1 The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the authors and do not necessarily reflect the views of the Commission or of the authors’ colleagues upon the staff of the Commission. Parts of this outline have been used in other publications.

Selected SEC Enforcement Actions December 2012 Division of Enforcement U.S. Securities and Exchange Commission1 Washington, D.C

Submitted by:

Prepared by: Sherry A. Moore Program Information Specialist

Glenn S. GordonAssociate Regional Director

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Contents

ACTIONS INVOLVING BROKER-DEALERS, INVESTMENT ADVISERS AND INVESTMENT COMPANIES ............................................................................................................................................. 1

In the Matter of Motilal Oswal Securities Limited ................................................................................. 1

In the Matter of JM Financial Institutional Securities Private Limited................................................... 1

In the Matter of Edelweiss Financial Services Limited .......................................................................... 1

In the Matter of KCAP Financial Inc., et al. ........................................................................................... 2

SEC v. David L. Rothman ....................................................................................................................... 3

SEC v. Fabrizio Neves, et al. .................................................................................................................. 3

SEC v. Gary R. Marks ............................................................................................................................. 4

SEC v. Peter Madoff ............................................................................................................................... 5

SEC v. AMMB Consultant Sendirian Berhad ......................................................................................... 6

In the Matter of Jason A. D’Amato ......................................................................................................... 7

In The Matter Of Daniel Bogar, Bernerd E. Young, and Jason T. Green ............................................... 7

In the Matter of Jay T. Comeaux............................................................................................................. 7

ACTIONS INVOLVING OTHER REGULATED ENTITIES AND SELF-REGULATORY ORGANIZATIONS .................................................................................................................................... 8

In the Matter of eBX LLC ....................................................................................................................... 8

In the Matter of NYSE Euronext............................................................................................................. 9

SEC v. Steven H. Bethke ...................................................................................................................... 10

ACTIONS INVOLVING VIOLATIONS OF THE FOREIGN CORRUPT PRACTICES ACT ............ 10

SEC v. Tyco International Ltd. ............................................................................................................. 10

SEC v. Oracle Corp., ............................................................................................................................. 11

SEC v. Pfizer Inc. .................................................................................................................................. 12

SEC v. Orthofix International N.V. ...................................................................................................... 12

ACTIONS INVOLVING MUNICIPAL SECURITIES ........................................................................... 13

Goldman, Sachs & Co. and Neil M.M. Morrison ................................................................................. 13

SEC v. Kwame M. Kilpatrick, et al. ..................................................................................................... 14

ACTIONS INVOLVING INSIDER TRADING ...................................................................................... 15

SEC v. Thomas C. Conradt, et al. ......................................................................................................... 15

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SEC v. CR Intrinsic Investors, LLC et al. ............................................................................................. 15

SEC v. John Lazorchak, et al. ............................................................................................................... 16

SEC v. Kris Chellam ............................................................................................................................. 17

SEC v. Jauyo (“Jason”) Lee and Victor Chen ....................................................................................... 18

SEC v. Waldyr Da Silva Prado Neto..................................................................................................... 18

SEC v. James V. Mazzo, David L. Parker and Eddie C. Murray.......................................................... 19

SEC v. Robert D. Ramnarine ................................................................................................................ 19

SEC v. Well Advantage Limited, et al. ................................................................................................. 20

SEC v. Manouchehr Moshayedi ........................................................................................................... 21

SEC v. Tai Nguyen................................................................................................................................ 22

SEC v. Reema D. Shah and Robert W. Kwok ...................................................................................... 23

SEC v. Mohammed Mark Amin, Robert Reza Amin, Michael Mahmood Amin, Sam Saeed Pirnazar, Mary Teresa Coley, and Ali Tashakori ................................................................................................. 23

ACTIONS INVOLVING MARKET MANIPULATION ........................................................................ 24

In the Matter of Hold Brothers On-Line Investment Services, LLC, et al. ........................................... 24

SEC v. Anthony K. Welch .................................................................................................................... 25

SEC v. Axius, Inc., et al. ....................................................................................................................... 26

SEC v. Harbinger Capital Partners LLC; Philip A. Falcone; and Peter A. Jenson ............................... 26

SEC v. Nicholas Louis Geranio, et al.................................................................................................... 27

SEC v. David Blech and Margaret Chassman....................................................................................... 28

ACTIONS INVOLVING ISSUER DISCLOSURE AND REPORTING VIOLATIONS ....................... 29

SEC v. J.P. Morgan Securities LLC, et al. ............................................................................................ 29

In the Matter of Creidt Suisse Securities (USA) LLC, et al. ................................................................. 29

SEC v. BP p.l.c. ..................................................................................................................................... 30

SEC v. Michael Johnson ....................................................................................................................... 31

SEC v. Joseph Pacifico.......................................................................................................................... 31

SEC v. Subramanian Krishnan .............................................................................................................. 32

SEC v. Gilbert Fiorentino...................................................................................................................... 34

SEC v. Mizuho Securities USA Inc. ..................................................................................................... 34

ACTIONS INVOLVING SECURITIES OFFERINGS ........................................................................... 36

SEC v. Edward Bronson, et al. .............................................................................................................. 36

SEC v. Rex Venture Group LLC et al. .................................................................................................. 36

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SEC v. Bradley A. Holcom; SEC v. Jose L. Pinedo ............................................................................. 37

SEC v. James S. Quay and Jeffrey A. Quay ......................................................................................... 38

SEC v. Emanuel L. Sarris, Sr. and Sarris Financial Group, Inc. ........................................................... 39

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ACTIONS INVOLVING BROKER-DEALERS, INVESTMENT ADVISERS AND INVESTMENT COMPANIES In the Matter of Motilal Oswal Securities Limited Release No. 34-68296 (November 27, 2012) http://sec.gov/litigation/admin/2012/34-68296.pdf In the Matter of JM Financial Institutional Securities Private Limited Release No. 34-68297 (November 27, 2012) http://sec.gov/litigation/admin/2012/34-68297.pdf In the Matter of Edelweiss Financial Services Limited Release No. 34-68298 (November 27, 2012) http://sec.gov/litigation/admin/2012/34-68298.pdf In the Matter of Ambit Capital Pvt. Ltd. Release No. 34-68295 (November 27, 2012) http://sec.gov/litigation/admin/2012/34-68295.pdf On November 27, 2012, the Securities and Exchange Commission pursuant to Section 15(b) of the Securities Exchange Act of 1934 instituted settled administrative proceedings against Motilal Oswal Securities Limited (Motilal), JM Financial Institutional Securities Private Limited (JM Financial), Edelweiss Financial Services Limited (Edelweiss), and Ambit Capital Pvt. Ltd. (Ambit), India-based financial services firms, for soliciting and providing brokerage services to U.S. institutional investors without being registered with the SEC as broker-dealers. The SEC’s order with respect to Motilal found that Motilal organized and sponsored an annual conference in the United States to which Motilal brought representatives of Indian issuers and invited U.S. investors; solicited U.S. investors by having its employees travel to the United States regularly to meet with U.S. investors for, among other purposes, presenting and discussing Motilal’s analysts’ research reports on Indian issuers and for attending corporate road shows with representatives of Indian issuers; and bought and sold the securities of Indian issuers on Indian stock exchanges on behalf of U.S. investors in exchange for commissions and soft dollar payments. The SEC’s order with respect to JM Financial found that JM Financial bought and sold securities of Indian issuers on Indian stock exchanges on behalf of U.S. investors; provided brokerage services to U.S. investors through certain commission sharing agreements with U.S. registered broker-dealers; organized and sponsored a conference in New York to which JM Financial brought representatives of Indian issuers and invited U.S. investors; and participated as one of several broker-dealers in initial public offerings, further public offerings, or private resales of securities of Indian issuers, predominantly in India, but for which some shares were marketed and/or sold to U.S. institutional investors. With respect to Edelweiss, the SEC’s order found that Edelweiss’ activities involved buying and selling securities of Indian issuers on Indian stock exchanges on behalf of U.S. investors; participating as a lead or co-lead manager in the initial public offering or further public offering of Indian issuers in which shares were sold and/or marketed to U.S. investors; participating in private placements of securities

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structured as “Qualified Institutional Placements” under Indian law that were marketed to U.S. investors and in which certain U.S. investors invested; and marketing to and soliciting U.S. investors for alternative asset funds. Finally, with respect to Ambit, the SEC’s order found that Ambit’s conduct involved Ambit employees traveling on multiple occasions to the United States to meet with U.S. investors; sending hundreds of research reports to U.S. investors and following up on these reports; and soliciting at least one U.S. investor through repeated telephone calls. The Orders censured the firms and ordered them to pay disgorgement and prejudgment interest in the following amounts: (1) Motilal - $780,000 in disgorgement and prejudgment interest of $41,594; (2) JM Financial - $425,000 in disgorgement and prejudgment interest of $18,545; (3) Edelweiss - $540,000 in disgorgement and prejudgment interest of $28,347; and (4) Ambit - $30,000 in disgorgement and $910 in prejudgment interest. In the Matter of KCAP Financial Inc., et al. Release No. 34- 68307 (November 28, 2012) http://sec.gov/litigation/admin/2012/34-68307.pdf The Securities and Exchange Commission charged three top executives at KCAP Financial Inc., a New York-based publicly-traded fund being regulated as a business development company with overstating the fund’s assets during the financial crisis. The fund’s asset portfolio consisted primarily of corporate debt securities and investments in collateralized loan obligations. An SEC investigation found that KCAP Financial Inc. did not account for certain market-based activity in determining the fair value of its debt securities and certain CLOs. KCAP also failed to disclose that the fund had valued its two largest CLO investments at cost. KCAP’s chief executive officer Dayl W. Pearson and chief investment officer R. Jonathan Corless had primary responsibility for calculating the fair value of KCAP’s debt securities, while KCAP’s former chief financial officer Michael I. Wirth had primary responsibility for calculating the fair value of KCAP’s CLOs. Wirth, a certified public accountant, prepared the disclosures about KCAP’s methodologies to fair value its CLOs, and Pearson reviewed those disclosures. This is the SEC’s first enforcement action against a public company that failed to properly fair value its assets according to the applicable financial accounting standard – FAS 157 – which became effective for KCAP in the first quarter of 2008. The SEC’s order found that KCAP’s overvaluation and internal controls failures violated the reporting, books and records, and internal controls provisions of the federal securities laws, namely Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Pearson, Corless, and Wirth caused KCAP’s violations and directly violated Exchange Act Rule 13b2-1 by causing KCAP’s books and records to be falsified. Pearson and Wirth also directly violated Exchange Act Rule 13a-14 by falsely certifying the adequacy of KCAP’s internal controls. Pearson and Wirth each agreed to pay $50,000 penalties and Corless agreed to pay a $25,000 penalty to settle the SEC’s charges. KCAP and the three executives, without admitting or denying the findings,

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consented to the SEC’s order requiring them to cease and desist from committing or causing any violations or any future violations of these federal securities laws. SEC v. David L. Rothman Litigation Release No. 22490 (September 24, 2012) http://www.sec.gov/litigation/litreleases/2012/lr22490.htm The Securities and Exchange Commission filed an injunctive action against David L. Rothman of Richboro, PA, a registered representative, Vice President, and minority owner of Rothman Securities, Inc., a registered broker-dealer, for conducting a fraud by issuing false account statements and misappropriating investor funds. The SEC alleged that from 2006 to 2011, Rothman created and issued false account statements to certain elderly and unsophisticated investors that materially overstated the value of their investment accounts. The SEC’s Complaint further alleged that when the investors discovered that Rothman had misrepresented the value of their investments, Rothman engaged in a scheme to conceal his fraudulent conduct by agreeing to pay those investors the investment returns he reported on the false account statements. When Rothman could no longer afford to make those payments, he misappropriated funds from another elderly and unsophisticated investor and from two trust accounts for which he serves as trustee. Rothman also used a substantial portion of the misappropriated funds for his personal benefit. As a result of the conduct described in the Complaint, the SEC alleged that Rothman violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC, in its Complaint, sought a permanent injunction, disgorgement together with prejudgment interest, and civil penalties from Rothman. SEC v. Fabrizio Neves, et al. Litigation Release No. 22462 (August 29, 2012) http://sec.gov/litigation/litreleases/2012/lr22462.htm Release No. 34-67748 (August 29, 2012) http://www.sec.gov/litigation/admin/2012/34-67748.pdf The Securities and Exchange Commission filed a civil fraud action against two former brokers in Miami for overcharging customers approximately $36 million by using hidden markup fees on structured note transactions. According to the SEC's complaint, from 2006 to 2009, Fabrizio Neves conducted the markup scheme while working at the broker-dealer LatAm Investments LLC, which is no longer in business. He was assisted by Jose Luna. The pair defrauded two Brazilian public pension funds and a Colombian institutional investor that purchased from LatAm the structured notes issued by major U.S. and European commercial banks. Instead of purchasing the notes for his customers' accounts for prices around the banks' issuance amounts - which totaled approximately $70 million - in most transactions Neves first traded the notes with one or more accounts in the name of offshore nominee entities that he and Luna controlled. Neves then sold the notes to his customers with undisclosed markups as high as 67 percent. Neves had no reasonable basis to mark up the prices that significantly.

