September 25, 2014

Resource Horizons Group’s Future Hangs in Balance Following $4M FINRA Arbitration Award

Resource Horizons Group, a regional brokerage firm and investment adviser, may no longer be able to stay in business after a $4 million Financial Industry Regulatory Authority arbitration award was issued against it. The self-regulatory organization blames the firm for almost $3.5 million in investor losses after Robert Gist, one of the firm’s brokers, allegedly took the money. Part of the award is $1 million in punitive damages.

Last year, Gist consented to pay $5.4 million to settle SEC charges claiming that he converted about that much from at least 32 customers for his own use over a ten-year period. He went through Gist, Kennedy & Associates, Inc., which was an unregistered entity with no connection to Resource Horizons, in that financial scam.

Resource Horizons hired Gist in 2001. Even before that there already were a number of customers disputes and other disclosures on his record. Both the SEC and FINRA have now barred Gist from the securities industry.

The claimants that filed a case against Resource Horizon and three firm executives include a family trust and six individuals. Among their allegations was a claim alleging inadequate supervision.

Resource Horizons reportedly may not have enough money to pay the arbitration award. An audited filing with the Securities and Exchange Commission notes that the firm’s net income in 2013 was $286,220 and its excess net capital is only $468,628 over the $100,000 it is obligated to keep to satisfy regulatory requirements.

If Resource Horizons cannot pay the securities arbitration award, it will need to note the amount as a liability. This would get rid of its excess capital and put the firm under the $100,00 net capital requirement.

Once a financial firm drops under net capital requirements, it can no longer conduct business and must notify customers that they must now put their orders straight through to its clearing firm.

Brokerage, Execs Ordered to Pay $3.9M in Bad-Broker Case, WSJ.com, September 24, 2014

B-D's fate uncertain after $4M arbitration award, Investment News, September 25, 2014


More Blog Posts:
SEC News: Regulator Grants $30M Whistleblower Award and Charges Washington Investment Advisory Firm $600K for Undisclosed Principal Transaction, False Advertising, Stockbroker Fraud Blog, September 23, 2014

Man to Pay $40.4M for Texas Securities Fraud Involving Bitcoin Ponzi Scam, Stockbroker Fraud Blog, September 20, 2014

SEC Investigates Pimco Exchange-Traded Fund for Artificial Inflation, Institutional Investor Securities Blog, September 25, 2014

September 23, 2014

SEC News: Regulator Grants $30M Whistleblower Award and Charges Washington Investment Advisory Firm $600K for Undisclosed Principal Transaction, False Advertising

Whistleblower to Get Over $30M Award in SEC Case
In its largest whistleblower award yet, the U.S. Securities and Exchange Commission will pay a bounty of over $30 million to an informant. Seeing that a whistleblower may be entitled to 10-30% of the amount recovered under the Dodd-Frank program, if the quality, unique information the person provided led to an enforcement action resulting in sanctions of over $1 million, a huge sum was obviously recovered.

In this particular case, the whistleblower resides abroad. Andrew Ceresney, SEC Enforcement Division Director, said that the individual brought the agency information about a fraud that otherwise would have been very hard to detect. He stated that whistleblowers anywhere in the world should see this latest award as incentive to report possible violations involving U.S. securities fraud.

The largest whistleblower award prior to this one was $14 million. That case targeted foreigners that invested in a real estate scam in the U.S without their knowledge. The investors were hoping to qualify for a program that gives residency green cards for investment efforts that create jobs domestically.

Strategic Capital Group LLC Settles SEC Charges for $600K
The SEC is charging a Tacoma-Washington area investment advisory firm with involvement in hundreds of principal transactions via an affiliated brokerage firm and not telling clients or getting their required consent. Strategic Capital Group is paying nearly $600,000 to resolve the charges. N. Gary Price, its CEO, is accused of causing the violations. He will pay $50,000 to settle the regulator’s charges against him.

According to Commission, Strategic Capital took part in over 1,100 principal transactions via affiliate RP Capital LLC, without the requisite customer consent. It also did not try to obtain best execution for these transactions. Meantime, Price put his signature on regulatory filings that falsely stated that the firm did not take part in principal transactions.

