Dallas-based IT Executives Charged with Mischaracterizing Resale Transactions to Increase Revenue

As reported by the United States Securities and Exchange Commission,

The Securities and Exchange Commission charged two executives at a Dallas-based information technology company with mischaracterizing an arrangement with an equipment manufacturer to purport that it was conducting so-called “resale transactions” to inflate the company’s reported revenue.

An SEC investigation found that then-CEO Lynn R. Blodgett and then-CFO Kevin R. Kyser caused the disclosure failures at Affiliated Computer Services (ACS), which has since been acquired by Xerox Corporation. ACS provided business process outsourcing and information technology services. Shortly before the end of its first quarter in fiscal year 2009, ACS faced a scenario where the company’s revenue was set to fall short of company guidance and consensus analyst expectations, so ACS arranged for an equipment manufacturer to re-direct through ACS pre-existing orders that the manufacturer already had received from one of its customers. This gave the appearance that ACS was involved in resale transactions, but ACS in fact had no such involvement. ACS went on to report $124.5 million in fiscal year 2009 revenue from these transactions as though it had resold the equipment itself.

Blodgett and Kyser have agreed to pay nearly $675,000 to settle the SEC’s charges that they and ACS did not adequately describe the arrangement in its financial reporting, and the purported revenue in turn allowed ACS to publicly report inflated internal revenue growth (IRG). Blodgett and Kyser emphasized the inflated IRG as a key metric in earnings releases and other public statements to investors, and a portion of their annual bonuses was linked to IRG.

“ACS positioned itself in the middle of pre-existing transactions without adding value, but still improperly reported the revenue. Blodgett and Kyser knew the truth about these deals, and they were responsible for ensuring that ACS accurately disclosed the full story to investors,” said David R. Woodcock, director of the SEC’s Fort Worth Regional Office and chair of the agency’s Financial Reporting and Audit Task Force. “This enforcement action holds them accountable for failing to uphold that responsibility.”

Blodgett and Kyser consented to the SEC’s order to cease-and-desist from violating Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, and Rules 12b-20, 13a-1, 13a-11, 13a-13, and 13a-14. Without admitting or denying the findings, they have agreed to collectively disgorge IRG-related bonuses plus prejudgment interest totaling $569,327, and they each must pay $52,000 penalties.

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Bank of America Admits Disclosure Failures to Settle SEC Charges

As released by the United States Securities and Exchange Commission,

The Securities and Exchange Commission announced a settlement in which Bank of America admits that it failed to inform investors during the financial crisis about known uncertainties to future income from its exposure to repurchase claims on mortgage loans.

Bank of America also is resolving securities fraud charges that the SEC filed last year related to a residential mortgage-backed securities (RMBS) offering.

Bank of America has agreed to settle the two cases by paying $245 million as part of a major global settlement announced today by the U.S. Department of Justice in which Bank of America will pay $16.65 billion to resolve various investigations involving violations of laws regulated by other federal agencies.

“Bank of America failed to make accurate and complete disclosure to investors and its illegal conduct kept investors in the dark,” said Rhea Kemble Dignam, regional director of the SEC’s Atlanta office. “Requiring an admission of wrongdoing as part of Bank of America’s agreement to resolve the SEC charges filed today provides an additional level of accountability for its violation of the federal securities laws.”

In new charges filed by the SEC today in a settled administrative proceeding, Bank of America admits that it failed to disclose known uncertainties regarding potential increased costs related to mortgage loan repurchase claims stemming from more than $2 trillion in residential mortgage sales from 2004 through the first half of 2008 by the bank and certain companies it acquired. In connection with these sales, Bank of America made contractual representations and warranties about the underlying quality of the mortgage loans and underwriting. In the event that a loan buyer claimed a breach of a representation or warranty, the bank could be obligated to repurchase the related mortgage loan at its outstanding unpaid principal balance.

