SEC v. Michael A. Bodanza, et al., Case No. 1:12-cv-1954 (N.D. Ohio).  On July 30, 2012, the SEC announced the filing of a settled civil action against Michael Bodanza, the former CFO and founding member of Preferred Financial Holdings Co., LLC (“Preferred Holdings”), a company formed to engage in oil and gas exploration, among other things.  From June 2007 to August 2010, Bodanza and Preferred Holdings raised at least $6,769,635 from at least 61 investors through the sale of unregistered Preferred Holdings promissory notes.  During this period, Preferred Holdings experienced operational problems and suffered significant losses.  Bodanza, however, portrayed Preferred Holdings’ oil and gas operations in a positive light and failed to disclose to most investors that the company had suffered significant losses.  In addition, Bodanza failed to tell several investors that:

1. Preferred Holdings removed its chief operating officer sued him;
2. The only drilling rig held by Preferred Holdings’ subsidiary had an irreparable breakdown;
3. Preferred Holdings was involved in an insurance coverage dispute related to the broken drilling rig;
4. Preferred Holdings’ subsidiary incurred $260,000 in drilling expenses above its original cost estimates; and
5. Preferred Holdings’ subsidiary did not acquire certain property in Tennessee that could be used to drill and sell gas from its own producing wells.

Bodanza also did not disclose to some individuals who purchased promissory notes that their investment proceeds would be used to make payments to other investors.  Preferred Holdings did not repay most of the investors and is unable to pay the remaining investors.

All parties settled without admitting or denying the allegations.  Bodanza agreed to a judgment permanently enjoining him from violations of Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 and ordering disgorgement of $359,656 and prejudgment interest of $50,551, but waiving payment of all but $154,000 and not imposing a civil penalty based upon his financial condition.  Preferred Holdings consented to a judgment permanently enjoining it from violations of Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5; and ordering disgorgement of $4,485,647 and prejudgment interest of $268,143, jointly and severally with the Relief Defendants.  Each of the Relief Defendants consented to a judgment ordering disgorgement of $4,485,647 and prejudgment interest of $268,143, jointly and severally with Preferred Holdings.