York State Attorney General and the Consumer Protection Section of the Colorado Department of Law for their assistance with the investigation.

The Commission vote authorizing the staff to file the complaint was 4-0. The FTC filed the complaint and the request for a temporary restraining order in the U.S. District Court for the Western District of New York. On February 24, 2014, the court granted the FTC's request for a temporary restraining order with an asset freeze, the appointment of a receiver, immediate access to the business premises and limited discovery.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.

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.

SEC OBTAINS EMERGENCY RELIEF IN PONZI SCHEME THAT TARGETED JAPANESE INVESTORS

FROM:  U.S. SECURITY AD EXCHANGE COMMISSION 
SEC Obtains Asset Freeze and Other Emergency Relief in Ponzi Scheme Targeting Investors in Japan

The Securities and Exchange Commission announced an emergency action to freeze the assets of a Las Vegas resident and his companies in connection with a Ponzi scheme that defrauded thousands of investors living primarily in Japan.

The SEC alleges that Edwin Yoshihiro Fujinaga and his company MRI International, Inc. raised more than $800 million from investors who were told that their money would be used to buy medical accounts receivable (MARs) that medical providers in the United States held against insurance companies. Fujinaga and MRI represented that the company used investors' money to buy MARs from medical providers at a discount and tried to recover the full value of the MARs from the insurance companies. Fujinaga and MRI represented that they used investor money solely and exclusively to buy MARs.

According to the SEC's complaint, which was filed under seal on September 11, 2013 and unsealed last week in the U.S. District Court for the District of Nevada, MRI was a fraudulent Ponzi scheme designed to misappropriate money from investors. Fujinaga and MRI used investor money to pay the principal and interest due to earlier investors, for the expenses of MRI and other businesses owned by Fujinaga, and to buy luxury cars and pay Fujinaga's credit card bills, alimony, and child support.

The Honorable James C. Mahan for the U.S. District Court for the District of Nevada granted the SEC's request for a temporary restraining order, asset freeze and other emergency relief against MRI, Fujinaga, and CSA Service Center LLC, as a relief defendant.

The Commission's complaint alleges that Fujinaga and MRI violated Sections 17(a)(1), (2), and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and seeks disgorgement of ill-gotten gains from Fujinaga, MRI, and relief defendant CSA, as well as financial penalties, permanent injunctions and other emergency relief.

The SEC's investigation, which is continuing, has been conducted by Danette R. Edwards and Thomas C. Swiers and supervised by Gregory G. Faragasso. The JFSA's Yuichiro Enomoto, who was seconded to the SEC, provided valuable assistance. The SEC's litigation is being led by Richard E. Simpson and Robert I. Dodge. The SEC appreciates the assistance of the JFSA, SESC, and the State of Nevada Division of Mortgage Lending.

IRREGULAR OPTIONS TRADING IN FRONT OF H.J. HEINZ CO. ACQUSITION LEADS TO ASSET FREEZE

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Feb. 15, 2013 — The Securities and Exchange Commission today obtained an emergency court order to freeze assets in a Zurich, Switzerland-based trading account that was used to reap more than $1.7 million from trading in advance of yesterday’s public announcement about the acquisition of H.J. Heinz Company.

The SEC’s immediate action ensures that potentially illegal profits cannot be siphoned out of this account while the agency’s investigation of the suspicious trading continues.

In a complaint filed in federal court in Manhattan, the SEC alleges that prior to any public awareness that Berkshire Hathaway and 3G Capital had agreed to acquire H.J. Heinz Company in a deal valued at $28 billion, unknown traders took risky bets that Heinz’s stock price would increase. The traders purchased call options the very day before the public announcement. After the announcement, Heinz’s stock rose nearly 20 percent and trading volume increased more than 1,700 percent from the prior day, placing these traders in a position to profit substantially.

"Irregular and highly suspicious options trading immediately in front of a merger or acquisition announcement is a serious red flag that traders may be improperly acting on confidential nonpublic information," said Daniel M. Hawke, Chief of the Division of Enforcement’s Market Abuse Unit.

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, added, "Despite the obvious logistical challenges of investigating trades involving offshore accounts, we moved swiftly to locate and freeze the assets of these suspicious traders, who now have to make an appearance in court to explain their trading if they want their assets unfrozen."

