FOR IMMEDIATE RELEASE
2013-90

Washington, D.C., May 16, 2013 — The Securities and Exchange Commission today charged a father and son and their Chicago-area investment advisory firm with defrauding clients through a cherry-picking scheme that garnered them nearly $2 million in illicit profits, which they spent on luxury homes, vehicles, and vacations.

The SEC alleges that Charles J. Dushek and his son Charles S. Dushek placed millions of dollars in securities trades without designating in advance whether they were trading personal funds or client funds. They delayed allocating the trades so they could cherry pick winning trades for their personal accounts and dump losing trades on the accounts of unwitting clients at Capital Management Associates (CMA). Lisle, Ill.-based CMA misrepresented the firm’s proprietary trading activities to clients, many of whom were senior citizens.

“The Dusheks and their firm had an obligation to treat clients fairly and honestly,” said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. “Instead, they exploited the trade allocation process to enrich themselves at the expense of their clients.”

According to the SEC’s complaint filed in federal court in Chicago, the scheme lasted from 2008 to 2012. During that period, the Dusheks made more than 13,500 purchases of securities totaling more than $350 million. The Dusheks typically waited to allocate the trades for at least one trading day – and often several days – by which time they knew whether the trades were profitable. The Dusheks ultimately kept most of the winning trades and assigned most of the losses to clients. At the time of the trading, they did not keep any written record of whether they were trading client funds or personal funds.

The Dusheks’ extraordinary trading success reflects the breadth of their scheme. For 17 consecutive quarters, the Dusheks reaped positive returns at the time of allocation while their clients suffered negative returns. One of Dushek Sr.’s personal accounts increased in value by almost 25,000 percent from 2008 to 2011 while many of his clients’ accounts decreased in value.

The illicit trading profits from his personal accounts were Dushek Sr.’s only source of regular income outside of Social Security, according to the SEC. It alleges that he drew no salary or other compensation as president of CMA and relied on profits from the scheme to make mortgage payments on his 6,500 square foot luxury home featuring separate equestrian facilities. He also spent the money on luxury vehicles including a Mercedes Benz SL550, membership in a luxury vacation resort, and vacations abroad. Dushek Jr. is alleged to have used trading profits to pay for a boat slip and vacations to ski resorts and Hawaii.

According to the SEC’s complaint, CMA misrepresented its proprietary trading activities to clients in a brochure that is part of the firm’s Form ADV. The brochure falsely claimed that Dushek Sr. maintained “reports” of his proprietary trading activities that he submitted to an associate for review, when he did not maintain such reports nor have any associate review his trading. The brochure further stated, “We do not merge or aggregate any client order with any employee order.” That claim also was false. When the Dusheks placed orders, there were no client orders or employee orders but instead merely block purchases in CMA’s brokerage accounts that were later allocated to client accounts or personal accounts.

The SEC’s complaint charges the Dusheks and CMA with fraud and seeks final judgments that would require them to return ill-gotten gains with interest and pay financial penalties.

The SEC’s investigation was conducted by Nicholas Eichenseer, Vanessa Horton, and Paul Montoya of the Chicago Regional Office. Steven Seeger will lead the SEC’s litigation.

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FOR IMMEDIATE RELEASE
2013-89

Washington, D.C., May 15, 2013 — The Securities and Exchange Commission today named Keith F. Higgins as the new director of the agency’s Division of Corporation Finance.

Mr. Higgins comes to the SEC from the law firm of Ropes & Gray LLP where he is a partner in its Boston office with 30 years of experience advising public companies about securities offerings, mergers and acquisitions, compliance, and corporate governance. Mr. Higgins also has regularly advised underwriters in IPOs and other public equity offerings. He will begin his new position next month.

“Keith is a widely-respected expert on the securities laws with a wealth of knowledge and experience in the many issues confronting the Division,” said Mary Jo White, Chair of the SEC. “He understands and appreciates the importance of our disclosure laws in helping to ensure that investors get the information they need to make informed investment decisions.”

Mr. Higgins added, “During my 30 years of private practice, I have seen firsthand the talent and dedication of the staff of the SEC’s Division of Corporation Finance. It is an honor for me to have the opportunity to serve as its director. The Commission has an ambitious rulemaking agenda that will be my first priority, and I look forward to continuing to move that agenda forward.”

The Division of Corporation Finance seeks to ensure that investors are provided with material information in order to make informed investment decisions, both when a company initially offers its securities to the public and on an ongoing basis. The Division also reviews filings and provides interpretive assistance help companies meet their disclosure obligations, and makes recommendations to the Commission about new rules or updates to current rules.