According to the SEC’s order, Regulation S-K requires public companies like Bank of America to disclose in the Management’s Discussion & Analysis (MD&A) section of its periodic financial reports any known uncertainties that it reasonably expects will have a material impact on income from continuing operations. Bank of America failed to adhere to these requirements by not disclosing known uncertainties about the future costs of mortgage repurchase claims when filing its financial reports for the second and third quarters of 2009. These uncertainties included whether Fannie Mae, a mortgage loan purchaser from Bank of America, had changed its repurchase claim practices after being put into conservatorship, the future volume of repurchase claims from Fannie Mae and certain monoline insurance companies that provided credit enhancements on certain mortgage loan sales, and the ultimate resolution of certain claims that Bank of America had reviewed and refused to repurchase but had not been rescinded by the claimants.

In the SEC’s original case against Bank of America filed in August 2013, the agency alleged that the bank in its own words “shifted the risk” for losses to investors when it failed to disclose that more than 70 percent of the mortgages backing the RMBS offering called BOAMS 2008-A originated through its “wholesale” channel of mortgage brokers unaffiliated with Bank of America entities. Bank of America knew that such wholesale channel loans – described internally as “toxic waste” – presented vastly greater risks of severe delinquencies, early defaults, underwriting defects, and prepayment.

As part of the global settlement, Bank of America agreed to resolve the SEC’s original case by paying disgorgement of $109.22 million, prejudgment interest of $6.62 million, and a penalty of $109.22 million while consenting to permanent injunctions against violations of Sections 5, 17(a)(2), and 17(a)(3) of the Securities Act of 1933. The settlement is subject to court approval. To settle the new case, Bank of America agreed to pay a $20 million penalty while admitting to facts set out in the SEC’s order, which requires Bank of America to cease and desist from causing any violations and any future violations of Section 13(a) of the Securities Exchange Act of 1934 and Rules 12b-20 and 13a-13.

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Mass.-based Former Eastern Bank Executive Charged with Insider Trading Ahead of Acquisition

As published by the United States Securities and Exchange Commission,

The Securities and Exchange Commission charged a former bank executive in Massachusetts and his friend with insider trading in advance of the bank’s acquisition of another financial institution.

The SEC alleges that Patrick O’Neill, then a senior vice president at Eastern Bank, learned through his job responsibilities that his employer was planning to acquire Wainwright Bank & Trust Company. O’Neill tipped Robert H. Bray, a fellow golfer with whom he socialized at a local country club. In the two weeks preceding a public announcement about the planned acquisition, Bray sold his shares in other stocks to accumulate funds he used to purchase Wainwright securities. Bray had never previously purchased Wainwright stock. After the public announcement of the acquisition caused Wainwright’s stock price to increase nearly 100 percent, Bray sold all of his shares during the next few months for nearly $300,000 in illicit profits.

According to the SEC’s complaint filed in federal court in Boston, regulators began requesting information from Eastern Bank and others about trading in Wainwright stock a few months after the trades occurred, and O’Neill quit his job at Eastern Bank rather than respond to such inquiries. O’Neill and Bray each were subpoenaed to testify in the SEC’s investigation but asserted their Fifth Amendment privileges against self-incrimination for every question asked of them, including whether they know one another.

“Country clubs or similar venues may give people a false sense of security that leads them to think they can get away with trading on unlawful stock tips,” said Paul G. Levenson, director of the SEC’s Boston Regional Office. “But as in any social setting, people who trade securities based on confidential information they receive are taking a huge risk that their illegal tipping and trading will be identified by the SEC.”

In a parallel action, the U.S. Attorney’s Office for the District of Massachusetts today announced criminal charges against O’Neill.

The SEC’s complaint charges O’Neill, who lives in Belmont, Mass., and Bray, who lives in Cambridge, Mass., with violating the antifraud provisions of the federal securities laws and the SEC’s antifraud rule. The complaint seeks disgorgement of ill-gotten gains plus interest and financial penalties as well as permanent injunctions against future violations of the antifraud provisions.