Principal transactions can create potential conflicts between the interests of the client and the adviser. Because of this advisors must disclose in writing any conflicted role or financial interest when giving a client advise on the trade’s other side, as well as get the latter’s consent.

The SEC also accused Strategic Capital of giving prospective investors misleading and false advertisements and not implementing the correct compliance procedures. Without admitting or denying the agency’s findings, the investment advisory firm and Price consented to cease and desist from causing or committing future violations of the Investment Advisers Act of 1940’s provisions involving principal transactions, antifraud, compliance, advertising, and reporting.

Contact our SEC fraud lawyers if you suspect that your financial losses are due to securities fraud , or some other form of financial misconduct, or if you need to speak with a securities whistleblower lawyer.

The SEC Order Regarding Whistleblower Award (PDF)

The SEC Order in the Strategic Capital Group Case (PDF)


More Blog Posts:
SEC Charges Immigration Attorneys with Securities Fraud Involving EB-5 Immigration investor Program, Stockbroker Fraud Blog, September 4, 2014

T.J. Malone’s Lincolnshire Management Settles with SEC for $2.3M Over Purportedly Improper Allocations That Cost Its Funds, Institutional Investor Securities Blog, September 23, 2014

Pennsylvania Private Equity Firm Settles SEC Charges Over “Pay to Play” Violations Related to Political Campaign Contributions, Institutional Investor Securities Blog, June 23, 2014

September 20, 2014

Man to Pay $40.4M for Texas Securities Fraud Involving Bitcoin Ponzi Scam

Trendon T. Shavers, who is accused of operating a Texas Ponzi scam involving a Bitcoin scheme he operated from his residence must pay more than $40.4 million. The SEC filed a securities fraud case against him and his company Bitcoin Savings & Trust last year and sought disgorgement.

According to the regulator, Shavers, a Texas resident, raised more than 700,000 bitcoins while promising investors interest as high as 7% weekly. The allegedly fraudulent activities lasted from November 2011 through August 2012 when the Ponzi scam collapsed.

In a promo that he posted on online, Shavers solicited lenders, offering 1% interest daily for loans involving at least 50 bitcoins. He also published posts touting nearly zero risk, claiming that the business was doing exceptionally well. When his Texas securities scam failed, Shavers showed preference to longtime investors and friends when giving out redemptions.

Shavers admitted to using a “reserve fund” as part of his Ponzi operation to honor investor withdrawals when he couldn’t make enough returns from the supposed investments. He also allegedly pocketed some of the bitcoins and spent part of investors’ money on his own expenses, including casino visits.

The judge overruled his argument that the court lacked subject matter jurisdiction because bitcoins are not actual cash but virtual currency. He said that because Bitcoin can be used as money and exchanged for conventional currencies, it is a type of money.

The judge found that investors lost more than 365,000 bitcoins, valued at around $149 million. He granted the Commission’s motion for summary judgment was granted.

Please contact our Texas securities law firm if you believe that you were the victim of a Ponzi scam or any other kind of financial fraud.

Texas Man Must Pony Up $40.7M for Bitcoin Scam, Courthouse News, September 19, 2014

Read the SEC Complaint (PDF)


More Blog Posts:
Investment Advisory Firm Based in Houston, Texas Charged with Securities Fraud Involving Conflicts of Interest, Stockbroker Fraud Law Firm, September 2, 2014

Texas-Based Halliburton Settles Oil Spill Lawsuit for $1.1B, Institutional Investor Securities Blog, September 2, 2014

SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam, Stockbroker Fraud Blog, August 18, 2014

September 19, 2014

FINRA Bars Ex-Wells Fargo Broker From Industry For Allegedly Bilking Customers, Expels HFP Capital Markets LLC for Securities Fraud

The Financial Industry Regulatory Authority has barred a former Wells Fargo (WFC) registered representative from the brokerage industry. According to the self-regulatory organization, Ane S. Plate, who previously worked with Wells Fargo Advisors Financial Network in Florida, allegedly made fifteen unauthorized trades in a joint brokerage account of two customers between October 2013 and April 2014. The transactions resulted in $176,080 of cash proceeds, of which Plate is accused of pocketing $132,358.

