Articles Posted in SEC

Minnesota-Based Investment Adviser Gets Six-Year Jail Term
According to the Minnesota Department of Commerce, Levi David Lindemann was ordered to serve a 74-month prison sentence—that’s six years—for bilking clients in a Ponzi scam.  Lindemann owned Gershwin Financial, which did business using the name Alternative Wealth Solutions. He pleaded guilty to money laundering and federal mail fraud charges.

Minnesota Commerce Commissioner Mike Rothman said that Lindemann abused his position as a financial adviser when he defrauded clients, including older investors. He did this by promising to invest their funds in safe investments but instead used their money to make Ponzi-type payments to clients and pay for his own expenses.

Lindemann’s guilty plea states that he solicited money from about 50 investors. He attempted to hide the securities fraud by generating fake secured notes as supposed evidence of the clients’ investments. The SEC permanently barred him from the securities industry earlier this year.


SEC Accuses Barred Broker of Selling Securities to Older Investors 

According to the SEC, ex-Morgan Stanley (MS) broker Rafael Calleja solicited $2.7M from 10 retiree and elderly investors after he had already been barred from the securities industry. The regulator claims that Calleja told investors their principal was insured and they would get a fixed return rate in a year. Meantime, he allegedly used at least $12K of their funds to pay for cruises, golf outings, and other personal expenses. He also purportedly failed to tell investors that his broker license had been revoked.

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Investment Adviser Who Bilked Pro Athletes Gets CFP Board Suspension
The Certified Financial Planner Board of Standards has issued a temporary suspension against Ash Narayan. The California-based investment adviser is accused of bilking professional athletes of millions of dollars.

Narayan was recently named in a Securities and Exchange Commission complaint. In June, the regulator accused him of misrepresenting his professional qualifications and misappropriating client monies when he allegedly siphoned funds from investors’ accounts and invested the money in Ticket Reserve, a flailing online sports and entertainment ticket business.

Narayan is accused of moving  $33M of investor funds to the company and did not tell the athletes that he was a member of Ticket Reserve’s board, owned stock in the company, and was paid a $2M in finder’s fees for making the investments. The CFP Board called the investments “unsuitable” and not in line with clients’ objectives. The board also noted that some of the investments were made without client consent or knowledge.

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According to parent firm Ladenburg Thalmann Financial Services Inc. (LTS), the SEC  is scrutinizing Securities America Advisors Inc., which is the registered investment adviser arm of independent broker-deal Securities America Inc., and Triad Advisors Inc., over allegations that the firms sold mutual funds that charged clients yearly marketing fees when there were less costly options available. These marketing fees are referred to as 12b-1 fees. It is paid to advisors yearly for continuing education and service.

Ladenburg Thalmann’s disclosed news that its firms were under investigation in its quarterly earnings report. In the report, the firm said that SEC staff gave Securities America Holdings and Triad reports in May and August contending that the two firms had “acted inconsistently” regarding their fiduciary duty when recommending and choosing mutual fund share classes that paid these marketing fees. The SEC pointed out that there had been less costly share classes available in the same funds. 

Ladenburg Thalmann said that Securities America Advisors and Triad are looking at the SEC’s assessments and they may have to pay restitution to clients. 
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Texas Man and His Energy Company Must Pay Arizona Restitution, Penalties for Oil Well-Related Misrepresentations

Texas resident Kenneth White and his Marchant International Resources Inc. must pay almost $1.4M plus $150K in penalties for misrepresenting its participation in two oil well projects that was backed by 12 Arizona investors. The fine was issued by the Arizona Corporation Commission (ACC), which accused White of failing to disclose the complete facts about his business, the company’s experience with well-drilling, and Merchant’s efforts with two wells. The $150K penalty is because White did not disclose that he was previously convicted for a $4.3M felony theft crime when he was marketing himself and his experience in energy extraction.

 

More than 700 Investors to Get $11.2M in Restitution Over Inadequate Disclosures 

White and his company are not the only ones facing fines brought by the ACC in an energy case. Brian C. Hageman and his Hydrotherm Power Corp. and Deluge Inc. now have to pay $11.2M in resittion to over 700 investors. According to the state, while  marketing a thermal hydraulic engine project, Hageman did not tell investors that the two companies were no longer in valid operation. He also must pay a $55K administrative penalty for bilking shareholders.

 

SEC Accuses Minnesota-Based Energy Company Co-Founder of Stock Price Manipulation

The Securities and Exchange Commission has filed charges against the co-founder of a Minnesota-based energy company. Ryan Gilbertson is accused of rigging Dakota Plains Holdings’ stock price while hiding his control of the company in order make a lot of money.  The SEC claims that Gilbertson enriched himself by over $16M as he and others allegedly bilked shareholders through price rigging. Meantime, his co-founder, Michael Reger, will pay almost $8M to settle the charges brought against him.

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The U.S. Securities and Exchange Commission has barred John Leo Valentine from working in the financial services industry, but he can re-apply after two years. The adviser is the founder and president of Valentine Capital Asset Management.
According to the regulator, Valentine did not disclose to clients that he had certain conflicts of interest related to a commodities fund in which they invested.  The SEC contends that from ’07 to late ’11, Valentine recommended that clients, who were mostly retirees, purchase shares of Bridgeton Global Directional Fund, which invested in commodity futures contracts. After Valentine could no longer make commissions from the managed futures fund, he purportedly advised the investors to put their money in Valt, which was a commodities fund he created that allowed him to earn compensation.
However, said the SEC, Valentine did not tell clients that he had a financial incentive to recommend Valt instead of Bridgeton. After just a few months in operation, Valt’s clearing broker and custodian filed for bankruptcy related to a fraud involving the broker’s CEO, and Valt stopped almost all trading activity. In addition to the industry bar, Valentine must pay $140K in penalties.

