The Commission charged recidivist securities law violator Nicholas Geranio and others with running a complex international manipulation and boiler room operation for over two years which fleeced investors out of over $35 million. SEC v. Gerandio (C.D. Cal. Filed May 16, 2012). Mr. Geranio was enjoined in an earlier Commission action, SEC v. Geranio, Civil Action No. 99-4702 (C.D. Cal. July 7, 1999). Also named as defendants are Keith Field, Mr. Geranio’s long time business partner and two controlled entities, The Good One, Inc. and Kaleidoscope Real Estate, Inc.

Mr. Geranio, working through The Good One and Kaleidoscope to stay behind the scenes, created and controlled the international manipulation scheme. It was implemented in a series of steps:

First, eight U.S. shell companies were located;

Second, Mr. Field prepared misleading business plans, marketing materials and websites for each issuer;

Third, management was installed in each entity which included Mr. Field;

Fourth, the shares of each issuer were manipulated under the tutelage of Mr. Geranio using matched orders and wash sales to maintain the share price of each issuer;

Fifth , boiler room teams based in Spain were recruited who raised $35 million selling Regulation S stock using high pressure tactics primarily to residents of the U.K. who were told they were purchasing the shares at a discount to the then existing market price without disclosing that the price had been manipulated;

Sixth, payment for the Regulation S shares was forwarded to agents in the U.S. who divided the money among the scheme participants.

The complaint alleges violations of Securities Act Sections 17(a) and Section 10(b). The case is in litigation.

The Commission resolved a Reg FD case with the former CEO of Presstek, Inc., Edward Marino. The case has been in litigation since March 2010. SEC v. Presstek, Inc., Civil Action No. 10-1058 (E.D.N.Y. Filed March 9, 2010).

Presstek is a company engaged in designing, manufacturing, selling and servicing high tech digital imaging equipment in the graphics arts industry. Mr. Marino formerly served as a member of the board of directors, the chairman of the audit committee and as CEO.

The allegations against Mr. Marino center on his conversations about company performance on September 28, 2006 with a registered investment adviser whose funds held a large block. Shortly before that conversation Mr. Marino received an e-mail from the company controller. It stated that company performance in North America and Europe for August was weak and had a negative impact on margin and operating income relative to plan. Several days later Mr. Marino told certain senior personnel about the difficult results in an e-mail. No announcement of financial performance was planned before early October.

On September 28, 2006, Mr. Marino received a telephone call from Michael Barone, a managing partner of Sidus, a registered investment adviser. The funds managed by the adviser owned almost half a million shares of Presstek. During the telephone call, Mr. Marino told the adviser that the summer had not been as vibrant as expected in North America and Europe, according to notes of the conversation prepared by Mr. Barone. The notes go on to record Mr. Marino as saying, in substance, that overall a mixed picture for the company emerged for the quarter.

Mr. Barone began selling Presstek shares immediately, sending an e-mail during the call. By the end of the day he liquidated most of the funds’ holdings. The share price closed down about 19%.

The next day Presstek issued a preliminary announcement. It reported that quarterly financial performance was below prior estimates.

The Commission’s complaint named Mr. Marino and the company as defendants. It alleges violations of Exchange Act Section 13(a) and Regulation FD. The prayer for relief requested an injunction against both defendants and a penalty.

The company settled at the time the complaint was filed, consenting to the entry of a permanent injunction prohibiting future violations of the sections cited in the complaint. As part of the settlement the company agreed to pay a $400,000 civil penalty. In an unusual step the Commission, in its complaint, acknowledged the cooperation of the company citing its remedial measures. Those included revising its corporate communications policies and governance principles, replacing its management team, appointing new independent board members and creating a whistleblower’s hotline.

This week Mr. Marino settled with the Commission. In the civil injunctive action he agreed to the entry of a final judgment which imposed a $50,000 civil penalty. The settlement did not include an injunction. Rather, a separate administrative proceeding was instituted based on the same allegations as the civil injunctive action. To resolve that action Mr. Marino consented to the entry of a cease and desist order based on Exchange Act Section 13(a). In the Matter of Edward J. Marino, Adm. Proc. File No. 3-14879 (May 15, 2012).

Actions involving Chinese issuers have been a focus of the SEC and the class action bar. The Commission has brought a number of actions involving those issuers, their officers and their auditors. Last month, for example, the agency brought a case against PRC based SinoTechEnergy Ltd and certain of its officers alleging that they mislead investors about the use of the IPO proceeds and falsified the financial statements. SEC v. SinoTechEnergy Ltd., Civil Action No. 2:12-cv-00960 (W.D. La. Filed April 23, 2012). Others, such as SEC v. AutoChina International Ltd., 1:12-CV-01643 (D. Mass. Filed April 11, 2012), involve claims centered on the manipulation of the company’s shares or the misuse of its assets as in SEC v. Ming Zhao, Case No. 12 CV 1316 (S.D.N.Y. Filed Feb. 22, 2012). Still others involve efforts by the Commission to obtain audit work papers to investigate the finances of the company. See, e.g., In the Matter of Deloitte Thouche Tohmatsu Certified Public accountants, Ltd., Adm. Proc. File No. 3-14872 (May 9, 2012). A number of actions have sought to revoke the issuer’s registration. See, e.g., In the Matter of Longtop Financial Technologies, Ltd., Adm. Proc. File No. 3-14622 (Filed Nov. 10, 2011)(Initial Decision revoking registration filed Dec. 14, 2011).

The action against China Natural Gas, Inc., and its former Chairman and CEO, Qinan Ji, is another in this line of cases. SEC v. China Natural Gas, Inc., Civil Action No. 12-cv-3824 (Filed May 14, 2012). The company is a Delaware corporation with its headquarters in Xi’an, Shaanxi Province, China. It entered the U.S. capital markets through a reverse merger in 2005. China Natural Gas distributes and sells natural gas through fueling stations. Its shares were suspended by NASDAQ in September 2011 based on the matters in this action. Defendant Qinan Ji served as chairman of the board and was the CEO of the company. He beneficially owns about 14% of the shares of the company while his son has 3.39%.

The case centers on the concealment of two related party transactions involving Mr. Ji and his son and the failure of the company to properly report a material acquisition in a timely manner. In January 2010 China Natural Gas made two short term loans totaling $14.3 million. The transactions were listed in filings made with the Commission as loans to third parties. One for $9.9 million was listed as being extended to Taoxiang Wang. The other, in the amount of $4.4 million, was recorded as having been extended to real estate company Shaanxi Junta Housing Purchase Co. Ltd.