The former Wells Fargo broker is also accused of setting up bi-weekly transfers from the brokerage account to a bank account that was in the name of one of her relatives. She then allegedly moved $7,700 to that account between December 2013 and May 2014.

Plate, who was working with Wachovia Securities when Wells Fargo acquired that firm, has since been fired after the latter discovered the purported theft. FINRA’s BrokerCheck reports that the customers that were harmed were fully reimbursed for the amount taken from them.

Plate, who settled the FINRA charges, is not denying or admitting to the allegations. She has, however, consented to an entry of the regulator’s findings.

FINRA also recently expelled a financial firm from FINRA membership, this for the purportedly fraudulent sale of about $3 million of senior secured zero-coupon notes. HFP Capital Markets LLC will now have to pay $2,980,000 plus interest in customer restitution.

The financial firm is accused of selling private offerings of the notes to customers while knowingly leaving out or misrepresenting material facts in the offering and sales. The SRO says the notes were misrepresented as collateralized by certain barrels of leftover mining materials that were valuable enough to secure an investment, when the ore concentrate was actually worthless.

FINRA is also accusing HFP Capital Markets of not disclosing material facts about the management and ownership of the issuer and about the way the proceeds from the offering were utilized. The firm also purportedly disregarded red flags and did not conduct sufficient due diligence on the individuals involved, the offering, or the third parties that were presented as critical strategic partners.

Some customers recovered their money in the form of replacement transactions after complaining to the firm, but everyone else lost their funds. Now, HFP Capital Markets is settling without denying or admitting to the findings.

FINRA also recently censured Felix Investments LLC, which is based in New Jersey, for sending misleading, unwarranted, and exaggerated claims or statements to potential investors of a fund via email. The communications purportedly did not note the possible risks or provide comprehensive descriptions of the fund.

Now, Felix Investments has to submit all retail communications, per FINRA Rule 2210’s definition, with the agency at least 10 days before use and pay a $300,000 fine. The firm’s principal, Susan Mindlin Diamond, must pay a $10,000 fine and serve a four-month suspension. Meantime financial representative Frank Gregory Mazzola, who is accused of sending the emails, is barred from associating with any FINRA member.

Other FINRA findings against Felix Investments and Diamond include inadequate supervision of Mazzola, even after an AWC was put out against him, and failure to put into place a written anti-money laundering program to keep Felix in compliance with the Bank Secrecy Act and other regulations.

Felix Investments, Mazzola, and Diamond settled with FINRA without denying or admitting to the findings.

Former Wells Fargo Advisor Barred From Brokerage Industry, Bank Investment Consultant

FINRA Enforcement: HFP Capital Markets Expelled From FINRA for Note Fraud, ThinkAdvisor, September 5, 2014

FINRA


More Blog Posts:
FINRA Fines Minneapolis Broker-Dealer $1M for Inadequate Supervision of Penny Stocks, Stockbroker Fraud Blog, September 13, 2014

Deutsche Bank, Wells Fargo, Citigroup Sued by Pimco and Blackrock Over Trustee Roles Involving Mortgage Bonds, Institutional Investor Securities Blog, July 3, 2014

FINRA Headlines: SRO Considers Revised Broker Bonus Plan, To Discuss Potential Dark Pool Rules, May Instigate Civil Action Against Wells Fargo, &Warns Investors About Frontier Markets, Institutional Investor Securities Blog, September 12, 2014

September 16, 2014

Morgan Stanley to Pay a $280,000 Fine to CFTC for Records and Supervision Failures Involving SureInvestment and $35M Ponzi Scam

Morgan Stanley Smith Barney, LLC (MS) has settled civil charges by the U.S. Commodity Futures Trading Commission accusing the firm of records violations and inadequate supervision involving its know-your-customer procedures. Aside from a $280,000 fine, the broker-dealer will have to disgorge commissions from the subject accounts involved.

