February 20, 2015

SEC Cases: Brothers-In-Law Charged in Louisiana Insider Trading Scam, NY-Based Broker-Dealer Accused of CDO Liquidation-Related Fraud, & Colorado Ponzi Scam is Halted

The Securities and Exchange Commission is charging former VP of The Shaw Group’s construction operations Scott Zeringue and his brother-in-law Jesse Roberts III with insider trading. Zeringue has already agreed to settle the regulator’s charges by consenting to pay disgorgement of ill-gotten gains plus a penalty.

The SEC says that the insider trading took place in 2012 when Zeringue, while working at The Shaw Group, became privy to confidential data about the company’s upcoming acquisition by Chicago Bridge & Iron Company. Prior to the announcement of the deal, he bought 125 shares of Shaw stock and asked Roberts to buy for him, too. Roberts went on to tip others and they collectively made close to $1 million in illicit profits.

Meantime, parallel criminal charges have been filed against Roberts. Zeringue has already pleaded guilty to the criminal charges against him.

In another SEC case, the regulator is charging VCAP Securities and its CEO Brett Thomas Graham with improperly arranging for a third party brokerage firm to secretly bid at certain auctions that they conducted for their affiliated investment adviser. The auctions were for liquidating collateralized debt obligations. The brokerage firm was supposed to help them acquire bonds to benefit certain funds.

However, engagement deals with CDO trustees did not allow VCAP and its affiliates to bid while also acting as auction liquidation agent. Because the brokerage firm had access to confidential data regarding bidding, Graham was able to make sure that the third-party firm won the bonds at prices just a little higher than what other bidders made. The affiliate investment adviser would then buy the bonds from the bidder right away.

The Commission said that Graham and the firm made material misrepresentations to the different CDO trustees. They also falsely represented that they would not bid in auctions or wrongly use confidential bidding data. Trustees were given documents that failed to disclose that the affiliate investment adviser was the winning bidder. As a result, the investment adviser was able to get 23 bonds. VCAP and Graham will pay close to $1.5 million to settle SEC charges.

In federal court, the SEC announced an emergency asset freeze and fraud charges against a Colorado-based Ponzi and pyramid scam that promised 700% returns. The scheme purportedly raised $3.8 milion from investors in less than a year.

According to the Commission, Kristine L. Johnson and Troy A. Barnes touted what they called a “3-D matrix “and “triple algorithm.” They got investors to purchase positions in Work With Troy Barnes Incorporated. Web promotions and internet videos were used to solicit participants.

The two reportedly claimed their program wasn’t a pyramid scam, yet the company did not have legitimate business operations. Instead, earlier investors were paid “returns,” which was really money from newer investors. Barnes and Johnson would take money out for their own spending.

SEC Order in the Colorado Ponzi Scam (PDF)

The SEC Order Alleging CDO-Liquidation-Related Fraud (PDF)

The SEC Complaint in the Louisiana Insider Trading Case (PDF)


More Blog Posts:

U.S. Bank National Association Must Pay $18M to Peregrine Customers, Says Court, Stockbroker Fraud Blog, February 18, 2015

DOJ Investigating UBS Over Losses Related To Firm’s V10 Enhanced FX Carry Strategy, Stockbroker Fraud Blog, February 17, 2015

US Probing Whether Morgan Stanley Data Breach Was Linked to Fired Financial Adviser, Institutional Investor Securities Blog, February 18, 2015

February 14, 2015

SEC Cases: Insider Trading Charges Filed Against Georgia Resident, Mutual Fund Adviser Accused of Improper Asset Handling, & Two-Ex CFOs Agree to Give Back Bonuses Because of Accounting Fraud

Atlanta, GA Man Accused of Making $740,000 for Insider Trading
The Securities and Exchange Commission is filing charges against a Georgia man who is accused of insider trading and making about $740,000 in illicit profits. Charles L. Hill allegedly traded in Radiant Systems stock based on the confidential insider data a friend gave him about an upcoming tender offer to purchase the company. The friend was a friend of a Radiant Systems executive.

In 2011, Hill bought about 100,000 shares valued at close to $2.2 million on the final day of trading prior to the public announcement of the acquisition. That was his first time buying stock of Radiant Systems, and before that it had been years since he’d purchased equity securities.

Mutual Fund Adviser Settles SEC Case with $50K Penalty
In another SEC case, Walter Island Capital LLC will pay $50,000 as a penalty to resolve charges accusing the firm of improperly handling fund assets. The mutual fund adviser, which works with several alternative mutual funds, purportedly maintained millions of dollars of the funds’ cash collateral at brokerage firm counterparties instead of at a custodial bank.

The Commission said that an investment company that maintains securities in a qualified bank’s custody has to do the same with other cash assets. The SEC said that Walter Island Company failed to make sure that about $247 million in cash collateral was maintained at such a bank. The mutual fund adviser is settling without denying or admitting to the charges.

Two-Ex CFOs Return Stock Sale Profits, Bonuses In the Wake of Accounting Fraud
On Tuesday, the SEC announced that two ex-Saba Software CFOs have agreed to return close to $500K in stock sale profits and bonuses that they were given while the company was committing accounting fraud.

The William Slater and Peter E. Williams III are not charged with the company’s misconduct. However, the Sarbanes-Oxley Act requires that they reimburse the company for both the stock sale profits and bonuses.

From December 2008 to January 2012, Slater was CFO until October 2011, when Williams was in the position until January. During that time Saba Software overstated pre-tax earnings and issued material misstatements about revenue recognition practices. In 2014, the software company and two ex-executives were charged with accounting fraud involving falsified timesheets so that quarterly financial targets were hit. Slater made over $333K in stock sale profits and bonuses, while Williams made close to $142K.

Our securities fraud lawyers at Shepherd, Smith, Edwards, and Kantas, LTD LLP are here to help investors get their money back.

The Insider Trading Case against Hill (PDF)

The SEC Order Against Walter Island Capital
(PDF)

The SEC Order Against Slater, Williams (PDF)


More Blog Posts:
SEC Claims Investment Adviser Paid for Fraud Settlement With Client Monies, Stockbroker Fraud Blog, February 10, 2015

Sun Antonio Spurs Star Tim Duncan Files Texas Investment Adviser Fraud Case
, Stockbroker Fraud Case, January 31, 2015

Investment Adviser, Ameriprise Financial Services Sued by Hanson McClain Over Client Information, Institutional Investor Fraud Blog, January 12, 2015

February 13, 2015

Securities Fraud Cases: NY Hedge Fund Manager Bilks Investors of Over $800K, Maize Fund Scam Leads to Restitution, Madoff Ponzi Scheme Victims Get $355M, and Kentucky Scheme Ends with Probation, Compensation

SEC Says New York Hedge Fund Manager Stole From Investors
The U.S. Securities and Exchange Commission says that Moazzam Malik, a purported hedge fund manager in NYC, stole money from investors. Malik allegedly falsely claimed to be running a hedge fund holding about $100 million in assets under management. He is accused of touting high returns.

Malik raised over $840,000, but his fund, which didn’t make actual investments, never held over $90,177 in assets. Instead, he kept taking out money and spending the funds. He refused to give investors back their money, even pretending to be a fund employee and sending out an e-mail saying that he had passed away. Mailk purportedly kept soliciting investors even as he received redemption requests.


Maize Fund Investment Scam Leads to $6.7M Restitution
The U.S. Commodity Futures Trading Commission has gotten a federal court order demanding that Scott M. Ross and his Maze Asset Management LLC, Maize Capital Management, LLC and his Maize Capital Management LLC pay $5.4 million in restitution and a $1.3 million civil penalty for his Maize Fund investment scam. Ross is serving time behind bars for his involvement in two other financial scams.