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The SEC alleged that to conceal the excessive markups that Neves charged customers, Neves directed Luna to alter the banks' structured note term sheets in half of the transactions by either whiting out or electronically cutting and pasting the markup amounts over the actual price and trade information, and then sending the forged documents to customers. The SEC further alleged that as a result of the markup scheme, the Brazilian funds overpaid by approximately $24 million and the Colombian institutional investor overpaid by approximately $12 million due to the undisclosed, excessive fees. Neves enjoyed a financial boon from the scheme as LatAm paid him millions of dollars in inflated sales commissions for the structured note transactions that he made at inflated prices. Luna received hundreds of thousands of dollars in inflated salary and commissions from LatAm and tens of thousands of dollars in additional compensation from a company that Neves controlled. According to the SEC's complaint, Neves and Luna violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and aided and abetted LatAm's violations of Section 15(c) of the Exchange Act. The SEC's complaint sought disgorgement of ill-gotten gains, financial penalties, and injunctive relief against Neves and Luna to enjoin them from future violations of the federal securities laws. Luna agreed to the entry of a judgment ordering him to pay disgorgement of $923,704.85, prejudgment interest of $241,643.51, and a penalty amount to be determined. The judgment permanently enjoined him from violations of the antifraud provisions of the federal securities laws. Luna neither admitted nor denied the allegations in the SEC's complaint. Luna also agreed to settle a related SEC administrative proceeding by agreeing to be barred from association with any broker, dealer, investment advisor, municipal securities dealer, municipal advisor, transfer agent, or credit rating agency. The SEC also issued an order instituting administrative proceedings against Angelica Aguilera, a shareholder and financial and operations principal of LatAm. In the order, the Division of Enforcement alleged that failed reasonably to supervise Neves and Luna, as defined in the Exchange Act. According to the order, Aguilera served as President of LatAm beginning in October 2007, until the firm ceased operations in 2010, and was the direct supervisor for Neves and Luna from October 2007 to September 2009. Also, as president, she maintained ultimate responsibility for developing and implementing the firm’s supervisory policies and procedures. SEC v. Gary R. Marks Litigation Release No. 22460 (August 27, 2012) http://sec.gov/litigation/litreleases/2012/lr22460.htm The Securities and Exchange Commission filed a settled civil action against Gary R. Marks. The SEC’s complaint alleged that Marks managed and recommended various fund of funds hedge funds through Sky Bell Asset Management, Inc. (an investment adviser formerly registered with the SEC), including the Agile Sky Alliance Fund that was co-managed with the Agile Group, PipeLine Investors, Night Watch Partners, and Sky Bell Offshore Partners (collectively “Sky Bell Hedge Funds”). The SEC’s complaint alleged that between at least 2005 and September 2007, Marks negligently misrepresented the level of correlation and diversification among certain Sky Bell Hedge Funds. Furthermore, the Complaint alleged that between at least 2005 and 2008, Marks also: a) made unsuitable investment

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recommendations to certain advisory clients to invest most of their investment portfolio in Sky Bell Hedge Funds, b) negligently failed to disclose that PipeLine Investors invested significantly in a purported subadviser’s fund, and c) negligently provided misleading information to certain investors about the liquidity problems at the Agile Sky Alliance Fund. Without admitting or denying the allegations in the SEC’s complaint, Marks consented to the entry of a Final Judgment enjoining him from future violations of Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8 promulgated thereunder, and Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. The Final Judgment also ordered Marks to pay disgorgement of $321,702, a penalty of $100,000, and prejudgment interest. SEC v. Peter Madoff Litigation Release No. 22407 (June 29, 2012) http://sec.gov/litigation/litreleases/2012/lr22407.htm Release No. 67512 (July 26, 2012) http://sec.gov/litigation/admin/2012/34-67512.pdf The Securities and Exchange Commission charged Peter Madoff, the brother of Bernie Madoff, with committing fraud, making false statements to regulators, and falsifying books and records in order to create the false appearance of a functioning compliance program over Madoff’s fraudulent investment advisory operations. The SEC alleged that Peter Madoff, who served as Chief Compliance Officer and Senior Managing Director at Bernard L. Madoff Investment Securities LLC (BMIS) from 1969 to December 2008, created stacks of compliance documents setting out supposedly robust policies and procedures over BMIS’s investment advisory operations. However, Peter Madoff created these compliance manuals, written supervisory procedures, reports of annual compliance reviews, and compliance certifications to merely paper the file. No policies and procedures were ever implemented, and none of the reviews were actually performed even though Peter Madoff represented that he personally completed the reviews. According to the SEC’s complaint, Bernie Madoff realized in late 2008 that his decades-long scheme was on the verge of collapse. He told Peter Madoff that he could not pay billions of dollars of investor redemption requests and wanted to distribute remaining investor money to family, friends, and favored employees before the scheme collapsed. Peter Madoff then helped choose which family, friends and employees to pay, and rushed to withdraw $200,000 from BMIS’s bank account for himself before the fraud’s final downfall. The SEC alleged that in addition to creating false compliance materials, Peter Madoff created false broker-dealer and investment advisor registration applications filed by BMIS. He also failed to implement and review required policies and procedures, and falsified the firm’s books and records. Peter Madoff was richly rewarded for his misconduct, pocketing tens of millions of dollars through salary and bonuses, fake trades, sham loans, and direct, undocumented transfers of investor funds to himself from the bank account that BMIS used to perpetrate the Ponzi scheme. The SEC’s complaint against Peter Madoff alleged that by engaging in this conduct, he violated and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5

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thereunder and Section 207 of the Investment Advisers Act of 1940; and aided and abetted violations of Sections 15(b)(1), 15(c) and 17(a) of the Exchange Act and Rules 10b-3, 15b3-1 and 17a-3 thereunder, and Sections 204, 206(1), 206(2), 206(4) and 207 of the Advisers Act and Rules 204-2 and 206(4)-7 thereunder. Among other things, the SEC's complaint sought permanent injunctions, financial penalties and a court order requiring Peter Madoff to disgorge his ill-gotten gains. On July 26, 2012, the Commission issued a settled order barring Peter Madoff from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, or from participating in any offering of a penny stock. The order was based on Peter Madoff’s June 29, 2012 criminal conviction, in which he pled guilty to (1) conspiracy to (a) commit securities fraud; (b) falsify records of an investment adviser; (c) falsify records of a broker-dealer; (d) make false filings with the Commission; (e) commit mail fraud; (f) falsify statements in relation to documents required by ERISA; and (g) obstruct and impede the lawful governmental function of the IRS; and (2) falsifying records of an investment adviser, in United States v. Peter Madoff, 10 Cr. 228 (SDNY) (LTS). SEC v. AMMB Consultant Sendirian Berhad Litigation Release No. 22402 (June 27, 2012) http://sec.gov/litigation/litreleases/2012/lr22402.htm The Securities and Exchange Commission sued AMMB Consultant Sendirian Berhad (AMC), a Malaysian investment adviser, alleging that for more than a decade, AMC charged a U.S. registered fund for advisory services that AMC did not provide. The SEC alleged that by doing so, AMC breached its fiduciary duty with respect to compensation under the Investment Company Act of 1940. According to the SEC, AMC submitted a report to the Malaysia Fund’s board of directors each year that falsely claimed that AMC was providing specific advice, research, and assistance to MSIM for the benefit of the fund. In reality, the SEC’s complaint said AMC’s services were limited to providing two monthly reports based on publicly available information that MSIM did not request or use. Moreover, the SEC alleged that AMC failed to adopt and implement adequate policies, procedures, and controls over its advisory business, contrary to certifications provided to the fund’s directors in 2006 and 2007. AMC’s advisory agreement with the fund was terminated in early 2008 after the SEC’s examination staff inquired about the services AMC was purportedly providing to the fund. The SEC’s complaint alleged that AMC breached its fiduciary duty with respect to the receipt of compensation within the meaning of Section 36(b) of the Investment Company Act of 1940. The SEC also alleged that AMC violated Sections 206(2) and (4) of the Investment Advisers Act of 1940, and Rule 206(4)-7 thereunder, and Section 15(c) of the Investment Company Act of 1940. AMC consented to a judgment that bars it from violating these provisions in the future. AMC also agreed to disgorge $1.3 million of its advisory fees paid by the fund and pay a $250,000 penalty.

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In the Matter of Jason A. D’Amato Release No. 34-67773 (August 31, 2012) http://sec.gov/litigation/admin/2012/34-67773.pdf In The Matter Of Daniel Bogar, Bernerd E. Young, and Jason T. Green Release No 33-9356 (August 31, 2012) http://sec.gov/litigation/admin/2012/33-9356.pdf In the Matter of Jay T. Comeaux Release No. 33-9355 (August 31, 2012) http://sec.gov/litigation/admin/2012/33-9355.pdf The Securities and Exchange Commission issued three administrative and cease-and-desist orders against Daniel Bogar, Bernerd E. Young, Jason T. Green, and Jay T. Comeaux, former executives and financial advisors of Stanford Financial Group, and Jason D’Amato, an executive of Stanford Capital Management. In one order, the Division of Enforcement alleged that from September 2006 through September 2009, D’Amato, the former President and Senior Investment Officer of Stanford Capital Management, LLC, an investment adviser registered with the SEC, misrepresented to investors and prospective investors the performance of a proprietary mutual fund wrap product known as Stanford Allocation Strategies. D’Amato, the portfolio manager for the SAS program, created and used personalized proposals in one-on-one presentations to prospective clients (Pitchbooks) that contained charts showing the annual performance of SAS strategies dating back to 2000. Pitchbooks created after May 2007, however, were materially misleading because they combined – under the heading “historical performance” – hypothetical, backtested data for 2000 to 2004 with audited, composite data for 2005 to 2008, without an appropriate explanation of the differences in the way the data was calculated and presented. D’Amato failed to disclose these facts to clients, prospective clients, and Stanford Group Company financial advisors. Additionally, the Division charged that from at least February 2005 through the Fall of 2008, D’Amato actively misrepresented his credentials to clients, prospective clients, and SGC financial advisors, holding himself out as a Chartered Financial Analyst when, in fact, he had never been a CFA charterholder. Based on D’Amato’s misrepresentations about his qualifications, SCM and SGC also actively promoted D’Amato as a CFA charterholder. Separately, the SEC issued a litigated administrative and cease-and-desist order against Daniel Bogar, Bernerd E. Young, and Jason T. Green, three former executives of Stanford Group Company, a dually registered U.S. broker-dealer and investment adviser owned by Robert Allen Stanford. In the order, the Division of Enforcement alleged that these former executives defrauded investors of certificates of deposit issued by an affiliated Antiguan bank, Stanford International Bank. The Division alleged that SGC marketed and sold SIB CDs to U.S. investors as safe and secure based on the purported liquid and diversified composition of SIB’s investment portfolio. However, the Division alleged, SIB repeatedly refused to reveal – even to its own affiliate, SGC – the contents of its portfolio. SGC also marketed and sold SIB CDs as “insured” even though the only backing they possessed was the full faith and credit of Allen Stanford. Further, according to the allegations in the order, SGC failed to disclose the significant conflicts of interest created by SGC’s overall reliance on cash infusions by SIB and by SGC’s CD-centric compensation program.

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Finally, in a settled order against Jay Comeaux, SGC’s former Executive Director and President, the SEC found that SGC defrauded investors of certificates of deposit issued by an affiliated Antiguan bank, Stanford International Bank. The SEC found that Comeaux knew that SGC marketed and sold SIB CDs to U.S. investors as safe and secure based on the purported liquid and marketable composition of SIB’s underlying investment portfolio. Comeaux also knew, however, that SIB refused to disclose the details of its investment portfolio to him or to any other SGC executives or representatives, so nobody at SGC could verify the purported size, liquidity, and marketability of the assets in SIB’s investment portfolio. The SEC also found that SGC: (i) marketed and sold SIB CDs to U.S. investors as being supported by a “comprehensive insurance program” that provided “depositor security;” and (ii) trained its financial advisors that FDIC insurance was “relatively weak” in comparison to SIB’s robust insurance program. However, Comeaux knew that the SIB CDs were not insured and that SIB did not maintain insurance that was the equivalent of – or better than – FDIC protection. Without admitting or denying the SEC’s charges, Comeaux consented to the entry of a final judgment enjoining him from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Comeaux agreed to be barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent, or nationally recognized statistical rating organization; from acting as an employee, officer, or director of a registered investment company; and from participating in any penny stock offering. Comeaux also agreed to participate in further administrative proceedings to determine what, if any, additional remedial action, including disgorgement and financial penalties, is appropriate. ACTIONS INVOLVING OTHER REGULATED ENTITIES AND SELF-REGULATORY ORGANIZATIONS In the Matter of eBX LLC Release No. 34-67969 (October 3, 2012) http://sec.gov/litigation/admin/2012/34-67969.pdf The Securities and Exchange Commission charged Boston-based dark pool operator eBX LLC with failing to protect the confidential trading information of its subscribers and failing to disclose to all subscribers that it allowed an outside firm to use their confidential trading information. According to the SEC’s order instituting a settled administrative proceeding, eBX operates the alternative trading system LeveL ATS, which it calls a “dark pool” trading program. Dark pools do not display quotations to the public, meaning that investors who subscribe to a dark pool have access to potential trade opportunities that other investors using public markets do not. eBX inaccurately informed its subscribers that their flow of orders to buy or sell securities would be kept confidential and not shared outside of LeveL. eBX instead allowed an outside technology firm to use information about LeveL subscribers’ unexecuted orders for its own business purposes. The outside firm’s separate order routing business therefore received an information advantage over other LeveL subscribers because it was able to use its knowledge of their orders to make routing decisions for its own customers’ orders and increase its execution rate. eBX had insufficient safeguards and procedures to protect subscribers’ confidential trading information.