Mr. Higgins, who began working at Ropes & Gray in 1983, has been a frequent writer and lecturer on securities law, executive compensation, and corporate governance. He is a past chair of the Federal Regulation of Securities Committee of the American Bar Association.

Mr. Higgins, 61, earned his B.A. at Florida State University (Phi Beta Kappa) and his M.A. at the University of Virginia. He earned his law degree (summa cum laude) from Boston University School of Law, and he clerked for the Honorable Herbert P. Wilkins in the Supreme Judicial Court of Massachusetts.

* * *

Lona Nallengara, who was serving as acting director of the Division of Corporation Finance since December 2012, has been named the SEC’s chief of staff.

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FOR IMMEDIATE RELEASE
2013-88

Washington, D.C., May 15, 2013 — The Securities and Exchange Commission today announced that Lona Nallengara has been named the agency’s chief of staff.

Mr. Nallengara came to the SEC in March 2011 and served as deputy director for legal and regulatory policy in the Division of Corporation Finance until he was appointed in December 2012 as its acting director.

Mr. Nallengara has led a series of complex rulemakings by the Division of Corporation Finance stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Jumpstart Our Business Startups (JOBS) Act.

“Lona has been superb in leading the Division and has demonstrated tremendous judgment, intelligence and knowledge,” said Mary Jo White, SEC Chair. “In my short time here, I have come to appreciate his broad grasp of the agency’s overall agenda and his understanding of the Commission and its mission.”

Mr. Nallengara added, “My time in the Division of Corporation Finance has been incredibly rewarding. It has been an honor to work with the talented staff in the Division and across the agency and I look forward to continuing to work with them on behalf of the nation's investors in my new role.”

As a deputy director, Mr. Nallengara was responsible for overseeing the Division of Corporation Finance’s offices of chief counsel, enforcement liaison, international corporate finance, mergers and acquisitions, and small business policy.

Mr. Nallengara joined the SEC from Shearman & Sterling LLP in New York, where he was a partner in the Capital Markets practice group and advised public companies and financial institutions on a wide range of capital raising activities. Mr. Nallengara also served as the firm’s co-hiring partner, co-chair of its associate development committee and international associates and trainees committee, and as a member of the firm’s diversity committee.

Prior to joining Shearman & Sterling LLP in 1998, Mr. Nallengara practiced in the corporate group at the law firm of Osler, Hoskin & Harcourt LLP in Toronto.

Mr. Nallengara, 42, earned his law degree in 1996 from Osgoode Hall Law School in Toronto and his undergraduate degree in Political Science in 1993 from the University of Western Ontario in London, Canada.

* * *

The SEC also announced today that Keith Higgins has been named the new director of the SEC’s Division of Corporation Finance.

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FOR IMMEDIATE RELEASE
2013-87

Washington, D.C., May 15, 2013 — The Securities and Exchange Commission today charged husband-and-wife executives at a China-based company with engaging in a scheme to overstate the company’s revenues and divert proceeds from a securities offering for their personal use.

The SEC alleges that RINO International Corporation’s chief executive officer Dejun “David” Zou and chairman of the board Jianping “Amy” Qiu diverted $3.5 million in company money to purchase a luxury home in Orange County, Calif., without disclosing it to investors. Conflicting information was provided to RINO’s outside auditor when questions were raised about the expenditure. Zou and Qiu also used offering proceeds to pay for automobiles as well as designer clothing and accessories without recording them as personal expenses or otherwise disclosing them in RINO’s public filings.

The SEC issued a trading suspension in 2011 against RINO, which is a holding company for subsidiaries that manufacture, install, and service equipment for the Chinese steel industry. The company became a China-based U.S. issuer through a reverse merger in 2007. The trading suspension was based on questions raised about RINO’s public filings — signed and certified by Zou and Qiu — overstating company revenues by including false sales contracts.

Zou and Qiu agreed to settle the SEC’s charges by paying penalties and consenting to decade-long bars from serving as officers or directors of any company publicly traded in the U.S.

“Executives grossly abuse their positions of trust when they divert corporate funds for their personal spending,” said Antonia Chion, Associate Director of the SEC’s Division of Enforcement. “When making their investment decisions, RINO’s investors did not have the benefit of knowing that Zou and Qiu were diverting money and the company’s revenues were greatly exaggerated.”