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Houston-based Penny Stock Chimera Energy Charged with Pump-and-Dump Scheme

As published by the United States Securities and Exchange Commission,

The Securities and Exchange Commission announced charges against a Houston-based penny stock company and four individuals behind a pump-and-dump scheme that misled investors to believe the company was on the brink of developing revolutionary technology to enable environmentally friendly oil-and-gas production.

The SEC alleges that Andrew I. Farmer orchestrated the scheme by creating a shell company called Chimera Energy, secretly obtaining control of all shares issued in an initial public offering (IPO) in late 2011, and launching an aggressive promotional campaign midway through 2012 to hype the stock to investors. Chimera Energy issued around three dozen press releases in a two-month period about its supposed licensing and development of technology to extract shale oil without the perceived environmental impact of hydraulic fracturing known as fracking. However, Chimera Energy did not actually license or even possess the technology it touted and had not achieved the claimed results in commercially developing it. While the stock was being pumped by the false claims, entities controlled by Farmer dumped more than 6 million shares on the public markets for illicit proceeds of more than $4.5 million.

The SEC suspended trading in Chimera Energy stock in 2012 and prevented Farmer and his associates from dumping additional shares or misleading new investors into their scheme.

In addition to Chimera Energy and Farmer, the SEC’s complaint charges a pair of figurehead CEOs installed by Farmer. The SEC alleges that Charles E. Grob Jr. and Baldemar Rios approved the misleading press releases and operated Chimera Energy at the minimum level necessary to lend the company a veneer of legitimacy while concealing Farmer’s involvement altogether. The SEC’s complaint also charges Carolyn Austin with helping Farmer profit from his scheme by dumping shares of Chimera Energy stock in the midst of the promotional efforts.

“Farmer and his accomplices secretly rigged the market for Chimera Energy stock and illegally profited by exaggerating the company’s capabilities and technology,” said David Woodcock, director of the SEC’s Fort Worth Regional Office. “They seized on fracking as a topic of public discourse and aggressively touted an entirely fictitious business to attract unwitting investors.”

According to the SEC’s complaint filed yesterday in federal court in Houston, Farmer obtained control of all 5 million shares of Chimera Energy stock issued in the IPO by disguising his ownership through the use of nominee shareholders. Farmer’s name and the nature of his control over the company were not disclosed to investors in any of Chimera Energy’s public filings. Following the IPO, Farmer directed the press release barrage along with an Internet advertising campaign designed to increase investor awareness of Chimera Energy’s claims. The initial press release issued by the company on July 30, 2012, sported the headline: CHMR Unveils Breakthrough Shale Oil Extraction Method to Safely and Effectively Replace Hydraulic Fracturing.

The SEC alleges that Chimera Energy disclosed in public filings that an entity named China Inland had granted the company an “exclusive license to develop and commercialize cutting edge technologies related to Non-Hydraulic Extraction.” The technology that China Inland purportedly licensed to Chimera Energy was described as an “environmentally friendly oil & gas extraction procedure for shale to replace hydraulic fracturing.” The SEC’s investigation found that the purported acquisition of a license to develop such technology and the license agreement itself are entirely fictitious. No legitimate entity known as China Inland even exists.

The SEC’s complaint charges Chimera Energy, Farmer, Grob, Rios, and Austin with securities fraud, registration violations, and reporting violations. The SEC seeks permanent injunctions, disgorgement with prejudgment interest and financial penalties, penny stock bars, and officer-and-director bars.

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NY-based brokerage firm Linkbrokers Derivatives Charged in Scheme

As released by the United States Securities and Exchange Commission,

The Securities and Exchange Commission today charged New York-based brokerage firm Linkbrokers Derivatives LLC for unlawfully taking secret profits of more than $18 million from customers by adding hidden markups and markdowns to their trades.