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According to the SEC’s order, eBX and the outside firm it hired to run LeveL signed a subscription agreement in February 2008, after which the outside firm’s separate order routing business began to use certain LeveL subscribers’ confidential trading data. In November 2008, eBX signed a new agreement with the outside firm that allowed its order routing business to remember and use all LeveL subscribers’ unexecuted order information. As a result of the agreements, the outside firm’s order routing business began to fill far more of its orders than other LeveL users did. Its order router also knew how other eBX subscribers’ orders in LeveL were priced and could use that information to determine whether to route orders to LeveL or another venue based on where it knew it might get a better price for its own customers’ orders. According to the SEC’s order, eBX failed to disclose in required SEC filings that it allowed LeveL subscribers’ unexecuted order information to be shared outside of LeveL. eBX agreed to pay an $800,000 penalty to settle the charges, and agreed to be censured and ordered to cease and desist from committing or causing further violations of certain provisions of the federal securities laws regulating alternative trading systems. In the Matter of NYSE Euronext Release No. 34-67857 (September 14, 2012) http://sec.gov/litigation/admin/2012/34-67857.pdf The Securities and Exchange Commission charged the New York Stock Exchange for compliance failures that gave certain customers an improper head start on trading information. SEC Regulation NMS (National Market System) prohibits the practice of improperly sending market data to proprietary customers before sending that data to be included in what are known as consolidated feeds, which broadly distribute trade and quote data to the public. This ensures the public has fair access to current market information about the best displayed prices for stocks and trades that have occurred. According to the SEC's order against NYSE, the exchange violated this rule over an extended period of time beginning in 2008 by sending data through two of its proprietary feeds before sending data to the consolidated feeds. NYSE's inadequate compliance efforts failed to monitor the speed of its proprietary feeds compared to its data transmission to the consolidated feeds. The SEC's order found that NYSE violated Rule 603(a) of Regulation NMS and the record retention provisions of Section 17(a)(1) of the Securities Exchange Act and Rule 17a-1, and NYSE Euronext, which supplied the personnel responsible for these systems and compliance, caused the violations. NYSE and NYSE Euronext agreed to a settlement without admitting or denying the SEC’s findings. The order censured NYSE and required both NYSE and NYSE Euronext to cease and desist from committing or causing these violations. NYSE and NYSE Euronext were required to retain an independent consultant to conduct a comprehensive review of their market data delivery systems to ensure that they comply with Rule 603(a). Finally, NYSE and NYSE Euronext were ordered to pay a $5 million penalty, the first-ever SEC financial penalty against an exchange.

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SEC v. Steven H. Bethke Litigation Release No. 22385 (June 1, 2012) http://sec.gov/litigation/litreleases/2012/lr22385.htm On May 31, 2012, the Securities and Exchange Commission filed a settled civil action against Steven H. Bethke. In its complaint, the SEC alleged that, from January 2009 through May 2010, Bethke misappropriated share certificates from Bederra Corporation (now known as Zicix Corporation) while he controlled Bederra’s stock transfer agent, First National Trust Company. Bethke used the stolen certificates, which had been pre-printed with the signatures of Bederra officers and directors, to secretly issue over a billion Bederra shares, which he then sold in exchange for payments into his personal bank account of over $350,000. Among other things, Bethke signed purchase agreements falsely warranting that he had good title to the shares and that they were “freely tradable” when, in fact, he had orchestrated the misappropriation of the shares, and the sales were not eligible for any exemption from registration under the securities laws. To carry out his scheme, Bethke forged the signature of Bederra’s chief executive officer on certifications claiming that Bederra was aware of the sales when the company knew nothing about the transactions. Bethke also prepared letters falsely stating that he had obtained the shares from the company more than a year before, and that the sales were therefore exempt from registration under the securities laws. Without admitting or denying the allegations in the SEC’s complaint, Bethke consented to a final judgment enjoining him from violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; barring him from serving as an officer or director of a public company; barring him from participating in the offering or sale of a penny stock; and ordering disgorgement plus prejudgment interest, but waiving payment and not imposing a civil penalty based on Bethke’s financial condition. Bethke also consented in a related SEC administrative proceeding to the entry of an SEC order barring him from association with any investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical organization. ACTIONS INVOLVING VIOLATIONS OF THE FOREIGN CORRUPT PRACTICES ACT SEC v. Tyco International Ltd. Litigation Release No. 22491 (September 24, 2012) http://sec.gov/litigation/litreleases/2012/lr22491.htm The Securities and Exchange Commission filed a settled civil action against Tyco International Ltd. The complaint alleged that Tyco violated the books and records, internal controls, and anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA). Tyco agreed to pay over $13 million in disgorgement and prejudgment interest to settle the charges. In April 2006, the SEC filed a settled accounting fraud, disclosure, and FCPA injunctive action against Tyco. At the time of the 2006 settlement, Tyco had committed to and commenced a review of its FCPA compliance and a global internal investigation of possible additional FCPA violations. As a result of that review and investigation, certain FCPA violations have come to light for which the misconduct occurred, or the benefit to Tyco continued, after the 2006 injunction. Those are the violations that are alleged in the complaint.

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Accordingly, the SEC’s complaint alleged that, from 2006 to 2009, Tyco subsidiaries operated twelve illicit payment schemes. Many of the schemes involved fake commissions and related payments, and several also included the use of third-party agents to funnel money improperly. The complaint further alleged that Tyco’s books and records were misstated as a result of the misconduct and that Tyco failed to devise and maintain internal controls sufficient to detect the violations. The complaint also alleged that payments by a sales agent to Turkish government officials violated the anti-bribery provisions of the FCPA. In settling the SEC’s charges, Tyco consented to the entry of a proposed final judgment permanently enjoining it from violating Sections 13(b)(2)(A), 13(b)(2)(B), and 30A(a) of the Securities Exchange Act of 1934 and ordering it to pay disgorgement of $10,564,992, plus prejudgment interest of $2,566,517. According to the SEC’s complaint, Tyco voluntarily disclosed this conduct to the SEC and thereafter took remedial measures, including firing the employees involved in the misconduct, exiting certain lines of business, and making enhancements to its FCPA compliance program. SEC v. Oracle Corp., Litigation Release No. 22450 (August 16, 2012) http://sec.gov/litigation/litreleases/2012/lr22450.htm The Securities and Exchange Commission charged Oracle Corporation with violating the Foreign Corrupt Practices Act (FCPA) by failing to prevent a subsidiary from secretly setting aside money off the company's books that was eventually used to make unauthorized payments to phony vendors in India. The SEC alleged that certain employees of the Indian subsidiary of the Redwood Shores, Calif.-based enterprise systems company structured transactions with India's government on over a dozen occasions in a way that enabled Oracle India's distributors to hold approximately $2.2 million of the proceeds in unauthorized side funds. Those Oracle India employees then directed the distributors to make payments out of these side funds to purported local vendors, several of which were merely storefronts that did not provide any services to Oracle. Oracle's subsidiary documented certain payments with fake invoices. The SEC's complaint charges Oracle with violating Sections 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934. Oracle agreed to settle the SEC's charges without admitting or denying the allegations. Oracle consented to the entry of a final judgment permanently enjoining it from violating Sections 13(b)(2)(A) and (B) of the Exchange Act, and requiring it to pay a $2 million civil penalty. The settlement took into account Oracle's voluntary disclosure of the conduct in India and its cooperation with the SEC's investigation, as well as remedial measures taken by the company, including firing the employees involved in the misconduct and making significant enhancements to its FCPA compliance program.

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SEC v. Pfizer Inc. Litigation Release No. 22438 (August 8, 2012) http://www.sec.gov/litigation/litreleases/2012/lr22438.htm

The Securities and Exchange Commission filed a settled enforcement action against Pfizer Inc. for violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries bribed doctors and other health care professionals employed by foreign governments in order to win business.

The SEC alleged that employees and agents of Pfizer’s subsidiaries in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia, and Serbia made improper payments to foreign officials to obtain regulatory and formulary approvals, sales, and increased prescriptions for the company’s pharmaceutical products. They tried to conceal the bribery by improperly recording the transactions in accounting records as legitimate expenses for promotional activities, marketing, training, travel and entertainment, clinical trials, freight, conferences, and advertising.

The SEC filed a separate settled enforcement action against another pharmaceutical company that Pfizer acquired a few years ago – Wyeth LLC – for its own FCPA violations. Pfizer and Wyeth agreed to separate settlements in which they will pay approximately $45 million combined in disgorgement and prejudgment interest to the SEC to settle their respective charges. In a related action, Pfizer H.C.P. Corporation, an indirect wholly owned subsidiary of Pfizer, will pay a $15 million penalty to settle FCPA charges brought against it by the U.S. Department of Justice (DOJ) under a deferred prosecution agreement.

In settling the SEC’s charges, Wyeth neither admitted nor denied the allegations. Pfizer consented to the entry of a final judgment ordering it to pay disgorgement of $16,032,676 in net profits and prejudgment interest of $10,307,268 for a total of $26,339,944. Pfizer also is required to report to the SEC on the status of its remediation and implementation of compliance measures over a two-year period, and is permanently enjoined from further violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. Wyeth consented to the entry of a final judgment ordering it to pay disgorgement of $17,217,831 in net profits and prejudgment interest of $1,658,793, for a total of $18,876,624.

SEC v. Orthofix International N.V. Litigation Release No. 22412 (July 10, 2012) http://www.sec.gov/litigation/litreleases/2012/lr22412.htm

The Securities and Exchange Commission charged Texas-based medical device company Orthofix International N.V. with violating the Foreign Corrupt Practices Act (FCPA) when a subsidiary paid routine bribes referred to as “chocolates” to Mexican officials in order to obtain lucrative sales contracts with government hospitals.

The SEC alleged that Orthofix’s Mexican subsidiary Promeca S.A. de C.V. bribed officials at Mexico’s government-owned health care and social services institution Instituto Mexicano del Seguro Social (IMSS). The “chocolates” came in the form of cash, laptop computers, televisions, and appliances that were provided directly to Mexican government officials or indirectly through front companies that the officials owned. The bribery scheme lasted for several years and yielded nearly $5 million in illegal profits for the Orthofix subsidiary.

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According to the SEC’s complaint, the bribes began in 2003 and continued until 2010. Initially, Promeca falsely recorded the bribes as cash advances and falsified its invoices to support the expenditures. Later, when the bribes got much larger, Promeca falsely recorded them as promotional and training costs. Because of the bribery scheme, Promeca’s training and promotional expenses were significantly over budget. Orthofix did launch an inquiry into these expenses, but did very little to investigate or diminish the excessive spending. Later, upon discovery of the bribe payments through a Promeca executive, Orthofix immediately self-reported the matter to the SEC and implemented significant remedial measures. The company terminated the Promeca executives who orchestrated the bribery scheme.

Orthofix consented to a final judgment ordering it to pay $4,983,644 in disgorgement and more than $242,000 in prejudgment interest. The final judgment would permanently enjoined the company from violating Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. Orthofix also agreed to certain undertakings, including monitoring its FCPA compliance program and reporting back to the SEC for a two-year period.