In fact the loans were for the benefit of a real estate company, Xi’an Demaoxing Real Estate Co., Ltd. That company is 90% owned by Mr. Ji’s son. The remaining 10% is owned by his nephew. The purported borrower for one loan, Mr. Wang, was a straw man designed to conceal the true nature of the transaction, according to the complaint. The real estate company listed as the borrower on the other is in fact the business partner of Xi’an and borrowed the money to fund a joint venture between the two companies.

The loans were arranged with the approval of the board of directors and the assistance of the internal audit chief who is the husband of Mr. Ji’s niece. The board was told by Mr. Ji that the loans were made to senior Chinese government officials who were in charge of the company’s natural gas project, not that they were for the benefit of his son’s company. That fabrication was later repeated to the investing public in a conference call. When the board subsequently ordered an internal investigation, Mr. Ji lied to the investigators and also the auditors.

During the fourth quarter of 2008 the China Natural Gas acquired a natural gas company. Mr. Ji approved the transaction without consulting the board of directors. The transaction was not reported timely and properly in the filings for the company. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a). The case is in litigation.

The Commission has brought a series of aggressive insider trading actions which are pushing the edges of, and may redefine, insider trading theory. In one case has been based in part on the observation of matters such as tours of a company facility by individuals in business suits which lead to speculation by employees who later traded that investment bankers were sizing up the company for sale. SEC v. Steffes, Case No. 1:10-cv-06266 (N.D. Ill. Filed Sept. 30, 2010)(in litigation). In another a brother decided to trade based on fragments of a telephone conversation he overheard while in the office of his sister, a company executive. SEC v. Ni, Case No. CV 11 0708 (N.D. Cal. Filed Feb. 16, 2010)(settled). Another was based on inferences that employee family members were tipped by other insiders who were not named in the action. SEC v. Carroll, Case No. 3:11-cv-00165 (W.D. Ky. Filed March 17, 2010)(in litigation).

The case against Frank L. Bystone, former CEO of Tri-Vallley Corporation or TIV, is another in this series of cases. SEC v. Blystone, Case No. 1;12-cv-00774 (E.D. Cal. Filed May 10, 2012). Mr. Bystone retired from his position as CEO of the company on March 5, 2010. The Bakersfield, California headquartered company engaged in petroleum and mineral exploration and development. Its shares are listed on the NYSE and the AMEX.

In December 2009 TIV retained an investment banking firm to serve as a financial advisor in connection with a contemplated $10 to $15 million underwritten of securities. In early February the firm altered its plan, deciding to proceed with a registered direct offering of common stock. By the end of the month the company again altered the plan, concluding that it would break the offering into three $5 million tranches. This change was based on the advise of the investment banking firm which had concluded the market for thinly traded small cap stock had dwindled significantly and pricing was more difficult. This is reflected by the fact that the firm only had commitments for $3.5 million from two of six prospective institutional investors who were contacted. The investment bankers were looking for another partner to complete the first tranche.

Mr. Blystone was informed about these events through internal e-mails. Based on this information he concluded that the terms of the offering would be “onerous.” He also thought that the securities would either be priced at a discount or additional stock would have to be sold which could dilute the outstanding shares. During this period he continued to hold shares of the company.

In March the retired former CEO received additional information about the proposed offering. A friend informed him that TIV hoped to close the first tranche of the offering soon. Mr. Blystone responded to this e-mail by noting that in his view the company needed more than $5 million. He also “speculated,” according to the complaint, that the company would sell assets as a “fire sale” price. There is no indication in the complaint that Mr. Blystone was able to confirm his speculation about the possible offering or when it might proceed.

Based on his conclusions from all of the information available to him Mr. Blystone sold shares of his former company on two occasions. First, on March 23, 2010 he sold 5,000 from a trust account. Second, on April 5, 2010 he sold the remaining 45,100 shares of company stock held in that account. The sales were made at prices ranging from $2.00 to $2.099 per share. These were Mr. Blystone’s first sales of company stock. The complaint does not indicate if he continued to hold shares of company stock.

The next month, on April 6, 2010, TIV announced that it had entered into an agreement to sell shares to six institutional investors in a registered direct offering. The company raised $5 million, selling 3,846,154 shares at $1.30. The deal included warrants to purchase an additional 2,307,692 shares at prices ranging from $1.50 to $1.95. Following the announcement the share price dropped 38.6%, closing at $1.32. By selling prior to the announcement Mr. Blystone avoided losses of $36,267, according to the complaint which alleges violations of Securities Act Sections 17(a)(1) and 17(a)(3) and Exchange Act Section 10(b).

According to the Commission, Mr. Blystone agreed to settle the case, paying $75,000 without admitting or denying the allegations. Lit. Rel. No. 22367 (May 11, 2012).

International was a key theme this week. The Commission brought another action against the Shanghai affiliate of an international accounting firm based on its failure to produce work papers from an audit of a Chinese issuer and a proceeding against two investment advisers based in Scotland.

Insider trading continued to be a focus, with actins being filed against a daughter and father trading team and a Hollywood film producer and his relatives and friends. Charges were also brought against the former mayor of Detroit and others alleging that they received kickbacks in connection with an investment in a city pension fund. Finally, the former CEO of a brokerage firm and his office manager were sentenced to prison in connection with a stock manipulation scheme.

The Commission

Speech: SEC Commissioner Luis Aguilar addressed the NASAA/SEC 19(d) Conference, Washington, D.C. (May 7, 2012). His address is titled: Advocating for Greater Federal and State Securities Regulatory Cooperation and Collaboration (here). In his remarks the Commissioner cited opportunities for the SEC and NASAA to partner in the future including on the transition of advisers to the states and crowdfunding under the JOBS Act as well as on the financial exploitation of the elderly and the advisory committee.

SEC Enforcement: Filings and settlements

Statistics: This week the SEC filed seven civil injunctive actions and two administrative proceedings (excluding follow-on and 12(j) actions).