Ross and his companies are accused of making false statements to prospective customers, putting out bogus account statements reflecting trading profits when there were none, mishandling client funds, and not properly registering as a Commodity Pool Operator with the CFTC. The regulator’s complaint charged Ross and the companies with violating core anti-fraud Commodity Exchange Act provisions related to their solicitation and managing of the Maize Fund, which is a pooled foreign exchange account.


Madoff Ponzi Scam Victims Get Back Another $355M
According to the Securities Investor Protection Corporation, about $355 million will be returned to the victims of the Bernard Madoff Ponzi scam. Along with a $497 million settlement reached with federal funds Primeo Fund and Herald Fund, some $10.5 billion has been recovered in the liquidation proceedings for the scheme that bilked inventors of billions of dollars.

This is Madoff trustee Irving Picard’s fifth distribution of recovered moneys to Madoff customers. He is in charge of the Securities Investor Protection Act liquidation of Bernard L. Madoff Securities LLC.

$1.3M Restitution in Kentucky Securities Fraud Case
The Department of Financial Institutions says that Pamela Jean Williams and Richard Dow Williams must pay over $1.3 million in securities fraud restitution to five victims. If they don't pay, then their sentences of one year and three years, respectively, would go from probation to time behind bars.

The Williamses were charged on multiple counts of selling unregistered securities, fraudulent securities practices, and omitting or misrepresenting material facts about a gas well investment. Each pleaded guilty to one consolidated fraud charge and has agreed to pay restitution.

Fraudulent Hedge Fund Manager Moazzam Malik Fakes Own Death, ValueWalk, February 16, 2015

Federal Court Orders Scott M. Ross and his Companies to Pay More than $6.7 Million in Restitution and a Civil Monetary Penalty for Defrauding Investors in His Commodity Pools, Mishandling Customer Funds, and Failing to Properly Register as a Commodity Pool Operator, CFTC, February 13, 2015

Madoff's Victims Are Repaid Another $355 Million, Trustee Says, NPR, February 9, 2015


More Blog Posts:
Sun Antonio Spurs Star Tim Duncan Files Texas Investment Adviser Fraud Case, Stockbroker Fraud Case, January 31, 2015

Standard & Poor’s Settles Inflated Ratings Case for $1.5 Billion, Institutional Investor Securities Blog, February 3, 2015

SEC Subjects Credit Rating Agencies, Asset-Backed Securities Issuers to Tighter Rules, Stockbroker Fraud Blog, August 28, 2014

Magoffin man, woman ordered to pay more than $1.3 Million in securities fraud case, Floydcountytimes, February 12, 2015

January 28, 2015

Oppenheimer to Pay $20M Settlement to the SEC and FinCEN Over Penny Stock Violations

Oppenheimer & Co. (OPY) has consented to pay $20 million to resolve settlements with the U.S. Securities and Exchange Commission and the Financial Crimes Enforcement Network. The firm is accused of not properly identifying and reporting suspect trades in penny stocks. The low priced, highly speculative securities are easy to manipulate and involve in pump-and-dump scams.

At least 16 Oppenheimer customers in several U.S. states were reportedly identified as having engaged in “suspicious activity.” Admitting guilt, the broker-dealer acknowledged that it did not set up and implement a proper anti-money laundering program nor did it perform sufficient due diligence on a foreign correspondent account. Oppenheimer also said that it failed to comply with the USA PATRIOT Act’s Section 311, which allows FinCEN’s director to decide whether a foreign financial firm is a money laundering risk.

The government agency said that because Oppenheimer did not notify its foreign correspondent financial institutions of the special measures under Section 311, the firm ended up conducting business without setting up the necessary procedures, policies, and internal controls that allow it to reasonably report and detect suspect fraud activity from ’08 to ’14.

FinCEN noted that this is the second time it has penalized the Oppenheimer for similar violations. It fined Oppenheimer $2.8 million in 2015. In 2013, it was the Financial Industry Regulatory Authority that fined the broker-dealer $1.4 million for anti-money laundering failures and securities laws violations.

Meantime, in the SEC’s parallel action, the regulator noted two times between ’08 and ’10 when the firm took part in unregistered penny stock sales. One incident involved a financial adviser and his branch manger purposely engaging in the unregistered sales of 2.5 billion penny stock shares for one customer even though the shares were not registration exempt. The trades made $12 million and the firm got $588,400 in commissions. Oppenheimer is accused of not reacting to red flags or looking into whether sales were exempt from registration.

The other incident is over Oppenheimer’s possible involvement in purportedly illegal activities involving Gibraltar Global Securities, which is a broke-dealer in the Bahamas that is not registered to do business in the United States. The firm purportedly executed billions of shares of penny stocks in Gibraltar’s account and either knew or was negligent if it didn’t know that that firm was making transactions and providing brokerage services for customers, many of whom were based in the U.S.

The Commission said that Oppenheimer did not report possible misconduct by Gibraltar and its clients and, also, did not properly deal with over $3 million in backup withholding taxes in that brokerage’s account. The filing of Suspicious Activity Reports is a Bank Secrecy Act requirement.

As part of the SEC settlement, Oppenheimer is admitting wrongdoing and will pay $10 million. The other $10 million resolves the FinCEN claims.

Read the SEC Order (PDF)

FBI raids Florida firm with 'Wolf of Wall Street' link: witnesses, Reuters, January 14, 2014


More Blog Posts:

SEC Sanctions UBS, Charles Swab, Oppenheimer, & 10 Other Firms For Improper Sales of Puerto Rico Junk Bonds, Stockbroker Fraud Blog, November 3, 2014

Ex-Oppenheimer Fund Manager to Pay $100K To Settle Private Equity Fund Fraud Charges, Institutional Investor Securities Blog, January 25, 2014


Oppenheimer Told by FINRA to Pay $675,000 Fine, $246,000 Restitution over Municipal Securities Transaction Pricing, Supervisory Violations, Stockbroker Fraud Blog, December 12, 2013


January 23, 2015

Insider Trading News: SEC Sues Ex-Capital One Data Analysts, U.S. Attorney Bharara Wants Rehearing in Case Involving Overturned Convictions, and Judge Vacates Four Men’s Guilty Pleas

Ex-Capital Data One Analysts Are Defendants in SEC Insider Trading Lawsuit
The U.S. Securities and Exchange Commission is suing Nan Huang and Bonan Huang, two former Capital One data analysts, for insider trading. The regulator contends that the two of them used nonpublic data to trade in consumer retail companies’ shares before earnings and sales reports were issued. They allegedly used sales information that the credit card company had collected from millions of customers.

According to the SEC lawsuit, from 11/13 to 1/15 the two analysts made hundreds, perhaps thousands of keyword searches for sales information on at least 170 companies that are publicly traded. They had access to this data because part of their job was to serve as fraud investigators.

The Commission says that the two men knew how to examine the information to figure out whether a company’s sales were going up or down. From 1/12 to 1/15 Huang and Huang purportedly made $2.83 million via share trades, in some instances using call options and put options to make the trades. Stocks that they traded included those belonging to Apple. Capital One fired the two men earlier this month.

U.S. Attorney Preet Bharara Seeks Rehearing Regarding Ruling Overturning Hedge Fund Fraud Convictions
Manhattan U.S. Attorney Preet Bharara will ask for a rehearing of an insider trading case in which convictions were overturned. In the case, United States v. Newman, A United States Court of Appeals for the Third Circuit panel overturned the convictions of Level Global Investors hedge fund portfolio manager Anthony Chiasson and Diamondback Capital hedge fund portfolio manager Todd Newman. The panel cited a 1983 Supreme Court precedent that said remote tippees could only be held liable if they knew the original tipper and received “personal benefit” from said tippee. This could not be proven against the two men so the court dismissed the cases against them.