ACTIONS INVOLVING MUNICIPAL SECURITIES Goldman, Sachs & Co. and Neil M.M. Morrison Release No. 34-67934 (September 27, 2012) http://sec.gov/litigation/admin/2012/34-67934.pdf In the first Securities and Exchange Commission enforcement action for pay-to-play violations involving "in-kind" non-cash contributions to a political campaign, the SEC charged Goldman, Sachs & Co. and one of its former investment bankers with "pay-to-play" violations involving undisclosed campaign contributions to then-Massachusetts state treasurer Timothy P. Cahill while he was a candidate for governor. According to the SEC's order against Goldman Sachs, Neil M.M. Morrison was a vice president in the firm's Boston office and solicited underwriting business from the Massachusetts treasurer's office beginning in July 2008. Morrison also was substantially engaged in working on Cahill's political campaigns from November 2008 to October 2010. Morrison at times conducted campaign activities from the Goldman Sachs office during work hours and using the firm's phones and e-mail. Morrison's use of Goldman Sachs work time and resources for campaign activities constituted valuable in-kind campaign contributions to Cahill that were attributable to Goldman Sachs and disqualified the firm from engaging in municipal underwriting business with certain Massachusetts municipal issuers for two years after the contributions. Nevertheless, Goldman Sachs subsequently participated in 30 prohibited underwritings with Massachusetts issuers and earned more than $7.5 million in underwriting fees. The SEC's order against Goldman Sachs found that the firm violated Section 15B(c)(1) of the Exchange Act and MSRB Rule G-37(b), which prohibits firms from underwriting offerings for municipal issuers within two years after any contribution to an official of such issuer. The SEC's order found that Goldman Sachs did not disclose any of the contributions on MSRB Forms G-37, and did not make or keep records of the contributions in violation of MSRB Rules G-37(e), G-8 and G-9. The order found that Goldman Sachs did not take steps to ensure that the attributed contributions or campaign work or the conflicts of interest raised by them were disclosed in the bond offering documents, in violation of MSRB Rule G-17, which requires broker-dealers to deal fairly and not engage in any deceptive,

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dishonest, or unfair practice. The order found that Goldman Sachs failed to effectively supervise Morrison in violation of MSRB Rule G-27. Goldman Sachs consented to the SEC's order without admitting or denying the findings and agreed to pay $7,558,942 in disgorgement, $670,033 in prejudgment interest, and a $3.75 million penalty, which is the largest ever imposed by the SEC for Municipal Securities Rulemaking Board (MSRB) pay-to-play violations. In addition, Goldman Sachs agreed to be censured and to cease and desist from committing or causing any violations and any future violations of the provisions referenced in the order. In its litigated order against Morrison, the SEC's Enforcement Division alleged that Morrison violated MSRB Rule G-37(d) by making a secret, undisclosed cash campaign contribution to Cahill, that he violated MSRB Rule G-37(c) by soliciting campaign contributions for Cahill, and that he violated MSRB Rule G-17 by failing to disclose conflicts of interest to the purchasers of municipal securities. The Division of Enforcement further alleged that Morrison caused Goldman Sachs to violate Rule G-8, Rule G-9, Rule G-37(b) and Rule G-37(e). SEC v. Kwame M. Kilpatrick, et al. Litigation Release No. 22362 (May 9, 2012) http://sec.gov/litigation/litreleases/2012/lr22362.htm The Securities and Exchange Commission charged former Detroit mayor Kwame M. Kilpatrick, former city treasurer Jeffrey W. Beasley, and the investment adviser to the city’s public pension funds involved in a secret exchange of lavish gifts to peddle influence over the funds’ investment process. The SEC’s complaint alleged that Kilpatrick and Beasley, who were trustees to the pension funds, solicited and received $125,000 worth of private jet travel and other perks paid for by MayfieldGentry Realty Advisors LLC, an investment adviser whose CEO Chauncey Mayfield was recommending to the trustees that the pension funds invest approximately $117 million in a real estate investment trust (REIT) controlled by the firm. Despite their fiduciary duties, neither Kilpatrick and Beasley nor Mayfield and his firm informed the boards of trustees about these trips and the conflicts of interest they presented. The funds ultimately voted to approve the REIT investment, and MayfieldGentry received millions of dollars in management fees. The SEC’s complaint alleged that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a), 10b-5(b) and 10b-5(c) thereunder. The SEC also alleged that MayfieldGentry and Chauncey Mayfield violated Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act of 1933. In addition, the SEC charged that MayfieldGentry and Chauncey Mayfield violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and Kilpatrick and Beasley aided and abetted those violations. The SEC sought disgorgement of ill-gotten gains, penalties, and permanent injunctions, including an injunction against Kilpatrick and Beasley to prohibit them from participating in any decisions involving investments in securities by public pensions.

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ACTIONS INVOLVING INSIDER TRADING SEC v. Thomas C. Conradt, et al. Litigation Release No. 22549 (November 29, 2012) http://sec.gov/litigation/litreleases/2012/lr22549.ht On November 29, 2012, the Securities and Exchange Commission charged two retail brokers who formerly worked at a Connecticut-based broker-dealer with insider trading on nonpublic information ahead of IBM Corporation’s acquisition of SPSS Inc. The SEC alleged that Thomas C. Conradt learned confidential details about the merger from his roommate, a research analyst who got the information from an attorney working on the transaction who discussed it in confidence. Conradt purchased SPSS securities and subsequently tipped his friend and fellow broker David J. Weishaus, who also traded. The insider trading yielded more than $1 million in illicit profits. The SEC’s investigation uncovered instant messages between Conradt and Weishaus where they openly discussed their illegal activity. The SEC alleged that Conradt, Weishaus, and other downstream tippees purchased common stock and call options in SPSS. The traders invested so heavily in SPSS securities that the investments accounted for 76 percent to 100 percent of their various brokerage accounts. Conradt and Weishaus both hold law degrees. Conradt is admitted to practice law in Maryland, and he passed the Colorado bar examination administered in February 2012. The SEC alleged that Conradt and Weishaus violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In the complaint, the SEC sought disgorgement of ill-gotten gains with prejudgment interest and financial penalties, and a permanent injunction against the brokers. SEC v. CR Intrinsic Investors, LLC et al. Litigation Release No. 22539 (November 20, 2012) http://sec.gov/litigation/litreleases/2012/lr22539.htm The Securities and Exchange Commission charged Stamford, Conn.-based hedge fund advisory firm CR Intrinsic Investors LLC and its former portfolio manager along with a medical consultant for an expert network firm for their roles in a $276 million insider trading scheme involving a clinical trial for an Alzheimer's drug being jointly developed by two pharmaceutical companies. The illicit gains generated in this scheme make it the largest insider trading case ever charged by the SEC. The SEC alleged that Mathew Martoma illegally obtained confidential details about the clinical trial from Dr. Sidney Gilman, who served as chairman of the safety monitoring committee overseeing the trial. Dr. Gilman was selected by Elan Corporation and Wyeth to present the final drug trial results to the public. In phone calls that were arranged by a New York-based expert network firm for which he moonlighted as a medical consultant, Dr. Gilman tipped Martoma with safety data and eventually details about negative results in the trial about two weeks before they were made public in July 2008. Martoma then caused several hedge funds to sell more than $960 million in Elan and Wyeth securities in just over a week.

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The SEC alleged that Martoma caused hedge funds managed by CR Intrinsic as well as hedge funds managed by an affiliated investment adviser to trade on the negative inside information he received from Dr. Gilman. Although Elan and Wyeth's shares rose on June 17, 2008, on the public release of top-line results of the Phase II trial, market participants were disappointed by the detailed final results issued on July 29, 2008. Double-digit declines in Elan and Wyeth shares ensued. After Martoma was tipped, the hedge funds not only liquidated their combined long position in Elan and Wyeth of more than $700 million, but went on to hold substantial short positions in both securities. This massive repositioning allowed CR Intrinsic and the affiliated advisory firm to reap approximately $82 million in profits and $194 million in avoided losses for a total of more than $276 million in illicit gains. According to the SEC's complaint, Martoma received a $9.3 million bonus at the end of 2008 - a significant portion of which was attributable to the illegal profits that the hedge funds managed by CR Intrinsic and the other investment advisory firm had generated in this scheme. Dr. Gilman, who was generally paid $1,000 per hour as a consultant for the expert network firm, received more than $100,000 for his consultations with Martoma and others at the hedge fund advisory firms. Dr. Gilman also received approximately $79,000 from Elan for his consultations concerning bapi in 2007 and 2008. The SEC's complaint charged each of the defendants with violating Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and sought a final judgment ordering them to disgorge their ill-gotten gains plus prejudgment interest, ordering them to pay financial penalties, and permanently enjoining them from future violations of these provisions of the federal securities laws. Dr. Gilman, a medical school professor, agreed to settle the SEC's charges and cooperate in this action and related SEC investigations. In his settlement, he agreed to pay more than $234,000 in disgorgement and prejudgment interest. He also agreed to a permanent injunction against further violations of the federal securities laws. SEC v. John Lazorchak, et al. Litigation Release No. 22535 (November 19, 2012) http://sec.gov/litigation/litreleases/2012/lr22535.htm The Securities and Exchange Commission charged three health care company employees and four others in a New Jersey-based insider trading ring of various high school friends generating $1.7 million in illegal profits and kickbacks by trading in advance of 11 public announcements involving mergers, a drug approval application, and quarterly earnings of pharmaceutical companies and medical technology firms. The SEC alleged that Celgene Corporation’s director of financial reporting John Lazorchak, Sanofi S.A.’s director of accounting and reporting Mark S. Cupo, and Stryker Corporation’s marketing employee Mark D. Foldy each illegally tipped confidential information about their companies for the purpose of insider trading. Typically the nonpublic information involved upcoming mergers or acquisitions, but Lazorchak also tipped confidential details about Celgene’s quarterly earnings and the status of a Celgene application to expand the use of its drug Revlimid. The trading was carefully orchestrated so there was usually someone acting solely as a non-trading middleman who received the nonpublic information from the insider and tipped others. They hoped to avoid detection with no direct

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connection between the insiders and the traders, and the insiders were later compensated for the inside information with cash payments made in installments to avoid any scrutiny of large cash withdrawals. The SEC alleged that Cupo’s friend Michael Castelli along with Lawrence Grum, who attended high school with Castelli, were the primary traders in the scheme. The other two traders charged are Lazorchak’s high school friends Michael T. Pendolino and James N. Deprado, who now live in New Hampshire and Virginia respectively. The others live in New Jersey. The SEC alleged that each of the defendants violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder and that Castelli and Grum violated Section 17(a) of the Securities Act of 1933. In its Complaint, the SEC sought permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, financial penalties, and officer and director bars for Lazorchak, Cupo, and Foldy. SEC v. Kris Chellam Litigation Release No. 22523 (October 26, 2012) http://sec.gov/litigation/litreleases/2012/lr22523.htm On October 24, 2012, the Securities and Exchange Commission charged Kris Chellam, a former senior executive at a Silicon Valley technology company, for illegally tipping convicted hedge fund manager Raj Rajaratnam with nonpublic information that allowed the Galleon hedge funds to make nearly $1 million in illicit profits. Chellam was the 32nd defendant charged in the SEC’s Galleon-related enforcement actions. The SEC alleged that Chellam tipped Rajaratnam in December 2006 with confidential details from internal company reports indicating that Xilinx Inc. would fall short of revenue projections it had previously made publicly. The tip enabled Rajaratnam to engage in short selling of Xilinx stock to illicitly benefit the Galleon funds. Chellam tipped Rajaratnam, who was a close friend, at a time when Chellam had his own substantial investment in Galleon funds and was in discussions with Rajaratnam about prospective employment at Galleon. Chellam was hired at Galleon in May 2007. According to the SEC's complaint, the Galleon hedge funds reaped approximately $978,684 in illegal profits after the December 7 announcement by covering a substantial short position that Rajaratnam had accumulated based on Chellam's tip. Chellam had more than $1 million invested in one of the Galleon hedge funds in which Rajaratnam placed these trades. In May 2007, Chellam became the co-managing partner of the Galleon Special Opportunities Fund, a venture capital fund that focused on investments in late-stage technology companies. Chellam continued to work at Galleon until April 2009 and continued to obtain confidential information about Xilinx's financial performance and pass it along to Galleon colleagues. Chellam earned approximately $675,000 in total compensation during his employment at Galleon. The SEC's complaint charged Chellam with violations of 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 proposed final judgment ordered Chellam to pay $675,000 in disgorgement, $106,383.05 in prejudgment interest, and a $978,684 penalty; barred him for a period of five years from serving as an officer or director of a public company,

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and permanently enjoined him from future violations of the provisions charged. Chellam neither admitted nor denied the charges. SEC v. Jauyo (“Jason”) Lee and Victor Chen Litigation Release No. 22497 (September 27, 2012) http://sec.gov/litigation/litreleases/2012/lr22497.htm The Securities and Exchange Commission charged a former analyst at a Boston-based investment bank with illegally tipping a close friend with confidential information about clients involved in impending mergers and acquisitions. The SEC alleged that Jauyo “Jason” Lee, who worked in the San Francisco office of Leerink Swann LLC, gleaned sensitive nonpublic information about the deals from unsuspecting co-workers involved with those clients and by reviewing various internal documents about the transactions, which involved medical device companies. Lee tipped his longtime college friend Victor Chen of Sunnyvale, Calif., with the confidential information, and Chen traded heavily on the basis of the nonpublic details that Lee had a duty to protect. Chen made more than $600,000 in illicit profits, which was a 237 percent return on his initial investment. Bank records reveal a pattern of large cash withdrawals by Lee followed by large cash deposits by Chen, who then used the money for the insider trading. Because Chen made some of his trades in his sister Jennifer Chen’s account, the SEC’s complaint also names her as a relief defendant for the purposes of recovering the illegal profits in her account. The SEC alleged that Lee and Chen violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The complaint sought disgorgement of ill-gotten gains with prejudgment interest, financial penalties, and permanent injunctions against Lee and Chen. SEC v. Waldyr Da Silva Prado Neto Litigation Release No. 22486 (September 21, 2012) http://sec.gov/litigation/litreleases/2012/lr22486.htm On September 21, 2012, the Securities and Exchange Commission obtained an emergency court order to freeze the assets of a stockbroker who used nonpublic information from a customer and engaged in insider trading ahead of Burger King Holding, Inc.’s (“Burger King”) September 2, 2010 announcement that it was being acquired by a New York private equity firm. The SEC alleged that Waldyr Da Silva Prado Neto (“Prado”), a citizen of Brazil who was working for Wells Fargo Advisors, LLC in Miami, learned about the impending acquisition from a brokerage customer who invested at least $50 million in a fund managed by private equity firm 3G Capital Partners Ltd. (“3G Capital”) and used to acquire Burger King. Prado misused the confidential information to illegally trade in Burger King stock for $175,000 in illicit profits, and he tipped others living in Brazil and elsewhere who also traded on the nonpublic information. The agency took the emergency action to prevent Prado from transferring his assets outside of U.S. jurisdiction. Prado recently abandoned his most current job at Morgan Stanley Smith Barney, put his Miami home up for sale, and began transferring all of his assets out of the country.