Breach of fiduciary duty: In the Matter of Martin Currie, Inc., Adm. Proc. File No. 3-14873 (May 10, 2012) is a proceeding which names as Respondents: Martin Currie Inc., a registered investment adviser based in Scotland and Martin Currie Investment Management Ltd., a registered investment adviser based in Scotland that advises Martin Currie China Hedge Fund L.P. The Order alleges violations of Advisers Act Sections 206(1) and (2) and 206(4) and Investment Company Sections 17(d) and 34(b). During the financial crisis in early 2009 Martin Currie Investment used the assets of client The China Hedge Fund, Inc., a registered investment company listed on the NYSE, to rescue The Martin Currie China Hedge Fund, according to the Order. That fund required liquidity because a significant investment was illiquid. The difficulty arose from a miscalculation by the advisers which resulted in the fund purchasing more unregistered securities than permitted and which turned out to be illiquid. That investment was improperly classified to conceal the error. Martin Currie Investment alleviated this situation by causing The China Hedge Fund to enter into a $10 million bond redemption transaction which created liquidity for the illiquid Martin Currie China Hedge Fund. The investment was a poor one for The China Hedge Fund however since the bonds were later sold at 50% of their face value.

To resolve the proceeding Martin Currie Inc. consented to the entry of a censure and a cease and desist order based on the Sections cited in the Order. Martin Currie Investment also consented to the entry of a censure and a cease and desist order based on Advisers Act Section 206(4) and Investment Company Act Section 17(d). The Respondents are jointly and severally liable for the payment of a penalty of $8.3 million. The penalty was limited to that amount based on the cooperation of the Respondents. Overall Martin Currie paid $14 million to resolve matters with the SEC and the FSA.

SOX Violation: In the Matter of Deloitte Touche Tohmatsu Certified Public Accountants Ltd., Adm. Proc. File No. 3-14872 (May 9, 2012) is a proceeding which names as a Respondent PRC based Deloitte Touche Tohmatsu Certified Public Accountants or D&T Shanghai. This action is based on Rule 102(e)(1)(iii) which concerns willful violations of the federal securities laws. The Order alleges violations of SOX Section 106(b) which requires that foreign public accounting firms produce work papers on the request of the PCAOB or the SEC in connection with any investigation of one of its audit reports. Since April 2010 the staff has made extensive efforts to obtain the work papers related to “Client A,” according to the Order. The firm has declined, through its international parent, to produce the requested work papers based on its understanding that PRC law precludes their production. The Order alleges that the failure to produce the requested work papers constitutes a violation of SOX Section 106(b). A hearing will be convened.

Kickbacks: SEC v. Kilpatrick, Case No. 12-cv-12109 (E.D. Mich. Filed May 9, 2012) is an action against Kwame M. Kilpatrick, former mayor of Detroit, Jeffrey W. Beasley, former city treasurer, Chauncey Mayfield, the CEO of MayfieldGentry Realty Advisors, LLC, an investment adviser, and MayfieldGentry. The complaint alleges that the defendants obtained lavish perks in the form of expensive travel from MayfieldGentry whose CEO was recommending to the trustees that the pension funds invest about $117 million in a REIT controlled by the firm. The demand for the perks/kickbacks began while Mr. Kilpatrick was still mayor at a time when the CEO of MayfieldGentry supported the opposing candidate and hired his daughter. Subsequently, the demands continued until thousands of dollars in travel and entertainment were given. The complaint alleges violations of Securities Act Sections 17(a)(1), (2) and (3) and Advisers Act Sections 206(1) and (2).

Manipulation: SEC v. Blech, Civil Action No. 12 CV 3703 (S.D.N.Y. Filed May 9, 2012) is an action against David Blech, who has previously pleaded guilty to securities fraud and has been barred from the industry in a Commission action, and his wife, Margaret Chassman. The complaint details a complex market manipulation scheme in which the defendants used over fifth brokerage accounts to conduct matched sales of large blocks of thinly traded pharmaceutical stocks to manipulate the share price. The two defendants also sold unregistered securities. The complaint alleges violations of Securities Act Sections 5 and 17(a) and Exchange Act Sections 10(b), 15(b)(6)(B), 13(d) and 16(a). The U.S. attorney announced a parallel criminal action. Both cases are pending.

Prime bank fraud: SEC v. Kegley, Case No. 1:12-CV-1605 (N.D. Ga. Filed May 8, 2012) is an action against Gerald Kegley and his company, Prism Financial Services LLC. It alleges that from April through August 2010 he introduced six individuals who invested $1.95 million into a fraudulent scheme. Investors supposedly could draw on bank issued guarantees worth millions of dollars without having to repay the withdrawn funds. The investor funds were supposed to be held in escrow until the bank guarantees were issued. In fact the representations made to the investors were false. The complaint alleges violations of Securities Act Sections 5 and 17(a) and Exchange Act Sections 10(b) and 15(a).

Market timing: SEC v. Tambone, Case No. 06-cv-10885 (D. Mass. Filed May 19, 2006) is an action against James Tambone and Robert Hussey who were previously senior executives as Columbia Funds Distributor, Inc., the underwriter of the Columbia complex of mutual funds. It claimed that the two defendants permitted market timing by certain traders in violation of the terms of the prospectuses. In this long running action which is the subject of a court of appeals opinion on primary liability (here), the defendants settled and consented to the entry of a final judgment which requires Mr. Hussey to pay disgorgement in the amount of $37,500 along with prejudgment interest and a civil penalty of $75,000. Mr. Tambone agreed to pay disgorgement of $26,344 along with prejudgment interest and a civil penalty of $75,000. The parties agreed that claims regarding aiding and abetting violations of Exchange Act Section 10(b) would be dismissed. The claim in the complaint alleging direct violations of that Section was dismissed earlier in the litigation.

Insider trading: SEC v. Longoria, Civil Action No. 11-CV-0753 (S.D.N.Y.) is an action centered on the expert networking firm Primary Global Research LLC and its consultants, employees and clients. In essence the complaint alleges that the firm funneled inside information to clients from company insiders. This weeks James Fleishman, one of the primary figures in the action, settled with the Commission, consenting to the entry of a permanent injunction prohibiting future violations of Exchange Act Section 10(b). The Order also requires him to pay disgorgement of $49,150 which will be deemed satisfied by the order of forfeiture entered against him in the parallel criminal case. In that action he was sentenced to a term of 30 months in prison. Mr. Fleishman also consented to the entry of an order barring him from the securities business and from participating in any penny stock offering in a separate administrative proceeding.