According to the regulator, Morgan Stanley did not diligently oversee its employees, officers, and agents when they opened firm accounts for a family of companies known as SureInvestment, which purportedly ran a hedge fund that was partially based in the British Virgin Islands—considered to be a risky jurisdiction. Because of this geographic circumstance, when the accounts were opened the firm should have subjected them to special observation pursuant to the its procedures, including watching out for red flags indicating suspect activities.

The CFTC’s order, however, notes that even though there were a number of red flags in the account opening documents for SureInvestments, Morgan Stanley failed to identify them. Later, it was discovered that SureInvestment doesn’t even exist and that its owner, Benjamin Wilson, was conducting a $35 million Ponzi scam based in the U.K. (Wilson, who has pleaded to criminal charges brought by the Financial Conduct Authority, has been sentenced to time behind bars.)

The CFTC order also said that Morgan Stanley did not properly enforce its trading limits for SureInvestment accounts, which led to initial margin requirements that went way beyond applicable trading limits, did not keep sufficient records about the credit trading limit that applied to the accounts, and failed to respond in a timely and accurate manner to the agency’s request for account records.

In other Ponzi scam-brokerage firm news, three ex-brokerage executives of Allied Beacon Partners Inc., a now-defunct independent broker-dealer, must pay a $1.05 million FINRA arbitration fee plus interest to a family that invested in private placements that were apparently scams. The Bosco family accused Allied Beach and the other defendants of not doing enough due diligence, which they believe would have caused the firm to discover that Shale Royalties and Medical Capital were actually fraudulent investments.

Our broker fraud lawyers represent investors and their families in recouping their financial fraud losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

CFTC Fines Morgan Stanley Smith Barney for Supervision and Records Failures Relating to Its “Know Its Customer” Procedures, CFTC, September 15, 2014

CFTC Fines Morgan Stanley for Failure to 'Know Its Customer', The Wall Street Journal, September 15, 2014

Executives of defunct IBD hit with $1.05 million arbitration award, Investment News, September 16, 2014


More Blog Posts:
Morgan Stanley Must Pay Connecticut Regulators $5M for Supervisory Violations, Stockbroker Fraud Blog, June 18, 2014

Morgan Stanley Gets $5M Fine for Supervisory Failures Involving 83 IPO Shares Sales, Stockbroker Fraud Blog, May 6, 2014

PNC Bank Sues Morgan Stanley & Ex-Trust Adviser For “Surreptitious Conspiracy”, Institutional Investor Securities Blog, April 3, 2014

September 13, 2014

FINRA Fines Minneapolis Broker-Dealer $1M for Inadequate Supervision of Penny Stocks

The Financial Industry Regulatory Authority has issued an enforcement action charging Feltl & Company for not notifying certain customers of the suitability and risks involving certain penny-stock transactions, as well as for failing to issue customer account statements showing each penny stock’s market value. The brokerage firm is based in Minneapolis, Minnesota.

FINRA claims that the firm failed to properly document transactions for securities that temporarily may not have fulfilled the definition of a penny stock and did not properly track penny-stock transactions involving securities that didn’t make a market.

Feltl made a market in nearly twenty penny stocks. The brokerage firm made $2.1 million from at least 2,450 customer transactions that were solicited in 15 penny stocks between 2008 and 2012. The SRO says it isn’t clear how much the firm made from selling penny stocks that it didn’t keep track of but that revenue from this would have been substantial.

Felt is settling the securities charges without denying or admitting to the claims. It said that after February 2012 it stopped recommending penny stocks and now doesn’t make a market in any penny stock. Customers, however, can trade in penny stocks if they are the ones that initiate the transaction.

Penny Stocks
These securities trade under $5 a share. Small companies that have low revenue are the ones that usually put them out. Penny stocks may be high risk because it can be hard to track the companies’ future value and business potential and these stocks don’t trade as often as liquid stocks that are traded on exchanges. Penny stocks are not a suitable investment for everyone.