The SEC alleges that the unknown traders were in possession of material nonpublic information about the impending acquisition when they purchased out-of-the-money Heinz call options the day before the announcement. The timing and size of the trades were highly suspicious because the account through which the traders purchased the options had no history of trading Heinz securities in the last six months. Overall trading activity in Heinz call options several days before the announcement had been minimal.

The emergency court order obtained by the SEC freezes the traders’ assets and prohibits them from destroying any evidence. The SEC’s complaint charges the unknown traders with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In addition to the emergency relief, the SEC is seeking a final judgment ordering the traders to disgorge their ill-gotten gains with interest, pay financial penalties, and be permanently barred from future violations.

The SEC’s expedited investigation is being conducted by Market Abuse Unit members Megan Bergstrom, David S. Brown, and Diana Tani in the Los Angeles Regional Office with substantial assistance from Charles Riely, Market Abuse Unit member in the New York Regional Office who will handle the SEC’s litigation. The SEC appreciates the assistance of the Options Regulatory Surveillance Authority (ORSA).

ALLEGED REAL ESTATE INVESTMENT FRAUD INVOLVING LAND VALUE MARK-UPS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Sept. 7, 2012 The Securities and Exchange Commission announced an asset freeze against a San Diego-based firm and its owner accused of running a real estate investment fraud that raised approximately $50 million from hundreds of investors nationwide.

The SEC alleges that Western Financial Planning Corporation and Louis V. Schooler sold units in partnerships that Western had organized to buy vacant land in Nevada and hold for sale at a profit at a later date. Schooler and Western failed to tell investors that they were paying an exorbitant mark-up on the land, in some cases more than five times its fair market value. Schooler and Western also failed to tell investors that the land held by the partnerships was often encumbered by mortgages that Western used to help finance the initial purchase of the land.

"Schooler conned hundreds of people into investing with Western by leading them to believe that they were getting a good value for plots of vacant land," said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. "What he didn’t tell them was that the land was worth only a small fraction of their investment and that he was profiting at their expense."

The SEC’s complaint filed in federal court in San Diego alleges that Western and Schooler misled investors since 2007 by providing them with comparative prices or "comps" of supposedly similar plots of land that had sold for prices higher than those offered by Western. In reality, the real estate comps that Schooler and Western provided were in no way comparable to the land sold by Western. The SEC also alleges that since the spring of 2011, Schooler paid "hush money" to silence investors who discovered they had been defrauded, allowing the scheme to continue.

The Honorable Larry A. Burns for the U.S. District Court for the Southern District of California yesterday granted the SEC’s request for a temporary restraining order and asset freeze against Schooler, Western, and all entities under Western’s control, and appointed Thomas C. Hebrank as a temporary receiver over Western and the entities. Judge Burns has scheduled a court hearing for Sept. 17, 2012, on the SEC’s motion for a preliminary injunction.

The SEC’s investigation was conducted by Sara Kalin and Carol Shau of the Los Angeles Regional Office. Molly White will lead the SEC’s litigation. Ron Warton, Andy Ganguly, Michelle Royston, and Karol Pollack conducted the SEC examination that prompted the investigation.