Insider trading: SEC v. Amin, CV12 – 3960 (C. D. Cal. Filed May 7, 2012) is an action against Mohammed Mark Amin, a Hollywood movie producer, his brother Robert Reza Amin, his cousin, Michael Mahmood Amin, his business manager, Sam Saeed Pimazar, Mary Teresa Coley, a long time friend of Mark and his brother, and Ali Tashakori, a contractor who did construction work for Mark and his brother. The action centers on DuPont Fabros Technologies, Inc. or DFT, and certain leases and loans it was arranging that were announced in an earnings release on February 11, 2009. Mark had been a DFT board member since the company went public in October 2007. He is related by marriage to the CEO. After learning about the leases and loans at a board meeting on December 22, 2009, Mark spoke with the CEO about them on the phone in early January 2009. Shortly after the telephone call Mark told his cousin and, in addition, his business manager Mr. Pirnazar about the pending transactions at DFT. Both traded. At the February 4, 2009 board meeting Mark received additional information about the pending transactions. The next morning he told his brother about the matters who also traded and told his close friends, Mary Teresa Coley and Ali Tashakori. Both traded. Following the close of the market on February 11, 2009 the company issued an earnings release and the share price rose 36% giving the traders profits of over $614,000. Each of the defendants settled with the Commission, consenting to the entry of a permanent injunction prohibiting future violations of Exchange Act Section 10(b). Mark also agreed to the entry of an officer director bar for ten years. In addition, the defendants collectively agreed to pay disgorgement of $618,497 along with prejudgment interest and a penalty of over $540,000.

Insider trading: SEC v. Milliard, Case No. CV 12-73 (D. Mon. Filed May 7, 2012) is an action against Angela Milliard, a paralegal at Semitool, Inc. and her father, Kenneth Milliard, a retired business executive. The case focuses on the announcement of a tender offer for the shares of Semitool by Applied Materials, Inc. on November 17, 2009. In October 2009 Ms. Milliard became a key member of the deal team. As she worked on the deal she telephoned her father. At times the two traded through online brokers during the calls. At other times trades were placed shortly after the calls. Mr. Milliard also tipped his sons. When the deal was announced on November 17 the market closed up 30% and the family members sold their shares for a collective profit of $47,805.11. The complaint alleges violations of Exchange Act Sections 10(b) and 14(e). Daughter and father settled with the SEC. Each consented to the entry of a permanent injunction prohibiting future violations of the Sections cited in the complaint. Ms. Milliard also agreed to pay disgorgement of $20,355 along with prejudgment interest and a civil penalty of $54,022.11. Mr. Milliard agreed to disgorge his trading profits and those of his sons, totaling $47,805, along with prejudgment interest, and to pay a penalty equal to the amount of the disgorgement.

Investment fund fraud: SEC v. A.L. Water Capital, LLC, Civil Action No. 12-cv-10783 (D. Mass. Filed May 4, 2012) is an action against Arnett Waters and two entities he controls, broker dealer A. L. Water Capital and investment adviser Moneta Management, LLC. Beginning in 2009 and continuing to the present, the defendants are alleged to have fraudulently induced at least eight investors to put $780,000 in their fund. One investor was a church that invested $500,000. The funds were supposed to be invested in a portfolio of securities. Instead, much of the money was misappropriated. The complaint alleges violations of Exchange Act Section 10(b), Securities Act Section 17(a) and Advisers Act Section 206. The defendants settled, agreeing to the entry of a preliminary injunction which precludes the defendants from soliciting additional funds and provides for other relief.

Criminal cases

Market manipulation: U.S. v. Mandell, 09-cr-00662 (S.D.N.Y.) is an action in which Ross Mandell and Adam Harrington are defendants. Mr. Mandell was the CEO of brokerage firm Sky Capital, LLC, and its related companies. He also controlled The Thornwater Company, L.P. Mr. Harrington managed the Sky New York office for a time. From 1998 through 2006 Mr. Mandell and others participated in a scheme to induce investors to purchase Thornwater and Sky Capital related private placement interests. To induce purchases, investors were told that they were acquiring the shares at a discount to market. They wee not told that the market price was being manipulated by Mr. Mandell and others who were paid huge commissions. The scheme is alleged to have defrauded investors out of about $140 million. Following a five week trial in July 2011 Messrs. Mandell and Harrington were found guilty by a jury of conspiracy, securities fraud, wire fraud and mail fraud. Both were sentenced last week. Mr. Mandell received a twelve year prison term and was ordered to forfeit $50 million. Mr. Harrington was sentenced to serve five years in prison.

FSA

The regulator imposed a fine of £3,345,000 on Mitsui Sumitomo. The FSA also imposed a ban an a fine of £119,303 on the former executive chairman of the firm, Yohichi Kumagai. MSEI is the London based subsidiary of Mitsui Sumitomo Insurance Company Ltd. of Japan, one of the world’s largest non-life insurance groups. Traditionally the firm supplied wholesale insurance coverage to Japanese firms in Europe and the Middle East. Beginning in 2007 it expanded its business. In early 2009 Mr. Kumagai was seconded from the parent to become executive chairman of the subsidiary. Shortly after assuming that post the FSA warned the firm that with its expansion into European markets it would need focused oversight from an appropriately skilled and experienced board. The firm failed to take this step. The management structure and composition of the board was ineffective. The chairman failed to take appropriate steps. As a result the firm had significant failings in corporate governance and control arrangements which resulted in it being poorly organized and managed. This is contrary to the proposition that senior management must take responsibility for the firms they run.

Chinese issuers are a current focus for the Commission and the class action bar. The Commission has brought a number of actions involving issuers based in the Peoples Republic of China including dozens of proceedings to under Exchange Act Section 12(j) to revoke their registration statement. One of the largest group of class actions brought last year involved Chinese issuers.

Now the Commission brought a second action against PRC based Deloitte Touche Tohmatsu Certified Public Accountants or D&T Shanghai. This action is based on Rule 102(e)(1)(iii) which concerns willful violations of the federal securities laws. The Order alleges violations of SOX Section 106(b) which requires that foreign public accounting firms produce work papers on the request of the PCAOB or the SEC in connection with any investigation of one of its audit reports. The issuer is not identified. In the Matter of Deloitte Touche Tohmatsu Certified Public Accountants Ltd., Adm. Proc. File No. 3-14872 (May 9, 2012).