Our penny stock fraud lawyers represent investors wanting to recoup their losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Finra Fines Brokerage $1M Over Penny-Stock Deals, WSJ, September 3, 2014

Penny Stock Rules, SEC.gov


More Blog Posts:
SEC Files Charges in Penny Stock Scams, Stockbroker Fraud Blog, May 27, 2014

SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam, Stockbroker Fraud Blog, August 18, 2014

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix, Institutional Investor Securities Blog, September 4, 2014

September 11, 2014

SEC to Dismiss Lawsuit Against SIPC Over Payments to Stanford Ponzi Scam Victims

The Securities and Exchange Commission has said that it no longer intends to continue trying to get the Securities Investor Protection Corporation to pay back investors the losses they sustained in R. Allen Stanford’s $7 billion Ponzi scam. The decision comes after the U.S. Court of Appeals for the District of Columbia Circuit ruled that the regulator failed to prove that the scheme’s victims were “customers” eligible for compensation by the SIPC. That decision upheld an earlier ruling by a district court in 2012.

Even though the SEC is no longer seeking to compel the brokerage industry insurance fund to pay the investors, the agency says it is committed to the victims and will keep working with the U.S. Department of Justice, the Stanford Receiver, and others in an effort to maximize investor recovery.

SIPC keeps a special fund to pay back investors if their securities and cash were lost when a brokerage failed. The agency, however, said it couldn’t compensate the Stanford Ponzi scam victims because their losses were not a result of a broker-dealer failing but due to their purchase of CDs from a foreign bank—assets that they are still holding and now have no value.

Prior to the SEC lawsuit, SIPC had offered to pay each Stanford Ponzi scam victim up to $250,000. The regulator said this was not enough.

R. Allen Stanford is currently serving more than 110 years behind bars for his Ponzi scam. Authorities say that he sold investors fake CDs through his Stanford International Bank in Antigua. He would use their money to pay back earlier customers while also taking money to back his own enterprises. Thousands of customers were bilked in the scheme.

U.S. SEC won't appeal ruling against Stanford's Ponzi victims, Reuters, September 5, 2014

Court denies payout to Ponzi scheme victims, CNBC, July 18, 2014

Securities Investor Protection Corporation

More Blog Posts:
US Supreme Court Considers Hearing Stanford Ponzi Lawsuits, Stockbroker Fraud Blog, October 3, 2012

US Supreme Court Hears Oral Argument on the Impact of SLUSA on the Stanford Ponzi Scams, Institutional Investor Securities Blog, October 17, 2013

SEC Gets Initial Victory in Lawsuit Against SIPC Over Payments Owed to Stanford Ponzi Scam Investors, Institutional Investor Securities Blog, February 10, 2014

September 7, 2014

Mortgage Transfers to Nonbanks Get Closer Regulator Scrutiny

In the last two years, millions of borrowers with mortgages have been moved from banks to nonbanks. This can result in problems for home loan borrowers.

A reason for this is that a lot of banks are getting rid of their mortgage servicing rights. 14 of the leading bank servicers, including JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC), and Bank of America (BAC) have sold off over $1 trillion of these rights in the last two years. The primary buyers are nonbank servicers, which now handle one in every seven mortgages.

The Consumer Financial Protection Bureau, which is engaged in the oversight of nonbanks, enacted regulations earlier this year that extended rules for banks to nonbank servicers that collect mortgage payments and deal with foreclosures and modifications. Last month, the bureau also put out guidance on new regulations that specifies the way loan transfers to nonbanks should be dealt with, including a provision mandating that buyers and sellers conduct meetings in at timely manner to talk about the continuity of service before a mortgage is handed off. Sales contracts also must stipulate that mortgage documents need to be given to the new servicer. However, a recently released CFPB statement reported that some nonbank services are billing customers incorrectly, not honoring approved modifications, and losing paperwork.

Bloomberg, in a recent article, wrote about the Chhibber family. They lost their Virginia home after a $1.3 billion mortgage deal was reached between Nationstar Mortgage Holdings Inc. (NSM) and Bank of America. After losing their business and a portion of their income, the family started working with the bank to modify their loan. However, before the loan was complete, Bank of America sold the Chhibbers' mortgage to Nationstar.

The Chhibbers reapplied to the nonbank servicer for a remodification, which it initially approved but then recanted. They say the reason given to them was that the value of the property had gone up beyond the mortgage balance during the modification process.