“Remote tippees” in insider trading cases are people that find out about material nonpublic data via an intermediary and not straight from the insider that was the original source of the information.

Judge Vacates Insider Trading Guilty Pleas
Just this week, a federal judge vacated guilty pleadings by Thomas Conradt, Daryl Payton, Trent Martin, and David Weishaus. The four men pleaded guilty to trading on non-public data ahead of IBM’s agreement to purchase SPSS for $1.2 billion in 2009. A lawyer working on the deal gave them the information. He passed on the data to Martin but did not think that he would share the information with anyone else or use it for trading.

The men requested that their guilty pleas be withdrawn after the Second Circuit panel overturned the convictions of Chiasson and Newman. U.S. District Judge Andrew L. Carter Jr. granted their request.

Now, ex-Galleon Group trader Zvi Goffer is also saying that he will try to get his insider trading conviction, which came with a ten-year prison term, dismissed. Nicknamed the “Octopussy” while at that firm, Goffer is accused of having direct knowledge that tippers were benefiting and personally directing cash payments to them for giving over the material, non-public data.

U.S. regulators sue former Capital One employees for insider trading, Reuters, January 22, 2015

Insider trading convictions vacated, USA Today, January 22, 2015

Insider-Trading Defendants Allowed to Retract Guilty Pleas, The Wall Street Journal, January 22, 2015


More Blog Posts:
SEC Wants $602M Fund Set Up for Victims of SAC Capital’s Insider Trading, Stockbroker Fraud Blog, November 17, 2014

Ex-Ameriprise Manager Who Helped with SAC Capital Insider Trading Case Settles Charges Against Her, Institutional Investor Securities Blog, December 9, 2014

Texas State Securities Board Was Special Prosecutor in $1M Securities Fraud Case
, Stockbroker Fraud Blog, January 22, 2015

January 21, 2015

Investment Adviser Fraud Cases Lead to Civil Charges, Criminal Convictions, and Investor Losses

SEC Accuses Elm Tree Investment Advisors, its Founder, of $17M Securities Fraud
The Securities and Exchange Commission has filed fraud charges against Elm Tree Investment Advisors LLC and its founder Frederic Elm for running a Florida-based securities scam that raised over $17 million in a little over a year. The regulator contends that Elm, his firm, and the funds Elm Tree Motion Opportunity LP, Elm Tree “e”Conomy Fund LP, and Elm Tree Investment Fund LP misled investors and used the bulk of the funds to issue Ponzi-like payments. Elm also is accused of using the money to purchase expensive homes, jewelry, and autos, as well as cover his daily living expenses.

According to the SEC, Elm, his unregistered advisory firm, and the three funds violated the regulator’s anti-fraud rules as well as federal securities laws. The Commission wants relief for investors as well as the restoration of the purportedly ill-gotten gains and financial penalties.

A judge granted the regulator’s request for a temporary asset freeze and issued restraining orders against all those named. Elm’s wife, Amanda Elm, is a relief defendant.

District Court Issues 40 Month Sentence for Cherry Picking Scam
In other investment adviser fraud news, a district court has sentenced Noah Myers to 40 months behind bars for running a cherry picking securities scheme. Myers pleaded guilty last year to one count of securities fraud, which the government says cost investors around $470,000. Myers owns MiddleCove Capital LLC.

Between 4/09 and 11/10, Myers bought a number of securities, including the leveraged exchange-traded fund (ETF) ProShares UltraShort Financials. He then disproportionately allocated the trades that went up in value to his own accounts. In 2013, the SEC took back MiddleCove’s investment adviser license. Myers is now barred from the securities industry.

Ohio Man Accused of $5.5M Ponzi Scam
In an unrelated Ponzi scam, an Ohio man has been charged with running a $5.5 million scheme that bilked at least 19 investors. Geoffrey Nehrenz is accused of promoting and selling investments contracts to clients via Keystone Capital Management. The investment adviser firm is not registered with the SEC.

Nehrenz allegedly falsely represented to prospective clients that their money would be pooled, invested in mid- and large-capitalization, publicly traded U.S. securities by day, and changed into cash at night. He is accused of instead using the funds to cover his personal and business spending and, without client permission, make side pocket investments involving speculative, high-risk trades in overseas and domestic private placement vehicles.

SEC ALJ Finds Harding Advisory Firm Liable for CDO Fraud
An SEC Administrative Law Judge has found Wing Chau and his Harding Advisory LLC liable for fraud. The regulator accused Chau of letting a hedge fund control which assets would back a collateralized debt obligation, the Octans I CDO Ltd., without notifying investors.

The firm must pay $1.7 million as a penalty. Chau has to pay $340,000. They also must disgorge $1 million in profits plus interest.

Uniontown man accused of defrauding investors $5.5M, WKYC, January 16, 2015

Connecticut investment adviser sentenced to 40 months in prison for fraud, Reuters, January 12, 2015

An Investment Adviser Who Sued Michael Lewis For Defamation Has Been Found Liable For Fraud, Business Insider, January 13, 2015

SEC Charges Investment Adviser and Manager in South Florida-Based Fraud, SEC, January 21, 2015


More Blog Posts:
Investment Adviser News: Barred Representative is Now a Finance Coach, Bellingham Man Gets Prison Term for Bilking Seniors, Stockbroker Fraud Blog, January 13, 2015

Standard & Poor’s to Pay Almost $80 Million to Resolve SEC Charges Over Ratings Fraud Involving CMBSs, Institutional Investor Securities Blog, January 21, 2015

UBS Settles SEC Dark Pool Case for $14M, Stockbroker Fraud Blog, January 16, 2015

January 15, 2015

SEC Accuses Canadian Man of Fraudulent Trading Scam, Use of “Layering” Strategy

The Securities and Exchange Commission is charging a Canadian citizen with running a market manipulation scam that involved making orders to trick others into selling or purchasing U.S. publicly traded stocks at prices that were depressed or artificially inflated. The strategy is known as “layering.” U.S. Attorney’s Office for the District of New Jersey has filed criminal charges against Aleksandr Milrud in a parallel action.

According to the SEC’s complaint, submitted in a federal court, Milrud started recruiting online traders primarily in Korea and China beginning at least as early 2013 and giving them the cut of the profits made from the scheme. He purportedly gave traders access to trading accounts and told them how to avoid coming under the regulatory scrutiny when layering.

To avoid detection, Milrud would wire funds to an offshore account and have the money delivered to him in a suitcase, as well as use middlemen. He also allegedly had traders use multiple user names, addresses, computers, and Internet protocols (IP).

Traders were instructed to use two accounts. In one account they would employ layering, in the other they would engage in “clean” trades that would be impacted by the layering done in the other account. Layering was to be performed on different kinds of stocks while limiting the amount of price changes and trades.

The commission is charging Milrud with aiding, violating, and abetting federal securities laws’ anti-fraud provisions, as well as violations of the SEC’s antifraud rule. The regulator is also holding Milrud liable for the traders’ conduct.

Securities fraud costs investors every year. At Shepherd Smith Edwards and Kantas, LTD LLP we are here to help our clients get back their investment fraud losses.

