SEC News Digest

ENFORCEMENT PROCEEDINGS

In the Matter of Timothy M. Gautney, Robert A. Bellia, Jr., and Erik S. Blum

On September 27, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act and Notice of Hearing (Order) against Timothy M. Gautney, Robert A. Bellia, Jr., and Erik S. Blum.

The Division of Enforcement (Division) alleges in the Order that Gautney has been the president and principal owner of Aura Financial Services, Inc. (Aura), a broker-dealer formerly registered with the Commission from February 1997 until February 2010 and based in Birmingham, Alabama. The Division further alleges that Gautney is a former registered representative of Aura as well as an investment adviser representative associated with Aura Asset Management, Inc., an affiliated investment adviser that he owns and which was registered with the Commission from January 2004 through June 2010. The Division alleges that Bellia was a registered representative with Aura from June 2007 until August 2009, who owned Aura's branch office in Islandia, New York, and served as its branch manager until January 2009. The Division also alleges that Blum was a registered representative with Aura from August 2006 until August 2009 and served as the manager of its Miami branch office.

The Division alleges that, from January 2008 through December 2008, Bellia failed reasonably to supervise two former Aura registered representatives and Blum failed reasonably to supervise one former Aura registered representative by failing to follow up on red flags of potential churning in certain customer accounts. The Division also alleges that Gautney failed reasonably to implement Aura's procedures for addressing potential churning in its customers' accounts.

A hearing before an administrative law judge will be scheduled to determine whether the allegations in the Order are true, to provide Gautney, Bellia, and Blum an opportunity to respond to these allegations, and to determine what, if any, remedial action is appropriate in the public interest. The Order directed the Administrative Law Judge to issue an initial decision within 300 days from the date of service of the Order. (Rel. 34-62996; IA-3088; File No. 3-14069)

In the Matter of Thomas Michael Rittweger

On September 28, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Notice of Hearing (Order) against Thomas Michael Rittweger.

The Division of Enforcement alleges in the Order that Rittweger was the managing director of North American operations for Credit Bancorp, Ltd. (Credit Bancorp). Credit Bancorp & Co., a subsidiary of Credit Bancorp, filed an application on Form BD with the Commission seeking to register as a broker-dealer. Credit Bancorp & Co. was a registered broker-dealer with the Commission from July 11, 1997 until July 3, 1998. Rittweger was a principal and registered representative of Credit Bancorp & Co.

The Division alleges that on September 13, 2010 the United States District Court for the Southern District of New York issued an order permanently enjoining Rittweger from future violations of Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in the civil action entitled Securities and Exchange Commission v. Credit Bancorp, Ltd., et al., Civil Action Number 1:99-CV-11395.

A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Rittweger an opportunity to respond to those allegations, and to determine what sanctions, if any, are appropriate and in the public interest. The Order directs the administrative law judge to issue an initial decision within 210 days from the date of service of the Order Instituting Proceedings. (Rel. 34-62998; File No. 3-14070)

In the Matter of Igor Poteroba

On September 28, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act, Making Findings, and Imposing Remedial Sanctions (Order) against Igor Poteroba, a former investment banker in UBS Securities LLC's Global Healthcare Group in New York City. The Order finds that on Sept. 21, 2010, a final judgment was entered by consent against Poteroba in the civil action entitled Securities and Exchange Commission v. Igor Poteroba et al., Civil Action Number: 1:10- CV-2667(AKH), in the United States District Court for the Southern District of New York, enjoining him from future violations of Section 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder.

The Commission's complaint alleged that, from at least July 2005 through Feb. 2009, Poteroba participated in a clandestine insider trading ring that netted over $1 million in illicit profits by trading in advance of at least eleven mergers, acquisitions, and other business combinations. Poteroba was the source of the material, nonpublic information about the eleven impending transactions, which he learned through his work as an investment banker in UBS Securities LLC's Global Healthcare Group. Poteroba misappropriated the material, nonpublic information from his employer and its clients in breach of a duty of confidentiality that he owed them. Pursuant to the insider trading scheme, Poteroba tipped his friend, Aleksey Koval, with material nonpublic information, who in turn tipped his friend, Alexander Vorobiev, both of whom traded securities on the basis of the material, nonpublic information tipped to Koval by Poteroba.