SEC CHARGES OWNER OF WEBSITE ZEEKREWARDS.COM WITH RUNNING A $600 MILLION PONZI SCHEME

THE SECURITIES AND EXCHANGE COMMISSION
　
Washington, D.C., Aug. 17, 2012 – The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze to halt a $600 million Ponzi scheme on the verge of collapse. The emergency action assures that victims can recoup more of their money and potentially avoid devastating losses.
　
The SEC alleges that online marketer Paul Burks of Lexington, N.C. and his company Rex Venture Group have raised money from more than one million Internet customers nationwide and overseas through the website ZeekRewards.com, which they began in January 2011.
　
According to the SEC’s complaint filed in federal court in Charlotte, N.C., customers were offered several ways to earn money through the ZeekRewards program, two of which involved purchasing securities in the form of investment contracts. These securities offerings were not registered with the SEC as required under the federal securities laws.
　
The SEC alleges that investors were collectively promised up to 50 percent of the company’s daily net profits through a profit sharing system in which they accumulate rewards points that they can use for cash payouts. However, the website fraudulently conveyed the false impression that the company was extremely profitable when, in fact, the payouts to investors bore no relation to the company’s net profits. Most of ZeekRewards’ total revenues and the "net profits" paid to investors have been comprised of funds received from new investors in classic Ponzi scheme fashion.
　
"The obligations to investors drastically exceed the company’s cash on hand, which is why we need to step in quickly, salvage whatever funds remain and ensure an orderly and fair payout to investors," said Stephen Cohen, an Associate Director in the SEC’s Division of Enforcement. "ZeekRewards misused the power of the Internet and lured investors by making them believe they were getting an opportunity to cash in on the next big thing. In reality, their cash was just going to the earlier investor."
　
The SEC’s complaint alleges that the scheme is teetering on collapse with investor funds at risk of dissipation without its emergency enforcement action. Last month, ZeekRewards brought in approximately $162 million while total investor cash payouts were approximately $160 million. If customers continue to increasingly elect to receive cash payouts rather than reinvesting their money to reach higher levels of rewards points, ZeekRewards’ cash outflows would eventually exceed its total revenue.
　
Burks has agreed to settle the SEC’s charges against him without admitting or denying the allegations, and agreed to cooperate with a court-appointed receiver.
　
According to the SEC’s complaint, ZeekRewards has paid out nearly $375 million to investors to date and holds approximately $225 million in investor funds in 15 foreign and domestic financial institutions. Those funds will be frozen under the emergency asset freeze granted by the court at the SEC’s request. Meanwhile, Burks has personally siphoned several million dollars of investors’ funds while operating Rex Venture and ZeekRewards, and he distributed at least $1 million to family members. Burks has agreed to relinquish his interest in the company and its assets plus pay a $4 million penalty. Additionally, the court has appointed a receiver to collect, marshal, manage and distribute remaining assets for return to harmed investors.
　
The SEC’s investigation was conducted by Brian M. Privor and Alfred C. Tierney in the SEC’s Enforcement Division in Washington D.C. The SEC acknowledges the assistance of the Quebec Autorite des Marches Financiers and the Ontario Securities Commission.

TREASURY LIFTS SANCTIONS AGAINST DEFECTED SYRIAN PRIME MINISTER

FROM: U.S. DEPARTMENT OF TREASURY
WASHINGTON – The U.S. Department of the Treasury today is lifting sanctions against former Prime Minister of Syria Riyad Hijab who recently severed his ties with the Assad regime. This action is being taken because Hijab is no longer a senior official of the Government of Syria. Hijab’s name will be removed from Treasury’s Specially Designated Nationals (SDN) and Blocked Persons List, and he is no longer subject to an asset freeze.

Since the uprising against the Assad regime began last year, the United States has used a number of different authorities to target and sanction those involved in human rights abuse in Syria, senior Syrian government officials, and the Syrian government itself in an effort to hasten the removal of the Assad regime from power and end the government’s campaign of violence against the Syrian people.

"Recent civilian and military defections from the Assad regime are further indications that the government is crumbling and losing its grip on power," said Under Secretary for Terrorism and Financial Intelligence David S. Cohen. "The United States encourages other officials within the Syrian government, in both the political and military ranks, to take similarly courageous steps to reject the Assad regime and stand with the Syrian people."

On July 18, 2012, Treasury designated 29 senior officials of the Syrian government, including Prime Minister Riyad Hijab, pursuant to Executive Order 13573 of May 18, 2011 "Blocking Property of Senior Officials of the Government of Syria." Three weeks later Hijab chose to defect from the Syrian government and denounce its campaign of violence.

One of the goals of identifying and levying sanctions on specific individuals is to encourage them to reconsider their involvement with the current Syrian government. Today’s action illustrates the flexibility and responsiveness of the U.S. sanctions regime, allowing a prompt response to events on the ground. It is not too late for others who continue to provide support to the Assad regime to sever their ties and to be relieved of the burden of sanctions.

Newly appointed Prime Minister Wael Nader Al-Halqi was designated by the Treasury Department in July 2012, in his previous position as the Minister of Health. The sanctions against Al-Halqi remain in effect.