Respondent D&T Shanghai is a PBAOC registered public accounting firm based Shanghai, the PRC. Since April 2010 the staff has made extensive efforts to obtain the work papers related to “Client A.” Subpoenas were served on Deloitte LLP, the U.S. member firm of the Global Audit firm. The U.S. firm subsequently produced papers related to certain review work it conducted. That firm also informed the staff that all of the audit work for Client A was done by D&T Shanghai.

The Global Firm informed the staff that it did not have the audit work papers being sought. Rather, that work was done by Respondent who would not produce the papers because, in its view, PRC law precluded such action. International sharing mechanisms failed to yield the requested work papers.

The Order alleges that the failure to produce the requested work papers constitutes a violation of SOX Section 106(b). Under that Section firms such as Respondent consent to producing work papers by registering with the PCAOB. Since Respondent did in fact register, it has an obligation to produce the work papers.

The Order directs that a hearing be held. The remedies which might be sought are not specified.

The first proceeding brought against the audit firm by the Commission was a subpoena enforcement action, filed in September 2011. That case relates to its audit work for Longtop Financial Technologies Ltd., a Cayman Island company based in Shanghai whose ADRs were traded in New York. There the firm resigned from the engagement as outside auditors in a letter dated May 23, 2011 after discovering numerous improprieties during the year end audit. D&T Shanghai is alleged in that proceeding to have not complied with a Commission investigative subpoena for the audit work papers. Subsequently, the SEC initiated an Exchange Act Section 12(j) proceeding against the issuer. Its registration was revoked in December 2011 after the firm failed to answer in the proceeding. In the Matter of Longtop Financial Limited, Adm. Proc. File No. 3-14622 (Order dated December 14, 2011).

Earlier this week the Commission went to Montana to name a daughter and her father in an insider trading action. Yesterday the agency went to Hollywood to bring another insider trading case. This time the action named as defendants: Mohammed Mark Amin, the producer or executive producer of 75 Hollywood films and owner of a production company; his brother Robert Reza Amin; Michael Mahmood Amin, Mark’s cousin; Sam Saeed Pimazar, Mark’s friend and long time business manager; Mary Teresa Coley, a long time friend of Mark and his brother; and Ali Tashakori, a contractor who did construction work for Mark and his brother. SEC v. Amin, CV12 – 3960 (C. D. Cal. Filed May 7, 2012).

The action centers on transactions in the shares of DuPont Fabros Technologies, Inc. or DFT, a developer and manager of data centers. The inside information concerns DFT’s pending loans and leases, announced in an earnings release on February 11, 2009. Mark had been a DFT board member since the company went public in October 2007. He is related by marriage to the CEO.

At a special board meeting on December 22, 2009 Mark, along with the other outside directors, were advised that the company was negotiating certain leases and bank loans that were important to the company. Prior to that meeting Mark and the other directors had been advised that the trading window was closed under the company insider trading policy and would not reopen until after the release of earnings.

Subsequently, on January 7, 2009 Mark spoke with the CEO about the transactions for several minutes. Shortly after the telephone call Mark told his cousin and his business manager Mr. Pirnazar about the pending transactions at DFT. The cousin purchased 145,000 DFT shares. Mr. Pirnazar bought 10,500 shares.

At the February 4, 2009 board meeting Mark received additional information about the pending transactions. The next morning he told his brother about the deal. Almost immediately his brother began buying stock. Overall he purchased 214,600 shares. The brother also told his close friend, Mary Teresa Coley, and Ali Tashakori, the contractor. Ms. Coley purchased 20,050 shares while Mr. Tashakori bought 15,000 shares.

Following the close of the market on February 11, 2009 the company issued an earnings release. It highlighted the new leases and lending arrangements. The share price rose 36% to $5.40 per share. The traders collectively had profits of $618,497. The Commission’s complaint alleges violations of Exchange Act Section 10(b).

Each of the defendants settled with the Commission, consenting to the entry of a permanent injunction prohibiting future violations of Exchange Act Section 10(b). Mark also agreed to the entry of an officer director bar for ten years. In addition, the defendants collectively agreed to pay disgorgement of $618,497 along with prejudgment interest and a penalties of over $540,000.

Many insider trading cases turn out to be “all in the family,” involving various family members who have access to, and trade on, inside information. Sometimes spouses trade together. Other times one spouse betrays the trust of another by using information revealed in confidence to illegally trade. Some of the cases involve brothers, sisters and friends.

The Commission’s latest family insider trading ring is built on the close relationship between a daughter and her father. Daughter Angela Milliard was a paralegal in the three person law department of Kalispell, Montana based Semitool, Inc., a semiconductor corporation. Father Kenneth Milliard is a retired business executive in Columbia Falls, Montana. Daughter and father spoke on the telephone frequently. Those phone calls, and stock trading done at times during the calls and in other instances shortly after the call concluded are the predicate for the SEC’s insider trading action against them. SEC v. Milliard, Case No. CV 12-73 (D. Mon. Filed May 7, 2012).

The case centers on the announcement of a tender offer for the shares of Semitool by Applied Materials, Inc. prior to the opening of the market on November 17, 2009. In October 2009 Ms. Milliard became a key member of the deal team. She managed the due diligence process and reviewed draft merger documents, SEC filings and board minutes. The documents contained the terms of the deal including the announcement date and the fact that the tender offer would be at $11 per share, a premium to the then market price of $7.83.

From the end of October through Mid-November as Ms. Milliard worked on key aspects of the pending deal she repeatedly telephoned her father. The two purchased company shares as did other family members at the behest of Mr. Milliard. For example:

• October 27: Ms. Milliard was placed in charge of the due diligence. Over the course of 50 phone calls over a three day period beginning on October 27 between daughter and father, Mr. Milliard purchased 500 Semitool shares while his daughter purchased 400.

• November 9: Outside counsel e-mailed Ms. Milliard a draft merger agreement to review. She called her father two hours later and again the next morning. Father purchased 5,000 shares as the conversation continued.

• November 12: Outside counsel gave Ms. Milliard draft board minutes dated for November 16 which approved the deal with handwritten edits. At the same time the board was meeting to give preliminary approval. A phone call was placed by daughter to father. She also wired $38,000 to her boyfriend’s brokerage account. The same day an additional 5,000 shares was purchased in that account from a Semitool computer.

• November 12/13: Prior to the November 16 date for the approval of the merger, Ms. Milliard and her father spoke three more times. Within minutes of the calls Mr. Milliard purchased 5,000 shares while Ms. Milliard bought another 300 in her account.