Based on the above, the Order permanently bars Poteroba from association with any broker or dealer and investment adviser. Poteroba consented to the issuance of the Order without admitting or denying any of the findings in the Order, except as to the Commission's jurisdiction over him and the entry of the permanent injunction against him. For further information see LR-21460 (March 25, 2010)). [SEC v. Igor Poteroba et. al., Civil Action No. 1:10-CV-2667 (AKH), [S.D.N.Y.] (Rel. 34-62999; IA-3089; File No.3-14071)

Brian Hollnagel and BCI Aircraft Leasing, Inc.

The Securities and Exchange Commission announced that on Sept. 8, 2010, the United States Attorney's Office for the Northern District of Illinois announced a 21-count indictment of Brian Hollnagel, BCI Aircraft Leasing Inc., and five others involved in BCI's fraudulent scheme as well as obstruction of the Commission's attempts to discover and investigate that very scheme. U.S. v. Brian Hollnagel et al., Criminal Action No. 1:10-cr-0195 (N.D. Ill.) (St. Eve., J.).

As part of this indictment, Hollnagel, BCI, and Martin Collier, BCI's Chief Financial Officer, are accused of obstructing the SEC's investigation of BCI and Hollnagel. In particular, Collier is accused of perjury during an August 2007 hearing before the Honorable Elaine E. Bucklo SEC v. Hollnagel et al., 1:07-cv-4538 (N.D. Ill.), Docket No. 35 at 5. Collier is also accused of perjury during a February 2009 deposition taken by the SEC. Finally, Collier is accused of obstruction of justice in connection with the production of fraudulent court-ordered accountings to the SEC in August 2007.

In addition, Hollnagel, BCI, and Robert Carlsson, a former broker who raised money from investors for BCI's operations, are accused of obstruction of justice in connection with false representations to the SEC during two separate examinations of Carlsson's broker-dealer in 2006 and 2007 by the SEC's examination staff. In particular, Hollnagel, BCI, and Carlsson are accused of concealing from the SEC's examination staff Carlsson's activities raising money for BCI.

The indictment further alleges that Jason Hyatt, another broker who raised money from investors for BCI's operations and a defendant in a related District Court action brought by the Commission, committed obstruction of justice when he deleted data from two computers after documents had been subpoenaed by the SEC. See SEC v. Jason R. Hyatt, Jay Johnson and Hyatt Johnson Capital, LLC, Civil Action No. 1:08-cv-2224 (N.D. Ill.) (Lindberg, J.),

Finally, the indictment alleged that, beginning no later than early 2000 and continuing through at least early 2009, Defendants Hollnagel, BCI, Papayanis, Hyatt, Hatamyar, Meyer, Collier and others fraudulently obtained and retained financing and other funds for BCI and enriched themselves to the detriment of investors, lenders and others. Specifically, they allegedly:

• made and caused misrepresentations to be made to investors and prospective investors about the expected returns on the investments, the source of funds used to pay returns to investors, the use of funds raised from investors, the status of investments, and the ownership interest that certain investment groups had in particular aircraft;

• used bribes and other payments to obtain term loans, lines of credit, and pricing and competitive advantages, and

• made and caused misrepresentations to lenders regarding the membership of various investment groups and BCI's ownership interest in collateral.