Nationstar claims there was no modification when it got the loan and that the process had to be restarted. (One of the rules that the CFPB has extended to nonbank servicers is that they are not allowed to make applicants begin the process again following a loan transfer.)

In other mortgage-servicing news, the U.S. Securities and Exchange Commission issued a subpoena to Ocwen Financial (OCN), a mortgage-servicing company, asking for documents involving a group of companies that it conducts business with. Benjamin M. Lawsky, the top banking regulator in New York State, had expressed concern that the firm and another company, Altisource Portfolio Solutions (ASPS), had hired the same risk officer.

Some investors reportedly don’t know whether companies are charging too much for their services and if the mortgage bond investors are the ones having to pay for the added costs. Earlier this summer, the Federal Housing Finance Agency voiced concern about how nonbank financial firms that process delinquent mortgages may not have sufficient funding.

Family Loses Virginia Home as Regulators Target Nonbanks, Bloomberg, September 4, 2014

Nonbank servicers further muddy the mortgage mess, Philly.com, September 7, 2014

FHFA Inspector General Cites Risks on Nonbank Mortgage Servicers, The Wall Street Journal, July 1, 2014


More Blog Posts:
Fidelity Investments Settles Class Action Lawsuits Over 401(K) Plan for $12 million, Stockbroker Fraud Blog, September 5, 2014

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix, Institutional Investor Securities Blog, September 2, 2014

Texas-Based Halliburton Settles Oil Spill Lawsuit for $1.1B, Institutional Investor Securities Blog, September 2, 2014

September 5, 2014

Fidelity Investments Settles Class Action Lawsuits Over 401(K) Plan for $12 million

Fidelity Investments has consented to pay $12 million two settle two class action employee lawsuits. The plaintiffs contend that the retirement plan provider was self-dealing in the FMR LLC Profit Sharing Plan and making money at their expense by offering employees high-cost fund options and making them pay excessive fees.

Over 50,000 ex- and present employees are eligible to receive from the settlement. Fidelity is accused of providing just its own funds in the retirement plan for its workers, with certain investment options having little (if any) track record, while failing to use an impartial process when choosing the investment options.

As part of the agreement, Fidelity will now give employees a choice of non-Fidelity and Fidelity mutual funds, increase auto-enrollment to 7%, and allow participants of non-Fidelity mutual funds to benefit from revenue sharing, just like the participants of Fidelity mutual funds and collective trusts. The company also will keep offering a default investment alternative, the Fidelity Freedom Funds-Class. The Portfolio Advisory Services at Work program will be provided for free.

Despite settling, the company is denying the allegations. A company spokesman said that Fidelity chose to resolve the case to avoid the burden of litigation costs.

In another 401(K) lawsuit, this one alleging fiduciary breach, the U.S. Supreme Court has agreed to weigh in. The complaint revolves around whether an employer violated its fiduciary obligation when selecting retail funds, rather than less costly institutional share classes. The lawsuit, Glenn Tibble v. Edison International, was filed seven years ago. It is one of the first group employee complaints against an employer alleging unreasonable 401(k) fees.

Edison is accused of offering approximately 40 mutual funds, including retail share class funds, even though the less costly institutional ones were available. The plaintiffs said the funds employed revenue sharing, which lets Edison pay less to its record keeper.

In 2010, the plaintiffs were granted $370,732 in damages over excessive fees in three of the funds. Both parties, however, have continued to fight over fees, with their dispute making its way to the 9th U.S. Circuit Court of Appeals and now to the nation’s highest court.

Now, the Supreme Court is asking U.S. Solicitor General Donald B. Verrilli Jr. to look at the fiduciary breach claim accusing Edison of selecting the more expensive retail share class mutual funds instead of the less costly options. Verrilli has said that even though the statute of limitations requires that a breach of fiduciary duty claim be brought within six years of the alleged breach, plan fiduciaries have a continuing duty beyond that time period to assess plan investments and get rid of the ones that are “imprudent.” The Supreme Court will decide whether to take the case.

Contact our 401K Fraud Attorneys at Shepherd Smith Edwards and Kantas, LTD LLP today.