When the market opened on November 17 following the announcement of the tender offer, the share price rose. By the end of the day Semitol’s shares closed up 30% at $11.05. The family sold its shares. Ms. Milliard had profits of $20,355. Her father had profits of $33,667.11. Other family members had profits of $14,138. Collectively, the family had illegal trading profits of $47,805.11. The complaint alleges violations of Exchange Act Sections 10(b) and 14(e).

Daughter and father settled with the SEC. Each consented to the entry of a permanent injunction prohibiting future violations of the Sections cited in the complaint. Ms. Milliard also agreed to pay disgorgement of $20,355 along with prejudgment interest and a civil penalty of $54,022.11. Mr. Milliard agreed to disgorge his trading profits and those of his sons, totaling $47,805 along with prejudgment interest and a penalty equal to the amount of the disgorgement.

Wire tap tapes proved the undoing of jailed hedge fund mogul Raja Rajaratnam who is serving eleven years for insider trading. Audio tapes from the FBI also helped convict and send to prison for former brokerage CEO Ross Mandell and one of his key assistants, Adam Harrington. U.S. v. Mandell, 09-cr-00662 (S.D.N.Y.).

Mr. Mandell is the former CEO of brokerage firm Sky Capital, LLC, and its related companies. He also controlled The Thornwater Company, L.P. Mr. Harrington was an important assistant, having managed the Sky New York office. From 1998 through 2006 Mr. Mandell and others participated in a scheme to induce investors to purchase Thornwater and Sky Capital related private placement interests. Mr. Harrington worked for Sky from 2000 through 2005. The scheme is alleged to have defrauded investors out of about $140 million.

Investors were induced to purchase the shares through claims that they were being acquired at a discount to the market price. What investors were not told is that the market price was manipulated by Mr. Mandell and others. Brokers at Sky were directed by Mr. Mandell to manipulate the share price. As part of the scheme the brokers were told not to permit investors to sell the shares unless they had a matched order. Through this mechanism they were able to maintain the share price which was critical to the scheme.

Brokers at Sky were paid excessive, undisclosed commissions to implement the scheme. In some instances those commissions were as much as 400% of the normal compensation. To raise portions of the money for those commissions, Mr. Mandell used the spread obtained from transactions involving the purchase and sale of certain large blocks of Sky Capital stock. Specifically, as part of the scheme brokers induced certain investors who held large blocks of Sky stock to sell them at a discount. Those blocks were then resold at a higher price to other investors. The spread on the transactions was used in part to pay the commissions to the broker executing the manipulation. Other potions of the money went to Sky.

During the trial jurors heard recordings made by the FBI. On one Mr. Mandell instructed brokers that “[y]ou have to lie, you have to paint a rosy picture. That’s your choice.” He also told the salesmen that “If Sky goes belly up, were’ all going to be embroiled in a big scandal . . . There will be no one, no one that’s safe,” according to a Bloomberg report.

Portions of the investor funds were channeled to Mr. Mandell. Other portions were used to pay part of the excessive broker commissions. Still other portions of the investor funds were used to repay other investors as the scheme continued.

Following a five week trial in July 2011 Messrs. Mandell and Harrington were found guilty by a jury of conspiracy, securities fraud, wire fraud and mail fraud. Both were sentenced last week. Mr. Mandell received a twelve year prison term and ordered to forfeit $50 million. Mr. Harrington was sentenced to serve five years in prison.

The Commission prevailed in four court actions. In the district court the agency won a summary judgment motion against an investment adviser. In the Eleventh Circuit Court the SEC secured a pair of victories. In one it obtained the reversal of a grant of summary judgment against it in an ARS case. In another, the Circuit Court affirmed a district court ruling in favor of the Commission. And, in the Tenth Circuit the Court affirmed a grant of summary judgment in favor of the Commission in an investment fund fraud action.

Enforcement focused on offering fund fraud actions. One was brought against a mother and a daughter. In two others three lawyers were named as defendants who are alleged to have enabled the illegal transactions.

Finally FINRA sanctioned four major Wall Street players based on inadequate supervision. Sanction were imposed on Wells Fargo, Morgan Stanley, Citi and UBS.

The Commission

Proposed rules: The Commission reopened the comment period for proposed amendments to its Net Capital, Customer Protection, Books and Records and Notification Rules for broker-dealers. The amendments were proposed on March 9, 2007 and the comment period closed on June 18, 2007 but no action was taken on them.

Report: The Commission issued a Report on Administrative Proceedings for the period October 1, 2011 through March 31, 2012. The Report contains tables showing the number of matters before the ALJs and the Commission.

Speech: Carlo v. di Florio, Director, Office of Compliance Inspections and Examinations addressed the Private Equity International Private Fund Compliance Forum (May 2, 2012). His remarks focused on National Examination Program and its application and goals as to newly registered hedge funds (here).

SEC Enforcement: Litigated Cases

Breach of fiduciary duty: SEC v. Putman, Civil Action No. 09-C-506 (E.D. Wis. Filed May 20, 2009) is an action against James Putman, the founder and CEO of Wealth Management LLC, a registered investment adviser. The complained claimed that Mr. Putman breached his fiduciary duty and made material misrepresentations regarding the safety and stability of client investments. It also alleged that he improperly accepted $1.24 million in 2006 and 2007 in undisclosed payments from life insurance premium financing investments made by clients of Wealth Management. The court granted the Commission’s motion for summary judgment and entered an injunction against Mr. Putman prohibiting future violations of Advisers Act Sections 206(1), 206(2) and 206(4), Securities Act Section 17(a) and Exchange Act Section 10(b). He was also ordered to pay disgorgement and prejudgment interest of $1,530,129 and a civil penalty of $130,000.

SEC Enforcement: Filings and settlements

Statistics: This week the Commission filed 8 new civil injunctive actions and 2 administrative proceedings (excluding follow-on actions and 12(j) proceedings).