Previously, on Aug. 13, 2007, the Commission filed a civil injunctive complaint alleging that Defendants Hollnagel and BCI, from approximately 1998 through 2007, raised at least $82 million from approximately 120 investors as part of a fraudulent scheme in which the Defendants commingled investor funds, used investor funds to pay other investors, and failed to use investor funds as represented. The Complaint alleged that, as a result of their conduct, the Defendants violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

On April 18, 2008, the Commission filed a civil injunctive complaint against alleging that Jason Hyatt and others, from approximately 2003 through 2007, while acting as unregistered broker-dealers and investment advisers, misappropriated at least $5.4 million in investor funds. SEC v. Jason R. Hyatt, Jay Johnson and Hyatt Johnson Capital, LLC, Civil Action No. 1:08-cv-2224 (N.D. Ill.) (Lindberg, J.). The Complaint alleged that, as a result of their conduct, the Defendants violated Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. [SEC v. Brian Hollnagel and BCI Aircraft leasing, Inc., Civil Action No. 1:07-cv-4538 (N.D. Ill.) (Bucklo, J.)] (LR-21666)

SEC Charges Former Regional Investment Banking Firm Chairman and His Former Stockbroker Friend With Insider Trading

The Securities and Exchange Commission alleged in an insider trading case filed today that from at least the summer of 2006 through the spring of 2007, Richard A. Hansen (Hansen), a registered representative and the former chairman of a regional investment bank, traded on inside information concerning at least five pending corporate acquisitions. Additionally, the Complaint alleges that Hansen tipped his longtime friend Stuart Kobrovsky (Kobrovsky) about one of the acquisitions, and that Kobrovsky, in turn, traded on that information. The Complaint alleges that Hansen and Kobrovsky made illegal trading profits of approximately $215,000. Without admitting or denying the allegations, Kobrovsky has agreed to settle the Commission's allegations against him, and his settlement papers were submitted to the Court for its consideration.

The Complaint, filed in federal court in the Eastern District of Pennsylvania, alleges that defendant Hansen learned of each of the pending acquisitions, and the identity of the target companies, from his business associate, Donna Murdoch (Murdoch). Murdoch in turn, according to the Complaint, had learned the information from James E. Gansman (Gansman), then a partner in the Transaction Advisory Services Department of Ernst and Young, LLP (E&Y). According to the Complaint, by tipping Murdoch with material, non-public information about pending acquisitions, Gansman breached of a duty of confidentiality he owed to E&Y and its clients; and Murdoch, in turn, tipped Hansen. Hansen is then alleged to have traded on that information, and in one instance to have tipped his longtime friend, Stuart Kobrovsky, who also traded. The Complaint alleges that Hansen and Kobrovsky knew or recklessly disregarded that the tips on which each traded stemmed from a breach of duty to the information's source.

For their part, Murdoch and Gansman were both defendants in the recently settled civil case of SEC v. James E. Gansman, et al., 08-CV-4918 (PKC) (S.D.N.Y.). Both settled without admitting or denying the Commission's allegations. Both were also charged in a parallel criminal case. In that criminal case, Murdoch entered guilty pleas to a total of 17 felony counts and is awaiting sentencing. Gansman was convicted by a jury of six felony counts and acquitted of four. He is currently incarcerated pending his appeal. See United States v. Gansman et al., 08 Cr. 471 (SGC) (S.D.N.Y.))

According to the instant Complaint, Hansen used material, nonpublic information Gansman provided to Murdoch, who in turn provided it to Hansen, by:

• trading in his daughters' accounts in the securities of at least two companies that were acquisition targets of E&Y's clients, ATI Technologies (ATI) and Freescale Semiconductor (Freescale); and trading through Murdoch's account in ATI, Freescale and Bausch and Lomb, another acquisition target client of an E&Y client, realizing illegal profits totaling at least $52,000;

• tipping his longtime friend, defendant Kobrovsky, concerning one of the pending acquisitions—that of Freescale; Kobrovsky, in turn, traded on this information realizing illegal profits totaling $163,000.

The SEC complaint charges that Hansen and Kobrovsky each violated Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The SEC seeks injunctions against future violations of the federal securities laws, disgorgement of unlawful trading profits with prejudgment interest, and civil monetary penalties.