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The SEC’s complaint against Prado sought a permanent injunction from violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder, disgorgement with prejudgment interest and monetary penalties. SEC v. James V. Mazzo, David L. Parker and Eddie C. Murray Litigation Release No. 22451 (August 17, 2012) http://sec.gov/litigation/litreleases/2012/lr22451.htm The Securities and Exchange Commission filed a second round of charges in an insider trading case involving former professional baseball players and the former top executive at a California-based medical eye products company that was the subject of the illegal trading. The SEC brought initial charges in the case last year, accusing former professional baseball player Doug DeCinces and three others of insider trading on confidential information ahead of an acquisition of Advanced Medical Optics Inc. DeCinces and his three tippees made more than $1.7 million in illegal profits, and they agreed to pay more than $3.3 million to settle the SEC’s charges. On August 17, 2012, the SEC charged the source of those illegal tips about the impending transaction – DeCinces’s close friend and neighbor James V. Mazzo, who was the Chairman and CEO of Advanced Medical Optics. The SEC also charged two others who traded on inside information that DeCinces tipped to them – DeCinces’ former Baltimore Orioles teammate Eddie Murray and another friend David L. Parker, who is a businessman living in Utah. According to the SEC’s complaint, the total unlawful profits resulting from Mazzo’s illegal tipping was more than $2.4 million. The SEC alleged that Murray made approximately $235,314 in illegal profits after Illinois-based Abbott Laboratories Inc. publicly announced its plan to purchase Advanced Medical Optics through a tender offer. Murray agreed to settle the charges against him without admitting or denying the SEC’s allegations by consenting to the entry of a final judgment permanently enjoining him from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. Murray agreed to pay disgorgement of $235,314, prejudgment interest of $5,180, and a penalty of $117,657 for a total of $358,151. SEC v. Robert D. Ramnarine Litigation Release No. 22433 (August 3, 2012) http://sec.gov/litigation/litreleases/2012/lr22433.htm On August 2, 2012, the Securities and Exchange Commission charged an executive at Bristol-Myers Squibb with insider trading on confidential information about companies being targeted for potential acquisitions. The SEC alleged that Robert D. Ramnarine, who lives in East Brunswick, N.J., made more than $300,000 in illegal profits by misusing nonpublic information he obtained while helping Bristol-Myers Squibb evaluate whether to acquire three other pharmaceutical companies. He used multiple personal brokerage accounts to illegally trade in stock options of these potential target companies. Prior to some trading, Ramnarine conducted Internet research from his Bristol computer to determine whether he could be detected by regulators. He searched for such phrases as “can stock option be traced to

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purchaser” and “illegal insider trading options trace” and viewed such articles as “Ways to Avoid Insider Trading.” Ramnarine even viewed a press release on the SEC’s website announcing an enforcement action arising from illegal trading in call options in advance of an acquisition announcement. The SEC alleged that Ramnarine violated Section 17(a) of the Securities Act of 1933 and Sections 10(b) and (14)(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The Complaint sought disgorgement of ill-gotten gains with prejudgment interest, a financial penalty, an officer-and-director bar, a permanent injunction, and an order freezing the assets in Ramnarine’s brokerage accounts. SEC v. Well Advantage Limited, et al. Litigation Release No. 22428 (July 30, 2012) http://sec.gov/litigation/litreleases/2012/lr22428.htm Litigation Release No. 22515 (October 19, 2012) http://sec.gov/litigation/litreleases/2012/lr22515.htm Litigation Release No. 22436 (August 6, 2012) http://sec.gov/litigation/litreleases/2012/lr22436.htm On July 27, 2012, the Securities and Exchange Commission obtained an emergency court order to freeze the assets of traders using trading accounts in Hong Kong and Singapore to reap more than $13 million in illegal profits by trading in advance of a public announcement that China-based CNOOC Ltd. agreed to acquire Canada-based Nexen Inc. The SEC alleged that Hong Kong-based firm Well Advantage Limited and other unknown traders stockpiled shares of Nexen stock based on confidential information about the deal in the days leading up to the announcement. Well Advantage is controlled by prominent Hong Kong businessman Zhang Zhi Rong, who also controls another company that has a “strategic cooperation agreement” with CNOOC. The SEC alleged that Well Advantage and certain unknown traders were in possession of material nonpublic information about the impending acquisition when they purchased Nexen’s stock in the days leading up to the public announcement. Well Advantage purchased more than 830,000 shares of Nexen on July 19 and had an unrealized trading profit of more than $7 million based on Nexen’s closing price on the day of the announcement. The other unknown traders used accounts located in Singapore to purchase more than 676,000 Nexen shares in the days preceding the announcement. They immediately sold nearly all of the stock once the announcement was made for illicit profits of approximately $6 million. The emergency court order obtained by the SEC froze the assets of the traders valued at more than $38 million, and prohibited the traders from destroying any evidence. One week later, on Friday, August 3, 2012, the SEC filed an amended complaint adding allegations that additional unknown traders in possession of material nonpublic information purchased Nexen stock in the days leading up to the public announcement of its acquisition. According to the SEC’s First Amended Complaint, the additional unknown traders opened a U.S. brokerage account through Hong

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Kong-based CSI Capital Management Limited only one week before the announcement and purchased 250,000 shares of Nexen stock during the following two days at a cost of approximately $4.2 million. Immediately following the announcement, the unknown traders sold these shares for nearly $6.5 million, reaping approximately $2.3 million in illegal profits. In connection with filing the First Amended Complaint, the SEC obtained another emergency court order freezing nearly $6.5 million in the assets of these additional traders, bringing the total value of assets frozen in this case to more than $44 million. The SEC’s complaint charged the unknown traders with violating Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. In addition to the emergency relief, the SEC requested a final judgment ordering the traders to disgorge their ill-gotten gains with interest and pay financial penalties, and permanently barring them from future violations. Additionally, on August 6, 2012, the Securities and Exchange Commission obtained an emergency court order to freeze more than $6 million in assets of additional unknown traders who made approximately $2.3 million in illegal profits by trading in advance of the July 23, 2012 announcement that China-based CNOOC Ltd. had agreed to acquire Canada-based Nexen Inc. for approximately $15.1 billion. On October 18, 2012, the Securities and Exchange Commission announced that Well Advantage agreed to settle the case by paying more than $14 million, which is double the amount of its alleged illicit profits. Well Advantage agreed to the entry of a final judgment requiring payment of $7,122,633.52 in illegal profits made from trading Nexen stock, and payment of a $7,122,633.52 penalty. The proposed judgment also enjoined Well Advantage from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. Well Advantage neither admitted nor denied the charges. SEC v. Manouchehr Moshayedi Litigation Release No. 22419 (July 20, 2012) http://sec.gov/litigation/litreleases/2012/lr22419.htm On July 19, 2012, the Securities and Exchange Commission 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 alleged 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.

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The SEC’s complaint charged Moshayedi with violating the anti-fraud provisions of U.S. securities laws and sought 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. SEC v. Tai Nguyen Litigation Release No. 22401 (June 27, 2012) http://sec.gov/litigation/litreleases/2012/lr22401.htm On June 26, 2012, the Securities and Exchange Commission filed a civil injunctive action charging Tai Nguyen, the owner of the California-based equity research firm Insight Research, with insider trading. The charges stem from the SEC’s ongoing investigation of insider trading involving so-called “expert networks” that provide specialized information to investment firms. Nguyen was the 23rd defendant charged by the SEC in enforcement actions arising out of its expert networks investigation, which has uncovered widespread insider trading at several hedge funds and other investment advisory firms. The SEC alleged that from 2006 through 2009, Nguyen frequently traded in the securities of Abaxis, Inc. based on inside information he received from a close relative employed at Abaxis. Nguyen repeatedly traded for himself in advance of the company’s quarterly earnings announcements while in possession of key data in those announcements, reaping tens of thousands of dollars in illicit profits. Nguyen also passed that same information to hedge fund clients of Insight Research, who used the inside information to make millions of dollars in profits from trading Abaxis securities. In addition to trading in his own account, the SEC alleged that Nguyen passed the inside information to New York-based Barai Capital Management and Boston-based Sonar Capital Management, both of which were clients of Nguyen’s firm, Insight Research. The two hedge fund managers – who collectively were paying Insight Research tens of thousands of dollars each month – traded Abaxis securities based on the inside information that Nguyen provided and reaped more than $7.2 million in illicit gains for their hedge funds. The SEC’s complaint charged Nguyen with violating the anti-fraud provisions of U.S. securities laws and sought a final judgment ordering him to disgorge his ill-gotten gains, with interest, and pay financial penalties, and permanently barring him from future violations.

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SEC v. Reema D. Shah and Robert W. Kwok Litigation Release No. 22372 (May 22, 2012) http://sec.gov/litigation/litreleases/2012/lr22372.htm The Securities and Exchange Commission filed insider trading charges against Robert W. Kwok, a former Senior Director of Business Management at Yahoo! Inc., and Reema D. Shah, a former mutual fund and hedge fund portfolio manager at RiverSource Investments, LLC, an investment adviser subsidiary of Ameriprise Financial, Inc. The SEC alleged that Kwok and Shah illegally tipped and traded on material, nonpublic information concerning Yahoo and Moldflow Corporation. The SEC alleged that in July 2009, Kwok, in breach of his duty to Yahoo, tipped Shah material, nonpublic information that an internet search engine partnership agreement between Yahoo and Microsoft Corporation, which had long been the subject of market rumors, would be announced soon. The SEC alleged that, based on Kwok’s tip, Shah caused certain of the funds she helped manage, including the Seligman Communications and Information Fund, to purchase approximately 700,000 shares of Yahoo. The shares were later sold resulting in profits of approximately $389,000. The SEC further alleged that, in April 2008, Shah tipped Kwok material, nonpublic information concerning an upcoming acquisition of Moldflow by Autodesk, Inc. As alleged in the complaint, this inside information had been misappropriated by an Autodesk insider and tipped to Shah. The SEC alleged that, based on this tip, Kwok purchased 1,500 shares of Moldflow in a personal account, which he subsequently sold after announcement of the acquisition, realizing profits of approximately $4,750. As a result of the conduct alleged in the complaint, the SEC alleged that Kwok and Shah violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Both Kwok and Shah agreed to consent to judgments permanently enjoining the defendants from future violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5, barring Kwok from serving as an officer or director of public company, and providing that the Court will later determine issues relating to disgorgement and civil penalties. In a related administrative proceeding, Shah also consented to the entry of an SEC Order barring her from association with any investment adviser, broker, dealer, municipal securities dealer, or transfer agent. SEC v. Mohammed Mark Amin, Robert Reza Amin, Michael Mahmood Amin, Sam Saeed Pirnazar, Mary Teresa Coley, and Ali Tashakori Litigation Release No. 22360A (May 8, 2012) http://sec.gov/litigation/litreleases/2012/lr22360a.htm The Securities and Exchange Commission charged a Hollywood movie producer along with his brother, cousin, and three others in his circle of friends and business partners with insider trading in the stock of a company for which he served on the board of directors. The SEC alleged that Mohammed Mark Amin, prior to a company board meeting, learned confidential information about expanding business opportunities for DuPont Fabros Technology Inc., which develops and manages highly-specialized and secure facilities that maintain large computer servers for technology companies through long-term leases with them. The SEC alleged that Amin tipped his brother Robert Reza Amin, cousin Michael Mahmood Amin, and long-time friend and business manager Sam Saeed Pirnazar with nonpublic details about three new leases that DuPont Fabros was negotiating and three loans it was obtaining to develop new facilities. The SEC also alleged that the three illegally

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traded on the basis of that inside information. Reza Amin went on to tip his friends and business associates Mary Coley and Ali Tashakori, who also illegally traded. Together they made more than $618,000 in insider trading profits when DuPont Fabros stock rose 36 percent after the company issued an earnings release highlighting the development of these new facilities. The SEC’s complaint charged the Amins, Pirnazar, Coley, and Tashakori with violating Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5(a) and (c) thereunder. Without admitting or denying the allegations, they agreed to collectively pay disgorgement of $618,497, prejudgment interest of $78,000, and penalties totaling $1,236,994. They also agreed to the entry of a final judgment permanently enjoining them from violating Section 10(b) of the Exchange Act and Rule 10b-5. Mark Amin additionally agreed to a bar from serving as an officer or director of a public company for 10 years. ACTIONS INVOLVING MARKET MANIPULATION

