SEC News Digest

ENFORCEMENT PROCEEDINGS

In the Matter of Hector Gallardo, Michael Zurita, and Orion Trading, LLC

On November 24, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 against Hector Gallardo (Gallardo), Michael Zurita (Zurita), and Orion Trading, LLC (Orion). According to the Order, the Division of Enforcement, following an investigation, alleges that Gallardo, while a registered representative in the New York branch office of Orion solicited two Bolivian customers of Orion to invest money in a sham corporation that he operated called Ventel Enterprises Corporation (Ventel). Gallardo falsely told the Bolivian investors that he would invest in unspecified initial public offerings and/or in investment vehicles offered or managed by Ventel; that Ventel was a group of “professional traders” who bought and sold stock for investors; and that Ventel could guarantee a nine to fifteen percent monthly return regardless of market volatility. Lured by Gallardo’s promises, the Bolivian investors provided Gallardo with a total of approximately $1.154 million for Gallardo to invest on their behalf. In fact, Ventel, its “professional traders,” its trading strategy, and its purported investments were a complete sham fabricated by Gallardo. Gallardo did not have any “professional traders” who could invest the Bolivian investors’ money or guarantee any returns at all, and Gallardo never invested any of the Bolivian investors’ money in any initial public offerings. Instead, Gallardo invested approximately $190,000 of the Bolivian investors’ funds in stocks and options through nominee accounts at three brokerages and lost virtually the entire amount. Gallardo misappropriated the remainder of the Bolivian investors’ money, approximately $685,000, and used that money to pay his and his family’s personal expenses, including airline tickets and multiple trips to Atlantic City, where Gallardo liked to gamble.

The Division also alleges that Michael Zurita, Orion’s President and the supervisor responsible for Orion’s New York branch office during the relevant period, ignored a series of red flags that should have put Zurita on notice as to suspicious activity between Gallardo and the Bolivian investors. Zurita knew, or was reckless in not knowing, that one of the Bolivian customers of Orion was communicating with Gallardo about stock market investments that would pay returns in excess of twelve percent per month (144% annualized) and was proposing to enter into a profit sharing arrangement with the registered representative, Gallardo. Zurita failed to take reasonable steps to investigate Gallardo’s conduct despite numerous red flags. In addition, as Orion’s President, Zurita was responsible for establishing reasonable policies and procedures and reasonable systems to implement those policies and procedures to detect violative activity by Orion’s registered representatives. Orion and Zurita failed to develop reasonable systems to implement Orion’s Written Supervisory Procedures with respect to prohibited transactions.

The Division also alleges that for several months in 2006 and 2007, Zurita permitted an unlicensed foreign associate to perform the functions of a registered representative at the New York branch office.

Based on the above, the Commission deems it necessary and appropriate in the public interest that public administrative and cease-and-desist proceedings be instituted to determine whether the Division’s allegations are true and, if so, what remedial action is appropriate. The Commission ordered that the Administrative Law Judge in this proceeding issue an initial decision not later than 300 days from the date of service of the order instituting proceedings. (Rel. 34-63374; File No. 3-14139)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Change

A proposed rule change filed by the NYSE Amex to adopt additional criteria for listing special purpose acquisition companies (SPACs) that have indicated that their business plan is to engage in a merger or acquisition with an unidentified company or companies (SR-NYSEAmex-2010-103) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of November 29. (Rel. 34-63366)

Proposed Rule Change

The National Securities Clearing Corporation filed a proposed rule change (SR-NSCC-2010-15) under Section 19(b)(1) of the Securities Exchange Act of 1934. The proposed rule change would add a new automated service to process transfers, replacements, and exchanges of insurance and retirement products through NSCC’s Insurance and Retirement Processing Service. Publication is expected in the Federal Register during the week of November 29. (Rel. 34-63368)

There are no registration statements or 8-k’s included today’s Digest.

http://www.sec.gov/news/digest/2010/dig112610.htm