According to the SEC’s order instituting administrative proceedings, certain representatives on Linkbrokers’ cash equity desk defrauded customers by purporting to charge them very low commission fees, but in reality extracting fees that in some cases were more than 1,000 percent greater than represented. These brokers hid the true size of the fees they were collecting by misrepresenting the price at which they had bought or sold securities on behalf of their customers. The scheme was difficult for customers to detect because the brokers charged the markups and markdowns during times of market volatility in order to conceal the false prices they were reporting to customers.

Linkbrokers has agreed to pay $14 million to settle the SEC’s charges. The SEC previously charged four former brokers on the cash equities desk at Linkbrokers, and three of them later agreed to settle those charges by consenting to judgments ordering more than $4 million in disgorgement plus interest.

“Linkbrokers employees engaged in a devious and abusive trading scheme orchestrated to steal from the firm’s unsuspecting customers,” said Daniel M. Hawke, chief of the SEC Enforcement Division’s Market Abuse Unit. “This settlement strips Linkbrokers of its remaining assets and allows those funds to be returned to harmed customers.”

According to the SEC’s order instituting a settled administrative proceeding against Linkbrokers, the scheme occurred from at least 2005 to February 2009 and involved more than 36,000 transactions. The surreptitiously embedded markups and markdowns ranged from a few dollars to $228,000. Linkbrokers secured additional illicit profits by stealing a portion of customers’ trades. When customers placed limit orders seeking to purchase or sell shares at a specified maximum or minimum price, the brokers filled the orders at the customers’ limit price but withheld that information from the customers. Instead, they monitored the movement in the price of the securities and purchased or sold portions of these positions back to the market, keeping the profit for the firm. The brokers then falsely reported to the customers that they could not fill the order at the limit price.

The SEC’s order, to which Linkbrokers consented without admitting or denying the findings, finds that the firm violated Section 15(c)(1) of the Securities Exchange Act of 1934 and requires Linkbrokers to pay $14 million in disgorgement. Linkbrokers ceased acting as a broker-dealer in April 2013 and will withdraw its registration.

The former brokers who previously agreed to settle the SEC’s charges are Benjamin Chouchane, Marek Leszczynski, and Henry Condron, who each also have pleaded guilty to criminal charges.

The SEC’s litigation continues against the fourth former broker, Gregory Reyftmann.

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NY-based Crucible Capital Group Charged by the SEC

As released by the United States Securities and Exchange Commission,

The Securities and Exchange Commission today announced charges against a New York-based brokerage firm and its founder for allegedly violating net capital requirements and falsifying books and records to conceal the capital deficiencies.

The SEC’s Division of Enforcement alleges that Charles “Chuck” Moore and Crucible Capital Group attempted to disguise the firm’s extensive and repeated net capital insufficiencies by improperly off-loading its liabilities onto the books of an affiliated firm and improperly treating non-marketable stock as an allowable asset. Moore went so far as to try to hide Crucible’s true financial condition from SEC examiners by providing them doctored invoices that sought to mask the extent of those liabilities. But SEC examiners and investigators successfully detected that the documents had been fabricated, and referred the matter to criminal authorities for prosecution.

The U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Moore for obstructing the SEC’s examination.

“Moore attempted to mislead SEC examiners by giving them documents he intentionally falsified in an effort to hide Crucible’s severe capital insufficiencies,” said Andrew Ceresney, director of the SEC’s Division of Enforcement. “We will continue to work with our law enforcement partners to pursue parties that try to obstruct or delay the SEC’s critical work in overseeing broker-dealers and other regulated entities.”

According to the SEC’s order instituting administrative proceedings against Crucible and Moore, Crucible entered into an expense-sharing agreement with another firm called Angelic Holdings that also was wholly owned by Moore. Under the agreement, Angelic was obligated to pay Crucible’s expenses, so Moore had Crucible’s vendors bill Angelic for the services they performed for Crucible. When SEC examiners asked for documents concerning Angelic’s liabilities, Moore arranged to provide the examiners with copies of invoices that had been doctored to eliminate significant past due amounts.