Read the Complaint (PDF)


More Blog Posts:
Investment Adviser News: Barred Representative is Now a Finance Coach, Bellingham Man Gets Prison Term for Bilking Seniors, Stockbroker Fraud Blog, January 13, 2015

JPMorgan Suspends Forex Trader for Alleged Disclosures Involving Royal Bank of Scotland-Related Activities, Institutional Investor Securities Blog, January 14, 2015

Beneficiaries of Puerto Rico Trust File Securities Fraud Lawsuit Seeking Over $4.5M From UBS Financial Services, Stockbroker Fraud Blog, January 5, 2015

January 13, 2015

Investment Adviser News: Barred Representative is Now a Finance Coach, Bellingham Man Gets Prison Term for Bilking Seniors

According to the Securities and Exchange Commission, ex-investment adviser Sherwin Brown is continuing to offer financial advice even though the regulator barred him from the industry and ordered him to pay $1.3 million for allegedly diverting client monies. Brown now calls himself a “money coach” and has kept his Jamerica Financial Inc. in operation, receiving compensation for his services. At a certain point, the firm, which has since been ordered inactive, had nearly $30 million in assets under management.

The regulator contends that between 6/11 and 5/14, a Wells Fargo & Co. (WFC) account in Jamerica Financial’s name received over 120 deposits totaling $330,000. The deposits were payable to Brown and his company. Notes in check memo lines indicated that the money was for investment advisory services.

Brown, who was barred from the industry in 2011, operates TheOfficialMoneyCoach.com, which includes a blog on investing. The site also promotes his investment books.

Another barred financial adviser who kept on working after he was caught embezzling money from a client has now been sentenced to 51 months behind bars. Jeffrey Knutsen, a Bellingham financial and tax adviser, was convicted of bilking 26 senior investors, stealing $255,000. Knutsen, who owns Bellweather Wealth Management, has not been allowed to work in the securities industry since 2005.

However, according to the U.S. Attorney’s office, he kept setting up accounts for clients, who gave him access to their money. Knutsen allegedly told them they would have to pay him a fee for managing their accounts. He is accused of writing over 200 checks without their knowledge and using the $250,000 for his own purposes.

Unfortunately, even when someone has been barred from the securities industry for wrongdoing there are those that manage to keep working and defrauding more clients. In such instances, it is the investors who suffer.

Last week a Financial Industry Regulatory Authority hearing panel expelled the firm John Thomas Financial while barring its CEO Anastasios “Tommy” Belesis from the securities industry. The panel said that the two of them committed violations related to the sale and common stock of America West Resources Inc. (AWSRQ), including trading before the customers’ order, giving false testimony, as well violations of principals of trade and recordkeeping. Belesis and JTF were ordered to pay more than $1 million plus interest to customers.

FINRA says that the two of them made a profit after they traded ahead of 14 JTF customers that were attempting to sell their positions in AWSR. Belesis and JTW profited while the customers did not. The panel noted that while JTF did not purposely hold the customer orders its attempts to make the trades failed.

Under FINRA rules, a firm must execute the orders at the same or at a greater price than what the firm got. JTF a, Belesis, and JTF’s Chief Compliance Officer Joseph Castellano are also accused of harassing and intimidating registered representatives.

If you are an investor, it is important that you do your due diligence to make sure that the person who is advising you does not have a history of wrongdoing. Financial fraud and other negligence may lead to serious investor losses.

If you think your financial losses are because you got bad advice or because you were bilked by an investment advise, a broker, or another industry representative, you should contact our investment adviser fraud lawyers today.

Sherwin Brown, former investment adviser turned coach, charged by SEC, Investment News, January 9, 2015

FINRA Hearing Panel Expels John Thomas Financial and Bars CEO Tommy Belesis for Trading Ahead of Customer Orders, Providing False Testimony and Other Violations; Ordered To Pay $1,047,288 to Customers, FINRA, January 9, 2015

Financial adviser sentenced for stealing from elderly, Seattle Times/AP, January 5, 2015


More Blog Posts:
SEC Judge Orders Two Investment Advisers to Pay Over $6.3M Related to Bernard Madoff-Linked Hedge Funds, Stockbroker Fraud Blog, January 9, 2015

Hanson McClain Sues Investment Adviser, Ameriprise Financial Services Over Client Information, Institutional Investor Securities Blog, January 12, 2015

Some Advisers Choose Alternative Investments Using Poorly Suited Benchmarks, Says Morningstar, Institutional Investor Securities Blog, July 8, 2009

January 9, 2015

SEC Judge Orders Two Investment Advisers to Pay Over $6.3M Related to Bernard Madoff-Linked Hedge Funds

A Securities and Exchange Commission administrative law judge says that investment advisers Larry Grossman and Gregory Adams must pay over $6.3M in restitution and fines for misleading clients who invested in hedge funds tied to Ponzi fraud mastermind Bernie Madoff. Administrative law judge Brenda Murray issued her ruling last month.

The two investment advisers are Sovereign International Asset Management founder Larry Grossman and Gregory Adams, who agreed to buy Sovereign from Grossman in 2008. The firm filed for bankruptcy four years later.

Per the SEC administrative complaint, Grossman did not know that the two hedge funds that he primarily recommended to clients were linked to Madoff. The Commission contends that Grossman violated his fiduciary duties to his clients when he neglected to conduct due diligence on the funds, which were run by a man named Nickolai Battoo. Grossman also purportedly did not notify clients that he was getting paid $3.4 million in consulting fees and referral money for recommending certain funds. After Grossman sold Sovereign to Adams, the former owner continued working in several capacities at the firm and never actually told clients that the sale even happened.

It was just last October that a federal judge in Illinois ordered Battoo to pay over $358 million for concealing investment losses that were part of Madoff’s Ponzi scam. The SEC accused the hedge fund manager of bilking investors around the world by claiming exceptional returns while hiding huge losses, including those involving leveraged investments in Madoff feeder funds.

Madoff, whose Ponzi scam went on for decades, collectively bilked thousands of wealthy and regular investors, as well as institutional clients, of billions of dollars, He is serving 150 years behind bars after pleading guilty to the criminal charges against him.

Court Imposes Injunctions and Monetary Sanctions of Over $350 Million Against Nikolai Battoo and His Companies
, SEC, October 6, 2014


More Blog Posts:
Madoff Ponzi Scam: Five Ex-Aides Convicted of Securities Fraud, Victims to Recover $349 Million, Stockbroker Fraud Blog, March 26, 2014

Madoff Ponzi Scam Victims Win Right to Appeal for Interest
, Stockbroker Fraud Blog, January 24, 2014

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

December 31, 2014

Securities Fraud News: SEC Charges NY Firm With Stealing Investor Funds, Stock Promoter Accused of Bilking Clients Over Twitter, Facebook Pre-IPO Shares, and NY Lawyer Under Fire for Alleged Ponzi Scam

SEC Charges NY Firm, Fund Managers With Securities Fraud
The Securities and Exchange Commission is charging VERO Capital Management, its CFO Steven Downey, President Robert Geiger, and General Counsel George Barbaresi with secretly taking investor money to support a side business. The three men ran funds with offering documents that touted their objective as making good returns via mortgage-backed securities investments. Instead, after winding down the funds, the officers allegedly diverted around $4.4 million to undocumented bridge loans to an affiliate company that was supposedly in risk management. Investors and the funds’ directors were purportedly not notified that these unauthorized loans were taking place.

The SEC Enforcement Division also claims that VERO Capital and the three men compelled the funds to buy three notes totaling $7 million from an affiliate, which is a principal transaction that requires written notice and consent of a client before the transaction can be finished. The division claims that no attempt was made to get this mandatory notice. The regulator is alleging multiple violations of the Investment Advisers Act of 1940 and other rules.

California-Based Stock Promoter Accused of Bilking Clients In Supposed Sales of Pre-IPO Twitter, Facebook Shares
The SEC is charging Efstratios “Elias” Argyropoulos and his firm Prima Capital Group with securities fraud. According to the regulator, the two parties fraudulently raised close to $3.5 million from investors for the supposed purchase of Facebook and Twitter shares before their initial public offerings.