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According to a Securities and Exchange Commission probe, Forcerank LLC will pay a penalty of $50K for illegally offering complex derivatives products to retail investors. The company did this via mobile phone games referred to as “fantasy sports for stocks.” Forcerank is settling the case without deny or admitting to the findings that it violated sections of the Securities Exchange Act and the Securities Act.

The SEC’s order said that Forcerank’s mobile phone games involved players predicting the order that 10 securities performed against one another.. Players earned points and sometimes even money prizes according to how accurately they predicted the outcomes. The New York-based company earned 10% of entry fees, as well as developed a data set regarding market expectations that it intended to sell to investors, including hedge funds.

The SEC said that the agreements between players and Forcerank were security-based swaps since they provided for a payment contingent upon an event linked to a possible commercial, economic, or financial result and were determined by individual securities’ values. The Commission also claims that Forcerank LLC neglected to submit a registration statement for a security-based swap offering and did not sell contracts using a national securities exchange. Both are required to make sure that full transparency about a security-based swap offering is provided to retail investors and transactions are restricted to platforms that are under the highest regulation.

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The U.S. Securities and Exchange Commission has put out an emergency asset freeze against Peter Kohli, a former broker. According to the regulator, the Pennsylvania resident bilked at least 120 investors when he fraudulently raised over $3.2M from them between 2012 and 2015. The regulator attributes the funds collapse to the ex-broker’s “extreme recklessness.”

At the time, Kohli was CEO and president of DMS Advisors, a dually-registered investment adviser and brokerage firm. He began the DMS Funds series, comprised of four emerging market mutual funds, in 2012. The SEC claims that he overstated the funds’  level of sophistication while disregarding the risk that he and DMS Advisors might not be able to cover certain expenses.

The Commission claims  that Kohli stole money from investors as the funds became beleaguered and he committed three other frauds to keep his scam going.  He also purportedly misappropriated money he solicited to invest in one of the funds and his accused of drawing in two kinds of investments in Marshad Capital Group, which was DMS advisors’ holding company.

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Three years after the U.S. Securities and Exchange Commission barred Ray Lucia Sr. from the securities industry, the ex-investment adviser and radio talk show host is still seeking to overturn that decision. Last week, he filed a petition asking the U.S. Court of Appeals for the D.C. Circuit to hear his case again.

It was just last August that the appeals court heard his petition but refused to review and vacate the SEC ruling. His latest petition was submitted en banc, which could allow all 11 members of the appeals court to refuse to hear the case or decide to do so and issue a vote.

Lucia, who once touted a “buckets of money” investment strategy for retirement was barred after an SEC administrative law judge found that the ex-investment adviser misled investors about the strategy’s approach to growing retirement assets. According to the regulator, the inflation rates Lucia employed to “back-test” his strategy failed to factor in the historical inflation rates during the time periods that were supposedly relevant.

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Florida Man Implicated in Scam Involving Black Check Companies’ Stocks
The U.S. Securities and Exchange Commission has filed civil fraud charges against Sheldon R. Rose. The Florida man established over a dozen blank check companies, which the SEC contends are worthless and have no operations despite that they are registered to sell stock. 
 
According to the regulator, Rose appointed relatives and friends as figurehead officers and shareholders but concealed that he was the one controlling the entities and their securities. Although corporate filings made it seem as if the companies were legitimate startups, the SEC contends that this was only so that reverse mergers could be conducted, the  securities could be sold, and Rose and others could profit illicitly.
 
In addition to settling the civil charges, Rose is barred from engaging in penny stock offerings in the future or working as a director/officer of a public company. He also faces criminal charges. 
 
Rose’s civil case is connected to the one that the  SEC filed last year against 10 individuals in a penny stock scam involving blank check companies headed for reverse mergers. 
 

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Caldwell International Securities Gets $2M Fine to Settle Churning Allegations
The Financial Industry Regulatory Authority has imposed a $2M fine on Caldwell International Securities Corp. It is fining Greg Caldwell, who is the principal of the financial firm, $50K. He is now barred from serving as a principal in the securities industry.

FINRA contends that supervisory failures is what allowed Caldwell International Securities’ brokers to allegedly engage in churning. This involves a trader taking part in excessive trading to make the most in commissions possible. The self-regulatory organization said that the firm’s failures caused fifteen clients to pay over $1M in commissions and fees on investment recommendations that were not appropriate for them.

FINRA believes the firm grew too fast and that this was one of the reasons its inadequate supervisory system was purportedly inadequate. The SRO said that it was this lack of proper supervision that made it possible for advisors to make unsuitable investment recommendations.

The regulator said that even after customers complained, Caldwell and other senior employees did not remedy this matter. In 2015, ex-Caldwell registered representative Richard Adams was barred by FINRA. The regulator claimed that Adams made $57K in commissions while clients sustained $3K in losses because of overtrading that took place in two customer accounts.

Alabama Attorney is Accused of Defrauding Professional Athletes, Other Investors Of Over $6M
The U.S. Securities and Exchange Commission is charging Donald Watkins and his companies with fraud. According to the regulator, the Alabama lawyer and his Masada Resource Group LLC and Watkins Pencour LLC bilked investors, including professional athletes, out of more than $6M in supposed waste-to-energy ventures.

The SEC complaint said that the defendants made the false claim that an international waste treatment company was considering acquiring Watkins’ two companies and their affiliated companies in a multi-billion dollar deal. In reality, said the regulator, Waste Management Inc. only had a brief first meeting with the defendants in 2012. This was over a year after the defendants started telling investors that talks were moving forward and an acquisition was going to happen.

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