Pump & dump: SEC v. Recycle Tech, Inc., Case No. 1:12-cv-21656 (S.D. Fla. Filed May 2, 2012) and SEC v. Seth Eber, Case No. 1:12-cv-21653 (S.D. Fla. Filed May 2, 2012) are two illegal stock distribution cases alleged to have been run by Kevin Sepe with the assistance of attorney Ronny Halperin. The first case names as defendants the company, Messrs, Sepe and Halperin, Royan Gonzalez, OTC Solutions, LLC, Anthony Thompson, Pudong LLC, Jay Fung and David Rees. Here Mr. Sepe, along with the others, is alleged to have organized a scheme to capitalize on the anticipated demand for temporary housing resulting from the Haitian earthquake. It focused on the reorganization and conversion of Recycle Tech into a public company and the issuance of a series of false press releases to inflate the share price. After attorney David Rees converted Recycle Tech’s debt into more than 25 million purportedly free trading shares, other defendants participated in promoting the shares. From February to early March 2010 several defendants sold more than 5 million shares of Recycle Tech into an inflated market, realizing profits of over $1.1 million. The complaint, which is in litigation, alleges violations of Securities Act Sections 5, 17(a) and 17(b) and Exchange Act Sections 10(b) and 13(a). The shares were also suspended from trading.

The second names as defendants Seth Eber, Howard Ettelman, Charles Hansen, Melissa Rie, Luz Rodriguez and Messrs. Sepe and Halperin. The scheme is similar. Here HydroGenetics, Inc., a public company is in the business of acquiring alternative energy companies. Attorney Melissa Rice prepared the legal opinions required for the conversion of the company debt into more than 240 million purportedly free trading shares. False opinion letters claimed the shares were exempt from registration. Eventually the shares were illegally sold to the public, yielding profits of more than $2.5 million. The complaint alleges violations of Securities Act Section 5. The case is in litigation. The shares of the company were also suspended from trading.

Misrepresentations: In the Matter of UBS Financial Services Inc. of Puerto Rico, Adm. Proc. File No. 3-14863 (Filed May 1, 2012) and In the Matter of Miguel A. Ferrer, Adm. Proc. File No. 3-14862 (Filed May 1, 2012) are proceedings alleging that misrepresentations were made in connection with the sale of shares in non-exchange traded closed end funds about the pricing and the market. The former is against the firm and settled. The latter is against Respondents Miguel A. Ferrer, former CEO of UBS PR, and Carlos J. Ortiz, former Managing Director of Capital Markets of the subsidiary. It is in litigation.

Since 1995 UBS PR has been the primary underwriter of fourteen separately organized closed-end companies’ shares. It assisted with nine others. The majority of the funds held Puerto Rico municipal bonds. The firm is the only secondary dealer for the funds it underwrote and the dominate dealer for the others. Customers were falsely told the prices for the securities were set by the market. In fact they were set by the UBS PR head trader. During 2008 and early 2009 those prices were set to maintain a high price to NAV spread. By the spring of 2009 the parent of UBS PR concluded that the inventory of fund shares held by its subsidiary was too large. Subsequently, UBS PR regularly sold fund shares at prices which were below those reflected in pending customer sell order, effectively preventing them from selling their shares.

From March to September 2009 UBS PR sold about 75% of its inventory to investors. Throughout the period the firm continued to misrepresent the manner in which it set secondary market prices and the liquidity of the market. The firm also did not disclose that it was withdrawing support from the market. Market prices of certain funds declined by 10 – 15%. The Order as to the firm alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(c). The firm settled, consenting to the entry of a cease and desist order based on the Sections cited in the Order as well as to a censure. In addition to complying with its undertakings, the firm agreed to pay disgorgement of $11.5 million along with prejudgment interest and a civil penalty of $14 million. The other proceeding will be set for hearing.

Unregistered securities: SEC v. Scucci, No. 6:12-CV-00646 (M.D. Fla. Filed April 30, 2012) is an action against a mother and daughter, respectively, Karen Beach and Christel Scucci, and their controlled entities Protégé Enterprises, LLC and Capital Edge Enterprises, and attorney Cameron Linton. The complaint alleges that about 3.3 billion shares of unregistered penny stock were sold yielding about $1.6 million in illegal profits. The shares were obtained through so-called “wrap around agreements” under which debts of certain microcap companies owed to their officer and affiliates were assigned to Protégé and Capital Edge. The notes were altered to permit their payoff in shares, a right exercised by the two companies. The mother and daughter then had Mr. Linton issue false legal opinions which permitted the shares to be sold. The Commission’s complaint alleges violations of Securities Act Section 5. The case is in litigation.

Unregistered securities: SEC v. e-Smart Technologies, Inc., Civil Action No. 1:11-cv-00896 (D.D.C. Filed May 13, 2011) is an action against the company and others centered on an unregistered stock offering from April 2005 through June 2006. The defendants are alleged to have raised over $2.6 million by selling 26 million e-Smart shares. The complaint also claims that defendant George Sobol conducted a similar offering from March 2005 through June 2006 which raised about $890,000. This week defendants Kenneth Wolkoff and George Sobol settled with the Commission, consenting to the entry of permanent injunctions prohibiting future violations of Securities Act Section 5. Both men also consented to be barred for five years from participating in any penny stock offering and to disgorge all e-Smart stock. In addition, Mr. Wolkoff agreed to pay a penalty of $40,000 while Mr. Sobol will pay $30,000.

Fraudulent offering: SEC v. McNerney, Civil Action No. 1:12-cv-21627 (S.D. Fla. Filed April 30, 2012) is an action against attorney Michael McNerney alleging violations of Exchange Act Section 10(b). The complaint centers on his role with Mutual Benefits Corporation and a $1 billion offering conducted from 1995 through May 2004. The Commission first halted the fraud at the company when it filed a contested emergency civil enforcement action against Mutual Benefits and its officers. A restraining order was obtained and later a receiver was appointed. Subsequently, in a related criminal case Mr. McNerney was convicted and sentenced to serve five years in prison. Mr. McNerney consented to the entry of a permanent injunction. The Commission also suspended him from practice under Rule 102(e).

Investment fraud: SEC v. Usee, Inc., Case No. 3;12-cv-01325 (N.D.Tex. Filed April 30, 2012) is an action against the company and its promoters, Terry Wiese and Scott Wiese. Investors were told that Usee was a voice over internet protocol company that was on the verge of large profits. The individual defendants offered investors two opportunities to invest. Under one, stock could be purchased which was claimed to have returns of up to 1,000% in the first year. Under the other, promissory notes could be purchased which supposedly had returns of up to 100% in 60 days. In reality investors funds were simply squandered and the representations about the company were false. The defendants settled with the Commission, consenting to the entry of permanent injunctions prohibiting future violations of Securities Act Sections 5 and 17(a) and Exchange Act Section 10(b). The defendants also agreed to disgorge nearly $5.8 million along with prejudgment interest. The individual defendants agreed, in addition, to pay penalties of $300,000. Each defendant was also enjoined from offering or selling securities issued by any company they own or control and the Wieses are barred from serving as an officer or director.