However, the Commission claims that instead of buying the shares as promised, Prima Capital and Argyropoulos used the money mainly for day trading and to pay back certain investors who spoke out about not receiving the shares promised to them. As part of settling the civil charges, Argyropoulos consented to be barred from working for a brokerage firm or investment adviser and he will pay financial penalties. He and his firm settled without denying or admitting to them.

Also charged in a separate administrative proceeding for his involvement in the securities scam is Khaled A. Eldaher, who lives in Texas. While working with a registered firm, Eldaher allegedly reached a side deal with Argyropoulos to solicit investors and get 50% of the mark-up on shares of Facebook that he sold. He received over $15,400 for selling more than $360K worth of the shares. His brokerage firm fired him when it found out he was selling the securities for another party.

New York Lawyer Charged in Ponzi Scam Involving European Real Estate MBSs
Charles Bennett, an attorney based in Manhattan, faces SEC charges accusing him of running a Ponzi scam that bilked friends, relatives, and legal clients. The Commission says that he raised about $5 million by selling purported investments in a pool of funds that were invested in certain joint ventures. Investors were told that the cash would be used primarily to fund investments in real eastate mortgage-backed securities in Europe. The securities supposedly were expected to yield lucrative return rates of 6-25% in a short period of time.

The regulator, however, contends that Bennett was running a scheme. The fund does exist but he is not connected to it or the joint ventures and didn’t invest anything in any of them at all. Instead, he allegedly misappropriated clients’ money to pay off earlier investors and support his lavish lifestyle. His Ponzi scam failed earlier this year.

SEC Charges California-Based Stock Promoter With Defrauding Investors Seeking Pre-IPO Facebook and Twitter Shares, SEC, December 23, 2014

Read More About Bennet's Ponzi Scam (PDF)

The SEC Order Against Vero Capital Management and Its Executives (PDF)


More Blog Posts:
FINRA Orders Pershing to Pay $3M Fine for Customer Protection Rule Violations, Stockbroker Fraud Blog, December 30, 2014

NASAA Wants Life Partners Held Accountable for Texas Securities Act Violations, Stockbroker Fraud Blog, December 28, 2014

Standard & Poor’s on the Verge of Civil Settlement Over Real-Estate Bond Ratings, Reports WSJ, Institutional Investor Securities Blog, December 29, 2014

December 24, 2014

Exchange-Traded Fund Strategist F-Squared to Pay $35M to Settle Charges that It Misled Investors

F-Squared Investments Inc. has consented to pay $35M to settle Securities and Exchange Commission charges accusing the firm of making false claims regarding the performance of a key investment product. F-Squared admitted that it misled clients for several years about its AlphaSector strategy.

F-Squared is the largest marketer of index products that uses Exchange-Traded Funds. The SEC claims that F-Squared falsely advertised that the AlphaSector investment strategy had a successful track record that was based on actual investment performance for real clients when, in fact, the algorithm touted didn’t even exist during the noted time period.

The algorithm was the basis of signals sent from a third party data provider indicating when to sell or buy an investment. F-Squared and Howard Present, its co-founder and ex-CEO, used the signals to develop the AlphaSector, a model portfolio of sector ETFs that could be rebalanced from time to time when the signals changed. After its launch in 2008, AlphaSector’s indexes became the company’s largest revenue source.

However, the data from the supposed track record didn’t come from actual investment performances but from backtesting, which generates a hypothetical performance during a past period. However, the strategy was marketed as “not backtested.” Also, the information included a substantial performance calculation mistake that created a 350% inflation of the results. The SEC says that the ETF presented that AlphaSector was the strategy to manage assets beginning in April 2001.

The analyst who calculated the strategy’s performance made a mistake by applying sell and buy signals to the week prior to the price changes upon which the signals were based. This allowed for an ETF to be purchased right before the price increased and sold right before it dropped. Even after the analyst attempted to explain the mistake to Present in 2008, F-Squared kept advertising the false information for five years.

InvestmentNews reports that since the disclosure of the false advertising and the beginning of the SEC probe, Wells Fargo Advisors (WFC) and other brokerages have raised warning flags to their advisers about F-Squared.

The SEC filed separate civil charges against Present for making misleading and false statements to investors. He was accountable for the ETF strategist’s advertising materials. Present also was responsible for AlphaSector descriptions in SEC filings, as well as for verifying their accuracy. The agency says Present was aware of the inaccuracies of statements made in the marketing of AlphaSector.

Securities Fraud
Our stockbroker fraud lawyers represent investors in getting their money back. Over the years, we have helped thousands recoup their losses from fraud committed by registered representatives, financial firms, and others. In some cases, the fraud is intentional. In other instances, investors’ money was lost because of securities violations and other negligence.

Contact our exchange-traded fund lawyers today to request your free case consultation.


F-Squared pays $35 million to settle claims it misled investors
, InvestmentNews, December 22, 2014

The SEC Order Against F-Squared (PDF)

The SEC Order Against Present (PDF)


More Blog Posts:
SEC To Examine Exchange Traded-Fund Regulation Again, Stockbroker Fraud Blog, March 22, 2014

Credit Suisse Ordered to Pay $40M Verdict to Highland Capital, Institutional Investor Securities Blog, December 19, 2014

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm, Stockbroker fraud Blog, October 30, 2014

December 15, 2014

Reliance Financial Advisors, Owners Face SEC Fraud Charges Involving Hedge Fund

The SEC is charging Reliance Financial Advisors and its co-owners Walter F. Grenda Jr. and Timothy S. Dembski with securities fraud. The agency says that the Buffalo, NY-based investment advisory firm and the two men misled clients when recommending that they get involved in a hedge fund managed by portfolio manager Scott M. Stephan.

Grenda and Dembski guided senior investors toward making highly speculative investments in the Prestige Wealth Management Fund, which Stephan managed, even though they allegedly knew he was inexperienced in this type of investing. The clients, who were either close to retirement, retired, or living on fixed incomes, collectively invested around $12 million.

Stephan was supposedly going to employ a trading strategy that involved a specific computer “algorithm,” which actually only day traded. Instead, he started making trades manually, his approach eventually playing a part in the hedge fund’s failure. The SEC has said that Stephan’s investing experience was greatly exaggerated in offering materials. (The majority of his career involved collecting car loans that were overdue.)

In late 2012, when the fund did not make the positive returns that were anticipated, Grenda pulled out his clients. When the fund failed, losing around 80% of its value, Dembski’s clients lost most of what they invested.

The SEC’s Enforcement Division also alleges that in 2009, Grenda borrowed $175,000 from two clients, claiming it was a business loan when he used the funds for personal spending. The agency is accusing Grenda, Dembski, and Reliance Financial Advisors of violating provisions of the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, and the Securities Act of 1933.

In another order, Stephan consented to settle findings accusing him of violating the antifraud provisions of the three acts, as well as abetting, aiding and causing violations of these provisions by Prestige Wealth Management Fund’s general partner. He consented to a permanent bar from the securities industry. However, he is not denying or admitting to the allegations.

Contact our investment adviser fraud law firm today.


SEC Announces Fraud Charges Against Buffalo-Based Firm and Co-Owners Accused of Misleading Investors in Hedge Fund
, SEC, December 10, 2014

More Blog Posts:
SEC Headlines: Regulator Probes Oppenheimer Executive, Prepares Insider Trading Case Against Policy Research Firm, & Wants to Suspend Standard & Poor’s From Rating CMBSs, Stockbroker Fraud Blog, December 10, 2014

Ex-California Insurer Charged with Running $11M Ponzi Scam, Stockbroker Fraud Blog, December 8, 2014

Morgan Stanley Fined $4M by the SEC for Market Access Rule Violation, Institutional Investor Securities Blog, December 11, 2014

December 10, 2014

SEC Headlines: Regulator Probes Oppenheimer Executive, Prepares Insider Trading Case Against Policy Research Firm, & Wants to Suspend Standard & Poor’s From Rating CMBSs

SEC Investigating Ex-Oppenheimer Executive for Securities Law Violations
According to Bloomberg.com, Robert Okin, Oppenheimer & Co.’s (OPY) former retail brokerage head, is under investigation by the Securities and Exchange Commission. In October, the agency’s enforcement division notified Okin that, based on a preliminary determination, it intended to file charges against him for securities law violations, including failure to supervise.