The SEC’s Division of Enforcement alleges that Moore knew that the expense-sharing agreement was illegitimate because Angelic did not have the resources to pay the debts to the vendors. And Moore knew that if those liabilities were properly attributed to Crucible, then SEC examiners would learn that Crucible had failed to meet its required minimum net capital over a 10-month period from December 2012 to September 2013

“The net capital rule is a principal tool by which the SEC monitors the financial health of brokerage firms,” said Amelia A. Cottrell, an associate director in the SEC’s New York Regional Office. “It is therefore crucial that SEC examiners have prompt access to accurate and complete information about a firm’s financial condition.”

The SEC’s Division of Enforcement alleges that Crucible violated the net capital rule: Section 15(c)(3) of the Securities Exchange Act of 1934 and Rule 15c3-1. Crucible also allegedly violated Section 17(a)(1) of the Exchange Act and Rules 17a-3(a)(11), 17a-4(b)(3), 17a-4(j),17a-5(a), and 17a-11(b)(1) by failing to maintain and keep accurate records of its aggregate indebtedness and net capital, notify the SEC of its net capital deficiency, file accurate Financial and Operational Combined Uniform Single (FOCUS) reports, and provide the examiners with accurate copies of records evidencing its expenses. Moore is alleged to have aided and abetted and caused each of these violations. The administrative proceedings will determine what, if any, remedial action or financial penalties are appropriate in the public interest against Crucible and Moore.

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Four Promoters Charged with Manipulating Marijuana-Related Stocks and Other Microcap Companies

As reported by the United States Securities and Exchange Commission,

The Securities and Exchange Commission charged four promoters with ties to the Pacific Northwest for manipulating the securities of several microcap companies, including marijuana-related stocks that the agency has warned investors about in recent weeks.

The SEC alleges that the four promoters bought inexpensive shares of thinly traded penny stock companies on the open market and conducted pre-arranged, manipulative matched orders and wash trades to create the illusion of an active market in these stocks. They then sold their shares in coordination with aggressive promotional campaigns that urged investors to buy the stocks because the prices were on the verge of rising substantially. However, these companies had little to no business operations at the time. The promoters reaped more than $2.5 million in illegal profits through their schemes.

Two of the companies manipulated in this case – GrowLife Inc. and Hemp Inc. – claim to be related to the medical marijuana industry. The SEC has issued an investor alert warning about possible scams involving marijuana-related investments, noting that fraudsters often exploit the latest growth industries to lure investors into stock manipulation schemes. Other schemes by these four promoters involved an oil-and-gas company – Riverdale Oil and Gas Corporation – and three other microcap stocks, ISM International, Allied Products Corp, and Aden Solutions.

The SEC was able to unearth the schemes through the work of its recently created Microcap Fraud Task Force.

“Our Microcap Fraud Task Force is taking direct aim at abusive practices and serial violators within the microcap markets like these four promoters seeking to exploit retail investors for personal gain,” said Michael Paley, co-chair of the SEC’s Microcap Fraud Task Force. “In this case, we meticulously reviewed trading records and developed the evidence necessary to connect these four promoters and their coordinated trading efforts.”

The SEC’s complaint filed in federal court in Tacoma, Wash., charges the following individuals:
• Mikhail Galas, a stock promoter who lives in Vancouver, Wash.
• Alexander Hawatmeh, a member of Worthmore Investments LLC, which owns a stock promotion website called stockhaven.com. He formerly lived in Vancouver and currently resides in Lincoln City, Oregon.
• Christopher Mrowca, a stock promoter who operates Money Runners Group LLC, which has an affiliated stock promotion website called MoneyRunnersGroup.com. He lives in Bradenton, Fla.
• Tovy Pustovit, who owns a stock promotion website called Explosive Alerts. He also lives in Vancouver.

In a parallel action, the U.S. Attorney’s Office for the Western District of Washington announced criminal charges against Galas, Hawatmeh, and Mrowca.