Fidelity quietly settles employee lawsuits, Investment News, August 12, 2014

It Pays to Fight High 401(k) Fees: Lawsuits Result in $12 Million Settlement, MainStreet.com, August 18, 2014

Glenn Tibble v. Edison International


More Blog Posts:
Investor Files Securities Case Against Fidelity Over Float Income Investments Involving 401(K)s, Institutional Investor Securities Blog, May 6, 2013

Supreme Court to Rule on Whether Employee Can Sue for 401K Losses, Stockbroker Fraud Lawyer, November 30, 2007

U.S. Supreme Court Decides That 401(k) Retirement Participants Can Sue for Losses Under ERISA, Stockbroker Fraud Lawyer, February 20, 2008

September 4, 2014

SEC Charges Immigration Attorneys with Securities Fraud Involving EB-5 Immigration investor Program

The SEC is charging a Los Angeles-based immigration lawyer, his wife, and his law firm partner with securities fraud that targeted investors who wanted to gain U.S. residency through the EB-5 Immigration investor program. The program lets immigrants apply for U.S. residency if they invest in a project that helps create jobs for workers in this country.

According to the Commission, Justin, his spouse Rebecca Lee, and Thomas Kent raised close to $11.5 million from more than twenty investors that wanted to join the program. They told investors that they would qualify to join if they invested in an ethanol plant that was going to be constructed in Kansas.

The three of them are accused of taking the money and misappropriating it for other uses. Meantime, the plant was never constructed and no jobs were created. Yet Justin, Rebecca, and Thomas allegedly continued to deceive investors so that they kept believing that the construction project was in the works.

In 2006, Thomas and Justin applied to the U.S. Citizenship and Immigration Services seeking designation as a center under the EB-5 program. But by 2008, states the SEC complaint, it became clear that building an ethanol plant at the site they had designated in Kansas was not economically possible. Still, the Lees and Thomas concealed from the USCIS that the jobs the project was supposed to generate were never created.

The SEC says that when Justin was having financial problems, he misappropriated investor funds. He and his wife allegedly ended up misusing millions of dollars to pay for purposes that were not disclosed, including paying back other investors in unrelated offerings. The majority of those who were defrauded in the securities scam were of Korean and Chinese descent.

The U.S. Attorney’s Office for the Central District of California has filed a parallel action against Attorney Justin Moongyu Lee.

EB-5 Program Securities Scams
Unfortunately, there are investment scams out there seeking to exploit the EB-5 Program. Last year, regulators filed charges against a couple in a Texas-based securities scheme that raised at least $5 million from customers who thought their money was going into the EB-5 program. Investors from Nigeria, Mexico, and Egypt were targeted. None of these investors even received conditional visas.

In another fraud, investors were bilked of $150 million after they agreed to invest in the construction of a hotel and a conference center. They too had hoped to become U.S. residents.

The SEC has put out an alert notifying investors that it is working to stop fraudulent securities offerings made through the immigration program. The regulator wants investors who are thinking about getting involved in an EB-5 program to do their due diligence to make sure the venture is a legitimate one and they are not being scammed.

SEC Charges L.A.-Based Immigration Attorneys With Defrauding Investors Seeking U.S. Residency, SEC, September 3, 2014

Read the SEC Complaint (PDF)

Investor Alert: Investment Scams Exploit Immigrant Investor Program, SEC

EB-5 Immigrant Investor, U.S. Citizenship and Immigration Services


More Blog Posts:
$5M Texas-Based Securities Fraud Scam Pursued Foreign Investors Wanting US Residency Via EB-5 Program, Stockbroker Fraud Blog, October 1, 2013

SEC Files Securities Charges Against Massachusetts Company Over Pyramid Scam that Primarily Targeted Immigrants, Stockbroker Fraud Blog, April 17, 2014

Texas-Based Halliburton Settles Oil Spill Lawsuit for $1.1B, Institutional Investor Securities Blog, September 2, 2014

September 3, 2014

Study Assesses How Much Investment Advisory Firms Would Pay for SEC Exams

According to a study released by compliance consultant RIA in a Box, some investment advisory firms could end up paying millions of dollars in users fees each year to finance exams conducted by the Securities and Exchange Commission. The study addresses a bill that would let the regulator charge fees to cover exam costs. The agency has said that it needs more money to hire more RIA examiners.