Okin is no longer with Oppenheimer. He resigned earlier this month to pursue “other interests.” Okin denies violating the Securities Exchange Act.


Marwood Group LLC May Be Subject to Insider Trading Charges
Earlier this month, the SEC notified Marwood Group LLC that it is looking to bring an enforcement action against the Washington policy-research firm for insider trading.

The Commission is looking at whether Centers for Medicare and Medicaid Services officials gave the firm inside information about funding for Provenge, a prostate cancer drug. The product’s manufacturer, Dendreon Corp. (DNDNQ), saw its shares drop before the CMS decided to cut coverage on the medication in 2010, as opposed to after.

According to the regulator, a year before the CMS cut coverage, a CMS employee allegedly gave a Marwood employee insider information about the reduction. A week after the reduction was officially announced, the political intelligence put out a research report that included details about the change in coverage

A Marwood spokesperson maintains that the firm did nothing wrong, noting that no one benefited financially from the information. However, SEC officials have said that such a conversation is the equivalent of insider trading.

Under the 2012 Stop Trading on Congressional Knowledge Act, public officials are obligated to keep government-related non-public data hat could shift share prices confidential.


SEC Looks to Suspend S & P from Rating Commercial Mortgage-Backed Securities
The Commission wants to suspend Standard & Poor’s from rating CMBSs. The regulator has been probing whether the credit rating agency modified criteria in 2011 to win business.

In July, the regulator sent S & P a Wells notice notifying it that the agency was pursuing an action linked to six commercial mortgage-backed securities ratings from a few years ago. The purported violations involve the public disclosure and rankings that the credit rating agency made about the securities.

It was in 2011 that the S& P withdrew the grades it issued for a CMBS offering that came from Citigroup (C) and Goldman Sachs Group (GS). This caused both institutions to drop the deal after its placement with investors.

Standard & Poor had withdrawn the rankings to assess whether there were conflicts in the way it used its methodology. It also stopped rating new CMBSs. In August of that year, however, S & P said that it would resume grading deals, noting that the conflict was not a big deal. It modified its criteria the following year and went back into the market.

SEC investigating top Oppenheimer executive
, Investment News, December 10, 2014

Marwood Grp Gets Wells Notice in Insider Trading Crackdown on 'Political Intelligence'
, Fox Business, December 9, 2014

SEC Seeking S&P’s Suspension From Rating Commercial Mortgage Bonds, Bloomberg, December 8, 2014

2012 Stop Trading on Congressional Knowledge Act (PDF)


More Blog Posts:
Ex-California Insurer Charged with Running $11M Ponzi Scam, Stockbroker Fraud Blog, December 8, 2014

Morgan Stanley Fined $4M by the SEC for Market Access Rule Violation, Institutional Investor Securities Blog, December 11, 2014

SEC Claims Fraud Involving a REIT and Bogus Senior Resident Occupants, Institutional Investor Securities Blog, December

December 2, 2014

SEC Files Charges Against Former Broker-Dealer Owner Over Fraudulent Stock Sales

The Securities and Exchange Commission is charging Vinay Kumar Nevatia with making fraudulent stock sales. According to the regulator, Kumar sold about $900,000 of stock in CSS Corp. Technologies Limited. The stock in the privately held data technology company supposedly belonged to him even though these were shares that he had already bought for other people a few years back.

The SEC claims Kumar conducted the sales via secret wire transfers, got the stock transfer agent to record the bogus transactions, and stole investors’ money to use as his own. He also purportedly gave the earlier share owners bogus updates about their investments even after he sold their stock off to others so that they would think that the shares still belonged to them.

Kumar is not registered with the Commission and he does not have a license to trade securities. He also is accused of using numerous aliases while residing in Palo Alto, Ca. The SEC is charging him with violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. It wants Kumar to pay a financial penalty and give back ill-gotten gains. The regulator is also looking to get permanent injunctions.

Kumar used to own KBR Capital Markets, a now defunct brokerage firm that dealt in wholesale illiquid alternative investments. From ’07-’13, Kumar solicited securities and real estate investments via the different entities he controlled and owned.

Contact our stockbroker fraud lawyers today to request a free case consultation.

Read the SEC Complaint (PDF)


More Blog Posts:
SEC Commissioner Wants Elder Fraud at Top of 2015 Agenda, Stockbroker Fraud Blog, November 29, 2014

Citigroup, Bank of America Are Selling Soured Home Loans, Sources Tell Bloomberg, Stockbroker Fraud Blog, November 13, 2014

Fidelity, Schwab, and Pershing Suspend Trading of Schorsch Nontraded Real Estate Investment Trusts, Institutional Investor Securities Blog, November 13, 2014

November 22, 2014

SEC Enforcement: Wedbush Settles SEC Probe for $2.4M, High-Frequency Trading Firm Gets $16M Penalty, and the Regulator Suspends Companies Touting Ebola Treatment

Wedbush Settles Market Access Violation Case for $2.44M
Wedbush Securities has agreed to settle a market access violations case with the U.S. Securities and Exchange Commission by admitting to wrongdoing and paying $2.44 million. The brokerage firm has also agreed to hire an independent consultant.

According to the SEC order, Wedbush violated the market access rule because it didn’t have the proper risk controls in place before giving customers access to the market. Among the customers that were given this access were thousands of anonymous overseas traders.

Per the SEC’s order instituting administrative proceedings, from July 2011 into 2013, Wedbush let most of its market access customers send orders straight to U.S. trading venues via platforms to which the firm did not have exclusive and direct control.

Also settling with the SEC ex-Wedbush executive vice president Jeffrey Bell and senior VP Christina Fillhart, who are accused of causing the firm’s violation of market access rules. The SEC said that Bell should have known that the firm’s risk management controls and supervisory procedures were not in compliance with the market access rule.

The agency claims that Fillhart, whose job it was to oversee the market access business and get notice of possible violations by Wedbush and its customers, did not get the firm to implement reasonably designed risk management controls even when there were red flags. In combined total, the two of them will pay over $85,000 in disgorgement, penalties, and prejudgment interest.


SEC Imposes $16M Penalty Against High-Frequency Trading Firm Latour
In the SEC’s first enforcement action against a high-frequency trading company, Latour Trading LLC will pay a $16M penalty. The regulator claims that the high-frequency trading firm employed faulty calculations in complex trading strategies, which allowed it to purchase and sell stocks without retaining substantial capital. The SEC says that the New York firm violated rules that are supposed to prevent trading firms from taking on too much risk.

By settling, Latour is not denying or admitting wrongdoing. The $16 million penalty, however, is the largest one to date for violating the net capital rule. The rule offers different methods that brokerage firms must employ to ensure that they are properly factoring in the risk they are exposing themselves to when engaged in the market. The Commission says that Latour routinely violated these requirements in 2010 and 2011.

The SEC also charged Nicolas Niquet, the ex-Latour COO, with violating the net capital rule. Niquet, who designed the method that Latour employed to determine risks exposure to net capital, must pay a $150,000 fine.

Trading is Suspended in Companies Involved in Supposed Ebola Treatment or Prevention
The Commission has suspended trading in four companies claiming to develop services or products related to the treatment or prevention of the Ebola outbreak. The agency said there wasn’t enough information available to the public about their operations. The four companies are Bravo Enterprises, Wholehealth Products, Immunotech Laboratories, and Myriad Interactive Media Inc.