In the Matter of Hold Brothers On-Line Investment Services, LLC, et al. Release No. 34-67924, 40- 30213 (September 25, 2012) http://sec.gov/litigation/admin/2012/34-67924.pdf The Securities and Exchange Commission issued a settled administrative and cease-and-desist order against a New York-based brokerage firm and three executives for allowing traders outside the U.S. to access the markets and conduct manipulative trading through accounts the firm controlled. According the SEC’s order, Hold Brothers On-Line Investment Services ignored red flags indicating that overseas traders were accessing the markets through the firm’s customer accounts and repeatedly manipulating publicly-traded stocks through an illegal practice known as “layering” or “spoofing.” In layering, the trader places orders with no intention of having them executed but rather to trick others into buying or selling a stock at an artificial price driven by the orders that the trader later cancels. Hold Brothers’ president and co-founder Steve Hold, former chief compliance officer and chief financial officer Robert Vallone, and a third executive William Tobias were aware of several e-mails and other indications that manipulative trading was occurring through Hold Brothers accounts, yet they failed to properly investigate the warning signs and recklessly continued to provide overseas traders with buying power and access to the U.S. markets. The SEC also charged two Hold Brothers customers whose accounts were used for the manipulative trading. The two foreign companies – Trade Alpha Corporate Ltd. and Demostrate LLC – were created and partially owned by Steve Hold, so essentially Hold provided the capital for the manipulative trading by the overseas traders. The six individuals and entities charged in the SEC’s case agreed to pay a total of $4 million in disgorgement and penalties to settle the charges. The order found that Hold Brothers willfully violated Sections 9(a)(2) and 17(a) of the Securities Exchange Act of 1934 and Rules 17a-4 and 17a-8, and failed reasonably to supervise its associated persons, the overseas traders, with a view to preventing and detecting their violations. The order also found that Demostrate and Trade Alpha violated Section 9(a)(2) of the Exchange Act. The order found that each of the individual respondents willfully aided and abetted and caused each entity’s violations of Section 9(a)(2) of the Exchange Act, and that Steve Hold failed reasonably to supervise Vallone. The SEC’s charges were settled without admitting or denying the findings:

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Hold Brothers agreed to pay $635,000 in disgorgement and interest and nearly $1.9 million in penalties. The firm also agreed to a censure and to cease and desist from committing or causing the violations charged. Trade Alpha and Demostrate agreed to pay more than $1.25 million in disgorgement and to cease and desist from committing or causing the violations charged. Hold, Vallone, and Tobias each agreed to pay $75,000 penalties and accept industry bars with a right to reapply for association (after three years for Vallone and Tobias and after two years for Hold). They also agreed to cease and desist from committing or causing the violations charged. Hold additionally agreed to be barred from acting in a supervisory capacity with a right to reapply after three years, which will run concurrently with his two-year industry bar. SEC v. Anthony K. Welch Litigation Release No. 22463 (August 31, 2012) http://sec.gov/litigation/litreleases/2012/lr22463.htm On August 31, 2012, the Securities and Exchange Commission filed a civil action against Anthony K. Welch, a former investment adviser formerly of Oxford, Mississippi, with securities fraud in conjunction with a series of false and misleading press releases issued in 2010 by eHydrogen Solutions, Inc. (“eHydrogen”) and ChromoCure, Inc. (“ChromoCure”), two now defunct microcap stock companies. Welch served as Chairman and Chief Executive Officer of the two companies during the relevant period and was responsible for the issuance of the false and misleading press releases of both companies. Welch is now based offshore, most recently in Freeport, Bahamas. The Commission’s complaint alleged that from at least March 2010 through August 2010, Welch issued a series of press releases and made other public disclosures containing false and misleading information concerning, among other things, technologies acquired by and revenues generated by eHydrogen and ChromoCure. The complaint also alleged that the period of the false and misleading press releases coincided with suspicious price and trading volume increases in the common stock of eHydrogen and ChromoCure, and further alleged that in multiple instances such statements were intentionally false and misleading, distributed by Welch for no purpose other than to incite trading activity and artificially inflate the price and trading volume of eHydrogen and ChromoCure. The Complaint alleged that Defendant Welch, by virtue of his conduct, directly or indirectly, has engaged and, unless enjoined, will engage in violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. Welch also has liability as a controlling person, pursuant to Section 20(a) of the Exchange Act for violations by eHydrogen and ChromoCure of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder. Welch was alternatively charged with aiding and abetting the antifraud violations of eHydrogen and ChromoCure. In the complaint, the SEC sought a permanent injunction against Welch for fraud, an accounting, disgorgement plus prejudgment interest, civil penalties, a penny stock bar and an officer and director bar.

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SEC v. Axius, Inc., et al. Litigation Release No. 22410 (July 6, 2012) http://sec.gov/litigation/litreleases/2012/lr22410.htm The Securities and Exchange Commission charged Axius, Inc., its President and CEO, Roland Kaufmann, and stock promoter Jean-Pierre Neuhaus with engaging in a fraudulent broker bribery scheme designed to manipulate the market for Axius’ common stock. The SEC’s complaint, filed in federal court in Brooklyn, alleged that beginning in at least January 2012, Kaufmann and Neuhaus engaged in an undisclosed kickback arrangement with an individual (“Individual A”) who claimed to represent a group of registered representatives with trading discretion over the accounts of wealthy customers. Kaufmann and Neuhaus promised to pay kickbacks of between 26% and 28% to Individual A and the registered representatives he purported to represent in exchange for the purchase of up to $5 million of Axius stock through the customers’ accounts. The complaint further alleged that on February 16 and 17, 2012, Kaufmann instructed Individual A to purchase approximately 14,000 shares of Axius stock for a total of approximately $49,000 through matched trades using detailed instructions concerning the size, price and timing of the purchase orders. Thereafter, Kaufmann paid Individual A bribes of approximately $13,700. The complaint charged Neuhaus, Kaufmann, and Axius with violating Section 17(a)(1) and (a)(3) of the Securities Act of 1933 and Sections 9(a)(1) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c). The SEC sought permanent injunctive relief, disgorgement of ill-gotten gains, plus pre-judgment interest, and civil penalties from all defendants, an order prohibiting Neuhaus and Kaufmann from participating in any offering of penny stock, and an order prohibiting Kaufmann from serving as an officer or director of a public company. SEC v. Harbinger Capital Partners LLC; Philip A. Falcone; and Peter A. Jenson Litigation Release No. 22403 (June 28, 2012) http://sec.gov/litigation/litreleases/2012/lr22403.htm

The Securities and Exchange Commission filed fraud charges against New York-based hedge fund adviser Philip A. Falcone and his advisory firm, Harbinger Capital Partners LLC, for illicit conduct that included misappropriation of client assets, market manipulation, and betraying clients. The SEC also charged Peter A. Jenson, Harbinger’s former Chief Operating Officer, for aiding and abetting the misappropriation scheme. Additionally, the SEC reached a settlement with Harbinger for unlawful trading.

In particular, the SEC alleged that:

Falcone fraudulently obtained $113.2 million from a hedge fund that he advised and misappropriated the proceeds to pay his personal taxes;

Falcone and two Harbinger investment managers through which Falcone operated manipulated the price and availability of a series of distressed high-yield bonds by engaging in an illegal “short squeeze;”

Falcone and Harbinger secretly offered and granted favorable redemption and liquidity rights to certain strategically-important investors in exchange for those investors’ consent to restrict

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redemption rights of other fund investors, and concealed the arrangement from the fund’s directors and investors; and

Harbinger engaged in illegal trades in connection with the purchase of common stock in three public offerings after having sold the same securities short during a restricted period.

In a separate civil action, the SEC alleged that from 2006 through early 2008 Falcone and two Harbinger investment management entities manipulated the market in a series of distressed high-yield bonds issued by MAAX Holdings Inc. In this fraudulent scheme, Falcone and the Harbinger entities allegedly orchestrated an illegal “short squeeze” – a market manipulation scheme in which an investor constricts the supply of a security, through large purchases or other means, with the intent of forcing settlement from short sellers at arbitrary and inflated prices.

The SEC’s complaint relating to the short squeeze separately charged Falcone and the Harbinger entities with violations of Section 17(a)(1), 17(a)(2), and 17(a)(3) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5(a), 10b-5(b), and 10b-5(c) thereunder. In that action, the SEC also sought permanent injunctive relief against each defendant to enjoin them from future violations of the federal securities laws, disgorgement of ill-gotten gains, and financial penalties.

The SEC issued an administrative order against Harbinger Capital Partners, finding that the firm willfully committed three violations of Rule 105 of Regulation M under the Exchange Act. The order censured Harbinger and required the firm to cease and desist from committing or causing any violations and any future violations of Rule 105. Harbinger agreed to pay disgorgement in the amount of $857,950, prejudgment interest in the amount of $91,838, and a civil monetary penalty in the amount of $428,975.

SEC v. Nicholas Louis Geranio, et al. Litigation Release No. 22370 (May 16, 2012) http://sec.gov/litigation/litreleases/2012/lr22370.htm The Securities and Exchange Commission filed an action against SEC recidivist Nicholas Louis Geranio, Keith Michael Field, The Good One, Inc. and Kaleidoscope Real Estate, Inc. for their roles in a $35 million scheme to manipulate the market and to profit from the issuance and sale of certain U.S. companies’ (“Issuers’”) stock through offshore boiler rooms. The scheme ran from approximately April 2007 to October 2009. According to the SEC’s complaint, the scheme worked as follows: Geranio organized eight U.S. Issuers, installed management (including Field), and entered into consulting agreements with them through his alter-ego entities The Good One and Kaleidoscope. Geranio then allegedly set up a common system to raise money through the Issuers’ sale of Regulation S shares to offshore investors by boiler rooms that Geranio recruited. Field allegedly drafted materially misleading business plans, marketing materials, and website material for the Issuers, which the offshore boiler rooms provided to investors as part of their fraudulent solicitation efforts. The complaint further alleged that Geranio directed traders, including Field, to engage in matched orders and manipulative trades to establish artificially high prices for at least five of the Issuers’ stock and to deceptively convey to the market the impression that legitimate transactions had created bona fide prices for the stock.

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The SEC’s action alleged that: Geranio, Field, The Good One and Kaleidoscope violated Sections 17(a)(1) and (3) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5(a) and (c) thereunder; Field also violated Section 17(a)(2) of the Securities Act and aided and abetted the Issuers’ violations of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder; and Geranio also is liable as a control person of The Good One and Kaleidoscope under Exchange Act Section 20(a). The SEC, in its complaint, sought permanent injunctions, disgorgement plus prejudgment interest, civil penalties, and penny stock bars against all defendants, and also officer and director bars against Geranio and Field. The complaint also sought disgorgement and prejudgment interest against relief defendant BWRE Hawaii, LLC based on its alleged receipt of investor funds. SEC v. David Blech and Margaret Chassman Litigation Release No. 22363 (May 10, 2012) http://sec.gov/litigation/litreleases/2012/lr22363.htm On May 9, 2012, the Securities and Exchange Commission charged a Manhattan resident with carrying out a complex market manipulation scheme in biopharmaceutical stocks after he was kicked out of the brokerage industry for fraud. The SEC alleged that David Blech established more than 50 brokerage accounts in the names of family members, friends, and even a private religious institution. He used those accounts to buy and sell significant amounts of stock in two biopharmaceutical companies in order to create the artificial appearance of activity in their securities so he could maintain their market price and use it to his own financial advantage. Blech, who was previously convicted of securities fraud, also solicited investments for biopharmaceutical companies – including the two companies whose stock he manipulated – despite being barred by the SEC from acting as a broker-dealer. The SEC further alleged that Blech and his wife Margaret Chassman, who also is charged in the case, flouted federal securities laws when they repeatedly made unregistered sales of securities and failed to disclose their transactions in the various brokerage accounts. The SEC’s complaint charged Blech with violating Section 17(a)(1) and (3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c), and for acting as an unregistered broker-dealer in violation of Section 15(b)(6)(B) of the Exchange Act The complaint also charged Blech and Chassman with violating Sections 5(a) and 5(c) of the Securities Act and for failing to make filings required by Sections 13(d) and 16(a) of the Exchange Act. The SEC, in its Complaint, sought a final judgment ordering Blech and Chassman to disgorge their ill-gotten gains plus prejudgment interest, pay financial penalties, and be permanently enjoined from future violations of the provisions of the federal securities laws they violated. The complaint also sought orders requiring Blech to comply with a prior SEC order barring him from association with a broker or dealer, and prohibiting him from various other stock activities.