The proposed measure is intended to help the SEC enhance its yearly examination rate. Right now, the exam rate is just 9% of the about 11,500 investment advisers that are registered with the agency.

Under the bill, the SEC would determine user fees according to how much it would cost to increase the amount and frequency of registered investment advisers. A firm’s assets under management, risks characteristics, and the number and kinds of clients would also be factored.

The RIA in a Box came up with its calculations by estimating how much more it would cost for the SEC to hire additional RIA examiners. It then allocated the costs among the different firms according to their assets under management. For example, a firm with $2.5 billion in assets under management would likely pay a $14,121 user fee. A firm with $2.35 trillion in assets under management would have a yearly user fee of over $13.2 million dollars.

RIAs that have under $100 million in assets under management do not have to pay a user fee to the SEC. They are registered in their states.

The compliance consultant says that the cost to RIA firms for exams funded by user fees is estimated to be around $310 million. According to ThinkAdvisor, even though the fees might be substantial for some firms, RIA in a Box’s analysis indicates that most of the 32,000 advisers would not be subject to much of (if any) fee. Only approximately 11,500 firms will likely meet the criteria that would obligate them to pay a user fee.

Our investment adviser fraud lawyer represents investors throughout the U.S. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

SEC User Fees Would Have Little Impact on Most Firms: Study, ThinkAdvisor, September 3, 2014

SEC exams could cost RIAs thousands – or even millions, InvestmentNews, September 3, 2014


More Blog Posts:
Investment Advisory Firm Based in Houston, Texas Charged with Securities Fraud Involving Conflicts of Interest, Stockbroker Fraud Blog, September 2, 2014

SignalPoint Asset Management to PAY SEC Fine for Breach of Fiduciary Duty, Stockbroker Fraud Blog, July 7, 2014

SEC Temporarily Shuts Down Investment Adviser Over Alleged $8.8M NY Securities Fraud, Institutional Investor Securities Blog, June 4, 2014

September 2, 2014

Investment Advisory Firm Based in Houston, Texas Charged with Securities Fraud Involving Conflicts of Interest

The SEC is charging Robare Group Ltd., an investment advisory firm headquartered in Houston, Texas, with securities fraud. The regulator’s enforcement division says that the firm and co-owners Jack L. Jones Jr. and Mark L. Robare made mutual fund recommendations to clients even though they had a conflict.

According to the SEC, Robare and a broker-dealer purportedly had an undisclosed compensation agreement. The brokerage firm paid Robare Group compensation—a portion of each dollar that every client invested in certain mutual funds—for recommending the investments

The deal gave Robare, Jones, and the firm incentive for favoring these funds over other investments. The firm is accused of making about $440K in compensation over eight years from the agreement.

Although in 2011 Robare did modify its Form ADV to disclose the compensation agreement, the SEC claims that the form and later disclosures stated falsely that the investment advisory firm did not benefit financially for giving investment advice about the mutual funds. It wasn’t until last year that Robare disclosed there was a conflict of interest. However, the firm did not reveal that there was incentive to recommend certain mutual funds.

The SEC has been taking a closer look at compensation deals between brokers and asset managers. There is concern that payments to investment advisers for recommending certain investments is impairing their ability to give impartial advice that is in the best interests of clients. Also, investment advisers are required to disclose any conflicts of interest to customers.

Our Texas investment adviser fraud lawyers represent investors in recouping their losses. You shouldn’t have to sustain losses while an adviser, a broker, or anyone else profits at your expenses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Houston-Based Investment Advisory Firm and Co-Owners Charged With Failing to Disclose Conflict of Interest to Clients, SEC, September 2, 2014

Read the SEC Order (PDF)


More Blog Posts:
Texas-Based Halliburton Settles Oil Spill Lawsuit for $1.1B, Institutional Investor Securities Blog, September 2, 2014

SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam, Stockbroker Fraud Blog, August 18, 2014

SEC Wants Texas’ Wyly Brothers to Pay $750M For Securities Fraud, Stockbroker Fraud Blog, August 7, 2014


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