SEC, CFTC Enforcement: Knight Capital Fined $12M in Market Access Debacle

Joe Evangelisti, a JPMorgan spokesman, said that the bank neither admitted nor denied the legal decision from the CFTC that the bank had violated laws, but instead was admitting to “certain facts set out in the order.”

Mark Cuban Walks in High-Profile Loss for SEC

Not all the SEC’s enforcement actions result in victory. Mark Cuban argued his case in court, against videotaped testimony by the SEC’s star witness, and was acquitted of insider trading.

Cuban had been charged by the SEC over the sale of stock he owned in a Canadian Internet company in 2004. According to the agency, Cuban sold his 6.3% stake in Mamma.com, now Copernic, for $7.9 million to avoid taking a loss of $750,000 that would have been caused by a dilution of his shares due to a private investment in public equity (PIPE). He was told about the PIPE during a phone conversation in June of 2004 with Guy Faure, former CEO of Montreal-based Mamma.com.

Faure said in videotaped testimony that Cuban remarked, “Now I’m screwed. I can’t sell,” after the former told him about plans for the PIPE. But Cuban, who testified at the trial in person, remembered things differently and said that news of the PIPE was already public and he had never promised not to reveal it or act on it.

Cuban’s lawyers also pointed to a trading spike in the stock that they said proved Cuban’s point that the PIPE was already public news. That led former SEC official Erik Sirri to testify that he believed the news was public before Cuban sold his shares.

The jury acquitted Cuban, with the forewoman saying that the case was not as strong as the SEC thought it was. Although Faure and former Mamma.com Chairman David Goldman both testified in absentia, Cuban’s lawyers won the day, resulting in a loss that SEC spokesman John Nester said “will not deter us from bringing and trying cases where we believe defendants have violated the federal securities laws.” Pyramid Scheme Targeting Asian-Americans Shut Down by SEC

The SEC froze assets and charged the operators and promoters of a worldwide pyramid scheme that promises exponential, risk-free returns to investors in a venture that supposedly sells Internet-based children’s educational courses.

Five entities based in Hong Kong, Canada and the British Virgin Islands that collectively operate under business names “CKB” and “CKB168” are at the center of the scheme. At least 400 investors in New York, California and other U.S. areas with large Asian-American communities have been targeted via three CKB executives who live overseas and several promoters living in the U.S. The promoters have raised more than $20 million from U.S.investors, and millions of dollars more from investors in Canada, Taiwan, Hong Kong and other countries in Asia.

The SEC said that the scheme’s operators and promoters, capitalizing on the close ties in the Asian community, use Internet videos, promotional materials and seminars to make it look as if they have a real business. However, CKB has little or no real-world retail consumer sales and can’t deliver the promised extraordinary returns. Not only that, CKB apparently has no other source of revenue than money fleeced from new investors, and most of what it got has been paid out to accounts controlled by CKB executives and as commissions to promoters of the pyramid scheme.

Three CKB executives, Rayla Melchor Santos, a Philippine national; Hung Wai (“Howard”) Shern, a Canadian citizen and resident of Hong Kong; and Rui Ling (“Florence”) Leung, a Hong Kong national; have been charged.

Also charged were eight U.S. promoters: Daliang (David) Guo, a China native and a resident of Coram, N.Y.; Yao Lin, a resident of Fresh Meadows, N.Y.; Chih Hsuan (“Kiki”) Lin, a Taiwanese native and resident of Las Vegas; Wen Chen Hwang (“Wendy Lee”), a Taiwanese native and resident of Rowland Heights, Calif.; Toni Tong Chen, a resident of Hacienda Heights, Calif.; Cheongwha (“Heywood”) Chang, a Chinese native and the husband of Toni Tong Chen; Joan Congyi Ma, a resident of Arcadia, Calif.; and Heidi Mao Liu, a resident of Diamond Bar, Calif.

Potential investors were solicited through seminars and meetings across the country and promised huge returns. They were told that to get one of the educational courses the company supposedly offered, they had to invest in CKB. They were also pushed to recruit new investors, which was the only real way they would ever see a dime.

The SEC seeks disgorgement of ill-gotten gains, financial penalties, permanent injunctions and other relief.