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ACTIONS INVOLVING ISSUER DISCLOSURE AND REPORTING VIOLATIONS SEC v. J.P. Morgan Securities LLC, et al. Litigation Release No. 22533 (November 16, 2012) http://sec.gov/litigation/litreleases/2012/lr22533.htm In the Matter of Creidt Suisse Securities (USA) LLC, et al. Release No. 33-9368, 34-68251 (November 16, 2012) http://sec.gov/litigation/admin/2012/33-9368.pdf JP Morgan In coordination with the federal-state Residential Mortgage-Backed Securities Working Group, the Securities and Exchange Commission charged J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC, and their affiliated entities with misleading investors in offerings of residential mortgage-backed securities. The SEC alleged that JP Morgan misstated information about the delinquency status of mortgage loans that provided collateral for an RMBS offering in which it was the underwriter. JP Morgan received fees of more than $2.7 million, and investors sustained losses of at least $37 million on undisclosed delinquent loans. JP Morgan also was charged for Bear Stearns' failure to disclose its practice of obtaining and keeping cash settlements from mortgage loan originators on problem loans that Bear Stearns had sold into RMBS trusts. The proceeds from this bulk settlement practice were at least $137.8 million. According to the SEC's complaint against JP Morgan filed in federal court in Washington D.C., federal regulations under the securities laws require the disclosure of delinquency information related to assets that provide collateral for an asset-backed securities offering. Information about the delinquency status of mortgage loans in an RMBS transaction is important to investors because those loans are the primary source of funds by which investors can earn interest and obtain repayment of their principal. JP Morgan and J.P. Morgan Acceptance Corporation I settled the SEC's charges by consenting to pay disgorgement of $39,900,000, prejudgment interest of $10,600,000, and a penalty of $24,000,000 for the delinquency misstatements, which the SEC will seek to distribute to harmed investors in the transaction through a Fair Fund. JP Morgan; EMC Mortgage, LLC; Bear Stearns Asset Backed Securities I, LLC; Structured Asset Mortgage Investments II, Inc.; and SACO I, Inc. agreed to pay disgorgement of $137,800,000, prejudgment interest of $24,265,536, and a penalty of $60,350,000 for the bulk settlement practice misconduct, and the SEC will seek to distribute these funds to harmed investors through a separate Fair Fund. JP Morgan and each of the other defendants consented, without admitting or denying the allegations, to the entry of a final judgment permanently enjoining them from violating Section 17(a)(2) and (3) of the Securities Act of 1933. Credit Suisse According to the SEC’s order instituting a settled administrative proceeding against Credit Suisse, the firm and its affiliated entities misled investors in 75 different RMBS transactions through its bulk settlement practice. From 2005 to 2010, Credit Suisse frequently negotiated bulk settlements with loan

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originators in lieu of a buy-back of loans that were owned by the RMBS trusts. Credit Suisse kept the bulk settlement proceeds for itself and failed to disclose the practice to investors who owned the loans. In nine of the 75 RMBS trusts, Credit Suisse failed to comply with offering document provisions that required it to repurchase certain early defaulting loans. Credit Suisse also applied different quality review procedures for loans that it sought to put back to originators, instituted a practice of not repurchasing such loans from trusts unless the originators had agreed to repurchase them, and failed to disclose the bulk settlement practice when answering investor questions about early payment defaults. Credit Suisse settled the SEC’s charges by consenting to pay $68,747,769 in disgorgement and prejudgment interest and a $33 million penalty, which the SEC will seek to distribute through a Fair Fund to harmed investors in the 75 RMBS transactions affected by the bulk settlement practice. The SEC’s order also found that Credit Suisse made misleading statements about a key investor protection known as the First Payment Default provision in two RMBS offerings. The FPD provision required the mortgage loan originator to repurchase or substitute loans that missed payments shortly before or after they were securitized. Credit Suisse misled investors by falsely claiming that “all First Payment Default Risk” was removed from its RMBS, and at the same time limiting the number of FPD loans that were put back to the originator. Credit Suisse agreed to pay $12,256,651 in disgorgement and prejudgment interest and a $6 million penalty, which the SEC will seek to distribute through a separate Fair Fund to harmed investors in the two transactions affected by the FPD misstatements. Credit Suisse agreed to an order, without admitting or denying the findings, requiring them to cease and desist from violations of Section 17(a)(2) and (3) of the Securities Act and Section 15(d) of the Exchange Act. SEC v. BP p.l.c. Litigation Release No. 22531 (November 15, 2012) http://sec.gov/litigation/litreleases/2012/lr22531.htm The Securities and Exchange Commission charged BP p.l.c. with misleading investors while its Deepwater Horizon oil rig was gushing into the Gulf of Mexico by significantly understating the flow rate in multiple reports filed with the SEC. The SEC alleged that the global oil and gas company headquartered in London made fraudulent public statements indicating a flow rate estimate of 5,000 barrels of oil per day. BP reported this figure despite its own internal data indicating that potential flow rates could be as high as 146,000 barrels of oil per day. BP executives also made numerous public statements after the filings were made in which they stood behind the flow rate estimate of 5,000 barrels of oil per day even though they had internal data indicating otherwise. In fact, they criticized other much higher estimates by third parties as scaremongering. Months later, a government task force determined the flow rate estimate was actually more than 10 times higher at 52,700 to 62,200 barrels of oil per day, yet BP never corrected or updated the misrepresentations and omissions it made in SEC filings for investors. BP agreed to settle the SEC's charges by paying the third-largest penalty in agency history at $525 million. The SEC plans to establish a Fair Fund with the BP penalty to provide harmed investors with compensation for losses they sustained in the fraud.

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In addition, BP consented to an order permanently restraining and enjoining the company from violating Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20 and 13a-16. SEC v. Michael Johnson Litigation Release No. 22520 (October 26, 2012) http://sec.gov/litigation/litreleases/2012/lr22520.htm SEC v. Joseph Pacifico Litigation Release No. 22517 (October 19, 2012) http://sec.gov/litigation/litreleases/2012/lr22517.htm Joseph Pacifico The Securities and Exchange Commission charged Joseph Pacifico, a former President of Carter’s, Inc., the Atlanta-based marketer of children’s clothing, for engaging in financial fraud at Carter’s. The SEC alleged that Pacifico’s misconduct caused Carter’s to materially misstate its net income and expenses in several financial reporting periods between 2004 and 2009. The SEC’s complaint alleged that between 2004 and 2009, Carter’s Executive Vice President of Sales, Joseph Elles, who reported to Pacifico, fraudulently manipulated the amount of discounts that Carter’s granted to its largest wholesale customer in order to induce that customer—itself a large national department store—to purchase greater quantities of Carter’s clothing for resale. Elles then concealed his conduct by persuading the customer to defer subtracting the discounts from payments until later periods and creating and signing false documents misrepresenting the timing and amount of those discounts to Carter’s accounting personnel. After Pacifico discovered Elles’s scheme, the complaint alleged that Pacifico signed a false certification to Carter’s accounting personnel that understated the amount discounts that Carter’s owed to the customer. The complained also alleged that Pacifico signed false internal forms that also misstated that discounts to be paid to the customer related to sales in 2009 when, in fact, the discounts related to prior financial periods. After conducting its own internal investigation, Carter’s was required to issue restated financial results for the affected periods. The SEC’s complaint alleged that Pacifico violated Section 17(a)(2) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”), and Rules 10b-5(b) and 13b2-1 thereunder, and aided and abetted Carter’s violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 10b-5(b),12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The SEC sought permanent injunctive relief, financial penalties, and an officer and director bar against Pacifico. Michael Johnson On October 24, 2012, the Securities and Exchange Commission also charged Michael Johnson, a divisional merchandise manager at Kohl's, which is a national department store. The complaint alleged that Johnson assisted the financial fraud at Carter's, Inc, an Atlanta-based manufacturer of children's clothing. Specifically, the SEC alleged that Johnson assisted Joseph Elles, a former Executive Vice

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President of Sales at Carter's, in concealing his financial fraud from senior Carter's management. That scheme caused Carter's to materially misstate its net income and expenses in several financial reporting periods between 2004 and 2009. The SEC's complaint alleged that between 2004 and 2009, Elles fraudulently manipulated the amount of discounts that Carter's granted to Kohl's, Carter's largest wholesale customer in order to induce Kohl's to purchase greater quantities of Carter's clothing for resale. In an effort to conceal the scheme, Elles persuaded Kohl's to defer subtracting the discounts from payments until later periods. Elles also persuaded Johnson, who handled the Carter's account at Kohl's to sign a false confirmation that misrepresented to Carter's accounting personnel the timing and amount of those discounts. By concealing the amount of discounts that had been promised to Kohl's, Elles and Johnson caused Carter's to materially understate it expenses in certain quarters and materially overstate its earnings in those quarters. After conducting its own internal investigation, Carter's was required to issue restated financial results for the affected periods. The SEC's complaint alleged that Johnson violated Rule 13b-2 of the Securities Exchange Act of 1934 ("Exchange Act"), which prohibits any person from directly or indirectly falsifying or causing to be falsified an issuer's accounting records. The complaint also alleged that Johnson aided and abetted Elles' violations of Section 13b(5) of the Exchange Act, which among other things, prohibits any person from knowingly falsifying the books, records and/or accounts of an issuer, and Rule 13b2-1 thereunder. The SEC’s complaint sought permanent injunctive relief and financial penalties against Johnson. The SEC previously charged Joseph Elles in connection with this scheme. See SEC v. Joseph Elles, Litigation Release No. 21784 / December 20, 2010. When the SEC announced the action against Elles, it also announced that it had entered into a non-prosecution agreement with Carter's, based in part on Carter's prompt and complete self-reporting of the misconduct to the SEC, its exemplary and extensive cooperation in the investigation, including undertaking a thorough and comprehensive internal investigation, and Carter's extensive and substantial remedial actions. See Release No. 2010-252 / December 20, 2010. Pursuant to that agreement, Carter's continued to cooperate during the SEC investigation. SEC v. Subramanian Krishnan Litigation Release No. 22500 (September 28, 2012) http://sec.gov/litigation/litreleases/2012/lr22500.htm On September 28, 2012, the Securities and Exchange Commission filed a partially-settled civil injunctive action against Subramanian Krishnan (Krishnan). In its complaint, the SEC alleged that Krishnan, the former Chief Financial Officer (CFO) of Digi International, Inc. (Digi), engaged in conduct which resulted in the filing of inaccurate reports and accompanying certifications in Digi’s annual quarterly reports from March 2005 through May 2010. Krishnan engaged in a course of conduct, as a result of which corporate funds were used to pay for unauthorized travel and entertainment expenses. Krishnan authorized such expenses for Digi employees, caused the Company to file inaccurate reports, failed to enforce Digi’s internal controls, demonstrated a lack of management integrity, failed to act to reveal inaccurate reports, and wrongly certified that he evaluated the effectiveness of Digi’s internal controls and disclosed they were effective.

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Without admitting or denying the allegations in the SEC’s complaint, Krishnan consented to a final judgment permanently enjoining him from future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Krishnan was also permanently restrained and enjoined from future violations of Sections 13(a) and 13(b)(5) and Rules 12b-20, 13a-1, 13a-13, 13a-14, 13b2-1 and 13b2-2 thereunder of the Exchange Act and from aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. Krishnan consented to a bar from serving as an officer or director of any issuer with the duration of the bar and amount of disgorgement, prejudgment interest, and a civil penalty to be determined by stipulation of the parties or by motion of the SEC at a later date.

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SEC v. Gilbert Fiorentino Litigation Release No. 22481 (September 17, 2012) http://sec.gov/litigation/litreleases/2012/lr22481.htm The Securities and Exchange Commission filed a civil action for fraud and other violations against, and proposed settlement with, Gilbert Fiorentino, a former director of Systemax Inc. (“Systemax”), a Port Washington, N.Y.-based consumer electronics retailer. The SEC’s Complaint alleged that Gilbert Fiorentino, who in addition to serving on the board was the former chief executive of Systemax’s Technology Products Group in Miami, obtained over $400,000 in extra compensation directly from firms that conducted business with Systemax. Fiorentino also stole several hundred thousand dollars worth of company merchandise that was used to market Systemax’s products online and in mail order catalogs. Because Fiorentino was one of Systemax’s highest-paid executives, the federal securities laws required the company to disclose all compensation he received each fiscal year as well as his perks and other personal benefits. Since Fiorentino failed to disclose his extra compensation and perks to Systemax or its auditors, the amounts were not reported to shareholders correctly. Systemax placed Fiorentino on administrative leave in April 2011. After the SEC began investigating the conduct, Fiorentino agreed to resign from all of his positions with Systemax, surrender stock and stock options valued at approximately $9.1 million, and repay his 2010 annual bonus of $480,000. The SEC’s complaint alleged that Fiorentino violated Sections 10(b), 13(b)(5), and 14(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Exchange Act Rules 10b-5, 13b2-1, 13b2-2, 14a-3, and 14a-9. In addition, the SEC’s complaint alleged that Fiorentino aided and abetted Systemax’s violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1. Fiorentino consented to the entry of an injunctive order without admitting or denying the allegations in the SEC’s complaint. The proposed order would enjoin Fiorentino from violating the anti-fraud, proxy, lying to accountants, and record-keeping provisions of the securities laws and from aiding and abetting violations of the reporting, record-keeping, and internal control provisions of the securities laws. Fiorentino would also be ordered to pay a $65,000 civil penalty and would be permanently barred from serving as an officer or director of a public company. SEC v. Mizuho Securities USA Inc. Litigation Release No. 22417 (July 19, 2012) http://www.sec.gov/litigation/litreleases/2012/lr22417.htm The Securities and Exchange Commission charged the U.S. investment banking subsidiary of Japan-based Mizuho Financial Group and three former employees with misleading investors in a collateralized debt obligation by using “dummy assets” to inflate the deal’s credit ratings. The SEC also charged the firm that served as the deal’s collateral manager and the person who was its portfolio manager. Mizuho agreed to pay $127.5 million to settle the SEC’s charges, and the others charged also agreed to settle the SEC’s actions against them.