The SEC has put out an Investor Alert warning about financial scams involving Ebola-related companies. In the alert the agency noted that it is not uncommon for fraudsters to try taking advantage of a news development. The SEC noted that microcap stocks are especially at risk of fraudulent investment schemes.

Read the SEC Order Against Wedbush (PDF)

Investor Alert: Investment Scams Involving Ebola-Related Companies, SEC, November 20, 2014

High-Frequency Trading Firm Latour to Pay $16 Million SEC Penalty, The Wall Street Journal, September 17, 2015

SEC Suspends Trading in Ebola Companies (PDF)


More Blog Posts:
Puerto Rico’s Prepa Sees 219% Rise in Overdue Accounts With At Least $1.75 Billion Owed, Stockbroker Fraud Blog, November 18, 2014

Insider Trading Roundup: Ex-Broker Pleads Guilty to Securities Fraud Involving IBM Acquisition, BNP Officials Are Under Scrutiny, and Ex-Billionaire Is Tried In Historic Brazilian Case, Institutional Investor Securities Blog, November 19, 2014

Rajaratnam Brother Settles Insider Trading Charges Involving Hedge Fund Advisory Firm Galleon Management, Stockbroker Fraud Blog, October 23, 2014

November 17, 2014

SEC Wants $602M Fund Set Up for Victims of SAC Capital’s Insider Trading

The U.S. Securities and Exchange Commission is asking a district judge to authorize a fair fund to pay back people shareholders who didn't participate in an insider trading scam involving shares of Wyeth LLC and Elan Corp. PLC. The regulator is seeking to reimburse people who traded the stocks over a seven-day period in July 2008, which is the week when SAC Capital Advisors LP liquidated a $700 million position in both companies because of illicit tips obtained by former fund manager Mathew Martoma. The SEC is suggesting that the $602 million it collected from SAC Capital over the matter should be used to repay the shareholders.


SAC Capital, now known as Asset Management LP, had agreed to pay $1.8 billion to settle a criminal indictment for the insider trading allegations. Of that money, $616 million was a penalty to the SEC over related charges. However, not all SEC commissioners are on board with the regulator’s fair fund recommendation. Commissioners Michael Piwowar and Daniel Gallagher have expressed their dissent.

Meantime, Martoma has just lost a bid to stay out of jail while he appeals his conviction. Martoma was sentenced to nine years behind bars after he was found guilty of three counts of conspiracy and securities fraud.

He is accused of getting the confidential data from doctors involved in a clinic trial of an Alzheimer’s drug that both Wyeth and Elan were developing. Estimated ill-gotten gains in the insider trading scheme is about $275 million.

The illegal trades occurred between 2006 and 2008. SAC took most of the gains. Several other SAC capital employees also were convicted for insider trading.

At Shepherd Smith Edwards and Kantas, LTD LLP, our securities fraud lawyers are here to help investors. Over the years, we have helped thousands of clients, including institutional investors and individual investors, recoup their fraud losses.

SEC Has SAC Capital Idea: Give Insider Fines to Victims, Bloomberg, November 15, 2014

Casting Doubt on Appeal, Court Rejects Bail for Ex-SAC Capital Trader, The New York Times, November 12, 2014


More Blog Posts:
Citigroup, Bank of America Are Selling Soured Home Loans, Sources tell Bloomberg, Stockbroker Fraud Blog, November 13, 2014

Detroit Suburb Charged with Muni Bond Fraud
, Institutional Investor Securities Blog, November 6, 2014

Texas Pension Fund Sues Tesco For Securities Fraud, Stockbroker Fraud Blog, November 5, 2014

November 7, 2014

SEC Files Charges in Massachusetts Pump-And-Dump Scam, International Microcap Fraud, and Issues Investor Alert

The U.S. Securities and Exchange Commission has filed charges against California Attorney Richard Weed, Coleman Flaherty, and Thomas Brazil. The regulator contends that Weed facilitated a pump and dump scam involving CitySide Tickets Inc. stock that allowed Flaherty and Brazil to get millions of supposedly unrestricted shares.

Investors were barraged with a misleading and false promotional campaign presenting CitySide Tickets as a company in the verge of expansion and success. As the stock price went up, Flaherty and Brazil sold their shares to investors, causing the two of them to make about $3 million in illicit proceeds. Weed purportedly was well compensated for the role that he played.

The Commission charges the three men with violating federal securities laws’ antifraud provisions and related rules. The agency wants disgorgement of ill-gotten gains, interest, penalties, permanent injunctions against further violations, and penny stock bars. Meantime, the U.S. Attorney’s Office for the District of Massachusetts has filed a parallel criminal case against Flaherty, Brazil, and Weed.

Also this week, the SEC charged two people with running an international microcap fraud scheme involving shares in a coal mining company. Bruce D. Strebinger and Brent Howard Chapman are accused of setting up multi-million dollar campaign to promote the stock, getting rid of their shares, and moving the money they made via accounts that were offshore. The Commission says that it was after Strebinger helped to make a merger between Americas Energy Company-AECo and another company that he and Chapman obtained over 5% of the common stock. They did not, however, publicly disclose that they had an ownership stake.

Their pump-and-dump scam purportedly involved offshore corporations, foreign financial institutions, and foreign accounts. Strebinger and Chapman reportedly made over $17 million.

It was just last week that the SEC and the Financial Industry Regulatory Authority issued an alert warning investors that certain penny stocks that are being promoted as ventures with great potential are actually dormant shell companies. The agencies said that to avoid such scams, they recommend that investors:


· Look into whether a company was previously dormant and then revived. You can do this by checking the SEC’s EDGAR database to see when the last periodic report was filed.

· Watch out for the letter “Q” at the end of a stock symbol, which is an indicator that the company had previously filed for bankruptcy.

· Find out where the company’s stock trades. If it doesn’t trade on a registered national securities exchange then consider this a red flag.

· Look out for frequent changes to the name of a company or its business focus.

· Look out for huge reverse splits.

Read the SEC Complaint Against Weed, Brazil, and Flaherty (PDF)

Investor Alert: Dormant Shell Companies – How to Protect Your Portfolio from Fraud, Investor.gov

SEC Charges Two Canadian Citizens With Penny Stock Fraud Involving Tennessee Coal Mining Company, SEC, November 3, 2014


More Blog Posts:

Texas Pension Fund Sues Tesco For Securities Fraud, Stockbroker Fraud Blog, November 5, 2014

BlackRock Buys Part of UBS Puerto Rico’s Mutual Fund Operations, Say Sources, Stockbroker Fraud Blog, November 4, 2014

Detroit Suburb Charged with Muni Bond Fraud, Institutional Investor Securities Blog, November 6, 2014

October 25, 2014

SEC Fines E*TRADE Subsidiaries Over $1M Penalty for Unregistered Microcap Securities Sales, Puts Out Risk Alert Regarding Broker-Dealer Duties To Clients

Earlier this month, the U.S. Securities and Exchange Commission put out a Risk Alert reminding brokerage firms about their duties when they take part in unregistered transactions for customers. The guidance came, along with the announcement that the agency had filed an enforcement action against former and current E*TRADE Financial Corporation (ETFC) brokerage subsidiaries that did not successfully act as gatekeepers and improperly engaged in the unregistered sales of microcap stock for customers.

According to the SEC, E*TRADE Capital Markets and E*TRADE Securities sold billions of penny stock shares for customers between 2007 and 2011. During this time, there were numerous occasions when they disregarded red flags indicating that the offerings were taking place without an applicable exemption from federal securities laws’ registration provisions.