Without admitting or denying the Commission's allegations, Kobrovsky signed a consent that provides—subject to approval by the Court—for the entry of a final judgment permanently enjoining him against future violations of the Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The final judgment to which Kobrovsky consented would further order that he is liable for disgorgement of $163,000 together with $39,589.17 in prejudgment interest thereon, but, based on his sworn financial statements and other documents submitted to the Commission, would waive payment of disgorgement and prejudgment interest and not impose a civil penalty.

In a parallel criminal case also filed today, the United States Attorney's Office for the Southern District of New York charged Hansen with securities fraud and conspiracy to commit securities fraud, in a three-count criminal information. United States v. Hansen, 10 Crim. 875 (PAC) (S.D.N.Y.) Hansen was released on a $50,000 bond and a status conference was set for Nov. 5, 2010.

The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, the Options Regulatory Surveillance Authority, and the Financial Industry Regulatory Authority. [SEC v. Richard A. Hansen et. al., Civil Action No. 10-CV-5050 (E.D.P.A.)] (LR-21667)

SEC Charges Atlanta Fund Manager with Securities Fraud

The Securities and Exchange Commission filed a civil injunctive action in Atlanta, Georgia on Sept. 23, 2010, charging Robert L. Duncan, the portfolio manager of the Seaside Partners Fund, LP (Fund) with violating the antifraud provisions of the federal securities laws in connection his activities related to the Fund.

In its complaint, the Commission alleges that Duncan violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2), 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Duncan, without admitting or denying the allegations in the Commission's complaint, consented to the entry of an order: (1) permanently enjoining him from future violations of the provisions the Commission alleged he violated in its complaint; and (2) authorizing the court to determine the amount of civil penalties and disgorgement at a subsequent hearing.

In its complaint, the Commission alleges that Duncan violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2), 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The Commission's complaint seeks permanent injunctions from future violations of those provisions, disgorgement, prejudgment interest and civil penalties.

The Commission acknowledges the assistance of the US Attorney's Office for the Northern District of Georgia in this matter. [SEC v. Robert L. Duncan, Civil Action No. 1:10-CV-03051-JEC, N.D. GA.] (LR-21668)

SEC Obtains Asset Freeze Against Paul R. Beckwith

The Securities and Exchange Commission obtained an Ex Parte Asset Freeze Order against Paul R. Beckwith, CPA (Beckwith) and Paul R. Beckwith dba Beckwith CPA'S. The Order was entered September 27, 2010, by the Honorable Dale A. Kimball, United States District Judge for the District of Utah.

The Commission's complaint against Beckwith alleges that Beckwith, the assistant controller of the Salt Lake City company Theradoc, Inc. (Theradoc), a subsidiary of Hospira, Inc. (Hospira) has been transferring funds from Theradoc's operating account into a personal account controlled by Beckwith since at least February of 2009. The most recent withdrawal occurred on September 15, 2010. Beckwith then deposited those funds in trading accounts maintained at TD Ameritrade, a broker-dealer. Beckwith traded securities in those accounts, keeping profits and recently, incurring losses. The Complaint also alleges that in order to cover up his conduct, Beckwith transmitted false information to Hospira.

The Commission's complaint charges Beckwith with violations of Section 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 13b2-1 thereunder and aiding and abetting violations of Section 13(b)(2)(A) of the Exchange Act. The complaint seeks an injunction, disgorgement and civil penalties.

The Commission acknowledges the assistance of the United States Attorney's Office for the District of Utah and the Federal Bureau of Investigation in this matter. [SEC v. Paul R. Beckwith, et al., Civil Action No. 1:10cv00162 (D. Utah)] (LR-21669)

Commission Settles Fraud Charges Against Ohio-Based Investment Adviser Robert Pinkas and His Firm

On September 28, the Honorable James S. Gwin, United States District Judge for the Northern District of Ohio, entered final judgments against defendants Robert Pinkas and his firm, Brantley Capital Management, LLC (BCM). Pinkas and BCM served as the investment advisers to Brantley Capital Corporation, a New York-based investment company, and Pinkas served as the CEO of both BCM and Brantley Capital. The final judgments, among other relief, permanently enjoin both defendants from violating the antifraud provisions of the federal securities laws and order Pinkas to pay more than $957,000 in disgorgement, prejudgment interest, and a civil penalty.