According to the SEC’s complaint, GrowLife Inc. was part of a broader online promotion of several marijuana-related stocks in early 2014. Mrowca specifically promoted GrowLife through his Money Runners Group website and predicted that the stock price would nearly double. Mrowca, Galas, and Hawatmeh meanwhile engaged in manipulative trading designed to increase the price and volume of GrowLife stock, and they later sold their shares for illicit profits.

Similarly, the SEC alleges that Hawatmeh, Galas, and Mrowca bought and sold approximately 41.7 million shares of Hemp Inc. in January and February 2014 while the stock was actively promoted on the Internet. For example, one Internet tout on February 6 claimed that Hemp could reach “a REAL Possible Gain of OVER 2900%.” During the promotion, Hawatmeh, Mrowca, and Galas engaged in manipulative wash trades and matched orders to manipulate Hemp’s common stock before selling their shares for illegal gains.

“This was a carefully planned operation by Galas, Hawatmeh, Mrowca, and Pustovit to distort the performance of specific penny stocks as they were simultaneously promoted through social media and the Internet. As the companies’ stock prices increased, these four promoters opportunistically dumped their shares for illicit gains,” said Amelia A. Cottrell, associate director in the SEC’s New York Regional Office.

The SEC’s complaint charges Galas, Hawatmeh, Mrowca and Pustovit with violating antifraud provisions of the federal securities laws. The SEC seeks temporary, preliminary, and permanent injunctions along with an emergency asset freeze, disgorgement, prejudgment interest, financial penalties, and orders barring the promoters from participating in a penny stock offering.

The SEC’s complaint names Nadia Hawatmeh as a relief defendant for the purposes of recovering ill-gotten gains in her brokerage account, which was used by the promoters to conduct some of their manipulative trades.

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Houston-Based Company and CEO Charged with Oil-and-Gas Fraud Charges

As reported by the United States Securities and Exchange Commission:

The Securities and Exchange Commission announced charges against a Houston-based oil-and-gas exploration and production company and its CEO for making fraudulent claims about the company’s oil reserves.

An SEC enforcement investigation found that Houston American Energy Corp. and John F. Terwilliger fraudulently claimed that a Colombian exploration concession in which Houston American only owned a fractional interest held between 1 billion and 4 billion barrels of oil reserves, and that the reserves were worth more than $100 per share to Houston American’s investors. The estimates lacked any reasonable basis and were falsely attributed to the concession’s operator, whose actual estimates were much lower.

“Terwilliger and Houston American misled investors by wildly exaggerating the extent and nature of their oil and gas holdings,” said Gerald H. Hodgkins, associate director of the SEC’s Enforcement Division. “They used a cadre of third parties to publicize and bolster their misleading claims.”

The SEC’s order instituting administrative proceedings also charges stock promoter Kevin T. McKnight and his firm Undiscovered Equities Inc., who were paid by Houston American to disseminate its fraudulent claims about the oil-and-gas concession project in Colombia.

The SEC’s Enforcement Division alleges that the fraudulent conduct by Terwilliger and Houston American occurred during several months in late 2009 and early 2010. During this time, Houston American raised approximately $13 million in a public offering and saw its stock price increase from less than $5 per share to more than $20 per share. Contrary to the lofty estimates made by Terwilliger and Houston American, the company participated in drilling multiple unsuccessful wells on the concession from 2010 to 2012, and withdrew from the operation in early 2013 without recovering any oil. The company’s stock price eventually cratered under the weight of the fraud. Houston American now trades for approximately 40 cents per share, which represents a market capitalization loss of $600 million since it peaked in April 2010.

The SEC’s order charges Terwilliger and Houston American with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Section 20(b) of the Exchange Act and Section 17(a) of the Securities Act of 1933. The Section 20(b) charges against Houston American and Terwilliger relate to statements made by touts and other third parties, who disseminated the Terwilliger’s and Houston American’s fraudulent estimates. McKnight and Undiscovered Equities are charged with violations of Section 17(b) of the Securities Act.