The two brokerage firms consented to repay over $1.5 million in disgorgement plus prejudgment interest from commissions they made on the improper sales. They also have to pay a $1 million combined penalty.

The SEC’s Risk Alert provides a summary of deficiencies found during a sweep by the SEC’s Office of Compliance Inspections and Examinations of 22 brokerage firms that frequently engage in microcap securities sales. Widespread deficiencies included inadequate policies and steps for monitoring and noticing possible red flags in sales initiated by customers, insufficient controls for assessing the way a securities was acquired by a customer, as well as whether the securities can be resold legally sans registration, and failure to submit reports of suspicious activity as mandated by the Bank Secrecy Act.

Contact our microcap fraud lawyers today to request your free case assessment.


Certain accounts, such as omnibus account, appeared to be among the ones most frequently associated with unregistered illiquid microcap shares sales. Accounts that belong to supposed stock loan companies, under the name of an LLC or a corporate entity, utilize a sub-/master structure, or belong to foreign financial institutions are some of the omnibus accounts noted.

BROKER-DEALER CONTROLS REGARDING CUSTOMER SALES OF MICROCAP SECURITIES, National Exam Program Risk Alert

The SEC Order Against the E*TRADE subsidiaries (PDF)


More Blog Posts:

Rajaratnam Brother Settles Insider Trading Charges Involving Hedge Fund Advisory Firm Galleon Management, Stockbroker Fraud Blog, October 23, 2014

SEC to Reject BlackRock Inc. Proposal for Nontransparent Exchange-Traded Fund
, Institutional Investor Securities Blog, October 23, 2014

SEC To Examine Exchange Traded-Fund Regulation Again, Stockbroker Fraud Blog, March 22, 2014

October 22, 2014

During Fiscal Year 2014, SEC Files Record Number of Enforcement Actions

According to the U.S. Securities and Exchange Commission, the agency filed a record number of enforcement actions in 2014. Concluding the fiscal year on September 30, the regulator announced that it filed 755 SEC enforcement actions and obtained orders of $4.16 billion in disgorgement and penalties. Last year, the agency filed 686 actions and brought in $3.4 billion in fines.

The SEC credited new investigative strategies and innovations with analytical tools and data as playing a part in contributing to what it considers a solid year for enforcement. There were also first-ever cases, including actions over market access rules, “pay-to-play” for investment advisers, whistleblower retaliation, and stopping a municipal bond offering.

During fiscal year 2014, the SEC said that it charged over 135 parties with reporting and disclosure-related actions, focused resources on fighting microcap fraud and market manipulation—including penny stock scams—fought international fraud schemes, pursued firms for not setting up adequate risk controls, obtained the biggest penalty yet against an alternative trading system, enhanced oversight of dark pools, and imposed penalties for net capital rule violations.

Other actions by the SEC this year include:

• Filing charges for Regulation SHO violations over securities lending practices
• Pursuing the NYSE and others for not complying with exchange rules
• Filing cases over hidden customer fees and failure to protect client’s material nonpublic data.
• Filing claims against investment advisory firms for not maintaining adequate controls on custody of customer accounts
• Pursuing asset managers for wrongdoing
• Issuing $35 million in awards to whistleblowers
• Bringing charges against a hedge fund advisory firm for retaliating against a whistleblower
• Holding auditors, accountants, and lawyers accountable for deficiencies or wrongdoings
• Charging 80 people with insider trading
• Holding local and state governments accountable for maintaining standards of disclosure in securities issuances
• Filing enforcement actions over misconduct related to collateralized debt obligations and mortgage-backed securities
• Filing actions under the Foreign Corrupt Practice Act
• Obtaining successful securities fraud verdicts, including a court decision ordering the Wyly brothers of Texas ordering them to pay $187 million and prejudgment interest

Among the SEC’s successful actions were cases against Merrill Lynch, Pierce, Fennel and Smith Inc., RBS Securities Inc. (RBS), three Morgan Stanley (MS) entities, Wells Fargo (WFC, Bank of America Corp. (BAC), and others.

SEC Chairperson Mary Jo White also credited the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative. Among the settlements reached because of it were with a California school district accused of misleading bond investors.

If you are investors that has sustained losses because of securities fraud or some other form of wrongdoing committed by a securities industry professional or entity, you may have reason to pursue a claim to recover your funds. Please contact Shepherd Smith Edwards and Kantas, LTD LLP today.

SEC’s FY 2014 Enforcement Actions Span Securities Industry and Include First-Ever Cases, SEC, October 16, 2014


More Blog Posts:
UBS Brokers Are Still Selling Puerto Rico Muni Bonds, Stockbroker Fraud Blog, October 20, 2014

Wells Fargo to Pay $5M Over Inadequate Controls, Altered Documents, October 21, 2014

Pension Fund Securities Lawsuits: JPMorgan to Face MBS Case, PERSM Files Class Action Case, & Institutional Clients Can Sue BP
, Institutional Investor Securities Blog, October 17, 2014

October 18, 2014

SEC Approves Regulations Involving REIT Prices and Arbitration Fraud Intervention

The U.S. Securities and Exchange Commission has approved a Financial Industry Regulatory Authority-proposed rule that would create greater transparency of Nontraded real estate investment trusts. Under the new rule, investors will have to be provided with more information about the costs involved in buying shares of nontraded REITs.

With the existing practice, brokerage firms can list nontraded REITS as having $10/share price. The new rule would obligate broker broker-dealers to include a per share estimated value for an REIT or unlisted direct participation program on customer statements and make other disclosures.

Firms would calculate an REIT or DPP per share estimated value by either using the appraised value methodology or the net investment methodology. The appraised value method involves using the liabilities and assets of the REIT or DPP to determine the valuation upon which the share value would be based. The valuations would have to be conducted at least once a year by a third-party valuation expert. The net investment method involves brokerage firms articulating in customer statements that a portion of return of capital is included in a distribution and that this return lowers the estimated per share value listed on the statement.

Firm members also will have to include certain disclosures stating that the REIT or DPP isn’t on a national securities exchange and that in general it is illiquid. They also need to note that if a client is able to sell the security, the price may be lower than the estimated value found on the statement.

Meantime, the SEC has also approved a rule that will allow securities arbitrators to immediately report a fraud that they discover while involved in a related case if they believe investors are being harmed. Currently, arbitrators have to wait until a case is over to notify Financial Industry Regulatory Authority staff members of a suspected fraud.

Attorneys for investors and broker-dealers have expressed worry about the way that arbitrators who report suspect behavior might be dealt with by FINRA. Some attorneys have expressed concern that arbitrators who stay on a case after reporting fraud concerns could become biased toward certain parties because of conclusions they might have already reached before hearing all the evidence. There is also anxiety over whether a ruling could be easier to challenge.

Please contact our REIT fraud lawyers if you suspect that you may have been the victim of securities fraud. Our securities arbitration lawyers represent investor in recouping their losses. Your case consultation with us is free.

Unfortunately, financial fraud continues to be a problem and investors are the ones that suffer. Investors who have legal representation are more likely to recoup their money. Contact us today.

U.S. SEC approves securities arbitration fraud intervention rule, Reuters, October 15, 2014

SEC approves rule change for greater transparency of nontraded REITs, InvestmentNews, October 14, 2014


More Blog Posts:
Boston Investment Firm Accused of $5 Million Real Estate Investment Fraud Targeting Senior Investors, Stockbroker Fraud Blog, June 19, 2014

California Regulators Probe Inland American Real Estate Trust REIT, Stockbroker Fraud Blog, May 15, 2014

Non-Traded REITs, Structured Products, and Private Placements Remain Under Regulator Scrutiny, Institutional Investor Securities Blog, July 7, 2014