The Commission's complaint alleges that between 2002 and 2005, Pinkas, BCM, and its former part-time CFO substantially overstated the value of equity and debt investments in two failing private companies that represented more than half of the investment portfolio of Brantley Capital in order to generate higher investment advisory fees. The complaint further alleges that Pinkas, BCM, and the former BCM CFO made material misrepresentations and failed to make required disclosures about the two companies to Brantley Capital's board of directors, independent auditors, and investors.

Without admitting or denying the allegations in the Commission's complaint, Pinkas agreed to settle the Commission's action. He consented to the entry of a final judgment that permanently enjoins him from future violations of Securities Exchange Act of 1934 (Exchange Act) Sections 10(b) and 13(b)(5) and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 and Investment Advisers Act Sections 206(1) and 206(2), and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 13a-1 and 13a-13; orders him to pay a civil penalty of $325,000, disgorgement of $482,561, and prejudgment interest of $150,168; and bars Pinkas from serving as an officer or director of a publicly-traded company for five years. Pinkas also consented to the entry of a Commission order that will bar him for one year from associating with an investment adviser.

BCM also settled the Commission's action, without admitting or denying the Commission's allegations, by consenting to the entry of a final judgment that permanently enjoins BCM from future violations of Exchange Act Sections 10(b) and 13(b)(5) and Rules 10b-5 and 13b2-1 and Investment Advisers Act Sections 206(1) and 206(2), and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 13a-1 and 13a-13.

The Commission previously reached a settlement in this litigation with the former BCM part-time CFO, Tab Keplinger (LR 21178). [SEC v. Brantley Capital Management, LLC, Robert Pinkas, and Tab Keplinger, Civil Action No. 1:09-CV-01906 (JSG) (N.D. Ohio)] (LR-21670)

SEC v. Richard Dean Carter

The United States Securities and Exchange Commission announced that on Sept. 24, 2010 it filed a civil injunctive action against Richard Dean Carter. The Commission's complaint alleges that Carter perpetrated a microcap fraud on the market by providing information that appeared in two false press releases issued by High Velocity Alternative Energy Corporation in 2008. The complaint also alleges that Carter reviewed and approved the press releases before they were issued. High Velocity subsequently filed one of those press releases with the Commission as an attachment to a Form 8-K. Specifically, the complaint alleges:

• The press releases and Form 8-K reported that High Velocity had received large contracts to supply two of its customers with automotive products. In fact, no such contracts existed.

• High Velocity's stock price increased by over 100% and over 25%, respectively, after the fictitious contracts were announced.

The complaint further alleges that, as a result of his conduct, Carter violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeks the entry of a permanent injunction against Carter and an order (1) requiring Carter to pay a civil penalty and (2) barring Carter from participating in any offering of penny stock or acting as an officer or director of a public company. [SEC v. Richard Dean Carter, Civil Action No. 10-6145 (N.D. Ill.) (Gettleman, J.)] (LR-21671)

INVESTMENT COMPANY ACT RELEASES

Jackson National Life Insurance Company, et al.

A notice has been issued giving interested persons until October 22, 2010 to request a hearing on an application filed by Jackson National Life Insurance Company, et al. for an order under Section 12(d)(1)(J) of the Investment Company Act for an exemption from Sections 12(d)(1)(A) and (B) of the Act, under Sections 6(c) and 17(b) of the Act for an exemption from Section 17(a) of the Act, and under Section 6(c) of the Act for an exemption from Rule 12d1-2(a) under the Act. The order would (a) permit certain series of registered open-end management investment companies to acquire shares of other registered open-end management investment companies or unit investment trusts that are within or outside the same group of investment companies as the acquiring companies, and (b) permit certain series of registered open-end management investment companies relying on Rule 12d1-2 under the Act to invest in certain financial instruments. (Rel. IC-29442 - September 27)

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