by T. GormanPosted on Posted in SECActions

The Commission filed two administrative proceedings this week. One centers on false entries made in the books and records of a broker dealer. It will be set for hearing. In the Matter of Jason Maiher, Adm. Proc. File No. 3-17126 (February 23, 2016). The other centers on the misuse of the Section 3(a)(10) exemption and the sale of unregistered securities. It settled. In the Matter of IBC Funds, LLC, Adm. Proc. File No. 3-17125 (February 19, 2016).

Jason Maiher

Jason Maiher was the CFO of KeyBanc Capital Markets, Inc. from April 2007 through November 2011. KeyBanc Capital Markets is a registered broker dealer that is a subsidiary of KeyCorp., a financial services company.

Mr. Maiher was primarily responsible for maintaining the financial records of the broker dealer. In that capacity he submitted the firm’s Annual Audited Report to the Commission and oversaw the filing of its monthly FOCUS Reports with FINRA and furnishing them to the SEC. He also certified the general ledger balance sheet information after the close each month under firm policy.

Beginning at some point prior to January 2011 Respondent directed that unsubstantiated “plug” entries be made to one or more accounts in the broker’s general ledger. This was undertaken to complete the monthly close.

The plug entries caused the firms financial records to be inaccurate. Specifically, the monthly FOCUS reports were inaccurate. In addition, the annual audited report for the year ended December 31, 2011stated that the prior period financial statements included unsubstantiated assets of over $13.6 million and omitted liabilities of over $4.3 million. The firm’s write-off of the unsubstantiated assets and accrual of the unrecorded liabilities resulted in a restatement of net income that caused a 78% reduction. The Order alleges violations of Exchange Act Section 17(a)(1). The proceeding will be set for hearing.

IBC Funds

IBC Funds is a financial services company engaged in microcap financing. Under its business model IBC purchased outstanding claims from creditors of microcap issuers and then settled them in Section 3(a)(10) exchanges. Over about two years, beginning in mid 2013, the firm entered into more than 50 separate financing transactions and received securities from microcap issuers. IBC received discounted shares which it liquidated without registering as a broker-dealer as required by Exchange Act Section 15(a).

In four transactions the firm also violated Section 5 of the Securities Act. This is because the 3(a)(10) exemption is not available where certain terms and conditions of the settlement are not presented to the court for consideration at a fairness hearing or where provisions are misrepresented to the court. This occurred on four occasions. For example, in one instance the company fabricated the debt involved. In another instance the creditor and issuer were affiliates and the proceeds received from IBC were used to provide consideration to the company and its CEO. Under these circumstances the exemption is not available.

To resolve the proceeding the firm consented to the entry of a cease and desist order based on the Sections cited in the Order and to a censure. It also agreed to pay disgorgement of $2,200,000, prejudgment interest and a penalty of $250,000.

Program: The Second Annual Dorsey Enforcement Forum will be held on Wednesday February 24, 2016 beginning at 1:00 p.m. Three panels of experts will discuss: 1) Trends in SEC enforcement; 2) FERC and CFTC market manipulation actions; and 3) Current developments in Financial Services Regulatory Enforcement. The program will be video cast, webcast and live in Washington, D.C. at the Willard Office building, 1455 Pennsylvania Ave. Lunch will be available beginning at noon; open bar at the conclusion of the program. No charge but registration is required (here) or if attending in person by emailing my assistant at Romodan.Hanan@dorsey.com

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by T. GormanPosted on Posted in SECActions

The Commission has brought a series of cases where investors lost substantial sums purchasing shares of firms whose operations and or assets were supposedly largely in China. In some instances the firms turned out not to have the claimed assets while in others they were looted by insiders. A recent case brought by the agency, however, is the reverse: Texas executives went to China and convinced local investors to purchase shares which were worthless. SEC v. Halsey, Civil Action No. 3:16-cv-450 (N.D. Tx. Filed February 17, 2016).

Defendant TexStar Oil Co., Ltd. is controlled by Mr. Halsey. The action is based on two schemes. The first traces to May 2011 when Mr. Halsey formed an offshore corporation called Falcon Fund to market investment opportunities in China. He sold Fund interests in China. Subsequently, TexStar was formed and a public shell, whose name was changed to TexStar Corp., was acquired.

In late 2011 Mr. Halsey invited representatives of Company A, which was seeking to raise money by selling securities in the form of oil-and-gas interests, to pitch the members of Falcon Fund. After the January 2012 presentation Mr. Halsey used the firm’s marketing materials to raise about $1.1 million from 16 Chinese investors. The promoters transferred the offering proceeds to Mr. Halsey who used the funds to open a TexStar office in Shanghai. When investors raised questions the next year he convinced them to exchange their interests for shares of TexStar as he misappropriated their investment.

The second began with the opening of the TexStar office in Shanghai in March 2012. A number of consultants were retained to create promotional materials for TexStar and other related entities. The consultants solicited investors using the materials.

Potential investors were told the firm sought to raise $20 million by selling 40 limited-partnership units for $500,000 each. Each investor was to receive monthly payments based on oil and gas production from wells drilled and completed. The prospectus represented that the firm had assets valued at $160 million, over 50 successful and completed projects, 10 years of experience in the oil and gas business and returns of 40%. The claims were false.

Mr. Halsey continued offering these interests through another firm he formed, Insider 21, through at least March 2014. To attract investors to Insider 21, Mr. Halsey offered prospective members shares of TexStar he owned, distributing about 1.6 million shares without filing a Form 4 regarding a change in beneficial ownership.

The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 16(a). The case is pending. See, Lit. Rel. No. 23473 (February 19, 2016).

Program: The Second Annual Dorsey Enforcement Forum will be held on Wednesday February 24, 2016 beginning at 1:00 p.m. Three panels of experts will discuss: 1) Trends in SEC enforcement; 2) FERC and CFTC market manipulation actions; and 3) Current developments in Financial Services Regulatory Enforcement. The program will be video cast, webcast and live in Washington, D.C. at the Willard Office building, 1455 Pennsylvania Ave. Lunch will be available beginning at noon; open bar at the conclusion of the program. No charge but registration is required (here) or if attending in person by emailing my assistant at Romodan.Hanan@dorsey.com

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