Fraudulent seminars: SEC v. Powell, Civil Action No. 1;12-cv-483 (E.D.Va. Filed April 30, 2012) is an action against Darlene Powell and Robert Elbridge. The two defendants were independent contractors for Long Term-Short term Inc., d/b/a BetterTrades. They sold products and services to investors who wanted to learn to trade securities and options. Mr. Elbridge is alleged to have made misleading statements claiming that he was an experienced trader and about the success of securities trading in the Daily Cash Flow Trading Lab. Ms. Powell falsely claimed that she was an experienced and successful trader who made her living from trading. Investors purchased subscriptions to the trading lab and traded securities that Mr. Elbridge recommended based on his misrepresentations. Each defendant settled, consenting to the entry of a permanent injunction prohibiting future violations of Exchange Act Section 10(b). Ms. Powell also agreed to pay disgorgement of $81,036 along with prejudgment interest and a civil penalty of $130,000. Mr. Eldridge was not required to pay a civil penalty based on his financial condition.

False pricing: SEC v. RKC Capital Management, LLC, Case No. 2:12-cv-00408 (D. Utah Filed April 30, 2012) is an action against the firm along with RKC Capital LLC, the investment advises to RKC Matador Fund LLC, and Russell Cannon. From November 2007 through July 2011 the complaint claims that the defendants defrauded investors by causing the price of Matador to be fraudulently inflated by overstating its assets under management. That was accomplished by marking the close for the share price of the fund’s largest holding. The defendants also instructed Matador’s fund administrator to record its holdings in Global above the actual market price for 15 months. The falsifications assisted in soliciting investors and increasing fees. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1),(2) and (4). The case is in litigation.

FINRA

The regulator fined four firms in connection with their failure to properly supervise and have an adequate basis for recommending the sale of over $9.1 million worth of leveraged and inverse exchange traded funds or ETFs. Those securities are typically open-ended investment companies whose shares represent interests in a portfolio of securities that track an underlying index. Leveraged ETFs seek to deliver multiples of the index. Inverse ETFs seek to deliver the opposite of the performance index. Here from January 2008 through June 2009 the firms did not have adequate supervisory systems to monitor the sales and failed to conduct adequate due diligence regarding the risks of the securities. In some instances registered representatives made unsuitable sales. The penalties imposed were as follows: Wells Fargo, a $2.1 million fine and $641,489 in restitution; Citigroup, a $2 million fine and $146,431 in restitution; Morgan Stanley, a $1.5 million fine and $604,584 in restitution; and UBS, a $1.5 million fine and $431,488 in restitution.

Court of Appeals

ARS: SEC v. Morgan Keegan & Co., No. 11-13992 (11^th Cir. May 2, 2012) is an action in which the Circuit Court reversed a grant of summary judgment in favor of Morgan Keegan.

The Commission’s complaint alleged violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(c) based on claimed misrepresentations made by brokers at the firm as they continued to sell auction rate securities in early 2008 as the market collapsed. Four of its customers stated that they were told things such as ARS are as good as cash and that the securities were completely liquid. Those allegations were bolstered by internal records suggesting that the firm knew the ARS market was unraveling as the sales continued. The firm claimed that it had fully disclosed the risks of the securities in a series of disclosure documents, prompting the district court to rule in its favor on summary judgment.

The Circuit Court reversed. In its cases on materiality the Supreme Court has repeatedly rejected the use of a bright line test for materiality as potentially over or under inclusive the Court noted. Rather, the High Court opted for a standard utilizing the “total mix” of information important to an objective, reasonable investor. Under this standard the representations made to the four clients of the firm cannot be disregarded in favor of the written materials since it deprives them of context, according to the Court. Indeed, the SEC has the authority under its statutes to bring an action charging a violation no matter how small. Disregarding the statements of the four customers is inconsistent with the total mix standard of materiality. The Court concluded by holding that while in some instances disclosure documents may be sufficient to make oral representation immaterial that is not true here where there is no proof the purchasing customers actually received them.

Withdrawing the Fifth Amendment: SEC v. Smart, No. 11-4134 (10^th Cir. Decided April 27, 2012) is an action in which the Commission claimed that defendant Brian Smart along with his company, Smart Assets LLC, operated a Ponzi scheme. During the pre-complaint investigation Mr. Smart declined to testify on the advice of his counsel, citing his Fifth Amendment privilege. After the filing of the complaint, and during discovery, he failed to appear for his deposition. He did appear on the date the company was to be deposed and, after consulting with company counsel, again declined to testify. When faced with a Commission motion for summary judgment however Mr. Smart sought to withdraw his invocation of the privilege and offered an affidavit in opposition. The district court refused to permit Mr. Smart to withdraw his assertion, drew an adverse inference against him based on the invocation of the privilege and granted summary judgment in favor of the SEC.

The Circuit Court affirmed, concluding that the withdrawal of the privilege is based on the facts and circumstances of the case. It is impermissible to withdraw the assertion when the party invokes the privilege throughout discovery and then seeks to change position to support or defend a motion for summary judgment. Permitting withdrawal under those circumstances can prejudice the other party. Where, however, the party is pro se, unaware of the consequences of taking the Fifth and the opposing party has sufficient substitute evidence, withdrawal may be appropriate. Here the Court concluded that Mr. Smart was “using the privilege to manipulate the litigation process” by repeatedly invoking the privilege and then when faced with a summary judgment motion seeking to withdraw it.

Investment fund fraud: SEC v. Lauer, No. 09-15138 (11^th Cir. April 19, 2012) is an action against Michael Lauer in which the Commission alleged that he engaged in a $500 million fraud in connection with the operation of an investment fund. The district court granted partial summary judgment in favor of the SEC. The court entered an injunction prohibiting future violations Sections 17(a) and Exchange Act Section 10(b) both individually and as a Section 20(a) control person, and Advisers Act Sections 206(1) and 206(2). He was also ordered to disgorge $43,688,249 along with prejudgment interest and pay a $500,000 civil penalty. The Eleventh Circuit affirmed the ruling of the district court, concluding that it was supported by overwhelming evidence.