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SEC Obtains Nearly $70 Million Judgment Against Richmond, Va.-Based Financial Services and Brokerage Firms

As published by the United States Securities and Exchange Commission,

The Securities and Exchange Commission announced that it has obtained a final judgment in federal court in Tennessee requiring a Richmond, Va.-based financial services holding company, a subsidiary brokerage firm, and their CEO to pay nearly $70 million as the outcome of a trial that found them liable for fraud.

The SEC’s complaint filed against AIC Inc., Community Bankers Securities LLC, and Nicholas D. Skaltsounis alleged that they conducted an offering fraud while selling AIC promissory notes and stock to numerous investors across multiple states, many of whom were elderly or unsophisticated brokerage customers. They misrepresented and omitted material information about the investments when pitching them to investors, including the safety and risk associated with the investments, the rates of return, and how the proceeds would be used by AIC. In reality, AIC and its subsidiaries were never profitable, and Skaltsounis and the companies used money raised from new investors to pay back principal and returns to existing investors.

“The very significant penalties in this case reinforce the message that we’re prepared to aggressively pursue companies and individuals, and when necessary take them to trial, in order to hold them accountable when they aren’t truthful with investors,” said Andrew Ceresney, director of the SEC’s Division of Enforcement.

A jury returned a verdict in the SEC’s favor in October 2013 after a nearly three-week trial in the Knoxville division of U.S. District Court for the Eastern District of Tennessee. Chief Judge Thomas A. Varlan issued the final judgments today that include the following monetary sanctions:
• AIC: disgorgement of $6,647,540, prejudgment interest of $969,262.10, and a penalty of $27.95 million for a total of $35,566,802.10.
• Community Bankers Securities: disgorgement of $2,830,946 plus prejudgment interest of $412,773.53 and a penalty of $27.95 million for a total of $31,193,719.53.
• Skaltsounis: disgorgement of $948,389.13 plus prejudgment interest of $138,282.35 and a penalty of $1.505 million for a total of $2,591,671.48.

The court also imposed permanent injunctions against AIC, Community Bankers Securities, and Skaltsounis for future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

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Va.-Based Broker Charged With Stealing Funds From Elderly Customers

As published by the United States Securities and Exchange Commission,

The Securities and Exchange Commission charged a broker based in Roanoke, Va., with defrauding elderly customers, including some who are legally blind, by stealing their funds for her personal use and falsifying their account statements to cover up her fraud.

According to the SEC’s complaint filed in U.S. District Court for the Western District of Virginia, Donna Jessee Tucker siphoned $730,289 from elderly customers and used the money to pay for such personal expenses as vacations, vehicles, clothes, and a country club membership. Tucker ensured that the customers received their monthly account statements electronically, knowing that they were unable or unwilling to access their statements in that format. The SEC further alleges that Tucker engaged in unauthorized trading and other financial transactions while making misrepresentations to customers about their investment accounts and forging brokerage, banking, and other documents.

The SEC’s investigation resulted from a broker-dealer examination of the firm where Tucker worked that was conducted by the SEC’s Philadelphia Regional Office.

“Tucker befriended her customers and gained their trust, only to be stealing their money behind their backs and giving them phony documents to hide it,” said Sharon Binger, director of the SEC’s Philadelphia office.

In a parallel action, the U.S. Attorney’s Office for the Western District of Virginia announced criminal charges against Tucker.

Tucker has agreed to settle the SEC’s charges and disgorge the $730,289 in ill-gotten gains either in the criminal case or the civil case. She consented to the entry of an order permanently enjoining her from violating Section 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The settlement is subject to court approval.

The SEC’s investigation was conducted by Brendan P. McGlynn, Lisa M. Candera, and Daniel L. Koster of the Philadelphia Regional Office, with assistance from Christopher R. Kelly. The examination that led to the investigation was conducted by James A. O’Leary, Calvin N. Inge, and William McIntyre under the supervision of Diane J. Hagy.

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