According to the SEC’s complaint filed in federal court in Washington D.C., RINO’s periodic filings contained false and misleading statements and omissions about the company’s revenue and operations from 2008 to 2010. RINO maintained two conflicting sets of financial records — one set of books for filings in China and another set of books for filings in the U.S. The Chinese books reflected sales of approximately $31 million from the first quarter of 2008 through the first three quarters of 2010. But the U.S. books that formed the basis for RINO’s SEC filings contained false contracts and portrayed sales revenues of approximately $491 million during that same time period — more than 15 times greater than the revenues recorded in the Chinese books.

The SEC alleges that when RINO’s outside auditor discovered the $3.5 million diversion of money by Zou and Qiu, the auditor was first told that RINO intended to use the funds as a down payment for a joint venture opportunity in the U.S. When the auditor raised further questions, Zou claimed that he had authorized the use of the funds to purchase a property to serve as an office and temporary housing for RINO’s employees visiting the U.S. The auditor then went to RINO’s audit committee to raise concerns about the transaction because of the different explanations and the nature of the home. Zou and Qiu then agreed to reclassify the $3.5 million as a loan, and signed a promissory note bearing interest at current market rates. Zou and Qiu purportedly repaid the loan on May 10, 2010, using funds wired from a Chinese bank account to RINO’s U.S. bank account. That money was later wired back to an account in China.

The SEC’s complaint charges RINO, Zou, and Qiu with violations of the anti-fraud, reporting, books and records, and internal control provisions of the federal securities laws. Without admitting or denying the allegations, RINO, Zou, and Qiu consented to the entry of a judgment permanently enjoining them from violations of the respective provisions of the securities laws. Zou and Qiu agreed to pay penalties of $150,000 and $100,000 respectively. They also paid the disgorgement amount of $3.5 million into a related class action settlement. Zou and Qiu consented to entry of an order prohibiting them from serving as officers and directors of a public company for 10 years. The settlement is subject to court approval.

The SEC’s investigation was conducted by Tom Swiers, Sarah Nilson, Kam Lee, and Melissa Hodgman of the SEC’s Cross Border Working Group, which focuses on U.S. companies with substantial foreign operations. Through the work of the Cross Border Working Group, the SEC has filed fraud cases involving more than 65 foreign issuers and executives, and deregistered the securities of more than 50 companies.

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FOR IMMEDIATE RELEASE
2013-86

Washington, D.C., May 9, 2013 — The Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA) today issued an investor alert entitled Pension or Settlement Income Streams – What You Need to Know Before Buying or Selling Them.

The investor alert informs investors about the risks involved when selling their rights to an income stream or investing in someone else’s income stream.  The alert urges investors considering an investment in pension or settlement income streams to proceed with caution.

Anyone receiving a monthly pension or regular distributions from a settlement following a personal injury lawsuit may be targeted by salespeople offering an immediate lump sum in exchange for the rights to some or all of the payments the person would otherwise receive in future.  Typically, recipients of a pension or structured settlement will sign over the rights to some or all of their monthly payments to a factoring company in return for a lump-sum amount, which will almost always be significantly lower than the present value of that future income stream.

“Investors should always learn as much as possible before making an investment decision, and this is certainly true with respect to investing in pension or structured settlement income stream products,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy.   “This alert will help investors understand the costs as well as the potentially significant risks of these transactions.”

Gerri Walsh, FINRA’s Senior Vice President for Investor Education, said, “Consumers should know that a series of potential pitfalls may greet anyone who is considering selling their rights to an income stream. And any investor who is tempted by the high yield offered by buying the rights to another person’s income stream should know that yield comes with high fees and considerable risks.”

The investor alert contains a checklist of questions before selling away an income stream:

• Is the transaction legal? Federal law may restrict or prohibit retirees from “assigning” their pension to someone else.
• Is the transaction worth the cost? Find the discount rate that the factoring company has applied to your income stream and compare this rate to alternatives such as a bank loan.
• What is the reputation of the company offering the lump sum? Check the factoring company’s record with the Better Business Bureau, and research the firm on the Internet and with a financial professional.
• Will the factoring company require life insurance? The factoring company may require you to purchase a life insurance policy, which will add to your transaction expenses and reduce your payout.
• What are the tax consequences? The lump-sum payment you collect may be taxable. 

The investor alert also warns investors who might be attracted to the yield offered by buying the rights to someone else’s pension or structured settlement to be aware that:

• Investors may encounter commissions of seven percent or higher. 
• Pension and structured settlement income-stream products may or may not be securities and likely are not registered with the SEC.
• These products could be difficult to sell if you need money and want to sell the product.
• Your “rights” to the income stream you purchased could face legal challenges.

# # #

• Notice of Meeting 

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