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The SEC alleged that Mizuho structured and marketed Delphinus CDO 2007-1, a CDO that was backed by subprime bonds at a time when the housing market was showing signs of severe distress. The deal was contingent upon Mizuho obtaining credit ratings it used to market the notes to investors. When its employees realized that Delphinus could not meet one rating agency’s newly announced criteria intended to protect CDO investors from the uncertainty of ratings downgrades, they submitted to the rating firm a portfolio containing millions of dollars in dummy assets that inaccurately reflected the collateral held by Delphinus. Once the firm rated the inaccurate portfolio, Mizuho closed the transaction and sold the notes to investors using the misleading ratings. Delphinus defaulted in 2008 and eventually was liquidated in 2010. Mizuho sustained substantial losses from Delphinus. According to the SEC’s complaint filed July 18 against Mizuho Securities USA Inc., the firm made approximately $10 million in structuring and marketing fees in the deal. As a result of Mizuho’s conduct, the SEC alleged that Mizuho violated Sections 17(a)(2) and (3) of the Securities Act of 1933. Without admitting or denying the allegations of the SEC’s complaint, Mizuho agreed to settle by consenting to the entry of a final judgment that permanently enjoined Mizuho from violating those provisions of the Securities Act, and required Mizuho to pay $10 million in disgorgement, $2.5 million in prejudgment interest and a $115 million penalty, for a total of $127.5 million. According to the SEC’s settled administrative proceedings against the three former Mizuho employees responsible for the Delphinus deal, Alexander Rekeda headed the group that structured the $1.6 billion CDO, Xavier Capdepon modeled the transaction for the rating agencies, and Gwen Snorteland was the transaction manager responsible for structuring and closing Delphinus. Delaware Asset Advisers (DAA) served as Delphinus’s collateral manager and the DAA portfolio manager was Wei (Alex) Wei. The SEC found that Rekeda violated Sections 17(a)(2) and (3) of the Securities Act, and Capdepon and Snorteland violated Section 17(a). Rekeda and Capdepon each agreed to pay a $125,000 penalty while the decision on whether there will be a penalty for Snorteland will be decided at a later date. Rekeda agreed to be suspended from the securities industry for 12 months, Capdepon and Snorteland each agreed to be barred from the securities industry for one year, and all three agreed to cease and desist from further violations of the respective sections of the Securities Act they violated. In a related administrative proceedings against DAA and Wei, the SEC found that, as a result of the roles they played in providing misleading information in August and September 2007, DAA violated Sections 17(a)(2) and (3) of the Securities Act, and Section 206(2) of the Advisers Act, and Wei violated Section 17(a)(2) and (3) of the Securities Act, and caused DAA’s violation of Section 206(2) of the Advisers Act. Without admitting or denying the SEC’s findings: (1) DAA consented to the entry of an order requiring it to cease and desist from committing or causing the violations charged and requiring it to pay disgorgement of $2,228,372, prejudgment interest of $357,776, and a civil money penalty of $2,228,372; and (2) Wei consented to the entry of an order requiring him to cease and desist from committing or causing the violations charged and suspending him from associating with any investment adviser for six months, and requiring him to pay a civil money penalty of $50,000.

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ACTIONS INVOLVING SECURITIES OFFERINGS SEC v. Edward Bronson, et al. Litigation Release No. 22457 (August 23, 2012) http://sec.gov/litigation/litreleases/2012/lr22457.htm The Securities and Exchange Commission charged a New York-based firm and its owner its owner with conducting a penny stock scheme in which they bought billions of stock shares from small companies and illegally resold those shares in the public market. The SEC alleged that Edward Bronson and E-Lionheart Associates LLC reaped more than $10 million in unlawful profits from selling shares they bought at deep discounts from approximately 100 penny stock companies. On average, Bronson and E-Lionheart were able to generate sales proceeds that were approximately double the price at which they had acquired the shares. No registration statement was filed or in effect for any of the securities that Bronson and E-Lionheart resold to the investing public, and no valid exemption from the registration requirements of the federal securities laws was available. Acting at Bronson’s direction, E-Lionheart personnel systematically “cold called” penny stock companies quoted on the OTC Link to ask if they were interested in obtaining capital. If the company was interested, E-Lionheart personnel would offer to buy stock in the company at a rate that was deeply discounted from the trading price of the company’s stock at that time. Typically, Bronson and E-Lionheart immediately began reselling the shares to the investing public through a broker within days of receiving the shares from the company. Bronson and E-Lionheart purported to rely on an exemption from registration under Rule 504(b)(1)(iii) of Regulation D, which exempts transactions that are in compliance with certain types of state law exemptions. However, no such state law exemptions were applicable to these transactions. The SEC’s complaint charged E-Lionheart and Bronson with violating Sections 5(a) and 5(c) of the Securities Act of 1933, and sought disgorgement of all ill-gotten gains as well as monetary penalties. The SEC also sought penny stock bars. The complaint also named another entity owned and controlled by Bronson – Fairhills Capital Inc. – as a relief defendant for the purpose of recovering the illegal proceeds it received. SEC v. Rex Venture Group LLC et al. Litigation Release No. 22456 (August 22, 2012) http://sec.gov/litigation/litreleases/2012/lr22456.htm The Securities and Exchange Commission filed suit against Rex Venture Group LLC d/b/a ZeekRewards.com and Paul R. Burks, alleging that the defendants had been operating a combined Ponzi and Pyramid scheme. According to the Complaint, online marketer Paul Burks of Lexington, N.C. and his company Rex Venture Group raised more than $600 million from more than one million Internet customers nationwide and overseas through the website ZeekRewards.com, which they began in January 2011. The Complaint alleged that defendants solicited investors through the Internet and other means to participate in the ZeekRewards program, a self-described “affiliate advertising division” for the companion website, Zeekler.com, through which the defendants operated penny auctions. The

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ZeekRewards program offered customers several ways to earn money, two of which – the “Retail Profit Pool” and the “Matrix” – 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. According to the Complaint, defendants promised investors a share of the company’s daily net profits in the form of daily profit share awards. The defendants represented that those daily awards were calculated by dividing up to 50 percent of the company’s “net profits” by the number of “profit points” outstanding among all “qualified affiliates,” with those purported calculations consistently resulting in daily dividends averaging approximately 1.5 percent per day, fraudulently conveying the false impression that the company was extremely profitable. In fact, the investor payouts bore no relation to the company’s net profits. Most of ZeekRewards’ total revenues and the “net profits” paid to investors were comprised of funds received from new investors in classic Ponzi scheme fashion. The Complaint further alleged that the scheme was teetering on collapse with investor funds at risk of dissipation without its emergency enforcement action. Without admitting or denying the SEC’s allegations, and simultaneously with the filing of the Complaint, the defendants consented to permanent injunctions against future violations of the registration and antifraud provisions. Burks also agreed to relinquish his interest in the company and its assets, and to pay a $4 million civil penalty. On August 17, 2012, the Court entered the consented-to judgments imposing the foregoing relief, and also ordered an emergency asset freeze and appointed a receiver, both as requested by the Commission. According to the Complaint, ZeekRewards held approximately $225 million in investor funds in 15 foreign and domestic financial institutions. Those funds were ordered frozen under the emergency asset freeze granted by the court at the SEC’s request. Additionally, under the Court’s order, the receiver was tasked to collect, marshal, manage and distribute remaining assets for return to harmed investors. SEC v. Bradley A. Holcom; SEC v. Jose L. Pinedo Litigation Release No. 22496 (September 27, 2012) http://sec.gov/litigation/litreleases/2012/lr22496.htm The Securities and Exchange Commission charged Bradley A. Holcom, of Welches, Oregon, and Jose L. Pinedo, of San Diego, California, in connection with a fraudulent scheme that sold $42 million of promissory notes to more than 150 investors located across the United States, many of whom are senior citizens. According to the complaint against Holcom, he lured investors by offering them guaranteed monthly interest payments on purportedly safe deals. He promised that their funds would be used to finance the development of specific pieces of real estate, and that each investment would be fully secured. In reality, the investments were unsecured, and the same piece of underlying property was often pledged as purported collateral on numerous investors’ promissory notes. In addition to his misrepresentations, the complaint alleged that Holcom was also running a classic Ponzi scheme. While Holcom used some of the investors’ money to develop real estate, he also relied on those funds to make interest and principal payments on promissory notes as they came due. Holcom also used investor funds for personal use and on unrelated business ventures. By 2008, as the real estate market declined, Holcom’s scheme collapsed. Investors lost principal in excess of $25 million.

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The SEC also alleged that Pinedo, who served as Holcom’s bookkeeper and as an officer or manager of Holcom’s numerous corporate entities, routinely signed promissory notes and other false and misleading documents that were sent to investors. The SEC alleged that Holcom violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (“Securities Act”), Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. In its Complaint, the SEC sought a permanent injunction, disgorgement plus pre- and post-judgment interest, and civil penalties against Holcom. Without admitting or denying the allegations in the SEC’s complaint against him, Pinedo agreed to settle the matter, and consented to a final judgment enjoining him from violations of Sections 5(a), 5(c), 17(a)(2) and 17(a)(3) of the Securities Act. SEC v. James S. Quay and Jeffrey A. Quay Litigation Release No. 22506 (October 4, 2012) http://sec.gov/litigation/litreleases/2012/lr22506.htm The Securities and Exchange Commission charged an Atlanta-based unlicensed financial advisor with a history of steering retirees into fraudulent investment schemes with defrauding two elderly women he convinced to invest with him directly. The SEC alleged that James S. Quay (Quay) and his brother Jeffrey A. Quay facilitated a scheme in which the women invested $560,000 with the understanding that they were investing in a covered-call equities trading program. The Quays created a sham limited partnership called Trinity Charitable Solutions (TCS) to purportedly operate the program. However, TCS never became a legal entity, and instead the Quays merely deposited the investors’ money in a Scottrade account and personally misused at least $180,000 to afford mortgage payments, lavish restaurant meals, and membership at a massage spa. According to the SEC’s complaint, Quay concealed from these two women and other investors that he is a convicted felon and disbarred attorney. Previously, Quay steered investors toward fraudulent investment opportunities from which he received $1.4 million in illicit sales commissions. For instance, Quay was an active sales agent and recruiter for a multi-million dollar Ponzi scheme conducted by a Georgia attorney and a scheme involving an unregistered covered-call equities trading program. He has used various aliases and fake names including Jim Quay, Stephen Quay, and Stephen Jameson. The SEC alleged that Quay would often host free dinner seminars that target retirees in order to gain their trust. Quay would then encourage the attendees to schedule private consultations with him to discuss their financial situation in greater detail. Attendees would receive a biography that detailed Quay’s educational background and professional designations. The follow-up consultations would often take place at Quay’s personal office, where his legal diplomas, bar certification, and other professional licenses and certifications were displayed on the wall. While he would regularly tout his academic background and legal expertise, he typically would not disclose to investors his criminal background, disbarment, and loss of professional designations and licenses. Quay agreed to settle the SEC’s charges by consenting to the entry of a final judgment by the court providing permanent injunctive relief under Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The final judgment ordered Quay to pay disgorgement of $1,403,638.62 plus prejudgment interest of $179,118.78

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and a penalty of $450,000. Quay agreed to be permanently barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization. Quay also agreed to a penny stock bar and to be barred from appearing or practicing before the SEC as an attorney or an accountant. SEC v. Emanuel L. Sarris, Sr. and Sarris Financial Group, Inc. Litigation Release No. 22427 (July 30, 2012) http://sec.gov/litigation/litreleases/2012/lr22427.htm The Securities and Exchange Commission charged Bucks-County, Pennsylvania-resident Emanuel L. Sarris, Sr. ("Sarris") and his firm, Sarris Financial Group, Inc., for their role in facilitating a massive Ponzi scheme operated by another individual (whom the SEC already sued). The SEC's complaint alleged that, from 2001 through 2009, Sarris (through Sarris Financial) convinced over 70 individuals to invest over $30 million in private funds that purportedly traded in foreign currencies, called the "Kenzie Funds." The Kenzie Funds, however, actually were a massive Ponzi scheme that defrauded at least 400 investors out of more than $105 million. The SEC previously obtained a final judgment against the perpetrator of the Kenzie fraud, which ordered the perpetrator to pay $44 million in disgorgement and prejudgment interest and a $150,000 civil penalty. According to the SEC's complaint, Sarris and Sarris Financial, when selling the Kenzie Funds, falsely represented their relationship with the Kenzie Funds; falsely claimed to have seen the Kenzie Funds' foreign currency trading and banking; made unverified claims about the Kenzie Funds' safety, performance, and legitimacy; and, in classic Ponzi scheme fashion, twice proposed that the Kenzie entities use existing or new investor money to pay redemptions to departing investors. In fact, according to the SEC's allegations, unbeknownst to investors, Sarris was employed by one of the companies that managed the Kenzie Funds to solicit investment in the Kenzie Funds, and Sarris Financial received incentive fees for inducing investments in the Kenzie Funds; Sarris and Sarris Financial never saw any of Kenzie's trading or banking; they actually did little to investigate the Kenzie Funds, instead ignoring and concealing numerous red flags that raised significant questions about the entities; and Sarris and Sarris Financial never disclosed their proposals to make Ponzi-like payments to their clients. According to the SEC's complaint, Sarris and Sarris Financial violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5.